<PAGE> 1
As filed with the Securities and Exchange Commission on October 29, 1996
Registration No. 333-
=========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------
The Boeing Company
(Exact name of registrant as specified in its charter)
Delaware 3721 91-0425694
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
7755 East Marginal Way South, Seattle, Washington 98108
(206) 655-2121
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
---------
HEATHER HOWARD
Corporate Counsel and Corporate Secretary
7755 East Marginal Way South
Seattle, Washington 98108
(206) 655-7531
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
---------
Copies to:
ALLEN FINKELSON PETER R. KOLYER ERIC S. ROBINSON
Cravath, Swaine & Moore Chadbourne & Parke LLP Wachtell, Lipton,
825 Eighth Avenue 30 Rockefeller Plaza Rosen & Katz
New York, NY 10019 New York, NY 10112 51 West 52nd Street
(212) 474-1000 (212) 408-5100 New York, NY 10019
(212) 403-1000
-----------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes
effective and all other conditions to the Merger of Boeing NA, Inc. with
and into Rockwell International Corporation pursuant to the Agreement and
Plan of Merger described in the enclosed Proxy Statement-Prospectus have
been satisfied or waived.
-------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. []
--------------
CALCULATION OF REGISTRATION FEE
==============================================================================
Proposed Proposed
maximum maximum
Title of each class of offering aggregate Amount of
securities Amount to be price offering registration
to be registered registered per share price fee
- ------------------------------------------------------------------------------
Common Stock, $5.00 par 11,583,349
value .................. shares (1) N.A. $859,832,000 $260,555
Preferred Stock Purchase 11,583,349
Rights ................. rights (1) (3) (3) (3)
==============================================================================
(1) Based on the maximum number of shares of Boeing Common Stock issuable
pursuant to the Merger Agreement.
(2) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act of 1933, as amended
(the "Securities Act"), and computed pursuant to Rule 457 under the
Securities Act on the basis of the maximum aggregate consideration
payable to stockholders of Rockwell International Corporation pursuant
to the Merger Agreement.
(3) The Preferred Stock Purchase Rights of Boeing initially are attached
to and trade with the shares of Boeing Common Stock being registered
hereby. Value attributable to such Preferred Stock Purchase Rights, if
any, is reflected in the market price of Boeing Common Stock.
---------------
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that
this registration statement shall thereafter become effective in accordance
with section 8(a) of the Securities Act of 1933 or until this registration
statement shall become effective on such date as the Commission, acting
pursuant to said section 8(a), may determine.
=============================================================================
<PAGE> 2
THE BOEING COMPANY
CROSS-REFERENCE TABLE
Cross Reference Sheet between Items of Form S-4 and Proxy
Statement Prospectus
pursuant to Item 501(b) of Regulation S-K.
Item Caption or Location in
Number Item in Form S-4 Proxy Statement Prospectus
------ ---------------- --------------------------
1. Forepart of the
Registration Statement Facing Page, Cross Reference Table and
and Outside Front Cover Outside Front Cover Page of Proxy
Page of Prospectus . . . Statement Prospectus
2. Inside Front and Outside
Back Cover Pages of Table of Contents, "Available
Prospectus . . . . . . . Information" and "Information
Incorporated by Reference"
3. Risk Factors, Ratio of
Earnings to Fixed Summary
Charges, and Other
Information . . . . . . .
4. Terms of the Transaction . Summary , The Special Meeting ,
Certain Considerations Relating to
the Transactions , Pre-Merger
Transactions , The Merger , Post-
Closing Arrangements , Effect on
Employment and Employee Benefits ,
Description of Boeing Capital
Stock , and Comparison of Rights of
Shareowners of the Company and
Boeing
5. Pro Forma Financial Summary and Description of Boeing
Information . . . . . . .
6. Material Contacts with the
Company Being Acquired . Certain Considerations Relating to
the Transactions
7. Additional Information
Required for Reoffering
by Persons and Parties Not Applicable
Deemed to be
Underwriters . . . . . .
8. Interests of Named Experts Legal Matters and Experts
and Counsel . . . . . . .
9. Disclosure of Commission
Position on
Indemnification for Not Applicable
Securities Act
Liabilities . . . . . . .
10. Information with Respect Information Incorporated by
to S-3 Registrants . . . Reference and Description of
Boeing
11. Incorporation of Certain
Information by Reference Information Incorporated by
Reference
12. Information with Respect
to S-2 or S-3 Not Applicable
Registrants . . . . . . .
13. Incorporation of Certain
Information by Reference Not Applicable
14. Information with Respect
to Registrants Other Than Not Applicable
S-3 or S-2 Registrants .
15. Information with Respect Information Incorporated by
to S-3 Companies . . . . Reference
16. Information with Respect
to S-2 or S-3 Companies . Not Applicable
17. Information with Respect
to Companies Other Than Not Applicable
S-3 or S-2 Companies . .
18. Information if Proxies,
Consents or Information Incorporated by
Authorizations are to be Reference , Summary , The Special
Solicited . . . . . . . . Meeting , Certain Considerations
Relating to the Transactions , Pre-
Merger Transactions , The Merger
and No Appraisal Rights
19. Information if Proxies,
Consents or
Authorizations are Not to Not Applicable
be Solicited, or in an
Exchange Offer . . . . .
<PAGE> 3
ROCKWELL LOGO
October 29, 1996
Dear Shareowner:
You are cordially invited to attend a Special Meeting of Shareowners of
Rockwell International Corporation (the "Company") to be held on December 4,
1996 at 10:00 a.m. local time at the Second Floor Auditorium, 1221 Avenue of the
Americas (at 49th Street), New York, New York. At this important meeting you
will be asked to vote on certain matters relating to the proposed tax-free
reorganization of the Company (the "Reorganization") as described in the
accompanying Proxy Statement-Prospectus.
On July 31, 1996, the Company, The Boeing Company ("Boeing") and a
subsidiary of Boeing entered into an Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which Boeing will indirectly acquire the Company's
Aerospace and Defense businesses. Among the transactions contemplated by the
Merger Agreement is the contribution of the Company's Automation, Avionics and
Communications, Semiconductor Systems and Automotive businesses to a new company
("New Rockwell"), the shares of which will be distributed to the Company's
shareowners immediately prior to the merger of the Company (then holding only
the Company's Aerospace and Defense businesses) with the Boeing subsidiary (the
"Merger"). Following the Merger, New Rockwell will be renamed "Rockwell
International Corporation" and the Company will be renamed "Boeing North
American, Inc."
The formation of New Rockwell is a major milestone in the transformation
that has shifted the Company's strategic focus to our historically higher growth
commercial and international businesses, with primary growth derived from our
electronics businesses. Our Automation, Avionics and Communications,
Semiconductor Systems and Automotive businesses are global leaders with leading
market positions and well-known brands. We believe that New Rockwell's ability
to focus even more intensely on those businesses with strengthened financial
capacity will set the stage for more rapid growth and greater profitability.
In the Merger, the Company's shareowners will receive shares of Boeing
Common Stock with an aggregate market value of approximately $860 million
(subject to possible adjustment as provided in the Merger Agreement). The
Reorganization will thus allow the Company's shareowners to continue to
participate in the Company's commercial and international businesses, with
estimated sales in excess of $10 billion for the fiscal year ended September 30,
1996, while also sharing an interest in Boeing. The Reorganization also will
benefit the Aerospace and Defense businesses, their customers and their
employees, as the complementary strengths of Boeing and the Company's Aerospace
and Defense businesses will enhance the Boeing Defense & Space Group's position
as a leading worldwide competitor in the space and defense industry. We believe
this combination will provide our Aerospace and Defense businesses with the
resources they will need to reach their full potential in a consolidating
industry and an increasingly competitive global market.
As a result of the Reorganization, each shareowner of the Company will
receive, in exchange for each share of Common Stock or Class A Common Stock of
the Company, (a) one share of Common Stock or Class A Common Stock, as the case
may be, of New Rockwell and (b) a fraction of a share of Boeing Common Stock
having a market value of approximately $3.93. Based on the closing market price
per share of Boeing Common Stock on October 28, 1996, we currently estimate the
fraction to be approximately .042 of a share of Boeing Common Stock. In
addition, in connection with the Merger, Boeing will assume, pay down or
guarantee $2.165 billion of debt to be retained by the Company.
The Reorganization is subject, among other things, to the approval of the
Company's shareowners, the consent or approval of various governmental entities,
the consent of the holders of the Company's publicly
<PAGE> 4
held notes and the consummation of certain pre-Merger transactions, including
the contribution and distribution described above.
YOUR BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED THE TERMS OF THE PROPOSED
REORGANIZATION AND BELIEVES THAT THE REORGANIZATION IS IN THE BEST INTERESTS OF
THE COMPANY AND ITS SHAREOWNERS. THE BOARD HAS UNANIMOUSLY APPROVED THE
REORGANIZATION AND RECOMMENDS THAT SHAREOWNERS VOTE FOR THE PROPOSALS DESCRIBED
IN THE ACCOMPANYING PROXY STATEMENT-PROSPECTUS.
Your vote is important. If you plan to attend the Special Meeting, please
complete and return the form enclosed with your proxy or direction card, and an
admittance card will be forwarded to you promptly. Whether or not you expect to
attend the Special Meeting, please complete, sign and date the enclosed proxy or
direction card and return it as promptly as possible. Approval of each proposal
described in the accompanying Proxy Statement-Prospectus requires the
affirmative vote of the holders of a majority of the votes entitled to be cast
by the holders of the Company's Common Stock and Class A Common Stock, voting
together as a single class. If the proposals are approved and the Reorganization
is consummated, instructions will be sent to you regarding the exchange and
issuance of new share certificates. PLEASE DO NOT SEND IN ANY SHARE CERTIFICATES
UNTIL YOU RECEIVE FURTHER INSTRUCTIONS REGARDING THAT EXCHANGE.
Your interest and participation are appreciated.
Sincerely yours,
/S/ Donald R. Beall
- -----------------------------
Donald R. Beall
Chairman of the Board
and Chief Executive Officer
2
<PAGE> 5
ROCKWELL INTERNATIONAL CORPORATION
2201 SEAL BEACH BOULEVARD
SEAL BEACH, CALIFORNIA 90740-8250
------------------------
NOTICE OF SPECIAL MEETING OF SHAREOWNERS
TO BE HELD ON DECEMBER 4, 1996
------------------------
TO THE SHAREOWNERS OF ROCKWELL INTERNATIONAL CORPORATION:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareowners (the "Special
Meeting") of Rockwell International Corporation (the "Company") will be held on
December 4, 1996 at 10:00 a.m. local time at the Second Floor Auditorium, 1221
Avenue of the Americas (at 49th Street), New York, New York, for the following
purposes:
1. To consider and vote upon the following proposals (as described in
the accompanying Proxy Statement-Prospectus):
(a) the contribution (the "Contribution") of substantially all of
the Company's businesses and assets, except those related to the
Company's aerospace and defense businesses (with certain additions and
exclusions), as more fully described in the accompanying Proxy
Statement-Prospectus, to New Rockwell International Corporation, a
newly-formed, wholly-owned subsidiary of the Company which, following
the consummation of the Merger (as defined below), will be renamed
"Rockwell International Corporation" ("New Rockwell"), or to one of the
wholly-owned subsidiaries of the Company that will become wholly-owned
operating subsidiaries of New Rockwell (the "Operating Subsidiaries"),
and the pro rata distribution (the "Distribution") of all the issued and
outstanding shares of Common Stock, par value $1 per share, of New
Rockwell ("New Rockwell Common Stock") and Class A Common Stock, par
value $1 per share, of New Rockwell ("New Rockwell Class A Common
Stock"), including the preferred share purchase rights associated with
such shares, to the holders of Common Stock, par value $1 per share, of
the Company ("Company Common Stock") and Class A Common Stock, par value
$1 per share, of the Company ("Company Class A Common Stock"),
respectively, on a share-for-share basis in accordance with the terms of
the Agreement and Plan of Distribution to be entered into among the
Company, New Rockwell and the Operating Subsidiaries, substantially in
the form of Annex A to the Merger Agreement (as defined below); and
(b) the approval and adoption of the Agreement and Plan of Merger
dated as of July 31, 1996 (the "Merger Agreement") among the Company,
The Boeing Company ("Boeing") and Boeing NA, Inc., a wholly-owned
subsidiary of Boeing ("Merger Sub"), pursuant to which Merger Sub will
merge with and into the Company (the "Merger"), and each share of
Company Common Stock outstanding immediately prior to the Merger (after
giving effect to the conversion of all issued and outstanding shares of
Company Class A Common Stock into shares of Company Common Stock on a
share-for-share basis as more fully described in the accompanying Proxy
Statement-Prospectus) will be converted into a fraction of a share of
Common Stock, par value $5.00 per share, of Boeing, including the
preferred stock purchase right associated with such share, determined
pursuant to a formula set forth in the Merger Agreement.
2. To transact such other business as may properly come before the
Special Meeting or any adjournments thereof.
Each proposal will be voted upon separately by the shareowners of the
Company; however, the Company will not proceed with any of the transactions
described in the accompanying Proxy Statement-Prospectus unless both proposals
are approved by the shareowners.
Approval of each proposal requires the affirmative vote of the holders of a
majority of the votes entitled to be cast by the holders of the outstanding
shares of Company Common Stock and Company Class A Common
<PAGE> 6
Stock, voting together as a single class. Only shareowners of record at the
close of business on October 14, 1996, the record date for the Special Meeting,
are entitled to notice of and to vote at the Special Meeting and any
adjournments thereof. A list of such shareowners will be available for
examination by any shareowner for any purpose germane to the Special Meeting at
the offices of the Company's counsel, Chadbourne & Parke LLP, located at 30
Rockefeller Plaza, New York, New York 10112, at least ten days prior to the
Special Meeting.
Holders of Company Common Stock and Company Class A Common Stock (which
will be converted into Company Common Stock immediately prior to the Merger)
will not have the right to seek appraisal of their shares in connection with the
Contribution, the Distribution or the Merger. See "No Appraisal Rights" in the
accompanying Proxy Statement-Prospectus.
By Order of the Board of Directors,
/s/ WILLIAM J. CALISE, JR.
William J. Calise, Jr.
Secretary
October 29, 1996
IMPORTANT
ALL SHAREOWNERS ARE INVITED TO ATTEND THE SPECIAL MEETING IN PERSON. IF YOU
PLAN TO ATTEND THE MEETING, PLEASE COMPLETE AND RETURN THE FORM ENCLOSED WITH
YOUR PROXY OR DIRECTION CARD, AND AN ADMITTANCE CARD WILL BE FORWARDED TO YOU
PROMPTLY.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, YOU ARE
URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY OR DIRECTION CARD AND RETURN
IT IN THE ENCLOSED ENVELOPE. THE ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL
MEETING. ANY SHAREOWNER WHO SIGNS AND SENDS IN A PROXY CARD MAY REVOKE IT AT ANY
TIME BEFORE IT IS VOTED, AS DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT-PROSPECTUS.
DO NOT SEND IN ANY SHARE CERTIFICATES AT THIS TIME.
ii
<PAGE> 7
ROCKWELL INTERNATIONAL CORPORATION
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREOWNERS
TO BE HELD DECEMBER 4, 1996
---------------------
NEW ROCKWELL INTERNATIONAL CORPORATION
PROSPECTUS
COMMON STOCK, PAR VALUE $1 PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS)
CLASS A COMMON STOCK, PAR VALUE $1 PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS)
---------------------
THE BOEING COMPANY
PROSPECTUS
COMMON STOCK, PAR VALUE $5.00 PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
---------------------
This Proxy Statement-Prospectus ("Proxy Statement-Prospectus") is being
furnished in connection with the solicitation of proxies by the Board of
Directors of Rockwell International Corporation, a Delaware corporation (the
"Company"), from holders of record as of the close of business on October 14,
1996 (the "Record Date") of the outstanding shares of Common Stock, par value $1
per share, of the Company ("Company Common Stock") and Class A Common Stock, par
value $1 per share, of the Company ("Company Class A Common Stock" and, together
with Company Common Stock, "Company Shares") for use at a special meeting of the
Company's shareowners to be held on December 4, 1996 at the time and place and
for the purposes specified in the accompanying notice and at any adjournments
thereof (the "Special Meeting").
At the Special Meeting, shareowners will be asked to consider and vote upon
the following proposals (the "Proposals"):
(a) the contribution (the "Contribution") of substantially all of the
Company's businesses and assets, except those related to the Company's
aerospace and defense businesses (with certain additions and exclusions),
as more fully described herein (the "A&D Business"), to New Rockwell
International Corporation, a Delaware corporation and a newly-formed,
wholly-owned subsidiary of the Company which, following the consummation of
the Merger (as defined below), will be renamed "Rockwell International
Corporation" ("New Rockwell"), or to one of the following wholly-owned
subsidiaries of the Company that will become wholly-owned operating
subsidiaries of New Rockwell (the "Operating Subsidiaries"): Allen-Bradley
Company, Inc. ("A-B"), Rockwell Collins, Inc. ("Collins"), Rockwell
Semiconductor Systems, Inc. ("RSS"), Rockwell Light Vehicle Systems, Inc.
("LVS") and Rockwell Heavy Vehicle Systems, Inc. ("HVS"), and the pro rata
distribution (the "Distribution") of all the issued and outstanding shares
of Common Stock, par value $1 per share, of New Rockwell ("New Rockwell
Common Stock") and Class A Common Stock, par value $1 per share, of New
Rockwell ("New Rockwell Class A Common Stock" and, together with New
Rockwell Common Stock, "New Rockwell Shares"), including the preferred
share purchase rights ("New Rockwell Rights") associated with such New
Rockwell Shares, to the holders of Company Common Stock and Company Class A
Common Stock, respectively, on a share-for-share basis in accordance with
the terms of the Agreement and Plan of Distribution to be entered into
among the Company, New Rockwell and the Operating Subsidiaries (the
"Distribution Agreement"), substantially in the form of Annex A to the
Merger Agreement (as defined below) attached as Appendix III to this Proxy
Statement-Prospectus (the "Contribution Proposal"); and
(Continued on next page)
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
THE DATE OF THIS PROXY STATEMENT-PROSPECTUS IS OCTOBER 29, 1996
<PAGE> 8
(Continued from previous page)
(b) the approval and adoption of the Agreement and Plan of Merger
dated as of July 31, 1996 (the "Merger Agreement") among the Company, The
Boeing Company, a Delaware corporation ("Boeing"), and Boeing NA, Inc., a
Delaware corporation and a wholly-owned subsidiary of Boeing ("Merger
Sub"), pursuant to which Merger Sub will merge with and into the Company
(the "Merger") and each share of Company Common Stock outstanding
immediately prior to the Merger (after giving effect to the conversion of
all issued and outstanding shares of Company Class A Common Stock into
shares of Company Common Stock on a share-for-share basis (the
"Conversion")) will be converted into a fraction of a share of Common
Stock, par value $5.00 per share, of Boeing ("Boeing Common Stock"),
including the preferred stock purchase right ("Boeing Right") associated
with such share, determined pursuant to a formula set forth in the Merger
Agreement (the "Merger Proposal").
The aggregate number of shares of Boeing Common Stock to be received by the
Company's shareowners in the Merger will be equal to $859,832,000 divided by the
average daily closing price of Boeing Common Stock during a 20-trading-day
period immediately preceding the second full trading day prior to the date of
the Special Meeting, determined as described below under "The Merger -- Terms of
the Merger Agreement -- The Merger", subject to a maximum price of $100.42 (the
"Maximum Price") and a minimum price of $74.23 (the "Minimum Price") as set
forth in the Merger Agreement. In the Merger, each share of Company Common Stock
will be converted into the fraction of a share of Boeing Common Stock obtained
by dividing the aggregate number of shares of Boeing Common Stock to be issued
in the Merger (determined as described in the preceding sentence) by the number
of shares of Company Common Stock issued and outstanding at the effective time
of the Merger. Based on the number of Company Shares issued and outstanding on
October 14, 1996, the Company estimates that the fraction would be approximately
.039 of a share of Boeing Common Stock per Company Share if the price per share
of Boeing Common Stock is at or above the Maximum Price and approximately .053
of a share of Boeing Common Stock per Company Share if the price per share of
Boeing Common Stock is at or below the Minimum Price. For a tabular description
of the range of shares of Boeing Common Stock that may be issuable to holders of
Company Shares in the Merger, see "The Merger -- Terms of the Merger
Agreement -- The Merger".
Shareowners of the Company may call toll free 1-800-204-7800 at any time on
or after November 29, 1996 to obtain the Market Price (as defined below) of
Boeing Common Stock as of the date of the Special Meeting and the fraction of a
share of Boeing Common Stock to be issued per Company Share in the Merger
calculated based on such Market Price (the "Exchange Ratio"). The foregoing
information may also be obtained at the Company's World Wide Web site at
http://www.rockwell.com and a press release announcing the Market Price of
Boeing Common Stock and the Exchange Ratio also will be issued by the Company on
or about November 29, 1996.
Each Proposal will be voted upon separately by the shareowners of the
Company; however, the Company will not proceed with any of the transactions
described in this Proxy Statement-Prospectus unless both the Contribution
Proposal and the Merger Proposal are approved by the Company's shareowners.
If the Proposals are approved and the other conditions to the consummation
of the Contribution, the Distribution and the Merger are satisfied or waived,
the following additional actions will be taken in connection therewith:
(i) the Conversion, effective immediately after the Distribution and
immediately prior to the Merger;
(ii) the election by the Company, as the sole shareowner of New
Rockwell prior to the Distribution, of the directors of New Rockwell, who
are expected to be the same as the current directors of the Company (see
"Description of the New Rockwell Business and New Rockwell -- Directors of
the Company and New Rockwell");
(iii) the assumption and adoption by New Rockwell of the Rockwell
International Corporation 1995 Long-Term Incentives Plan (the "1995 LTIP"),
the Rockwell International Corporation 1988 Long-Term Incentives Plan (the
"1988 LTIP"), the Rockwell International Corporation 1979 Stock Plan for
Key Employees (the "1979 Plan"), the Rockwell International Corporation
Directors Stock Plan (the "Directors Plan" and, together with the 1995
LTIP, the 1988 LTIP and the 1979 Plan, the "Company Stock Incentive Plans")
and certain other employee benefit plans, including the Rockwell
International Corporation Incentive Compensation Plan (the "ICP") and the
Rockwell International Corporation Annual Incentive Compensation Plan for
Senior Executive Officers (the "Senior Executive Plan") (see "Description
of the New Rockwell Business and New Rockwell -- Stock Incentive Plans of
the Company and New Rockwell", "-- Incentive Compensation Plan" and
"-- Annual Incentive Compensation Plan for Senior Executive Officers");
(iv) the conversion, with certain adjustments, of all outstanding
options to acquire Company Common Stock and Company Class A Common Stock
issued under the Company Stock Incentive Plans assumed and adopted by
2
<PAGE> 9
(Continued from previous page)
New Rockwell into options to acquire shares of New Rockwell Common Stock
and New Rockwell Class A Common Stock pursuant to the antidilution
provisions under the Company Stock Incentive Plans in order to provide
equivalent value to each optionholder (see "Description of the New Rockwell
Business and New Rockwell -- Stock Incentive Plans of the Company and New
Rockwell -- New Rockwell Stock Incentive Plans; Treatment of Outstanding
Stock Options"); and
(v) as part of the Contribution, the assumption by New Rockwell and
the Operating Subsidiaries of the Assumed Liabilities (as defined below),
which generally include all the debts, liabilities and other obligations of
the Company other than (A) liabilities relating primarily to or arising
primarily from the A&D Business (with certain exceptions described below),
(B) liabilities relating to certain pension obligations and (C) liabilities
relating to certain indebtedness of the Company in an aggregate principal
amount of $2.165 billion (the "Retained Company Debt").
The Company has arranged for its shareowners to submit completed proxies or
revocations of proxies by facsimile transmission. Any shareowner who wishes to
submit or revoke his or her proxy by facsimile should send a completed copy of
the proxy or revocation by facsimile to the Company, c/o ChaseMellon Shareholder
Services, L.L.C., at (201) 296-4389.
The obligations of the Company, Boeing and Merger Sub to consummate the
Contribution, the Distribution and the Merger are subject to the satisfaction or
waiver of certain conditions. For a description of such conditions, see "Pre-
Merger Transactions -- Contribution and Distribution -- Terms of the
Distribution Agreement -- Conditions to the Distribution" and "The
Merger -- Terms of the Merger Agreement -- Conditions".
This Proxy Statement-Prospectus also constitutes a prospectus of New
Rockwell with respect to New Rockwell Common Stock and New Rockwell Class A
Common Stock, including the associated New Rockwell Rights, to be distributed to
the shareowners of the Company in the Distribution. The shares of New Rockwell
Common Stock have been authorized for listing on The New York Stock Exchange
(the "NYSE") upon official notice of issuance. Application also has been or will
be made to list the shares of New Rockwell Common Stock on the Pacific Stock
Exchange and The London Stock Exchange.
This Proxy Statement-Prospectus also constitutes a prospectus of Boeing
with respect to Boeing Common Stock, including the associated Boeing Rights, to
be issued to shareowners of the Company in the Merger. Application has been or
will be made to list the shares of Boeing Common Stock to be issued in the
Merger on the NYSE.
All information in this Proxy Statement-Prospectus relating to the Company
and New Rockwell has been supplied by the Company, and all information relating
to Boeing and Merger Sub has been supplied by Boeing.
This Proxy Statement-Prospectus, the attached Notice of Special Meeting of
Shareowners and the enclosed form of proxy are first being mailed to the
Company's shareowners on or about October 30, 1996.
3
<PAGE> 10
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY
STATEMENT-PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY SECURITIES, NOR DOES IT CONSTITUTE THE SOLICITATION OF A PROXY,
IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROXY STATEMENT-PROSPECTUS NOR ANY DISTRIBUTION OF SHARES OF NEW ROCKWELL COMMON
STOCK AND NEW ROCKWELL CLASS A COMMON STOCK, INCLUDING THE ASSOCIATED NEW
ROCKWELL RIGHTS, OR SHARES OF BOEING COMMON STOCK, INCLUDING THE ASSOCIATED
BOEING RIGHTS, MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY, NEW
ROCKWELL OR BOEING SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
Until November 24, 1996, all dealers effecting transactions in New Rockwell
Common Stock and New Rockwell Class A Common Stock (including the associated New
Rockwell Rights), whether or not participating in this distribution, may be
required to deliver a copy of this Proxy Statement-Prospectus.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Securities and
Exchange Commission (the "Commission") (File No. 1-1035) are incorporated by
reference into this Proxy Statement-Prospectus:
1. the Company's annual report on Form 10-K for the fiscal year ended
September 30, 1995;
2. the Company's quarterly report on Form 10-Q for the fiscal quarter
ended December 31, 1995;
3. the Company's quarterly report on Form 10-Q for the fiscal quarter
ended March 31, 1996;
4. the Company's quarterly report on Form 10-Q for the fiscal quarter
ended June 30, 1996; and
5. the Company's Proxy Statement in connection with the Company's 1996
Annual Meeting of Shareowners held on February 7, 1996.
The following documents filed by Boeing with the Commission (File No.
1-442) are incorporated by reference into this Proxy Statement-Prospectus:
1. the Boeing annual report on Form 10-K for the fiscal year ended
December 31, 1995;
2. the Boeing quarterly report on Form 10-Q for the fiscal quarter
ended March 31, 1996;
3. the Boeing quarterly report on Form 10-Q for the fiscal quarter
ended June 30, 1996;
4. the description of Boeing Common Stock contained in the Boeing
Registration Statement on Form 10 (Registration No. 1-422), filed with the
Commission on April 20, 1935, under Section 12(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), including any
amendments or reports filed for the purpose of updating such description;
and
5. the description of the Boeing Rights contained in the Boeing
Registration Statement on Form 8-A dated July 30, 1987.
All documents filed by the Company and Boeing pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement-Prospectus and prior to the date of the Special Meeting shall be
deemed to be incorporated herein by reference and shall be a part hereof from
the date of the filing of such document. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement-Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes that statement. Any such statement so modified or
superseded shall not constitute a part of this Proxy Statement-Prospectus,
except as so modified or superseded.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WITH
RESPECT TO THE COMPANY AND BOEING THAT ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. SUCH DOCUMENTS WITH RESPECT TO THE COMPANY ARE AVAILABLE WITHOUT
CHARGE TO EACH PERSON TO WHOM THIS PROXY STATEMENT-PROSPECTUS IS DELIVERED, UPON
THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, FROM MR. T.J. JOYCE, VICE PRESIDENT,
INVESTOR RELATIONS, ROCKWELL INTERNATIONAL CORPORATION, 625 LIBERTY AVENUE,
PITTSBURGH, PENNSYLVANIA 15222-3123, TELEPHONE (412) 565-7436. SUCH DOCUMENTS
WITH RESPECT TO BOEING ARE AVAILABLE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROXY STATEMENT-PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF
SUCH PERSON, FROM THE DATA SHIPPING DEPARTMENT, THE BOEING COMPANY, P.O. BOX
3707, MAIL STOP 3T-33, SEATTLE, WASHINGTON
4
<PAGE> 11
98124-2207, TELEPHONE (206) 393-4964. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY NOVEMBER 26, 1996.
AVAILABLE INFORMATION
New Rockwell has filed with the Commission a registration statement (the
"Distribution S-4") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the New Rockwell Common Stock and the New
Rockwell Class A Common Stock, including the associated New Rockwell Rights, to
be distributed in the Distribution. New Rockwell has filed with the Commission a
registration statement on Form 8-A (the "Form 8-A") under the Exchange Act with
respect to the New Rockwell Common Stock and the New Rockwell Class A Common
Stock, including the associated New Rockwell Rights. Boeing has filed with the
Commission a registration statement (the "Merger S-4") under the Securities Act
with respect to the Boeing Common Stock, including the associated Boeing Rights,
to be issued in the Merger. This Proxy Statement-Prospectus does not contain all
the information set forth in the Distribution S-4 or the Merger S-4, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. The Distribution S-4 and the Merger S-4 and any amendments thereto,
including exhibits filed as a part thereof, are available for inspection and
copying as set forth below.
Each of the Company and Boeing is subject to the informational requirements
of the Exchange Act, and in accordance therewith files reports, proxy statements
and other information relating to its business, financial condition and other
matters with the Commission. Such reports, proxy statements, the Distribution
S-4, the Form 8-A, the Merger S-4 and any amendments thereto, and exhibits and
other information filed by the Company, New Rockwell and Boeing can be inspected
and copied at the public reference facilities of the Commission at the
Commission's office at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following Regional Offices of the Commission: 7 World Trade Center, Suite
1300, New York, New York 10048; and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants (including the Company
and Boeing) that file electronically with the Commission (http://www.sec.gov).
Certain securities of the Company and Boeing are listed on the NYSE.
Reports, proxy statements and other information concerning the Company and
Boeing can be inspected at the offices of the NYSE, 20 Broad Street, New York,
New York 10005.
CAUTIONARY STATEMENTS
This Proxy Statement-Prospectus contains statements relating to future
results of the Company and New Rockwell (including certain projections and
business trends) that are "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. Actual results may differ materially
from those projected as a result of certain risks and uncertainties, including
but not limited to changes in political and economic conditions; domestic and
foreign government spending, budgetary and trade policies; demand for and market
acceptance of new and existing products; successful development of advanced
technologies; and competitive product and pricing pressures, as well as other
risks and uncertainties, including but not limited to those detailed from time
to time in the filings of the Company or New Rockwell with the Commission. The
"safe harbor" for forward-looking statements provided by the Private Securities
Litigation Reform Act of 1995 will not be available to New Rockwell with respect
to the offering of New Rockwell Shares made hereby.
When used in this Proxy Statement-Prospectus with respect to Boeing, the
words "estimate", "project", "intend", "expect" and similar expressions are
intended to identify forward-looking statements. Such statements are subject to
risks and uncertainties that could cause actual results to differ materially
from those contemplated in such forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. Such risks and uncertainties include those
risks, uncertainties and risk factors identified under the heading
"Forward-Looking Information Is Subject to Risk and Uncertainty" accompanying
"Management's Discussion and Analysis of Results of Operations, Financial
Condition and Business Environment" which is in the Boeing 1995 Annual Report to
shareholders and which is incorporated by reference in the Boeing Annual Report
on Form 10-K for the fiscal year ended December 31, 1995. Boeing does not
undertake any obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
5
<PAGE> 12
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
INFORMATION INCORPORATED BY REFERENCE...... 4
AVAILABLE INFORMATION...................... 5
CAUTIONARY STATEMENTS...................... 5
SUMMARY.................................... 8
The Transactions......................... 8
The Company.............................. 8
New Rockwell............................. 8
Boeing................................... 11
The Special Meeting...................... 11
Recommendations of the Company's Board of
Directors.............................. 11
Opinions of Financial Advisors........... 12
Contribution............................. 12
Distribution............................. 12
Conversion of Company Class A Common
Stock.................................. 13
The Merger............................... 13
Conditions to the Merger................. 13
Regulatory Approvals..................... 14
Consent Solicitation..................... 14
Termination.............................. 15
Paying Agent and Exchange Agent.......... 15
Delivery of Shares....................... 15
Certain Federal Income Tax
Considerations......................... 15
Accounting Treatment..................... 15
Company Stock Price and Dividend Data.... 16
Boeing Stock Price and Dividend Data..... 17
Dividend Policy.......................... 17
No Appraisal Rights...................... 17
Corporate Governance..................... 18
Company Summary Historical Financial
Data................................... 18
New Rockwell Summary Pro Forma Financial
Data................................... 19
A&D Business Summary Historical Financial
Data................................... 19
Boeing Summary Historical Financial
Data................................... 20
Boeing Summary Pro Forma Financial
Data................................... 21
Company and Boeing Historical and Pro
Forma Equivalent Common Share Data..... 21
THE SPECIAL MEETING........................ 23
General.................................. 23
Record Date; Voting Securities........... 23
Required Vote............................ 24
Proxies; Quorum.......................... 24
Expenses of Solicitation................. 25
Ownership of Company Common Stock and
Company Class A Common Stock........... 25
CERTAIN CONSIDERATIONS RELATING TO THE
TRANSACTIONS............................. 26
Background of the Transactions........... 26
Company Reasons for the Transactions;
Recommendations of the Company's Board
of Directors........................... 27
Opinions of Financial Advisors to the
Company................................ 28
Morgan Stanley & Co. Incorporated...... 28
Dillon, Read & Co. Inc. ............... 33
<CAPTION>
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<S> <C>
The Boeing Company's Reasons for the
Merger................................. 36
Certain Considerations Related to the New
Rockwell Shares........................ 36
PRE-MERGER TRANSACTIONS.................... 38
Contribution and Distribution............ 38
Consent Solicitation..................... 42
THE MERGER................................. 43
Terms of the Merger Agreement............ 43
Certain Regulatory Matters............... 53
Accounting Treatment..................... 53
Resale of Boeing Common Stock............ 53
Surrender of Share Certificates.......... 54
POST-CLOSING ARRANGEMENTS.................. 56
Terms of the Post-Closing Covenants
Agreement.............................. 56
Terms of the Tax Allocation Agreement.... 59
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS........................... 60
Federal Income Tax Consequences of the
Transactions........................... 60
Backup Withholding....................... 62
EFFECT ON EMPLOYMENT AND EMPLOYEE
BENEFITS................................. 63
Employment............................... 63
Employee Benefits........................ 63
Closure, Retention and Severance
Arrangements........................... 67
Treatment of Outstanding Stock Options... 67
Treatment of Outstanding Restricted
Stock.................................. 67
DESCRIPTION OF THE NEW ROCKWELL BUSINESS
AND NEW ROCKWELL......................... 68
New Rockwell Business.................... 68
Competitive Posture...................... 70
Government Contracts..................... 70
Acquisitions and Dispositions............ 70
Geographic Information................... 71
Research and Development................. 71
Employees................................ 71
Raw Materials and Supplies............... 71
Environmental Protection Requirements.... 71
Patents, Licenses and Trademarks......... 71
Seasonality.............................. 72
Properties............................... 72
Legal Proceedings........................ 73
Capitalization of the Company and Pro
Forma Capitalization of New Rockwell... 75
Selected Consolidated Financial Data of
the Company............................ 76
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of the Company.............. 77
Unaudited Pro Forma Condensed
Consolidated Balance Sheet of New
Rockwell............................... 81
Unaudited Pro Forma Condensed
Consolidated Statements of Income of
New Rockwell........................... 82
Dividend Policy.......................... 83
Executive Officers of the Company and New
Rockwell............................... 83
</TABLE>
6
<PAGE> 13
TABLE OF CONTENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Directors of the Company and
New Rockwell........................... 85
Certain Transactions and Relationships... 87
Committees of the Board of Directors of
New Rockwell........................... 88
Compensation of Directors................ 89
Compensation of New Rockwell
Executives............................. 89
Stock Incentive Plans of the Company and
New Rockwell........................... 89
1995 Long-Term Incentives Plan......... 90
1988 Long-Term Incentives Plan......... 93
1979 Stock Plan for Key Employees...... 95
Directors Stock Plan................... 96
New Rockwell Stock Incentive Plans;
Treatment of Outstanding Stock
Options.............................. 98
Treatment of Outstanding Restricted
Stock.................................. 99
Incentive Compensation Plan.............. 99
Annual Incentive Compensation Plan for
Senior Executive Officers.............. 100
Certain Relationships and Related
Transactions........................... 102
Ownership of Capital Stock............... 103
DESCRIPTION OF NEW ROCKWELL CAPITAL
STOCK.................................... 105
New Rockwell Common Stock and New
Rockwell Class A Common Stock.......... 105
New Rockwell Preferred Stock............. 106
General................................ 106
New Rockwell Junior Preferred Stock.... 106
Certain Provisions in the New Rockwell
Certificate and New Rockwell By-Laws... 108
Classified Board of Directors and
Removal of Directors................. 108
Fair Price Provision................... 109
Special Shareowners' Meetings and Right
to Act By Written Consent............ 111
Procedures for Shareowner Nominations
and Proposals........................ 111
PAGE
------
Amendment of the New Rockwell
Certificate and New Rockwell
By-Laws.............................. 112
New Rockwell Rights Plan................. 113
COMPARISON OF RIGHTS OF SHAREOWNERS OF THE
COMPANY AND NEW ROCKWELL................. 115
DESCRIPTION OF THE A&D BUSINESS............ 116
Selected Financial Data of the A&D
Business............................... 117
DESCRIPTION OF BOEING...................... 118
Selected Consolidated Historical
Financial Data
of Boeing.............................. 120
Unaudited Pro Forma Condensed Combined
Statement of Financial Position of
Boeing................................. 121
Unaudited Pro Forma Condensed Combined
Statements of Net Earnings of Boeing... 122
DESCRIPTION OF BOEING CAPITAL STOCK........ 124
COMPARISON OF RIGHTS OF SHAREOWNERS OF THE
COMPANY AND BOEING....................... 124
NO APPRAISAL RIGHTS........................ 127
DELIVERY OF SHARES TO SHAREOWNERS.......... 128
1997 ANNUAL MEETING........................ 128
LEGAL MATTERS.............................. 128
EXPERTS.................................... 128
INDEX OF DEFINED TERMS..................... 129
INDEX TO FINANCIAL STATEMENTS.............. F-1
Rockwell International Corporation....... F-2
A&D Business............................. F-25
New Rockwell International Corporation... F-40
APPENDICES
Appendix I -- Opinion of Morgan Stanley &
Co. Incorporated....................... I-1
Appendix II -- Opinion of Dillon, Read &
Co. Inc................................ II-1
Appendix III -- Agreement and Plan of
Merger dated as of July 31, 1996....... III-1
</TABLE>
7
<PAGE> 14
SUMMARY
The following includes a summary of certain information contained or
incorporated by reference in this Proxy Statement-Prospectus. This summary is
not intended to be complete and is qualified by reference to the more detailed
information set forth elsewhere or incorporated by reference in this Proxy
Statement-Prospectus and its Appendices, all of which should be reviewed
carefully. Unless otherwise indicated, all information in this Proxy
Statement-Prospectus regarding stock ownership and voting power with respect to
Company Common Stock and Company Class A Common Stock is as of September 30,
1996. Unless otherwise indicated, all information regarding stock ownership and
voting power with respect to New Rockwell Common Stock and New Rockwell Class A
Common Stock is based on Company Common Stock and Company Class A Common Stock
outstanding as of September 30, 1996. Unless the context otherwise requires,
references in this Proxy Statement-Prospectus to (i) New Rockwell Common Stock
and New Rockwell Class A Common Stock shall include the associated New Rockwell
Rights and (ii) Boeing Common Stock shall include the associated Boeing Rights.
For the convenience of the reader, an index of defined terms used herein appears
on page 129.
THE TRANSACTIONS
If the Proposals are approved and the other conditions to the consummation
of the Contribution, the Distribution and the Merger are satisfied, (i) the
Company will contribute to New Rockwell or to one of the Operating Subsidiaries
substantially all of the Company's businesses and assets, including the
Company's automation, avionics and communications, semiconductor systems and
automotive component systems businesses, except the A&D Business (the "New
Rockwell Business"), and New Rockwell and the Operating Subsidiaries will assume
and agree to hold the Company harmless from the Assumed Liabilities, (ii) the
New Rockwell Shares will be distributed to the holders of Company Common Stock
and Company Class A Common Stock, and (iii) following the Conversion, the Merger
will be consummated, pursuant to which the Company (then consisting of only the
A&D Business) will become a subsidiary of Boeing and each share of Company
Common Stock will be converted into a fraction of a share of Boeing Common Stock
pursuant to the formula set forth in the Merger Agreement. In connection with
the Contribution, the Company will retain certain liabilities, including with
respect to certain pension obligations. In addition, in connection with the
Merger, Boeing will assume, pay down or guarantee the Retained Company Debt. The
Contribution, the Distribution, the Merger and the transactions related thereto
and described herein are hereinafter referred to as the "Transactions".
THE COMPANY
The Company is a diversified, high technology corporation engaged in
research, development and manufacture of many products in automation, avionics,
semiconductor systems, aerospace, defense electronics and automotive component
systems for commercial and government markets. The mailing address of the
principal executive offices of the Company is 2201 Seal Beach Boulevard, Seal
Beach, California 90740-8250 and the telephone number of the Office of the
Secretary is (412) 565-4090. The Company was incorporated in Delaware in 1928.
NEW ROCKWELL
New Rockwell was incorporated in Delaware in August 1996 and is currently a
wholly-owned subsidiary of the Company with no material assets. Following
consummation of the Transactions, New Rockwell (which will be renamed "Rockwell
International Corporation") will be an independent public company. New Rockwell
will engage in the Company's historically higher growth commercial and
international businesses and is currently expected to have the same Board of
Directors and management (other than management of the A&D Business) as the
Company had prior to the consummation of the Transactions.
Sales of the New Rockwell businesses are estimated by the Company to be
approximately $10.4 billion for the fiscal year ended September 30, 1996. The
related income and primary earnings per share from continuing operations are
estimated by the Company to be approximately $677 million and $3.11 per share,
respectively, excluding the interest expense related to the Retained Company
Debt and certain corporate expenses allocable to the A&D Business. The estimated
income and primary earnings per share amounts exclude the effect of the one-time
write-off of $121 million ($.56 per share) of in-process research and
8
<PAGE> 15
development in connection with the acquisition of Brooktree Corporation
("Brooktree"), which was completed in September 1996. In the Company's fourth
fiscal quarter ended September 30, 1996, the Company will record a restructuring
charge of approximately $74 million, or approximately 34 cents per share,
related to a decision to exit several non-strategic product lines of its
on-going businesses and the costs associated with staff reductions, mostly
outside the United States. The charge will be offset by a favorable resolution
of prior years' research and experimental tax refund claims and by a favorable
settlement of insurance claims, which will increase the Company's fiscal 1996
fourth quarter income by approximately $76 million, or approximately 35 cents
per share.
Management of the New Rockwell Business has established long-term financial
goals for average annual sales growth of 8%, average annual primary earnings per
share growth of 15% and return on equity initially in the 14% range due to New
Rockwell's extremely low debt to total capital ratio upon consummation of the
Merger, but growing to 20% over the next three years. During the five fiscal
years ended September 30, 1996, New Rockwell's businesses have achieved average
annual sales growth of 15% and average annual primary earnings per share growth
of 30% (excluding the $121 million one-time write-off of in-process research and
development in connection with the Brooktree acquisition). During this five-year
period, annual sales of the automation business will have grown from $1.5
billion to over $4 billion, including the 1995 acquisition of Reliance Electric
Company ("Reliance") which added $1.4 billion in sales for fiscal 1996. The
semiconductor systems business has been the fastest growing New Rockwell
business, with an average annual sales increase of 41% over this five-year
period.
9
<PAGE> 16
The following charts illustrate the sales and operating earnings growth of
New Rockwell's business units over the last five fiscal years:
NEW ROCKWELL SALES GROWTH
NEW
ROCKWELL
OPERATING
EARNINGS
GROWTH
(1) 1996 operating earnings exclude the one-time write-off of $121 million
related to the acquisition of Brooktree, which was completed in September
1996, and the effect of the 1996 fourth quarter restructuring charge
described above.
10
<PAGE> 17
The mailing address of the principal executive offices of New Rockwell is
2201 Seal Beach Boulevard, Seal Beach, California 90740-8250 and the telephone
number of the Office of the Secretary is (412) 565-4090.
BOEING
Boeing, together with its subsidiaries, is one of the world's major
aerospace firms. Boeing operates in two principal industries: commercial
aircraft, and defense and space. Commercial aircraft operations -- conducted
through Boeing Commercial Airplane Group -- involve development, production and
marketing of commercial jet transports and providing related support services to
the commercial airline industry worldwide. Defense and space
operations -- conducted through Boeing Defense & Space Group -- involve
research, development, production, modification and support of military aircraft
and helicopters and related systems, space systems and missile systems. The
mailing address and telephone number of the principal executive offices of
Boeing are 7755 East Marginal Way South, Seattle, Washington 98108 and (206)
655-2121. Boeing was originally incorporated in Washington in 1916 and was
reincorporated in Delaware in 1934.
THE SPECIAL MEETING
DATE, TIME AND PLACE OF SPECIAL MEETING
The Special Meeting will be held on December 4, 1996, at 10:00 a.m. local
time at the Second Floor Auditorium, 1221 Avenue of the Americas (at 49th
Street), New York, New York.
RECORD DATE
The Board of Directors of the Company has fixed October 14, 1996 as the
Record Date for the determination of shareowners entitled to notice of and to
vote at the Special Meeting. Each record owner of shares of Company Common Stock
on the Record Date is entitled to one vote per share, and each record owner of
Company Class A Common Stock on the Record Date is entitled to ten votes per
share.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, shareowners of the Company will be asked to
consider and vote upon the Contribution Proposal and the Merger Proposal and to
transact such other business as may properly come before the Special Meeting.
VOTE REQUIRED
Approval of each Proposal requires the affirmative vote of the holders of a
majority of the votes entitled to be cast by the holders of the outstanding
shares of Company Common Stock and Company Class A Common Stock, voting together
as a single class. The presence, in person or by properly executed proxy, of the
holders of a majority of the outstanding Company Shares is necessary to
constitute a quorum at the Special Meeting.
Each Proposal will be voted on separately by the shareowners of the
Company; however, the Company will not proceed with any of the Transactions
described herein unless both the Contribution Proposal and the Merger Proposal
are approved by the Company's shareowners.
As of September 30, 1996, the Company's directors and executive officers
owned an aggregate of 2,468,194 shares of Company Common Stock and 226,479
shares of Company Class A Common Stock entitled to vote at the Special Meeting.
All of the Company's directors and executive officers have advised the Company
that they intend to vote such Company Shares in favor of each of the Proposals.
RECOMMENDATIONS OF THE COMPANY'S BOARD OF DIRECTORS
The Board of Directors of the Company has unanimously approved the
Transactions and believes that the Transactions are in the best interests of the
Company and its shareowners. The Board of Directors recommends that shareowners
vote FOR each of the Proposals. For a description of the factors considered by
11
<PAGE> 18
the Board of Directors and the reasons for its approval of the Transactions, see
"Certain Considerations Relating to the Transactions -- Reasons for the
Transactions; Recommendations of the Company's Board of Directors".
OPINIONS OF FINANCIAL ADVISORS
On July 31, 1996, Morgan Stanley & Co. Incorporated ("Morgan Stanley")
rendered its opinion to the Board of Directors of the Company that, as of the
date thereof, the consideration to be received by the Company's shareowners in
the Distribution and the Merger, taken as a whole, is fair from a financial
point of view to the Company's shareowners, and Dillon, Read and Co. Inc.
("Dillon Read") rendered its opinion to the Board of Directors of the Company
that, as of the date thereof, the consideration to be received by the Company's
shareowners in the Distribution and the Merger is fair to the Company's
shareowners from a financial point of view.
The Company's shareowners are urged to read the full texts of the opinions
of Morgan Stanley and Dillon Read, copies of which are set forth as Appendices I
and II, respectively, to this Proxy Statement-Prospectus, for descriptions of
the procedures followed, assumptions made, matters considered and limitations on
the reviews undertaken by Morgan Stanley and Dillon Read in connection with
rendering such opinions. See "Certain Considerations Relating to the
Transactions -- Opinions of Financial Advisors to the Company".
CONTRIBUTION
The Contribution includes a series of asset and stock transfers and
liability assumptions between and among the Company, New Rockwell and the
Operating Subsidiaries immediately prior to the Distribution. The purpose and
effect of such transfers and assumptions is to facilitate the Merger by
separating the New Rockwell Business from the A&D Business and to transfer the
assets and liabilities of the New Rockwell Business to New Rockwell or to one of
the Operating Subsidiaries immediately prior to the Distribution. Accordingly,
the A&D Business and the Retained Liabilities (as defined below) will constitute
all the businesses, assets and liabilities of the Company at the time of the
Merger.
As part of the Contribution, the Company will contribute to New Rockwell
the capital stock of the Operating Subsidiaries and the Operating Subsidiaries
will become wholly-owned subsidiaries of New Rockwell. New Rockwell and the
Operating Subsidiaries will assume and agree to hold the Company harmless from
the Assumed Liabilities. The Company will in turn agree to hold New Rockwell and
the Operating Subsidiaries harmless from the Retained Liabilities, including but
not limited to (A) liabilities relating primarily to or arising primarily from
the A&D Business (with certain exceptions described below under "Pre-Merger
Transactions -- Contribution and Distribution -- Terms of the Distribution
Agreement -- The Contribution"), (B) liabilities relating to certain pension
obligations and (C) liabilities relating to the Retained Company Debt. See
"Pre-Merger Transactions -- Contribution and Distribution -- Terms of the
Distribution Agreement -- The Contribution".
DISTRIBUTION
Immediately after the Contribution, New Rockwell will amend and restate its
Certificate of Incorporation (the "New Rockwell Certificate") to, among other
things, increase its authorized capital stock and will issue to the Company, in
exchange for the issued and outstanding shares of stock of New Rockwell then
held by the Company, the number of shares of New Rockwell Common Stock and New
Rockwell Class A Common Stock equal to the number of shares of Company Common
Stock and Company Class A Common Stock, respectively, outstanding as of the
record date designated by or pursuant to the authorization of the Board of
Directors of the Company for the Distribution (the "Distribution Record Date").
The Company will then distribute all issued and outstanding shares of New
Rockwell Common Stock and New Rockwell Class A Common Stock to the holders on
the Distribution Record Date of Company Common Stock and Company Class A Common
Stock, respectively, on a share-for-share basis as provided in the Distribution
Agreement. See "Pre-Merger Transactions -- Contribution and
Distribution -- Terms of the Distribution Agreement -- The Distribution".
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<PAGE> 19
CONVERSION OF COMPANY CLASS A COMMON STOCK
Effective immediately following the Distribution and immediately prior to
the Merger, the Board of Directors of the Company will effect the Conversion
whereby all issued and outstanding shares of Company Class A Common Stock will
be converted into shares of Company Common Stock on a share-for-share basis
pursuant to the authority granted to the Company's Board of Directors in the
Company's Restated Certificate of Incorporation (the "Company Certificate").
THE MERGER
The Merger Agreement provides that, subject to the requisite approval by
the Company's shareowners and the satisfaction or waiver of certain other
conditions, at the effective time of the Merger (the "Effective Time"), Merger
Sub will merge with and into the Company (which, at the Effective Time, will
include only the A&D Business and the Retained Liabilities), the separate
existence of Merger Sub will cease and the Company will continue as the
surviving corporation and a wholly-owned subsidiary of Boeing (the "Surviving
Corporation"). As a result of the Merger, Boeing will acquire all the capital
stock of the Company (which will own the A&D Business, including the Retained
Liabilities). Following the Merger, New Rockwell will be renamed "Rockwell
International Corporation" and the Company will be renamed "Boeing North
American, Inc."
In the Merger, each share of Company Common Stock outstanding immediately
prior to the Merger (after giving effect to the Conversion) will be converted
into a fraction of a share of Boeing Common Stock equal to the quotient, rounded
to the nearest thousandth, or if there shall not be a nearest thousandth, the
next higher thousandth, of (x) the quotient of (A) $859,832,000 divided by (B)
the number of shares of Company Common Stock issued and outstanding immediately
prior to the Merger (after giving effect to the Conversion) (other than shares
to be canceled as set forth below), divided by (y) the Market Price of Boeing
Common Stock as of the date of the Special Meeting, subject to the Maximum Price
and the Minimum Price as set forth in the Merger Agreement. Based on the number
of Company Shares issued and outstanding on October 14, 1996, the Company
estimates that the Exchange Ratio would be approximately .039 of a share of
Boeing Common Stock per Company Share if the price per share of Boeing Common
Stock is at or above the Maximum Price and approximately .053 of a share of
Boeing Common Stock per Company Share if the price per share of Boeing Common
Stock is at or below the Minimum Price. For a tabular description of the range
of shares of Boeing Common Stock that may be issuable to holders of Company
Shares in the Merger, see "The Merger -- Terms of the Merger Agreement -- The
Merger". Shares of Company Common Stock held immediately prior to the Effective
Time in the treasury of the Company or by the Company or Boeing or any of their
wholly-owned subsidiaries (excluding shares held by employee benefit plans) will
be canceled in the Merger and retired without payment of any consideration
therefor and will cease to exist.
For a more detailed description of the terms of the Merger Agreement, see
"The Merger -- Terms of the Merger Agreement". A conformed copy of the Merger
Agreement is set forth as Appendix III to this Proxy Statement-Prospectus and is
incorporated herein by reference.
CONDITIONS TO THE MERGER
The obligation of each of the Company, Boeing and Merger Sub to consummate
the Merger is conditioned on, among other things, (i) approval of the Proposals
by the shareowners of the Company, (ii) no temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition being in effect
that prohibits consummation of the Transactions, (iii) consummation of the
Contribution, the Distribution, the Conversion and the Consent Solicitation (as
defined below) and (iv) certain regulatory approvals described in this summary
under "Regulatory Approvals". The obligations of the Company, Boeing and Merger
Sub to consummate the Merger are subject to certain additional conditions
described in this summary under "Certain Federal Income Tax Considerations". See
"The Merger -- Terms of the Merger Agreement -- Conditions".
13
<PAGE> 20
REGULATORY APPROVALS
Pursuant to the Merger Agreement, the obligation of each of the Company,
Boeing and Merger Sub to consummate the Merger is conditioned upon the receipt
of certain regulatory approvals and consents, including the expiration or
termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"). The Company and Boeing
filed their respective Premerger Notification and Report Forms under the HSR Act
effective as of September 18, 1996. On October 18, 1996, the Company and Boeing
received requests for additional information and documentary material from the
Federal Trade Commission ("FTC").
In addition, the obligation of each of the Company, Boeing and Merger Sub
to consummate the Merger is conditioned upon receipt of advance agreements or
approvals of the Pension Benefit Guaranty Corporation ("PBGC"), the U.S.
Department of Defense ("DOD") and the U.S. Department of Energy ("DOE")
concerning certain employee benefit and indemnification matters. The condition
as to the PBGC has been satisfied.
There can be no assurance that the other requisite regulatory approvals
will be obtained or obtained in a timely manner to permit consummation of the
Merger. See "The Merger -- Certain Regulatory Matters".
CONSENT SOLICITATION
Pursuant to the Merger Agreement, the obligation of each of the Company,
Boeing and Merger Sub to consummate the Merger is conditioned upon the
consummation of a consent solicitation or solicitations (collectively, the
"Consent Solicitation") to obtain consents to the Proposed Amendments (as
defined below) from the holders of the Company's 7 5/8% Notes due February 17,
1998, 8 7/8% Notes due September 15, 1999, 8 3/8% Notes due February 15, 2001,
6 3/4% Notes due September 15, 2002, 7 7/8% Notes due February 15, 2005 and
6 5/8% Notes due June 1, 2005 (each a "Series" and collectively the "Old Company
Notes"). In order for the Consent Solicitation to be consummated and the
Proposed Amendments to be approved, the Company and Boeing must obtain validly
delivered and unrevoked consents from holders of a majority in principal amount
of each Series.
The proposed amendments (the "Proposed Amendments") would effect amendments
to the Indenture, dated as of October 1, 1982, as amended (the "Indenture"),
between the Company and The Chase Manhattan Bank, as successor by merger to
Manufacturers Hanover Trust Company, as Trustee, pursuant to which the Old
Company Notes have been issued (i) to delete or amend certain covenants in the
Indenture to provide that the Contribution and the Distribution will not require
New Rockwell to assume the Company's obligations under the Old Company Notes or
the Indenture, (ii) to replace certain covenants in the Indenture with
comparable covenants of Boeing to be included in the Boeing Debt Guaranty (as
defined below) and (iii) to amend certain additional terms and covenants in the
Indenture to conform them with the comparable terms and covenants contained in
the Indenture, dated as of August 15, 1991 (the "Boeing Indenture"), between
Boeing and The Chase Manhattan Bank, as Trustee. In connection with the Proposed
Amendments, Boeing has agreed to provide a full and unconditional guaranty of
the obligations of the Company under each Series (the "Boeing Debt Guaranty").
Pursuant to the Merger Agreement, the Company and Boeing have agreed to use
their reasonable best efforts to consummate the Consent Solicitation on or prior
to the date of the Special Meeting. Boeing will manage and control all aspects
of the Consent Solicitation and will be solely responsible for the payment of
all fees and expenses, including any consent solicitation fees, in connection
therewith.
This Proxy Statement-Prospectus does not constitute a solicitation of
consents to the Proposed Amendments or an offer of the Boeing Debt Guaranty,
which will be made only by means of a consent solicitation statement to be
mailed to the holders of the Old Company Notes and a registration statement and
related prospectus filed by Boeing with the Commission, respectively.
14
<PAGE> 21
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time under certain circumstances including (i)
the failure of the Company's shareowners to approve the Proposals at the Special
Meeting, (ii) in connection with a Superior Acquisition Proposal (as defined
below) or (iii) if the Merger has not been consummated by February 28, 1997. The
Company has agreed to pay Boeing a termination fee in the event of a termination
of the Merger Agreement under certain circumstances. See "The Merger -- Terms of
the Merger Agreement -- Termination" and "-- Expenses; Termination Fee".
PAYING AGENT AND EXCHANGE AGENT
ChaseMellon Shareholder Services, L.L.C. will act as paying agent in
connection with the Distribution (the "Paying Agent") and The First National
Bank of Boston will act as exchange agent in connection with the Merger (the
"Exchange Agent"). See "Delivery of Shares to Shareowners".
DELIVERY OF SHARES
If the Proposals are approved, the Company will effect the Distribution by
delivery of certificates for shares of New Rockwell Common Stock and New
Rockwell Class A Common Stock to the Paying Agent for delivery to the holders of
record of Company Common Stock and Company Class A Common Stock on the
Distribution Record Date without any further action by such holders.
As soon as reasonably practicable after the Effective Time, Boeing will
cause the Exchange Agent to mail or deliver to each holder of record of Company
Common Stock (including Company Common Stock into which Company Class A Common
Stock has been converted) at the Effective Time a letter of transmittal
containing instructions for use in effecting the surrender of shares for
exchange and payment in lieu of any fractional share. In order to receive
delivery of the shares of Boeing Common Stock to be issued in the Merger (and
payment of cash in lieu of fractional shares), each shareowner of the Company
will be required to surrender the certificates evidencing such shareowner's
shares of Company Common Stock or Company Class A Common Stock, as the case may
be, to the Exchange Agent together with a properly completed and executed letter
of transmittal.
PLEASE DO NOT SEND ANY SHARE CERTIFICATES WITH THE ENCLOSED PROXY. YOU WILL
RECEIVE FURTHER INSTRUCTIONS REGARDING THE EXCHANGE OF YOUR SHARE CERTIFICATES.
See "Delivery of Shares to Shareowners".
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Contribution and the Distribution are intended to qualify as
transactions described in Sections 351 and 355 of the Internal Revenue Code of
1986, as amended (the "Code"), and/or as a "reorganization" under Section
368(a)(1)(D) of the Code and the Merger is intended to qualify as a
"reorganization" under Section 368(a)(1)(B) of the Code. Consummation of the
Contribution, the Distribution and the Merger is conditioned on the receipt of
opinions of counsel to the foregoing effect. In addition, the Company's
obligation to consummate the Contribution, the Distribution and the Merger is
conditioned on the absence of any Adverse Tax Development (as defined below)
that may or will result in the imposition of a material amount of Federal income
tax to the Company, New Rockwell or any of their respective subsidiaries or
shareowners in respect of the Contribution, the Distribution or the Merger. See
"Certain Federal Income Tax Considerations" and "The Merger -- Terms of the
Merger Agreement -- Conditions".
ACCOUNTING TREATMENT
New Rockwell will be deemed to be the successor to the Company for
financial reporting purposes. The historical results of operations of the A&D
Business have been presented as a "discontinued operation" in the Company's
financial statements.
The Merger will be accounted for by Boeing using the purchase method of
accounting. Boeing will be treated as the acquiror of the A&D Business for
financial reporting purposes. As a result, Boeing will record
15
<PAGE> 22
the assets and liabilities of the A&D Business at their estimated fair values
and will record as goodwill the excess, if any, of the purchase price over such
estimated fair values. See "Unaudited Pro Forma Condensed Combined Statement of
Financial Position of Boeing" for a description of the adjustments expected to
be recorded to the financial statements of Boeing.
COMPANY STOCK PRICE AND DIVIDEND DATA
Company Common Stock is traded principally on the NYSE under the symbol
"ROK" and is also listed on the Pacific Stock Exchange, as well as certain stock
exchanges outside the U.S. Company Class A Common Stock is not traded, is
subject to restrictions on transfer and is not listed on any securities
exchange. Company Class A Common Stock is convertible, however, into Company
Common Stock at the holder's option or upon transfer to a non-permitted
transferee. The price ranges for Company Common Stock on the NYSE Composite
Transactions reporting system in the fiscal years ended September 30, 1995 and
1996 and the current fiscal year are set forth below.
<TABLE>
<CAPTION>
STOCK PRICE
--------------
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1995
First Quarter........................................................ $36 7/8 $33 5/8
Second Quarter....................................................... 39 7/8 35
Third Quarter........................................................ 47 1/8 38 3/4
Fourth Quarter....................................................... 48 43
FISCAL 1996
First Quarter........................................................ 53 44
Second Quarter....................................................... 63 1/4 51 1/2
Third Quarter........................................................ 60 1/4 55
Fourth Quarter....................................................... 57 47 1/2
FISCAL 1997
First Quarter (through October 28, 1996)............................. 58 1/8 54 7/8
</TABLE>
The high and low sales prices per share of Company Common Stock as reported
on the NYSE Composite Transactions reporting system on (i) July 31, 1996, the
last full trading day prior to the Company's announcement that it had entered
into the Merger Agreement with Boeing and Merger Sub, were $53 per share and
$52 1/4 per share, respectively, and (ii) October 28, 1996, the last full
trading day prior to the date of this Proxy Statement-Prospectus, were $57 per
share and $55 1/2 per share, respectively. Company shareowners should obtain
current market quotations for shares of Company Common Stock.
The aggregate dividends per Company Share during each of the Company's five
fiscal years ended September 30, 1996 are set forth below.
<TABLE>
<CAPTION>
DIVIDENDS
PER
COMPANY
FISCAL SHARE
----------------------------------------------------------------------- ------------
<S> <C>
1992................................................................... $ 0.92
1993................................................................... 0.96
1994................................................................... 1.02
1995................................................................... 1.08
1996................................................................... 1.16
</TABLE>
16
<PAGE> 23
BOEING STOCK PRICE AND DIVIDEND DATA
Boeing Common Stock is listed on the NYSE under the symbol "BA", is listed
on certain stock exchanges outside the U.S., and is also traded on the Boston,
Chicago, Cincinnati, Pacific and Philadelphia Stock Exchanges. The price ranges
for Boeing Common Stock on the NYSE Composite Transactions reporting system in
1994, 1995 and 1996 and the dividends per share paid are set forth below.
<TABLE>
<CAPTION>
STOCK PRICE
-------------------
HIGH LOW DIVIDEND
------ ------ --------
<S> <C> <C> <C>
1994
First Quarter............................................ $48.75 $42.13 $ .25
Second Quarter........................................... 50.13 43.13 .25
Third Quarter............................................ 48.25 42.50 .25
Fourth Quarter........................................... 48.38 42.63 .25
1995
First Quarter............................................ 54.00 44.38 .25
Second Quarter........................................... 65.38 52.63 .25
Third Quarter............................................ 72.38 60.38 .25
Fourth Quarter........................................... 80.00 62.00 .25
1996
First Quarter............................................ 89.13 75.38 .25
Second Quarter........................................... 90.50 74.13 .28
Third Quarter............................................ 96.00 79.88 .28
Fourth Quarter (through October 28, 1996)................ 99.25 93.38
</TABLE>
The high and low sales prices per share of Boeing Common Stock as reported
on the NYSE Composite Transactions reporting system on (i) July 31, 1996, the
last full trading day prior to Boeing's announcement that it and Merger Sub had
entered into the Merger Agreement with the Company, were $89.13 per share and
$87.63 per share, respectively, and (ii) October 28, 1996, the last full trading
day prior to the date of this Proxy Statement-Prospectus, were $95.25 per share
and $93.38 per share, respectively. Company shareowners should obtain current
market quotations for shares of Boeing Common Stock.
DIVIDEND POLICY
Following the consummation of the Transactions, New Rockwell expects to pay
quarterly dividends on New Rockwell Shares at the same $1.16 per share annual
rate currently paid with respect to Company Shares. New Rockwell's policy
regarding the payment of dividends on New Rockwell Shares will depend on New
Rockwell's future earnings, capital requirements, financial condition and other
factors and any declaration of dividends on New Rockwell Shares will be at the
discretion of the New Rockwell Board of Directors. See "Description of the New
Rockwell Business and New Rockwell -- Dividend Policy".
Holders of Boeing Common Stock are entitled to receive dividends when, as
and if declared by Boeing's Board of Directors out of funds legally available
therefor. Assuming that Boeing continues to pay dividends at the current
annualized rate of $1.12 per share (which cannot be assured), each Company
shareowner who receives and retains whole shares of Boeing Common Stock in the
Merger will receive for each .042 share of Boeing Common Stock estimated to be
received for each Company Share, a Boeing dividend at an annualized rate of
approximately $.05 per former Company Share.
NO APPRAISAL RIGHTS
Holders of Company Common Stock and Company Class A Common Stock (which
will be converted into Company Common Stock in the Conversion) will have no
right under the Delaware General Corporation Law (the "DGCL") to seek appraisal
of their shares in connection with the Contribution and the Distribution or the
Merger. See "No Appraisal Rights".
17
<PAGE> 24
CORPORATE GOVERNANCE
As a result of the Transactions, (i) holders of Company Common Stock will
be entitled to receive shares of New Rockwell Common Stock and shares of Boeing
Common Stock and (ii) holders of Company Class A Common Stock will be entitled
to receive shares of New Rockwell Class A Common Stock and (after giving effect
to the Conversion) shares of Boeing Common Stock. The rights of shareowners of
the Company are governed by the DGCL, the Company Certificate and the Company's
By-Laws (the "Company By-Laws"). After the Effective Time, the rights of holders
of New Rockwell Common Stock and New Rockwell Class A Common Stock will be
governed by the DGCL, the New Rockwell Certificate, New Rockwell's By-Laws, as
proposed to be amended in connection with the Transactions (the "New Rockwell
By-Laws"), and the New Rockwell Rights Agreement (as defined below). The New
Rockwell Certificate and the New Rockwell By-Laws will be substantially similar
to the Company Certificate and the Company By-Laws, except as described below
under "Description of New Rockwell Capital Stock", including the addition of
provisions establishing a classified Board of Directors, requiring shareowners
to provide advance notice of any shareowner nominations of directors or any
proposal of new business to be considered at any meeting of shareowners,
requiring a supermajority vote to remove a director or to amend or repeal
certain provisions of the New Rockwell Certificate or the New Rockwell By-Laws
and eliminating the right of shareowners to call a special meeting of
shareowners. The rights of holders of shares of Boeing Common Stock are governed
by the DGCL, the Restated Certificate of Incorporation of Boeing (the "Boeing
Certificate"), the By-Laws of Boeing (the "Boeing By-Laws") and the Boeing
Rights Agreement (as defined below). See "Comparison of Rights of Shareowners of
the Company and Boeing", "Comparison of Rights of Shareowners of the Company and
New Rockwell", "Description of New Rockwell Capital Stock", "Description of
Boeing Capital Stock" and "Certain Considerations Relating to the
Transactions -- Certain Considerations Related to the New Rockwell
Shares -- Antitakeover Effect of Certain Provisions of the New Rockwell
Certificate and New Rockwell By-Laws".
COMPANY SUMMARY HISTORICAL FINANCIAL DATA
The following sets forth summary selected consolidated financial data of
the Company's businesses that will be contributed to New Rockwell. The summary
financial data exclude financial information pertaining to the A&D Business and
the Retained Company Debt. The summary financial data is based on historical
financial information of the Company, restated to reflect the A&D Business as a
discontinued operation. See "Description of the New Rockwell Business and New
Rockwell -- Selected Consolidated Financial Data of the Company".
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30,
-------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales.............................. $6,112 $5,856 $6,204 $7,029 $9,065 $6,571 $7,712
Operating earnings................. 616 479 593 667 953 716 891
Interest expense................... 27 35 18 17 25 17 23
Income from continuing
operations....................... 308 243 302 351 493 378 484
Earnings per common share from
continuing operations:
Primary.......................... $1.32 $1.09 $1.37 $1.59 $2.27 $1.74 $2.23
Fully diluted.................... $1.30 $1.08 $1.35 $1.56 $2.23 $1.70 $2.19
BALANCE SHEET DATA:
(at end of period)
Total assets....................... $6,663 $6,090 $6,298 $6,593 $9,229 $9,550 $9,559
Long-term debt..................... 23 23 20 30 178 179 166
Shareowners' equity................ 4,224 2,778 2,956 3,356 3,782 3,661 4,190
</TABLE>
18
<PAGE> 25
NEW ROCKWELL SUMMARY PRO FORMA FINANCIAL DATA
The following sets forth summary unaudited pro forma financial information
of the Company's businesses that will be contributed to New Rockwell. The
following information has been derived from the unaudited pro forma condensed
consolidated balance sheet and statements of income of New Rockwell included
elsewhere herein, which have been prepared assuming that the Transactions and
the acquisition of Reliance occurred on October 1, 1994. The pro forma results
are not necessarily indicative of the results of operations that would actually
have been obtained for the periods presented had the Transactions been
consummated as of such date and are not necessarily indicative of future
results. See "Description of the New Rockwell Business and New
Rockwell -- Unaudited Pro Forma Condensed Consolidated Statements of Income of
New Rockwell" and "-- Unaudited Pro Forma Condensed Consolidated Balance Sheet
of New Rockwell".
<TABLE>
<CAPTION>
FISCAL
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
1995 1996
------------- -----------------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
INCOME STATEMENT DATA:
Sales................................................................ $ 9,394 $ 7,712
Operating earnings................................................... 997 911
Interest expense..................................................... 28 23
Income from continuing operations.................................... 520 496
Earnings per common share from continuing operations:
Primary............................................................ $2.39 $2.28
Fully diluted...................................................... $2.35 $2.24
BALANCE SHEET DATA:
(at end of period)
Total assets......................................................... $ 9,559
Long-term debt....................................................... 166
Shareowners' equity.................................................. 5,462
</TABLE>
A&D BUSINESS SUMMARY HISTORICAL FINANCIAL DATA
The following sets forth summary selected combined financial information of
the A&D Business based on historical financial information of the A&D Business
included elsewhere herein. See "Description of the A&D Business -- Selected
Consolidated Financial Data of the A&D Business".
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30,
--------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales........................... $4,880 $4,383 $4,018 $3,447 $ 3,238 $ 2,351 $ 2,275
Operating earnings.............. 512 429 471 492 485 337 366
Net income...................... 256 230 249 263 217 153 154
Interest expense................ 94 66 82 75 142 100 120
BALANCE SHEET DATA:
(at end of period)
Total assets.................... $3,034 $3,111 $3,067 $3,025 $ 3,044 $ 3,020 $ 3,088
Long-term debt.................. 697 997 997 799 1,597 1,597 1,597
Net assets (liabilities)........ 845 (518) (456) (167) (1,457) (2,015) (1,302)
</TABLE>
19
<PAGE> 26
BOEING SUMMARY HISTORICAL FINANCIAL DATA
The selected historical consolidated financial data of Boeing set forth in
the table below have been derived from the audited financial statements of
Boeing for each of the five fiscal years through the period ended December 31,
1995 and the unaudited financial statements of Boeing for the six-month periods
ended June 30, 1995 and 1996. The selected historical consolidated financial
data set forth below should be read in conjunction with the historical
consolidated financial statements and the notes thereto contained in the Boeing
Annual Report on Form 10-K for the year ended December 31, 1995 and the Boeing
Quarterly Report on Form 10-Q for the six months ended June 30, 1996, which are
incorporated by reference herein. In the opinion of Boeing management, all
adjustments, consisting only of normal recurring accruals, necessary for the
fair presentation of the financial position and results of operations for such
six-month periods have been made. The results of operations for the six-month
period ended June 30, 1996 are not necessarily indicative of the results to be
expected for the full year 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF NET EARNINGS DATA:
Sales and other operating revenues........ $29,314 $30,184 $25,438 $21,924 $19,515 $10,595 $10,568
Costs and expenses........................ 27,360 28,144 23,747 20,773 18,613 10,056 9,930
Early retirement program expense.......... -- -- -- -- 600 600 --
------- ------- ------- ------- ------- ------- -------
Earnings from operations.................. 1,954.. 2,040 1,691 1,151 302 (61) 638
Other income, principally interest........ 263 230 169 122 209 87 128
Interest and debt expense................. (13) (14) (39) (130) (151) (79) (75)
------- ------- ------- ------- ------- ------- -------
Earnings before Federal taxes on income
and cumulative effect of change in
accounting.............................. 2,204 2,256 1,821 1,143 360 (53) 691
Federal taxes on income................... 637 702 577 287 (33) (3) 104
------- ------- ------- ------- ------- ------- -------
Earnings before cumulative effect of
change in accounting.................... 1,567 1,554 1,244 856 393 (50) 587
Cumulative effect to January 1, 1992, of
change in accounting for postretirement
benefits other than pensions............ -- (1,002) -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net Earnings.............................. $ 1,567 $ 552 $ 1,244 $ 856 $ 393 $ (50) $ 587
======= ======= ======= ======= ======= ======= =======
Earnings per share:
Before cumulative effect of change in
accounting............................ $ 4.56 $ 4.57 $ 3.66 $ 2.51 $ 1.15 $ (.15) $ 1.70
Cumulative effect to January 1, 1992, of
change in accounting for
postretirement benefits other than
pensions.............................. -- (2.95) -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
$ 4.56 $ 1.62 $ 3.66 $ 2.51 $ 1.15 $ (.15) $ 1.70
======= ======= ======= ======= ======= ======= =======
Cash dividends per share.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ .50 $ .53
======= ======= ======= ======= ======= ======= =======
STATEMENT OF FINANCIAL POSITION DATA:
(at end of period)
Total assets.............................. $15,924 $18,147 $20,450 $21,463 $22,098 $21,747 $22,645
Total debt................................ $ 1,317 $ 1,793 $ 2,630 $ 2,609 $ 2,615 $ 2,620 $ 2,359
Other liabilities......................... 6,514 8,298 8,837 9,154 9,585 9,596 9,932
------- ------- ------- ------- ------- ------- -------
Total liabilities................ $ 7,831 $10,091 $11,467 $11,763 $12,200 $12,216 $12,291
Total shareholders' equity................ $ 8,093 $ 8,056 $ 8,983 $ 9,700 $ 9,898 $ 9,531 $10,354
</TABLE>
20
<PAGE> 27
BOEING SUMMARY PRO FORMA FINANCIAL DATA
The following information has been derived from the unaudited pro forma
condensed combined financial statements of Boeing included elsewhere herein
which have been prepared with adjustments to give effect to the Transactions
using the purchase method of accounting as well as a consistent application of
Boeing accounting practices, and assuming the Transactions occurred on January
1, 1995 for the unaudited pro forma condensed combined statements of net
earnings and on June 30, 1996 for the unaudited pro forma condensed combined
statement of financial position. The pro forma results do not reflect any
synergies that may result from the Merger, are not necessarily indicative of the
combined results of operations of Boeing and the A&D Business that would
actually have occurred had the Transactions been consummated as of such dates,
and are not necessarily indicative of any future results.
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
STATEMENT OF NET EARNINGS DATA:
Sales and other operating revenues...................... $22,267 $ 11,795
Costs and expenses...................................... 21,166 11,053
Early retirement program expense........................ 600 --
------- -------
Earnings from operations................................ 501 742
Other income, principally interest...................... 234 136
Interest and debt expense............................... (293) (155)
------- -------
Earnings before Federal taxes on income................. 442 723
Federal taxes on income................................. 5 122
------- -------
Net earnings............................................ $ 437 $ 601
======= =======
Earnings per share (primary)............................ $ 1.24 $ 1.70
Earnings per share (fully diluted)...................... $ 1.24 $ 1.70
Weighted average number of shares (in millions)......... 351.8 354.9
STATEMENT OF FINANCIAL POSITION DATA:
(at end of period)
Total assets............................................................... $27,907
Total debt................................................................. $ 4,559
Other liabilities.......................................................... 12,134
-------
Total liabilities........................................................ $16,693
-------
Total shareholders' equity................................................. $11,214
</TABLE>
COMPANY AND BOEING HISTORICAL AND PRO FORMA EQUIVALENT COMMON SHARE DATA
The following table sets forth for Company Shares certain per share
historical financial information, for Boeing certain historical per share
financial information and per share equivalent pro forma financial information,
and for New Rockwell certain per share pro forma financial information as of and
for the twelve months ended September 30, 1995 and as of and for the nine months
ended June 30, 1996. The Boeing per share historical financial information is
derived from the historical consolidated financial information of Boeing
incorporated herein by reference. The Boeing per share equivalent pro forma
financial information is based upon an assumed exchange ratio of .042 shares of
Boeing Common Stock for each Company Share. The assumed ratio is estimated based
on the closing price per share of Boeing Common Stock on the NYSE Composite
Transactions reporting system on October 28, 1996 and the number of Company
Shares issued and outstanding on October 14, 1996.
The following information should be read in conjunction with and is
qualified in its entirety by the consolidated financial statements and
accompanying notes of the Company and Boeing included or incorporated by
reference herein, the unaudited pro forma condensed consolidated financial
information and
21
<PAGE> 28
accompanying notes of New Rockwell set forth under "Description of the New
Rockwell Business and New Rockwell -- Unaudited Pro Forma Condensed Consolidated
Balance Sheet of New Rockwell" and "-- Unaudited Pro Forma Condensed
Consolidated Statements of Income of New Rockwell" and the unaudited pro forma
condensed combined financial information and accompanying notes of Boeing set
forth under "Description of Boeing -- Unaudited Pro Forma Condensed Combined
Statement of Financial Position of Boeing" and "-- Unaudited Pro Forma Condensed
Combined Statements of Net Earnings of Boeing".
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, JUNE 30,
1995 1996
-------------- -----------
<S> <C> <C>
HISTORICAL PER COMPANY SHARE(1)
Income From Continuing Operations:
New Rockwell................................................. $ 2.27 $ 2.23
A&D Business................................................. .98 .68
------ ------
Total................................................... $ 3.25 $ 2.91
====== ======
Dividends......................................................... $ 1.08 $ .87
====== ======
Book Value at Period End:
New Rockwell................................................. $ 25.16
A&D Business................................................. (5.97)
------
Total................................................... $ 19.19
======
HISTORICAL PER SHARE OF BOEING COMMON STOCK(2)
Historical Income................................................. $ .97 $ 2.33
Pro Forma Income(3)............................................... 1.07 2.35
Dividends......................................................... 1.00 .78
Historical Book Value At Period End............................... 29.95
Pro Forma Book Value At Period End................................ 31.60
PRO FORMA EQUIVALENT PER COMPANY SHARE
Income From Continuing Operations:
Boeing pro forma income per pro forma equivalent Company
Share(3).................................................... $ .05 $ .10
New Rockwell(4).............................................. 2.39 2.28
------ ------
Total................................................... $ 2.44 $ 2.38
====== ======
Dividends:
Boeing dividends per pro forma equivalent Company Share...... $ .04 $ .03
New Rockwell................................................. 1.08 .87
------ ------
Total................................................... $ 1.12 $ .90
====== ======
Book Value at Period End:
Boeing pro forma book value per pro forma equivalent
Company Share.............................................. $ 1.33
New Rockwell................................................. 25.02
------
Total................................................... $ 26.35
======
</TABLE>
- ---------------
(1) Based on weighted average number of Company Shares and equivalents
outstanding during the periods. The A&D Business per share amounts do not
necessarily reflect the results of operations that would actually have been
obtained had the A&D Business been an independent public company.
(2) Based on weighted average number of Boeing shares outstanding during the
periods.
(3) Combined historical earnings of Boeing and the A&D Business, decreased by
pro forma adjustments of $173 million and $125 million for the twelve months
ended September 30, 1995 and the nine months ended June 30, 1996,
respectively.
(4) Pro forma per equivalent Company Share amounts for New Rockwell were
calculated based on the Company Shares and equivalents outstanding during
the periods as used in the calculation for (1) above.
22
<PAGE> 29
THE SPECIAL MEETING
GENERAL
This Proxy Statement-Prospectus is being furnished to holders of shares of
Company Common Stock and Company Class A Common Stock in connection with the
solicitation of proxies from the Company's shareowners by the Company's Board of
Directors for use at the Special Meeting. At the Special Meeting, the Company's
shareowners will be asked to consider and vote upon the Contribution Proposal
and the Merger Proposal and to transact such other business as may properly come
before the Special Meeting.
Each Proposal will be voted upon separately by the shareowners of the
Company; however, the Company will not proceed with any of the Transactions
described in this Proxy Statement-Prospectus unless both the Contribution
Proposal and the Merger Proposal are approved by the Company's shareowners.
If the Proposals are approved and the other conditions to the consummation
of the Contribution, the Distribution and the Merger are satisfied or waived,
the following additional actions will be taken in connection therewith:
(i) the Conversion, effective immediately after the Distribution and
immediately prior to the Effective Time of the Merger;
(ii) the election by the Company, as the sole shareowner of New
Rockwell prior to the Distribution, of the directors of New Rockwell, who
are expected to be the same as the current directors of the Company;
(iii) the assumption and adoption by New Rockwell of the Company Stock
Incentive Plans and certain other employee benefit plans, including the ICP
and the Senior Executive Plan (see "Description of the New Rockwell
Business and New Rockwell -- Stock Incentive Plans of the Company and New
Rockwell", "-- Incentive Compensation Plan" and "-- Annual Incentive
Compensation Plan for Senior Executive Officers");
(iv) the conversion, with certain adjustments, of all outstanding
options to acquire Company Common Stock or Company Class A Common Stock
issued under the Company Stock Incentive Plans assumed and adopted by New
Rockwell into options to acquire shares of New Rockwell Common Stock and
New Rockwell Class A Common Stock pursuant to the antidilution provisions
under the Company Stock Incentive Plans in order to provide equivalent
value to each optionholder (see "Description of the New Rockwell Business
and New Rockwell -- Stock Incentive Plans of the Company and New Rockwell
-- New Rockwell Stock Incentive Plans; Treatment of Outstanding Stock
Options"); and
(v) as part of the Contribution, the assumption by New Rockwell and
the Operating Subsidiaries of the Assumed Liabilities, which generally
include all the debts, liabilities and other obligations of the Company
other than (A) liabilities relating primarily to or arising primarily from
the A&D Business (with certain exceptions described below under "Pre-Merger
Transactions -- Contribution and Distribution -- Terms of the Distribution
Agreement -- The Contribution"), (B) liabilities relating to certain
pension obligations and (C) liabilities relating to the Retained Company
Debt.
Each copy of this Proxy Statement-Prospectus is accompanied by a form of
proxy or direction card for use in connection with the Special Meeting. PLEASE
COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY OR DIRECTION CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
RECORD DATE; VOTING SECURITIES
The Board of Directors of the Company has fixed the close of business on
October 14, 1996 as the Record Date for the determination of shareowners
entitled to notice of and to vote at the Special Meeting. Only holders of record
of shares of Company Common Stock and Company Class A Common Stock at the close
of business on the Record Date will be entitled to notice of and to vote at the
Special Meeting. On the Record Date, 190,756,213 shares of Company Common Stock
were outstanding, held by approximately 61,413
23
<PAGE> 30
holders of record, and 27,867,120 shares of Company Class A Common Stock were
outstanding, held by approximately 45,160 holders of record. Each holder of
record of Company Common Stock on the Record Date is entitled to one vote per
share and each holder of record of Company Class A Common Stock on the Record
Date is entitled to ten votes per share. The outstanding shares of Company
Common Stock and Company Class A Common Stock represented 40.64% and 59.36%,
respectively, of the voting power of all voting securities of the Company
outstanding on the Record Date.
REQUIRED VOTE
Approval of each Proposal requires the affirmative vote of a majority of
the votes entitled to be cast by the holders of the outstanding shares of
Company Common Stock and Company Class A Common Stock, voting together as a
single class.
As of September 30, 1996, the Company's directors and executive officers
owned an aggregate of 2,468,194 shares of Company Common Stock and 226,479
shares of Company Class A Common Stock entitled to vote at the Special Meeting.
All of the Company's directors and executive officers have advised the Company
that they intend to vote such Company Shares in favor of the Proposals.
PROXIES; QUORUM
The Company's shareowners of record on the Record Date are entitled to cast
their votes, in person or by properly executed proxy, at the Special Meeting.
All shares represented at the Special Meeting by properly executed proxies
received prior to or at the Special Meeting and not properly revoked will be
voted at the Special Meeting in accordance with the instructions indicated in
such proxies. If no instructions are indicated, such proxies will be voted "for"
approval of the Proposals. Under the DGCL, the Company Certificate and the
Company By-Laws, the aggregate number of votes entitled to be cast by holders of
the outstanding Company Shares, voting together as a single class, will be
counted for purposes of determining the minimum number of affirmative votes
required for approval of the Proposals and the total number of votes cast "for"
each Proposal will be counted for purposes of determining whether sufficient
affirmative votes have been cast. The Company Shares of a shareowner who
abstains from voting or whose shares are not voted by reason of a broker
non-vote (where a nominee holding shares for a beneficial owner has not received
voting instructions from the beneficial owner with respect to a particular
matter and such nominee does not possess or choose to exercise discretionary
authority with respect thereto) will be counted for purposes of determining
whether a quorum is present at the meeting so long as the shareowner is present
in person or represented by a proxy. An abstention from voting or a broker
non-vote on a Proposal by a Company shareowner present in person or represented
by proxy at the meeting has the same legal effect as a vote "against" the
Proposal. As of the date hereof, the Board of Directors of the Company does not
know of any matters, other than the matters described in the Notice of Special
Meeting of Shareowners attached to this Proxy Statement-Prospectus, that will
come before the Special Meeting. If the Company proposes to adjourn the Special
Meeting, the persons named in the enclosed proxy card will vote all shares for
which they have voting authority (other than those that have been voted against
either Proposal) in favor of such adjournment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of the Company, at or before the Special Meeting, a written
notice of revocation bearing a date later than the date of the proxy, (ii) duly
executing a subsequent proxy relating to the same shares and delivering it to
the Secretary of the Company at or before the Special Meeting, or (iii)
attending the Special Meeting and voting in person (although attendance at the
Special Meeting will not in and of itself constitute revocation of a proxy).
The Company has arranged for its shareowners to submit completed proxies or
revocations of proxies by facsimile transmission. Any shareowner who wishes to
submit or revoke his or her proxy by facsimile should send a completed copy of
the proxy or revocation by facsimile to the Company, c/o ChaseMellon Shareholder
Services, L.L.C., at (201) 296-4389.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding Company Shares is necessary to constitute a quorum
at the Special Meeting. If a quorum is not present at the
24
<PAGE> 31
time the Special Meeting is convened, a majority in interest of the Company's
shareowners present in person or by proxy and entitled to vote may adjourn the
Special Meeting.
EXPENSES OF SOLICITATION
Proxies are being solicited by and on behalf of the Board of Directors of
the Company. All expenses of this solicitation will be borne by New Rockwell,
unless paid by the Company prior to the Effective Time. In addition to
solicitation by use of the mails, proxies may be solicited by directors,
officers and employees of the Company in person or by telephone, telegram,
telecopy or other means of communication. Such directors, officers and employees
will not be additionally compensated but may be reimbursed for out-of-pocket
expenses in connection with such solicitation. Arrangements will be made with
custodians, nominees and fiduciaries for forwarding of proxy solicitation
material to beneficial owners of Company Common Stock and Company Class A Common
Stock held of record by such persons, and the Company may reimburse such
custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith. In addition, Georgeson & Company, Inc. has been engaged to
solicit proxies on behalf of the Company for a fee of $10,000 plus reasonable
out-of-pocket expenses.
OWNERSHIP OF COMPANY COMMON STOCK AND COMPANY CLASS A COMMON STOCK
With the exception of Wells Fargo Bank, N.A., as trustee under the Rockwell
International Corporation Savings Plan (the "Company Savings Plan"), which held
20.0% of the outstanding shares of Company Common Stock and 32.9% of the
outstanding shares of Company Class A Common Stock, representing 27.7% of the
outstanding voting power of all voting securities of the Company, there are no
persons known to the Company to be "beneficial owners" (as that term is defined
in the rules of the Commission) of more than 5% of any class of the Company's
voting securities outstanding at October 14, 1996. Company Shares held in the
Company Savings Plan accounts are voted by Wells Fargo Bank, N.A., as trustee,
in accordance with written instructions from participants on matters presented
at meetings of shareowners. Shares allocated to Company Savings Plan accounts
with respect to which no participant directions are received are voted by the
trustee as it deems proper.
For a description of the beneficial ownership of Company Shares by
directors and certain executive officers of the Company, see "Description of the
New Rockwell Business and New Rockwell -- Ownership of Capital Stock".
25
<PAGE> 32
CERTAIN CONSIDERATIONS RELATING TO THE TRANSACTIONS
BACKGROUND OF THE TRANSACTIONS
The Company regularly considers the acquisition or development of new
businesses and reviews the prospects of its existing businesses. As part of that
process, the Company has reviewed the A&D Business as well as its other
businesses. In November 1995, the Company retained Morgan Stanley to act as its
financial advisor in connection with exploring various alternatives involving
the A&D Business. At a special meeting of the Board of Directors of the Company
held on February 6, 1996 attended by representatives of Morgan Stanley, the
Board of Directors considered and discussed various strategic alternatives
involving the A&D Business. The Board of Directors concluded that shareowner
value would be maximized by a tax-free transaction structure involving a
spin-off of the New Rockwell Business to the Company's existing shareowners and
a merger of the A&D Business with a strategic acquiror. In view of the
transaction structure and the nature of the A&D Business, the group of potential
acquirors contacted was limited to existing members of the aerospace and defense
industry with the technological capabilities, government contract experience,
financial resources and stature that would enable them to conclude a transaction
successfully. Working with Morgan Stanley, the Company prepared a Confidential
Information Memorandum containing a description of the A&D Business and the
proposed transaction structure, which was provided to three potential strategic
acquirors identified by the Company and Morgan Stanley and to another potential
acquiror that had made an unsolicited inquiry, in each case following execution
of a confidentiality agreement. In addition to the proposal from Boeing
described below, the Company received a proposal from a party that made an
unsolicited inquiry, which the Company rejected. The Company viewed the latter
proposal as financially inferior to the Boeing proposal because it contemplated
less aggregate consideration, with a smaller proportion of assumed debt and a
greater proportion of acquiror stock. The Company also believed that it was
unlikely, based on the size and financial resources of such party, that such
party could successfully complete a transaction based on the Company's proposed
transaction structure.
On February 22, 1996, Donald R. Beall, Chairman of the Board and Chief
Executive Officer of the Company, telephoned Frank A. Shrontz, then Chairman of
the Board and Chief Executive Officer of Boeing, stating that the Company was
considering strategic alternatives for the A&D Business. Mr. Beall further
stated that the Company had retained Morgan Stanley as its financial advisor,
had a specific transaction structure in mind and had prepared materials on the
A&D Business for a limited number of potential acquirors. Mr. Shrontz stated
that Boeing would be interested in receiving the Company's materials.
On February 26, 1996, the Company and Boeing executed a confidentiality
agreement and the Company sent to Boeing a Confidential Information Memorandum.
Thereafter, the Company responded to a preliminary list of due diligence
questions of Boeing. On March 15, 1996, Boeing submitted a written indication of
interest with respect to a possible acquisition of the A&D Business, including a
value range.
Between March 15 and June 1, 1996, Boeing conducted a due diligence review
of the A&D Business and representatives of the Company and Boeing and their
respective legal and financial advisors had several meetings and conversations
on various issues relating to the A&D Business. On April 5, 1996, teams of
Company and Boeing representatives led by John A. McLuckey, Senior Vice
President and President and Chief Operating Officer -- Aerospace and Defense of
the Company, and C.G. King, Senior Vice President of Boeing and President of
Boeing Defense & Space Group, and their respective financial advisors attended
an all-day management presentation by the Company in respect of the A&D Business
in Irvine, California. On April 12, 1996, the Company provided Boeing with
drafts of a proposed Merger Agreement and related reorganization agreements. On
May 3, 1996, William J. Calise, Jr., Senior Vice President, General Counsel and
Secretary of the Company, Theodore J. Collins, Vice President and General
Counsel of Boeing, and counsel for the Company and Boeing met in New York City
to discuss issues relating to the proposed transaction structure and certain
provisions of the draft agreements. On May 31, 1996, the Boeing Board of
Directors reviewed the proposed transaction structure, the due diligence
process, the potential impact of the proposed transaction on the operations and
financial condition of Boeing and certain other elements related to the proposed
transaction and approved the making of an acquisition proposal.
26
<PAGE> 33
On June 2, 1996, Boeing submitted a written proposal with respect to the
acquisition of the A&D Business, including proposed changes to the Company's
draft Merger Agreement and related reorganization agreements. On June 3, 1996,
the Company rejected Boeing's proposal. On June 11, 1996, Mr. Shrontz telephoned
Mr. Beall, indicating Boeing's continued interest in acquiring the A&D Business.
Mr. Beall and Mr. Shrontz agreed that a meeting between W. Michael Barnes,
Senior Vice President, Finance and Planning and Chief Financial Officer of the
Company, and Boyd E. Givan, Senior Vice President and Chief Financial Officer of
Boeing, to review the respective positions of the Company and Boeing concerning
a possible transaction would be desirable. Such meeting was held in Los Angeles
on June 17, 1996. Thereafter, on June 19, 1996, Boeing submitted a revised
written proposal to the Company.
On July 8, 1996, Messrs. Barnes and Calise met with Messrs. Givan and
Collins in Seattle, Washington, at which meeting the Company responded to the
major terms of Boeing's revised proposal. Messrs. Barnes, Calise, Givan and
Collins met again on July 16, 1996 at the Company's Seal Beach, California
headquarters. At that meeting Boeing presented a further revised proposal of
major terms, negotiations ensued, and the Company suggested further
modifications to the Boeing proposal. On July 19, 1996, Mr. Beall met with
Philip M. Condit, Boeing's new Chief Executive Officer, at Boeing's offices in
Seattle. At that meeting Messrs. Beall and Condit reached agreement on the
remaining principal terms of a transaction, subject to the negotiation and
execution of definitive agreements and obtaining approvals of their respective
Boards of Directors.
Thereafter, the Company and Boeing and their respective legal counsel
negotiated the terms of the Merger Agreement and related reorganization
agreements. The negotiations culminated in agreement on forms of such agreements
on July 31, 1996. On the same day, the Boards of Directors of the Company and
Boeing, at their respective special meetings, each approved the forms of the
Merger Agreement and related reorganization agreements. Thereafter, the Merger
Agreement was executed and the transaction was publicly announced prior to the
opening of the financial markets in New York on August 1, 1996.
COMPANY REASONS FOR THE TRANSACTIONS; RECOMMENDATIONS OF THE COMPANY'S BOARD OF
DIRECTORS
The Board of Directors of the Company has unanimously approved the
Transactions and believes that the Transactions are in the best interests of the
Company and its shareowners. The Board of Directors recommends that the
Company's shareowners vote FOR the Proposals.
The Board of Directors, in reaching its decision, considered a number of
factors, including, without limitation, the following:
(i) the Company's strategic focus on the historically higher growth
commercial and international businesses constituting the New Rockwell
Business;
(ii) the Board's belief that the A&D Business, while a strong
stand-alone business in the areas it serves, would potentially be
disadvantaged if it did not participate through acquisitions in the
consolidation occurring in the aerospace and defense industry, a direction
that would be incompatible with the Company's strategic thrust;
(iii) the Transactions would combine the A&D Business with the defense
and space business of Boeing, a consolidation that the Board believes would
achieve the dual benefits of creating a stronger competitor in the
consolidating aerospace and defense industry and of enabling the Company's
shareowners, employees and customers to share in the benefits of Boeing as
a fully integrated aerospace company designing, producing and supporting
commercial airplanes, defense systems, and defense and civil space systems;
(iv) the Board's belief that the Transactions would provide the
Company and its shareowners the highest value reasonably obtainable for
their interest in the A&D Business, which belief was based on a number of
factors, including those listed herein and the responses received from the
potential strategic acquirors that had been contacted as well as
unsolicited inquiries;
27
<PAGE> 34
(v) the Merger would leave New Rockwell virtually free from debt, so
that New Rockwell would have the ability to raise a substantial amount of
cash through borrowings for investment in the New Rockwell Business or in
other businesses;
(vi) the Transactions would be tax-free to the Company's shareowners
(except for cash in lieu of fractional shares) and generally would be
tax-free to the Company and New Rockwell;
(vii) the terms and conditions of the Merger Agreement, the
Distribution Agreement and the related agreements, including the right of
the Company to terminate the Merger Agreement in connection with a Superior
Acquisition Proposal upon payment of a Termination Fee and certain Expenses
(as such terms are defined below) (see "The Merger -- Terms of the Merger
Agreement -- Conduct of Business Prior to Effective Time; Certain
Covenants -- Acquisition Proposals; Board Recommendation" and "-- Expenses;
Termination Fee"); and
(viii) the presentation of Morgan Stanley and the fairness opinions of
Morgan Stanley and Dillon Read delivered to the Board of Directors.
The foregoing discussion of the information and factors considered and
given weight by the Board of Directors of the Company is not intended to be
exhaustive but includes all material factors considered by the Board of
Directors. In reaching the determination to approve and recommend the
Transactions, the Board of Directors did not assign any relative or specific
weight to any of the foregoing factors in particular.
OPINIONS OF FINANCIAL ADVISORS TO THE COMPANY
MORGAN STANLEY & CO. INCORPORATED
In November 1995, the Company retained Morgan Stanley to act as its
financial advisor in connection with exploring various alternatives involving
the A&D Business.
At the July 31, 1996 meeting of the Company's Board of Directors, Morgan
Stanley rendered its oral opinion that, as of such date and based upon and
subject to the various considerations set forth in its opinion, the
consideration to be received by the holders of Company Shares in the
Distribution and the Merger, taken as a whole, is fair from a financial point of
view to such holders. Morgan Stanley subsequently delivered to the Company's
Board of Directors a written opinion dated July 31, 1996 confirming its oral
opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY DATED JULY 31, 1996,
WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
MATTERS CONSIDERED, AND LIMITATIONS ON THE SCOPE OF REVIEW BY MORGAN STANLEY IN
RENDERING ITS OPINION, IS ATTACHED AS APPENDIX I TO THIS PROXY STATEMENT-
PROSPECTUS. MORGAN STANLEY'S OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF
THE COMPANY AND THE FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY THE HOLDERS
OF COMPANY SHARES FROM A FINANCIAL POINT OF VIEW AND IT DOES NOT ADDRESS ANY
OTHER ASPECT OF THE MERGER OR THE DISTRIBUTION NOR DOES IT CONSTITUTE A
RECOMMENDATION AS TO HOW THE COMPANY'S SHAREOWNERS SHOULD VOTE AT THE SPECIAL
MEETING. THE SUMMARY OF THE OPINION OF MORGAN STANLEY SET FORTH IN THIS PROXY
STATEMENT-PROSPECTUS IS QUALIFIED BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
THE COMPANY'S SHAREOWNERS ARE URGED TO READ MORGAN STANLEY'S OPINION IN ITS
ENTIRETY.
In rendering its opinion, Morgan Stanley, among other things: (i) analyzed
certain publicly available financial statements and other information regarding
the Company and Boeing, respectively; (ii) analyzed certain internal financial
statements and other financial and operating data concerning the Company
prepared by management of the Company; (iii) analyzed certain financial
projections prepared by management of the Company; (iv) discussed the past and
current operations and financial condition and the prospects of the Company with
senior executives of the Company; (v) discussed the past and current operations
and financial condition and the prospects of Boeing with senior management of
Boeing; (vi) reviewed and analyzed the pro forma financial effect of the
Distribution and the Merger on the Company and Boeing; (vii) reviewed the
reported prices and trading activity for Company Common Stock and Boeing Common
Stock; (viii) compared the financial performance of the Company and Boeing and
the prices and trading activity of Company Common Stock and Boeing Common Stock
with that of certain other comparable publicly-traded companies and their
securities; (ix) reviewed the financial terms, to the extent publicly available,
of certain
28
<PAGE> 35
comparable acquisition transactions; (x) participated in discussions and
negotiations among representatives of the Company, Boeing and their financial
and legal advisors; (xi) participated in discussions with and responded to
inquiries from certain third parties concerning a possible transaction involving
the A&D Business; (xii) reviewed the Merger Agreement, the Distribution
Agreement and certain related documents; and (xiii) performed such other
analyses and considered such other factors as Morgan Stanley in its sole
judgment deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for purposes of its opinion. Morgan Stanley assumed
that the financial projections were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the future financial
performance of the Company, the A&D Business and New Rockwell. Morgan Stanley
did not make any independent valuation or appraisal of the assets or liabilities
of the Company or Boeing, nor was it furnished with any such appraisals. Morgan
Stanley's opinion is necessarily based on economic, market and other conditions
as in effect on, and the information made available to it as of, the date
thereof. In addition, Morgan Stanley assumed that the Transactions will be
consummated in accordance with the terms set forth in the Reorganization
Agreements (as defined below), including, among other things, that the
Transactions will be treated as a tax-free reorganization pursuant to the Code.
Morgan Stanley did not express any opinion as to the price at which New Rockwell
Common Stock will actually trade following consummation of the Transactions.
As part of its assignment, Morgan Stanley assisted the Company in the
structuring and execution of a focused and discrete process during which a
select group of potential strategic acquirors were contacted and given the
opportunity to make a thorough evaluation of the A&D Business in preparation for
the submission of a proposal to acquire the A&D Business. Morgan Stanley
reviewed with management of the Company the responses received from potential
acquirors that had been contacted as well as unsolicited inquiries.
The following is a brief summary of certain analyses performed by Morgan
Stanley in connection with the preparation of its opinion and reviewed with the
Company's Board of Directors as part of its oral presentation to the Board of
Directors on July 31, 1996:
Company Common Stock Performance. Morgan Stanley's analysis of the Company
Common Stock performance consisted of an historical analysis of closing prices
and trading volumes from January 1, 1992 to July 26, 1996 and compared such
performance to that of the S&P 500 Index and a group consisting of the following
aerospace and defense companies from January 1, 1996 to July 26, 1996: Lockheed
Martin Corporation, McDonnell Douglas Corporation and Northrup Grumman
Corporation (the "Defense Comparables"). During this period, based on closing
prices on the NYSE, Company Common Stock achieved a high of $62.625 and a low of
$22.25. Company Common Stock closed at a price of $52.00 on July 26, 1996.
Morgan Stanley observed that over the period from January 1, 1996 to July 26,
1996, Company Common Stock underperformed the S&P 500 Index and the Defense
Comparables index.
Boeing Common Stock Performance. Morgan Stanley's analysis of Boeing
Common Stock performance consisted of an historical analysis of closing prices
and trading volumes from January 1, 1992 to July 26, 1996. During this period,
Morgan Stanley observed that based on closing prices on the NYSE, Boeing Common
Stock achieved a high of $92.00 and a low of $33.625, and performed at least as
well as the Dow Jones Industrial Average Stock Index over the same time period.
Boeing Common Stock closed at a price of $88.375 on July 26, 1996.
Comparable Company Analysis. Comparable company analysis examines a
company's trading performance relative to a group of publicly traded peers.
Morgan Stanley evaluated the A&D Business based upon the trading performance of
three groups of companies in the defense electronics, rocket and space and
platform sectors (the "A&D Business Comparable Companies"). Companies in the
defense electronics group included: Litton Industries, Inc., Lockheed Martin
Corporation and Tracor, Inc. Companies in the rocket and space group included:
Thiokol Corporation, Alliant Techsystems Inc. and Orbital Sciences Corporation.
Companies in the platform group included: Northrop Grumman Corporation, Lockheed
Martin Corporation, General Dynamics Corporation and McDonnell Douglas
Corporation. Morgan Stanley also analyzed the trading performance of Boeing and
a group of companies in the platform sector (the "Boeing Comparable
29
<PAGE> 36
Companies"). Companies in the Boeing Comparable Companies group included:
Lockheed Martin Corporation, McDonnell Douglas Corporation and Northrop Grumman
Corporation. The A&D Business Comparable Companies and the Boeing Comparable
Companies (collectively, the "Comparable Companies") were selected based on
general business, operating and financial characteristics representative of
companies in industries in which the A&D Business and Boeing operate,
respectively. Historical financial information used in connection with the
ratios provided below with respect to the Comparable Companies was as of the
date of the most recent financial statements publicly available for each
company. Market information used in calculating the ratios below is as of July
26, 1996 with respect to the Comparable Companies.
Morgan Stanley assessed the relative performance and value for the A&D
Business by analyzing certain market trading statistics of the A&D Business
Comparable Companies and applying these statistics to the financial performance
of the A&D Business. Among the market trading information considered in the
analysis was asset value to revenues and asset value to earnings before
interest, taxes, depreciation and amortization ("EBITDA"), actual and estimated
for twelve months trailing and calendar year 1996, respectively. For the
purposes of its analyses, Morgan Stanley excluded net pension income from the
earnings of the A&D Business. Morgan Stanley focused on the implied trading
ratios of companies including General Dynamics Corporation ("GD"), Lockheed
Martin Corporation ("LMT"), McDonnell Douglas Corporation ("MD"), Northrop
Grumman Corporation ("NOC") and Thiokol Corporation ("TKC") to value the A&D
Business on a trading basis. The ratio of asset value to 1996 estimated calendar
year revenues for GD, LMT, MD, NOC and TKC was 0.88x, 1.09x, 0.87x, 0.92x and
0.84x, respectively. The ratio of asset value to 1996 estimated calendar year
EBITDA for GD, LMT, MD, NOC and TKC was 7.6x, 7.3x, 7.6x, 6.7x and 5.9x,
respectively.
Using the financial information and forecasts provided by management of the
Company and the A&D Business, Morgan Stanley derived an implied asset value
range for the A&D Business upon application of the financial multiples from the
A&D Business Comparable Companies. This analysis indicated that the implied
asset value of the A&D Business ranged from $2.7 billion to $3.2 billion.
No company utilized as a comparison in the comparable companies analysis is
identical to the A&D Business. In evaluating the Comparable Companies, Morgan
Stanley made judgments and assumptions with regard to industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of the A&D Business, such as the impact of
competition on the A&D Business and the industry generally, industry growth and
the absence of any adverse material change in the financial condition and
prospects of the A&D Business or the industry or in the financial markets in
general.
Comparable Transaction Analysis. Using publicly available information,
Morgan Stanley performed an analysis of selected transactions (collectively, the
"A&D Business Comparable Transactions") involving certain platform
(collectively, the "Platform Comparable Transactions") and defense electronics
(collectively, the "Defense Electronics Comparable Transactions") companies.
Morgan Stanley compared certain financial and market statistics, including
multiples of asset value to twelve months trailing revenue and EBITDA for the
A&D Business Comparable Transactions. The Platform Comparable Transactions
comparison included the following transaction (acquiree/acquiror): Grumman
Corporation/Northrop Corporation. The Defense Electronics Comparable
Transactions comparison included the following transactions (acquiree/acquiror):
Loral Corporation/Lockheed Martin Corporation, Westinghouse Electric
Corporation/Northrop Grumman Corporation, E-Systems, Inc./Raytheon Company and
Carlyle Group (Magnavox Electronic Systems Company)/General Motors Corporation
(Hughes Aircraft Company). For the A&D Business Comparable Transactions the
analysis showed a range of twelve months trailing multiples of 0.7x to 1.5x
revenues and 7.3x to 10.2x EBITDA.
Using the financial information and forecasts provided by management of the
Company and the A&D Business, Morgan Stanley derived an implied asset value
range for the A&D Business upon application of the financial multiples from the
A&D Business Comparable Transactions. This analysis indicated that the implied
asset value of the A&D Business ranged from $2.9 billion to $3.5 billion.
No transaction utilized as a comparison in the comparable transaction
analysis is identical to the Merger. In evaluating the precedent transactions,
Morgan Stanley made judgments and assumptions with regard to
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industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of the A&D
Business, such as the impact of competition on the A&D Business and the industry
generally, industry growth and the absence of any adverse material change in the
financial condition and prospects of the A&D Business or the industry or in the
financial markets in general. Mathematical analysis (such as determining the
average or median) is not in itself a meaningful method of using comparable
transaction data.
Discounted Cash Flow Analysis. Morgan Stanley conducted a discounted cash
flow analysis of the A&D Business for the fiscal years ended 1996 through 2000
to estimate the present value of the stand-alone unlevered free cash flows that
the A&D Business is expected to generate if the A&D Business performs in
accordance with scenarios based upon certain financial forecasts. The discounted
cash flow analysis for the A&D Business was based upon certain discussions with
management of the Company and the A&D Business as well as upon certain financial
forecasts prepared by management of the Company and the A&D Business. Unlevered
free cash flows of the A&D Business were calculated as net income plus
depreciation and amortization plus deferred taxes plus minority interest plus
other noncash expenses plus after-tax net interest expense less capital
expenditures less investment in working capital. Morgan Stanley calculated
terminal values for the A&D Business by applying a range of multiples of EBITDA
("Terminal EBITDA Multiple Methodology") to the EBITDA in fiscal 2000 from 6.0x
to 7.0x representing estimated trading ranges of long-term EBITDA multiples. The
unlevered free cash flow streams and terminal values were then discounted to the
present using a range of discount rates from 10.0% to 12.0%. The discount rate
ranges were selected based upon a weighted average cost of capital analysis of
the A&D Business. Using the financial information and forecasts provided by
management of the Company and the A&D Business, Morgan Stanley derived an
implied asset value range for the A&D Business. This analysis indicated that the
implied asset value of the A&D Business ranged from $2.7 billion to $3.3
billion. Morgan Stanley also derived an implied asset value range for the A&D
Business based on less favorable assumptions as to future revenue growth and
margin potential than those used in the Company's projections (the "Sensitivity
Case"). The Terminal EBITDA Multiple Methodology and discount rates were held
constant in the Sensitivity Case. The Sensitivity Case indicated that the
implied asset value of the A&D Business ranged from $2.5 billion to $3.0
billion.
Pro Forma Analysis of the Merger on New Rockwell. Morgan Stanley analyzed
the pro forma impact of the Merger on New Rockwell's earnings per share for the
fiscal years ended 1996 through 2000. Such analysis was based on earnings
estimates provided by management of the Company and the A&D Business for status
quo Company and pro forma New Rockwell and by Institutional Brokers Estimate
System ("IBES") for status quo Company for the fiscal years ended 1996 through
2000. Morgan Stanley observed that if the Merger were effected, the reduction in
New Rockwell earnings would have a dilutive effect on pro forma earnings in 1996
and 1997 versus Company estimates of status quo Company earnings per share and
versus IBES estimates of status quo Company earnings per share, a result that
would be expected by the market in a transaction of this nature. The analysis
was developed for informational purposes and was not a material factor in the
preparation of Morgan Stanley's fairness opinion. Morgan Stanley also observed
that the removal of the A&D Business from the Company's mix of businesses would
change the group of companies most directly comparable with pro forma New
Rockwell. Morgan Stanley analyzed the potential trading performance of New
Rockwell based on comparable companies (collectively, the "New Rockwell
Comparable Companies"), including: AlliedSignal Inc., Emerson Electric Co.,
General Electric Company, Hewlett-Packard Company, Honeywell Inc. and United
Technologies Corporation. Based on the New Rockwell Comparable Companies, this
analysis indicated that the Company would be valued by the market on an equity
value to forward earnings basis.
Pro Forma Analysis of the Merger on Boeing. Morgan Stanley analyzed the
pro forma impact of the Merger on Boeing's earnings per share for the fiscal
years ended 1996 through 2000. Such analysis was based on earnings estimates
provided by management of the Company and the A&D Business for the A&D Business
for the fiscal years ended 1996 through 2000 and by IBES for Boeing for the
fiscal years ended 1996 and 1997, and on growth at the expected 5-year earnings
per share growth rate provided by IBES, for the remaining years through 2000.
Morgan Stanley observed that if the Merger were treated as a purchase for
accounting purposes, goodwill were amortized over 30 years on a straight-line
basis and no synergies were assumed, the contribution of the A&D Business
earnings, net of the effect on Boeing earnings per share of the issuance of
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Boeing Common Stock in the Merger and the assumption of the A&D Business debt,
would have an accretive effect on pro forma earnings per share to Boeing of
approximately 5.5% in fiscal year 1996 and 4.1% in fiscal year 1997. This would
likely have a positive effect on the value of the Boeing Common Stock to be
received by the Company's shareowners in the Merger.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all of its
analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, selecting any
portions of Morgan Stanley's analyses, without considering all analyses, would
create an incomplete view of the process underlying its opinion. In addition,
Morgan Stanley may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting for any particular
analysis described above should not be taken to be Morgan Stanley's view of the
actual value of the A&D Business.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of the Company or Boeing.
The analyses performed by Morgan Stanley are not necessarily indicative of
actual values, which may be significantly more or less favorable than suggested
by such analyses. Such analyses were prepared solely as a part of Morgan
Stanley's fairness opinion and were provided to the Company's Board of Directors
in connection with the delivery of Morgan Stanley's written opinion. The
analyses do not purport to be appraisals or to reflect the prices at which the
A&D Business might actually be sold. Because such estimates are inherently
subject to uncertainty, none of the A&D Business, the Company, Boeing, Morgan
Stanley or any other person assumes responsibility for their accuracy. In
addition, as described above, Morgan Stanley's opinion and presentation to the
Company's Board of Directors was one of many factors taken into consideration by
the Company's Board of Directors in making its determination to approve the
Merger Agreement and the Transactions. Consequently, the Morgan Stanley analyses
described above should not be viewed as determinative of the opinion of the
Board of Directors of the Company with respect to the value of the Company or
the A&D Business.
The Company's Board of Directors retained Morgan Stanley based upon its
experience and expertise. Morgan Stanley is a nationally recognized investment
banking and advisory firm. Morgan Stanley, as part of its investment banking
business, is continuously engaged in the valuation of businesses and securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. In the past,
Morgan Stanley and its affiliates have provided financial advisory and financing
services for the Company and Boeing and have received fees for the rendering of
such services. Morgan Stanley is a full service securities firm engaged in
securities trading and brokerage activities, as well as providing investment
banking, financing and financial advisory services. From time to time, Morgan
Stanley has provided and continues to provide investment banking and financial
advisory services to the Company as underwriters and financial advisors. In the
ordinary course of Morgan Stanley's trading and brokerage activities, Morgan
Stanley or its affiliates may at any time hold long or short positions and may
trade or otherwise effect transactions, for their own accounts or for the
account of customers, in debt or equity securities or senior loans of the
Company, New Rockwell or Boeing.
Pursuant to an engagement letter between the Company and Morgan Stanley,
the Company retained Morgan Stanley as financial advisor in connection with a
potential transaction involving the A&D Business. The Company agreed to pay
Morgan Stanley an advisory fee or a transaction fee based upon whether an
acquisition is consummated. The advisory fee, payable if no acquisition is
consummated, is expected to be between $300,000 and $600,000. If a transaction
involving the A&D Business is concluded, Morgan Stanley will be entitled to
receive a transaction fee against which any advisory fee will be credited. If
the Merger is consummated, Morgan Stanley's transaction fee will be
approximately $12 million.
The Company has also agreed to reimburse Morgan Stanley for its
out-of-pocket expenses, including the reasonable fees of its outside legal
counsel engaged with the Company's consent. The Company has agreed to indemnify
Morgan Stanley and its affiliates, their respective directors, officers, agents
and employees, and each person, if any, controlling Morgan Stanley or any of its
affiliates against certain liabilities, including liabilities under the Federal
securities laws.
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DILLON, READ & CO. INC.
In January 1996, the Board of Directors of the Company retained Dillon Read
to advise it as to the fairness, from a financial point of view, to the
shareowners of the Company of the consideration to be received in a potential
transaction involving the A&D Business.
On July 31, 1996, Dillon Read rendered its oral opinion, which was
confirmed by its written opinion dated July 31, 1996, to the Company's Board of
Directors to the effect that, based upon and subject to certain matters stated
therein, as of the date of such opinion, the consideration to be received by the
shareowners of the Company in the Distribution and the Merger is fair to such
shareowners from a financial point of view.
THE FULL TEXT OF DILLON READ'S OPINION DATED JULY 31, 1996, WHICH SETS
FORTH A DESCRIPTION OF THE ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO
AS APPENDIX II. DILLON READ'S OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM A
FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE RECEIVED BY THE SHAREOWNERS
OF THE COMPANY IN THE DISTRIBUTION AND THE MERGER AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF COMPANY SHARES AS TO HOW SUCH SHAREOWNER SHOULD
VOTE WITH RESPECT TO THE TRANSACTIONS. HOLDERS OF COMPANY SHARES ARE URGED TO
READ THE OPINION CAREFULLY IN ITS ENTIRETY, ESPECIALLY WITH REGARD TO THE
ASSUMPTIONS MADE AND MATTERS CONSIDERED BY DILLON READ. THE SUMMARY OF THE
OPINION SET FORTH IN THIS PROXY STATEMENT-PROSPECTUS IS QUALIFIED BY REFERENCE
TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, Dillon Read reviewed, analyzed and considered
such financial and other factors as it deemed appropriate under the
circumstances including, among other things: (i) certain publicly available
business and historical financial information relating to the Company and
Boeing, (ii) certain financial information and other data provided to Dillon
Read by the Company that is not publicly available relating to the business and
prospects of the A&D Business, including financial projections for the A&D
Business prepared by managements of the A&D Business and the Company, (iii)
discussions with members of senior managements of the A&D Business, the Company
and Boeing, (iv) publicly available financial and stock market data with respect
to certain other companies in lines of business Dillon Read believes to be
generally comparable to those of the A&D Business, (v) the historical market
prices and trading volumes of Boeing Common Stock, (vi) a comparison of the
financial terms of the Merger with the financial terms of certain other
transactions which Dillon Read believes to be generally comparable to the
Merger, (vii) the Merger Agreement and related agreements in the form provided
to Dillon Read, and (viii) such other financial studies, analyses and
investigations, and such other information as Dillon Read deemed necessary or
appropriate, but none of which Dillon Read believes was, individually, material.
Dillon Read's opinion was necessarily based on economic, monetary and market
conditions existing on the date thereof, and the fact that the Distribution will
be on a pro rata basis to the shareowners of the Company.
In connection with its review, Dillon Read did not assume any
responsibility for independent verification of any of the foregoing information
and, with the consent of the Company, relied on such information as being
complete and accurate in all material respects. In addition, Dillon Read did not
make any evaluation or appraisal of any of the assets or liabilities (contingent
or otherwise) of the A&D Business, the Company or Boeing, nor was Dillon Read
furnished with any such evaluation or appraisal. With respect to the financial
projections of the A&D Business referred to above, Dillon Read assumed, with the
Company's consent, that they were reasonably prepared on bases reflecting the
best currently available estimates and judgments of managements of the Company
and the A&D Business as to the future financial performance of the A&D Business.
Dillon Read also assumed that the Distribution and the Merger would be treated
as tax-free to both the Company and the shareowners of the Company. In addition,
although Dillon Read evaluated the consideration to be received by the
shareowners of the Company in the Distribution and the Merger from a financial
point of view, Dillon Read was not asked to and did not recommend the specific
consideration to be received in the Distribution and the Merger. No limits were
placed on Dillon Read with respect to the investigations made or procedures
followed by Dillon Read in rendering its opinion.
In arriving at its opinion, Dillon Read did not assign any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments based on its experience in rendering such opinions and on then
existing economic, monetary and market conditions as to the significance and
relevance of each
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analysis and factor. Accordingly, Dillon Read believes that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered, without considering all analyses and factors, could create a
misleading or incomplete view of the processes underlying such analyses and its
opinion. In its analyses, Dillon Read made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of the A&D Business, the Company
or Boeing. Any estimates contained in Dillon Read's analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than as set forth therein. In addition,
analyses relating to the value of a business or securities do not purport to be
appraisals or to reflect the actual prices at which businesses or securities
might be sold.
The following paragraphs summarize the material quantitative analyses
performed by Dillon Read in arriving at the opinion dated July 31, 1996
delivered to the Company's Board of Directors.
Summary of Recent Acquisition Transactions. Using publicly available
information, Dillon Read reviewed the purchase prices and multiples paid in
selected mergers and acquisitions involving defense companies which Dillon Read
deemed relevant in evaluating the Merger. Dillon Read reviewed the acquisition
of Sperry Marine Inc. by Litton Industries, Inc.; the acquisition of Loral
Corporation by Lockheed Martin Corporation; the acquisition of Westinghouse
Electric Corporation's Electronic Systems Group by Northrop Grumman Corporation;
the acquisition of Magnavox Electronic Systems Company by Hughes Aircraft
Company; the acquisition of E-Systems, Inc. by Raytheon Company; the acquisition
of Unisys Corporation's Defense Businesses by Loral Corporation; the acquisition
of Lockheed Corporation by Martin Marietta Corporation; the acquisition of
Grumman Corporation by Northrop Corporation; the acquisition of IBM Federal
Systems by Loral Corporation; the acquisition of the General Dynamics
Corporation's Tactical Aircraft Division by Lockheed Corporation; the
acquisition of General Electric Company's Aerospace Business by Martin Marietta
Corporation; the acquisition of LTV Corporation's Missile Division by Loral
Corporation; the acquisition of LTV Corporation's Aircraft Division by Vought
Aircraft Company; and the acquisition of General Dynamics Corporation's Missile
Business by Hughes Aircraft Company.
Multiples of unlevered value of the transactions (consideration offered for
the equity plus the book value of debt less the cash and cash equivalents) to
the sales of the acquired businesses for the 12 months preceding the acquisition
announcement averaged 0.7x and ranged from 0.2x to 1.4x. The multiples of EBITDA
for the 12 months preceding the acquisition announcement averaged 6.0x and
ranged from 2.9x to 10.1x. The multiples of earnings before interest and taxes
("EBIT") for the 12 months preceding the acquisition announcement averaged 8.8x
and ranged from 5.2x to 13.3x. The multiples of latest net assets averaged 2.8x
and ranged from 1.3x to 4.6x. Dillon Read noted that, based on the closing price
of Boeing Common Stock on July 30, 1996, the Merger consideration represented
0.9x sales, 7.9x EBITDA, 10.9x EBIT and 3.9x net assets, in each case, above the
average of the transactions considered but within the range. For the purposes of
its analyses, Dillon Read excluded net pension income from the earnings of the
A&D Business.
Analysis of Selected Publicly Traded Comparable Companies in the Defense
Industry. Using publicly available information, Dillon Read reviewed the stock
prices and market multiples of common stocks of the following companies in the
defense industry: General Dynamics Corporation; Litton Industries, Inc.;
Lockheed Martin Corporation; McDonnell Douglas Corporation; Northrop Grumman
Corporation; Raytheon Company; and Tracor, Inc. Dillon Read believes these
companies are engaged in lines of business that are generally comparable to
those of the A&D Business. Dillon Read determined the equity market value and
derived a "firm value" (defined as equity market value adjusted by adding total
debt and subtracting cash and cash equivalents) for each of these comparable
companies. Dillon Read calculated a range of such firm values as a multiple of
the latest 12 months sales, EBITDA and EBIT, and latest net assets. Firm value
as a multiple of the latest 12 months sales averaged 0.9x and ranged from 0.6x
to 1.2x for these comparable companies. Firm value as a multiple of the latest
12 months EBITDA averaged 7.2x and ranged from 6.1x to 8.4x. Firm value as a
multiple of the latest 12 months EBIT averaged 9.9x and ranged from 8.4x to
12.4x. Firm value as a multiple of the latest net assets averaged 2.1x and
ranged from 1.3x to 4.2x. Dillon Read noted that, based on the closing price of
Boeing Common Stock on July 30, 1996, the Merger consideration was 0.9x sales,
7.9x EBITDA, 10.9x EBIT and 3.9x net assets, within the range for these
comparable companies for sales, EBITDA, EBIT and net assets. Dillon Read also
determined the equity market value of the comparable
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companies as a multiple of 1996 net income as estimated by IBES. For 1996
estimated net income, the multiples averaged 13.6x and ranged from 12.3x to
15.1x. Dillon Read noted that, based on the closing price of Boeing Common Stock
on July 30, 1996, the Merger consideration was 15.9x 1996 estimated net income,
above the range for the comparable companies. Dillon Read estimated the 1996 net
income for the A&D Business based on the financial projections of the A&D
Business prepared by managements of the A&D Business and the Company.
No company, transaction or business used in the analyses described under
"Summary of Recent Acquisition Transactions" and "Analysis of Selected Publicly
Traded Comparable Companies in the Defense Industry" above is identical to the
A&D Business or the Merger. Accordingly, an analysis of the results thereof
necessarily involves complex considerations and judgments concerning differences
in financial and operating characteristics and other factors that could affect
the transaction or the public trading or other values of the company or
companies to which they are being compared. Mathematical analysis (such as
determining the average or median) is not in itself a meaningful method of using
comparable acquisition or company data.
Discounted Cash Flow Analysis for the A&D Business. Dillon Read performed
a discounted cash flow analysis of the A&D Business using two different versions
of underlying operating projections, each of which was based upon the forecasts
prepared by managements of the Company and the A&D Business. The second version
differed from the first in that it assumed no increase in the projected rate of
growth or in the projected EBIT margins above the levels projected by
managements of the Company and the A&D Business for 1997. Utilizing these two
versions of projections for the A&D Business, Dillon Read calculated the
theoretical unlevered discounted present value for the A&D Business by adding
together the present value of (i) the projected stream of unlevered free cash
flow through the year 2000 and (ii) the projected value of the A&D Business at
the end of the year 2000 (the "Terminal Value"). The Terminal Value was
calculated based on perpetuity growth rates of cash flow ranging from 2.0% to
3.0%. The after-tax discount rates utilized in the discounted cash flow analyses
ranged from 10.5% to 11.5%.
The theoretical value of the A&D Business based on the first version of
projections produced a range of value per Company Share of $0.24 to $2.47; such
theoretical valuation based on the second version of projections produced a
range of value per Company Share of ($1.82) to ($0.29). Dillon Read noted that,
based on the closing price of Boeing Common Stock on July 30, 1996, the Merger
consideration was above the range of the theoretical value based on both
versions of projections.
Historical Trading Analysis. Dillon Read reviewed the recent stock market
performance of Boeing Common Stock. During the period from July 31, 1991 through
July 30, 1996, Boeing Common Stock achieved a high of $92.00 and a low of
$33.625, based on the daily closing prices on the NYSE. During this period,
Boeing Common Stock outperformed the Standard & Poor's 500 Composite Stock Index
and the Dow Jones Industrial Average Stock Index.
Dillon Read is an internationally recognized investment banking firm which,
as a part of its investment banking business, regularly is engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. The Company's Board of
Directors selected Dillon Read on the basis of the firm's expertise and
independence. Dillon Read has provided and continues to provide investment
banking services to the Company. In the ordinary course of its business, Dillon
Read trades securities of the Company and Boeing for its own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
Pursuant to an engagement letter between the Company and Dillon Read, the
Company has agreed to pay Dillon Read a fee of $3 million upon consummation of
the Distribution and the Merger. The Company has also agreed to reimburse Dillon
Read for the expenses reasonably incurred by it in connection with its
engagement (including reasonable counsel fees) and to indemnify Dillon Read and
its officers, directors, employees, agents and controlling persons against
certain expenses, losses, claims, damages or liabilities in connection with its
services, including those arising under the federal securities laws.
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THE BOEING COMPANY'S REASONS FOR THE MERGER
The Boeing Board of Directors believes that the A&D Business represents a
good strategic fit with the Boeing Defense & Space Group ("D&SG"). D&SG has
concentrated its efforts in selected segments of the defense and space markets,
particularly air vehicles, space systems and informational battle management
systems. Acquisition of the A&D Business will complement existing D&SG efforts
and will also provide sufficient capability either by itself or in combination
with D&SG for Boeing to be competitive in additional market segments.
The addition of the A&D Business will add appreciably to the business base
of D&SG. The size of the combined operations will allow sufficient annual
expenditures to compete more effectively for the new business opportunities that
arise each year. Also, the combined capital and other budgets will add greater
flexibility in pursuing business opportunities. The additional business base
will also position Boeing to provide a better balance between its commercial and
defense and space segments.
CERTAIN CONSIDERATIONS RELATED TO THE NEW ROCKWELL SHARES
ABSENCE OF TRADING MARKET; MARKET PRICES
Prior to the consummation of the Transactions, there will not have been any
trading market for the New Rockwell Common Stock and there can be no assurance
as to the prices at which trading in the New Rockwell Common Stock will occur
after the completion of the Transactions. Until the New Rockwell Common Stock is
fully distributed and an orderly market develops, the trading price may be
volatile. Prices for shares of New Rockwell Common Stock will be determined in
the marketplace and may be influenced by many factors, including the operating
performance of New Rockwell, the depth and liquidity of the market for New
Rockwell Common Stock, investor perception of New Rockwell and general economic
and market conditions. The shares of New Rockwell Common Stock have been
approved for listing on the NYSE upon official notice of issuance. Application
also has been or will be made to list the shares of New Rockwell Common Stock on
the Pacific Stock Exchange and the London Stock Exchange. New Rockwell Class A
Common Stock will not be traded, will be subject to restrictions on transfer and
will not be listed on any securities exchange. New Rockwell Class A Common Stock
will be convertible into New Rockwell Common Stock at the holder's option or
upon transfer to a non-permitted transferee.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Transactions is conditioned on the receipt of opinions
of counsel that (i) the Contribution and the Distribution qualify as
transactions described in Sections 351 and 355 of the Code and/or as a
"reorganization" under Section 368(a)(1)(D) of the Code and (ii) the Merger
qualifies as a "reorganization" under Section 368(a)(1)(B) of the Code. An
opinion of counsel is not binding on the Internal Revenue Service ("IRS") or the
courts. See "Certain Federal Income Tax Considerations". If the Contribution and
the Distribution or the Merger fail to qualify under those sections of the Code,
the Company would recognize gain equal to the excess of the fair market value of
the New Rockwell Common Stock and New Rockwell Class A Common Stock distributed
to its shareowners over the Company's basis in the assets transferred to New
Rockwell in the Contribution, and each Company shareowner who received shares of
New Rockwell Common Stock or New Rockwell Class A Common Stock would be
generally treated as if such shareowner had received a taxable distribution in
an amount equal to the fair market value of New Rockwell Common Stock or New
Rockwell Class A Common Stock received. If the Merger fails to qualify as a
"reorganization", each Company shareowner who receives shares of Boeing Common
Stock would recognize gain or loss equal to the difference between the fair
market value of the Boeing Common Stock received and such shareowner's basis in
the shares of Company Common Stock (after giving effect to the Conversion)
surrendered. A further condition to the consummation of the Transactions is that
there must not have occurred any Adverse Tax Development that may or will result
in the imposition of a material amount of Federal income tax to the Company, New
Rockwell or any of their respective subsidiaries or shareowners in respect of
the Contribution, the Distribution or the Merger. See "The Merger -- Terms of
the Merger Agreement -- Conditions". There can be no assurance that there will
not occur any Adverse Tax Development or, if an Adverse Tax Development were to
occur, that the Company would not exercise its rights in such event to terminate
the Merger Agreement.
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<PAGE> 43
ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE NEW ROCKWELL CERTIFICATE AND
NEW ROCKWELL BY-LAWS
The New Rockwell Certificate and the New Rockwell By-Laws will include
certain provisions that might discourage certain types of transactions involving
a change of control of New Rockwell, make difficult an acquisition of control of
New Rockwell in a transaction not approved by New Rockwell's Board of Directors
or have other potential antitakeover effects. Certain of these provisions are
currently contained in the Company Certificate and Company By-Laws such as (i)
the disparate voting rights of New Rockwell Common Stock and New Rockwell Class
A Common Stock (which will automatically expire on February 23, 1997 pursuant to
the provisions of the New Rockwell Certificate), (ii) the ability of New
Rockwell's Board of Directors to issue shares of preferred stock in one or more
series without further authorization of New Rockwell's shareowners, (iii) a fair
price provision and (iv) a prohibition on shareowner action by written consent.
Certain other provisions not contained in the Company Certificate or the Company
By-Laws include (i) requiring shareowners to provide advance notice of any
shareowner nominations of directors or any proposal of new business to be
considered at any meeting of shareowners, (ii) requiring a supermajority vote to
remove a director for cause or to amend or repeal certain provisions of the New
Rockwell Certificate or the New Rockwell By-Laws, and (iii) eliminating the
right of shareowners to call a special meeting of shareowners. Principally in
order to provide greater continuity for New Rockwell's Board of Directors to
carry out the strategic plans underlying the Transactions, the New Rockwell
Certificate and the New Rockwell By-Laws provide for the division of the New
Rockwell Board of Directors into three classes to be elected on a staggered
basis, one class each year. In addition, New Rockwell intends, in connection
with the Distribution, to adopt a shareowner rights plan that will provide
shareowners of New Rockwell with certain rights that would substantially
increase the cost of acquiring New Rockwell in a transaction not approved by New
Rockwell's Board of Directors. These provisions are intended to help ensure that
New Rockwell's Board of Directors, if confronted with an unsolicited proposal
from a third party to acquire control of New Rockwell, will have sufficient time
to review the proposal, to develop, if deemed appropriate, alternatives to the
proposal and to act in what the Board of Directors believes to be the best
interests of New Rockwell and its shareowners. In the event of a proposed
acquisition of New Rockwell, the Board of Directors of the Company believes that
the interests of New Rockwell shareowners will be best served by a transaction
that results from negotiations with New Rockwell's management and Board of
Directors based upon careful consideration of the proposed terms, such as the
price to be paid to shareowners, the form of consideration paid and the tax
effects of the transaction. See "Description of New Rockwell Capital Stock".
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<PAGE> 44
PRE-MERGER TRANSACTIONS
This section of the Proxy Statement-Prospectus describes certain aspects of
the proposed Contribution and Distribution. To the extent that they relate to
the Distribution Agreement, the following descriptions do not purport to be
complete and are qualified by reference to the Distribution Agreement, which is
attached as Annex A to the Merger Agreement attached as Appendix III to this
Proxy Statement-Prospectus and which is incorporated herein by reference.
CONTRIBUTION AND DISTRIBUTION
New Rockwell, which is a wholly-owned subsidiary of the Company, was
recently organized for purposes of the Transactions. Until shortly before the
Merger, New Rockwell will own no material assets and will not conduct any
business activities other than in connection with the Transactions. Consummation
of the Contribution and the Distribution is a condition to the Merger. The
Company will not proceed with any of the Transactions described herein unless
both the Contribution Proposal and the Merger Proposal are approved by the
Company's shareowners.
TERMS OF THE DISTRIBUTION AGREEMENT
The Contribution. The Distribution Agreement provides that effective as of
the effective time of the Contribution (the "Time of Contribution") (which will
be immediately prior to the Distribution), the Company will contribute to New
Rockwell or to one of the Operating Subsidiaries all the Company's right, title
and interest in and to any and all assets of the Company, other than certain
specifically identified assets which will be retained by the Company. Also
effective as of the Time of Contribution, New Rockwell and/or one of the
Operating Subsidiaries will assume all liabilities of the Company, other than
certain specifically identified liabilities which will be retained by the
Company. The purpose and effect of the Contribution is to facilitate the Merger
by separating the New Rockwell Business from the A&D Business and to transfer
the assets and liabilities of the New Rockwell Business to New Rockwell.
Accordingly, the A&D Business and the Retained Liabilities will constitute all
the businesses, assets and liabilities of the Company at the time of the Merger.
The assets retained by the Company will consist principally of the assets
that are used primarily in or held primarily for use in or otherwise necessary
for the operation, as presently conducted, of the A&D Business (with certain
additions and exclusions as described below) (the "Retained Assets"). The
Retained Assets also include: (i) the assets that are used primarily in or held
primarily for use in or otherwise necessary for the operation, as presently
conducted, of the Company's Seal Beach, California world headquarters, the
Company's Systems Development Center, the Company's Information Systems Center
and the Company's Government Affairs, Marketing and International Offices and
certain related international and field offices (the "Additional Retained
Facilities") (other than miscellaneous furnishings, artwork, computers and other
equipment and personal property used by Company employees who will become New
Rockwell employees following the Time of Contribution), (ii) one helicopter and
one corporate jet aircraft and (iii) all assets reflected on the statement of
assets and liabilities of the A&D Business as of June 30, 1996 included
elsewhere herein, as such assets may have been added to, sold in the ordinary
course of business or otherwise changed since such date. Also included in the
Retained Assets are: (i) all issued and outstanding shares of capital stock of
certain aerospace and defense related subsidiaries of the Company (the "Retained
Subsidiaries"); (ii) all rights in and use of the names "Autonetics", "North
American Aviation" and "Rocketdyne" and all derivatives thereof; (iii) all
rights of the Company under the Reorganization Agreements, except as otherwise
specifically provided therein and except that certain of the Company's rights
under the Merger Agreement will not constitute Retained Assets; and (iv) the
Environmental Coverage Claims (as defined below).
The Distribution Agreement specifically excludes from the Retained Assets:
(i) cash or cash equivalents (other than certain amounts identified in the
Distribution Agreement to be retained by the Company and cash in an amount equal
to the excess, if any, of (A) the sum of (1) $4.5 million and (2) all accrued
and unpaid interest on the Retained Company Debt to the Closing Date other than
accretion on commercial paper to the extent such accretion is included in
Retained Company Debt (the "Accrued Interest") over (B) the excess, if any, of
$2.165 billion over the aggregate principal amount of the Retained Company Debt
at the Effective Time (the "Paydown Amount")), (ii) the Contributed A&D Assets
(as defined below) and (iii) the assets associated with certain headquarters and
other corporate functions.
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<PAGE> 45
The liabilities that will be retained by the Company pursuant to the
Distribution Agreement (the "Retained Liabilities") consist of: (i) all
liabilities (other than the Assumed Liabilities) relating primarily to or
arising primarily from the A&D Business; (ii) Retained Company Debt, which
consists of: (A) Old Company Notes in the aggregate principal amount of $1.6
billion, as the same may be amended pursuant to the Consent Solicitation; (B)
commercial paper or other short-term borrowings in the aggregate principal
amount of $565 million (with respect to commercial paper issued at a discount,
the accreted value at the Closing Date will be deemed to be the principal amount
thereof), less the aggregate principal amount of any outstanding Rockwell
Australia Debt (as defined below), or any indebtedness issued in replacement
thereof or in exchange therefor; and (C) bank borrowings of Rockwell Australia
Limited in an aggregate principal amount of not more than the equivalent of U.S.
$30 million (the "Rockwell Australia Debt"), in each case, together with the
Accrued Interest; (iii) all liabilities associated with the current and former
operations of the Additional Retained Facilities; and (iv) all liabilities that
are contemplated by the Reorganization Agreements (other than the Merger
Agreement) as liabilities to be retained by the Company or any of the Retained
Subsidiaries (collectively, the "Company Group"), and any agreements,
obligations and liabilities of the Company Group under the Reorganization
Agreements (other than the Merger Agreement), except as otherwise specifically
provided therein and except for obligations which are required or contemplated
to be performed prior to the Effective Time. The liabilities to be retained by
the Company Group include liabilities related to certain pension obligations of
the Company. See "Effect on Employment and Employee Benefits -- Employee
Benefits -- Qualified Retirement Plans".
In order to create a holding company structure for New Rockwell, the
Distribution Agreement provides that the assets of the Company contributed to
New Rockwell that are used primarily in or held primarily for use in the A-B
Business (the term used in the Distribution Agreement for the Company's
Automation Business), the Collins Business, the Semiconductor Systems Business,
the LVS Business and the HVS Business (as such terms are defined in the
Distribution Agreement) will be contributed to A-B, Collins, RSS, LVS and HVS,
respectively. As part of the Contribution, (i) the Company will contribute to
New Rockwell the capital stock of the Operating Subsidiaries and the Operating
Subsidiaries will become wholly-owned subsidiaries of New Rockwell, (ii)
Reliance, a wholly-owned subsidiary of the Company, will become a wholly-owned
subsidiary of A-B and (iii) Brooktree will become a wholly-owned subsidiary of
RSS.
In addition, the Distribution Agreement provides that the Company's
properties at El Segundo, California, Lakewood, California, and Building 37 at
Canoga Park, California (collectively, the "Contributed A&D Assets") will be
contributed to A-B, if not previously sold, and the following assets will be
contributed to New Rockwell or to one of the Operating Subsidiaries or as New
Rockwell shall otherwise direct: (i) the Company's Science Center; (ii) all
issued and outstanding shares of Atomics International, Inc., Narland
Corporation and Rockwell Aerospace & Electronics, Inc.; (iii) the Health Care
Claims (as defined below); (iv) all cash and cash equivalents of the Company and
its subsidiaries (other than certain amounts identified in the Distribution
Agreement to be retained by the Company); and (v) certain of the Company's
rights under the Merger Agreement. The assets of the Company to be contributed
to New Rockwell or to the Operating Subsidiaries are referred to herein as the
"Contributed Assets".
The Distribution Agreement further provides that the liabilities of the
Company to be assumed by New Rockwell and one of the Operating Subsidiaries (the
"Assumed Liabilities") include the following: (i) all liabilities relating
primarily to or arising primarily from the Automation Business, the Collins
Business, the Semiconductor Systems Business, the LVS Business and the HVS
Business; (ii) all liabilities (including without limitation indemnification
obligations) relating primarily to or arising primarily from (A) the reports,
registration statements and other documents filed by the Company with the
Commission prior to the Time of Contribution and (B) any breach or alleged
breach by any director of the Company of his or her fiduciary duties to the
Company and its shareowners occurring at or prior to the Time of Contribution,
in each case referred to in the foregoing clauses (A) and (B) notwithstanding
the fact that such liabilities may relate primarily to or arise primarily from
the A&D Business or the Additional Retained Facilities, but excluding any matter
for which the Company would be required to provide indemnification pursuant to
certain provisions of the Post-Closing Covenants Agreement to be entered into
among the Company, Boeing, Merger Sub and New Rockwell (the "Post-Closing
Covenants Agreement"); (iii) all liabilities relating primarily to or arising
primarily from any divested business of the A&D Business; (iv) all liabilities
relating primarily to or arising
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<PAGE> 46
primarily from Atomics International, Inc., Narland Corporation and Rockwell
Aerospace & Electronics, Inc.; (v) all liabilities relating to the Contributed
A&D Assets; (vi) all liabilities in respect of indebtedness for borrowed money
(including any guarantees of the Company and any of its subsidiaries in respect
of indebtedness for borrowed money of any third party) other than the Retained
Company Debt; (vii) all liabilities of the Company or any of its subsidiaries
(including certain environmental liabilities) arising out of or relating to (A)
the Rocky Flats Plant, Golden, Colorado, (B) the Hanford Nuclear Reservation,
Hanford, Washington, (C) the INEL complex in Idaho, (D) the Company's or any of
its subsidiaries' decontamination and decommissioning work at various atomic or
nuclear facilities throughout the United States (excluding Santa Susana and
Canoga Park, California), (E) the Company's work relating to Interatom
(Internationale Atomreaktorbau GmbH) and (F) any products manufactured or any
services provided by the Company or any of its subsidiaries which involved
radioactive, fissionable or fusionable materials or any waste products or
by-products thereof (other than activities of the Company and its subsidiaries
at Santa Susana and Canoga Park, California) (the "Special Liabilities"); and
(viii) all liabilities that are contemplated by the Reorganization Agreements as
liabilities to be assumed by any member of the New Rockwell Group (as defined
below), including any other liabilities that do not constitute Retained
Liabilities, and any agreements, obligations and liabilities of the New Rockwell
Group under the Merger Agreement, the Distribution Agreement, the Post-Closing
Covenants Agreement and the Tax Allocation Agreement to be entered into among
the Company, New Rockwell and Boeing (the "Tax Allocation Agreement" and
together with the Merger Agreement, the Distribution Agreement and the
Post-Closing Covenants Agreement, the "Reorganization Agreements").
Recapitalization Of New Rockwell. The Distribution Agreement provides that
immediately prior to the time as of which the Distribution is effective (the
"Time of Distribution"), the Company will cause New Rockwell to amend its
certificate of incorporation to, among other things, (i) increase the authorized
number of shares of capital stock of New Rockwell to 1,125,000,000 shares,
consisting of 25,000,000 shares of Preferred Stock, without par value,
1,000,000,000 shares of New Rockwell Common Stock and 100,000,000 shares of New
Rockwell Class A Common Stock, and (ii) exchange all the issued and outstanding
shares of New Rockwell stock owned by the Company for a total number of shares
of New Rockwell Common Stock and New Rockwell Class A Common Stock equal to the
total number of shares of Company Common Stock and Company Class A Common Stock,
respectively (other than Company Common Stock and Company Class A Common Stock
held in the treasury of the Company), outstanding as of the Distribution Record
Date.
The Distribution. The Distribution Agreement provides that the
Distribution will be effected by the delivery to each holder of record of
Company Common Stock and Company Class A Common Stock as of the Distribution
Record Date, of certificates representing one share of New Rockwell Common Stock
for each share of Company Common Stock and one share of New Rockwell Class A
Common Stock for each share of Company Class A Common Stock held by such holder.
The Board of Directors of the Company will formally declare the
Distribution and authorize the Company to make it immediately prior to the
Effective Time, subject to the satisfaction or waiver of the conditions to the
Distribution, by delivery of certificates for New Rockwell Common Stock and New
Rockwell Class A Common Stock to the Paying Agent for delivery to the holders
entitled thereto. The Distribution will be deemed to be effective upon
notification by the Company to the Paying Agent that the Distribution has been
declared and that the Paying Agent is authorized to proceed with the
distribution of New Rockwell Common Stock and New Rockwell Class A Common Stock.
Following the Effective Time, the Paying Agent will deliver certificates for
shares of New Rockwell Common Stock and New Rockwell Class A Common Stock to the
holders of record of Company Common Stock and Company Class A Common Stock on
the Distribution Record Date without any further action by such holders.
Cross-License of Intellectual Property. The Distribution Agreement
provides that, effective as of the Time of Distribution, each of the Company and
New Rockwell will grant to the other and its subsidiaries a non-exclusive
license for all intellectual property rights which it owns or has a right to
license immediately after the Time of Contribution, and which are used in the
conduct of the licensee's business (whether or not such rights are also used in
the conduct of the licensor's business) at the Time of Contribution, to make,
have made, use, import, sell or otherwise dispose of products, or to practice
any process in connection therewith.
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<PAGE> 47
Use of Names, Trademarks, etc. Pursuant to the Distribution Agreement,
from and after the Effective Time, New Rockwell will have all rights in and,
except for certain limited rights of use granted to the Company Group, use of
the names "Rockwell", "Rockwell International" and "Collins" and all derivatives
thereof and the Company will have all rights in and, except for certain limited
rights of use granted to New Rockwell and its subsidiaries (the "New Rockwell
Group"), use of the names "Autonetics", "North American Aviation" and
"Rocketdyne" and all derivatives thereof. The Company will change the names of
its subsidiaries or other persons under its control to eliminate therefrom the
names "Rockwell", "Rockwell International" and "Collins" and all derivatives
thereof, and New Rockwell will change the names of its subsidiaries or other
persons under its control to eliminate therefrom the names "Autonetics", "North
American Aviation" and "Rocketdyne" and all derivatives thereof.
Mutual Release, etc. The Distribution Agreement provides that, effective
as of the Time of Distribution and except as otherwise specifically set forth in
the Reorganization Agreements or the Transition Agreement (as defined below),
each of New Rockwell, on the one hand, and the Company, on the other hand, on
its own behalf and on behalf of each of its respective subsidiaries, releases
and forever discharges the other and its subsidiaries, and its and their
respective officers, directors, agents, affiliates, record and beneficial
security holders (including, without limitation, trustees and beneficiaries of
trusts holding such securities), advisors and representatives (in their
respective capacities as such) and their respective heirs, executors,
administrators, successors and assigns, of and from all debts, demands, actions,
causes of action, suits, accounts, covenants, contracts, agreements, damages,
claims and liabilities whatsoever of every name and nature, both in law and in
equity, which the releasing party has or ever had, which arise out of or relate
to events, circumstances or actions taken by such other party occurring or
failing to occur or any conditions existing on or prior to the Time of
Distribution; provided, however, that the foregoing general release will not
apply to certain liabilities set forth in the Distribution Agreement, including
(i) any liabilities (including liabilities with respect to indemnification)
under the Transition Agreement or assumed, transferred, assigned, allocated or
arising under any of the Reorganization Agreements and shall not affect any
party's right to enforce the Reorganization Agreements in accordance with their
terms, and (ii) certain liabilities for the sale, lease, construction or receipt
of goods, property or services purchased, obtained or used in the ordinary
course of its business by a member of either the Company Group or the New
Rockwell Group (each, a "Group") from a member of the other Group.
Conditions to the Distribution. The obligations of the Company to
consummate the Distribution are subject to the fulfillment of each of the
following conditions: (i) consummation of the Contribution; (ii) consummation of
the recapitalization of New Rockwell; (iii) each condition to the closing of the
Merger Agreement, other than (A) the condition as to the consummation of the
Contribution and the Distribution and (B) the condition to Boeing's obligations
as to the satisfaction of conditions in the Distribution Agreement, shall have
been fulfilled or waived; (iv) the Company's Board of Directors shall be
reasonably satisfied that, after giving effect to the Contribution, (A) the
Company will not be insolvent and will not have unreasonably small capital with
which to engage in its businesses and (B) the Company's surplus would be
sufficient to permit, without violation of Section 170 of the DGCL, the
Distribution; and (v) Boeing, the Company and New Rockwell shall each have
received advance agreements or approvals of the PBGC, DOD and DOE concerning
certain employee benefit and indemnification matters.
Under applicable law, the Contribution and the Distribution would
constitute a "fraudulent transfer" if (i) the Company is insolvent at the Time
of Contribution or the Time of Distribution, (ii) the Contribution or the
Distribution would render the Company insolvent, (iii) the Contribution or the
Distribution would leave the Company engaged in a business or transaction for
which its remaining assets constituted unreasonably small capital or (iv) the
Company intended to incur or believed it would incur debts beyond its ability to
pay as such debts mature. Generally, an entity is considered insolvent if it is
unable to pay its debts as they come due or if the fair value of its assets is
less than the amount of its actual and expected liabilities. In addition, under
Section 170 of the DGCL (which is applicable to the Distribution), a corporation
generally may make distributions to its stockholders only out of its surplus
(net assets minus statutory capital) and not out of statutory capital.
Pursuant to the Distribution Agreement, it is a condition to the Company's
obligation to effect the Distribution that the Company's Board of Directors be
reasonably satisfied that, after giving effect to the
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<PAGE> 48
Contribution, (i) the Company will not be insolvent and will not have
unreasonably small capital with which to engage in its businesses and (ii) the
Company's surplus would be sufficient to permit, without violation of Section
170 of the DGCL, the Distribution. The Company currently believes that such
condition will be satisfied.
If a court in a lawsuit by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy, were to find that, at the time the
Company effects the Contribution and the Distribution, the Company (i) was
insolvent, (ii) was rendered insolvent by reason of such transaction, (iii) was
engaged in a business or transaction for which the Company's remaining assets
constituted unreasonably small capital or (iv) intended to incur or believed it
would incur debts beyond its ability to pay as such debts matured, such court
could void the Contribution and the Distribution as a fraudulent conveyance and
require that the Company's shareowners return the New Rockwell Shares to the
Company or to a fund for the benefit of the Company's creditors.
Amendment. The Distribution Agreement provides that the parties thereto
may modify or amend the Distribution Agreement only by written agreement
executed and delivered by duly authorized officers of the respective parties.
The Merger Agreement provides that prior to the Effective Time, the Company will
not waive or amend the terms of the Distribution Agreement without the consent
of Boeing.
CONSENT SOLICITATION
Pursuant to the Merger Agreement, the obligation of each of the Company,
Boeing and Merger Sub to consummate the Merger is conditioned upon consummation
of the Consent Solicitation. The Company and Boeing have agreed to use their
reasonable best efforts to consummate on or prior to date of the Special Meeting
the Consent Solicitation and pursuant thereto to obtain consents to the Proposed
Amendments from the holders of the Old Company Notes.
In order for the Consent Solicitation to be consummated and the Proposed
Amendments to be approved, the Company and Boeing must obtain validly delivered
and unrevoked consents from holders of a majority in principal amount of each
Series.
The Proposed Amendments would effect amendments to the Indenture pursuant
to which the Old Company Notes have been issued (i) to delete or amend certain
covenants in the Indenture to provide that the Contribution and the Distribution
will not require New Rockwell to assume the Company's obligations under the Old
Company Notes or the Indenture, (ii) to replace certain covenants in the
Indenture with comparable covenants of Boeing to be included in the Boeing Debt
Guaranty and (iii) to amend certain additional terms and covenants in the
Indenture to conform them to the comparable terms and covenants contained in the
Boeing Indenture.
In connection with the Proposed Amendments, Boeing has agreed to provide to
holders of Old Company Notes the Boeing Debt Guaranty.
As of October 29, 1996, $1.6 billion aggregate principal amount of the Old
Company Notes was outstanding in six Series with maturities ranging from 1998 to
2005. See Note 7 to the consolidated financial statements of the A&D Business
included elsewhere herein. Pursuant to the Merger Agreement, Boeing will manage
and control all aspects of the Consent Solicitation and will be solely
responsible for the payment of all fees and expenses, including any consent
solicitation fees, in connection with the Consent Solicitation. Boeing will keep
the Company apprised on a regular basis of all significant developments relating
to the Consent Solicitation and will consult with the Company prior to taking
any significant actions or making any significant decisions in connection
therewith. If the conditions to the Consent Solicitation and the other
conditions to the Transactions are satisfied, the Proposed Amendments will
become effective substantially simultaneously with the Contribution.
This Proxy Statement-Prospectus does not constitute a solicitation of
consents to the Proposed Amendments or an offer of the Boeing Debt Guaranty,
which will be made only by means of a consent solicitation statement to be
mailed to the holders of the Old Company Notes and a registration statement and
related prospectus filed by Boeing with the Commission, respectively.
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<PAGE> 49
THE MERGER
This section of the Proxy Statement-Prospectus describes certain aspects of
the proposed Merger. To the extent that it relates to the Merger Agreement, the
following description does not purport to be complete and is qualified by
reference to the Merger Agreement, which is attached as Appendix III to this
Proxy Statement-Prospectus and is incorporated herein by reference.
TERMS OF THE MERGER AGREEMENT
PRE-MERGER TRANSACTIONS
The Merger Agreement provides that prior to the Effective Time, (i) the
Company will (A) enter into and cause New Rockwell and the Operating
Subsidiaries to enter into the Distribution Agreement, the Post-Closing
Covenants Agreement and the Tax Allocation Agreement and (B) effect the
Contribution, the Distribution and the Conversion, (ii) the Company and Boeing
will use their reasonable best efforts to consummate the Consent Solicitation
and (iii) Boeing will enter into the Post-Closing Covenants Agreement and the
Tax Allocation Agreement and Merger Sub will enter into the Post-Closing
Covenants Agreement.
THE MERGER
At the Effective Time, the Company and Boeing will consummate the Merger
whereby Merger Sub will merge with and into the Company and the separate
corporate existence of Merger Sub will thereupon cease. The Company will be the
Surviving Corporation in the Merger, will be a wholly-owned subsidiary of Boeing
and will continue to be governed by the laws of the State of Delaware. The
Merger Agreement provides that the Company Certificate and the Company By-Laws
in effect at the Effective Time will continue as the certificate of
incorporation and the by-laws of the Surviving Corporation, except that the name
of the Surviving Corporation will be changed to "Boeing North American, Inc."
Pursuant to the Merger Agreement, at the Effective Time each share of
Company Common Stock issued and outstanding immediately prior to the Effective
Time (after giving effect to the Conversion) (other than shares to be canceled
as described below) will be converted at the Effective Time into the right to
receive that number (the "Per Share Merger Consideration") of duly authorized,
validly issued, fully paid and nonassessable shares of Boeing Common Stock equal
to the quotient, rounded to the nearest thousandth, or if there shall not be a
nearest thousandth, the next higher thousandth, of (x) the quotient of (A)
$859,832,000 divided by (B) the number of shares of Company Common Stock issued
and outstanding immediately prior to the Effective Time (after giving effect to
the Conversion) (other than shares to be canceled as described below), divided
by (y) the Market Price of Boeing Common Stock on the date of the Special
Meeting. The "Market Price" of Boeing Common Stock on any date means the average
of the daily closing prices per share of Boeing Common Stock as reported on the
NYSE Composite Transactions reporting system (as published in The Wall Street
Journal or, if not published therein, in another authoritative source) for the
20 consecutive full NYSE trading days (the "Averaging Period") immediately
preceding the second full trading day prior to such date; provided that if the
Board of Directors of Boeing declares a dividend on the outstanding shares of
Boeing Common Stock with an ex-dividend date (based on "regular way" trading on
the NYSE of shares of Boeing Common Stock) that occurs during the Averaging
Period, then for purposes of computing the Market Price, appropriate adjustments
will be made.
In the event that the Market Price of Boeing Common Stock on the date of
the Special Meeting is less than the Minimum Price or greater than the Maximum
Price, then solely for the purposes of calculating the Per Share Merger
Consideration, the Market Price of Boeing Common Stock on the date of the
Special Meeting will be deemed to be the Minimum Price or the Maximum Price, as
the case may be. If prior to the Effective Time, (i) the Board of Directors of
Boeing declares a stock split, stock combination, stock dividend or other
non-cash distribution or extraordinary cash dividend on the outstanding shares
of Boeing Common Stock, or (ii) Boeing issues or sells shares of Boeing Common
Stock or rights, options or warrants for, or securities convertible or
exchangeable into or exercisable for, shares of Boeing Common Stock, which would
have a dilutive effect on the shares of Boeing Common Stock to be issued in the
Merger (other than pursuant to any bona fide underwritten public offering or a
Rule 144A offering and other than pursuant to any existing employee benefit plan
or arrangement (including any stock option plan of Boeing)), then the Minimum
Price,
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<PAGE> 50
the Maximum Price and the Market Price will be appropriately adjusted to reflect
such split, combination, distribution, dividend, issuance or sale.
In the Merger, at the Effective Time each share of Company Common Stock
issued and outstanding immediately prior to the Effective Time and owned by the
Company or Boeing or any of their wholly-owned subsidiaries (excluding shares
held by employee benefit plans of the Company, Boeing or any of their
subsidiaries) or held in the treasury of the Company will be canceled and
retired without payment of any consideration therefor and will thereafter cease
to exist. The Merger Agreement also provides that each share of capital stock of
Merger Sub issued and outstanding immediately prior to the Effective Time will
be converted into and become one fully paid and nonassessable share of Common
Stock, par value $1.00 per share, of the Surviving Corporation.
No fractional shares of Boeing Common Stock will be issued in the Merger.
Instead, the Merger Agreement provides that each holder of Company Common Stock
who would otherwise have been entitled to receive a fraction of a share of
Boeing Common Stock will be entitled to receive, in lieu thereof, cash (without
interest) in an amount equal to the fraction of a share to which such holder
would otherwise have been entitled, multiplied by the Market Price of Boeing
Common Stock on the date of the Special Meeting, without giving effect to the
Maximum Price or the Minimum Price, less the amount of any withholding taxes
which may be required thereon. The Merger Agreement provides that for purposes
of paying such cash in lieu of fractional shares, all certificates formerly
representing Company Shares ("Old Certificates") surrendered for exchange by a
holder on the same letter of transmittal will be aggregated, and no such holder
will receive cash in lieu of fractional shares in an amount equal to or greater
than the value of one full share of Boeing Common Stock with respect to all such
Old Certificates surrendered.
The following table sets forth the aggregate number of shares of Boeing
Common Stock that may be issuable in the Merger and the Exchange Ratio if the
Market Price of Boeing Common Stock is at or above the Maximum Price, at or
below the Minimum Price and at a median price per share of Boeing Common Stock
of $87.325, based on the number of Company Shares issued and outstanding on
October 14, 1996.
<TABLE>
<CAPTION>
AGGREGATE NUMBER OF
MARKET PRICE OF SHARES OF BOEING
BOEING COMMON COMMON STOCK
STOCK ISSUABLE IN MERGER EXCHANGE RATIO
- ------------------ ------------------- --------------
<S> <C> <C>
$100.42 or above 8,562,358 .039
$ 87.325 9,846,344 .045
$ 74.23 or below 11,583,349 .053
</TABLE>
Based on the closing price per share of Boeing Common Stock on the NYSE
Composite Transactions reporting system on October 28, 1996 of $93.625 and the
number of Company Shares issued and outstanding on October 14, 1996, the
Exchange Ratio would be approximately .042.
Shareowners of the Company may call toll free 1-800-204-7800 at any time on
or after November 29, 1996 to obtain the Market Price of Boeing Common Stock as
of the date of the Special Meeting and the Exchange Ratio. The foregoing
information may also be obtained at the Company's World Wide Web site at
http://www.rockwell.com and a press release announcing the Market Price of
Boeing Common Stock and the Exchange Ratio also will be issued by the Company on
or about November 29, 1996.
EFFECTIVE TIME; CLOSING
The Merger will become effective, and the Effective Time will occur, on the
date and at the time that a certificate of merger (a "Certificate of Merger") is
filed with the Secretary of State of the State of Delaware, or at such later
date and time as the parties may agree and as may be specified in the
Certificate of Merger. The Merger Agreement provides that the closing of the
Merger (the "Closing") will take place on the first business day on which all
the conditions specified therein are fulfilled or waived or on such other date
as the Company and Boeing may agree. The date upon which the Closing will occur
is herein called the "Closing Date". The Company and Boeing expect that the
Closing will occur shortly after the Special Meeting.
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CONDUCT OF BUSINESS PRIOR TO EFFECTIVE TIME; CERTAIN COVENANTS
Operational Covenants. The Merger Agreement provides that, during the
period from the date of the Merger Agreement until the Effective Time, except as
required or otherwise expressly contemplated by the Reorganization Agreements or
to the extent that Boeing otherwise consents in writing, the Company will, and
will cause each of its subsidiaries to, conduct the A&D Business in the ordinary
course, consistent with past practice (including, without limitation, by not
taking any actions out of the ordinary course to generate cash, such as delaying
payables or accelerating receivables) and the Company will use commercially
reasonable efforts to keep available the services of key employees engaged
primarily in the A&D Business and to preserve the relationships with key
customers, suppliers and others having business dealings with the A&D Business.
The Merger Agreement further provides that from the date of the Merger
Agreement until the Effective Time:
(i) neither the Company nor any of the Retained Subsidiaries will (A)
except as expressly contemplated by the Reorganization Agreements, issue,
transfer, sell or dispose of, or authorize or agree to the issuance,
transfer, sale or disposition by the Company (with respect to the A&D
Business) or any of the Retained Subsidiaries (collectively, the "Retained
Companies") of (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise), any
shares of capital stock or any voting securities of the Company (other than
Company Common Stock and Company Class A Common Stock) or any of the
Retained Subsidiaries, or any options or other securities convertible into
or exchangeable for any shares of capital stock or any voting securities of
the Company (other than Company Common Stock or Company Class A Common
Stock) or amend any of the terms of any such securities or agreements
relating to such capital stock outstanding on the date of the Merger
Agreement, other than the issuance, transfer, sale or disposition by a
wholly-owned subsidiary of its capital stock to its parent; (B) amend in
any material respect its certificate of incorporation or by-laws (other
than for the Company to provide for a customary shareholder rights plan
that expressly permits and would not be triggered by the Transactions); (C)
acquire or agree to acquire any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire or agree to acquire any assets except in the ordinary course of
business (other than immaterial assets) that would be part of the A&D
Business or make or agree to make any other material investment in any
person that would be part of the A&D Business, except acquisitions or
investments pursuant to existing contractual obligations or investments in
any entity that was a Retained Subsidiary before giving effect to such
investment; (D) sell, lease, license, encumber or otherwise dispose of, or
agree to sell, lease, license, encumber or otherwise dispose of, any assets
of the A&D Business other than in the ordinary course of business
consistent with past practice or pursuant to existing contractual
obligations; (E) except as required by law or the terms of any collective
bargaining agreement or in the ordinary course of business consistent with
past practice with Boeing's consent (such consent not to be unreasonably
withheld), adopt any employee benefit plan, arrangement or policy which
would become a plan, arrangement or policy of the Retained Companies or of
New Rockwell and its subsidiaries with respect to which any of the Retained
Companies has any liability (other than those for which New Rockwell or one
of its subsidiaries has retained all liability pursuant to the Distribution
Agreement) (a "Benefit Plan") or amend any Benefit Plan, to the extent such
adoption or amendment would create or increase any material liability or
obligation on the part of the Retained Companies that will not either (1)
be fully performed or satisfied prior to the Effective Time or (2) be
assumed by New Rockwell or one of its subsidiaries pursuant to the
Distribution Agreement; (F) with respect to the conduct of the A&D
Business, change any of its accounting principles, practices or procedures,
other than as may be required by U.S. generally accepted accounting
principles ("GAAP") or Regulation S-X of the Commission; (G) create, incur,
suffer to exist or assume any lien on the Retained Assets, or permit any
subsidiary to do so, other than certain permitted liens; (H) settle, modify
in any material respect, withdraw or release the Company's $547.2 million
claim against the United States and the related $18 million claim against
the U.S. Air Force (collectively, the "Gunship Claims") or agree to any
modification in any material respect of the AC-130U Gunship contract with
the United States without Boeing's prior written consent; or (I) take or
cause to be taken any action prior to the Effective Time
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which would disqualify the Contribution and the Distribution as
transactions described in Sections 351 and 355 of the Code and/or as a
"reorganization" within the meaning of Section 368(a)(1)(D) of the Code or
the Merger as a "reorganization" within the meaning of Section 368(a)(1)(B)
of the Code, and the Company will use reasonable best efforts to do
everything reasonably necessary to have the Contribution, Distribution and
Merger qualify as aforesaid;
(ii) the Company will, and will cause New Rockwell and its affiliates
to, (A) prepare and timely file with the relevant taxing authority certain
tax returns and reports required to be filed which include any of the
Retained Companies on bases consistent with those used for the most recent
taxable periods for which tax returns involving similar tax items have been
filed and in a manner that does not unreasonably accelerate deductions or
defer income, (B) timely pay all taxes due and payable, or establish
reserves therefor in accordance with GAAP and consistent with past
practice, (C) make adequate provision to the extent required in accordance
with GAAP for all taxes due and payable after the Effective Time, (D)
promptly notify Boeing of any action, suit, proceeding or claim or audit
pending against or with respect to the Company, New Rockwell or any other
affiliate in respect of any taxes where there is a reasonable possibility
of a determination or decision which would materially increase the tax
liabilities, or materially decrease the tax attributes, of any of the
Retained Companies for any periods (or portions of periods) beginning after
the date of the Merger and (E) not, without the prior written consent of
Boeing, change any of the tax elections, accounting methods, conventions or
principles which relate to the Retained Companies;
(iii) the Company and the Retained Subsidiaries will continue to
maintain and repair all property material to the operation of the A&D
Business in a manner consistent with past practice;
(iv) the Company will pay prior to the Closing Date all fines and
penalties imposed prior to the Closing Date by any governmental entity
arising out of the explosion at the Santa Susana, California facility in
1994; and
(v) except for certain specified actions with respect to certain
contracts and investments, neither the Company nor any of its subsidiaries
will take any action that would increase the amount of deferred tax
liabilities or decrease the amount of deferred tax assets of the Company
and its subsidiaries, other than an action (A) in the ordinary course of
business consistent with past practice or (B) as required by applicable
law, in each case which is either based on events or circumstances
occurring after the date of the Merger Agreement or a continuation of a
course of action initiated prior to the date of the Merger Agreement.
Covenants of Boeing. The Merger Agreement provides that (i) until the
Effective Time, except as otherwise contemplated by the Reorganization
Agreements, Boeing will conduct its commercial relationships with the Company in
the ordinary course, consistent with past practice, including with respect to
the billing and collection of accounts receivable and the payment of accounts
payable and other amounts due and owing to the Company and (ii) neither Boeing
nor any of its subsidiaries will take or cause or permit to be taken any action
prior to the Effective Time which would disqualify the Contribution and the
Distribution as transactions described in Sections 351 and 355 of the Code
and/or as a "reorganization" within the meaning of Section 368(a)(1)(D) of the
Code or the Merger as a "reorganization" within the meaning of Section
368(a)(1)(B) of the Code, and Boeing will use reasonable best efforts to do
everything reasonably necessary to have the Contribution, Distribution and
Merger qualify as aforesaid.
Other Actions; Notification of Certain Matters. The Merger Agreement
provides that, subject to the termination rights of the parties thereto as
described below under "-- Termination", the Company and Boeing will, and will
cause their respective subsidiaries to, use reasonable best efforts not to take
any action that would, or that could reasonably be expected to, result in any of
the conditions to the Merger not being satisfied or that would, or that
reasonably could be expected to, materially impair the ability of the Company to
consummate the Contribution and the Distribution in accordance with the terms of
the Reorganization Agreements or the ability of the Company, Boeing and Merger
Sub to consummate the Merger in accordance with the terms of the Merger
Agreement or that would, or that reasonably could be expected to, materially
delay such consummation.
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The Merger Agreement provides that the Company and Boeing will promptly
advise the other party orally and in writing of (i) any representation or
warranty made by it contained in the Merger Agreement that is qualified as to
materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect, (ii) the failure by it to comply with or
satisfy in any material respect any of its covenants, conditions or agreements
under the Merger Agreement or (iii) any event or change or impending occurrence
of any event or change of which it has knowledge and which has resulted, or
which, insofar as can reasonably be foreseen, would result, in any of the
conditions to the Merger not being satisfied; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under the Merger Agreement.
Acquisition Proposals; Board Recommendation. The Merger Agreement provides
that the Company will, and will direct and use reasonable efforts to cause its
directors, officers, employees, representatives and agents to, cease any
discussions or negotiations with any other parties with respect to an
Acquisition Proposal (as defined below). The Company will not, nor will it
permit any of its subsidiaries to, nor will it authorize or permit any of its
directors, officers or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it or any of its
subsidiaries to, directly or indirectly, (i) solicit, initiate or knowingly
encourage (including by way of furnishing confidential information), or take any
other action knowingly to facilitate, any inquiries or the making of any
proposal which constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal or (ii) participate in any discussions or negotiations
regarding any Acquisition Proposal; provided, however, that if the Board of
Directors of the Company determines in good faith, after consultation with
outside counsel, that it is necessary to do so in order to comply with its
fiduciary duties to the Company's shareowners under applicable law, the Company
may, in response to an Acquisition Proposal that was not solicited subsequent to
the date of the Merger Agreement, and subject to certain notice requirements,
(x) furnish information to any person pursuant to a customary confidentiality
agreement (as determined by the Company after consultation with its outside
counsel) and (y) participate in discussions or negotiations regarding such
Acquisition Proposal; and provided further, however, that if the Board of
Directors of the Company determines in good faith, after consultation with
outside counsel, that it is necessary to do so in order to comply with its
fiduciary duties to the Company's shareowners under applicable law, the Company
may, in response to a Company Acquisition Proposal (as defined below) that was
not solicited subsequent to the date of the Merger Agreement, take any of the
actions prohibited by this sentence but only with respect to soliciting,
encouraging or facilitating other Company Acquisition Proposals (but not A&D
Acquisition Proposals (as defined below)). "Acquisition Proposal" means any
inquiry, proposal or offer from any person with respect to either (A) a merger,
acquisition, consolidation or similar transaction involving, or any purchase of,
all or substantially all of the assets or more than 50% of the voting securities
of the Company (excluding any such transaction relating solely to the assets or
voting securities of New Rockwell and its subsidiaries) (a "Company Acquisition
Proposal") or (B) an acquisition or similar transaction involving the purchase
of a substantial portion of the assets of or a substantial equity interest in
the A&D Business (an "A&D Acquisition Proposal").
Except as described below, the Merger Agreement provides that neither the
Board of Directors of the Company nor any committee thereof will (i) withdraw or
modify, or propose publicly to withdraw or modify, in a manner adverse to
Boeing, the approval or recommendation by such Board of Directors or such
committee of the Merger or the Merger Agreement, (ii) approve or recommend, or
propose publicly to approve or recommend, any Acquisition Proposal or (iii)
cause the Company to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement (each, an "Acquisition
Agreement") related to any Acquisition Proposal. Notwithstanding the foregoing,
in the event that the Board of Directors of the Company determines in good
faith, after consultation with outside counsel, that it is necessary to do so in
order to comply with its fiduciary duties to the Company's shareowners under
applicable law, the Board of Directors of the Company may (x) withdraw or modify
its approval or recommendation of the Merger and the Merger Agreement or (y)
approve or recommend a Superior Acquisition Proposal (as defined below) or (z)
terminate the Merger Agreement (and concurrently with or after such termination,
if it so chooses, cause the Company to enter into any Acquisition Agreement with
respect to any Superior Acquisition Proposal), but in each case only at a time
that is following Boeing's receipt of written notice (a "Notice of
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<PAGE> 54
Superior Acquisition Proposal") advising Boeing that the Board of Directors of
the Company has received a Superior Acquisition Proposal, specifying the
material terms and conditions of such Superior Acquisition Proposal and
identifying the person making such Superior Acquisition Proposal. A "Superior
Acquisition Proposal" means any bona fide Acquisition Proposal made by a third
party which is (A) a Company Acquisition Proposal or (B) otherwise on terms
which the Board of Directors of the Company determines in its good faith
judgment (based on the advice of a financial advisor of nationally recognized
reputation) to be more favorable to the Company's shareowners than the Merger
and the other transactions contemplated by the Merger Agreement.
In addition to the obligations of the Company described above, the Merger
Agreement further provides that the Company will promptly advise Boeing orally
and in writing of any request for confidential information in connection with an
Acquisition Proposal or of any Acquisition Proposal, the material terms and
conditions of such request or Acquisition Proposal and the identity of the
person making such request or Acquisition Proposal; provided, however, that with
respect to a Company Acquisition Proposal the Company will not be required to
provide the material terms or conditions of such request or Acquisition
Proposal. The Company also agreed to keep Boeing reasonably informed of the
status of and material information concerning (including amendments or proposed
amendments) any A&D Acquisition Proposal.
The Merger Agreement provides that nothing contained therein will prohibit
the Company from making any disclosure to the Company's shareowners if, in the
good faith judgment of the Board of Directors of the Company, after consultation
with outside counsel, failure so to disclose would be inconsistent with
applicable law; provided, however, neither the Company nor its Board of
Directors nor any committee thereof will, except as permitted by the Merger
Agreement, withdraw or modify, or propose publicly to withdraw or modify, its
position with respect to the Merger Agreement or the Merger or approve or
recommend, or propose publicly to approve or recommend, an Acquisition Proposal.
Filings with the Commission. The Merger Agreement provides that, prior to
termination thereof, no amendment or supplement to the Distribution S-4, the
Merger S-4 or the Registration Statement on Form S-3 of Boeing with respect to
the Boeing Debt Guaranty (the "Form S-3" and, together with the Distribution S-4
and the Merger S-4, the "Registration Statements") or this Proxy
Statement-Prospectus will be filed with the Commission by the Company or Boeing
without giving the other party and its counsel a reasonable opportunity to
review and comment on such filings prior to the filing thereof. Each of the
Company and Boeing has agreed in the Merger Agreement to use its reasonable best
efforts, (i) after consultation with the other, to respond promptly to any
comments by the Commission with respect to such filings, including preparing and
filing any amendments or supplements thereto, and to have all such filings
declared effective or cleared by the Commission as promptly as practicable and
(ii) to obtain all necessary state securities law or "blue sky" permits and
approvals required to carry out the transactions contemplated by the
Reorganization Agreements, and each of Boeing and the Company have agreed to
furnish all information as may be reasonably requested in connection with any
such action.
Pursuant to the Merger Agreement, each of the Company and Boeing is
required to use its reasonable efforts to comply promptly with all legal and
regulatory requirements that may be imposed on it or its subsidiaries with
respect to the Distribution and the Merger. Subject to the terms and conditions
thereof, each of the Company and Boeing will, and will cause their respective
subsidiaries to, promptly use its reasonable efforts to obtain any consent,
authorization, order or approval of, or any exemption by, and to satisfy any
condition or requirement imposed by, any governmental entity or other public or
private third party, required to be obtained, made or satisfied by the Company,
Boeing or any of their respective subsidiaries in connection with the
Distribution or the Merger or the taking of any action contemplated thereby or
by the Reorganization Agreements. The Merger Agreement further provides that
each of the Company and Boeing will promptly cooperate with and furnish
information to the other in connection with any such requirements imposed upon
any of them or any of their respective subsidiaries in connection with the
Distribution or the Merger.
CONDITIONS
The respective obligations of the Company, Boeing and Merger Sub to
consummate the Merger are subject to the satisfaction or waiver of a number of
conditions, including the following: (i) approval by the
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Company's shareowners of the Contribution, the Distribution and the Merger, (ii)
the approval for listing on the NYSE, subject to official notice of issuance, of
the Boeing Common Stock to be issued by Boeing pursuant to the Merger, (iii)
expiration or termination of the waiting period applicable to the Merger under
the HSR Act, (iv) no temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal restraint or prohibition being in effect that prohibits consummation of
the transactions contemplated by the Reorganization Agreements, (v) the
effectiveness under the Securities Act of the Registration Statements, the
effectiveness under the Exchange Act of the Form 8-A and no stop order
suspending the effectiveness of the Registration Statements or the Form 8-A
being issued and no proceedings for that purpose being initiated or threatened
by the Commission, (vi) receipt by each of Boeing, the Company and New Rockwell,
in form and substance reasonably satisfactory to each, of the advance agreements
or approvals of the PBGC, DOD and DOE concerning certain employee benefit and
indemnification matters and (vii) the consummation of the Contribution, the
Distribution, the Conversion and the Consent Solicitation in accordance with the
Merger Agreement and the Distribution Agreement.
In addition, the obligation of the Company to consummate the Merger is also
subject to the satisfaction or waiver by the Company on or prior to the Closing
Date of each of the following conditions: (i) certain representations and
warranties of Boeing and Merger Sub set forth in the Reorganization Agreements
(A) that are qualified as to materiality being true and correct and (B) that are
not qualified as to materiality being true and correct in all material respects,
in each case, as of the date of the Merger Agreement and as of the Closing Date
as though made on and as of the Closing Date (with certain exceptions set forth
in the Merger Agreement), and receipt of an officer's certificate to such
effect; (ii) the obligations required to be performed by Boeing and Merger Sub
under the Reorganization Agreements at or prior to the Closing Date having been
performed in all material respects and receipt of an officer's certificate to
such effect; (iii) the receipt by the Company of the opinions of Chadbourne &
Parke LLP, counsel to the Company, and Wachtell, Lipton, Rosen & Katz, special
counsel to the Company, each dated the Closing Date, to the effect that (A) the
Contribution and the Distribution qualify as transactions described in Sections
351 and 355 of the Code and/or as a "reorganization" within the meaning of
Section 368(a)(1)(D) of the Code and (B) the Merger qualifies as a
"reorganization" within the meaning of Section 368(a)(1)(B) of the Code; (iv)
the approval for listing on the NYSE, subject to official notice of issuance, of
the New Rockwell Common Stock to be distributed pursuant to the Distribution;
(v) certain representations of Boeing concerning the absence of certain events
and changes, compliance with applicable law and litigation being true and
correct as of the Closing Date as though made on and as of the Closing Date
without giving effect to the limitation in such representations stating that
such representations speak as of the date of the Merger Agreement; and (vi) all
filings, consents, approvals and authorizations (other than those specifically
referred to in the preceding paragraph) required to be made or obtained prior to
the Closing Date with or from any governmental entity in connection with the
execution, delivery and performance of the Reorganization Agreements having been
made or obtained, except where the failure to make or obtain the same would not,
individually or in the aggregate, (A) have or reasonably be expected to have a
material adverse effect on the business, properties, results of operations or
financial condition of New Rockwell and its subsidiaries, taken as a whole, or
on the ability of New Rockwell and its subsidiaries to consummate the
transactions contemplated by the Reorganization Agreements or (B) be reasonably
expected to subject the Company or any of its subsidiaries, or any of their
affiliates or any directors or officers of any of the foregoing, to the risk of
criminal liability.
The obligation of the Company to consummate the Merger is also conditioned
upon there not having occurred any Adverse Tax Development that may or will
result in the imposition of a material amount of Federal income tax to the
Company, New Rockwell or any of their respective subsidiaries or shareowners in
respect of the Contribution, the Distribution or the Merger, unless the Company
(with the full and unconditional guarantee of Boeing) agrees to indemnify New
Rockwell and its subsidiaries and any affected shareowners against the amount of
income tax imposed on them with respect to the Contribution, the Distribution
and the Merger as a result of such Adverse Tax Development. Boeing has informed
the Company that it has no intention of exercising its option to provide such
guarantee in the event that it is determined that an Adverse Tax Development has
occurred. "Adverse Tax Development" means the enactment of any legislation, the
passage of any bill by either House of Congress, the action or announcement of
proposed action with respect to, or consideration of, proposed legislation by
any Congressional Committee or Member thereof,
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the introduction of legislation by any Member of Congress, the announcement by
any Member of Congress of an intent to introduce legislation, the announcement
by the Executive branch of an intent to propose legislation, any announcement or
notice by the IRS or the Department of the Treasury, including the issuance of
any ruling or the proposal or adoption of any regulation, and any similar
action, event or development. See "Certain Federal Income Tax Considerations".
In addition, the obligations of Boeing and Merger Sub to consummate the
Merger are subject to the satisfaction or waiver by Boeing on or prior to the
Closing Date of each of the following conditions: (i) certain representations
and warranties of the Company set forth in the Reorganization Agreements (A)
that are qualified as to materiality being true and correct and (B) that are not
qualified as to materiality being true and correct in all material respects, in
each case, as of the date of the Merger Agreement and as of the Closing Date as
though made on and as of the Closing Date (with certain exceptions set forth in
the Merger Agreement), and receipt of an officer's certificate to such effect;
(ii) the obligations required to be performed by the Company, New Rockwell and
the Operating Subsidiaries under the Reorganization Agreements at or prior to
the Closing Date having been performed in all material respects and receipt of
an officer's certificate to such effect; (iii) the receipt by Boeing of the
opinion of Cravath, Swaine & Moore, special counsel to Boeing, dated the Closing
Date, to the effect that the Merger qualifies as a "reorganization" within the
meaning of Section 368(a)(1)(B) of the Code and the opinions of Chadbourne &
Parke LLP, counsel to the Company, and Wachtell, Lipton, Rosen & Katz, special
counsel to the Company, each dated the Closing Date, to the effect that (A) the
Contribution and the Distribution qualify as transactions described in Sections
351 and 355 of the Code and/or as a "reorganization" within the meaning of
Section 368(a)(1)(D) of the Code and (B) the Merger qualifies as a
"reorganization" within the meaning of Section 368(a)(1)(B) of the Code; (iv)
the conditions to the obligations of the Company to consummate the Distribution
pursuant to the Distribution Agreement having been satisfied (without giving
effect to any waiver of any such condition not approved by Boeing); (v) no
holder of an option to purchase Company Common Stock or Company Class A Common
Stock having the right to receive, upon exercise of any such option following
the Effective Time, any securities, cash or other property of the Company or
Boeing; (vi) the Company having wired to an account designated by Boeing same
day funds in an amount (if any) equal to the sum of $4.5 million and the Accrued
Interest, less any reduction in the principal amount on the Retained Company
Debt; (vii) certain representations of the Company concerning the absence of
certain events and changes, compliance with applicable law and litigation being
true and correct as of the Closing Date as though made on and as of the Closing
Date without giving effect to the limitation in such representations stating
that such representations speak as of the date of the Merger Agreement; and
(viii) all filings, consents, approvals and authorizations (other than those
specifically referred to in the third preceding paragraph) required to be made
or obtained prior to the Closing Date with or from any governmental entity in
connection with the execution, delivery and performance of the Reorganization
Agreements having been made or obtained, except where the failure to make or
obtain the same would not, individually or in the aggregate, (A) have or
reasonably be expected to have a material adverse effect on the business,
properties, results of operations or financial condition of the Retained
Companies, taken as a whole, or on Boeing and its subsidiaries, taken as a
whole, or on the ability of the Retained Companies, or Boeing and its
subsidiaries, to consummate the transactions contemplated by the Reorganization
Agreements or (B) be reasonably expected to subject the Company or any of its
subsidiaries, Boeing or any of its subsidiaries, or any of their affiliates or
any directors or officers of any of the foregoing, to the risk of criminal
liability.
REPRESENTATIONS AND WARRANTIES; SURVIVAL
The Merger Agreement contains various representations and warranties of the
Company and Boeing. The representations and warranties of the Company relate
generally to: due corporate organization and qualification; corporate authority;
absence of violations of, among other things, certificates of incorporation,
by-laws, and certain contracts or laws; required filings with and consents and
approvals of governmental authorities; the capital structure of the Company; the
Retained Subsidiaries; documents filed with the Commission, including this Proxy
Statement-Prospectus, and the accuracy of information, including financial
statements, contained therein; financial statements with respect to the A&D
Business; absence of certain material events and changes; compliance with
applicable laws; title to assets; litigation; taxes; employee benefit plans;
environmen-
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tal matters; takeover statutes; brokers and finders; intellectual property;
employees; contracts; and opinions of financial advisors. The representations
and warranties of Boeing and Merger Sub relate generally to: due corporate
organization and qualification; corporate authority; absence of violations of,
among other things, certificates of incorporation, by-laws, and certain
contracts or laws; required filings with and consents and approvals of
governmental authorities; the capital structure of Boeing; documents filed with
the Commission, including this Proxy Statement-Prospectus, and the accuracy of
information, including financial statements, contained therein; absence of
certain material events and changes; compliance with applicable laws;
litigation; takeover statutes; and brokers and finders.
The representations and warranties of the Company survive the Effective
Time until the first anniversary of the Effective Time, except that the
representations and warranties of the Company (i) with respect to certain tax
matters and finders and brokers fees survive the Effective Time until 90 days
after the expiration of the relevant statute of limitations (including
extensions thereof), (ii) with respect to liabilities for certain former or
discontinued businesses survive the Effective Time until the tenth anniversary
of the Effective Time and (iii) with respect to all tax matters, other than
those described in clause (i) above, do not survive the Effective Time. The
covenants with respect to payment of transfer taxes and certain actions with
respect to deferred tax assets and liabilities survive the Effective Time until
90 days after the expiration of the relevant statute of limitations (including
extensions thereof). The representations and warranties of Boeing (i) with
respect to finders and brokers fees and the validity of the Boeing Common Stock
to be issued in the Merger survive the Effective Time until 90 days after the
expiration of the relevant statute of limitations (including extensions thereof)
and (ii) with respect to all other matters do not survive the Effective Time.
WAIVER AND AMENDMENT
The Merger Agreement provides that the conditions to each party's
obligation to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law. In addition, subject to applicable law, the parties to the
Merger Agreement may amend the Merger Agreement at any time prior to the
Effective Time by written agreement, whether before or after the Special
Meeting.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, before or after the approval by the
shareowners of the Company, (i) by the mutual written consent of the Company and
Boeing or (ii) by either the Company or Boeing if (A) the Merger has not been
consummated by February 28, 1997 or (B) at the Special Meeting or at any
adjournment thereof, the requisite approvals of the Company's shareowners have
not been obtained; provided that in the case of a termination pursuant to clause
(A) above, the terminating party and its subsidiaries have not breached in any
material respect their respective obligations under the Reorganization
Agreements in any manner that shall have caused or resulted in the failure
referred to above.
In addition, the Merger Agreement may be terminated and the Merger may be
abandoned by the Company at any time prior to the Effective Time, (i) if Boeing
or Merger Sub has breached in any material respect any of its representations,
warranties, covenants or agreements contained in any Reorganization Agreement,
which breach is not cured within 30 days following written notice of such
breach, or (ii) as permitted by the Merger Agreement in connection with a
Superior Acquisition Proposal as described above under the caption
"-- Acquisition Proposals; Board Recommendation".
The Merger Agreement may also be terminated and the Merger may be abandoned
by Boeing at any time prior to the Effective Time, (i) if any of the Company,
New Rockwell or the Operating Subsidiaries has breached in any material respect
any of its representations, warranties, covenants or agreements contained in any
Reorganization Agreement, which breach has not been cured within 30 days
following written notice of such breach, or (ii) if the Board of Directors of
the Company has exercised certain rights under the Merger Agreement in
connection with a Superior Acquisition Proposal as described above under the
caption "-- Acquisition Proposals; Board Recommendation".
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In the event of termination of the Merger Agreement and the abandonment of
the Merger pursuant to the Merger Agreement, no party to the Reorganization
Agreements (or any of its directors or officers) will have any liability or
further obligation to any other party, except with respect to certain
representations and covenants which survive such termination, and except that
nothing in the Merger Agreement will relieve any party from liability for any
material and willful breach of any of the Reorganization Agreements.
EXPENSES; TERMINATION FEE
The Company has agreed to pay Boeing $60 million (the "Termination Fee")
plus up to $2.5 million of Expenses, if:
(i) the Merger Agreement is terminated (A) by the Company because the
Merger has not been consummated by February 28, 1997, (B) by either the
Company or Boeing because the requisite approval of the Company's
shareowners was not obtained, (C) by the Company pursuant to the exercise
of its rights under the Merger Agreement in connection with a Superior
Acquisition Proposal or (D) by Boeing because the Board of Directors of the
Company has exercised certain rights under the Merger Agreement in
connection with a Superior Acquisition Proposal;
(ii) prior to the termination of the Merger Agreement, a bona fide
Acquisition Proposal was commenced, publicly proposed, publicly disclosed
or, in the case described in clause (iii)(x) below, communicated to the
Board of Directors of the Company (or the willingness of any person to make
such an Acquisition Proposal was publicly disclosed or, in the case
described in clause (iii)(x) below, communicated to the Board of Directors
of the Company); and
(iii) (x) the Board of Directors of the Company, in accordance with
the provisions of the Merger Agreement, has withdrawn or modified its
approval or recommendation of the Merger Agreement or the Merger in a
manner materially adverse to Boeing, approved or recommended such
Acquisition Proposal, caused the Company to enter into an Acquisition
Agreement with respect to an Acquisition Proposal or terminated the Merger
Agreement or (y) the requisite approval of the Company's shareowners for
the Contribution, the Distribution or the Merger was not obtained at the
Special Meeting (or the Special Meeting was not held prior to February 28,
1997) and, within twelve months following the date of the Special Meeting
(or following the date of termination of the Merger Agreement, if the
Special Meeting was not held prior to such termination), an Acquisition
Proposal has been consummated or the Company has entered into a definitive
agreement with respect to any Acquisition Proposal;
provided, however, that the Termination Fee and the Expenses will not be payable
if, at the time of any action described in clause (iii)(x) above or the Special
Meeting (or on the date of the termination of the Merger Agreement, if the
Special Meeting was not held prior to such termination), Boeing was in material
breach of its covenants or agreements contained in the Merger Agreement.
In addition, the Company has agreed to pay Boeing the Termination Fee, plus
up to $2.5 million of Expenses, if (i) the Merger Agreement has been terminated
by the Company because the Merger has not been consummated by February 28, 1997
as a result of (1) the failure of the Company to have received the opinions of
counsel with respect to tax matters (other than as a result of an action taken
by Boeing), (2) the occurrence of an Adverse Tax Development or (3) the failure
of the Company to have received an advance agreement or approval of the PBGC as
to which the Company shall not have waived satisfaction thereof and (ii) within
twelve months of the date of termination, an A&D Acquisition Proposal has been
consummated or the Company has entered into a definitive agreement with respect
to any A&D Acquisition Proposal; provided, however, that the Termination Fee and
Expenses will not be payable if, at the time of the termination of the Merger
Agreement, Boeing is in material breach of its covenants or agreements contained
in the Merger Agreement. In no event will a Termination Fee and Expenses be
payable under both the provisions of the Merger Agreement described in this
paragraph and the preceding paragraph.
"Expenses" means documented out-of-pocket fees and expenses incurred or
paid by or on behalf of Boeing in connection with efforts to consummate any of
the transactions contemplated by the Reorganization Agreements, including
financing fees, consent fees, printing costs and fees and expenses of counsel,
investment banking firms, accountants, experts and consultants.
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For a discussion of the allocation of certain costs and expenses of the
Transactions, see "Post-Closing Arrangements -- Terms of the Post-Closing
Covenants Agreement -- Reorganization Expenses".
CERTAIN REGULATORY MATTERS
Pursuant to the Merger Agreement, the obligation of each of the Company,
Boeing and Merger Sub to consummate the Merger is conditioned upon the
expiration or termination of the waiting period under the HSR Act. Effective as
of September 18, 1996 the Company and Boeing filed Premerger Notification and
Report Forms pursuant to the HSR Act with the Antitrust Division of the
Department of Justice ("DOJ") and the FTC. On October 18, 1996, the Company and
Boeing received requests for additional information and documentary material
from the FTC. As a result, the waiting period with respect to the Merger will be
extended for an additional period of 20 calendar days following the date of
substantial compliance with such requests by the Company and Boeing. Only one
extension of the waiting period pursuant to a request for additional information
is authorized by the rules promulgated under the HSR Act. Thereafter, the
waiting period could be extended only by court order or with the consent of the
Company and Boeing. The additional 20-day waiting period may be terminated
sooner by the FTC. At any time before or after the Effective Time, the FTC, the
DOJ or others could take action under the antitrust laws with respect to the
Merger, including seeking to enjoin the consummation of the Merger, to rescind
the Merger or to require divestiture of substantial assets of the Company,
Boeing or the Surviving Corporation. There can be no assurance that a challenge
to the Merger on antitrust grounds will not be made or, if such a challenge is
made, that it would not be successful.
In addition, the obligation of each of the Company, Boeing and Merger Sub
to consummate the Merger is conditioned upon receipt of advance agreements or
approvals of the PBGC, DOD and DOE concerning certain employee benefit and
indemnification matters. The condition as to the PBGC has been satisfied.
ACCOUNTING TREATMENT
New Rockwell will be deemed to be the successor to the Company for
financial reporting purposes. The historical results of operations of the A&D
Business have been presented as a "discontinued operation" in the Company's
financial statements.
The Merger will be accounted for by Boeing as a purchase for financial
accounting purposes in accordance with GAAP. Boeing will be treated as the
acquiror of the A&D Business for purposes of preparing the Boeing consolidated
financial statements and Boeing will establish a new accounting basis for the
A&D Business's assets and liabilities (as adjusted to exclude the assets and
liabilities of New Rockwell) based upon the fair values thereof and the purchase
price, including the costs of the Merger. Boeing will record as goodwill the
excess, if any, of the purchase price over such fair values. A final
determination of required purchase accounting adjustments, including the
allocation of the purchase price to the assets acquired and liabilities assumed
based on their respective fair values, has not yet been made. Accordingly, the
purchase accounting adjustments made in connection with the development of the
unaudited pro forma condensed combined financial information of Boeing appearing
elsewhere in this Proxy Statement-Prospectus are preliminary and have been made
solely for purposes of developing such unaudited pro forma condensed combined
financial information. Boeing will undertake a study to determine the fair value
of certain of the Company's assets and liabilities (as so adjusted) and will
make appropriate purchase accounting adjustments upon completion of that study.
For financial reporting purposes, the results of operations of the A&D Business
will be included in the Boeing consolidated statement of income following the
Effective Time. The Boeing financial statements for prior periods will not be
restated as a result of the Merger or related transactions. See "Description of
Boeing -- Unaudited Pro Forma Condensed Combined Statement of Financial Position
of Boeing" and "-- Unaudited Pro Forma Condensed Combined Statements of Net
Earnings of Boeing".
RESALE OF BOEING COMMON STOCK
The shares of Boeing Common Stock issuable to shareowners of the Company in
connection with the Merger may be traded freely and without restriction by those
shareowners not deemed to be "affiliates" of the Company or Boeing as that term
is defined in the rules under the Securities Act. An "affiliate" of a person is
generally defined as a person who controls, is controlled by or is under common
control with such person.
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Shares of Boeing Common Stock received by those shareowners of the Company who
are deemed to be "affiliates" of the Company or Boeing may be resold without
registration as provided for by Rules 144 and 145, or as otherwise permitted,
under the Securities Act. This Proxy Statement-Prospectus does not cover any
resales of Boeing Common Stock received by "affiliates" of the Company or
Boeing, or by certain of their family members or related interests.
Pursuant to the Merger Agreement, the Company has agreed to use its
reasonable best efforts to cause each individual holder of the Company's capital
stock deemed to be an "affiliate" of the Company to enter into a written
agreement providing that such "affiliate" will not sell, pledge, transfer or
otherwise dispose of the shares of Boeing Common Stock to be received by such
person in the Merger except in compliance with the applicable provisions of the
Securities Act and the rules and regulations thereunder.
SURRENDER OF SHARE CERTIFICATES
COMPANY SHAREOWNERS SHOULD NOT SEND IN THEIR SHARE CERTIFICATES UNTIL AFTER
THE EFFECTIVE TIME AND UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL FORM AND
INSTRUCTIONS.
The Merger Agreement provides that, as of the Effective Time, Boeing will
deposit with the Exchange Agent certificates ("New Certificates") representing
Boeing Common Stock in amounts sufficient to allow the Exchange Agent to make
all deliveries of New Certificates that may be required in exchange for Old
Certificates pursuant to the Merger Agreement. The Merger Agreement also
provides that Boeing will provide to the Exchange Agent on a timely basis funds
necessary to pay any cash payable in lieu of fractional shares and funds or
other property necessary to pay or make any dividends or distributions with
respect to shares of Boeing Common Stock.
The Merger Agreement provides that as soon as reasonably practicable after
the Effective Time, Boeing will cause the Exchange Agent to mail or deliver to
each person who was, at the Effective Time, a holder of record of Company Common
Stock (after giving effect to the Conversion) a letter of transmittal containing
instructions for use in effecting the surrender of Old Certificates in exchange
for New Certificates and payments pursuant to the Merger Agreement. Upon
surrender to the Exchange Agent of an Old Certificate for cancellation together
with such letter of transmittal, duly executed and completed in accordance with
the instructions thereto, the holder of such Old Certificate will be entitled to
receive in exchange therefor a New Certificate representing that number of whole
shares of Boeing Common Stock which such holder has the right to receive
pursuant to the Merger Agreement, a check in the amount of cash to which such
holder is entitled pursuant to the Merger Agreement for cash in lieu of
fractional shares of Boeing Common Stock, and any dividends or distributions on
shares of Boeing Common Stock with a record date after the Effective Time, and
the Old Certificate so surrendered will be canceled. No interest will be paid or
will accrue on the amount payable upon surrender of Old Certificates.
Until surrendered as provided in the Merger Agreement, each Old Certificate
will be deemed at any time after the Effective Time to represent only the right
to receive, upon surrender of such Old Certificate, the New Certificate, cash in
lieu of fractional shares of Boeing Common Stock and any such dividends and
distributions on shares of Boeing Common Stock as provided by the Merger
Agreement. In the event of a transfer of ownership of Company Common Stock that
is not registered on the transfer records of the Company, New Certificates
representing the proper number of shares of Boeing Common Stock and any cash in
lieu of fractional shares and any dividends or distributions described above may
be issued to a person other than the person in whose name the Old Certificate so
surrendered is registered, if such Old Certificate is properly endorsed or
otherwise in proper form for transfer and the person requesting such issuance
pays any transfer or other taxes required by reason of the issuance of shares of
Boeing Common Stock and any cash in lieu of fractional shares and any dividends
or distributions as described above to a person other than the registered holder
of such Old Certificate or establish to the satisfaction of Boeing that such tax
has been paid or is not applicable. Six months after the Effective Time, Boeing
will be entitled to cause the Exchange Agent to deliver to it any New
Certificates, cash or other property (including any interest thereon) deposited
with the Exchange Agent that are unclaimed by the former shareowners of the
Company. Any former shareowners of the Company who have not theretofore
exchanged their Old Certificates for New Certificates, cash and other
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property pursuant to the Merger Agreement will thereafter be entitled to look
exclusively to Boeing and only as general creditors thereof for the Boeing
Common Stock, cash and other property to which they become entitled upon
exchange of their Old Certificates pursuant to the Merger Agreement.
Notwithstanding the foregoing, neither the Exchange Agent nor any party to the
Merger Agreement will be liable to any former holder of Company Common Stock for
any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws. Boeing will pay all charges and
expenses, including those of the Exchange Agent, in connection with the exchange
of New Certificates and cash for Old Certificates as contemplated in the Merger
Agreement.
The Merger Agreement provides that notwithstanding any other provisions of
the Merger Agreement, no dividends or distributions with respect to Boeing
Common Stock with a record date after the Effective Time will be paid to any
person holding an Old Certificate until such Old Certificate is surrendered for
exchange as provided therein. Subject to the effect of applicable laws,
following surrender of any such Old Certificate by any holder thereof, there
will be paid to the holder of the New Certificate issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore
payable with respect to the Boeing Common Stock represented thereby and not
paid, less the amount of any withholding taxes which may be required thereon,
and (ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to the time
of such surrender and a payment date subsequent to the time of such surrender
payable with respect to the Boeing Common Stock represented thereby, less the
amount of any withholding taxes which may be required thereon.
All shares of Boeing Common Stock issued upon surrender for exchange of Old
Certificates, any cash in lieu of fractional shares of Boeing Common Stock paid
or any dividend or distribution with respect to Boeing Common Stock paid or
made, in each case pursuant to the provisions of the Merger Agreement, will be
deemed to have been issued, paid and made in full satisfaction of all rights
pertaining to the shares of Company Common Stock theretofore represented by such
Old Certificates, and there will be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of Company
Common Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Old Certificates are presented to the Surviving
Corporation or the Exchange Agent for any reason, they will be canceled and
exchanged as described above.
The Merger Agreement provides that in the event that any Old Certificate
has been lost, stolen or destroyed, upon the making of an affidavit of that fact
by the person claiming such Old Certificate to be lost, stolen or destroyed and,
if required by the Surviving Corporation, the posting by such person of a bond
in such reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such Old
Certificate, the Surviving Corporation will, in exchange for such lost, stolen
or destroyed Old Certificate, issue or cause to be issued the Boeing Common
Stock and pay or cause to be paid the amounts deliverable in respect thereof
pursuant to the Merger Agreement.
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POST-CLOSING ARRANGEMENTS
This section of the Proxy Statement-Prospectus describes certain
post-closing arrangements with respect to, among other things, tax allocation
and indemnification. To the extent that it relates to the Post-Closing Covenants
Agreement and the Tax Allocation Agreement, the following description does not
purport to be complete and is qualified by reference to the Tax Allocation
Agreement and the Post-Closing Covenants Agreement, which are attached as
Annexes B and C, respectively, to the Merger Agreement attached as Appendix III
to this Proxy Statement-Prospectus and which are incorporated herein by
reference.
TERMS OF THE POST-CLOSING COVENANTS AGREEMENT
Indemnification by New Rockwell. The Post-Closing Covenants Agreement
provides that except as otherwise specifically provided in any Reorganization
Agreement and subject to certain provisions of the Post-Closing Covenants
Agreement, New Rockwell will indemnify, defend and hold harmless Boeing, each
affiliate of Boeing, including any of its direct or indirect subsidiaries
(including, after the Effective Time, the Retained Companies), and their
respective representatives and their heirs, executors, successors and assigns
(the "Boeing Indemnitees") from and against, and pay or reimburse the Boeing
Indemnitees for, all losses, liabilities, damages, deficiencies, obligations,
fines, expenses, claims, demands, actions, suits, proceedings, judgments or
settlements, including certain interest and penalties, out-of-pocket expenses
and reasonable attorneys' and accountants' fees and expenses incurred in the
investigation or defense of any of the same or in asserting, preserving or
enforcing any of the indemnitee's rights under the Post-Closing Covenants
Agreement, suffered by an indemnitee ("Indemnifiable Losses"), as incurred: (i)
relating to or arising from (A) the Contributed Assets or the Assumed
Liabilities, including, without limitation, the Special Liabilities (including
the failure by any member of the New Rockwell Group to pay, perform or otherwise
discharge such Assumed Liabilities in accordance with their terms), (B) the
breach by any member of the New Rockwell Group of any agreement or covenant in a
Reorganization Agreement which does not by its express terms expire at, or is
not required to be performed prior to, the Effective Time, (C) any breach of or
inaccuracy in any representation or warranty of the Company in the Merger
Agreement, (D) environmental conditions existing at the Time of Contribution
(other than Special Liabilities) ("Pre-existing Environmental Conditions")
relating to the A&D Business or the Additional Retained Facilities to the extent
that such Indemnifiable Losses are not allowable costs in connection with a
United States Government contract based on an act or omission by the Company or
any of its subsidiaries prior to the Effective Time, (E) any actual or alleged
criminal violation of any law, rule or regulation of any governmental entity by
the Company or any of its subsidiaries or any of their directors, officers,
employees or agents ("Criminal Matters") actually or allegedly occurring prior
to the Time of Contribution to the extent that such Indemnifiable Losses are not
allowable costs in connection with a United States Government contract based on
an act or omission by the Company or any of its subsidiaries prior to the
Effective Time, (F) any breach of any covenant or agreement of the Company in
the Merger Agreement assumed by New Rockwell pursuant to the Distribution
Agreement, (G) any claim that the execution, delivery or performance by the
Company of each Reorganization Agreement to which it is or will be a party or
the consummation of the transactions contemplated thereby has resulted in a
violation or breach of, or constitutes a default or impermissible transfer
under, or gives rise to any right of termination, first refusal or consent
under, or gives rise to any right of amendment, cancellation or acceleration of
any material benefit under, certain contracts relating to United Space Alliance,
LLC and HELLFIRE Systems, L.L.C. (the "Designated Contracts"), or (H) fines and
penalties and reasonable attorneys' and accountants' fees and expenses in
connection with any of the alleged safety violations or alleged improper storage
and/or disposal of hazardous waste claims pertaining to the explosion at Santa
Susana, California in 1994; (ii) arising from or based upon any actual or
alleged untrue statement of a material fact contained in any of the Registration
Statements, this Proxy Statement-Prospectus, the Form 8-A, any other document
filed or required to be filed with the Commission in connection with the
transactions contemplated by the Reorganization Agreements, any preliminary or
final form thereof or any amendment or supplement thereto (the "Filings") or in
the consent statement with respect to the Consent Solicitation (the "Consent
Statement"), or any actual or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, with
respect to information provided by the Company relating to the New Rockwell
Group or the Company contained in or
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omitted from the Filings or the Consent Statement; or (iii) incurred in
connection with the enforcement by the Boeing Indemnitees of their rights to be
indemnified, defended and held harmless under the Post-Closing Covenants
Agreement.
Pursuant to the Post-Closing Covenants Agreement, New Rockwell will also
indemnify, defend and hold harmless the Boeing Indemnitees for 80% of any
decrease in the profit before tax realized by Rockwell Australia Limited on the
contract (the "RAN Contract") with the Australian Submarine Corporation below
40.0 million Australian dollars and 80% of any loss in respect of the RAN
Contract. Likewise, the Company will pay to New Rockwell 80% of any increase in
the profit before tax realized on the RAN Contract above 40.0 million Australian
dollars. The determination of profit before tax or loss will be based upon the
next quarterly Estimate at Completion for the RAN Contract prepared three years
after the Effective Time. The determination of Rockwell Australia Limited's
profit before tax or loss will be determined by the Company using the same
accounting methods, policies, practices, procedures, classifications, judgments,
estimation methodologies and accounting standards as used in the preparation of
the A&D Business audited financial statements included elsewhere herein.
Indemnification by the Company. The Post-Closing Covenants Agreement
provides that except as otherwise specifically provided in any Reorganization
Agreement and subject to certain provisions of the Post-Closing Covenants
Agreement, the Company will indemnify, defend and hold harmless New Rockwell,
each affiliate of New Rockwell, including any of its direct or indirect
subsidiaries, and their respective representatives and their heirs, executors,
successors and assigns (the "New Rockwell Indemnitees") from and against, and
pay or reimburse the New Rockwell Indemnitees for, all Indemnifiable Losses, as
incurred: (i) relating to or arising from (A) the Retained Assets or the
Retained Liabilities (including the failure by any member of the Company Group
to pay, perform or otherwise discharge such Retained Liabilities in accordance
with their terms), or (B) the breach by Boeing or any member of the Company
Group of any agreement or covenant in a Reorganization Agreement (other than, in
the case of the Company Group, an agreement or covenant in the Merger Agreement
assumed by New Rockwell pursuant to the Distribution Agreement) which does not
by its express terms expire at, or is not required to be performed prior to, the
Effective Time; (ii) arising from or based upon any actual or alleged untrue
statement of a material fact contained in any of the Filings or in the Consent
Statement, or any actual or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, with
respect to information provided by Boeing relating to Boeing or any of its
subsidiaries other than the Company Group contained in or omitted from the
Filings or the Consent Statement; or (iii) incurred in connection with the
enforcement by the New Rockwell Indemnitees of their rights to be indemnified,
defended and held harmless under the Post-Closing Covenants Agreement.
Limitation on New Rockwell's Indemnification Obligations with Respect to
Representations and Warranties. The Post-Closing Covenants Agreement provides
that New Rockwell will not have any liability for indemnification for breaches
and inaccuracies of the Company's representations and warranties in the Merger
Agreement unless the aggregate of all Indemnifiable Losses for which New
Rockwell would be liable, but for the limitations described herein, exceeds on a
cumulative pre-tax basis $20 million (the "Basket Amount"); provided, however,
that (i) if Indemnifiable Losses for which New Rockwell would, but for the
limitations described herein, be liable as a result of the breach of or the
inaccuracy in any representation or warranty which arises from a particular
state of facts or event exceed $5 million on a pre-tax basis, New Rockwell will
be liable for the entire amount of such Indemnifiable Losses, and such
Indemnifiable Losses will not be taken into account in calculating whether the
Basket Amount or the Threshold Amount (as defined below) has been exceeded, and
(ii) if the aggregate of all Indemnifiable Losses for which New Rockwell would,
but for the limitations described herein, be liable exceeds on a cumulative
pre-tax basis the Basket Amount, New Rockwell's liability will be $10 million
(the "Threshold Amount") plus any Indemnifiable Losses in excess of $20 million.
In addition, the Post-Closing Covenants Agreement provides that New Rockwell
will not have any liability for indemnification with respect to the breach of or
inaccuracy in any representation or warranty which arises from a particular
state of facts or event if the Indemnifiable Losses are less than $250,000 on a
pre-tax basis, and such Indemnifiable Losses will not be taken into account in
calculating whether the Basket Amount or the Threshold Amount has been exceeded.
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Conduct of Environmental Insurance Coverage Claims. Pursuant to the
Distribution Agreement, the Company will retain all claims by the Company
against insurance companies that have provided to the Company, its predecessors
or affiliates, insurance coverage in respect of certain environmental matters
for any period prior to the Effective Time (the "Environmental Coverage
Claims"). The Company has agreed, among other things, (i) to use diligent
efforts to prosecute the Environmental Coverage Claims until the same are
finally determined or settled, (ii) that New Rockwell will have the exclusive
right to control and to direct the prosecution of all Environmental Coverage
Claims and (iii) not to make any admission or take any action in respect of the
Environmental Coverage Claims without the prior written consent of New Rockwell.
The Post-Closing Covenants Agreement provides that the Company will pay to New
Rockwell any amounts received by it in respect of the Environmental Coverage
Claims other than such portion thereof as the Company will be required to pay
and/or credit to the United States Government in accordance with an agreement
with the appropriate United States Government contracting officer. If the
Environmental Coverage Claims are finally determined or settled at the Time of
Contribution but such amount has not been paid and/or credited in full by the
Company, New Rockwell will pay to the Company such amounts as the Company will
be required to pay and/or credit to the United States Government as described
above.
Transitional Arrangements. Concurrently with the Post-Closing Covenants
Agreement, New Rockwell, the Company and Boeing will enter into an agreement or
agreements with respect to certain transitional arrangements (the "Transition
Agreement") in conformity with the Outline of Terms set forth as a schedule to
the Post-Closing Covenants Agreement and such other transitional arrangements as
may be mutually agreed upon. The Transition Agreement will cover, among other
things: the allocation of employees; insurance matters; the allocation of assets
relating to certain programs; the allocation and cross-licensing of patents;
provision of services by the Science Center; various services, including
Information Systems Center services, property management administration,
Graphics Business (as such term as defined in the Distribution Agreement)
transition matters, central payroll, health and welfare benefits administration,
human resources administration, savings plan and retiree benefit compliance
administration, cash management, expatriate human resource administration and
Anaheim Prescription Center services; an arrangement for the temporary occupancy
by New Rockwell of portions of the Seal Beach, California facility; and various
intercompany agreements.
Reorganization Expenses. The Post-Closing Covenants Agreement provides
that except as otherwise expressly provided in the Reorganization Agreements,
Boeing and New Rockwell (and not the Company) will be responsible for and agree
to pay all reorganization expenses of the Company directly related to the
Transactions as described below; provided that the Company may, prior to the
Effective Time, pay any such expenses that are otherwise the responsibility of
New Rockwell. Each of Boeing and New Rockwell will pay the fees and expenses of
its own legal counsel, accountants and financial advisors; Boeing will pay the
fees and expenses in connection with the Consent Solicitation (including the
fees of any investment banker in connection with the Consent Solicitation and
the Boeing Debt Guaranty); New Rockwell will pay the fees and expenses of the
Company in connection with the Proxy Statement-Prospectus, the Distribution S-4
and the Form 8-A; Boeing will pay the registration fees and expenses in
connection with the Merger S-4 and the Form S-3; Boeing and New Rockwell will
share the cost of transfer taxes in connection with the Merger; New Rockwell
will pay all transfer taxes in connection with the Contribution and the
Distribution; New Rockwell will pay the fees of the Paying Agent in connection
with the Distribution; Boeing will pay the fees of the Exchange Agent in
connection with the Merger; and New Rockwell will pay all administrative costs
of the Company directly related to the Transactions and all other directly
related reorganization expenses of the Company in connection with the
Transactions not otherwise allocated as described above.
Conduct of Health Care Claims Audit. Pursuant to the Distribution
Agreement, the Company will contribute to New Rockwell all existing and future
claims arising out of audits of health care claims paid by the Company for any
period prior to the Effective Time made by the Company (or if after the
Effective Time, New Rockwell) against any and all health care administrators
("Health Care Administrators") that have provided to the Company, its
predecessors or its or their affiliates, health care administration services in
respect of the employees of the Company, its predecessors or its or their
affiliates for any period prior to the Effective Time ("Health Care Claims"),
including, without limitation, the claims asserted in the pending audits of
Metropolitan Insurance Company for 1993-1994 and Value Rx Pharmacy Program, Inc.
for 1993-
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1995. New Rockwell will use diligent efforts to prosecute the Health Care Claims
until the same are finally settled by New Rockwell in its sole discretion. The
Company has agreed, among other things, that New Rockwell will have the
exclusive right to control and to direct the audit of the Health Care
Administrators and the negotiation of all settlements of the Health Care Claims
and not to make any admission or settlement in respect of the Health Care Claims
or take any action in respect thereof without the prior written consent of New
Rockwell. New Rockwell will pay to the Company as and when the same are received
by New Rockwell an equitable allocation of the net proceeds from settlement of
the Health Care Claims.
Guaranty of Boeing. Pursuant to the Post-Closing Covenants Agreement,
Boeing, for itself and its successors in interest and assigns, will
unconditionally and irrevocably guarantee to New Rockwell and its successors in
interest and assigns the full and faithful performance by the Company under the
Reorganization Agreements (other than the Merger Agreement) and the Transition
Agreement of all covenants, conditions and agreements (other than any
indemnification obligations of the Company in respect of Retained Assets or
Retained Liabilities) in the Reorganization Agreements (other than the Merger
Agreement) and the Transition Agreement to be performed by the Company after the
Effective Time. Boeing has agreed to indemnify, defend and hold harmless New
Rockwell for all Indemnifiable Losses, as incurred, relating to or arising from
any breach of or inaccuracy in the representations and warranties in the Merger
Agreement with respect to brokers and finders fees and the validity of Boeing
Common Stock to be issued in the Merger. The Post-Closing Covenants Agreement
further provides that effective as of the Effective Time, Boeing will execute
and deliver guarantees of the Company's performance and obligations under the
Designated Contracts to the counterparties on such contracts.
TERMS OF THE TAX ALLOCATION AGREEMENT
Prior to the Distribution, the Company, New Rockwell and Boeing will enter
into the Tax Allocation Agreement which sets forth each party's rights and
obligations with respect to payments and refunds, if any, of Federal, state,
local or foreign taxes for periods before and after the Merger and related
matters such as the filing of tax returns and the conduct of audits and other
tax proceedings.
In general, under the Tax Allocation Agreement, New Rockwell will be
responsible for (i) all tax liability of the Company Group and the New Rockwell
Group for periods (or portions of periods) ending on or before the date of the
Merger other than the Company Group's allocable share of certain taxes which
would be allowable costs for the purposes of government contracts ("Allowable
Taxes") for such periods, (ii) any tax liability of the New Rockwell Group for
periods (or portions of periods) beginning after the date of the Merger and
(iii) except as otherwise described below, any tax liability resulting from the
failure of the Contribution and Distribution to qualify as transactions
described in Sections 351 and 355 of the Code and/or as a "reorganization" under
Section 368(a)(1)(D) of the Code or the Merger to qualify as a "reorganization"
under Section 368(a)(1)(B) of the Code. New Rockwell will be entitled to any
refunds that relate to those liabilities.
Under the Tax Allocation Agreement, the Company will generally be
responsible for (i) all tax liabilities of the Company Group (including Boeing
and any of its affiliates) for periods (or portions of periods) beginning after
the date of the Merger, (ii) the Company Group's allocable share of Allowable
Taxes for periods (or portions of periods) ending on or before the date of the
Merger and (iii) any liability for taxes (including any tax liability resulting
from the failure of the Contribution and Distribution to qualify as transactions
described in Sections 351 and 355 of the Code and/or as a "reorganization" under
Section 368(a)(1)(D) of the Code or the Merger to qualify as a "reorganization"
under Section 368(a)(1)(B) of the Code) attributable to certain actions taken by
any member of the Company Group (including Boeing and any of its affiliates)
within two years after the Effective Time.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material United States Federal income
tax consequences of the Transactions. The discussion which follows is based on
the Code, Treasury regulations promulgated thereunder, and judicial and
administrative interpretations thereof, all as in effect on the date hereof, and
is subject to any changes in these or other laws occurring after such date. The
discussion below does not address the effects of any state, local or foreign tax
laws on the Transactions.
The tax treatment of a shareowner may vary depending upon his or her
particular situation, and certain shareowners (including individuals who hold
restricted stock of the Company, individuals who hold options in respect of
Company Common Stock and Company Class A Common Stock, insurance companies, tax-
exempt organizations, financial institutions or broker-dealers, persons who do
not hold the Company Common Stock or Company Class A Common Stock as capital
assets and persons who are neither citizens nor residents of the United States,
or who are foreign corporations, foreign partnerships or foreign estates or
trusts as to the United States) may be subject to special rules not discussed
below.
Earlier this year, the President's budget recommendations to Congress
called for new legislation, generally effective retroactive to March 19, 1996,
which, if enacted, would require the Company to pay Federal income tax upon the
consummation of the Contribution, the Distribution and the Merger on gain equal
to the excess of the value of the New Rockwell Common Stock and New Rockwell
Class A Common Stock distributed to the shareowners over the Company's basis in
the assets transferred to New Rockwell in the Contribution. Such legislation has
not yet been introduced in Congress. Senate Finance Committee Chairman William
V. Roth, Jr. and House Ways and Means Committee Chairman Bill Archer publicly
announced on March 29, 1996 in a joint statement that any such legislation, if
enacted, would be effective "no earlier than the date of appropriate
Congressional action." Subsequently, Senator Daniel Patrick Moynihan, the
ranking minority member of the Senate Finance Committee, Representative Sam M.
Gibbons, the ranking minority member of the House Ways and Means Committee, and
Representative Charles B. Rangel, the next ranking minority member of the House
Ways and Means Committee, each issued statements supporting the substance of
that joint statement.
As a result of such legislative climate, however, the Merger Agreement
provides that the Company's obligation to consummate the Merger is conditioned
upon there not having occurred any Adverse Tax Development that may or will
result in the imposition of a material amount of Federal income tax to the
Company, New Rockwell or any of their respective subsidiaries or shareowners
with respect to the Contribution, the Distribution or the Merger, unless the
Company (with the full and unconditional guarantee of Boeing) agrees to
indemnify New Rockwell, its subsidiaries and any affected shareowners against
the amount of income tax imposed on them in connection with the Contribution,
the Distribution and the Merger arising out of or relating to such Adverse Tax
Development. Boeing has informed the Company that it has no intention of
exercising its option to provide such guarantee in the event that it is
determined that an Adverse Tax Development has occurred.
EACH SHAREOWNER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE TRANSACTIONS DESCRIBED HEREIN,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS,
AND OF CHANGES IN APPLICABLE TAX LAWS.
FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS
Consummation of the Transactions is conditioned upon the receipt of
opinions of Chadbourne & Parke LLP, counsel to the Company, and Wachtell,
Lipton, Rosen & Katz, special counsel to the Company, that (i) the Contribution
and the Distribution will qualify as transactions described in Sections 351 and
355 of the Code and/or as a "reorganization" within the meaning of Section
368(a)(1)(D) of the Code and (ii) the Merger will qualify as a "reorganization"
under Section 368(a)(l)(B) of the Code.
An opinion of counsel is not binding on the IRS or the courts. Further, the
foregoing opinions of Chadbourne & Parke LLP and Wachtell, Lipton, Rosen & Katz
will be based on, among other things, current law and certain representations as
to factual matters made by, among others, the Company, New Rockwell and Boeing
which, if incorrect in certain material respects, would jeopardize the
conclusions reached by
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counsel in their opinions. None of the Company, New Rockwell or Boeing is
currently aware of any facts and circumstances that would cause any
representations of such party to Chadbourne & Parke LLP and Wachtell, Lipton,
Rosen & Katz to be untrue or incorrect in any material respect.
The Company has been advised by Chadbourne & Parke LLP and Wachtell, Lipton
Rosen & Katz that the material Federal income tax consequences that will result
from the Transactions are as follows:
(i) No gain or loss will be recognized by the Company or New Rockwell
as a result of the Contribution and the Distribution.
(ii) No gain or loss will be recognized by (and no amount will be
included in the income of) the Company's shareowners as a result of their
receipt of New Rockwell Common Stock or New Rockwell Class A Common Stock
in the Distribution.
(iii) The tax basis of New Rockwell Common Stock, New Rockwell Class A
Common Stock, Company Common Stock and Company Class A Common Stock, as the
case may be, in the hands of each Company shareowner immediately after the
Distribution will be the same as the tax basis of Company Common Stock and
Company Class A Common Stock held by such Company shareowner immediately
before the Distribution, allocated in proportion to the relative fair
market values of New Rockwell Common Stock and Company Common Stock and of
New Rockwell Class A Common Stock and Company Class A Common Stock, as the
case may be, at the time of the distribution.
(iv) The holding period of New Rockwell Common Stock or New Rockwell
Class A Common Stock received by a shareowner in the Distribution will
include the period during which the shareowner held Company Common Stock or
Company Class A Common Stock, as the case may be, provided that Company
Common Stock or Company Class A Common Stock, as the case may be, was held
as a capital asset.
(v) Assuming that the Merger qualifies as a "reorganization" under
Section 368(a)(1)(B) of the Code, the Merger will not affect the
qualification of the Contribution and the Distribution as transactions
described in Sections 351 and 355 of the Code and/or as a "reorganization"
within the meaning of Section 368(a)(1)(D) of the Code.
(vi) Except for any cash received in lieu of fractional shares, a
shareowner will not recognize any income, gain or loss as a result of the
receipt of Boeing Common Stock in the Merger.
(vii) A shareowner's tax basis for shares of Boeing Common Stock
received in the Merger, including any fractional share interest for which
cash is received, will equal such shareowner's basis in Company Common
Stock and Company Class A Common Stock surrendered (as determined
immediately following the Distribution).
(viii) A shareowner's holding period for the shares of Boeing Common
Stock received in the Merger, including any fractional share interest for
which cash is received, will include the period for which the shares of
Company Common Stock or Company Class A Common Stock, as the case may be,
were held, provided such shares were held as capital assets.
If the Merger were not to qualify as a "reorganization" under Section
368(a)(1)(B) of the Code, or if the Contribution and the Distribution were not
to qualify as transactions pursuant to Sections 351 and 355 of the Code and/or
as a "reorganization" under Section 368(a)(1)(D) of the Code, the Company would
recognize gain equal to the excess of the fair market value of the New Rockwell
Common Stock and New Rockwell Class A Common Stock distributed to its
shareowners over the Company's basis in the assets transferred to New Rockwell
in the Contribution. Any resulting corporate income tax on such gain would be
payable by the Company, which will be a subsidiary of Boeing. New Rockwell has
agreed to indemnify Boeing for such tax liability unless the failure of the
Merger, the Contribution and the Distribution to qualify under those sections of
the Code is the result of certain actions of Boeing. In addition, if the Merger,
the Contribution and the Distribution fail to qualify under those sections of
the Code, each Company shareowner who receives shares of New Rockwell Common
Stock or New Rockwell Class A Common Stock would be generally treated as if such
shareowner had received a taxable distribution in an amount equal to the fair
market value of New Rockwell Common Stock or New Rockwell Class A Common Stock
received. Further,
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if the Merger fails to qualify as a "reorganization", each Company shareowner
who receives shares of Boeing Common Stock would recognize gain or loss equal to
the difference between the fair market value of the Boeing Common Stock received
and such shareowner's basis in the shares of Company Common Stock or Company
Class A Common Stock, as the case may be, surrendered.
A New Rockwell Right will attach to each share of New Rockwell Common Stock
and New Rockwell Class A Common Stock distributed in the Distribution. In
addition, a Boeing Right will attach to each share of Boeing Common Stock
received in the Merger. While the distribution of the New Rockwell Rights and
the Boeing Rights should not be taxable to the shareowners, the Company, New
Rockwell or Boeing, shareowners may, depending upon the circumstances, recognize
taxable income in the event that the New Rockwell Rights become exercisable for
shares of Series A Junior Preferred Stock of New Rockwell or the Boeing Rights
become exercisable for shares of Series A Junior Participating Preferred Stock
of Boeing or, in either case, for stock of an acquiring company. See
"Description of New Rockwell Capital Stock -- New Rockwell Rights Plan",
"Description of Boeing Capital Stock" and "Comparison of Rights of Shareowners
of the Company and Boeing".
BACKUP WITHHOLDING
Under the backup withholding rules, a holder of New Rockwell Common Stock
or New Rockwell Class A Common Stock and Boeing Common Stock may be subject to
backup withholding at the rate of 31% with respect to dividends and proceeds of
redemption, unless such shareowner (a) is a corporation or comes within certain
other exempt categories and, when required, demonstrates this fact or (b)
provides a correct taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. Any amount withheld under these
rules will be credited against the shareowner's Federal income tax liability.
New Rockwell or Boeing may require holders of New Rockwell Common Stock, New
Rockwell Class A Common Stock or Boeing Common Stock to establish an exemption
from backup withholding or to make arrangements satisfactory to New Rockwell or
Boeing with respect to the payment of backup withholding. A shareowner who does
not provide New Rockwell or Boeing with his or her current taxpayer
identification number may be subject to penalties imposed by the IRS.
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EFFECT ON EMPLOYMENT AND EMPLOYEE BENEFITS
EMPLOYMENT
Except as otherwise provided in the Merger Agreement, from the Effective
Time, Boeing or the Company Group will continue the employment of or offer
employment to those employees of the Company and the Retained Subsidiaries who
are engaged primarily in the A&D Business and certain other specified employees
of the Company and its subsidiaries ("Company Group Continuing Employees"). The
Merger Agreement provides that nothing therein is intended to confer upon any
Company Group Continuing Employee any right to continued employment by the
Company Group after the Effective Time. Pursuant to the Distribution Agreement,
the New Rockwell Group will offer employment or continued employment from the
Time of Contribution to all employees of the Company and its subsidiaries,
except the Company Group Continuing Employees, on terms that are substantially
the same as the terms on which they were employed by the Company or a subsidiary
of the Company immediately prior to the Time of Contribution. The Distribution
Agreement provides that nothing therein is intended to confer on any employee
who so continues to be employed or who accepts such an offer of employment by
the New Rockwell Group ("New Rockwell Group Continuing Employees") any right to
continued employment after the Time of Contribution. New Rockwell will, or will
cause the applicable member of the New Rockwell Group to, assume or maintain (as
applicable) as of the Time of Contribution and perform the obligations of each
of the Company and its subsidiaries under the collective bargaining agreements
relating to New Rockwell Group Continuing Employees and former employees of the
businesses which, at the Time of Contribution, comprise the New Rockwell Group
("New Rockwell Group Former Employees"), and any and all collateral agreements
related thereto, including those affecting all terms and conditions of
employment, and to be bound by such agreements. The Company will, or will cause
the applicable member of the Company Group to, assume or maintain (as
applicable) as of the Effective Time and perform the obligations of each of the
Company and its subsidiaries under the collective bargaining agreements relating
to Company Group Continuing Employees and former employees of the businesses
which, at the Time of Contribution, comprise the Company Group ("Company Group
Former Employees"), and any and all collateral agreements related thereto,
including those affecting all terms and conditions of employment, and to be
bound by such agreements. The Merger Agreement provides that, subject to the
terms of the respective collective bargaining agreements, for a period of at
least one year following the Effective Time, Boeing will not, nor will it permit
any of the Retained Companies to, terminate any Company Group Continuing
Employee without providing the same advance notice to such employee that would
have been provided under the applicable severance policy or program of the
Company or its subsidiaries had such Company Group Continuing Employee been
terminated immediately prior to the Effective Time, except in the circumstance
of termination for cause where no notice is required.
EMPLOYEE BENEFITS
Qualified Retirement Plans. Pursuant to the Distribution Agreement, the
Company or New Rockwell will establish a defined benefit pension plan effective
as of the Time of Contribution which qualifies under Section 401(a) of the Code
(the "New Rockwell Retirement Plan") to be sponsored by New Rockwell covering
(i) New Rockwell Group Continuing Employees and (ii) former employees of the
Company and its subsidiaries who terminated employment on or after January 1,
1996 (other than Company Group Former Employees) (such New Rockwell Group
Continuing Employees and such former employees are hereinafter referred to as
"New Rockwell Group Transferred Participants"). The New Rockwell Retirement Plan
will contain provisions comparable in all material respects to and no less
favorable in the aggregate than those of the Rockwell Retirement Plan for
Eligible Employees (the "Rockwell Retirement Plan") immediately prior to the
time of adoption of the New Rockwell Retirement Plan. Prior to the Time of
Contribution, a preliminary transfer of assets will be made from the trust
related to the Rockwell Retirement Plan (the "Rockwell Group Trust") to a
newly-established trust (the "New Rockwell Group Trust") to fund the benefits
payable under the New Rockwell Retirement Plan. New Rockwell will assume the New
Rockwell Group Trust at the Time of Contribution.
Effective as of the Time of Contribution, the Company will continue to
sponsor the Rockwell Retirement Plan and Rockwell Group Trust, and will change
the names thereof to eliminate any reference to "Rockwell".
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The Company will cause the Rockwell Retirement Plan to transfer to the New
Rockwell Retirement Plan all accrued benefits and other liabilities attributable
to New Rockwell Group Transferred Participants and a proportionate share of the
assets attributable thereto. Following such transfer, the Company will have no
further liability with respect to the New Rockwell Group Transferred
Participants for benefits under the Rockwell Retirement Plan and, except for
certain benefit increases which may be made to former employees of New Rockwell
under the Rockwell Retirement Plan as described in the next paragraph, the New
Rockwell Group will have no further liability with respect to the participants
under the Rockwell Retirement Plan. The Rockwell Retirement Plan will retain
liability for the New Rockwell Group Former Employees who were participants in
the Rockwell Retirement Plan and who terminated employment with the Company or
any of its subsidiaries prior to January 1, 1996.
Pursuant to the Distribution Agreement, New Rockwell will reimburse the
Company, on an annual plan-year basis, for any additional amounts paid under the
Rockwell Retirement Plan to or in respect of New Rockwell Group Former Employees
who are not New Rockwell Group Transferred Participants and their beneficiaries
as a result of any increase in benefits which may be provided to such New
Rockwell Group Former Employees and their beneficiaries over the benefits
payable to such persons at the Time of Contribution, which increase is
implemented by the Company upon the written request of New Rockwell.
Pursuant to the Distribution Agreement, prior to the Time of Contribution,
the assets attributable to the liabilities under qualified defined benefit
pension plans of Reliance and its subsidiaries (the "Reliance Retirement Plans")
will be transferred from the Rockwell Group Trust to the New Rockwell Group
Trust. The Distribution Agreement provides that, effective as of the Time of
Contribution, New Rockwell will cause the appropriate member or members of the
New Rockwell Group to continue sponsorship of the Reliance Retirement Plans.
Qualified Savings Plans. Pursuant to the Distribution Agreement, effective
as of the Time of Contribution, New Rockwell will, or will cause one or more of
its subsidiaries to, assume sponsorship of the (i) Company Savings Plan, (ii)
Rockwell International Corporation Savings Plan for Certain Represented Hourly
Employees and (iii) Rockwell Retirement Savings Plan for Certain Employees and
the respective trusts related thereto. New Rockwell will cause each Company
Group Continuing Employee to have a fully nonforfeitable right to such Company
Group Continuing Employee's account balances, if any, under such savings plans.
The account balances of each Company Group Continuing Employee will be
maintained under the applicable savings plan until distributed in accordance
with the terms of the applicable savings plan and applicable law.
Pursuant to the Distribution Agreement, effective as of the Time of
Contribution, New Rockwell will, or will cause one or more of its subsidiaries
to, assume sponsorship of the (i) Asheville Employees Retirement Savings Plan
Truck Axle Division, (ii) Rockwell International Corporation Gordonsville,
Tennessee Employees Savings Plan, (iii) Rockwell International Corporation
Retirement Plan for Hourly Employees,
Gordonsville, Tennessee and (iv) York Employees Retirement Savings Plan Truck
Axle Division and the respective trusts related thereto.
It is expected that the Rockwell Savings Plan for Certain Eligible
Employees will be merged into the Company Savings Plan prior to the Time of
Contribution. The Distribution Agreement provides that, if such savings plans
have not been merged by the Time of Contribution, then effective as of the Time
of Contribution, the Company will, or will cause a member of the Company Group
to, sponsor the Rockwell Savings Plan for Certain Eligible Employees and the
trust related thereto and will cause each New Rockwell Group Continuing Employee
to have a fully nonforfeitable right to such New Rockwell Group Continuing
Employee's account balances, if any, under the Rockwell Savings Plan for Certain
Eligible Employees. The account balances of each New Rockwell Group Continuing
Employee will be maintained under the Rockwell Savings Plan for Certain Eligible
Employees until distributed in accordance with the terms thereof and applicable
law.
Nonqualified Retirement Plans. The Distribution Agreement provides that,
effective as of the Time of Contribution, New Rockwell will assume liability for
all benefits accrued as of the Time of Contribution by, and attributable to,
employees and former employees of the Company and its subsidiaries (other than
Company Group Continuing Employees and Company Group Former Employees) under the
(i) Rockwell
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International Corporation Supplemental Retirement Plan for Highly Compensated
Employees, (ii) Rockwell International Corporation Excess Benefit Retirement
Plan and (iii) Rockwell International Corporation Excess Benefit Plan
(collectively, the "Nonqualified Retirement Plans"). Effective as of the Time of
Contribution, the Company will assume liability for all forfeitable and
nonforfeitable benefits accrued as of the Time of Contribution by, and
attributable to, Company Group Continuing Employees and Company Group Former
Employees under the Nonqualified Retirement Plans.
Deferred Compensation Plans and Nonqualified Savings Plans. Pursuant to
the Distribution Agreement, effective as of the Time of Contribution, New
Rockwell will assume liability for all benefits accrued as of the Time of
Contribution (including any such benefits accrued in respect of Company Group
Continuing Employees and Company Group Former Employees) by, and attributable
to, all employees and former employees of the Company and its subsidiaries and
all present and former non-employee directors of the Company under the (i)
Rockwell International Corporation Deferred Compensation Plan, (ii) Senior
Executive Plan, (iii) Rockwell International Corporation Deferred Compensation
Policy for Non-Employee Directors (collectively, the "Deferred Compensation
Plans"), (iv) Rockwell International Corporation Supplemental Savings Plan for
Highly Compensated Employees and (v) Rockwell International Corporation Excess
Benefit Savings Plan (collectively, the "Nonqualified Savings Plans"). Effective
as of the Time of Contribution, New Rockwell will cause each Company Group
Continuing Employee and Company Group Former Employee to have a fully
nonforfeitable right to such individual's entire account balances, if any, under
the Deferred Compensation Plans and Nonqualified Savings Plans.
Long Term Incentive Plans. The Distribution Agreement provides that,
effective as of the Time of Contribution, (i) the Company will retain liability
for all amounts due under the Rockwell International Business Unit Long-Term
Incentive Plan (the "Business Unit LTIP") with respect to the Company Group
Continuing Employees and Company Group Former Employees and (ii) New Rockwell
will assume liability for all amounts due under the Business Unit LTIP with
respect to the New Rockwell Group Continuing Employees and New Rockwell Group
Former Employees. The amounts payable to the Company Group Continuing Employees
and Company Group Former Employees will be determined by the Company on the
basis that (x) the target award for each uncompleted cycle will be prorated to
reflect the portion of such cycle completed as of the Time of Contribution and
(y) where payment is based on the trading price of the Company Common Stock,
such price will be the average closing price per share of Company Common Stock
reported on the NYSE Composite Transactions reporting system for each full
trading day during the months of August and September immediately preceding the
Time of Contribution. The amount due each participant under the Business Unit
LTIP who is a Company Group Continuing Employee will be paid by the Company
within 90 days following the Time of Contribution. New Rockwell will reimburse
the Company, upon written request from the Company, for any amount paid by the
Company under the Business Unit LTIP as a result of the Distribution Agreement,
the expense of which is not reimbursed by the United States under applicable
United States Government contracts, provided, however, that New Rockwell or any
authorized representative will have the opportunity to participate in any
negotiations with the applicable governmental entity to the extent permitted by
law and to be apprised of any developments with respect to such negotiations.
Employee Welfare Benefit Plans. Pursuant to the Distribution Agreement,
effective as of the Time of Contribution, the Company will, or will cause a
member of the Company Group to, maintain each employee welfare benefit plan and
fringe benefit arrangement sponsored or maintained by the Company or any of its
subsidiaries immediately prior to the Time of Contribution for the benefit of
Company Group Continuing Employees and Company Group Former Employees, including
both active and retired employees, and their eligible beneficiaries. The
Distribution Agreement provides that, effective as of the Time of Contribution,
New Rockwell will, or will cause a member of the New Rockwell Group to,
establish or maintain employee welfare benefit plans and fringe benefit
arrangements which are comparable in the aggregate to such plans and
arrangements which had been maintained by the Company and its subsidiaries
immediately prior to the Time of Contribution for the benefit of New Rockwell
Group Continuing Employees and New Rockwell Group Former Employees, including
both active and retired employees, and their eligible beneficiaries.
Free-Standing Plans. Pursuant to the Distribution Agreement, effective as
of the Time of Contribution, New Rockwell will assume, or will cause a member of
the New Rockwell Group to assume, all liabilities and
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obligations under each employee benefit plan, arrangement or policy which, prior
to the Time of Contribution, is exclusively for the benefit of New Rockwell
Group Continuing Employees, New Rockwell Group Former Employees, including both
active and retired employees, and their eligible beneficiaries. Effective as of
the Time of Contribution, the Company will retain, or will cause the Company
Group to retain, all liabilities and obligations under each employee benefit
plan, arrangement or policy which, prior to the Time of Contribution, is
exclusively for the benefit of Company Group Continuing Employees and Company
Group Former Employees, including both active and retired employees, and their
eligible beneficiaries.
Employment, Consulting and Severance Agreements. Pursuant to the
Distribution Agreement, effective as of the Time of Contribution, New Rockwell
will assume, or will cause the New Rockwell Group to assume, all liabilities and
obligations attributable to New Rockwell Group Continuing Employees and New
Rockwell Group Former Employees under their respective employment, consulting
and severance agreements with the Company or its subsidiaries, as are in effect
immediately prior to the Time of Contribution. Effective as of the Time of
Contribution, the Company will retain, or will cause the Company Group to
retain, all liabilities and obligations attributable to Company Group Continuing
Employees and Company Group Former Employees under their respective employment,
consulting and severance agreements with the Company or its subsidiaries, as are
in effect immediately prior to the Time of Contribution.
Voluntary Employees' Beneficiary Associations and Continued Life Insurance
Reserve Fund. Pursuant to the Distribution Agreement, prior to the Time of
Contribution, New Rockwell will establish a (i) voluntary employees' beneficiary
association (the "New Rockwell VEBA") under Section 501(c)(9) of the Code
covering New Rockwell Group Continuing Employees and New Rockwell Group Former
Employees who are covered under the Trust for Employee Welfare Benefit Programs
of Rockwell International Corporation (the "Rockwell VEBA"), (ii) voluntary
employees' beneficiary association (the "New Rockwell Collectively Bargained
VEBA") covering New Rockwell Group Continuing Employees and New Rockwell Group
Former Employees who are covered under the Agreement of Trust for Certain
Collectively Bargained Welfare Benefit Plans of Rockwell International
Corporation (the "Rockwell Collectively Bargained VEBA") and (iii) continued
life insurance reserve fund (the "New Rockwell CLIR Fund") covering New Rockwell
Group Continuing Employees and New Rockwell Group Former Employees who are
covered under the Company's Continued Life Insurance Reserve Fund (the "Rockwell
CLIR Fund"). The New Rockwell VEBA, New Rockwell Collectively Bargained VEBA and
New Rockwell CLIR Fund will contain provisions comparable in all material
respects to and no less favorable in the aggregate to its participants than
those of the Rockwell VEBA, Rockwell Collectively Bargained VEBA and Rockwell
CLIR Fund, respectively. Prior to the Time of Contribution, the Rockwell VEBA,
Rockwell Collectively Bargained VEBA and Rockwell CLIR Fund will transfer assets
to the New Rockwell VEBA, New Rockwell Collectively Bargained VEBA and New
Rockwell CLIR Fund, respectively, attributable to the New Rockwell Group
Continuing Employees and New Rockwell Group Former Employees covered thereunder.
Effective as of the Time of Contribution, New Rockwell will continue to sponsor
the New Rockwell VEBA, New Rockwell Collectively Bargained VEBA and New Rockwell
CLIR Fund. Effective as of the Time of Contribution, the Company will continue
to sponsor the Rockwell VEBA, Rockwell Collectively Bargained VEBA and Rockwell
CLIR Fund and will change the names thereof to eliminate any reference to
"Rockwell".
Indemnity. Pursuant to the Distribution Agreement, except as otherwise
provided therein, New Rockwell will indemnify and reimburse the Company Group
for all liability relating to any claims made by any New Rockwell Group
Continuing Employee or New Rockwell Group Former Employee for severance or other
separation benefits, any claims based on breach of contract and any other claims
arising out of or in connection with the employment or the failure to offer
employment to, or the termination of employment of, any such employee. The
Company will indemnify and reimburse the New Rockwell Group for all liability
relating to any claims made by any Company Group Continuing Employee or Company
Group Former Employee for severance or other separation benefits, any claims
based on breach of contract and any other claims arising out of or in connection
with the employment or the failure to offer employment to, or the termination of
employment of, any such employee. New Rockwell will indemnify and reimburse the
Company Group for all liabilities resulting from any failure to file a
determination letter request with the IRS within the remedial amendment period
prescribed under Section 401(b) of the Code with respect to compliance with the
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Tax Reform Act of 1986 for any qualified pension or savings plan assumed by the
Company that is intended to be tax-qualified under Section 401(a) of the Code.
CLOSURE, RETENTION AND SEVERANCE ARRANGEMENTS
In connection with the Transactions, the Company has implemented a Key
Executive Retention and Severance Program designed to retain executives who are
key to the successful operation of the A&D Business. This program has been made
available to 52 executives of the A&D Business, including John A. McLuckey,
Senior Vice President and President & Chief Operating Officer -- Aerospace and
Defense of the Company. The program provides for a closure payment by the
Company (which will be paid by New Rockwell) to each of nine executives
(including Mr. McLuckey) if such executive is employed by the Company at the
Closing Date. In addition, the program provides for certain retention and/or
severance payments to be made by the Company to each of the 52 participating
executives. The retention payment is payable 13 months after the Closing Date if
the Transactions are consummated, such executive remains with the A&D Business
through the Closing Date and such executive does not voluntarily terminate such
employment before completion of at least 12 months after the Closing Date. The
severance payment is payable if such executive is involuntarily terminated
(other than for cause) within two years of the Closing Date or voluntarily
terminates employment after such executive's responsibilities are substantially
diminished in the period two years after the Closing Date.
Pursuant to the Key Executive Retention and Severance Program, Mr. McLuckey
would be eligible to receive a closure payment of $300,000, a retention payment
of $830,000 and, if his employment is terminated as described above during the
first year (in which event the retention payment would not be made) or the
second year, as the case may be, after the Closing Date, a severance payment of
$1,245,000 or $415,000, respectively.
TREATMENT OF OUTSTANDING STOCK OPTIONS
For a description of the treatment of options to acquire shares of Company
Common Stock and Company Class A Common Stock, as the case may be ("Company
Options"), outstanding under the Company Stock Incentive Plans, see "Description
of the New Rockwell Business and New Rockwell -- Stock Incentive Plans of the
Company and New Rockwell -- New Rockwell Stock Incentive Plans; Treatment of
Outstanding Stock Options".
TREATMENT OF OUTSTANDING RESTRICTED STOCK
For a description of the treatment of outstanding restricted stock of the
Company, see "Description of the New Rockwell Business and New
Rockwell -- Treatment of Outstanding Restricted Stock".
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DESCRIPTION OF THE NEW ROCKWELL BUSINESS AND NEW ROCKWELL
NEW ROCKWELL BUSINESS
The New Rockwell Business segments are engaged in research, development,
and manufacture of diversified products as follows:
Electronics:
Automation -- industrial automation equipment and systems, including
control logic, sensors, human-machine interface devices, motors, power
and mechanical devices and software products.
Avionics and Communications -- avionics products and systems and related
communications technologies primarily used in commercial and military
aircraft, defense electronic systems for control, communications and
intelligence.
Semiconductor Systems -- system-level semiconductor chipset solutions
for personal communication electronics markets, including facsimile and
personal computer data modem products and wireless communications
products such as global positioning systems ("GPS"), packet data,
cordless and cellular chipsets and automated call distribution
equipment.
Automotive -- components and systems for heavy- and medium-duty trucks,
buses, trailers, and heavy-duty off-highway vehicles (Heavy Vehicle
Systems); and components and systems for light trucks and passenger cars
(Light Vehicle Systems).
ELECTRONICS
The sales and operating earnings of the businesses that comprise the
Electronics business segment for the three fiscal years ended September 30, 1995
and the nine months ended June 30, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
------------------------ ---------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Sales:
Automation.................................. $1,716 $2,085 $3,590 $2,575 $3,063
Avionics and Communications................. 1,407 1,419 1,468 1,008 1,067
Semiconductor Systems....................... 530 691 875 606 1,189
------ ------ ------ ------ ------
Total............................... $3,653 $4,195 $5,933 $4,189 $5,319
====== ====== ====== ====== ======
Operating Earnings:
Automation.................................. $ 193 $ 265 $ 481 $ 368 $ 379
Avionics and Communications................. 221 182 178 125 110
Semiconductor Systems....................... 57 98 113 60 248
------ ------ ------ ------ ------
Total............................... $ 471 $ 545 $ 772 $ 553 $ 737
====== ====== ====== ====== ======
</TABLE>
Automation. The acquisition of Reliance in the second fiscal quarter of
1995 made Automation the largest business of New Rockwell. Automation products
include programmable controllers, human-machine interface devices,
communications networks, programming and application software, AC/DC drives and
drive systems, sensing and motion control devices, machine vision, computer
numeric control systems, data acquisition products and global support services;
the Reliance acquisition added standard and engineered motors and mechanical
power transmission equipment. The New Rockwell Business is a leader in plant
floor automation, focusing on helping customers control processes and become
more competitive through increased flexibility, improved productivity and
information flow.
Avionics and Communications. The Avionics and Communications businesses
provide electronic equipment for flight control, cockpit display, navigation,
voice and data communication, cockpit management,
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<PAGE> 75
radar, global positioning and other systems for airlines, corporate aircraft,
general aviation, government and military applications, command, control and
communications devices and systems and products and systems for the land
transportation market (including on-board computing, electronic brake systems
and integrated cab electronics).
Semiconductor Systems. The Semiconductor Systems business provides
semiconductor solutions for fax, voice and data modems for facsimile machines
and personal computers. This business is making significant investments in
mixed-signal computing semiconductor process, device design and communications
algorithm core technologies. Applying these core technologies, this business is
expanding into related personal communications electronics markets, such as
entering the market for wireless communications, by supplying chipsets for
cellular and cordless phones, wireless modem communications devices for laptop
computers and modules for GPS receivers. In September 1996, the Company acquired
for approximately $275 million Brooktree, a designer, developer and manufacturer
of digital and mixed-signal integrated circuits for computer graphics and
multimedia as well as high speed wide area digital communications applications.
The Company will take a one-time after-tax charge of $121 million in the fourth
quarter of fiscal 1996 for in-process research and development.
AUTOMOTIVE
The sales and operating earnings of the businesses that comprise the
Automotive business segment for the three fiscal years ended September 30, 1995
and the nine months ended June 30, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
---------------------------- ----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS)
Sales:
Heavy Vehicle Systems................. $1,455 $1,744 $1,929 $1,473 $1,386
Light Vehicle Systems................. 893 900 1,192 901 1,007
------ ------ ------ ------ ------
Total.............................. $2,348 $2,644 $3,121 $2,374 $2,393
====== ====== ====== ====== ======
Operating Earnings...................... $ 135 $ 114 $ 212 $ 171 $ 154
====== ====== ====== ====== ======
</TABLE>
Heavy Vehicle Systems. Automotive's Heavy Vehicle Systems business is a
major global supplier of drivetrain components and systems for heavy- and
medium-duty commercial trucks, buses, trailers and off-highway vehicles, and
government heavy-duty wheeled vehicles. Major components include front steer
axles, single and tandem rear drive axles, trailer axles, clutches,
transmissions, drivelines, brakes, automatic slack adjusters and anti-lock
braking systems. North American factory sales of heavy-duty trucks totaled
214,000 and 244,000 units in fiscal 1994 and 1995, respectively, and are
expected to be 200,000 units in fiscal 1996. Sales of medium-duty trucks, used
primarily for short hauls and local delivery, were 125,000 and 150,000 units in
fiscal 1994 and 1995, respectively, and are expected to be 123,000 units in
fiscal 1996. Trailer sales were 255,000 and 321,000 units in fiscal 1994 and
1995, respectively, and are expected to be 250,000 units in fiscal 1996.
Light Vehicle Systems. Automotive's Light Vehicle Systems business is a
leading supplier of roof, door, access control, seat adjusting and suspension
systems and wheels for the world's passenger car and light truck industries. The
Light Vehicle Systems business is emphasizing products that provide added value
to its customers by concentrating its resources on the systems and electronics
product lines. For example, the Light Vehicle Systems business is moving from
providing just individual components toward more comprehensive systems with
various power and electronic options. To enhance its ability to support North
American customers for door systems, the Light Vehicle Systems business acquired
the automotive window regulator business of Dura Automotive Systems, Inc. during
fiscal 1995.
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COMPETITIVE POSTURE
The New Rockwell Business competes with many manufacturers which, depending
on the product involved, range from large diversified enterprises comparable in
scope and resources to the New Rockwell Business to smaller companies
specializing in particular products. Factors which affect the New Rockwell
Business's competitive posture are its research and development efforts, the
quality of its products and services and its marketing and pricing strategies.
The products of the Electronics business segments are sold by their own
sales forces and through distributors and agents. Automotive components
primarily are sold directly to original equipment manufacturers, some of which
also are competitors in that they produce for their own use many of the products
manufactured by the New Rockwell Business. Management believes that the New
Rockwell Business is one of the largest independent manufacturers of automotive
components and parts in North America.
GOVERNMENT CONTRACTS
The Avionics and Communications business supplies certain military
equipment to the United States Government. In addition to normal business risks,
companies engaged in supplying military equipment to the United States
Government are subject to unusual risks, including dependence on Congressional
appropriations and administrative allotment of funds, changes in governmental
procurement legislation and regulations and other policies which may reflect
military and political developments, significant changes in contract scheduling,
complexity of designs and the rapidity with which they become obsolete, constant
necessity for design improvements, intense competition for available United
States Government business necessitating increases in time and investment for
design and development, difficulty of forecasting costs and schedules when
bidding on developmental and highly sophisticated technical work and other
factors characteristic of the industry. Changes are customary over the life of
United States Government contracts, particularly development contracts, and
generally result in adjustments of contract prices.
Moreover, various claims (whether based on United States Government or
internal audits and investigations or otherwise) have been or may be instituted
or asserted against the New Rockwell Business related to its United States
Government contract work, including claims based on business practices and cost
classifications. Although such claims are usually resolved by detailed
fact-finding and negotiation, on those occasions when they are not so resolved,
civil or criminal legal or administrative proceedings may ensue. Depending on
the circumstances and the outcome, such proceedings could result in fines, the
cancellation of or suspension of payments under one or more United States
Government contracts, suspension or debarment proceedings affecting potential
further business with the United States Government, or alteration of the New
Rockwell Business's procedures relating to the performance or obtaining of
United States Government contracts. Management of the Company believes there are
no claims, audits or investigations currently pending which will have a material
adverse effect on the business or financial condition of the New Rockwell
Business.
ACQUISITIONS AND DISPOSITIONS
New Rockwell will continue the Company's practice of regularly considering
the acquisition or development of new businesses and reviewing the prospects of
its existing businesses to determine whether any of them should be modified,
sold or otherwise discontinued. In January 1995, the Company completed its
acquisition of Reliance, a major manufacturer of industrial products and
telecommunications equipment, for $1,586 million. Reliance's telecommunications
business was subsequently sold for $475 million in August 1995. During fiscal
1995, the Company also acquired several other businesses that are part of the
New Rockwell Business at an aggregate cost of $92 million. On October 15, 1996,
the Company sold its Graphic Systems business to an affiliate of Stonington
Partners, Inc., a New York-based private investment firm, for approximately $600
million. The assets and liabilities of the Graphic Systems business have been
classified on the Company's balance sheet as net assets of discontinued
operations and the net income (loss) from operations of the Graphic Systems
business has been reflected on the Company's consolidated statement of income as
income from discontinued operations. In September 1996, the Company acquired
Brooktree for
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<PAGE> 77
approximately $275 million. Upon consummation of the Transactions, the Company
will have an extremely low debt to total capital ratio which will enhance its
ability, among other things, to make acquisitions.
GEOGRAPHIC INFORMATION
The New Rockwell Business conducts operations in the United States and in
37 foreign countries. Selected financial information by major geographic area
for the three years ended September 30, 1995 is contained in Note 21 of the
Notes to Financial Statements of the Company included elsewhere herein.
The New Rockwell Business's principal markets outside the United States are
in Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan,
Korea, the Netherlands, Southeast Asia, Spain and the United Kingdom. In
addition to normal business risks, operations outside the United States are
subject to other risks including, among other factors, the political, economic
and social environments, governmental laws and regulations, and currency
revaluations and fluctuations.
RESEARCH AND DEVELOPMENT
Information with respect to research and development efforts of the New
Rockwell Business is contained in Note 15 of the Notes to Financial Statements
of the Company included elsewhere herein. The Company's Science Center conducts
a basic research program to support the strategies of the New Rockwell Business.
The Transition Agreement will provide that following the Merger the Company's
Science Center will continue to provide at agreed rates research services to the
A&D Business similar to those currently provided to the A&D Business.
At January 1, 1996, the New Rockwell Business employed approximately 6,600
professional engineers and scientists and 3,000 supporting technical personnel.
EMPLOYEES
At June 30, 1996, the New Rockwell Business had 58,100 employees, of whom
approximately 18,000 were employed outside the United States.
RAW MATERIALS AND SUPPLIES
Raw materials essential to the conduct of all the New Rockwell Business
segments generally are available at competitive prices. Many items of equipment
and components used in the production of the products in all the New Rockwell
Business segments are purchased from others. In addition, the Avionics and
Communications business in the Electronics business segment generally
subcontracts major portions of systems. Although the New Rockwell Business has a
broad base of suppliers and subcontractors, it is dependent upon the ability of
its suppliers and subcontractors to meet performance and quality specifications
and delivery schedules.
ENVIRONMENTAL PROTECTION REQUIREMENTS
Information with respect to the effect on the New Rockwell Business and its
manufacturing operations of compliance with environmental protection
requirements and resolution of environmental claims is contained in
"-- Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company -- Environmental Issues". See also "-- Legal
Proceedings" below.
PATENTS, LICENSES AND TRADEMARKS
Numerous patents and patent applications are owned or licensed by the
Company and utilized by the New Rockwell Business in its activities and
manufacturing operations. Pursuant to the Distribution Agreement, as part of the
Contribution, the patents, patent applications and licenses of the Company will
be allocated between the Company Group and New Rockwell Group in accordance with
the business in which they are primarily used, and the New Rockwell Group and
the Company Group will cross-license each other to use the patents and other
intellectual property rights so allocated that are used in the other Group's
business. Various claims of patent infringement have been made against the
Company (for which New Rockwell will assume liability pursuant to the
Distribution Agreement). Management believes that none of
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<PAGE> 78
these claims will have a material adverse effect on the consolidated financial
statements of the New Rockwell Business. While in the aggregate the New Rockwell
Business's patents and licenses are considered important in the operation of its
business, management does not consider them of such importance that loss or
termination of any one of them would materially affect the New Rockwell
Business.
The "Rockwell International Corporation" name, the registered trademarks
"Rockwell" and "Rockwell International" and the corporate symbol are important
to all of the segments of the New Rockwell Business. In addition, pursuant to
the Distribution Agreement New Rockwell will acquire ownership of a large number
of other important trademarks applicable only to certain of its products, such
as "Collins" for navigation and communication equipment, "Allen-Bradley" and
"A-B" for electronic controls and systems for industrial automation, and
"Reliance" for electric motors and mechanical power transmission products.
SEASONALITY
None of the New Rockwell Business segments is seasonal.
PROPERTIES
At September 30, 1995, the New Rockwell Business operated 170 plants and
research and development facilities throughout the United States and in Europe,
Brazil, Canada, Mexico, Australia and the Far East. It also had approximately
325 sales offices, warehouses and service centers. These facilities had an
aggregate floor space of approximately 32.9 million square feet. Of this floor
space, approximately 76% was owned and approximately 24% was leased. At
September 30, 1995, the New Rockwell Business had 0.9 million square feet of
floor space that was not in use, almost all of which was in owned facilities.
There are no major encumbrances (other than financing arrangements which in the
aggregate are not material) on any of the New Rockwell Business's plants or
equipment. In the opinion of management, the New Rockwell Business's properties
have been well maintained, are in sound operating condition and contain all
equipment and facilities necessary to operate at present levels. A summary of
floor space of these facilities at September 30, 1995 is as follows:
<TABLE>
<CAPTION>
OWNED LEASED
LOCATION AND SEGMENTS FACILITIES FACILITIES TOTAL
---------------------------------------------------------- ---------- ---------- -----
(IN MILLIONS OF SQUARE FEET)
<S> <C> <C> <C>
United States:
Electronics............................................. 12.5 4.5 17.0
Automotive.............................................. 4.4 0.4 4.8
Europe:
Electronics............................................. 0.6 1.3 1.9
Automotive.............................................. 3.8 0.3 4.1
South America:
Electronics............................................. -- 0.2 0.2
Automotive.............................................. 2.0 -- 2.0
Canada and other areas:
Electronics............................................. 0.5 0.7 1.2
Automotive.............................................. 0.8 -- 0.8
Corporate Offices (including certain research and
development facilities)................................. 0.4 0.5 0.9
----- ----- -----
Total........................................... 25.0 7.9 32.9
======= ======= ====
</TABLE>
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<PAGE> 79
The Transition Agreement will provide for the temporary occupancy by New
Rockwell of certain portions of the Company's Seal Beach, California facility
until such time as New Rockwell relocates its headquarters to another location
in Southern California.
LEGAL PROCEEDINGS
Rocky Flats Plant. On January 30, 1990, a civil action was brought in the
United States District Court for the District of Colorado against the Company
and another former operator of the DOE's Rocky Flats Plant, Golden, Colorado,
operated from 1975 through December 31, 1989 by the Company for the DOE. The
action alleges the improper production, handling and disposal of radioactive and
other hazardous substances, constituting, among other things, violations of
various environmental, health and safety laws and regulations, and
misrepresentation and concealment of the facts relating thereto. The plaintiffs,
who purportedly represent two classes, sought compensatory damages of $250
million for diminution in value of real estate and other economic loss; the
creation of a fund of $150 million to finance medical monitoring and
surveillance services; exemplary damages of $300 million; CERCLA response costs
in an undetermined amount; attorneys' fees; an injunction; and other proper
relief. On February 13, 1991, the court granted certain of the motions of the
defendants to dismiss the case. The plaintiffs subsequently filed a new
complaint, and on November 26, 1991, the court granted in part a renewed motion
to dismiss. The remaining portion of the case is pending before the court. On
October 8, 1993, the court certified separate medical monitoring and property
value classes. Effective August 1, 1996, the DOE assumed control of the defense
of the contractor defendants, including the Company, in the action. Beginning on
that date, the costs of the Company's defense, which had previously been
reimbursed to the Company by the DOE, have been and are being paid directly by
the DOE. The Company believes that it is entitled under applicable law and its
contract with the DOE to be indemnified for all costs and any liability
associated with this action.
On November 13, 1990, the Company was served with a summons and complaint
in another civil action, which the Company believes is totally without merit,
brought against the Company in the same court by James Stone, claiming to act in
the name of the United States, alleging violations of the U.S. False Claims Act
in connection with the Company's operation of the DOE's Rocky Flats Plant (and
seeking treble damages and forfeitures) as well as a personal cause of action
for alleged wrongful termination of employment, seeking reinstatement with back
pay and other unspecified damages. On August 8, 1991, the court dismissed the
personal cause of action.
On February 2, 1994, the court denied the Company's motion to dismiss the
complaint for lack of subject matter jurisdiction, and discovery is proceeding.
On November 14, 1995, the Department of Justice filed a motion seeking leave to
intervene in the case on the government's behalf. In response to that action the
DOE notified the Company on December 6, 1995 that it will no longer reimburse
costs incurred by the Company in defense of this action. The Company believes
intervention by the Department of Justice would be improper, and is therefore
opposing both governmental actions.
On January 8, 1991, the Company filed suit in the United States Claims
Court against the DOE, seeking recovery of $6.5 million of award fees to which
the Company alleges it is entitled under the terms of its contract with the DOE
for management and operation of the DOE's Rocky Flats Plant during the period
October 1, 1988 through September 30, 1989. On July 17, 1996 the government
filed an amended answer and counterclaim against the Company alleging violations
of the U.S. False Claims Act previously asserted in the civil action described
in the two preceding paragraphs. The Company believes the government's
counterclaim is without merit.
Hanford Nuclear Reservation. On August 6, 1990 and August 9, 1990, civil
actions were filed in the United States District Court for the Eastern District
of Washington against the Company and the present and other former operators of
the DOE's Hanford Nuclear Reservation, Hanford, Washington. The Company operated
part of the DOE's Hanford Nuclear Reservation for the DOE from 1977 through June
1987. Both actions purport to be brought on behalf of various classes of persons
and numerous individual plaintiffs who resided, worked, owned or leased real
property, or operated businesses, at or near the DOE's Hanford Nuclear
Reservation or downwind or downriver from the DOE's Hanford Nuclear Reservation,
at any time since 1944.
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The actions allege the improper handling and disposal of radioactive and other
hazardous substances and assert various statutory and common law claims. The
relief sought includes unspecified compensatory and punitive damages for
personal injuries and for economic losses, and various injunctive and other
equitable relief.
Other cases asserting similar claims (the follow-on claims) on behalf of
the same and similarly situated individuals and groups have been filed from time
to time since August 1990, and may continue to be filed from time to time in the
future. These actions and the follow-on claims have been (and any additional
follow-on claims that may be filed are expected to be) consolidated in the
United States District Court for the Eastern District of Washington under the
name In re Hanford Nuclear Reservation Litigation. Because the claims and
classes of claimants included in the actions described in the preceding
paragraph are so broadly defined, the follow-on claims filed as of December 21,
1995 have not altered, and possible future follow-on claims are not expected to
alter, in any material respect the scope of the litigation.
Effective October 1, 1994, the DOE assumed control of the defense of
certain of the contractor defendants (including the Company) in the In re
Hanford Nuclear Reservation Litigation. Beginning on that date, the costs of the
Company's defense, which had previously been reimbursed to the Company by the
DOE, have been and are being paid directly by the DOE. The Company believes it
is entitled under applicable law and its contracts with the DOE to be
indemnified for all costs and any liability associated with these actions.
Other. On June 24, 1996, judgment was entered against the Company in a
civil action in the Circuit Court of Logan County, Kentucky on a jury verdict
awarding $8 million in compensatory and $210 million in punitive damages for
property damage. The action had been brought August 12, 1993 by owners of flood
plain real property near Russellville, Kentucky allegedly damaged by PCBs
discharged from a plant owned and operated by the Company's Measurement & Flow
Control Division prior to its divestiture in March 1989. The Company believes
that the verdict is unsupported by the evidence and, on July 3, 1996, moved for
judgment in its favor notwithstanding the verdict, or in the alternative, for a
new trial.
Various other lawsuits, claims and proceedings have been or may be
instituted or asserted against the Company relating to the conduct of the New
Rockwell Business, including those pertaining to product liability,
environmental, safety and health, intellectual property, employment, and
government contract matters. Although the outcome of litigation cannot be
predicted with certainty and some lawsuits, claims or proceedings may be
disposed of unfavorably to the Company, management believes the disposition of
matters which are pending or asserted will not have a material adverse effect on
the financial statements of the New Rockwell Business.
Pursuant to the terms of the Reorganization Agreements, if the Transactions
are consummated New Rockwell will assume responsibility for all litigation
pending against the Company in respect of the New Rockwell Business and certain
litigation in respect of the A&D Business, including the litigation described
above. Under the terms of the Merger Agreement, it is a condition to the
Company's obligation to consummate the Merger that each of Boeing, the Company
and New Rockwell receive an advance agreement from the DOE in form and substance
reasonably satisfactory to each pursuant to which the contractual
indemnification currently provided by the DOE to the Company under certain
contracts, including contracts in respect of the DOE's Rocky Flats Plant and the
DOE's Hanford Nuclear Reservation, shall be extended to New Rockwell as well as
to the Company.
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CAPITALIZATION OF THE COMPANY AND PRO FORMA CAPITALIZATION OF NEW ROCKWELL
The following table sets forth the capitalization of the Company and the
pro forma capitalization of New Rockwell at June 30, 1996 after giving effect to
the Merger and related transactions described in the notes to the Unaudited Pro
Forma Condensed Consolidated Balance Sheet of New Rockwell and Unaudited Pro
Forma Condensed Consolidated Statements of Income of New Rockwell included
elsewhere in this Proxy Statement-Prospectus. This table should be read in
conjunction with the notes referred to above and the Company's historical
consolidated financial statements and related notes thereto included elsewhere
in this Proxy Statement-Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------
COMPANY NEW ROCKWELL
HISTORICAL PRO FORMA
----------- -------------
(IN MILLIONS)
<S> <C> <C>
Debt, including short-term debt.................................. $ 2,466(1) $ 304
Shareowner's equity:
Company Shares:
Company Common Stock - 600 million shares authorized, 209.5
million shares issued..................................... 210(2)
Company Class A Common Stock - 200 million shares
authorized, 28.2 million shares issued.................... 28
New Rockwell Shares:
New Rockwell Common Stock - 1,000 million shares authorized,
190.1 million shares issued............................... 190(2)
New Rockwell Class A Common Stock - 100 million shares
authorized 28.2 million shares issued..................... 28
Additional paid-in capital..................................... 198(2) 931(2)(3)
Retained earnings.............................................. 4,443 4,443
Currency translation........................................... (130) (130)
Treasury stock................................................. (559)(2) --(2)
------ ------
Total shareowners' equity........................................ 4,190 5,462
------ ------
Total capitalization............................................. $ 6,656 $ 5,766
====== ======
</TABLE>
- ---------------
(1) Includes debt of $2,162 million which has been reclassified to discontinued
operations.
(2) 19.4 million shares of Company Common Stock held as treasury stock will be
canceled without payment of consideration therefor in connection with the
Transactions, resulting in reductions in Common Stock ($20 million) and
additional paid-in capital ($539 million) and the elimination of treasury
stock ($559 million).
(3) Increased to reflect the divestiture of the net liabilities of the A&D
Business ($1,302 million) and decreased to reflect the liability for
expenses incurred in connection with the Transactions ($30 million) and the
cancellation of 19.4 million shares of treasury stock ($539 million).
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SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following sets forth selected consolidated financial data of the
Company's businesses that will be contributed to New Rockwell. The selected
consolidated financial data exclude financial data pertaining to the A&D
Business and the Retained Company Debt. The selected consolidated financial data
have been derived from the consolidated financial statements of the Company. The
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company" and the
consolidated financial statements of the Company and notes thereto included
elsewhere in this Proxy Statement-Prospectus. The income statement data for the
five years ended September 30, 1995 and the balance sheet data as of the same
dates have been derived from the audited consolidated financial statements of
the Company. The income statement data for the nine months ended June 30, 1995
and 1996 and the balance sheet data as of June 30, 1995 and 1996 have been
derived from the unaudited consolidated financial statements of the Company,
which, in the opinion of management, include all adjustments necessary for a
fair presentation of financial position and results of operations for such
periods. Operating results for the nine months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the entire year
ending September 30, 1996.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------------------------ ---------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales from continuing operations................. $6,112 $5,856 $6,204 $7,029 $9,065 $6,571 $7,712
Nonrecurring gains(1)............................ 122 -- -- -- -- -- --
Operating earnings............................... 616 479 593 667 953 716 891
Interest expense................................. 27 35 18 17 25 17 23
Income from continuing operations(2)............. 308 243 302 351 493 378 484
Earnings per common share from continuing
operations:
Primary........................................ 1.32 1.09 1.37 1.59 2.27 1.74 2.23
Fully diluted.................................. 1.30 1.08 1.35 1.56 2.23 1.70 2.19
Cash dividends per common share.................. 0.86 0.92 0.96 1.02 1.08 0.81 0.87
BALANCE SHEET DATA:
(at end of period)
Total assets................................... $6,663 $6,090 $6,298 $6,593 $9,229 $9,550 $9,559
Long-term debt................................. 23 23 20 30 178 179 166
Shareowners' equity............................ 4,224 2,778 2,956 3,356 3,782 3,661 4,190
</TABLE>
- ---------------
(1) Nonrecurring gains in 1991 include gains of $344 million, principally the
sale of the Company's Network Transmission Systems business, offset by a
provision for restructuring of $222 million. The provision consists
principally of the estimated costs for plant closings and product line
consolidations in businesses that will be contributed to New Rockwell.
(2) Income from continuing operations in 1992 excludes the cumulative effect of
the adoption of Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions." The
cumulative effect of adopting this standard reduced net income by $1,519
million.
76
<PAGE> 83
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE COMPANY
OUTLOOK
Sales of continuing operations, which exclude the A&D Business and the
Graphic Systems business, are estimated by the Company to be approximately $10.4
billion for the fiscal year ended September 30, 1996, with international sales
constituting 43% of that total. The related income and primary earnings per
share from continuing operations are estimated by the Company to be
approximately $677 million and $3.11 per share, respectively, excluding the
interest expense related to the debt to be retained by the A&D Business and
corporate expenses allocable to the A&D Business. The estimated income and
primary earnings per share amounts exclude the effect of the one-time write-off
of $121 million ($.56 per share) of in-process research and development in
connection with the acquisition of Brooktree, which was completed in September
1996. In the Company's fourth fiscal quarter ended September 30, 1996, the
Company will record a restructuring charge of approximately $74 million, or
approximately 34 cents per share, related to a decision to exit several
non-strategic product lines of its on-going businesses and the costs associated
with staff reductions, mostly outside the United States. The charge will be
offset by a favorable resolution of prior years' research and experimental tax
refund claims and by a favorable settlement of insurance claims, which will
increase the Company's fiscal 1996 fourth quarter income by approximately $76
million, or approximately 35 cents per share.
Management of the New Rockwell Business has established long-term financial
goals for average annual sales growth of 8% and average annual primary earnings
per share growth of 15%. During the five fiscal years ended September 30, 1996,
the New Rockwell Business has exceeded those goals, achieving average annual
sales growth of 15% (including the acquisition of Reliance in 1995) and average
annual primary earnings per share growth of 30% (excluding the $121 million
one-time write-off of in-process research and development which will be taken in
the fourth quarter of fiscal 1996 in connection with the Brooktree acquisition).
RESULTS OF OPERATIONS -- NINE MONTHS ENDED JUNE 30, 1996 COMPARED TO NINE
MONTHS ENDED JUNE 30, 1995
Sales for the first nine months of fiscal 1996 increased $1.1 billion, or
17 percent, over the first nine months of fiscal 1995 principally due to higher
sales in the Automation and Semiconductor Systems businesses. Automation's sales
for the first nine months increased $488 million, or 19 percent, from the same
period a year ago, principally due to the inclusion of $338 million of first
quarter sales of Reliance. Although growth in Automation's served markets for
1996 is continuing, the rate of growth in this industry has slowed from 1995's
record levels. Semiconductor Systems' sales for the first nine months of fiscal
1996 nearly doubled 1995's sales for the comparable period driven by the strong
demand for its very high-speed personal computer data/fax/voice modem products.
Sales of Semiconductor Systems in the fourth quarter of 1996 are expected to be
somewhat lower than the third quarter of 1996. Sales of Avionics and
Communications and Automotive's Light Vehicle Systems were also up for the first
nine months of fiscal 1996, while sales of Automotive's Heavy Vehicle Systems
were down principally due to depressed markets in Brazil.
Income from continuing operations for the first nine months of fiscal 1996
increased 28 percent from 1995's first nine months principally due to a
substantial earnings increase in the Semiconductor Systems business related to
the sales increase noted above. Automation's 1996 first nine months earnings
increased slightly as the business made significant investments in international
marketing, new product launches, and manufacturing and distribution facilities
to improve customer service. Avionics and Communications' earnings for the first
nine months of 1996 benefited from higher sales but were below last year's first
nine months due to higher discretionary expenses and a charge resulting from the
bankruptcy of Fokker N.V.
Automotive's earnings for the first nine months of fiscal 1996 decreased 10
percent from fiscal 1995's first nine months primarily due to depressed economic
conditions in Brazil and Mexico and an $11 million reserve for restructuring
Light Vehicle Systems' European operations, which more than offset improved cost
performance in Heavy Vehicle Systems, volume improvements in Light Vehicle
Systems and a gain on the sale of a plant.
77
<PAGE> 84
RESULTS OF OPERATIONS -- FISCAL YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO
FISCAL YEAR ENDED SEPTEMBER 30, 1994
Sales for 1995 increased $2 billion, or 29 percent, from 1994 sales. The
acquisition of Reliance contributed $1 billion to this increase, while strong
markets, new product introductions and increased market share led to record
sales by the Semiconductor Systems, Automation, and Light and Heavy Vehicle
Systems businesses. Avionics and Communications 1995 sales were also up from
1994. International sales increased 29 percent over 1994.
Income from continuing operations for 1995 increased 40 percent over 1994.
Automation's 1995 earnings were up 82 percent over 1994, 45 percent due to
strong worldwide markets for Allen-Bradley products and 37 percent to the
inclusion of Reliance in 1995's results. Excluding the newly acquired Reliance
operations, Automation posted 1995 sales increases of 19 percent in the United
States, 36 percent in Canada, 38 percent in Asia-Pacific, 28 percent in Europe,
and 26 percent in Latin America.
Semiconductor Systems' earnings were 15 percent higher than 1994 due to
strong customer demand for its new high speed data modem products which reached
full production during 1995's third quarter. In the fourth quarter,
Semiconductor Systems' earnings were more than three times higher than 1994's
fourth quarter earnings.
Avionics and Communications' 1995 earnings were approximately the same as
1994 as a result of significant investments in products to address the land
transportation electronics market being offset by strengthening commercial
avionics markets in the second half of 1995 and substantial completion of
development work on the Boeing 777 program.
Automotive's 1995 earnings were up 86 percent over 1994 due to sales
increases and improved operating performance in both its Heavy and Light Vehicle
Systems businesses, and lower Heavy Vehicle Systems product warranty costs.
Earnings of Heavy Vehicle Systems in 1995 more than doubled 1994's results,
while earnings of Light Vehicle Systems were up 32 percent over 1994.
Automotive's return on sales increased to 6.8 percent in 1995 compared to 4.3
percent in 1994.
Income from continuing operations for 1995 was reduced by higher
contributions to the Company's charitable trust and increased environmental
costs related to previously disposed businesses.
RESULTS OF OPERATIONS -- FISCAL YEAR ENDED SEPTEMBER 30, 1994 COMPARED TO
FISCAL YEAR ENDED
SEPTEMBER 30, 1993
Sales in 1994 increased 13 percent over 1993 sales. All of the Company's
continuing businesses achieved higher sales in 1994 compared to 1993 led by
significant increases in Automation, Semiconductor Systems and Heavy Vehicle
Systems. Automation's sales increased 22 percent and Semiconductor Systems'
sales increased 30 percent due to strong markets and new product driven
increased market shares. Sales of Heavy Vehicle Systems increased 20 percent
reflecting the strong North American truck markets.
Income from continuing operations in 1994 increased 16 percent from 1993
principally due to the higher sales and improved earnings performance by the
Automation and Semiconductor Systems businesses.
Automation's 1994 earnings increased 37 percent over 1993 due to strong
demand for Allen-Bradley products in all of its primary markets worldwide.
Automation's incoming orders in 1994 averaged $8.8 million per day, up 21
percent from 1993 and international sales surpassed 30 percent of total sales
for the first time.
Semiconductor Systems' earnings in 1994 increased 72 percent over 1993 as
the business experienced strong demand for its data modems, principally in the
fast growing personal computer market. The business shipped over 15 million data
modems in 1994 compared to approximately 9 million in 1993, and shipped 8
million facsimile machine modems compared to 6 million in 1993.
Avionics and Communications' 1994 earnings were 18 percent below 1993.
Although the general aviation and government avionics product lines had
increased sales and earnings in 1994, total earnings were below 1993 due to weak
air transport markets and investments in new product development.
Automotive's earnings declined 16 percent in 1994 as compared to 1993.
Significant 1994 gains in Heavy Vehicle Systems earnings attributable to the
strong North American truck markets were largely offset by higher product
warranty provisions. The product warranty provisions included higher than
anticipated costs related to the business' extended warranty program as well as
a charge to recognize the cost of inspections and
78
<PAGE> 85
potential field modifications of certain transmission products. In Light Vehicle
Systems, 1994 earnings were lower than 1993 due to the effect of weak
international markets and investments in automotive electronics.
FINANCIAL CONDITION
Management believes that New Rockwell's financial condition will be a major
strength for its continuing businesses. Since the A&D Business will retain
substantially all of the short- and long-term domestic borrowings of the
Company, upon consummation of the Transactions New Rockwell will have an
extremely low 5% debt to total capital ratio which will enhance its ability to
make acquisitions, make internal investments and increase stock repurchases.
Following the Merger, New Rockwell intends to launch a $1 billion share
repurchase program which it expects to complete in approximately one year.
In addition, New Rockwell will initially have cash balances of
approximately $800 million, including the effect of the sale of the Graphic
Systems business and the purchase of Brooktree.
Cash provided by operating activities was $636 million for the first nine
months of fiscal 1996, $710 million in fiscal 1995, $740 million in fiscal 1994,
and $631 million in fiscal 1993. This is after funding the working capital needs
of the businesses as well as substantial investments in research and new product
development.
A major use of cash will be capital expenditures to accommodate the growth
profile of New Rockwell's leadership businesses, particularly the fast-growing
Automation and Semiconductor Systems businesses. Capital expenditures were $537
million for the first nine months of fiscal 1996, $590 million for fiscal 1995,
$470 million for fiscal 1994, and $319 million for fiscal 1993. Substantially
all the capital expenditures during this period were for facilities and
equipment to support business growth initiatives as well as cost reduction and
quality improvement programs. In July 1996, the Semiconductor Systems business
announced that due to current and forecasted favorable pricing in the worldwide
semiconductor silicon wafer fabrication marketplace, it will delay by
approximately 12 months the production start-up of its new facility currently
under construction in Colorado Springs. Management believes, with the excellent
earnings potential of the businesses and aggressive asset management, that
capital expenditures of the businesses will be funded with cash provided by
operating activities.
The major use of cash in fiscal 1995 was the acquisition of Reliance for
$1,586 million. The acquisition price was financed through the subsequent sale
of Reliance's telecommunications business for $475 million and the issuance of
$300 million in three-year notes, $500 million in ten-year notes, and $311
million of commercial paper.
Another use of cash will be the payment of dividends. Initially New
Rockwell expects to pay quarterly dividends at the same $1.16 per share annual
rate currently paid by the Company. During the past three years dividend
payments as a percent of net income have ranged from 32 percent in 1995 to 38
percent in 1993.
INCOME TAXES
The Company's effective income tax rate for continuing operations in 1995
was 39.2 percent compared to 38.2 percent in 1994. The increase is principally
due to the amortization of goodwill recorded in the Reliance acquisition which
is not deductible for tax purposes.
At September 30, 1995, the Company had unrecognized tax benefits from
foreign net operating loss carryforwards of approximately $37 million. Of the
loss carryforwards, $35 million expire between 1996 and 2003 and the remaining
$2 million do not expire. The Company also had foreign tax credit carryforwards
of approximately $55 million at September 30, 1995 which expire through 2000.
These unrecognized tax benefits are available to reduce future income taxes of
the New Rockwell Business.
The Company filed a research and experimentation tax credit refund claim
for the years 1981 through 1991. In 1994 a small portion of the claim was
favorably resolved and the remaining portion, approximately $90 million
including interest, related to fixed-price government contracts, was disallowed.
The Company appealed this decision to the Internal Revenue Service Appeals
Office and has reached an agreement with the IRS pursuant to which the Company
will receive approximately $70 million, including interest, subject to the
approval of the settlement by the Joint Congressional Committee on Taxation. The
rights to this refund are being retained by New Rockwell.
79
<PAGE> 86
ENVIRONMENTAL ISSUES
Federal, state and local requirements relating to the discharge of
substances into the environment, the disposal of hazardous wastes, and other
activities affecting the environment have had and will continue to have an
impact on the manufacturing operations of the Company. Thus far, compliance with
environmental requirements and resolution of environmental claims have been
accomplished without material effect on the Company's liquidity and capital
resources, competitive position, or financial statements.
It is difficult to estimate the timing and ultimate amount of environmental
costs to be incurred in the future due to uncertainties about the status of the
law, regulations, technology, and information related to individual sites.
Nevertheless, to assess the materiality for financial statement disclosure
purposes, management estimates the total reasonably possible remediation costs
that could be incurred by the Company. In the determination of such estimates,
consideration is given to the professional judgment of the Company's
environmental engineers, in consultation with outside environmental specialists
when necessary, and counsel, including assessments as to the likelihood that
other companies which have been designated as potentially responsible parties
("PRP") have the financial resources and commitment to fulfill their obligations
at Superfund sites where they and the Company may be jointly and severally
liable. For certain sites, only a range of reasonably possible costs can be
estimated. In these cases, the top end of the range is included in management's
estimate of total reasonably possible costs; however, in the determination of
accruals, the low end of the range is accrued as prescribed by generally
accepted accounting principles.
The Company records accruals for environmental issues in the accounting
period in which its responsibility is established and the cost can be reasonably
estimated. The Company records receivables for expected recoveries from third
parties only when it is probable that such parties will fulfill their obligation
to pay and have the financial resources to do so.
The Company, including Reliance, has been designated as a PRP at 50
Superfund sites, excluding sites as to which the Company's records disclose no
involvement or as to which the Company's potential liability has been finally
determined. Management estimates the total reasonably possible costs the Company
could incur for the remediation of Superfund sites at September 30, 1995 to be
about $57 million, of which $35 million has been accrued.
Various other lawsuits, claims, and proceedings have been asserted against
the Company alleging violations of Federal, state and local environmental
protection requirements, or seeking remediation of alleged environmental
impairments, principally at previously disposed of properties. For these
matters, management has estimated the total reasonably possible costs the
Company could incur at September 30, 1995 to be about $140 million. The Company
has recorded environmental accruals for these matters of $110 million, of which
$46 million relate to Reliance.
A major portion of the $46 million accrual for Reliance's environmental
obligations will be recoverable from Exxon Corporation, based on an agreement
between Exxon and Reliance whereby Exxon agreed to pay substantially all costs
related to certain environmental matters. Therefore, an offsetting $25 million
receivable from Exxon has been recorded at September 30, 1995. In addition, the
Company believes Reliance is entitled to indemnification from Exxon with respect
to one site involving approximately $18 million of cost, as to which Exxon is
disputing its indemnification obligation.
New Rockwell has agreed to assume responsibility for certain preexisting
environmental liabilities related to A&D Business sites to the extent that such
liabilities are not allowable costs in connection with a United States
Government contract based on an act or omission by the Company or any of its
subsidiaries prior to the Effective Time. The Company anticipates that
substantially all environmental expenditures related to the A&D Business will be
allowable costs on United States Government contracts. See "Post-Closing
Arrangements -- Terms of the Post-Closing Covenants Agreement -- Indemnification
by New Rockwell".
Based on its assessment, management believes that New Rockwell's
expenditures for environmental capital investment and remediation necessary to
comply with present regulations governing environmental protection and other
expenditures for the resolution of environmental claims will not have a material
adverse effect on New Rockwell's liquidity and capital resources, competitive
position, or financial statements. Management cannot assess the possible effect
of compliance with future requirements.
80
<PAGE> 87
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET OF NEW ROCKWELL
The unaudited pro forma condensed consolidated balance sheet of New
Rockwell has been derived from the historical consolidated balance sheet of the
Company adjusted for certain costs and expenses to be incurred as a result of
the proposed Transactions. The unaudited pro forma condensed consolidated
balance sheet of New Rockwell has been prepared assuming the Transactions
occurred on June 30, 1996. The unaudited pro forma condensed consolidated
balance sheet excludes the effect of the acquisition of Brooktree. The
acquisition, which was completed in September 1996, will have an immaterial
effect on the financial position of New Rockwell.
The unaudited pro forma condensed consolidated balance sheet should be read
in conjunction with the historical consolidated financial statements of the
Company and the notes thereto for the three years in the period ended September
30, 1995 and for the nine months ended June 30, 1995 and 1996 included elsewhere
in this Proxy Statement-Prospectus. The unaudited pro forma condensed
consolidated balance sheet is not necessarily indicative of the financial
position of New Rockwell that would actually have been obtained had the
Transactions been consummated on June 30, 1996.
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------------------------
COMPANY PRO FORMA NEW ROCKWELL
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ----------- ------------
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS
Cash............................................. $ 639 $ - $ 639
Receivables...................................... 1,645 - 1,645
Inventories...................................... 1,751 - 1,751
Net assets -- Graphic Systems.................... 541 - 541
Other current assets............................. 451 - 451
----- ----- -----
Total current assets........................ 5,027 - 5,027
Property, net.................................... 2,453 - 2,453
Intangible assets................................ 1,827 - 1,827
Other assets..................................... 252 - 252
----- ----- -----
Total assets................................ $9,559 $ - $9,559
===== ===== =====
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term debt.................................. $ 138 $ - $ 138
Accounts payable and accrued liabilities......... 2,259 30(1) 2,289
Net liabilities -- A&D Business.................. 1,302 (1,302)(2) -
----- ----- -----
Total current liabilities................... 3,699 (1,272) 2,427
Long-term debt................................... 166 - 166
Accrued retirement benefits...................... 1,144 - 1,144
Other liabilities................................ 360 - 360
Shareowners' Equity:
Common Stock..................................... $ 210 $ (20)(3) $ 190
Class A Common Stock............................. 28 - 28
Additional paid-in-capital....................... 198 1,302(2) 931
(30)(1)
(539)(3)
Retained earnings................................ 4,443 - 4,443
Currency translation............................. (130) - (130)
Common stock in treasury......................... (559) 559(3) -
----- ----- -----
Total shareowners' equity................... 4,190 1,272 5,462
----- ----- -----
Total liabilities and shareowners'
equity............................... $9,559 $ - $9,559
===== ===== =====
</TABLE>
- ---------------
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet:
(1) The liability for expenses recorded in connection with the Transactions.
(2) The divestiture of the net liabilities of the A&D Business.
(3) The elimination of Company Common Stock held in treasury, as such shares
will be canceled without payment of consideration therefor in connection
with the Transactions.
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<PAGE> 88
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME OF NEW ROCKWELL
The following pro forma financial information presents the Company's
businesses that will be contributed to New Rockwell. The unaudited pro forma
condensed consolidated statements of income of New Rockwell have been derived
from the historical consolidated statements of income of the Company included
elsewhere herein. The unaudited pro forma condensed consolidated statements of
income of New Rockwell have been prepared assuming that the Transactions and the
acquisition of Reliance occurred on October 1, 1994.
The unaudited pro forma condensed consolidated statements of income should
be read in conjunction with the historical consolidated financial statements of
the Company and the notes thereto for the three years in the period ended
September 30, 1995 and for the nine months ended June 30, 1995 and 1996 included
elsewhere in this Proxy Statement-Prospectus. The unaudited pro forma condensed
consolidated statements of income are not necessarily indicative of the
financial results of New Rockwell that would have actually been obtained had the
Transactions or the acquisition of Reliance been consummated on October 1, 1994.
The unaudited pro forma condensed consolidated statements of income of New
Rockwell exclude the acquisition of Brooktree which was completed in September
1996. The results of operations of Brooktree are not material in relation to New
Rockwell's consolidated results of operations. The Company will incur a one-time
write-off of approximately $120 million at the time of acquisition for
in-process research and development.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, 1995
--------------------------------------------------------
PRO FORMA ADJUSTMENTS
--------------------------- NEW
COMPANY ADD OTHER ROCKWELL
HISTORICAL RELIANCE(1) ADJUSTMENTS PRO FORMA
---------- ----------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales.......................................... $9,065 $ 329 $ -- $ 9,394
Other income................................... 73 -- -- 73
----- ---- ---- -----
Total revenues............................ $9,138 $ 329 $ -- $ 9,467
===== ==== ==== =====
Cost of sales.................................. $6,991 $ 248 $ (9)(2) $ 7,230
Selling, general and administrative............ 1,311 56 (10)(3) 1,357
Interest....................................... 25 3 -- 28
----- ---- ---- -----
Total costs and expenses.................. $8,327 $ 307 $ (19) $ 8,615
===== ==== ==== =====
Income before income taxes..................... $ 811 $ 22 $ 19 $ 852
Provision for income taxes..................... 318 6 8 332
----- ---- ---- -----
Income from continuing operations.............. $ 493 $ 16 $ 11 $ 520
===== ==== ==== =====
Earnings per share:
Primary...................................... $2.27 $0.07 $0.05 $2.39
Fully diluted................................ $2.23 $0.07 $0.05 $2.35
</TABLE>
- ---------------
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income:
(1) To record the results of operations of Reliance for the first quarter of
1995, since the acquisition of Reliance was effective for accounting
purposes on December 31, 1994 and, therefore, the historical results include
the operations of Reliance for only nine months. The results of operations
exclude Reliance's telecommunications business which was divested and
interest related to the borrowings used to finance the acquisition of
Reliance, as those borrowings will be retained by the A&D Business in
connection with the Merger.
(2) Pension expense related to retirees of the New Rockwell Business prior to
January 1, 1996. The liability for these retirees will be retained by the
A&D Business in connection with the Merger.
(3) Corporate expenses directly attributable to the A&D Business.
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<PAGE> 89
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30, 1996
----------------------------------------
NEW
COMPANY PRO FORMA ROCKWELL
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Sales..................................................... $7,712 $ -- $ 7,712
Other income.............................................. 89 -- 89
----- ---- -----
Total revenues....................................... $7,801 $ -- $ 7,801
===== ==== =====
Cost of sales............................................. $5,872 $ (13)(1) $ 5,859
Selling, general and administrative expenses.............. 1,117 (7)(2) 1,110
Interest.................................................. 23 -- 23
----- ---- -----
Total costs and expenses............................. $7,012 $ (20) $ 6,992
===== ==== =====
Income before income taxes................................ $ 789 $ 20 $ 809
Provision for income taxes................................ 305 8 313
----- ---- -----
Income from continuing operations......................... $ 484 $ 12 $ 496
===== ==== =====
Earnings per share:
Primary................................................. $2.23 $0.05 $2.28
Fully diluted........................................... $2.19 $0.05 $2.24
</TABLE>
- ---------------
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income:
(1) Pension expense related to retirees of the New Rockwell Business prior to
January 1, 1996. The liability for these retirees will be retained by the
A&D Business in connection with the Merger.
(2) Corporate expenses directly attributable to the A&D Business.
DIVIDEND POLICY
Following completion of the Transactions, New Rockwell expects to pay
quarterly dividends on New Rockwell Common Stock and New Rockwell Class A Common
Stock at the same $1.16 per share annual rate currently paid with respect to
Company Common Stock and Company Class A Common Stock. New Rockwell's policy
regarding the payment of dividends on New Rockwell Common Stock and New Rockwell
Class A Common Stock will depend on New Rockwell's future earnings, capital
requirements, financial condition and other factors and any declaration of
dividends on New Rockwell Shares will be at the discretion of New Rockwell's
Board of Directors.
Holders of Boeing Common Stock are entitled to receive dividends when, as
and if declared by Boeing's Board of Directors out of funds legally available
therefor. Assuming that Boeing continues to pay dividends at the current
annualized rate of $1.12 per share (which cannot be assured), each Company
shareowner who receives and retains whole shares of Boeing Common Stock in the
Merger will receive for each .042 share of Boeing Common Stock estimated to be
received for each Company Share, a Boeing dividend at an annualized rate of
approximately $.05 per former Company Share.
EXECUTIVE OFFICERS OF THE COMPANY AND NEW ROCKWELL
The executive officers of New Rockwell following the Transactions will be
substantially identical to the executive officers of the Company prior to the
Transactions. It is expected that prior to the Merger, each of the Company
executive officers listed below will be elected to the same position in New
Rockwell as such person held in the Company, and at the Effective Time, each
such person will cease to be an officer of the Company. Executive officers of
New Rockwell will be elected to serve until they resign or are removed, or are
otherwise
83
<PAGE> 90
disqualified to serve, or until their successors are elected and qualified.
Except as indicated below, all such officers have been employed by the Company
for more than five years.
<TABLE>
<CAPTION>
NAME, OFFICE AND POSITION, AND PRINCIPAL OCCUPATIONS AND EMPLOYMENT AGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
DONALD R. BEALL -- Chairman of the Board and Chief Executive Officer of the Company... 57
DON H. DAVIS, JR. -- President and Chief Operating Officer of the Company since July
1995; Executive Vice President and Chief Operating Officer of the Company from
January 1994 to July 1995; Senior Vice President and President, Automation of the
Company from June 1993 to January 1994; President of Allen-Bradley prior thereto.... 56
W. MICHAEL BARNES -- Senior Vice President, Finance & Planning and Chief Financial
Officer of the Company.............................................................. 54
WILLIAM J. CALISE, JR. -- Senior Vice President, General Counsel and Secretary of the
Company since November 1994; senior partner of Chadbourne & Parke (law firm) prior
thereto............................................................................. 58
LEE H. CRAMER -- Vice President and Treasurer of the Company.......................... 50
WILLIAM D. FLETCHER -- Senior Vice President, Technology & Business Development of the
Company since June 1996; Senior Vice President, International of the Company from
October 1995 to June 1996; President, Asia-Pacific Sales Region of Allen-Bradley
from March 1995 to October 1995; President of the Asia-Pacific Region of
Allen-Bradley from June 1993 to March 1995; Senior Vice President, International
Group and Motion Control Division of Allen-Bradley from January 1992 to June 1993;
Senior Vice President, International Group of Allen-Bradley prior thereto........... 57
JODIE K. GLORE -- Senior Vice President of the Company and President & Chief Operating
Officer -- Rockwell Automation since October 1995; President of Allen-Bradley from
January 1994 to October 1995; Senior Vice President, Automation Group (formerly
Industrial Computer and Communication Group) of Allen-Bradley from January 1992 to
January 1994; Vice President, Sales and Marketing of Square D Company (electrical
distribution and industrial control products) prior thereto......................... 49
LAWRENCE J. KOMATZ -- Vice President and Controller of the Company.................... 54
THOMAS A. MADDEN -- Vice President, Corporate Development of the Company since
September 1996; Vice President -- Finance & Administration, Light Vehicle Systems of
the Company from May 1996 to September 1996; Vice President -- Finance &
Administration, Automotive Business of the Company from October 1994 to May 1996;
Assistant Controller of the Company prior thereto................................... 43
ROBERT H. MURPHY -- Senior Vice President, Organization and Human Resources of the
Company............................................................................. 58
WILLIAM A. SANTE, II -- General Auditor of the Company................................ 53
JOHN R. STOCKER -- Vice President, Law of the Company since November 1994; Vice
President and Associate General Counsel of the Company prior thereto................ 54
CHARLES C. STOOPS, JR. -- General Tax Counsel of the Company.......................... 63
EARL S. WASHINGTON -- Senior Vice President, Communications of the Company since
September 1995; Vice President, Advertising and Public Relations of the Company from
March 1994 to September 1995; Vice President, Business Development of the Company
from June 1993 to March 1994; Vice President of Strategic Management for the
Company's Defense Electronics businesses prior thereto and Vice President of
Transportation Systems of the Company's Defense Electronics businesses from June
1992 to June 1993................................................................... 51
</TABLE>
In addition to the foregoing, John A. McLuckey, age 56, has been Senior
Vice President and President & Chief Operating Officer -- Aerospace and Defense
of the Company since September 1995 and is expected to become President of
Boeing North American, Inc. following the Merger. Mr. McLuckey was Senior Vice
84
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President and President, Defense Systems of the Company from June 1993 to
September 1995 and President, Defense Electronics of the Company prior thereto.
DIRECTORS OF THE COMPANY AND NEW ROCKWELL
The Board of Directors of New Rockwell following the Transactions is
expected to be identical to the Board of Directors of the Company prior to the
Transactions. It is expected that the Company, as the sole shareowner of New
Rockwell prior to the Distribution, will elect each of the following Company
directors to serve as directors of New Rockwell, and such persons will cease to
be directors of the Company upon consummation of the Merger. The New Rockwell
Certificate provides that New Rockwell will have three classes of directors, the
initial terms of office of which will expire, respectively, at the annual
meetings of shareowners in 1997, 1998 and 1999. Successors to any directors
whose terms are expiring are elected to three-year terms and hold office until
their successors are elected and qualified. Also set forth below, with respect
to each director, is the class of which such director will be a member. Unless
otherwise indicated, (i) the business address for each person listed below is
Rockwell International Corporation, 2201 Seal Beach Boulevard, Seal Beach,
California 90740-8250 and (ii) each individual listed below is a citizen of the
United States.
CLASS I DIRECTORS
Class I directors will serve until the 1997 Annual Meeting of New Rockwell
and until their respective successors are elected and qualified.
RICHARD M. BRESSLER -- Mr. Bressler, age 66, is retired Chairman of the Board of
El Paso Natural Gas Company, has been a director since 1986 and is Chairman of
the Board Composition Committee and a member of the Audit and Compensation and
Management Development Committees of the Board. He served as Chief Executive
Officer of Burlington Northern Inc. from 1980 through 1988. Mr. Bressler retired
in October 1990 as Chairman of both Burlington Northern Inc. and Burlington
Resources Inc., positions he had held since 1982 and 1989, respectively. He
served as Chairman of the Plum Creek Management Company from April 1989 to
January 1993. He was Chairman of the El Paso Natural Gas Company from October
1990 through December 1993. Mr. Bressler is a director of H. F. Ahmanson and
Company and General Mills, Inc. and is active in a number of business and civic
organizations.
JOHN J. CREEDON -- Mr. Creedon, age 72, is a consultant and director of various
corporations and retired President and Chief Executive Officer of Metropolitan
Life Insurance Company, has been a director since 1988 and is a member of the
Audit and Environmental and Social Responsibility Committees of the Board. He
joined Metropolitan Life in 1942 and was appointed Senior Vice President and
General Counsel in 1973. He became an Executive Vice President in 1976,
President and a director in 1980, served as Chief Executive Officer from 1983
through August 1989, and then as Chairman of the Executive Committee until April
1991. He is a director of Corporate Partners, Metropolitan Life Insurance
Company, Praxair, Inc., Sonat, Inc. and Union Carbide Corporation. He is also a
director, trustee or member of a number of business, educational and civic
organizations.
JUDITH L. ESTRIN -- Ms. Estrin, age 41, is President and Chief Executive Officer
of Precept Software, Inc., has been a director since 1994 and is a member of the
Science and Technology Committee of the Board. She has been President and Chief
Executive Officer of Precept Software since March 1995. Previously she served as
Executive Vice President of Network Computing Devices from July 1988 to October
1993 and as President and Chief Executive Officer from October 1993 to September
1994. In 1981 she co-founded Bridge Communications, serving initially as Vice
President, Engineering and subsequently as Executive Vice President and Senior
Vice President and General Manager of 3Com Corp.'s Bridge Communications
Division after 3Com acquired Bridge in September 1987. She also serves as a
director of Federal Express Corporation and Sun Microsystems, Inc.
JAMES CLAYBURN LA FORCE, JR. -- Dr. La Force, age 67, is Dean Emeritus of the
John E. Anderson Graduate School of Management, University of California, Los
Angeles, has been a director since 1980 and is a member of the Audit,
Environmental and Social Responsibility and Science and Technology Committees of
the Board.
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After joining the UCLA faculty as an Assistant Professor of Economics in 1962,
he became an Associate Professor in 1967 and a full Professor in 1971. He was
Chairman, Department of Economics from 1969 until 1978, and Dean, John E.
Anderson Graduate School of Management from 1978 until June 1993. He is a
director of The BlackRock Funds, Eli Lilly & Company, Imperial Credit
Industries, Inc., Jacobs Engineering Group, Inc., Payden & Rygel Investment
Trust, Provident Investment Council Mutual Funds and The Timken Company.
JOHN D. NICHOLS -- Mr. Nichols, age 66, is retired Chairman of the Board and
Chief Executive Officer of Illinois Tool Works Inc., has been a director since
1988 and is Chairman of the Science and Technology Committee and a member of the
Audit and Compensation and Management Development Committees of the Board. He
joined Illinois Tool Works in 1980 as Executive Vice President and was named
President, Chief Operating Officer and a director in 1981 and Chairman in 1986.
He served as Chief Executive Officer from 1982 through August 1995. From 1969
through 1979, he was Executive Vice President and Chief Operating Officer of
Aerojet-General Corporation. Mr. Nichols is a director of Household
International, Philip Morris Companies Inc. and Stone Container Corp. He serves
as an Overseer of Harvard University and a trustee of a number of cultural and
business organizations.
CLASS II DIRECTORS
Class II directors will serve until the 1998 Annual Meeting of New Rockwell
and until their respective successors are elected and qualified.
LEW ALLEN, JR. -- Dr. Allen, age 71, General, U.S. Air Force (Retired), has been
a director since 1991 and is a member of the Science and Technology and
Environmental and Social Responsibility Committees of the Board. He served as
Chairman of the Board of The Charles Stark Draper Laboratory, Inc. from 1991
through November 1995 and as Vice President of the California Institute of
Technology and Director of its Jet Propulsion Laboratory from October 1982
through 1990. Previously, he was Air Force Chief of Staff and Director of the
National Security Agency. A West Point graduate, he also holds a Ph.D. in
physics from the University of Illinois. Dr. Allen is a member of the National
Academy of Engineering and the Council on Foreign Relations and a director of
the W. M. Keck Foundation.
DON H. DAVIS, JR. -- Mr. Davis, age 56, is President and Chief Operating Officer
of the Company, has been a director since 1995 and was elected to his present
position in July 1995. He joined Allen-Bradley as an engineering sales trainee
in 1963 and after serving in a number of increasingly responsible management
positions, became a Senior Vice President in 1985 and President in July 1989. He
was named Senior Vice President -- Automation of the Company in June 1993 and an
Executive Vice President and Chief Operating Officer in January 1994. Mr. Davis
is a director of Sybron Corporation. He is Chairman of the Board of Governors of
the National Electrical Manufacturers Association and is also a director,
trustee or member of a number of other business, educational and civic
organizations.
WILLIAM H. GRAY, III -- Mr. Gray, age 55, is President and Chief Executive
Officer of United Negro College Fund, has been a director since 1994 and is a
member of the Board Composition and Environmental and Social Responsibility
Committees of the Board. He has been President of the United Negro College Fund
since September 1991 and senior minister, Bright Hope Baptist Church in
Philadelphia since 1972. He served in Congress from 1979 to 1991, as House
Majority Whip, Chair of the Democratic Caucus and the House Budget Committee and
on the House Appropriations Committee. In addition, he has taught at St. Peter's
College and Temple University. Mr. Gray is a director of Chase Manhattan
Corporation, MBIA, Inc., Prudential Insurance Company of America, Union Pacific
Corporation, Warner-Lambert Company and Westinghouse Electric Corporation.
WILLIAM T. MCCORMICK, JR. -- Mr. McCormick, age 52, is Chairman of the Board and
Chief Executive Officer of CMS Energy Corporation, has been a director since
1989 and is a member of the Compensation and Management Development and Science
and Technology Committees of the Board. He has been Chairman of the Board and
Chief Executive Officer of CMS Energy Corporation since November 1985. Before
joining CMS, he had been Chairman and Chief Executive Officer of American
Natural Resources Company and Executive Vice President and a director of its
parent corporation, The Coastal Corporation. Mr. McCormick is
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a director of First Chicago NBD, Inc. and Schlumberger Ltd. and, among his other
activities, serves as a director of the American Gas Association, the Edison
Electric Institute and the National Petroleum Council.
CLASS III DIRECTORS
Class III directors will serve until the 1999 Annual Meeting of New
Rockwell and until their respective successors are elected and qualified.
DONALD R. BEALL -- Mr. Beall, age 57, is Chairman of the Board and Chief
Executive Officer of the Company, has been a director since 1978 and was elected
to his present position in February 1988 after serving nine years as President
and Chief Operating Officer. He joined the Company in 1968 and served in a
number of senior management positions prior to becoming Executive Vice President
in September 1977 and President in February 1979. He is a member of the Board
Composition Committee of the Board. Mr. Beall is a director of Amoco
Corporation, The Procter & Gamble Company and The Times Mirror Company and a
past chairman of the Board of Governors of the Aerospace Industries Association.
Among his other activities, he is a trustee of the California Institute of
Technology and a member of the University of California -- Irvine Board of
Overseers and the Board of Visitors of its Graduate School of Management. Mr.
Beall is a member of The Business Council, The Business Roundtable, the Chief
Executives' Organization and the Council on Competitiveness. He is also a
director, trustee or member of a number of other professional and civic
organizations.
BRUCE M. ROCKWELL -- Mr. Rockwell, age 57, is Senior Vice President of First of
Michigan Corporation, has been a director since 1969 and is Chairman of the
Environmental and Social Responsibility Committee and a member of the
Compensation and Management Development and Board Composition Committees of the
Board. He joined First of Michigan Corporation in 1961 and in 1965 was appointed
Assistant Vice President and manager of the bond underwriting department. In
1967, Mr. Rockwell was elected Vice President and in 1983 was elected Senior
Vice President -- Fixed Income. He assumed his present position in April 1988.
Mr. Rockwell is past chairman of the Municipal Advisory Council of Michigan and
past President of the Bond Club of Detroit. He also serves as a board member of
a number of civic and community organizations.
WILLIAM S. SNEATH -- Mr. Sneath, age 70, is retired Chairman of the Board and
Chief Executive Officer of Union Carbide Corporation, has been a director since
1979 and is Chairman of the Compensation and Management Development Committee
and a member of the Audit and Board Composition Committees of the Board. He
joined Union Carbide Corporation in 1950, was elected Treasurer in 1961, became
a Vice President and Chief Financial Officer in 1965, a director in 1969 and
President and Chief Operating Officer in 1971. Mr. Sneath served as Chairman of
the Board and Chief Executive Officer of Union Carbide from January 1977 through
December 1981. Mr. Sneath is a director of Union Carbide Corporation and
Metropolitan Life Insurance Company and is a member of The Business Council.
JOSEPH F. TOOT, JR. -- Mr. Toot, age 61, is President and Chief Executive
Officer of The Timken Company, has been a director since 1977 and is Chairman of
the Audit Committee and a member of the Compensation and Management Development
and Board Composition Committees of the Board. He joined The Timken Company in
1962 and served in various senior executive positions until his election as Vice
President -- International Operations in 1967. Mr. Toot became a director of
Timken in 1968, was elected Executive Vice President in 1973, President in 1979
and Chief Executive Officer in 1992. Mr. Toot has also served as a director,
officer, trustee or member of various community, charitable and philanthropic
organizations.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
The Company and its subsidiaries during the 1996 fiscal year through August
31, 1996 had sales and purchase transactions in the normal course of business
with companies with which two of the Company's directors are associated in their
principal occupations in the following approximate amounts: purchases of
$119,835 (electricity) from and sales of $400,528 (call distribution equipment)
to CMS Energy Corporation and purchases of $49,367,792 (principally bearings and
specialty steel) from and sales of $2,278,322 (principally industrial automation
equipment) to The Timken Company. Based on the Company's knowledge of prevailing
market conditions and prices for the goods and services involved, the Company
believes that such transactions were on terms as favorable to the Company as
those which might have been obtained from entities with which directors of the
Company were not associated.
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COMMITTEES OF THE BOARD OF DIRECTORS OF NEW ROCKWELL
The standing committees of the Board of Directors of New Rockwell will be
identical to the standing committees of the Board of Directors of the Company,
and will include an Audit Committee, a Board Composition Committee, a
Compensation and Management Development Committee, an Environmental and Social
Responsibility Committee and a Science and Technology Committee. The functions
of each of these five committees are described and the members of each are
listed below.
The Audit Committee will review the scope and effectiveness of audits of
New Rockwell by the independent public accountants and by New Rockwell's
internal auditors; select and recommend to the Board of Directors the employment
of independent public accountants for New Rockwell, subject to approval of the
shareowners; review the audit plans of the independent public accountants and
New Rockwell's internal auditors; review and approve the fees charged by the
independent public accountants; review New Rockwell's annual financial
statements before their release; review the adequacy of New Rockwell's system of
internal controls and recommendations of the independent public accountants with
respect thereto; review and act on comments and suggestions by the independent
public accountants and by the internal auditors with respect to their audit
activities; and monitor compliance by the employees of New Rockwell with New
Rockwell's standards of business conduct policies. The members of the Audit
Committee will be Mr. Toot (Chairman), Mr. Creedon, Dr. La Force, Mr. Nichols
and Mr. Sneath.
The principal functions of the Board Composition Committee will be to
consider and recommend to the Board qualified candidates for election as
directors of New Rockwell and periodically to prepare and submit to the Board
for adoption the Committee's selection criteria for director nominees. The
Committee will also periodically assess the performance of the Board of
Directors and report thereon to the Board. Shareowners of New Rockwell may
recommend candidates for consideration by the Committee and can do so by writing
to the Secretary of New Rockwell within certain specified time periods, giving
the candidate's name, biographical data and qualifications. Any such
recommendation should be accompanied by a written statement from the individual
of his or her consent to be named as a candidate and, if nominated and elected,
to serve as a director. The members of the Board Composition Committee will be
Mr. Bressler (Chairman), Mr. Beall, Mr. Gray, Mr. Rockwell, Mr. Sneath and Mr.
Toot.
The principal functions of the Compensation and Management Development
Committee will be to evaluate the performance of New Rockwell's senior
executives and plans for management succession and development, to consider the
design and competitiveness of New Rockwell's compensation plans, to review and
approve senior executive compensation and to administer New Rockwell's
Incentive, Deferred Compensation, Stock Option and Long-Term Incentives Plans
pursuant to the terms of the respective plans. The members of the Compensation
and Management Development Committee will be non-employee directors and will be
ineligible to participate in any of the plans or programs which are administered
by the Committee except the Directors Plan. The members of the Compensation and
Management Development Committee will be Mr. Sneath (Chairman), Mr. Bressler,
Mr. McCormick, Mr. Nichols, Mr. Rockwell and Mr. Toot.
The Environmental and Social Responsibility Committee will review and
assess New Rockwell's policies and practices in the following areas: employee
relations, with emphasis on equal employment opportunity and advancement; the
protection and enhancement of the environment and energy resources; product
integrity and safety; employee health and safety; and community and civic
relations including programs for and contributions to health, educational,
cultural and other social institutions. The members of the Environmental and
Social Responsibility Committee will be Mr. Rockwell (Chairman), Dr. Allen, Mr.
Creedon, Mr. Gray and Dr. La Force.
The principal function of the Science and Technology Committee will be to
review and monitor science and technological activities of New Rockwell. The
members of the Science and Technology Committee will be Mr. Nichols (Chairman),
Dr. Allen, Ms. Estrin, Dr. La Force and Mr. McCormick.
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COMPENSATION OF DIRECTORS
Non-employee directors of New Rockwell will receive an annual retainer of
$33,000 for Board service, together with a retainer for service on each Board
committee at the annual rate of $4,000 ($5,000 for Chairmen) for service on the
Audit and Compensation and Management Development Committees and $2,000 ($3,000
for Chairmen) for service on any other Board committee. Pursuant to the
Directors Plan, each non-employee director will also receive a grant of 400
shares of New Rockwell Common Stock immediately after each Annual Meeting of
Shareowners of New Rockwell. Ms. Estrin, who serves on one Board committee, will
also receive a retainer of $5,000 per year for serving as a technology adviser.
Under the terms of the Company's directors' deferred compensation plan, which
will be assumed by New Rockwell upon consummation of the Transactions, a
director may elect to defer all or part of the cash payment of retainer fees
until such time as shall be specified, with interest on deferred amounts
accruing quarterly at 120% of the Federal long-term rate set each month by the
Secretary of the Treasury. Each director shall also have the options each year
to determine whether to defer all the annual grant of shares and all or any
portion of the cash retainers by electing to receive restricted shares valued at
the closing price of New Rockwell Common Stock on the NYSE Composite
Transactions reporting system on the date of the annual grant and the date each
retainer payment would otherwise be made in cash.
Under a prior directors' retirement policy, which will be assumed by New
Rockwell upon consummation of the Transactions, the Company entered into
consulting agreements with retired directors who had at least five years of
Board service and had not been employees of the Company during the ten years
prior to retirement. The consulting agreements provide an annual fee equal to
the Board retainer fee and continue for the lesser of ten years (or if less, the
number of years of Board service of a director who retires before age 72) or
life. This policy was terminated effective December 1995, other than for then
retired directors and then current directors who were at the time at least age
67 (Messrs. Allen, Creedon, La Force and Sneath). Under the Directors Plan which
replaced the prior directors' retirement policy and which will be assumed by New
Rockwell (with certain amendments), each non-employee director (other than
Messrs. Allen, Creedon, La Force and Sneath) who is elected at an annual meeting
is granted an option for 1,000 shares of Company Common Stock. In connection
with the termination of the prior policy, the Board of Directors determined that
in order to assure the fairness of the termination of such policy to certain
directors, the grants of options under the Directors Plan in 1996 to Messrs.
Bressler, Nichols and Toot were to purchase 9,000, 9,000 and 5,000 shares of
Company Common Stock, respectively, in recognition of their valued service as
directors and the fewer years remaining until each would reach age 72, the
normal retirement age for directors. For a further description of the Directors
Plan see "-- Stock Incentive Plans of the Company and New Rockwell -- Directors
Stock Plan".
COMPENSATION OF NEW ROCKWELL EXECUTIVES
Prior to the consummation of the Transactions, the New Rockwell executive
officers will not receive any compensation from New Rockwell for serving as
executive officers of New Rockwell. Shareowners interested in the compensation
paid by the Company to persons who were executive officers of the Company and
who will become executive officers of New Rockwell may refer to the Company's
Proxy Statement for its 1996 Annual Meeting of Shareowners, which is
incorporated herein by reference and a copy of which is on file with the
Commission.
STOCK INCENTIVE PLANS OF THE COMPANY AND NEW ROCKWELL
The Company maintains the following stock incentive plans: (i) the 1995
LTIP, (ii) the 1988 LTIP, (iii) the 1979 Plan and (iv) the Directors Plan. In
connection with the Transactions, New Rockwell will assume and adopt the Company
Stock Incentive Plans. See "-- New Rockwell Stock Incentive Plans; Treatment of
Outstanding Stock Options".
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1995 LONG-TERM INCENTIVES PLAN
The 1995 LTIP was adopted by the Company's Board of Directors on November
2, 1994 and became effective as of October 1, 1994. The 1995 LTIP was approved
by the shareowners of the Company on February 1, 1995. The 1995 LTIP permits
grants to be made from time to time as nonqualified stock options, incentive
stock options, stock appreciation rights ("SARs") and restricted stock. In
addition, the 1995 LTIP authorizes establishment of performance plans applicable
to one or more business units of the Company. The 1995 LTIP replaced the 1988
LTIP, under which no further performance units, stock options or restricted
stock may be granted. See "-- 1988 Long-Term Incentives Plan" below.
Administration. The 1995 LTIP is administered by the Compensation and
Management Development Committee of the Company (the "Compensation Committee"),
consisting of three or more members of the Board of Directors of the Company who
are not eligible to participate in the 1995 LTIP. In order to meet the
requirements of Section 162(m) of the Code and the rules under Section 16 of the
Exchange Act, however, all grants under the 1995 LTIP are made by a Grant
Committee consisting of those members of the Compensation Committee who are both
"outside directors" as defined for purposes of Section 162(m) and regulations
thereunder and "nonemployee directors" for the purposes of Section 16 and the
rules thereunder. In addition, the Board of Directors of the Company has
authority to perform all functions of the Compensation Committee and the Grant
Committee under the 1995 LTIP.
Participation. The persons to whom grants are made under the 1995 LTIP
("1995 LTIP Participants") are selected from time to time by the Grant Committee
in its sole discretion from among corporate officers and other key employees of
the Company and its subsidiaries and affiliates. In selecting 1995 LTIP
Participants and determining the type and amount of their grants, the Grant
Committee may consider recommendations of the Chief Executive Officer of the
Company and takes into account such factors as the 1995 LTIP Participant's level
of responsibility, performance, performance potential, level and type of
compensation and potential value of grants under the 1995 LTIP.
Shares Subject to 1995 LTIP. The 1995 LTIP authorizes the issuance or
transfer of an aggregate of 16 million shares of Company Common Stock, provided
that the total number of shares as to which grants may be made under the 1995
LTIP in any one fiscal year may not exceed 1 1/2% of the total outstanding and
treasury shares.
Performance Plans. The 1995 LTIP authorizes the establishment by the
Compensation Committee of performance plans applicable to the Company or one or
more of its business components. Each such plan must include provision for
establishment of performance cycles (ending no later than September 30, 2005) of
not less than three fiscal years and establishment of a performance measure and
performance objectives based on criteria selected by the Compensation Committee
for the Company or the affected business component and may provide for
adjustment (up or down) of the performance objectives or modification of the
performance measure, or both, if the Compensation Committee (or with its
approval, the person or committee delegated to administer any plan except
insofar as it relates to any executive officer) determines that conditions,
including changes in the economy, changes in law or government regulations,
changes in generally accepted accounting principles or material acquisitions or
divestitures, warrant. The Compensation Committee may authorize the Company's
Chief Executive Officer to approve the definitive terms and conditions of any
performance plan, including the employees or categories of employees eligible to
participate in each performance plan, but the Compensation Committee's
authorization is required for participation by any of the Company's executive
officers in a performance plan. Potential awards under performance plans are
expressed as cash amounts and are paid in cash unless the Compensation Committee
decides that payment should be in shares of Company Common Stock or a
combination of shares of Company Common Stock and cash.
Stock Options, Stock Appreciation Rights and Restricted Stock. The 1995
LTIP authorizes grants to 1995 LTIP Participants of stock options, which may be
either incentive stock options eligible for special tax treatment or
nonqualified stock options, SARs and restricted stock.
Under the provisions of the 1995 LTIP authorizing the grant of stock
options, (a) the option price may not be less than the fair market value of the
shares of Company Common Stock at the date of grant, (b) the
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aggregate fair market value (determined as of the date the option is granted) of
the shares of Company Common Stock for which any employee may be granted
incentive stock options which are exercisable for the first time in any calendar
year may not exceed $100,000, (c) stock options generally may not be exercised
prior to one year nor after ten years from the date of grant and generally
become exercisable in three approximately equal installments on the first,
second and third anniversaries of the date of grant, and (d) at the time of
exercise of a stock option the option price must be paid in full in cash or in
shares of Company Common Stock or in a combination of cash and shares of Company
Common Stock. If a 1995 LTIP Participant who holds an outstanding stock option
or SAR dies, the 1995 LTIP permits the exercise thereof within three years of
the date of death even if it were not exercisable at such date. The 1995 LTIP
permits the Compensation Committee to make determinations as to exercisability
upon other termination of a 1995 LTIP Participant's employment, subject to
certain limitations.
The 1995 LTIP permits the grant of SARs related to a stock option (a
"tandem SAR"), either at the time of the option grant or thereafter during the
term of the option, or the grant of SARs separate and apart from the grant of an
option (a "freestanding SAR"). Tandem SARs permit an optionee, upon exercise of
such rights and surrender of the related option to the extent of an equivalent
number of shares of Company Common Stock, to receive a payment equal to the
excess of the fair market value (on the date of exercise) of the portion of the
option so surrendered over the option price of such shares of Company Common
Stock. Freestanding SARs entitle the grantee, upon exercise of such rights, to
receive a payment equal to the excess of the fair market value (on the date of
exercise) of all or part of a designated number of shares of Company Common
Stock over the fair market value of such shares of Company Common Stock on the
date such rights were granted. Such payment may be made in shares of Company
Common Stock (valued on the basis of the fair market value of the shares of
Company Common Stock on the date of exercise of the SARs), or in cash or partly
in cash and partly in shares of Company Common Stock, as the Compensation
Committee may determine.
Under the 1995 LTIP, the Grant Committee may also grant shares of Company
Common Stock subject to specified restrictions ("restricted stock") to 1995 LTIP
Participants. Grants of restricted stock are subject to forfeiture if the
grantee does not continue as an employee of the Company or a subsidiary or
affiliate (i) for a period of three years or longer, as may be specified by the
Grant Committee, from the grant date, or (ii) until performance criteria
specified by the Grant Committee are met, except that in the event of a
grantee's death, or retirement under a retirement plan of the Company after age
62 or becoming entitled to an unreduced benefit under the applicable retirement
plan, before the end of the restricted period, the grantee's heirs or the
grantee will be entitled to the shares of Company Common Stock. In the case of a
grantee whose employment terminates for any other reason before the end of the
restricted period, the Compensation Committee, taking into account the purpose
of the 1995 LTIP and such other factors as in its sole discretion it deems
appropriate, may waive the forfeiture of all or a portion of those shares of
restricted stock granted. During the restricted period, shares of restricted
stock have all the attributes of outstanding shares of Company Common Stock,
except that certificates for such shares of Company Common Stock and dividends
thereon are delivered to and held by the Company for the grantee's account. As
and to the extent that shares of restricted stock are no longer subject to
forfeiture, certificates therefor and any dividends related thereto withheld by
the Company, together with interest thereon as determined by the Board of
Directors of the Company, are delivered to the grantee.
Under the 1995 LTIP, stock options, freestanding SARs and restricted stock
may not be granted after September 30, 2005, but tandem SARs may be granted with
respect to outstanding stock options granted before that date.
Tax Matters. The following is a brief summary of the principal generally
applicable Federal income tax consequences of benefits under the 1995 LTIP under
present law and regulations:
(a) Payments under Performance Plans. Any cash and the fair market
value of any shares of Company Common Stock received as payments under
performance plans established in accordance with the 1995 LTIP will
constitute ordinary income to the employee in the year in which paid, and
the Company will be entitled to a deduction in the same amount.
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(b) Incentive Stock Options. The grant of an incentive stock option
will not result in any immediate tax consequences to the Company or the
optionee. An optionee will not realize taxable income, and the Company will
not be entitled to any deduction, upon the timely exercise of an incentive
stock option, but the excess of the fair market value of the shares of
Company Common Stock acquired over the option price will be includable in
the optionee's "alternative minimum taxable income" for purposes of the
alternative minimum tax. If the optionee does not dispose of the shares of
Company Common Stock acquired within one year after their receipt (and
within two years after the option was granted), gain or loss realized on
the subsequent disposition of the shares of Company Common Stock will be
treated as long-term capital gain or loss. Capital losses of individuals
are deductible only against capital gains and a limited amount of ordinary
income. In the event of an earlier disposition, the optionee will realize
ordinary income in an amount equal to the lesser of (i) the excess of the
fair market value of the shares of Company Common Stock on the date of
exercise over the option price or (ii) if the disposition is a taxable sale
or exchange, the amount of any gain realized. Upon such a disqualifying
disposition, the Company will be entitled to a deduction in the same amount
and at the same time as the optionee realizes such ordinary income.
(c) Nonqualified Stock Options. The grant of a nonqualified stock
option will not result in any immediate tax consequences to the Company or
the optionee. Upon the exercise of a nonqualified stock option, the
optionee will realize ordinary income, and the Company will be entitled to
a deduction, equal to the difference between the option price and the fair
market value of the shares of Company Common Stock acquired at the time of
exercise.
(d) Stock Appreciation Rights. The grant of either a tandem SAR or a
freestanding SAR will not result in any immediate tax consequences to the
Company or the employee. Upon the exercise of either a tandem SAR or a
freestanding SAR, any cash received and the fair market value on the
exercise date of any shares of Company Common Stock received will
constitute ordinary income to the grantee. The Company will be entitled to
a deduction in the same amount and at the same time.
(e) Restricted Stock. An employee normally will not realize taxable
income upon an award of restricted stock, and the Company will not be
entitled to a deduction, until the termination of the restrictions. Upon
such termination, the employee will realize ordinary income in an amount
equal to the fair market value of the shares of Company Common Stock at
that time, plus the amount of the dividends and interest thereon to which
the employee then becomes entitled. However, an employee may elect to
realize taxable ordinary income in the year the restricted stock is awarded
in an amount equal to its fair market value at that time, determined
without regard to the restrictions. The Company will be entitled to a
deduction in the same amount and at the same time as the employee realizes
income.
Other. During the period that SARs are outstanding, the Company will
accrue as an expense the amount, if any, by which the fair market value of the
shares of Company Common Stock as to which SARs are expected to be exercised
exceeds the exercise price of any related option shares of Company Common Stock
or the fair market value on the date of grant of the designated number of shares
of Company Common Stock for freestanding SARs.
Change of Control Benefits. In order to maintain the rights of
participants in the event of a change of control of the Company, the 1995 LTIP
provides that unless prior to the occurrence of such a change the Board of
Directors of the Company shall have determined otherwise by vote of at least
two-thirds of its members, all performance cycles (except those under
performance plans that do not provide for a change of control contingency) not
then complete shall be deemed completed, the respective performance objectives
shall be deemed to have been attained and all potential awards granted with
respect thereto shall be deemed to have been fully earned; all outstanding stock
options and SARs then outstanding shall become fully exercisable whether or not
otherwise then exercisable; and the restrictions on all shares of Company Common
Stock granted as restricted stock would lapse. A change of control is deemed to
occur under the same circumstances as provided in Article III, Section 15(I)(1)
of the Company By-Laws, which provision was approved by the shareowners at the
1987 Annual Meeting. The Board of Directors of the Company has
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determined that for purposes of the 1995 LTIP the Transactions will not have any
of the consequences described above that might otherwise result from a change of
control of the Company.
Amendment, Suspension or Termination of 1995 LTIP. The Board of Directors
of the Company may at any time amend, suspend or terminate the 1995 LTIP or
grants made thereunder. In the event any change in or affecting shares of
Company Common Stock occurs, the Board of Directors of the Company may make
appropriate amendments to or adjustments in the 1995 LTIP or grants made
thereunder, including changes in the number of shares of Company Common Stock
which may be issued or transferred under the 1995 LTIP and the number of shares
of Company Common Stock and price per share of Company Common Stock subject to
outstanding options and stock appreciation rights. The Board of Directors of the
Company may not, however (except in making amendments and adjustments in the
event of changes in or affecting shares of Company Common Stock) (i) without the
consent of the person affected, cancel or reduce any grant theretofore made
other than as provided for or contemplated in the agreement evidencing the grant
or (ii) without the approval of shareowners, change the class of persons
eligible to receive incentive stock options under the 1995 LTIP, increase the
number of shares of Company Common Stock that may be issued or transferred under
the 1995 LTIP, reduce the option exercise price of any stock option below the
fair market value of the shares of Company Common Stock covered thereby at the
date of grant or decrease the forfeiture period for any restricted stock below
that permitted under the 1995 LTIP.
1988 LONG-TERM INCENTIVES PLAN
The 1988 LTIP was adopted by the Company's Board of Directors on November
4, 1987 and became effective as of October 1, 1987 following approval by the
shareowners of the Company on February 10, 1988. The 1988 LTIP was amended
effective November 30, 1994 by resolutions of the Compensation Committee adopted
December 7, 1994. The 1988 LTIP authorized the issuance or transfer of an
aggregate of 16 million shares of Company Common Stock and Company Class A
Common Stock and permits payment to be made under the 1988 LTIP on up to 7
million performance units. The 1988 LTIP permitted grants to be made from time
to time as performance units, nonqualified stock options, incentive stock
options, SARs and restricted stock. In addition, the 1988 LTIP authorized
establishment of supplementary performance plans applicable to one or more
business components of the Company.
No further grants of performance units, stock options or restricted stock
will be made under the 1988 LTIP. Outstanding performance units under
supplementary performance plans with respect to performance periods not complete
remain eligible for payment in accordance with the 1988 LTIP and outstanding
stock options and SARs under the 1988 LTIP remain exercisable in accordance with
their terms.
Administration. Pursuant to a delegation of authority by the Board of
Directors of the Company, the 1988 LTIP is administered by the Compensation
Committee, consisting of three or more members of the Board of Directors of the
Company who are not eligible to participate in the 1988 LTIP. The Board of
Directors of the Company, however, also has authority to perform all functions
delegated to the Compensation Committee.
Participation. The persons to whom grants were made under the 1988 LTIP
("1988 LTIP Participants") were selected from time to time by the Compensation
Committee in its sole discretion from among the corporate officers and other key
employees of the Company and its subsidiaries and affiliates. Selection of 1988
LTIP Participants and determination of the type and amount of their grants by
the Compensation Committee were made in the same manner as by the Grant
Committee for the 1995 LTIP. See "-- 1995 Long-Term Incentives Plan".
Performance Units. Under the 1988 LTIP, the Compensation Committee could
establish performance periods of not less than three fiscal years duration,
provided that no more than one performance period could begin with any one
fiscal year and no performance period not established prior to February 1, 1995
could end later than September 30, 1997, and the Compensation Committee could
grant to eligible employees performance units with respect to each performance
period. Within six months after the beginning of each performance period, the
Compensation Committee established criteria to serve as a measure of performance
and performance objectives. The Compensation Committee could, during the first
half of a performance
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period and subject to certain restrictions, adjust (up or down) the performance
objectives for that period if it determined that conditions, including but not
limited to changes in the economy, changes in laws or government regulations,
changes in generally accepted accounting principles, or acquisitions or
dispositions determined by the Compensation Committee to be material, so
warranted. The Compensation Committee could not, however, change the performance
measure established for any performance period.
The amounts payable with respect to performance units under the 1988 LTIP
to a 1988 LTIP Participant are expressed in cash. As and on such terms as the
Compensation Committee may determine, payments may be made in a lump sum, in
installments or on a deferred basis, and may be in cash or in Company Shares or
partly in cash and partly in Company Shares. Any Company Shares issued or
transferred in payment of amounts earned under the 1988 LTIP reduced the number
of Company Shares available for future grants under the 1988 LTIP.
In the case of a 1988 LTIP Participant whose employment by the Company or a
subsidiary or affiliate has terminated because of death prior to the end of a
performance period, the amount otherwise payable will be adjusted to be
proportionate to the duration of the 1988 LTIP Participant's employment during
the performance period. In case of a 1988 LTIP Participant whose employment by
the Company or a subsidiary or affiliate has terminated during the performance
period for any other reason, no amount will be payable except as and to the
extent the Compensation Committee, taking into account the purpose of the 1988
LTIP and such other factors as in its sole discretion it deems appropriate, may
determine, provided that the amount which may be so determined by the
Compensation Committee does not exceed the amount which would have been payable
had the 1988 LTIP Participant's employment terminated because of death.
Supplementary Performance Plans. The 1988 LTIP authorized the
establishment by the Compensation Committee of supplementary performance plans
applicable to one or more business components of the Company. Each such
supplementary plan includes provision for a performance period (ending no later
than September 30, 1997) of not less than three fiscal years and establishment
of a performance measure and performance objectives based on criteria selected
by the Compensation Committee for the affected business component and provides
for adjustment of the performance objectives during the first half of the
performance period similar to that provided in the 1988 LTIP for performance
units. The Compensation Committee determined the employees or categories of
employees eligible to participate in each supplementary plan and any additional
terms it deemed appropriate. Payments under supplementary performance plans may
be in cash, Company Shares or a combination of both. Payments in cash reduce the
number of performance units for which payments may be made and payments in
Company Shares reduce the number of Company Shares available under the 1988
LTIP.
Stock Options, Stock Appreciation Rights and Restricted Stock. The 1988
LTIP authorized grants to 1988 LTIP Participants of stock options, which could
be either incentive stock options eligible for special tax treatment or
nonqualified stock options, SARs and restricted stock.
Under the provisions of the 1988 LTIP authorizing the grant of stock
options, (a) the option price could not be less than the fair market value of
the Company Shares at the date of grant, (b) the aggregate fair market value
(determined as of the date the option is granted) of the Company Shares for
which any employee could be granted incentive stock options which are
exercisable for the first time in any calendar year could not exceed $100,000,
(c) stock options generally may not be exercised prior to one year nor after ten
years from the date of grant, and (d) at the time of exercise of a stock option
the option price must be paid in full in cash or in Company Shares or in a
combination of cash and Company Shares. If a 1988 LTIP Participant who holds an
outstanding stock option or SAR dies, the 1988 LTIP permits the exercise thereof
within three years of the date of death even if it were not exercisable at the
date of death. The 1988 LTIP permits the Compensation Committee to make
determinations as to exercisability upon other termination of a 1988 LTIP
Participant's employment, subject to certain limitations.
Tax Matters. The principal generally applicable Federal income tax
consequences of benefits under the 1988 LTIP are the same as those for benefits
under the 1995 LTIP. See "-- 1995 Long-Term Incentives Plan -- Tax Matters".
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Other. During the period that SARs are outstanding, the Company accrues as
an expense the amount, if any, by which the fair market value of the Company
Shares as to which SARs are expected to be exercised exceeds the exercise price
of any related option for Company Shares or the fair market value on the date of
grant of the designated number of Company Shares for freestanding SARs.
Change of Control Benefits. In order to maintain the rights of 1988 LTIP
Participants in the event of a change of control of the Company, the 1988 LTIP
provides for certain benefits to 1988 LTIP Participants in such circumstances
substantially identical to those provided under the 1995 LTIP. See "-- 1995
Long-Term Incentives Plan -- Change of Control Benefits". The Board of Directors
of the Company has determined that for purposes of the 1988 LTIP the
Transactions will not have any of the consequences otherwise provided for in the
event of change of control of the Company.
Amendment, Suspension or Termination of the 1988 LTIP. The Board of
Directors of the Company may at any time amend, suspend or terminate the 1988
LTIP or grants made thereunder. In the event any change in or affecting Company
Shares occurs, the Board of Directors of the Company may make appropriate
amendments to or adjustments in the 1988 LTIP or grants made thereunder,
including changes in the number of performance units with respect to which
payments may be made, the performance measure and performance objectives for any
performance period not complete, the number of Company Shares which may be
issued or transferred under the 1988 LTIP, the maximum limitation on the payment
value of a performance unit under the 1988 LTIP and the number of Company Shares
and price per share subject to outstanding options and SARs. The Board of
Directors of the Company may not, however (except in making amendments and
adjustments in the event of changes in or affecting Company Shares) (i) without
the consent of the person affected, cancel or reduce any grant theretofore made
other than as provided for or contemplated in the agreement evidencing the grant
or (ii) without the approval of shareowners, change the class of persons
eligible to receive incentive stock options under the 1988 LTIP, increase the
number of Company Shares that may be issued or transferred under the 1988 LTIP,
increase the number of performance units under the 1988 LTIP as to which
payments may be made, increase the maximum limitation on the payment value of a
performance unit under the 1988 LTIP, reduce the option exercise price of any
stock option below the fair market value of the Company Shares covered thereby
at the date of grant or decrease the forfeiture period for any restricted stock
below that permitted under the 1988 LTIP.
1979 STOCK PLAN FOR KEY EMPLOYEES
The 1979 Plan permitted grants to be made from time to time of stock
options, SARs and restricted stock. No further grants of stock options or
restricted stock will be made under the 1979 Plan. Outstanding stock options and
SARs under the 1979 Plan remain exercisable in accordance with their terms, and
SARs related to outstanding stock options may continue to be granted under the
1979 Plan as described below.
Administration. The 1979 Plan is administered by the Compensation
Committee, consisting of three or more members of the Board of Directors of the
Company who are not eligible to participate in the 1979 Plan.
Participation. The persons to whom grants were made under the 1979 Plan
(the "1979 Grantees") were selected from time to time by the Compensation
Committee, in its sole discretion, from among key employees of the Company and
its subsidiaries.
Shares Subject to the 1979 Plan. The total number of shares of Company
Common Stock and Company Class A Common Stock which could be purchased pursuant
to options granted under the 1979 Plan and which could be granted as restricted
stock could not exceed 4,734,760. No options or restricted stock could be
granted under the 1979 Plan after November 8, 1988, however, options and
restricted stock granted theretofore under the 1979 Plan could extend beyond
such date.
Stock Options, Stock Appreciation Rights and Restricted Stock. The 1979
Plan authorized grants of stock options, SARs and restricted stock. The stock
options granted under the 1979 Plan are non-qualified stock options; however,
certain options granted under the 1979 Plan and outstanding on January 1, 1981
were designated as incentive stock options pursuant to provisions of the
Economic Recovery Tax Act of 1981, which
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provided for the granting of incentive stock options. No grants of restricted
stock have been made under the 1979 Plan.
Under the provisions of the 1979 Plan authorizing the grant of stock
options, (a) the option price could not be less than the fair market value of
the shares of stock on the date of grant, (b) stock options generally may not be
exercised prior to one year nor after ten years from the date of grant and may
be exercised in whole or in part from time to time during such period as the
option specifies and (c) at the time of exercise of a stock option the option
price must be paid in full in cash or in shares of Company Common Stock or
Company Class A Common Stock, or both, or in a combination of cash and shares.
If a 1979 Grantee who holds an outstanding stock option dies, the 1979 Plan
permits the exercise thereof within a period not to exceed three years from the
date of death, as may be determined by the Board of Directors. If a 1979
Grantee's employment with the Company is terminated for cause, any outstanding
options held by such grantee expire forthwith. If a 1979 Grantee's employment
with the Company is terminated other than by death or for cause, any outstanding
options the 1979 Grantee may hold are exercisable within three months after such
termination. The 1979 Plan permits the Board of Directors to extend such
exercise period up to three years if the 1979 Grantee retires under a Company
retirement plan.
The 1979 Plan permits the grant of SARs related to a stock option either at
the time of the option grant or thereafter during the term of the option. SARs
entitle the optionee, upon exercise of such rights, to surrender the related
option, or any part thereof, and to receive a payment equal to the excess of the
fair market value, on the date of such exercise, of the shares covered by such
option, or part thereof, over the option price of such shares. Such payment may
be made in shares of Company Common Stock or Company Class A Common Stock, or
both (valued on the basis of the fair market value of the shares on the date of
exercise of the SARs), or in cash or partly in cash and partly in shares, as the
Board of Directors may determine.
Tax Matters. The principal generally applicable Federal income tax
consequences of benefits under the 1979 Plan are the same as those for benefits
under the 1995 LTIP. See "-- 1995 Long-Term Incentives Plan -- Tax Matters".
Amendment, Suspension or Termination. The 1979 Plan provides that if there
shall be any change in or affecting the stock subject to the 1979 Plan or to any
options granted thereunder, the Board of Directors may make appropriate
adjustments in the aggregate number of shares subject to the 1979 Plan and the
number of shares and the price per share subject to outstanding options and may
assume old options or substitute new options for old options, regardless of
whether the option price of any such option is less than the then fair market
value of the shares. The Board of Directors has the power, at any time to amend,
suspend or terminate the 1979 Plan or grants made thereunder. The Board of
Directors of the Company may not, however, change the class of employees
eligible to receive options or restricted stock under the 1979 Plan, or, except
as otherwise provided in the 1979 Plan, (i) increase the number of shares
subject to grants under the plan, (ii) reduce the option price below the fair
market value of the stock on the date the option was granted or (iii) decrease
the forfeiture period below that permitted under the 1979 Plan. Without the
consent of the person affected, no amendment, suspension or termination of the
1979 Plan or options or restricted stock granted under the 1979 Plan can
adversely affect rights under an option or restricted stock previously granted.
Any suspension or termination by the Board of Directors of a SAR previously
granted will not be deemed to adversely affect rights under an option previously
granted.
DIRECTORS STOCK PLAN
The Directors Plan was adopted by the Company's Board of Directors on
November 2, 1994 and became effective upon approval by the shareowners of the
Company on February 1, 1995. The Directors Plan was amended by the Company's
Board of Directors on December 6, 1995 and, as amended, became effective on
February 7, 1996 upon approval by shareowners. An aggregate of 300,000 shares of
Company Common Stock may be issued or transferred under the Directors Plan,
subject to appropriate adjustment in the event of any change in or affecting
shares of Company Common Stock, including but not limited to stock dividends,
stock splits and recapitalizations.
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Participation. Participation in the Directors Plan is limited to directors
who are not employees of the Company or any of its subsidiaries.
Awards of Shares. Under the Directors Plan grants of 400 shares of Company
Common Stock are made to each non-employee director elected at each annual
meeting of shareowners beginning with grants immediately after the 1995 Annual
Meeting. In addition, each non-employee director elected at a meeting of the
Board of Directors of the Company receives immediately after that meeting an
award of 400 shares of Company Common Stock if elected after an annual meeting
and prior to May 1; 300 shares if elected between May 1 and July 31; 200 shares
if elected between August 1 and October 31; and 100 shares if elected between
November 1 and the next annual meeting. Directors are encouraged to hold shares
granted until their service on the Board of Directors of the Company ends, and
shares awarded under the Directors Plan may not in any event be sold,
transferred or otherwise disposed of for a period of six months after receipt
(except in the case of death or disability of the director).
Directors may elect to receive their annual 400 shares of Company Common
Stock and their cash retainer for board service in the form of restricted shares
of Company Common Stock. Restricted shares, if elected, would be held by the
Company until ten days after the recipient retires from the Board of Directors
of the Company under the Board's retirement policy or if the recipient resigns
from the Board of Directors of the Company having completed ten years service as
a director or ceases to be a director by reason of the antitrust laws,
compliance with the Company's conflict of interest policies, death, disability
or other circumstances the Board of Directors of the Company determines not to
be adverse to the best interests of the Company. Restricted shares would have
all the attributes of outstanding shares including the right to vote and to
receive dividends thereon.
Stock Options. In addition, under the Directors Plan grants of a stock
option for 1,000 shares of Company Common Stock are made annually to each
non-employee director (other than currently serving directors who had attained
at least age 67 as of December 1995, who on a transitional basis will continue
to be under the prior directors' retirement policy) elected at each annual
meeting beginning with grants after the 1996 Annual Meeting. In addition, each
non-employee director elected at a meeting of the Board of Directors of the
Company receives immediately after that meeting an option to purchase 1,000
shares of Company Common Stock if elected after an annual meeting and prior to
May 1; 750 shares if elected between May 1 and July 31; 500 shares if elected
between August 1 and October 31; and 250 shares if elected between November 1
and the next annual meeting. The purchase price of the shares subject to the
option is one hundred percent (100%) of the fair market value on the date an
option is granted. Upon exercise of an option, the option price must be paid in
full in cash, shares of Company Common Stock valued at their fair market value
on the date of exercise, or a combination of both.
Options granted under the Directors Plan may not be exercised prior to one
year nor after ten years from the date of grant and become exercisable in three
approximately equal installments on the first, second and third anniversaries of
the date of grant. If an optionee who holds an outstanding stock option dies,
the Directors Plan permits the exercise of such option within three years of the
date of death and even if it were not exercisable at such date. If an optionee
who holds an outstanding stock option retires at age 72 or prior thereto with at
least ten years service, all options then held will be exercisable even if they
were not exercisable at such retirement date. The Directors Plan permits the
Compensation Committee to make determinations as to exercisability upon other
termination of an optionee's membership on the Board of Directors of the
Company.
Administration and Amendment. The Directors Plan is administered by the
Compensation Committee. The Board of Directors of the Company may amend the
Directors Plan in any respect, provided that no amendment may be made without
shareowner approval that would materially (i) increase the maximum number of
shares of Company Common Stock available for issuance under the Directors Plan
(other than adjustments to reflect changes in or affecting shares of Company
Common Stock), (ii) increase the benefits accruing to participants under the
Directors Plan, or (iii) modify the requirements as to eligibility for
participation in the Directors Plan. Award provisions of the Directors Plan may
not be amended more than once every six months except to comport with changes in
the Code, the Employee Retirement Income
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Security Act of 1974, as amended, or regulations under either of those statutes.
The Board of Directors of the Company also has authority to terminate the
Directors Plan at any time.
Tax Matters. The principal Federal income tax consequences of awards of
Company Common Stock under the Directors Plan under present law and regulations
are that the fair market value of shares of Company Common Stock awarded to a
director thereunder will constitute ordinary income to the director recognized
for Federal income tax purposes six months after the effective date of the award
unless the director makes an election under Section 83(b) of the Code to
recognize that income on the effective date of the award. The director's holding
period for tax purposes, including determining whether any gain or loss on the
shares of Company Common Stock is long or short term, will begin on the date
that income is recognized. The Company will be entitled to a deduction equal to
the income recognized by the director on the date of recognition.
The principal Federal income tax consequences of the issuance or transfer
of restricted shares awarded in lieu of stock awards under the Directors Plan or
cash retainers is that the value thereof is not taxable to the recipient until
the restriction lapses (at the value of the shares on the date the restriction
lapses).
The principal Federal income tax consequences of the grant of options under
the Directors Plan are that the optionee realizes ordinary income, and the
Company is entitled to a deduction, equal to the difference between the option
exercise price and the fair market value of the shares acquired at the time of
exercise.
NEW ROCKWELL STOCK INCENTIVE PLANS; TREATMENT OF OUTSTANDING STOCK OPTIONS
New Rockwell will assume and adopt the Company Stock Incentive Plans
described above, however, references to Company Common Stock and Company Class A
Common Stock will be references to New Rockwell Common Stock and New Rockwell
Class A Common Stock, respectively, and will include the associated New Rockwell
Rights. In addition, appropriate amendments will be made to the Company Stock
Incentive Plans to reflect their assumption and adoption by New Rockwell in
accordance with the terms of the Merger Agreement and the Distribution
Agreement. The 1995 LTIP and the 1988 LTIP will be amended to provide that a
holder of New Rockwell Options who becomes a Company Group Continuing Employee
or is an employee of United Space Alliance, LLC ("USA") (for as long as Boeing
retains at least a 50% ownership interest therein), as the case may be, will be
entitled to vesting and exercisability rights comparable to those the holder had
prior to the Closing Date as if such employee remained in continuous employment
with New Rockwell, to the extent the holder remains in continuous employment
with the Company Group or USA. The Company anticipates that the number of shares
authorized for delivery in payment and upon exercise of New Rockwell Options (as
defined below) under the 1988 LTIP will be increased and the 1988 LTIP limit on
the aggregate number of shares for which any employee may be granted options in
any fiscal year under all Company Stock Incentive Plans will be modified, in
each case, to implement the adjustments to the number of shares of New Rockwell
Common Stock or New Rockwell Class A Common Stock, as the case may be, for which
each New Rockwell Option granted under the 1988 LTIP is exercisable. The
Directors Plan will be amended in order to continue to provide for annual grants
of shares and options thereunder.
In connection with the Transactions, as of the Time of Distribution each
Company Option outstanding will be converted into an option to acquire shares of
New Rockwell Common Stock or New Rockwell Class A Common Stock, as the case may
be (a "New Rockwell Option"), having the same terms and vesting schedule as the
original Company Option, but with the adjustments described below in order to
provide equivalent value to each optionholder. Such adjustments will be made to
all outstanding Company Options, whether or not the holder continues to be
employed by the New Rockwell Business.
Pursuant to the adjustment provisions of the Company Stock Incentive Plans,
the exercise price of New Rockwell Options will be adjusted to preserve for each
optionee the aggregate "spread" that exists prior to the Effective Time between
the per share value of Company Common Stock or Company Class A Common Stock, as
the case may be, and the per share exercise price of the optionee's Company
Options. The per share exercise price of each New Rockwell Option will be equal
to the product of (i) the per share exercise price of the Company Option
immediately prior to the conversion multiplied by (ii) a fraction, the numerator
of which is the Average Price (as defined below) of New Rockwell Common Stock
and the denominator of which is
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the Average Price of Company Common Stock (the "Conversion Ratio"). The number
of shares of New Rockwell Common Stock or New Rockwell Class A Common Stock, as
the case may be, for which each New Rockwell Option is exercisable will be equal
to the product of the number of shares of Company Common Stock or Company Class
A Common Stock, respectively, for which the Company Option is exercisable
immediately prior to the conversion multiplied by the reciprocal of the
Conversion Ratio. "Average Price" with respect to any stock means the average of
the daily closing prices per share of such stock as reported on the NYSE
Composite Transactions reporting system for the five consecutive full NYSE
trading days ending on the trading day before the Closing Date, in the case of
New Rockwell Common Stock, trading on a "when-issued" basis.
TREATMENT OF OUTSTANDING RESTRICTED STOCK
Pursuant to the Directors Plan, the Company has made restricted stock
grants of Company Common Stock to James Clayburn La Force, Jr., William T.
McCormick, Jr. and William H. Gray, III, directors of the Company pursuant to
their elections to defer grants of shares and payments of cash retainers under
the Directors Plan. See "Description of the New Rockwell Business and New
Rockwell -- Compensation of Directors". Such restricted stock awards are subject
to individual Restricted Stock Agreements entered into between the Company and
each such director. In addition, the Company has made restricted stock awards of
Company Common Stock to Don H. Davis, Jr., President and Chief Operating Officer
of the Company, subject to a Restricted Stock Agreement, on terms substantially
similar to the restricted stock awards made under the Directors Plan. In the
Distribution, a share of New Rockwell Common Stock will be distributed in
respect of each restricted share of Company Common Stock. At the Effective Time,
pursuant to the Merger each restricted share of Company Common Stock will be
converted in the same manner as unrestricted shares of Company Common Stock into
the right to receive shares of Boeing Common Stock. See "The Merger -- Terms of
the Merger Agreement -- The Merger". In connection with the Distribution, New
Rockwell will enter into new Restricted Stock Agreements with each of Messrs. La
Force, McCormick, Gray and Davis containing restrictions substantially identical
to those contained in their existing Restricted Stock Agreements with the
Company in respect of the shares of New Rockwell Common Stock to be distributed
in the Distribution and the shares of Boeing Common Stock to be issued in the
Merger.
INCENTIVE COMPENSATION PLAN
The Company maintains the ICP, an incentive compensation plan which
provides for discretionary awards to management employees of the Company and its
businesses, and in connection with the Transactions, New Rockwell will assume
and adopt the ICP.
The purposes of the ICP are to provide a reward and an incentive to
employees in managerial, staff or technical capacities who have contributed and,
in the future, are likely to contribute to the success of the Company and to
enhance the Company's ability to attract and retain outstanding employees to
serve in such capacities.
Incentive Fund
The ICP provides for a fund (the "Incentive Fund") to which there shall be
credited for each fiscal year an amount, as determined by the Compensation
Committee, which shall not exceed either the aggregate amount declared by the
Company in such year as dividends on its capital stock or the aggregate amount
calculated by adding 2% of the first $100 million of the Company's Applicable
Net Earnings (as defined below) for such fiscal year, 3% of the next $50 million
of such earnings, 4% of the next $25 million of such earnings, and 5% of the
balance of such earnings. "Applicable Net Earnings" are defined as the Company's
consolidated net income (before provision for income taxes) for any fiscal year,
determined in accordance with GAAP. Amounts charged or credited to the Incentive
Fund are not included in determining Applicable Net Earnings. Applicable Net
Earnings and the maximum amount thereof which may be credited to the Incentive
Fund are determined at the end of each fiscal year by the independent certified
public accountants who audit the Company's accounts.
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The Incentive Fund is a single continuing fund which is debited with the
amounts of awards made under the ICP and under the Senior Executive Plan for any
fiscal year and credited with the amounts of any such awards which lapse or are
forfeited. The Board of Directors of the Company may direct the transfer to the
general funds of the Company of all or any part of unawarded balances of the
Incentive Fund.
Administration
The ICP is administered by the Compensation Committee, which has sole
authority to interpret the ICP. The Compensation Committee determines the
amounts, if any, of Applicable Net Earnings to be credited to and awarded from
the Incentive Fund for any fiscal year. Generally, the Compensation Committee
makes awards under the ICP in an aggregate amount well below the amount
available thereunder. The Company's Chief Executive Officer submits to the
Compensation Committee, before its determinations are made, his recommendations
concerning awards. In its discretion, the Compensation Committee determines: (i)
the extent to which awards, if any, shall be made; (ii) the employees to whom
any such awards shall be made; (iii) the amount of any award; and (iv) the form,
terms and conditions of awards. Among other things, the Committee may determine
whether and to what extent awards shall be paid in installments and in cash or
in Company Shares or partly in cash and partly in Company Shares.
Eligibility
Any person in the salaried employ of the Company during some part of the
fiscal year for which awards are made may be selected for an award by the
Compensation Committee. Unless he or she is also an employee of the Company, no
member of the Board of Directors of the Company is eligible to participate in
the ICP. Of that portion of the Incentive Fund awarded for any fiscal year, not
more than 10% may be awarded under the ICP and the Senior Executive Plan to any
one employee and not more than 50% may be awarded to the ten employees receiving
the highest awards. The total number of Company Shares which may be awarded
under the ICP shall not exceed 1,000,000, subject to adjustment by the Board of
Directors in the event of any changes in or affecting Company Shares.
Participants in the Senior Executive Plan are not eligible to receive an
award of incentive compensation under the ICP. See "-- Annual Incentive
Compensation Plan for Senior Executive Officers".
Amendment and Termination
The Board of Directors of the Company has the power, in its discretion, to
amend, suspend or terminate the ICP at any time. It does not have the power,
however, (i) to take any such action that would adversely affect rights under an
award already made, without the consent of the person affected, or (ii) without
shareowner approval, to increase the total number of Company Shares subject to
the ICP (except as otherwise provided in the ICP), or to modify the method of
determining the Incentive Fund so as to increase materially the maximum amount
that may be credited to it.
ANNUAL INCENTIVE COMPENSATION PLAN FOR SENIOR EXECUTIVE OFFICERS
The Company maintains the Senior Executive Plan, an incentive compensation
plan, and in connection with the Transactions, New Rockwell will assume and
adopt the Senior Executive Plan.
The Senior Executive Plan was adopted by the Board of Directors of the
Company (with Messrs. Beall and Davis, the only directors eligible to
participate, not voting) on December 6, 1995, and approved by the shareowners of
the Company on February 7, 1996.
The purpose of the Senior Executive Plan is to assure current Federal
income tax deductibility of annual base salary and incentive compensation earned
by the five officers whose compensation might otherwise not be deductible under
the Code. The Senior Executive Plan is administered so as to provide no greater
benefits than could be provided under the ICP. Concurrently with adoption of the
Senior Executive Plan, the ICP was amended, among other things, to provide that
any awards under the Senior Executive Plan would reduce the amount available to
be awarded under the ICP from the Incentive Fund.
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GENERAL
The Senior Executive Plan provides for the award of annual bonuses to the
Chief Executive Officer and to four other executive officers of the Company
designated by the Compensation Committee based on the Company's Applicable Net
Earnings. The Senior Executive Plan is intended: (i) to promote the interest of
the Company by providing incentives and awards to its most senior executive
officers on the basis of overall corporate financial performance as measured by
Applicable Net Earnings; and (ii) to qualify their awards as performance-based
and tax deductible under Section 162(m) of the Code. Section 162(m) provides
that, effective for tax years beginning on or after January 1, 1994, a publicly
owned corporation may not deduct compensation in excess of $1 million per year
paid to a corporation's chief executive officer and its four other most highly
paid executive officers, subject to certain exceptions. One exception is for
performance-based compensation paid pursuant to a shareowner-approved plan that
satisfies certain conditions of Section 162(m).
ELIGIBILITY
The persons eligible to participate in the Senior Executive Plan (the
"Senior Executive Plan Participants") are the Company's Chief Executive Officer
and four other executive officers designated each year by the Compensation
Committee. Senior Executive Plan Participants are not eligible to receive an
award of annual incentive compensation under the ICP or any other management
incentive compensation plan of any of the Company's businesses. The foregoing
will not preclude, however, assessing the performance of a Senior Executive Plan
Participant on the basis of an annual incentive plan of a business unit for
which that Senior Executive Plan Participant has primary accountability.
DETERMINATION AND ALLOCATION OF THE COVERED EMPLOYEES PERFORMANCE FUND
Awards under the Senior Executive Plan are allocated to the Senior
Executive Plan Participants in each year out of a Covered Employees Performance
Fund equal to 1% of the Company's Applicable Net Earnings for that year. Subject
to the Compensation Committee's right to reduce any Senior Executive Plan
Participant's allocated award as described below, the amount set aside under the
Senior Executive Plan is allocated to each Senior Executive Plan Participant as
follows: 35% of the fund to the Chief Executive Officer, 20% of the fund to the
President and Chief Operating Officer and 15% of the fund to each of the three
other Senior Executive Plan Participants. Awards allocated to a Senior Executive
Plan Participant are paid to the Senior Executive Plan Participant in cash in a
lump sum or in installments, as determined by the Compensation Committee.
ADMINISTRATION
The Senior Executive Plan is administered by the Compensation Committee,
which has sole authority to interpret any provision of the Senior Executive
Plan. The amount of the Covered Employees Performance Fund in any year and the
maximum allocation thereof to the Senior Executive Plan Participants are
determined by the independent certified public accountants who audit the
Company's accounts and certified to the Compensation Committee as soon as
practicable after the end of each fiscal year. The Compensation Committee then
determines the awards, if any, to be made to the Senior Executive Plan
Participants.
The Compensation Committee may, in its sole discretion, reduce, but not
increase, a Senior Executive Plan Participant's award under the Senior Executive
Plan, based on the Compensation Committee's evaluation of the performance of the
Company or the executive, the relationship of the award to other elements of the
Company's executive compensation program and such other factors as the
Compensation Committee may deem appropriate. The reduction of one Senior
Executive Plan Participant's award will not cause an increase or a decrease in
any other Senior Executive Plan Participant's award. The Compensation Committee
frequently utilizes information about certain peer companies' compensation
practices, including information provided by outside consultants, in setting the
compensation of the Company's senior executive officers. While the Covered
Employee Performance Fund is designed to make annual bonuses paid to Senior
Executive Plan Participants contingent on Applicable Net Earnings and to
preserve the Company's compensation deduction in respect of such bonuses, the
Compensation Committee believes that competitive
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compensation practices should continue to be an important factor in determining
the appropriate level of compensation of its executive officers. Accordingly,
the Compensation Committee anticipates that if the allocation of an award to any
Senior Executive Plan Participant would result in the Senior Executive Plan
Participant receiving a total amount of compensation in excess of an amount the
Compensation Committee believes to be competitive, the Compensation Committee
will likely exercise its discretion to reduce the Senior Executive Plan
Participant's award under the Senior Executive Plan for the purpose of effecting
aggregate executive compensation that is consistent with the objective of
providing a competitive executive compensation program. Similarly, the
Compensation Committee may exercise its right to reduce a Senior Executive Plan
Participant's award that otherwise would be payable under the Senior Executive
Plan based on its subjective evaluation of the Senior Executive Plan
Participant's performance as well as its evaluation of overall corporate and
applicable business unit performance.
AMENDMENT AND TERMINATION
The Compensation Committee may discontinue or terminate the Senior
Executive Plan in whole or in part at any time and may amend the Senior
Executive Plan in any respect at any time, subject to certain restrictions.
SENIOR EXECUTIVE PLAN BENEFITS
Because awards under the Senior Executive Plan are determined based on the
Company's annual Applicable Net Earnings, it is not currently possible to
determine the amounts that will be payable under the Senior Executive Plan for
fiscal 1996. Nevertheless, it is the intention of the Compensation Committee
that awards under the Senior Executive Plan will be the same as awards it would
have made under the ICP, and the Compensation Committee would generally exercise
its right to reduce amounts available under the Senior Executive Plan to the
extent appropriate to carry out that intention.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of certain effects of the Transactions upon the executive
officers and directors and employee compensation and benefit plans of the
Company, see "Effect on Employment and Employee Benefits", "-- Stock Incentive
Plans of the Company and New Rockwell -- New Rockwell Stock Incentive Plans;
Treatment of Outstanding Stock Options" and "-- Treatment of Outstanding
Restricted Stock."
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OWNERSHIP OF CAPITAL STOCK
The following table shows the beneficial ownership, reported to the Company
as of September 30, 1996, of Company Common Stock and Company Class A Common
Stock, including shares as to which a right to acquire ownership exists (for
example, through the exercise of stock options, conversions of securities or
through various trust arrangements), within the meaning of Rule 13d-3(d)(1)
under the Exchange Act, of each director, each of the five most highly
compensated executive officers and such persons and other executive officers, as
a group. The rules of the Commission require that every person who has or shares
the power to vote or dispose of shares of stock be reported as a "beneficial
owner" (as such term is defined in the rules of the Commission) of all shares as
to which such power exists. If the Transactions had been consummated as of
September 30, 1996, the beneficial ownership of New Rockwell Common Stock and
New Rockwell Class A Common Stock of each director, each of the five most highly
compensated executive officers and such persons and other executive officers, as
a group, would have been the same as set forth below for Company Common Stock
and Company Class A Common Stock, respectively.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP AS OF SEPTEMBER 30, 1996
-------------------------------------------------------------------------------------
COMPANY PERCENT COMPANY PERCENT PERCENT
COMMON OF CLASS A OF TOTAL OF
NAME STOCK(1) CLASS(2) STOCK(1) CLASS(2) SHARES(1) CLASS(2)
- ---------------------------- ---------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Lew Allen, Jr. ............. 2,400(3) -- -- -- 2,400(3) --
Donald R. Beall............. 1,090,825(4,5,6) 0.6 117,192(4,5,6) 0.4 1,208,017(4,5,6) 0.6
Richard M. Bressler......... 2,200 -- -- -- 2,200 --
John J. Creedon............. 3,241 -- -- -- 3,241 --
Don H. Davis, Jr. .......... 233,255(4,5,7) 0.1 10(4) -- 233,265(4,5,7) 0.1
Judith L. Estrin............ 1,000 -- -- -- 1,000 --
William H. Gray, III........ 1,346(8) -- -- -- 1,346(8) --
James Clayburn La Force,
Jr. ...................... 2,300(3,8) -- -- -- 2,300(3,8) --
William T. McCormick,
Jr. ...................... 6,200(8) -- -- -- 6,200(8) --
John D. Nichols............. 2,700 -- -- -- 2,700 --
Bruce M. Rockwell........... 17,258 -- 24,254 0.1 41,512 --
William S. Sneath........... 3,000 -- 800 -- 3,800 --
Joseph F. Toot, Jr. ........ 6,275 -- 4,925 -- 11,200 --
W. Michael Barnes........... 261,611(4,5) 0.1 35,581(4) 0.1 297,192(4,5) 0.1
Jodie K. Glore.............. 31,014(4,5) -- -- -- 31,014(4,5) --
John A. McLuckey............ 186,294(3,4,5) 0.1 648(3,4) -- 186,942(3,4,5) 0.1
All of the above and other
executive officers as a
group (27 persons)........ 2,468,194(3,4,5) 1.3 226,479(3,4,5) 0.8 2,694,673(3,4,5) 1.2
</TABLE>
- ---------------
(1) Each person has sole voting and investment power with respect to the shares
listed unless otherwise indicated.
(2) The shares owned by each person, and by the group, and the shares included
in the number of shares outstanding have been adjusted, and the percentage
of shares owned (where such percentage exceeds 0.1%) has been computed, in
accordance with Rule 13d-3(d)(1) under the Exchange Act, except that the
shares of Company Common Stock owned and the related percentages do not
include shares of Company Class A Common Stock convertible into shares of
Company Common Stock.
(3) Includes shares held jointly, or in other capacities, as to which in some
cases beneficial ownership is disclaimed.
(4) Includes shares held under the Rockwell International Corporation Savings
Plan as of September 30, 1996. Does not include 9,624, 3,181, 1,092, 379,
2,042 and 19,071 share equivalents for Messrs. Beall, Davis, Barnes, Glore,
McLuckey and the group, respectively, held under the Rockwell International
Corporation Supplemental Savings Plan for Highly Compensated Employees.
(5) Includes shares which may be acquired upon the exercise of outstanding stock
options as follows: 752,800, 191,000, 213,133, 25,000, 161,666 and
1,850,262 shares of Company Common Stock for
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Messrs. Beall, Davis, Barnes, Glore, McLuckey and the group, respectively,
and 10,500 shares of Company Class A Common Stock for the group.
(6) Includes shares, as to which beneficial ownership is disclaimed, as follows:
207,428 shares of Company Common Stock (including 190,000 shares underlying
stock options) and 2,068 shares of Company Class A Common Stock held for
the benefit of family members and 10,000 shares of Company Common Stock
owned by the Beall Family Foundation, of which Mr. Beall is President and a
director. Does not include 77,200 shares of Company Common Stock that may
be acquired on exercise of stock options assigned to family members who are
the beneficial owners.
(7) Includes 14,166 shares of Company Common Stock granted as restricted stock
in partial payment of a bonus for fiscal year 1995 and a long-term
incentive payment earned for a three-year performance period ended
September 30, 1995.
(8) Includes 125, 400 and 400 shares of Company Common Stock granted as
restricted stock to each of Messrs. Gray, McCormick and La Force,
respectively, under the Directors Plan.
New Rockwell is a wholly-owned subsidiary of the Company. If the
Transactions had been consummated as of September 30, 1996, the persons known to
the Company who would have been "beneficial owners" of more than 5% of any class
of New Rockwell's equity securities would have been the same as set forth above
and under "The Special Meeting -- Ownership of Company Common Stock and Company
Class A Common Stock".
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DESCRIPTION OF NEW ROCKWELL CAPITAL STOCK
Immediately prior to the Time of Distribution, New Rockwell will be
authorized to issue (i) 1,000,000,000 shares of New Rockwell Common Stock, of
which a number of shares will be issued in the Distribution equal to the number
of shares of Company Common Stock outstanding on the Distribution Record Date,
(ii) 100,000,000 shares of New Rockwell Class A Common Stock, of which a number
of shares will be issued in the Distribution equal to the number of shares of
Company Class A Common Stock outstanding on the Distribution Record Date, and
(iii) 25,000,000 shares of Preferred Stock, without par value ("New Rockwell
Preferred Stock"), of which 2,500,000 shares will be designated as Series A
Junior Participating Preferred Stock ("Junior Preferred Stock") for issuance in
connection with the exercise of the New Rockwell Rights. See "-- New Rockwell
Rights Plan".
The discussion contained herein is qualified by reference to the New
Rockwell Certificate, which will be in effect immediately prior to the Time of
Distribution. The New Rockwell Certificate provides that New Rockwell Class A
Common Stock will be automatically converted into New Rockwell Common Stock on
February 23, 1997, the original date on which the Company Class A Common Stock
would be converted to Company Common Stock pursuant to the Company Certificate,
unless such date is extended by New Rockwell's Board of Directors. New
Rockwell's Board of Directors will not extend the conversion date.
NEW ROCKWELL COMMON STOCK AND NEW ROCKWELL CLASS A COMMON STOCK
The New Rockwell Certificate and the New Rockwell By-Laws will be
substantially similar to the Company Certificate and the Company By-Laws, except
as described below, including with respect to the inclusion of certain
additional provisions establishing a classified Board of Directors, requiring
shareowners to provide advance notice of any shareowner nominations of directors
or any proposal of new business to be considered at any meeting of shareowners,
requiring a supermajority vote to remove a director or to amend or repeal
certain provisions of the New Rockwell Certificate or the New Rockwell By-Laws
and eliminating the right of shareowners to call a special meeting of
shareowners. See "-- Certain Provisions in the New Rockwell Certificate and New
Rockwell By-Laws."
Holders of New Rockwell Shares will be entitled to such dividends as may be
declared by the Board of Directors of New Rockwell out of any funds of New
Rockwell legally available therefor. Dividends may not be paid on New Rockwell
Shares unless all accrued dividends on New Rockwell Preferred Stock, if any,
have been paid or set aside. In the event of any liquidation, dissolution or
winding up of New Rockwell, the holders of New Rockwell Shares will be entitled
to share pro rata in the assets remaining after payment to creditors and after
payment of the liquidation preference plus any unpaid dividends to holders of
any outstanding New Rockwell Preferred Stock, if any. Each holder of New
Rockwell Common Stock will be entitled to one vote for each such share
outstanding in such holder's name, and each holder of New Rockwell Class A
Common Stock will be entitled to ten votes for each such share outstanding in
such holder's name. No holder of New Rockwell Shares will be entitled to
cumulate such holder's votes in voting for directors. No holder of shares of New
Rockwell Class A Common Stock may transfer such shares or any interest therein
except to such holder's spouse, certain other relatives of such holder, certain
trusts established for the benefit of, partnerships comprised solely of, or
corporations wholly owned by, the holder or such relatives, charitable
organizations controlled by the holder or such holder's family members and to
employees of New Rockwell upon distribution from an employee benefit or employee
stock ownership plan. New Rockwell Class A Common Stock will be convertible at
all times and without cost to the holder into New Rockwell Common Stock on a
share-for-share basis. The New Rockwell Certificate provides that, unless
otherwise determined by the Board of Directors of New Rockwell, no holder of New
Rockwell Shares will, as such holder, have any right to purchase or subscribe
for any stock of any class which New Rockwell may issue or sell. With respect to
the matters described above, New Rockwell Common Stock and New Rockwell Class A
Common Stock will be identical to the existing Company Common Stock and Company
Class A Common Stock, respectively.
Except as described below under " -- Certain Provisions in the New Rockwell
Certificate and New Rockwell By-Laws", the rights, privileges and preferences of
New Rockwell Shares will otherwise be identical in all material respects to the
rights, privileges and preferences of Company Shares.
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NEW ROCKWELL PREFERRED STOCK
GENERAL
The New Rockwell Certificate authorizes the Board of Directors of New
Rockwell to establish one or more series of New Rockwell Preferred Stock (of up
to an aggregate of 25,000,000 shares) and to determine, with respect to any
series of New Rockwell Preferred Stock, the terms and rights of such series,
including (i) the designation of the series, (ii) the number of shares of the
series, which number the Board of Directors of New Rockwell may thereafter
(except where otherwise provided in the applicable certificate of designation)
increase or decrease (but not below the number of shares thereof then
outstanding), (iii) whether dividends, if any, will be cumulative or
noncumulative, and, in the case of shares of any series having cumulative
dividend rights, the date or dates or method of determining the date or dates
from which dividends on the shares of such series shall be cumulative, (iv) the
rate of any dividends (or method of determining such dividends) payable to the
holders of the shares of such series, any conditions upon which such dividends
will be paid and the date or dates or the method for determining the date or
dates upon which such dividends will be payable, (v) the redemption rights and
price or prices, if any, for shares of the series, (vi) the terms and amounts of
any sinking fund provided for the purchase or redemption of shares of the
series, (vii) the amounts payable on and the preferences, if any, of shares of
the series in the event of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of New Rockwell, (viii) whether the shares of the
series will be convertible or exchangeable into shares of any other class or
series, or any other security, of New Rockwell or any other corporation, and, if
so, the specification of such other class or series or such other security, the
conversion or exchange price or prices or rate or rates, any adjustments
thereof, the date or dates as of which such shares will be convertible or
exchangeable and all other terms and conditions upon which such conversion or
exchange may be made, (ix) restrictions on the issuance of shares of the same
series or of any other class or series, (x) the voting rights, if any, of the
holders of the shares of the series and (xi) any other relative rights,
preferences and limitations of such series.
The Board of Directors of New Rockwell believes that the ability of the
Board to issue one or more series of New Rockwell Preferred Stock will provide
New Rockwell with flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs which might arise. The
authorized shares of New Rockwell Preferred Stock, as well as New Rockwell
Shares, will be available for issuance without further action by New Rockwell's
shareowners, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which New Rockwell's
securities may be listed or traded. If the approval of New Rockwell's
shareowners is not so required, the Board of Directors of New Rockwell may
determine not to seek shareowner approval.
Although the Board of Directors of New Rockwell has no intention at the
present time of doing so (other than as described below with respect to the
Junior Preferred Stock), it could issue a series of New Rockwell Preferred Stock
that could, depending on the terms of such series, impede the completion of a
merger, tender offer or other takeover attempt. The Board of Directors of New
Rockwell will make any determination to issue such shares based on its judgment
as to the best interests of New Rockwell and its shareowners. The Board of
Directors of New Rockwell, in so acting, could issue New Rockwell Preferred
Stock having terms that could discourage an acquisition attempt through which an
acquiror may be able to change the composition of the Board of Directors of New
Rockwell, including a tender offer or other transaction that some, or a
majority, of New Rockwell's shareowners might believe to be in their best
interests or in which shareowners might receive a premium for their stock over
the then current market price of such stock.
NEW ROCKWELL JUNIOR PREFERRED STOCK
The summary of the terms of the Junior Preferred Stock contained herein
does not purport to be complete and is subject and qualified by reference to the
provisions of the New Rockwell Certificate, a copy of which has been filed as an
exhibit to the Distribution S-4 of which this Proxy Statement-Prospectus is a
part.
The Board of Directors of New Rockwell has authorized the issuance of up to
2,500,000 shares of Junior Preferred Stock. The terms of the Junior Preferred
Stock are set forth in the New Rockwell Certificate. The
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<PAGE> 113
Junior Preferred Stock, when issued upon exercise of the New Rockwell Rights,
will be fully paid and non-assessable. See "New Rockwell Rights Plan".
Ranking and Redemption. The Junior Preferred Stock will rank junior to all
series of any other class of New Rockwell Preferred Stock with respect to
payments of dividends and distribution of assets and will be non-redeemable.
Dividend Rights. Holders of Junior Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors of New Rockwell out
of funds legally available therefor, quarterly dividends equal to the greater of
(i) $1 or (ii) 100 times the amount of cash dividends and 100 times the amount
(payable in kind) of non-cash dividends or other distributions (other than stock
dividends of New Rockwell Shares) declared per New Rockwell Share. If New
Rockwell at any time declares or pays a stock dividend payable in New Rockwell
Shares, or effects a subdivision or combination or consolidation of New Rockwell
Shares, then the amount to which holders of Junior Preferred Stock will be
entitled under clause (ii) of the previous sentence will be adjusted in
accordance with the antidilution provisions contained in the New Rockwell
Certificate.
Dividends and distributions on the Junior Preferred Stock will be declared
immediately after the declaration of the dividend or distribution on the New
Rockwell Shares and will be payable quarterly on the second Monday of March,
June, September and December in each year (a "Dividend Payment Date"). In the
event that no dividend or distribution is declared on New Rockwell Shares, then
a dividend of $1 per share of Junior Preferred Stock will nevertheless be
payable on the next Dividend Payment Date. Dividends declared will be payable to
record holders of Junior Preferred Stock on a record date not more than 60 days
prior to the payment date, as determined by the Board of Directors of New
Rockwell. Dividends on the Junior Preferred Stock will accrue and be cumulative.
Accrued and unpaid dividends will not bear interest.
If quarterly dividends or other dividends or distributions payable on the
Junior Preferred Stock are in arrears, until all accrued and unpaid dividends
and distributions on the Junior Preferred Stock are paid in full, New Rockwell
may not (i) declare or pay any dividend or distribution with respect to any
stock ranking junior to the Junior Preferred Stock; (ii) declare or pay any
dividend or distribution with respect to any stock ranking on parity with the
Junior Preferred Stock, other than pro rata distributions made on the Junior
Preferred Stock and all such parity stock; (iii) redeem or purchase or otherwise
acquire shares of any stock ranking junior to the Junior Preferred Stock
(provided that New Rockwell may redeem or purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock ranking junior to
the Junior Preferred Stock); and (iv) redeem or purchase or otherwise acquire
shares of any stock ranking on parity with the Junior Preferred Stock, except in
accordance with a purchase offer made in writing or publication to all holders
of such shares upon such terms as the Board of Directors, after consideration of
the respective annual dividend rates and other relative rights and preferences
of the respective series and classes, shall determine in good faith will result
in fair and equitable treatment among the respective series or classes.
Liquidation Preference. In the event of any liquidation, dissolution or
winding up of New Rockwell, no distributions will be made with respect to (i)
any shares of stock ranking junior to the Junior Preferred Stock, unless holders
of shares of Junior Preferred Stock have received an amount per share equal to
$100 plus an amount per share equal to any dividends accrued but unpaid thereon,
without interest, provided that such holders will be entitled to receive an
amount per share equal to 100 times the amount to be distributed per share to
holders of New Rockwell Shares or (ii) any shares of stock ranking on parity
with the Junior Preferred Stock, except for pro rata distributions made on the
Junior Preferred Stock and all such parity stock. If New Rockwell at any time
declares or pays a stock dividend payable in New Rockwell Shares, or effects a
subdivision or combination or consolidation of New Rockwell Shares, then the
amount to which holders of Junior Preferred Stock will be entitled will be
adjusted in accordance with the antidilution provisions contained in the New
Rockwell Certificate.
Voting Rights. Each share of Junior Preferred Stock will be entitled to
100 votes per share. If New Rockwell at any time declares or pays a stock
dividend payable in New Rockwell Shares, or effects a subdivision or combination
or consolidation of New Rockwell Shares, then the number of votes to which
holders of Junior Preferred Stock will be entitled will be adjusted in
accordance with the antidilution
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provisions contained in the New Rockwell Certificate. The Junior Preferred Stock
vote together with the New Rockwell Common Stock and the New Rockwell Class A
Common Stock as one class on all matters submitted to a vote of shareowners of
New Rockwell, except as otherwise provided in a certificate of designation for
any other class of New Rockwell Preferred Stock filed with the Secretary of
State of the State of Delaware or by law. Except as otherwise provided by law,
the Junior Preferred Stock will have no special voting rights, and except to the
extent the Junior Preferred Stock is entitled to vote with the New Rockwell
Shares, the consent of the Junior Preferred Stock will not be required for
taking any corporate action.
Rights Upon Consolidation, Merger or Combination. If New Rockwell enters
into any consolidation, merger, combination or other transaction in which New
Rockwell Shares are exchanged for or changed into other stock or securities,
cash and/or other property, then each share of Junior Preferred Stock will at
the same time be similarly exchanged or changed into an amount per share equal
to 100 times the aggregate amount of stock, securities, cash and/or other
property (payable in kind) into which or for which each New Rockwell Share is
changed or exchanged. If New Rockwell at any time declares or pays a stock
dividend payable in New Rockwell Shares, or effects a subdivision or combination
or consolidation of New Rockwell Shares, then the amount to which holders of
Junior Preferred Stock will be entitled with respect to such exchange or change
will be adjusted in accordance with the antidilution provisions contained in the
New Rockwell Certificate.
CERTAIN PROVISIONS IN THE NEW ROCKWELL CERTIFICATE AND NEW ROCKWELL BY-LAWS
Except as described below, the New Rockwell Certificate and the New
Rockwell By-Laws will be substantially similar to the Company Certificate and
the Company By-Laws. Accordingly, the New Rockwell Certificate and the New
Rockwell By-Laws provide for a fair price provision, disparate voting rights
between New Rockwell Common Stock and New Rockwell Class A Common Stock and
indemnification of directors and officers to the fullest extent permitted by
applicable law. In addition, the New Rockwell Certificate and the New Rockwell
By-Laws will contain various other provisions intended to (i) promote stability
of New Rockwell's shareowner base and (ii) render more difficult certain
unsolicited or hostile attempts to take over New Rockwell which could disrupt
New Rockwell, divert the attention of New Rockwell's directors, officers and
employees and adversely affect the independence and integrity of New Rockwell's
business. A summary of these provisions of the New Rockwell Certificate and the
New Rockwell By-Laws is set forth below.
CLASSIFIED BOARD OF DIRECTORS AND REMOVAL OF DIRECTORS
Pursuant to the New Rockwell Certificate, the number of directors of New
Rockwell will be fixed by the Board of Directors of New Rockwell. The directors
(other than those elected by the holders of any series of New Rockwell Preferred
Stock or any other series or class of stock) will be divided into three classes,
each class to consist as nearly as possible of one-third of the directors.
Directors elected by shareowners at an Annual Meeting of Shareowners will be
elected by a plurality of all votes cast at such annual meeting. Initially, the
terms of office of the three classes of directors will expire, respectively, at
the Annual Meeting of Shareowners in 1997, 1998 and 1999. The term of the
successors of each such class of directors expires three years from the year of
election.
The New Rockwell Certificate provides that except as otherwise provided for
or fixed by or pursuant to a Certificate of Designations setting forth the
rights of the holders of any class or series of New Rockwell Preferred Stock,
newly created directorships resulting from any increase in the number of
directors and any vacancies on the Board of Directors of New Rockwell resulting
from death, resignation, disqualification, removal or other cause will be filled
by the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the Board of Directors of New Rockwell, and
not by the shareowners. Any director elected in accordance with the preceding
sentence will hold office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy occurred and
until such director's successor shall have been duly elected and qualified. No
decrease in the number of directors constituting the Board of Directors of New
Rockwell will shorten the term of any incumbent director. Subject to the rights
of holders of New Rockwell Preferred Stock, any director may be removed from
office only for cause by the affirmative vote of the holders of at least 80
percent of the voting power of all the
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outstanding capital stock of New Rockwell entitled to vote generally in the
election of directors (the "Voting Power"), voting together as a single class.
The Company Certificate does not contain provisions for a classified Board
of Directors and provides for (i) the removal of a director, with or without
cause, at any time, by the affirmative vote of a majority in interest of the
holders of stock having Voting Power at a special meeting of shareowners called
for such purpose and the filling of the resulting vacancy by the shareowners at
such meeting and (ii) the filling of any vacancy on the Board of Directors for
any other reason by the shareowners of the Company at the next annual meeting or
any special meeting called for such purpose.
These provisions of the New Rockwell Certificate would preclude a third
party from removing incumbent directors and simultaneously gaining control of
the Board of Directors of New Rockwell by filling the vacancies created by
removal with its own nominees. Under the classified board provisions described
above, it would take at least two elections of directors for any individual or
group to gain control of the Board of Directors of New Rockwell. Accordingly,
these provisions could discourage a third party from initiating a proxy contest,
making a tender offer or otherwise attempting to gain control of New Rockwell.
FAIR PRICE PROVISION
The New Rockwell Certificate contains a provision identical to one
contained in the Company Certificate (the "Fair Price Provision") pursuant to
which a Business Combination (as defined below) between New Rockwell or a
subsidiary of New Rockwell and an Interested Shareowner (as defined below)
requires approval by the affirmative vote of the holders of not less than 80
percent of the Voting Power, unless the Business Combination is approved by at
least two-thirds of the Continuing Directors (as defined below) or certain fair
price criteria and procedural requirements specified in the Fair Price Provision
and described below are met. If either the requisite Board of Directors approval
or the fair price and procedural requirements were met, the Business Combination
would be subject to the voting requirements otherwise applicable under the DGCL,
which for most types of Business Combinations currently would be the affirmative
vote of the holders of a majority of the outstanding shares of stock of New
Rockwell entitled to vote thereon.
The general purpose of the Fair Price Provision is to protect shareowners
against so-called front-end loaded or two-tier tender offers which may afford
some shareowners a disproportionately higher price for their shares than
shareowners receive generally. The Fair Price Provision is intended to help
assure New Rockwell's shareowners fair and equitable treatment in the event a
third party were to seek to acquire New Rockwell.
A "Business Combination" is defined as: (i) a merger or consolidation of
New Rockwell or any subsidiary with an Interested Shareowner; (ii) the sale,
lease, exchange, mortgage, pledge, transfer or other disposition by New Rockwell
or a subsidiary of assets or securities having a value of $25 million or more if
an Interested Shareowner is a party to the transaction; (iii) the adoption of
any plan or proposal for the liquidation or dissolution of New Rockwell proposed
by or on behalf of an Interested Shareowner; (iv) any reclassification of
securities, recapitalization, merger with a subsidiary or other transaction
which has the effect, directly or indirectly, of increasing an Interested
Shareowner's proportionate share of the outstanding capital stock of New
Rockwell or a subsidiary; or (v) any agreement or contract providing for any of
the foregoing.
An "Interested Shareowner" is defined as any person who is the beneficial
owner of 10 percent or more of the Voting Power other than New Rockwell, certain
of its subsidiaries, or the employee benefit plans of New Rockwell and the
trustees of such plans. A person is the "beneficial owner" of stock that such
person, directly or indirectly, owns or has the right to acquire or vote. The
Company is not aware of any person or group who would have been within the
definition of an "Interested Shareowner" if the Distribution had occurred on
September 30, 1996.
"Fair Price" Criteria. Under the Fair Price Provision, the fair price
criteria that must be satisfied to avoid the 80 percent shareowner voting
requirement include the requirement that the consideration paid to New
Rockwell's shareowners in a Business Combination must be either cash or the same
form of consideration used by the Interested Shareowner in acquiring its
beneficial ownership of the largest number of shares of
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New Rockwell's capital stock acquired by the Interested Shareowner. The
Interested Shareowner would be required to meet the fair price criteria with
respect to each class of New Rockwell's capital stock, whether or not the
Interested Shareowner beneficially owned shares of that class prior to proposing
the Business Combination. If the Business Combination does not involve any cash
or other property being received by any of the other shareowners, such as a sale
of assets or an issuance of New Rockwell's securities to an Interested
Shareowner, then the fair price criteria discussed above would not apply, and
approval by the holders of 80 percent of the Voting Power would be required
unless the transaction were approved by at least two-thirds of the Continuing
Directors.
Procedural Requirements. Under the Fair Price Provision, even if the
foregoing fair price criteria are met, the following procedural requirements
must be met if the Business Combination is not to require approval by at least
two-thirds of the Continuing Directors or approval by the holders of 80 percent
of the Voting Power: (i) New Rockwell, after the Interested Shareowner became an
Interested Shareowner, must not have failed to pay full quarterly dividends on
the New Rockwell Preferred Stock, if any, or reduced the rate of dividends paid
on New Rockwell Shares, unless such failure or reduction was approved by at
least two-thirds of the Continuing Directors; (ii) the Interested Shareowner
must not have acquired at any time after becoming an Interested Shareowner any
additional shares of New Rockwell's capital stock in any transaction unless
after giving effect to such acquisition there would be no increase in the
Interested Shareowner's percentage beneficial ownership of any class of New
Rockwell's capital stock; (iii) the Interested Shareowner must not have received
(other than proportionately as a shareowner) at any time after becoming an
Interested Shareowner, whether in connection with the proposed Business
Combination or otherwise, the benefit of any loans or other financial assistance
or any tax advantages provided by New Rockwell; (iv) a proxy or information
statement describing the proposed Business Combination and complying with the
requirements of the Exchange Act must have been mailed to all shareowners of New
Rockwell at least 30 days prior to the consummation of the Business Combination;
and (v) the Interested Shareowner must not have made any material change in New
Rockwell's business or equity capital structure without the approval of at least
two-thirds of the Continuing Directors.
Continuing Director Approval. If the Business Combination with an
Interested Shareowner is approved by at least two-thirds of the Continuing
Directors, neither the fair price criteria and other procedural requirements nor
the 80 percent shareowner vote requirement would be applicable. A "Continuing
Director" is any member of the Board of Directors of New Rockwell who is not
affiliated or associated with or a representative of the Interested Shareowner
and who was a director of New Rockwell prior to the time the Interested
Shareowner became an Interested Shareowner, and any successor to such Continuing
Director who is not affiliated or associated with or a representative of an
Interested Shareowner and who was recommended or elected by at least two-thirds
of the Continuing Directors.
80 Percent Shareowner Vote. If the fair price criteria and procedural
requirements are not satisfied and the Business Combination is not approved by
at least two-thirds of the Continuing Directors, the Fair Price Provision
requires the approval of the holders of 80 percent of the Voting Power, voting
as a single class, in addition to any vote required by law or otherwise. If the
fair price criteria and other procedural requirements were met or at least
two-thirds of the Continuing Directors approved a particular Business
Combination, the normal voting requirements of the DGCL and the NYSE would
apply. Under current provisions of the DGCL, certain mergers, consolidations,
reclassifications of securities, sales of substantially all assets and plans of
dissolution would have to be approved by the holders of a majority of the
outstanding shares of stock of New Rockwell entitled to vote thereon. Under the
current rules of the NYSE, on which shares of New Rockwell Common Stock will be
listed, the issuance of additional shares of New Rockwell Common Stock
aggregating 20 percent of the outstanding shares could, under certain
circumstances, require approval by a majority of the votes cast by the holders
of the shares of the stock of New Rockwell entitled to vote thereon. Certain
other transactions, such as sales of less than substantially all assets, mergers
involving a 90%-owned subsidiary and recapitalizations not involving any
amendments to the New Rockwell Certificate, would not require shareowner
approval under the DGCL or NYSE rules, although such transactions may constitute
Business Combinations subject to the Fair Price Provision.
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Amendment of the Fair Price Provision. Any amendment or repeal of the Fair
Price Provision, or the adoption of provisions inconsistent therewith, must be
approved by the affirmative vote of the holders of not less than 80 percent of
the Voting Power, voting together as a single class, unless such amendment,
repeal or adoption were approved by at least two-thirds of the Continuing
Directors, in which case the provisions of the DGCL would require the
affirmative vote of the holders of a majority of the outstanding shares of New
Rockwell's stock entitled to vote thereon.
SPECIAL SHAREOWNERS' MEETINGS AND RIGHT TO ACT BY WRITTEN CONSENT
The New Rockwell Certificate and the New Rockwell By-Laws provide that a
special meeting of shareowners may be called only by a resolution adopted by a
majority of the entire Board of Directors of New Rockwell. Shareowners are not
permitted to call, or to require that the Board of Directors call, a special
meeting of shareowners. Moreover, the business permitted to be conducted at any
special meeting of shareowners is limited to the business brought before the
meeting pursuant to the notice of the meeting given by New Rockwell. The Company
By-Laws permit a special meeting of shareowners to be called at any time for any
purpose by the Chairman of the Board, by the President, by order of the Board of
Directors of the Company or by a shareowner or shareowners holding of record at
least 20% of the outstanding Company Shares entitled to vote at such meeting. In
addition, the New Rockwell Certificate provides that any action taken by the
shareowners of New Rockwell must be effected at an annual or special meeting of
shareowners and may not be taken by written consent in lieu of a meeting.
The provisions of the New Rockwell Certificate and the New Rockwell By-Laws
prohibiting shareowner action by written consent, which are identical to those
of the Company Certificate and the Company By-Laws, may have the effect of
delaying consideration of a shareowner proposal until the next annual meeting.
These provisions would also prevent the holders of a majority of the Voting
Power from unilaterally using the written consent procedure to take shareowner
action. Moreover, a shareowner could not force shareowner consideration of a
proposal over the opposition of the Board of Directors of New Rockwell by
calling a special meeting of shareowners prior to the time the Board believes
such consideration to be appropriate.
PROCEDURES FOR SHAREOWNER NOMINATIONS AND PROPOSALS
The New Rockwell By-Laws establish an advance notice procedure for
shareowners to nominate candidates for election as directors or to bring other
business before meetings of shareowners of New Rockwell (the "Shareowner Notice
Procedure").
Only those shareowner nominees who are nominated in accordance with the
Shareowner Notice Procedure will be eligible for election as directors of New
Rockwell. Under the Shareowner Notice Procedure, notice of shareowner
nominations to be made at an annual meeting (or of any other business to be
brought before such meeting) must be received by New Rockwell not less than 60
days nor more than 90 days prior to the first anniversary of the previous year's
annual meeting (or, if the date of the annual meeting is more than 30 days
before or more than 60 days after such anniversary date, not earlier than the
90th day prior to such meeting and not later than the later of (i) the 60th day
prior to such meeting or (ii) the 10th day after public announcement of the date
of such meeting is first made). Notwithstanding the foregoing, in the event that
the number of directors to be elected is increased and there is no public
announcement naming all of the nominees for director or specifying the size of
the increased Board of Directors made by New Rockwell at least 70 days prior to
the first anniversary of the preceding year's annual meeting, a shareowner's
notice will be timely, but only with respect to nominees for any new positions
created by such increase, if it is received by New Rockwell not later than the
10th day after such public announcement is first made by New Rockwell. Moreover,
the Shareowner Notice Procedure provides that if the Board of Directors of New
Rockwell has determined that directors will be elected at a special meeting, a
shareowner must give written notice to the Secretary of New Rockwell of any
nominations to be brought before a special meeting, not earlier than the 90th
day prior to the special meeting and not later than the later of the 60th day
prior to the special meeting or the 10th day following the first public
announcement by New Rockwell of the date of the special meeting.
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The New Rockwell By-Laws provide that only such business may be conducted
at a special meeting as is specified in the notice of meeting. Nominations for
election to New Rockwell's Board of Directors may be made at a special meeting
at which directors are to be elected only by or at the New Rockwell Board of
Directors' direction or by a shareowner who has given timely notice of
nomination. Under the Shareowner Notice Procedure, such notice must be received
by New Rockwell not earlier than the 90th day before such meeting and not later
than the later of (i) the 60th day prior to such meeting or (ii) the 10th day
after public announcement of the date of such meeting is first made. Shareowners
will not be able to bring other business before special meetings of shareowners.
The Shareowner Notice Procedure provides that at an annual meeting only
such business may be conducted as has been brought before the meeting by, or at
the direction of, the Chairman, the President or the New Rockwell Board of
Directors or by a shareowner who has given timely written notice (as set forth
above) to the Secretary of New Rockwell of such shareowner's intention to bring
such business before such meeting.
Under the Shareowner Notice Procedure, a shareowner's notice to New
Rockwell proposing to nominate an individual for election as a director must
contain certain information, including, without limitation, the identity and
address of the nominating shareowner, the class and number of shares of stock of
New Rockwell owned by such shareowner, and all information regarding the
proposed nominee that would be required to be included in a proxy statement
soliciting proxies for the proposed nominee. Under the Shareowner Notice
Procedure, a shareowner's notice relating to the conduct of business other than
the nomination of directors must contain certain information about such business
and about the proposing shareowner, including without limitation, a brief
description of the business the shareowner proposes to bring before the meeting,
the reasons for conducting such business at such meeting, the name and address
of such shareowner, the class and number of shares of stock of New Rockwell
beneficially owned by such shareowner, and any material interest of such
shareowner in the business so proposed. If the Chairman or other officer
presiding at a meeting determines that an individual was not nominated, or other
business was not brought before the meeting, in accordance with the Shareowner
Notice Procedure, such individual will not be eligible for election as a
director, or such business will not be conducted at such meeting, as the case
may be.
By requiring advance notice of nominations by shareowners, the Shareowner
Notice Procedure will afford the New Rockwell Board of Directors an opportunity
to consider the qualifications of the proposed nominees and, to the extent
deemed necessary or desirable by New Rockwell's Board of Directors, to inform
shareowners about such qualifications. By requiring advance notice of other
proposed business, the Shareowner Notice Procedure will provide a more orderly
procedure for conducting annual meetings of shareowners and, to the extent
deemed necessary or desirable by New Rockwell's Board of Directors, will provide
New Rockwell's Board of Directors with an opportunity to inform shareowners,
prior to such meetings, of any business proposed to be conducted at such
meetings, together with New Rockwell's Board of Directors' position regarding
action to be taken with respect to such business, so that shareowners can better
decide whether to attend such a meeting or to grant a proxy regarding the
disposition of any such business.
Although the New Rockwell By-Laws do not give New Rockwell's Board of
Directors any power to approve or disapprove shareowner nominations for the
election of directors or proposals for action, they may have the effect of
precluding a contest for the election of directors or the consideration of
shareowner proposals if the proper procedures are not followed, and of
discouraging or deterring a third party from conducting a solicitation of
proxies to elect its own slate of directors or to approve its own proposal,
without regard to whether consideration of such nominees or proposals might be
harmful or beneficial to New Rockwell and its shareowners.
AMENDMENT OF THE NEW ROCKWELL CERTIFICATE AND NEW ROCKWELL BY-LAWS
The New Rockwell Certificate provides that the affirmative vote of at least
80 percent of the Voting Power, voting together as a single class, would be
required to (i) amend or repeal the provisions of the New Rockwell Certificate
with respect to (A) the election of directors and (B) the right to call a
special shareowners' meeting and (C) the right to act by written consent, (ii)
adopt any provision inconsistent with
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such provisions and (iii) amend or repeal the provisions of the New Rockwell
Certificate with respect to amendments to the New Rockwell Certificate or the
New Rockwell By-Laws. In addition, the New Rockwell Certificate provides that
the amendment or repeal by shareowners of any By-Laws made by the Board of
Directors of New Rockwell would require the affirmative vote of at least 80
percent of the Voting Power, voting together as a single class.
The Company Certificate contains no such restrictions on the amendment or
repeal of (i) provisions of the Company Certificate or (ii) By-Laws adopted by
the Company's Board of Directors and provides that the Company Certificate may
be amended as provided by the DGCL.
NEW ROCKWELL RIGHTS PLAN
The New Rockwell Board of Directors will declare a dividend of one New
Rockwell Right to be paid in respect of each share of New Rockwell Common Stock
and New Rockwell Class A Common Stock to be issued in the Distribution. Each New
Rockwell Right will entitle the registered holder to purchase from New Rockwell
one one-hundredth of a share of Junior Preferred Stock, at a price to be
established by the New Rockwell Board of Directors at the time the New Rockwell
Rights Agreement (as defined below) is entered into (the "Purchase Price"),
subject to adjustment. The description and terms of the New Rockwell Rights will
be set forth in a Rights Agreement (the "New Rockwell Rights Agreement") to be
entered into between New Rockwell and ChaseMellon Shareholder Services, L.L.C.,
as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 20% or more of the outstanding New
Rockwell Shares or (ii) 10 business days (or such later date as may be
determined by New Rockwell's Board of Directors prior to such time as any person
or group becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 20% or more of the outstanding New Rockwell Shares (the earlier of such
dates being called the "Rights Distribution Date"), the New Rockwell Rights will
be evidenced by New Rockwell Share certificates.
The New Rockwell Rights Agreement provides that, until the Rights
Distribution Date (or until the earlier redemption or expiration of the New
Rockwell Rights), (i) the New Rockwell Rights will be transferred with and only
with the New Rockwell Shares, (ii) certificates representing New Rockwell Shares
will contain a notation incorporating the terms of the New Rockwell Rights by
reference and (iii) the surrender for transfer of any certificates representing
New Rockwell Shares will also constitute the surrender of the New Rockwell
Rights associated therewith. As soon as practicable following the Rights
Distribution Date, separate certificates evidencing the New Rockwell Rights
("Right Certificates") will be mailed to holders of record of the New Rockwell
Shares as of the close of business on the Rights Distribution Date and such
separate Right Certificates alone will evidence the New Rockwell Rights.
The New Rockwell Rights are not exercisable until the Rights Distribution
Date. The New Rockwell Rights will expire on the tenth anniversary of the Time
of Distribution (the "Final Expiration Date"), unless the Final Expiration Date
is extended or unless the New Rockwell Rights are earlier redeemed by New
Rockwell, in each case, as described below.
The Purchase Price payable, and the number of shares of Junior Preferred
Stock or other securities or property issuable, upon exercise of the New
Rockwell Rights are subject to adjustment from time to time to prevent dilution
(i) in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Junior Preferred Stock, (ii) upon the grant to holders
of shares of Junior Preferred Stock of certain rights or warrants to subscribe
for or purchase shares of Junior Preferred Stock at a price, or securities
convertible into shares of Junior Preferred Stock with a conversion price, less
than the then current market price of the shares of Junior Preferred Stock or
(iii) upon the distribution to holders of shares of Junior Preferred Stock of
evidences of indebtedness or assets (excluding regular periodic cash dividends
paid out of earnings or retained earnings or dividends payable in shares of
Junior Preferred Stock) or of subscription rights or warrants (other than those
referred to above).
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The number of outstanding New Rockwell Rights and the number of one
one-hundredths of a share of Junior Preferred Stock issuable upon exercise of
each New Rockwell Right are also subject to adjustment in the event of a stock
split of the New Rockwell Shares or a stock dividend on the New Rockwell Shares
payable in New Rockwell Shares or subdivisions, consolidations or combinations
of the New Rockwell Shares occurring, in any such case, prior to the Rights
Distribution Date.
Shares of Junior Preferred Stock purchasable upon exercise of the New
Rockwell Rights will not be redeemable. Each share of Junior Preferred Stock
will be entitled to a minimum preferential quarterly dividend payment of $1 per
share but will be entitled to an aggregate dividend of 100 times the dividend
declared per New Rockwell Share whenever such dividend is declared. In the event
of liquidation, the holders of the Junior Preferred Stock will be entitled to a
minimum preferential liquidation payment of $100 per share but will be entitled
to an aggregate payment of 100 times the payment made per New Rockwell Share.
Each share of Junior Preferred Stock will have 100 votes, voting together with
the New Rockwell Shares. Finally, in the event of any merger, consolidation or
other transaction in which New Rockwell Shares are exchanged, each share of
Junior Preferred Stock will be entitled to receive 100 times the amount received
per share of New Rockwell Common Stock. These rights are protected by customary
antidilution provisions.
Because of the nature of the Junior Preferred Stock's dividend, liquidation
and voting rights, the value of the one one-hundredth interest in a share of
Junior Preferred Stock purchasable upon exercise of each New Rockwell Right
should approximate the value of one share of New Rockwell Common Stock.
In the event that, at any time after a person has become an Acquiring
Person, New Rockwell is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power is sold,
proper provision will be made so that each holder of a New Rockwell Right will
thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the New Rockwell Right, that number of shares of
common stock of the acquiring company which at the time of such transaction will
have a market value of two times the exercise price of the New Rockwell Right.
In the event that any person becomes an Acquiring Person, proper provision shall
be made so that each holder of a New Rockwell Right, other than New Rockwell
Rights beneficially owned by the Acquiring Person (which will thereafter be
void), will thereafter have the right to receive upon exercise, in lieu of
shares of Junior Preferred Stock, that number of New Rockwell Shares having a
market value of two times the exercise price of the New Rockwell Right.
At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person, and prior to the acquisition by such person or
group of 50% or more of the outstanding shares of New Rockwell Common Stock, New
Rockwell's Board of Directors may exchange the New Rockwell Rights for New
Rockwell Common Stock or Junior Preferred Stock (other than New Rockwell Rights
owned by such person or group, which will have become void after such person
became an Acquiring Person), in whole or in part, at an exchange ratio of one
share of New Rockwell Common Stock, or one hundredth of a share of Junior
Preferred Stock (or of a share of another series of New Rockwell Preferred Stock
having equivalent rights, preferences and privileges), per New Rockwell Right
(subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Junior Preferred Stock will be
issued (other than fractions which are integral multiples of one one-hundredth
of a share of Junior Preferred Stock, which may, at the election of the New
Rockwell, be evidenced by depositary receipts) and in lieu thereof, an
adjustment in cash will be made based on the market price of the Junior
Preferred Stock on the last trading day prior to the date of exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding New
Rockwell Shares, the Board of Directors of New Rockwell may redeem the New
Rockwell Rights in whole, but not in part, at a price of $.01 per New Rockwell
Right (the "Redemption Price"). The redemption of the New Rockwell Rights may be
made effective at such time, on such basis and with such conditions as New
Rockwell's Board of Directors may determine, in its sole discretion. Immediately
upon any redemption of the New Rockwell Rights, the right to exercise the New
Rockwell Rights will terminate and the only right of the holders of New Rockwell
Rights will be to receive the Redemption Price.
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The terms of the New Rockwell Rights may be amended by the Board of
Directors of New Rockwell without the consent of the holders of the New Rockwell
Rights, including an amendment to decrease the threshold at which a person
becomes an Acquiring Person from 20% to not less than 10%, except that from and
after such time as any person becomes an Acquiring Person no such amendment may
adversely affect the interests of the holders of the New Rockwell Rights.
Until a New Rockwell Right is exercised, the holder thereof, as such, will
have no rights as a shareowner of New Rockwell, including, without limitation,
the right to vote or to receive dividends.
The New Rockwell Rights will have certain antitakeover effects. The New
Rockwell Rights will cause substantial dilution to a person or group that
attempts to acquire New Rockwell on terms not approved by New Rockwell's Board
of Directors, except pursuant to an offer conditioned on a substantial number of
New Rockwell Rights being acquired. The New Rockwell Rights should not interfere
with any merger or business combination approved by New Rockwell's Board of
Directors, since the New Rockwell Rights may be redeemed by New Rockwell at the
Redemption Price prior to the time that a person or group has become an
Acquiring Person.
The foregoing summary of certain terms of the New Rockwell Rights does not
purport to be complete and is qualified by reference to the form of the New
Rockwell Rights Agreement, which has been filed as an exhibit to the
Distribution S-4 of which this Proxy Statement-Prospectus is a part.
COMPARISON OF RIGHTS OF SHAREOWNERS OF THE COMPANY
AND NEW ROCKWELL
If the Distribution is consummated, holders of Company Common Stock and
Company Class A Common Stock will become holders of New Rockwell Common Stock
and New Rockwell Class A Common Stock, and their rights as shareowners will be
governed by the DGCL, the New Rockwell Certificate, the New Rockwell By-Laws and
the New Rockwell Rights Agreement. See "Description of New Rockwell Capital
Stock".
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DESCRIPTION OF THE A&D BUSINESS
The Company's A&D Business segments are engaged in research, development,
and manufacture of diversified products as follows:
Space Systems -- manned and unmanned space systems, rocket engines,
advanced space-based surveillance systems, navigation satellites,
high-energy laser and other directed-energy programs, and space electric
power.
Defense Electronics -- defense electronics systems and products for
precision guidance and control and tactical weapons.
Aircraft -- military aircraft and modifications and military and commercial
aircraft structural components.
The sales and operating earnings of the A&D Business for the three fiscal
years ended September 30, 1995 and the nine months ended June 30, 1995 and 1996
were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
---------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Sales:
Space Systems............................... $2,279 $2,043 $1,882 $1,397 $1,335
Defense Electronics......................... 1,014 822 788 555 565
Aircraft.................................... 725 582 568 399 375
------ ------ ------ ------ ------
Total.................................... $4,018 $3,447 $3,238 $2,351 $2,275
====== ====== ====== ====== ======
Operating earnings............................ $ 471 $ 492 $ 485 $ 337 $ 366
====== ====== ====== ====== ======
</TABLE>
Space Systems. The A&D Business is a world leader in spacecraft and rocket
propulsion systems. Its Space Systems business builds and performs support,
maintenance and modification work for the Space Shuttle orbiters, their main
engines and the Shuttle flight program. The Space Systems business also designs
the power system for the space station, builds propulsion systems for Atlas and
Delta expendable launch vehicles, and develops advanced technologies for
national defense and space programs. The A&D Business is one of NASA's largest
contractors in terms of dollar volume. Space Systems' sales during fiscal 1995
declined due to continuing reductions in government spending in space programs.
The Company and Lockheed Martin Corporation formed a joint venture, USA, to
manage NASA's Space Shuttle program. In June 1996, the A&D Business transferred
its Space Operations Contract to USA and in October 1996 intends to transfer its
contract for logistics at the Kennedy Space Center to USA. The Space Systems
business, which built the original GPS satellites currently in orbit, was
recently awarded the GPS-II F satellite contract.
Defense Electronics. The A&D Business provides a wide range of electronics
products for defense markets worldwide. These products include aircraft
electronic upgrades and modifications; tactical weapons; space defense sensors
and electronics; navigation and guidance systems; and naval combat systems for
ships and submarines. Sales of the Defense Electronics business for fiscal 1995
continued to be affected by reductions in government spending in defense
programs.
Aircraft. The A&D Business's aircraft operations design, build and modify
military aircraft and supply metal and composite aerostructures to other
producers of military and commercial aircraft. Current activities include
support and modification of the B-1B Lancer bomber, advanced technology
programs, including the X-31 experimental aircraft, and aerostructures for
Boeing 737, 747 and 777 aircraft. In June 1995, the A&D Business acquired
AeroSpace Technologies of Australia Limited ("ASTA"), which manufactures
military aircraft equipment and parts for the international airliner and
military aerostructure components markets.
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<PAGE> 123
SELECTED FINANCIAL DATA OF THE A&D BUSINESS
The following selected financial data have been derived from the financial
statements of the A&D Business. The data should be read in conjunction with the
financial statements of the A&D Business and notes thereto included elsewhere in
this Proxy Statement-Prospectus. The income statement data for the years ended
September 30, 1993, 1994 and 1995 and the statement of assets and liabilities
data as of September 30, 1994 and 1995 have been derived from the audited
financial statements of the A&D Business. The income statement data for the
years ended September 30, 1991 and 1992 and the statement of assets and
liabilities data as of September 30, 1991, 1992 and 1993 have been derived from
unaudited financial information of the A&D Business. The income statement data
for the nine months ended June 30, 1995 and 1996 and the statement of assets and
liabilities data as of June 30, 1995 and 1996 have been derived from the
unaudited financial statements of the A&D Business, which, in the opinion of
management, include all adjustments necessary for a fair presentation of assets
and liabilities as of such dates and results of operations for such periods.
Operating results for the nine months ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the entire year ending
September 30, 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales............................... $4,880 $4,383 $4,018 $3,447 $ 3,238 $ 2,351 $ 2,275
Operating earnings.................. 512 429 471 492 485 337 366
Net income.......................... 256 230 249 263 217 153 154
Interest expense.................... 94 66 82 75 142 100 120
BALANCE SHEET DATA:
(at end of period)
Total assets........................ $3,034 $3,111 $3,067 $3,025 $ 3,044 $ 3,020 $ 3,088
Long-term debt...................... 697 997 997 799 1,597 1,597 1,597
Net assets (liabilities)(1)......... 845 (518) (456) (167) (1,457) (2,015) (1,302)
</TABLE>
- ---------------
(1) The increase in the net liabilities of the A&D Business of $1,290 million
from 1994 to 1995 resulted from the U.S. corporate debt incurred to finance
the Reliance acquisition. Such debt will be retained by the A&D Business and
guaranteed by Boeing as part of the Transactions and, accordingly, has been
classified as a component of net liabilities of the A&D Business.
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<PAGE> 124
DESCRIPTION OF BOEING
Boeing, together with its subsidiaries, is one of the world's major
aerospace firms. Boeing operates in two principal industries: commercial
aircraft, and defense and space. Commercial aircraft operations -- conducted
through Boeing Commercial Airplane Group -- involve development, production and
marketing of commercial jet transports and providing related support services to
the commercial airline industry worldwide. Defense and space
operations -- conducted through Boeing Defense & Space Group -- involve
research, development, production, modification and support of military aircraft
and helicopters and related systems, space systems and missile systems. Defense
and space sales are principally through U.S. Government contracts.
With respect to the commercial aircraft segment, Boeing is a leading
producer of commercial transport aircraft and offers a family of commercial
jetliners designed to meet a broad spectrum of passenger and cargo requirements
of domestic and foreign airlines. This family of jet transport aircraft
currently includes the 737 and 757 standard-body models and the 767, 747, and
777 wide-body models.
The worldwide market for commercial jet transports is predominantly driven
by long-term trends in airline passenger traffic. The principal factors
underlying long-term traffic growth are sustained economic growth in developed
and emerging countries and political stability. Demand for Boeing's commercial
aircraft is further influenced by world trade policies, government-to-government
relations, environmental constraints imposed upon airplane operations, airline
industry profitability, technological changes, and price and other competitive
factors.
Commercial jet transports are normally sold on a firm fixed-price basis
with an indexed price escalation clause. Boeing's ability to deliver jet
transports on schedule is dependent upon a variety of factors, including
availability of raw materials, performance of suppliers and subcontractors, and
certifications by the Federal Aviation Administration. The introduction of new
commercial aircraft programs and major derivatives involves increased risks
associated with meeting development, production and certification schedules.
Boeing's commercial aircraft sales are subject to intense competition from
aircraft manufacturers, including foreign companies which are nationally owned
or subsidized. To meet competition, Boeing maintains a program directed toward
continually enhancing the performance and capability of its products and has a
family of commercial aircraft to meet varied and changing airline requirements.
Since the 1970s, Boeing has maintained approximately a 60% share of the
available commercial jet transport market.
Boeing continually evaluates opportunities to improve current models, and
conducts ongoing marketplace assessments to ensure that its family of jet
transports is well positioned to meet future requirements of the airline
industry. The fundamental strategy is to maintain a broad product line
responsive to changing market conditions by maximizing commonality among the
Boeing family of airplanes. Additionally, Boeing is committed to continue to
lead the industry in customer satisfaction by offering products that exhibit the
highest standards of quality, safety, technical excellence and economic
performance, and by providing excellent in-service support.
The major focus of development activities over the past three years has
been the 777 wide-body twinjet, which entered service in May 1995. The new 777
model is designed to meet airline requirements for an efficient, comfortable,
high-capacity airplane to be used in domestic and regional markets
internationally. Deliveries of the extended-range version 777-200 will begin in
late 1996, followed in 1998 by the 777-300 version with 20% greater
passenger-carrying capability.
Development of the 737-600/700/800 next-generation 737 family of
short-to-medium-range jetliners began in 1993. These new 737s will provide
greater range, increased speed, and reduced noise and emissions while
maintaining 737 family commonality. The 737-700, the middle-sized member of the
family, will be the first version to be placed into service, with initial
deliveries scheduled for late 1997. The 737-800, a larger version, is currently
scheduled to be delivered in early 1998. Initial delivery of the smallest
version, the 737-600, is currently scheduled for late 1998.
Boeing is talking with customers about developing an aircraft that is
larger and has more range than the 747-400. Because of a limited market for
aircraft of this size and range and the very substantial investment levels that
would be required to develop and produce an all-new commercial jet transport,
the only
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<PAGE> 125
commercially viable option appears to be a 747 derivative aircraft. A management
team has been formed to focus on development of potential 747 derivatives.
The Boeing defense and space segment is highly sensitive to changes in
national priorities and U.S. Government defense and space budgets. The principal
contributors to defense and space sales in 1995 consisted of the International
Space Station program (for which Boeing has the prime contractor role), F-22
fighter aircraft engineering and manufacturing development activities,
production and remanufacturing of CH-47 helicopters, V-22 Osprey tiltrotor
transport development and test activities, E-3 AWACS updates, 767 AWACS
development and manufacturing, B-2 bomber subcontractor work, RAH-66 Comanche
helicopter development activities, and various facilities management and
information services contracts. U.S. Government classified projects also
continued to contribute to defense and space segment revenues. Boeing activities
on the F-22, RAH-66 and V-22 programs are under joint venture teaming
arrangements with other companies.
Defense and space developmental programs are normally performed under
cost-reimbursement-type contracts, although certain past developmental programs
were under fixed-price arrangements. Developmental contracts often contain
incentives related to cost performance and/or awards for other contract
milestone accomplishments. Production programs are generally performed under
firm fixed-price contracts or fixed-price contracts containing incentive
provisions related to costs. During 1994 and 1995, an increasing percentage of
the Boeing defense and space business was contracted under
cost-reimbursement-type contracts. The current major developmental programs,
principally the International Space Station, F-22 fighter, V-22 Osprey tiltrotor
aircraft and RAH-66 Comanche helicopter, primarily involve
cost-reimbursement-type contracts.
The U.S. Government defense market environment is one in which continued
intense competition among defense contractors can be expected, especially in
light of U.S. Government budget constraints. Boeing's ability to compete
successfully for and retain such business is highly dependent on its technical
excellence, demonstrated management proficiency, strategic alliances, and
cost-effective performance.
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<PAGE> 126
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF BOEING
The following selected consolidated historical financial data of Boeing
have been derived from the consolidated financial statements of Boeing. The data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Boeing" incorporated herein by
reference and the consolidated financial statements of Boeing and notes thereto
incorporated herein by reference. The income statement data for the five years
ended December 31, 1995 and the balance sheet data as of the same dates have
been derived from the audited consolidated financial statements of Boeing. The
income statement data for the six months ended June 30, 1995 and 1996 and the
balance sheet data as of June 30, 1995 and 1996 have been derived from the
unaudited consolidated financial statements of Boeing, which, in the opinion of
management of Boeing, include all adjustments necessary for a fair presentation
of financial position and results of operations for such periods. Operating
results for the six months ended June 30, 1996 are not necessarily indicative of
the results that may be expected for the entire year ending December 31, 1996,
or any future period.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Sales and other operating revenues:
Commercial aircraft.................... $22,970 $24,133 $20,568 $16,851 $13,933 $ 7,781 $ 7,738
Defense and space...................... 6,344 6,051 4,870 5,073 5,582 2,814 2,830
------- ------- ------- ------- ------- ------- -------
Total................................ $29,314 $30,184 $25,438 $21,924 $19,515 $10,595 $10,568
======= ======= ======= ======= ======= ======= =======
Net earnings............................. $ 1,567 $ 1,554(1) $ 1,244 $ 856 $ 393(2) $ (50)(2) $ 587
Per share.............................. $ 4.56 $ 4.57(1) $ 3.66 $ 2.51 $ 1.15(2) $ (0.15)(2) $ 1.70
Percent of sales....................... 5.3% 5.2% 4.9% 3.9% 2.0% (0.5)% 5.6%
Cash dividends paid...................... $ 343 $ 340 $ 340 $ 340 $ 342 $ 171 $ 183
Per share.............................. 1.00 1.00 1.00 1.00 1.00 0.50 0.53
Other income, principally interest....... 263 230 169 122 209 87 128
Research and development expenses........ 1,417 1,846 1,661 1,704 1,267 735 597
Additions to plant and equipment......... 1,850 2,160 1,317 795 629 381 363
Depreciation of plant and equipment...... 768 870 953 1,081 976 539 496
Salaries and wages....................... $ 6,502 $ 6,318 $ 6,087 $ 5,799 $ 5,341 $ 2,750 $ 2,825
Average employment....................... 159,100 148,600 134,400 119,400 109,400 114,000 106,000
FINANCIAL POSITION:
(at end of period)
Total assets............................. $15,924 $18,147 $20,450 $21,463 $22,098 $21,747 $22,645
Cash and short-term investments.......... $ 3,453 $ 3,614 $ 3,108 $ 2,643 $ 3,730 $ 3,483 $ 5,640
Customer financing....................... 1,197 2,295 3,177 3,321 1,865 2,679 1,228
Net plant and equipment.................. 5,530 6,724 7,088 6,802 6,456 6,671 6,351
Total debt............................... 1,317 1,793 2,630 2,609 2,615 2,620 2,359
Shareholders' equity..................... $ 8,093 $ 8,056 $ 8,983 $ 9,700 $ 9,898 $ 9,531 $10,354
Per share.............................. $ 23.71 $ 23.74 $ 26.41 $ 28.45 $ 28.77 $ 27.86 $ 29.95
Common shares outstanding (in
millions)............................ 341.3 339.4 340.1 340.9 344.0 342.1 345.7
</TABLE>
- ---------------
(1) Exclusive of the cumulative effect of adopting Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions". Net earnings including the effect were $552
million, or $1.62 per share.
(2) Includes $600 million pretax charge associated with a special retirement
plan. Net earnings excluding the effect of this charge were $783 million, or
$2.29 per share, for the year ended December 31, 1995 and $435 million, or
$1.27 per share, for the six months ended June 30, 1995.
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<PAGE> 127
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL POSITION OF BOEING
The unaudited pro forma condensed combined statement of financial position
of Boeing is based on the historical consolidated statement of financial
position of Boeing and historical statement of assets and liabilities of the A&D
Business and is adjusted to give effect to the Merger using the purchase method
of accounting as well as consistent application of Boeing accounting practices.
The unaudited pro forma condensed combined statement of financial position has
been prepared as if the Transactions occurred on June 30, 1996. The purchase
price has been allocated to the assets and liabilities based upon preliminary
estimates of their respective fair values and does not give effect to any
synergies.
The unaudited pro forma condensed combined statement of financial position
should be read in conjunction with the audited consolidated financial
statements, including the notes thereto, of Boeing for the year ended December
31, 1995, and the unaudited consolidated financial statements, including the
notes thereto, of Boeing in its Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1996, both of which are incorporated by reference herein
and the financial statements of the A&D Business and the notes thereto included
elsewhere herein. The pro forma condensed combined statement of financial
position is not necessarily indicative of the financial position of Boeing that
would have actually been obtained had the Transactions been consummated on June
30, 1996, nor is it necessarily indicative of any future financial position.
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------------------------
A&D PRO FORMA PRO FORMA
BOEING BUSINESS ADJUSTMENTS COMBINED
-------- -------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Cash and short-term investments............ $ 5,640 $ 29 $ -- $ 5,669
Customer financing and accounts 1,448 679 -- 2,127
receivable...............................
Inventories, net of advances and progress 6,265 376 (120)(1) 6,521
billings.................................
Other current assets....................... 651 120 63(7) 834
-------- -------- ----------- ---------
Total current assets..................... 14,004 1,204 (57) 15,151
Customer financing......................... 1,085 -- -- 1,085
Net property, plant and equipment.......... 6,351 550 --(9) 6,901
Goodwill................................... -- -- 2,474 2,474
---------
Other assets............................... 1,205 1,334 (336)(2) 2,296
(12)(3)
105(7)
-------- -------- ----------- ---------
Total assets............................. $ 22,645 $ 3,088 $ 2,174 $27,907
======= ======= ========= ========
Accounts payable and other liabilities..... $ 6,379 $ 724 $ 15(4) $ 7,163
(125)(5)
170(6)
Advances in excess of related costs........ 660 147 -- 807
Income taxes payable....................... 390 -- -- 390
Current debt............................... 22 565 -- 587
-------- -------- ----------- ---------
Total current liabilities................ 7,451 1,436 60 8,947
Accrued retiree health care................ 2,503 1,357 (86)(5) 3,774
Long-term debt............................. 2,337 1,597 38(3) 3,972
-------- -------- ----------- ---------
Total liabilities........................ 12,291 4,390 12 16,693
Shareholders' equity....................... 10,354 -- 860(8) 11,214
-------- -------- ----------- ---------
Total liabilities and shareholders' $ 22,645 $ 4,390 $ 872 $27,907
equity................................
======= ======= ========= ========
</TABLE>
- ---------------
(1) Adjustment to A&D Business inventory to conform to Boeing inventory
accounting practices and to eliminate intercompany profit. Differences in
inventory accounting practices between Boeing and the Company relate
primarily to the determination of which costs are included within a contract
and subject to subsequent recognition as cost of sales based on the
estimated average total contract cost and revenue. For example, the Company
includes general administrative and research and development costs in
inventory for all contracts where such costs are recoverable; Boeing
includes such costs in inventory only to the extent recoverable under
flexibly priced contracts.
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<PAGE> 128
(2) Adjustment to record the excess of the fair value of pension plan assets
over the estimated pension obligations of the A&D Business at June 30, 1996
using actuarial assumptions consistent with those of the Boeing pension
plans. The A&D Business projected benefit obligation has been valued at
$6,815 million, and the fair value of the plan assets has been valued at
$7,718 million resulting in a prepaid pension expense of $903 million.
(3) Adjustment to eliminate unamortized expenses relating to the A&D Business
acquired debt, and to restate the debt to fair value as of June 30, 1996.
(4) Adjustment to reflect transaction fees related to the acquisition of the A&D
Business.
(5) Adjustment to record the fair value of the A&D Business retiree health
obligation at June 30, 1996, and to conform classification to the Boeing
method of presentation. The A&D Business total accumulated retiree health
care obligation has been valued at $1,253 million.
(6) Adjustment to recognize estimated environmental remediation and other
liabilities acquired in conformity with Boeing accounting practices.
Although a substantial portion of the environmental remediation costs are
likely to be eventually recovered through U.S. Government contracts, the
Boeing policy is to immediately accrue and charge to current expense
identified exposures related to environmental remediation sites based on
conservative estimates of investigation, cleanup and monitoring costs to be
incurred. The accrual reflected herein is based on preliminary reviews and
estimates. Ongoing studies and expert analyses, to be updated subsequent to
closing, may result in the recognition of an accrued environmental
remediation liability that is materially different from the amount accrued
herein.
(7) Adjustment to reflect changes in deferred tax assets due to the impact of
adjustments (1) through (6) above.
(8) The value of the Boeing Common Stock to be issued as a result of the Merger,
notwithstanding certain potential adjustments provided for in the Merger
Agreement.
(9) Based on preliminary estimates, management of Boeing does not believe the
historical property, plant and equipment values, in the aggregate, differ
materially from fair value of June 30, 1996.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF NET EARNINGS OF BOEING
The unaudited pro forma condensed combined statements of net earnings of
Boeing are based on the historical consolidated statement of net earnings of
Boeing and of the A&D Business and are adjusted to give effect to the Merger
using the purchase method of accounting as well as a consistent application of
Boeing accounting practices. The unaudited pro forma condensed combined
statements of net earnings have been prepared as if the Transactions occurred on
January 1, 1995, and do not give effect to any synergies. The unaudited pro
forma condensed combined statement of net earnings for the year ended December
31, 1995 is based upon the audited statement of net earnings of Boeing for the
year ended December 31, 1995 and the audited statement of income of the A&D
Business for the year ended September 30, 1995. The unaudited pro forma
condensed combined statement of net earnings for the six months ended June 30,
1996 is based upon the unaudited statement of net earnings of Boeing for the six
months ended June 30, 1996 and the unaudited statement of income of the A&D
Business for the six months ended March 31, 1996.
For the three month period ended June 30, 1996, sales for the A&D Business
were $798 million, and earnings from continuing operations for the A&D Business
were $57 million.
The unaudited pro forma condensed combined statements of net earnings
should be read in conjunction with the audited consolidated financial
statements, including the notes thereto, of Boeing in its Annual Report on Form
10-K for the year ended December 31, 1995, and the unaudited consolidated
financial statements, including the notes thereto, of Boeing in its Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1996, both of which
are incorporated by reference herein and the financial statements of the A&D
Business and the notes thereto included elsewhere herein. The unaudited pro
forma condensed combined statements of net earnings are not necessarily
indicative of the operating results of Boeing that would have
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<PAGE> 129
actually been obtained had the Transactions been consummated on January 1, 1995,
nor are they necessarily indicative of any future operating results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------
A&D PRO FORMA PRO FORMA
BOEING BUSINESS ADJUSTMENTS COMBINED
------- -------- ----------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales and other operating revenues............... $19,515 $3,238 $(486)(1) $22,267
Costs and expenses............................... 18,613 2,778 (486)(1) 21,166
83(2)
150(3)
28(4)
Early retirement program expense................. 600 -- -- 600
------- -------- ----------- ---------
Earnings from operations......................... 302 460 (261) 501
Other income, principally interest............... 209 25 -- 234
Interest and debt expense........................ (151) (142) -- (293)
------- -------- ----------- ---------
Earnings before taxes on income.................. 360 343 (261) 442
Federal taxes on income.......................... (33) 126 (28)(4) 5
(60)(5)
------- -------- ----------- ---------
Net earnings..................................... $ 393 $ 217 $(173) $ 437
======= ====== ========= ========
Earnings per share (primary)..................... $ 1.15 -- -- $ 1.24
Earnings per share (fully diluted)............... $ 1.15 -- -- $ 1.24
Weighted average number of shares................ 342.2 -- -- 351.8
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------------------
A&D PRO FORMA PRO FORMA
BOEING BUSINESS ADJUSTMENTS COMBINED
------- -------- ----------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales and other operating revenues............... $10,568 $1,477 $(250)(1) $11,795
Costs and expenses............................... 9,930 1,250 (250)(1) 11,053
41(2)
70(3)
12(4)
------- -------- ----------- ---------
Earnings from operations......................... 638 227 (123) 742
Other income, principally interest............... 128 8 -- 136
Interest and debt expense........................ (75) (80) -- (155)
------- -------- ----------- ---------
Earnings before taxes on income.................. 691 155 (123) 723
Federal taxes on income.......................... 104 58 (12)(4) 122
(28)(5)
------- -------- ----------- ---------
Net earnings..................................... $ 587 $ 97 $ (83) $ 601
======= ====== ========= ========
Earnings per share (primary)..................... $ 1.70 -- -- $ 1.70
Earnings per share (fully diluted)............... $ 1.70 -- -- $ 1.70
Weighted average number of shares................ 345.3 -- -- 354.9
</TABLE>
- ---------------
(1) Adjustment to eliminate sales between the A&D Business and Boeing, and to
record corresponding adjustment to cost of sales.
(2) Adjustment to record amortization of goodwill relating to the acquisition of
the A&D Business assuming, based on a preliminary review of the A&D Business
units, a 30-year straight-line amortization method.
(3) Adjustment to reflect the impact of applying the Boeing actuarial
assumptions as of June 30, 1996 to the revised values for projected
obligation and plan assets of the A&D Business pension plans, and the
revised value for the total accumulated benefit obligation relating to A&D
Business retiree health care.
(4) Adjustment to reclassify state income taxes to general and administrative
costs, consistent with Boeing accounting practices.
(5) Adjustment to record tax provision adjustment resulting from adjustment (3)
above.
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<PAGE> 130
DESCRIPTION OF BOEING CAPITAL STOCK
The authorized capital stock of Boeing consists of 600,000,000 shares of
Boeing Common Stock and 10,000,000 shares of Boeing preferred stock, of which
6,000,000 shares have been designated as Series A Junior Participating Preferred
Stock. As of October 24, 1996, there were 348,319,875 shares of Boeing Common
Stock and no shares of Boeing preferred stock issued and outstanding.
COMPARISON OF RIGHTS OF SHAREOWNERS OF THE COMPANY AND BOEING
If the Merger is consummated, holders of Company Common Stock and Company
Class A Common Stock will become holders of Boeing Common Stock. The rights of
holders of Boeing Common Stock are governed by the DGCL, the Boeing Certificate,
the Boeing By-Laws and the Boeing Rights Agreement. Both the Company and Boeing
are incorporated under the laws of the State of Delaware. Certain differences
between the rights of Boeing's stockholders under the Boeing Certificate and the
Boeing By-Laws and the rights of the Company's shareowners under the Company
Certificate and the Company By-Laws are summarized below. This summary is
qualified by reference to the full text of such documents. For information as to
how such documents may be obtained, see "Available Information".
AUTHORIZED CAPITAL STOCK
The Company Certificate provides that the Company has the authority to
issue 600,000,000 shares of Company Common Stock, 200,000,000 shares of Company
Class A Common Stock and 12,000,000 shares of preferred stock without par value,
out of which two series are authorized: 1,549,467 shares of $4.75 Convertible
Preferred Stock, Series A and 4,131,401 shares of $1.35 Convertible Preferred
Stock, Series B. No shares of Company preferred stock are outstanding. The
Boeing Certificate provides that Boeing has the authority to issue 600,000,000
shares of Boeing Common Stock and 10,000,000 shares of preferred stock, par
value $1.00 each. No shares of Boeing preferred stock are outstanding.
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
The Company By-Laws provide that the number of directors is to be fixed
from time to time, but at not less than three, by resolution passed by a
majority of the entire Board of Directors. The Company's Board of Directors
currently consists of 13 directors. The directors are elected annually and each
director holds office until the next annual meeting held after his election.
The Boeing By-Laws provide that the number of directors is thirteen, but
may be increased or decreased to not less than three, either by the Board of
Directors by adoption of a resolution or by the stockholders by amendment of the
Boeing By-Laws. The Board of Directors of Boeing is divided into three classes,
with each class consisting as nearly as possible of one-third of the directors.
At each annual election, directors are chosen for a full three-year term to
succeed those whose terms expire.
VOTING RIGHTS
Holders of Company Common Stock are entitled to one vote per share, and
holders of Company Class A Common Stock are entitled to ten votes per share.
Holders of Boeing Common Stock are entitled to one vote per share.
DIVIDENDS
The Company Certificate provides that holders of Company Shares are
entitled to such dividends as may be declared by the Board of Directors of the
Company out of any funds of the Company legally available therefor. Dividends
may not be paid on the Company Shares unless all accrued dividends on the
Company's preferred stock, if any, have been paid or set aside. Boeing
stockholders possess similar rights.
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<PAGE> 131
ACTION BY SHAREOWNERS
The Company Certificate provides that no action can be taken by shareowners
of the Company except at an annual or special meeting of shareowners and
prohibits action by written consent of shareowners. The Boeing Certificate
provides that any action by stockholders is to be taken at a meeting of
stockholders and that no action may be taken by written consent of stockholders
entitled to vote upon such action unless such action is submitted to the
stockholders after approval by the vote of a majority of Boeing's continuing
directors (as defined therein).
RIGHTS PLAN
Each share of Boeing Common Stock has a Boeing Right associated with it. In
July 1987, Boeing adopted a Stockholder Rights Plan and declared a dividend
distribution of one Boeing Right for each outstanding share of Boeing Common
Stock. The description and terms of the Boeing Rights are set forth in the
Rights Agreement (the "Boeing Rights Agreement") between Boeing and First
National Bank of Boston, as rights agent. Under certain conditions, each Boeing
Right may be exercised to purchase one one-hundredth of a share of Series A
Junior Participating Preferred Stock of Boeing at a purchase price of $150,
subject to adjustment. The Boeing Rights will be exercisable only if a person or
group has acquired, or obtained the right to acquire, 20% or more of the
outstanding shares of Boeing Common Stock; following the commencement of a
tender or exchange offer for 30% or more of such outstanding shares of Boeing
Common Stock; or after the Board of Directors of Boeing declares any person,
alone or together with affiliates and associates, to be an "Adverse Person". If
the Board of Directors declares an Adverse Person, or a person or group acquires
more than 30% of the then outstanding shares of Boeing Common Stock (except
pursuant to an offer which the independent directors determine to be fair to and
otherwise in the best interests of Boeing and its stockholders), each Boeing
Right will entitle its holder to receive, upon exercise, Boeing Common Stock
(or, in certain circumstances, cash, property or other securities of Boeing)
having a value equal to two times the exercise price of the Boeing Right. Boeing
will be entitled to redeem the Boeing Rights at 5 cents per Boeing Right at any
time prior to the earlier of the expiration of the Boeing Rights in August 1997
or ten days following the time that a person has acquired or obtained the right
to acquire a 20% position. Boeing may not redeem the Boeing Rights if the Board
of Directors has previously declared a person to be an Adverse Person. The
Boeing Rights do not have voting or dividend rights, and until they become
exercisable, have no dilutive effect on the earnings of Boeing.
The Company Shares do not have such rights associated with them.
TRANSFERABILITY OF SHARES
The Company Common Stock has no restrictions on transfer. The Company
Certificate prohibits transfers of Company Class A Common Stock except to a
permitted transferee (as defined therein), which includes the spouse, parents
and children of the transferor, as well as trusts for the benefit of and
corporations owned by such family members of the transferor. The Company Class A
Common Stock, however, is convertible at all times and without cost to the
holder into Company Common Stock on a share-for-share basis. The Boeing
Certificate contains no provision restricting transferability of shares of
Boeing Common Stock.
FAIR PRICE PROVISION
Both the Company Certificate and the Boeing Certificate provide certain
restrictions on business combinations with "interested stockholders" or their
affiliates. See "Description of New Rockwell Capital Stock -- Fair Price
Provision" for a description of New Rockwell's Fair Price Provision which is
identical to that of the Company. Approval of a business combination with an
interested stockholder requires the affirmative vote of 80% of the outstanding
shares entitled to vote in the election of directors under the Company
Certificate and 75% under the Boeing Certificate. This supermajority threshold
is inapplicable under the Company Certificate if two-thirds of the continuing
directors (as defined therein) approve the combination or if certain price and
procedural requirements have been satisfied. Under the Boeing Certificate, the
125
<PAGE> 132
supermajority threshold is inapplicable if a majority of the continuing
directors (as defined therein) approve the combination or if certain price and
procedural requirements have been satisfied.
CUMULATIVE VOTING
No holder of Company Shares or Boeing Common Stock is entitled to cumulate
such holder's votes in voting for directors.
REMOVAL OF DIRECTORS
The Company By-Laws provide that any director may be removed, with or
without cause, by the affirmative vote of a majority in interest of the holders
of record of stock having voting power at a special meeting of shareowners
called for such purpose. The vacancy in the Company's Board of Directors caused
by any such removal may be filled by the Company's shareowners at such meeting.
Certain additional provisions may apply with respect to directors elected by
holders of Company preferred stock.
The Boeing By-Laws permit directors to be removed only for cause by the
affirmative vote of holders of record of a majority of the outstanding shares of
stock entitled to vote at a meeting of the Boeing stockholders called for such
purpose. The vacancy in the Board of Directors caused by any such removal may be
filled by the stockholders at such meeting or at any subsequent meeting.
LIMITATION ON DIRECTORS' LIABILITY
The DGCL permits Delaware corporations to eliminate or limit the monetary
liability of directors for breach of their fiduciary duty of care, subject to
certain limitations. The Company Certificate provides that Company directors are
not liable to the Company or its shareowners for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its shareowners, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for willful or negligent violation of the laws governing
the payment of dividends or the purchase or redemption of stock or (iv) for any
transaction from which a director derived an improper personal benefit. The
Boeing Certificate provides that, to the full extent of the DGCL, Boeing
directors are not liable to Boeing or its shareowners for monetary damages for
conduct as a director.
INDEMNIFICATION OF DIRECTORS
The DGCL provides for indemnification of directors, officers, employees and
agents subject to certain limitations. The Company By-Laws and the appendix
thereto provide for the indemnification of directors, officers, employees and
agents of the Company to the extent permitted by Delaware law. The Company's
directors and officers are insured against certain liabilities for actions taken
in such capacities, including liabilities under the Securities Act.
The Boeing By-Laws provide, in substance, that each person made a party or
threatened to be made a party to any type of proceeding, by reason of the fact
that he or she is or was a director or officer of Boeing or that, being or
having been such a director or officer or an employee of Boeing, he or she is or
was serving at the request of an executive officer of Boeing as a director,
officer, employee, or agent of another corporation, will be indemnified and held
harmless by Boeing to the full extent permitted by the DGCL, against all
expense, liability and loss actually and reasonably incurred by such person in
connection therewith.
SPECIAL MEETINGS
The Company By-Laws permit a special meeting of shareowners to be called at
any time for any purpose by the Chairman of the Board, by the President, by
order of the Board of Directors or by a shareowner or shareowners holding of
record at least 20% of the outstanding shares of the Company entitled to vote at
such meeting.
The Boeing By-Laws permit a special meeting of stockholders to be called at
any time by the Board of Directors, or by stockholders holding together at least
25% of the outstanding shares of stock entitled to vote, except as otherwise
provided by statute or the Boeing Certificate.
126
<PAGE> 133
PREFERRED STOCK
Under the Company Certificate, two series of preferred stock are
authorized, $4.75 Convertible Preferred Stock, Series A and $1.35 Convertible
Preferred Stock, Series B. Both series of preferred stock were redeemed on July
1, 1996 and no shares of preferred stock are issued and outstanding. The Company
Certificate provides that the Board of Directors has the authority to issue
preferred stock from time to time in one or more subsequent series, with or
without voting powers, and with designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, as determined by the Board of Directors of the Company.
Similarly, the Boeing Certificate authorizes the Board of Directors of
Boeing to authorize the issuance of preferred stock from time to time in one or
more series. The Board of Directors is authorized to fix the voting powers and
such designations, preferences and relative, participating, optional or other
rights, and qualifications, limitations or restrictions thereof. The Boeing
Certificate authorizes Boeing to issue 6,000,000 shares of Series A Junior
Participating Preferred Stock.
SUBSCRIPTION RIGHTS
The Company Certificate provides that, unless otherwise determined by the
Board of Directors of the Company, no holder of Company Shares shall, as such
holder, have any right to purchase or subscribe for any stock of any class which
the Company may issue or sell. The Boeing Certificate contains similar
provisions with respect to shares of Boeing Common Stock.
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Company Certificate provides, with certain exceptions, that provisions
of the Company Certificate may be amended or repealed, and other provisions
authorized by the statutes of the State of Delaware may be added in the manner
at the time prescribed by such statutes.
The Boeing Certificate provides, with certain exceptions, that Boeing
reserves the right to amend or repeal any provision contained in the Boeing
Certificate in the manner prescribed by statute.
AMENDMENT OF BY-LAWS
The Company By-Laws provide, with certain exceptions and subject to certain
notice requirements, that provisions of the Company By-Laws may be amended or
repealed and new by-laws may be adopted by the affirmative vote of the holders
of a majority of the shares entitled to vote in respect thereof or by the Board
of Directors. By-laws adopted or amended by the Board of Directors of the
Company are subject to amendment or repeal by the shareowners or by the Board.
With certain exceptions and subject to certain notice requirements,
provisions of the Boeing By-Laws may be altered or repealed and new by-laws may
be adopted by the affirmative vote of the holders of record of a majority in
number of shares present and entitled to vote at an annual meeting or at a
special meeting; or either (i) by the affirmative vote of a majority of the
whole Board of Directors at any meeting or (ii) by the affirmative vote of all
the directors present at any meeting at which a quorum, if less than a majority,
is present.
NO APPRAISAL RIGHTS
Holders of Company Common Stock and Company Class A Common Stock will not
have the right to elect to have the fair value of their shares of Company Common
Stock and Company Class A Common Stock judicially appraised and paid to them in
cash in connection with the Contribution, the Distribution or the Merger.
Section 262 of the DGCL ("Section 262") provides appraisal rights to shareowners
of Delaware corporations in connection with certain mergers and consolidations.
Under Section 262, appraisal rights are not available to the shareowners of a
corporation that is a party to a merger if the corporation's stock is listed on
a national securities exchange as of the record date set to determine the
shareowners entitled to receive notice of and to vote at the meeting of
shareowners to approve the merger so long as the consideration to be received by
such shareowners in the merger consists of (i) shares of the capital stock of
the surviving corporation in the merger, (ii) shares of the capital stock of any
other corporation provided that such stock is listed on a national securities
exchange as of the date on which the merger becomes effective, (iii) cash in
lieu of fractional shares or (iv) a combination of the foregoing.
127
<PAGE> 134
DELIVERY OF SHARES TO SHAREOWNERS
The Company will effect the Distribution by delivery of certificates for
shares of New Rockwell Common Stock and New Rockwell Class A Common Stock to the
Paying Agent for delivery to the holders of record of Company Common Stock and
Company Class A Common Stock on the Distribution Record Date without any further
action by such holders.
In order to receive the consideration to which the Company's shareowners
will be entitled as a result of the Merger, each shareowner of the Company will
be required to surrender the Old Certificates evidencing such shareowner's
shares of Company Common Stock or Company Class A Common Stock, as the case may
be, to the Exchange Agent. For a further description of the method of delivery
of shares of Boeing Common Stock to be issued in the Merger, see "The
Merger -- Surrender of Share Certificates".
1997 ANNUAL MEETING
Shareowner proposals must have been received by the Company (or if the
Transactions are consummated, by New Rockwell) on or before August 27, 1996 to
be considered for inclusion in the proxy statement and presentation at the 1997
Annual Meeting of Shareowners of the Company (or if the Transactions are
consummated, of New Rockwell), which is expected to be held on February 5, 1997.
LEGAL MATTERS
Certain legal matters relating to the validity of the shares of New
Rockwell Common Stock and New Rockwell Class A Common Stock to be issued in
connection with the Distribution will be passed upon by Chadbourne & Parke LLP.
Certain legal matters relating to the validity of the shares of Boeing Common
Stock to be issued in the Merger will be passed upon by Theodore J. Collins,
Esq.
EXPERTS
The consolidated financial statements of the Company and the A&D Business
at September 30, 1994 and 1995 and for each of the three years in the period
ended September 30, 1995 and the balance sheet of New Rockwell at September 16,
1996, included in this Proxy Statement-Prospectus, the Distribution S-4 and the
Merger S-4 and the related financial statement schedule of the Company included
in the Distribution S-4 have been audited by Deloitte & Touche LLP, independent
auditors, as set forth in their reports appearing elsewhere in this Proxy
Statement-Prospectus and the Distribution S-4 and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Boeing at December 31, 1994 and
1995 and for each of the three years in the period ending December 31, 1995
incorporated by reference in this Proxy Statement-Prospectus, the Distribution
S-4 and the Merger S-4 from the Annual Report on Form 10-K of Boeing for the
year ended December 31, 1995 and the related financial statement schedules of
Boeing included therein, have been audited by Deloitte & Touche LLP, independent
auditors, as indicated in their reports, which are also incorporated by
reference herein, and are incorporated by reference in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
With respect to the unaudited interim financial information of Boeing for
the periods ended March 31, 1996 and 1995 and June 30, 1996 and 1995
incorporated by reference in this prospectus, Deloitte & Touche LLP have applied
limited procedures in accordance with professional standards for a review of
such information. However, as stated in their reports included in Quarterly
Reports on Form 10-Q of Boeing for the quarters ended March 31, 1996 and June
30, 1996, and incorporated by reference herein, they did not audit and they do
not express an opinion on that interim financial information. Accordingly, the
degree of reliance on their reports on such information should be restricted in
light of the limited nature of the review procedures applied. Deloitte & Touche
LLP are not subject to the liability provisions of Section 11 of the Securities
Act for their reports on the unaudited interim financial information because
those reports are not "reports" or a "part" of the registration statement
prepared or certified by an accountant within the meaning of Sections 7 and 11
of the Securities Act.
128
<PAGE> 135
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- -------------------------------------- ----
<S> <C>
1979 Grantees......................... 95
1979 Plan............................. 2
1988 LTIP............................. 2
1988 LTIP Participants................ 93
1995 LTIP............................. 2
1995 LTIP Participants................ 90
A&D Acquisition Proposal.............. 47
A&D Business.......................... 1
A&D Business Comparable Companies..... 29
A&D Business Comparable
Transactions........................ 30
A-B................................... 1
Accrued Interest...................... 38
Acquiring Person...................... 113
Acquisition Agreement................. 47
Acquisition Proposal.................. 47
Additional Retained Facilities........ 38
Adverse Tax Development............... 49
affiliate............................. 53
Allowable Taxes....................... 59
Applicable Net Earnings............... 99
Assumed Liabilities................... 39
ASTA.................................. 116
Average Price......................... 99
Averaging Period...................... 43
Basket Amount......................... 57
Benefit Plan.......................... 45
Boeing................................ 2
Boeing By-Laws........................ 18
Boeing Certificate.................... 18
Boeing Common Stock................... 2
Boeing Comparable Companies........... 29
Boeing Debt Guaranty.................. 14
Boeing Indemnitees.................... 56
Boeing Indenture...................... 14
Boeing Right.......................... 2
Boeing Rights Agreement............... 125
Brooktree............................. 9
Business Combination.................. 109
Business Unit LTIP.................... 65
Certificate of Merger................. 44
Closing............................... 44
Closing Date.......................... 44
Code.................................. 15
Collins............................... 1
Commission............................ 4
Company............................... 1
Company Acquisition Proposal.......... 47
Company By-Laws....................... 18
Company Certificate................... 13
Company Class A Common Stock.......... 1
Company Common Stock.................. 1
Company Group......................... 39
Company Group Continuing Employees.... 63
Company Group Former Employees........ 63
Company Options....................... 67
Company Savings Plan.................. 25
Company Shares........................ 1
Company Stock Incentive Plans......... 2
Comparable Companies.................. 30
<CAPTION>
DEFINED TERM PAGE
- -------------------------------------- ----
<S> <C>
Compensation Committee................ 90
Consent Solicitation.................. 14
Consent Statement..................... 56
Continuing Directors.................. 110
Contributed A&D Assets................ 39
Contributed Assets.................... 39
Contribution.......................... 1
Contribution Proposal................. 1
Conversion............................ 2
Conversion Ratio...................... 99
Criminal Matters...................... 56
D&SG.................................. 36
Defense Comparables................... 29
Defense Electronics Comparable
Transactions........................ 30
Deferred Compensation Plans........... 65
Designated Contracts.................. 56
DGCL.................................. 17
Dillon Read........................... 12
Directors Plan........................ 2
Distribution.......................... 1
Distribution Agreement................ 1
Distribution Record Date.............. 12
Distribution S-4...................... 5
Dividend Payment Date................. 107
DOD................................... 14
DOE................................... 14
DOJ................................... 53
EBIT.................................. 34
EBITDA................................ 30
Effective Time........................ 13
Environmental Coverage Claims......... 58
Exchange Act.......................... 4
Exchange Agent........................ 15
Exchange Ratio........................ 2
Expenses.............................. 52
Fair Price Provision.................. 109
Filings............................... 56
Final Expiration Date................. 113
firm value............................ 34
Form 8-A.............................. 5
Form S-3.............................. 48
freestanding SAR...................... 91
FTC................................... 14
GAAP.................................. 45
GD.................................... 30
GPS................................... 68
Group................................. 41
Gunship Claims........................ 45
Health Care Administrators............ 58
Health Care Claims.................... 58
HSR Act............................... 14
HVS................................... 1
IBES.................................. 31
ICP................................... 2
Incentive Fund........................ 99
Indemnifiable Losses.................. 56
Indenture............................. 14
Interested Shareowner................. 109
</TABLE>
129
<PAGE> 136
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- -------------------------------------- ----
<S> <C>
IRS................................... 36
Junior Preferred Stock................ 105
LMT................................... 30
LVS................................... 1
Market Price.......................... 43
Maximum Price......................... 2
MD.................................... 30
Merger................................ 2
Merger Agreement...................... 2
Merger Proposal....................... 2
Merger S-4............................ 5
Merger Sub............................ 2
Minimum Price......................... 2
Morgan Stanley........................ 12
New Certificates...................... 54
New Rockwell.......................... 1
New Rockwell Business................. 8
New Rockwell By-Laws.................. 18
New Rockwell Certificate.............. 12
New Rockwell CLIR Fund................ 66
New Rockwell Class A Common Stock..... 1
New Rockwell Collectively Bargained
VEBA................................ 66
New Rockwell Common Stock............. 1
New Rockwell Comparable Companies..... 31
New Rockwell Group.................... 41
New Rockwell Group Continuing
Employees........................... 63
New Rockwell Group Former Employees... 63
New Rockwell Group Transferred
Participants........................ 63
New Rockwell Group Trust.............. 63
New Rockwell Indemnitees.............. 57
New Rockwell Option................... 98
New Rockwell Preferred Stock.......... 105
New Rockwell Retirement Plan.......... 63
New Rockwell Rights................... 1
New Rockwell Rights Agreement......... 113
New Rockwell Shares................... 1
New Rockwell VEBA..................... 66
NOC................................... 30
Nonqualified Retirement Plans......... 65
Nonqualified Savings Plans............ 65
Notice of Superior Acquisition
Proposal............................ 47
NYSE.................................. 3
Old Certificates...................... 44
Old Company Notes..................... 14
Operating Subsidiaries................ 1
Paydown Amount........................ 38
Paying Agent.......................... 15
PBGC.................................. 14
Per Share Merger Consideration........ 43
Platform Comparable Transactions...... 30
Post-Closing Covenants Agreement...... 39
DEFINED TERM PAGE
- -------------------------------------- ----
PRP................................... 80
Pre-existing Environmental
Conditions.......................... 56
Proposals............................. 1
Proposed Amendments................... 14
Proxy Statement-Prospectus............ 1
Purchase Price........................ 113
RAN Contract.......................... 57
Record Date........................... 1
Redemption Price...................... 114
Registration Statements............... 48
Reliance.............................. 9
Reliance Retirement Plans............. 64
Reorganization Agreements............. 40
restricted stock...................... 91
Retained Assets....................... 38
Retained Companies.................... 45
Retained Company Debt................. 3
Retained Liabilities.................. 39
Retained Subsidiaries................. 38
Right Certificates.................... 113
Rights Agent.......................... 113
Rights Distribution Date.............. 113
Rockwell Australia Debt............... 39
Rockwell CLIR Fund.................... 66
Rockwell Collectively Bargained
VEBA................................ 66
Rockwell Group Trust.................. 63
Rockwell Retirement Plan.............. 63
Rockwell VEBA......................... 66
RSS................................... 1
SARs.................................. 90
Section 262........................... 127
Securities Act........................ 5
Senior Executive Plan................. 2
Senior Executive Plan Participants.... 101
Sensitivity Case...................... 31
Series................................ 14
Shareowner Notice Procedure........... 111
Special Liabilities................... 40
Special Meeting....................... 1
Superior Acquisition Proposal......... 48
Surviving Corporation................. 13
tandem SAR............................ 91
Tax Allocation Agreement.............. 40
Terminal EBITDA Multiple
Methodology......................... 31
Terminal Value........................ 35
Termination Fee....................... 52
Threshold Amount...................... 57
Time of Contribution.................. 38
Time of Distribution.................. 40
TKC................................... 30
Transactions.......................... 8
Transition Agreement.................. 58
USA................................... 98
Voting Power.......................... 109
</TABLE>
130
<PAGE> 137
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ROCKWELL INTERNATIONAL CORPORATION*
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheet as of September 30, 1994 and 1995 and (Unaudited) June 30,
1996................................................................................ F-3
Statement of Consolidated Income for the years ended September 30, 1993, 1994 and 1995
and (Unaudited) the nine months ended June 30, 1995 and 1996........................ F-4
Statement of Consolidated Cash Flows for the years ended September 30, 1993, 1994 and
1995 and (Unaudited) the nine months ended June 30, 1995 and 1996................... F-5
Statement of Consolidated Shareowners' Equity for the years ended September 30, 1993,
1994 and 1995....................................................................... F-6
Notes to Financial Statements......................................................... F-7
A&D BUSINESS
Independent Auditors' Report.......................................................... F-25
Statement of Assets and Liabilities as of September 30, 1994 and 1995 and (Unaudited)
June 30, 1996....................................................................... F-26
Statement of Income for the years ended September 30, 1993, 1994 and 1995 and
(Unaudited) the nine months ended June 30, 1995 and 1996............................ F-27
Statement of Cash Flows for the years ended September 30, 1993, 1994 and 1995 and
(Unaudited) the nine months ended June 30, 1995 and 1996............................ F-28
Notes to Financial Statements......................................................... F-29
NEW ROCKWELL INTERNATIONAL CORPORATION
Independent Auditors' Report.......................................................... F-40
Balance Sheet as of September 16, 1996................................................ F-41
Note to Balance Sheet................................................................. F-42
</TABLE>
- ---------------
* Following consummation of the Contribution, the Distribution and the Merger,
the historical financial statements of Rockwell International Corporation will
become the financial statements of New Rockwell International Corporation.
F-1
<PAGE> 138
INDEPENDENT AUDITORS' REPORT
To the Directors and Shareowners of
Rockwell International Corporation:
We have audited the accompanying consolidated balance sheet of Rockwell
International Corporation and subsidiaries as of September 30, 1995 and 1994,
and the related consolidated statements of income, shareowners' equity, and cash
flows for each of the three years in the period ended September 30, 1995. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Rockwell International
Corporation and subsidiaries at September 30, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1995 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
July 31, 1996
F-2
<PAGE> 139
ROCKWELL INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------- JUNE 30,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash (includes time deposits and certificates of deposit:
1994, $433 million; 1995, $447 million; 1996, $385
million).................................................... $ 621 $ 686 $ 639
Receivables (less allowance for doubtful accounts: 1994, $39
million; 1995, $54 million; 1996, $85 million).............. 1,183 1,547 1,645
Inventories................................................... 1,133 1,596 1,751
Net assets of Graphic Systems................................. 654 569 541
Other current assets.......................................... 374 447 451
------ ------ ------
Total current assets..................................... 3,965 4,845 5,027
------ ------ ------
PROPERTY
Land.......................................................... 57 87 97
Land and leasehold improvements............................... 75 84 90
Buildings..................................................... 725 950 1,058
Machinery and equipment....................................... 2,099 2,586 2,984
Office and data processing equipment.......................... 528 592 662
Construction in progress...................................... 264 274 325
------ ------ ------
Total.................................................... 3,748 4,573 5,216
Less accumulated depreciation................................. 2,134 2,308 2,763
------ ------ ------
Net property.................................................. 1,614 2,265 2,453
------ ------ ------
INTANGIBLE ASSETS............................................. 618 1,861 1,827
------ ------ ------
OTHER ASSETS.................................................. 396 258 252
------ ------ ------
TOTAL............................................... $6,593 $9,229 $ 9,559
====== ====== ======
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Short-term debt............................................... $ 119 $ 115 $ 138
Accounts payable -- trade..................................... 662 832 777
Accrued compensation and benefits............................. 369 454 484
Accrued income taxes.......................................... 138 113 57
Other current liabilities..................................... 597 802 941
Net liabilities of A&D Business............................... 167 1,457 1,302
------ ------ ------
Total current liabilities................................ 2,052 3,773 3,699
------ ------ ------
LONG-TERM DEBT................................................ 30 178 166
------ ------ ------
ACCRUED RETIREMENT BENEFITS................................... 983 1,129 1,144
------ ------ ------
OTHER LIABILITIES............................................. 172 367 360
------ ------ ------
SHAREOWNERS' EQUITY
Preferred stock (liquidation value -- $1.4 million)........... 1 1 1
Common Stock (shares issued -- 209.5 million)................. 210 210 210
Class A Common Stock (shares issued: 1994, 36.9 million; 1995,
32.9 million; 1996, 28.2 million)........................... 37 33 28
Additional paid-in capital.................................... 174 186 197
Retained earnings............................................. 3,762 4,158 4,443
Currency translation and pension adjustments.................. (97) (99) (130)
Common Stock in treasury, at cost (shares held: 1994, 27.8
million; 1995, 25.4 million; 1996, 19.4 million)............ (731) (707) (559)
------ ------ ------
Total shareowners' equity................................ 3,356 3,782 4,190
------ ------ ------
TOTAL............................................... $6,593 $9,229 $ 9,559
====== ====== ======
</TABLE>
See notes to financial statements.
F-3
<PAGE> 140
ROCKWELL INTERNATIONAL CORPORATION
STATEMENT OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
---------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
REVENUES
Sales......................................... $6,204 $7,029 $9,065 $6,571 $7,712
Other income.................................. 46 44 73 48 89
------ ------ ------ ------ ------
Total revenues........................... 6,250 7,073 9,138 6,619 7,801
------ ------ ------ ------ ------
COSTS AND EXPENSES
Cost of sales................................. 4,848 5,455 6,991 5,056 5,872
Selling, general, and administrative.......... 892 1,033 1,311 921 1,117
Interest...................................... 18 17 25 17 23
------ ------ ------ ------ ------
Total costs and expenses................. 5,758 6,505 8,327 5,994 7,012
------ ------ ------ ------ ------
Income before income taxes.................... 492 568 811 625 789
Provision for income taxes.................... 190 217 318 247 305
------ ------ ------ ------ ------
INCOME FROM CONTINUING
OPERATIONS.................................. 302 351 493 378 484
Income from discontinued operations........... 260 283 249 175 145
------ ------ ------ ------ ------
NET INCOME.......................... $ 562 $ 634 $ 742 $ 553 $ 629
====== ====== ====== ====== ======
EARNINGS PER COMMON SHARE:
Primary
Continuing operations.................... $ 1.37 $ 1.59 $ 2.27 $ 1.74 $ 2.23
Discontinued operations.................. 1.18 1.28 1.15 .80 .66
------ ------ ------ ------ ------
Net income.......................... $ 2.55 $ 2.87 $ 3.42 $ 2.54 $ 2.89
====== ====== ====== ====== ======
Fully diluted
Continuing operations.................... $ 1.35 $ 1.56 $ 2.23 $ 1.70 $ 2.19
Discontinued operations.................. 1.16 1.26 1.13 .79 .65
------ ------ ------ ------ ------
Net income.......................... $ 2.51 $ 2.82 $ 3.36 $ 2.49 $ 2.84
====== ====== ====== ====== ======
AVERAGE COMMON SHARES OUTSTANDING
Primary..................................... 219.8 220.5 217.2 217.3 217.3
Fully diluted............................... 224.3 224.5 221.1 222.5 221.1
</TABLE>
See notes to financial statements.
F-4
<PAGE> 141
ROCKWELL INTERNATIONAL CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED
SEPTEMBER 30, JUNE 30,
--------------------------- -----------------
1993 1994 1995 1995 1996
----- ----- ------- ------- -----
(IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS:
OPERATING ACTIVITIES
Income from continuing operations....................... $ 302 $ 351 $ 493 $ 378 $ 484
Adjustments to income from continuing operations to
arrive at cash provided by operating activities:
Depreciation.......................................... 268 289 333 235 302
Amortization of intangible assets..................... 54 53 95 65 69
Deferred income taxes................................. 30 (27) (7) 27 (18)
Net pension income and contributions.................. 24 53 68 52 75
Changes in assets and liabilities, excluding effects
of acquisitions, divestitures, and foreign currency
adjustments:
Receivables......................................... 26 (127) (162) (221) (113)
Inventories......................................... (21) (68) (141) (160) (174)
Accounts payable -- trade........................... (26) 165 86 (24) (29)
Accrued compensation and benefits................... 32 (11) -- 25 32
Income taxes........................................ 13 66 (96) (69) (49)
Other assets and liabilities........................ (71) (4) 41 36 57
---- ---- ------ ------ ------
CASH PROVIDED BY OPERATING
ACTIVITIES................................... 631 740 710 344 636
---- ---- ------ ------ ------
INVESTING ACTIVITIES
Property additions...................................... (319) (470) (590) (386) (537)
Acquisition of Reliance (net of cash acquired and $475
million proceeds from sale of its telecommunications
business)............................................. -- -- (1,066) (1,528) --
Other acquisitions of businesses (net of cash
acquired)............................................. (118) (18) (92) (56) (47)
Proceeds from the disposition of property and
businesses............................................ 26 93 18 12 71
---- ---- ------ ------ ------
CASH USED FOR INVESTING ACTIVITIES............. (411) (395) (1,730) (1,958) (513)
---- ---- ------ ------ ------
FINANCING ACTIVITIES
(Decrease) Increase in short-term borrowings............ (14) (68) (208) (203) 33
Payments of long-term debt.............................. (8) (25) (44) (43) (17)
Long-term borrowings.................................... 2 22 29 29 --
---- ---- ------ ------ ------
Net (decrease) increase in debt....................... (20) (71) (223) (217) 16
Purchase of treasury stock.............................. (65) (155) (137) (120) (47)
Dividends............................................... (211) (225) (235) (176) (189)
Reissuance of common stock.............................. 63 38 50 42 36
---- ---- ------ ------ ------
CASH USED FOR FINANCING ACTIVITIES............. (233) (413) (545) (471) (184)
---- ---- ------ ------ ------
CASH USED FOR CONTINUING OPERATIONS..................... (13) (68) (1,565) (2,085) (61)
---- ---- ------ ------ ------
DISCONTINUED OPERATIONS:
Operating activities................................ 293 246 439 227 6
Investing activities................................ (110) (89) (104) (73) (52)
Financing activities................................ (6) (168) 1,295 1,922 60
---- ---- ------ ------ ------
CASH PROVIDED BY (USED FOR) DISCONTINUED OPERATIONS..... 177 (11) 1,630 2,076 14
---- ---- ------ ------ ------
INCREASE (DECREASE) IN CASH............................. 164 (79) 65 (9) (47)
---- ---- ------ ------ ------
CASH AT BEGINNING OF PERIOD............................. 536 700 621 621 686
---- ---- ------ ------ ------
CASH AT END OF PERIOD................................... $ 700 $ 621 $ 686 $ 612 $ 639
==== ==== ====== ====== ======
</TABLE>
See notes to financial statements.
F-5
<PAGE> 142
ROCKWELL INTERNATIONAL CORPORATION
STATEMENT OF CONSOLIDATED SHAREOWNERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994, AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
(IN MILLIONS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
PREFERRED STOCK (no shares issued during periods)................ $ 1 $ 1 $ 1
------ ------ ------
COMMON STOCK (no shares issued during periods)................... 210 210 210
------ ------ ------
CLASS A COMMON STOCK
Beginning balance................................................ 47 42 37
Conversions into Common Stock.................................... (5) (5) (4)
------ ------ ------
Ending balance.............................................. 42 37 33
------ ------ ------
ADDITIONAL PAID-IN CAPITAL
Beginning balance................................................ 145 164 174
Exercise of stock options........................................ 19 10 12
------ ------ ------
Ending balance.............................................. 164 174 186
------ ------ ------
RETAINED EARNINGS
Beginning balance................................................ 3,261 3,472 3,762
Net income....................................................... 562 634 742
Cash dividends
Common (per share: 1993, $.96; 1994, $1.02; 1995, $1.08)
Preferred (per share: Series A -- $4.75, Series B -- $1.35).... (211) (225) (235)
Treasury stock reissuances....................................... (140) (119) (111)
------ ------ ------
Ending balance.............................................. 3,472 3,762 4,158
------ ------ ------
CURRENCY TRANSLATION AND PENSION ADJUSTMENTS
Beginning balance................................................ (17) (197) (97)
Currency translation............................................. (114) 20 (2)
Pension adjustment............................................... (66) 80
------ ------ ------
Ending balance.............................................. (197) (97) (99)
------ ------ ------
TREASURY STOCK
Beginning balance................................................ (869) (736) (731)
Purchases........................................................ (65) (155) (137)
Reissuances, principally Class A Common Stock conversions........ 198 160 161
------ ------ ------
Ending balance.............................................. (736) (731) (707)
------ ------ ------
TOTAL SHAREOWNERS' EQUITY.............................. $2,956 $3,356 $3,782
====== ====== ======
</TABLE>
See notes to financial statements.
F-6
<PAGE> 143
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. FINANCIAL STATEMENT PRESENTATION
On July 31, 1996, Rockwell International Corporation (Rockwell or the
company) entered into an Agreement and Plan of Merger with The Boeing Company
(Boeing) and Boeing NA, Inc., a wholly-owned subsidiary of Boeing (Merger
Agreement), including as an exhibit thereto a form of Agreement and Plan of
Distribution (Distribution Agreement). The Distribution Agreement provides for
the contribution by Rockwell of all of its assets and liabilities, except for
the assets and liabilities of its Aerospace and Defense business (A&D Business,
described below) to a newly formed entity, New Rockwell International
Corporation (New Rockwell). The Distribution Agreement further provides that
owners of Rockwell Common Stock and Class A Common Stock will receive one share
of New Rockwell Common Stock and Class A Common Stock, respectively, on a
share-for-share basis as part of a tax-free reorganization following such
contribution (Distribution). As a result, voting interests in New Rockwell will
remain the same as voting interests in Rockwell.
New Rockwell will be engaged in the research, development and manufacture
of: industrial automation equipment; avionics products and systems for
commercial and military aircraft; defense electronic systems for
command, control, communications and intelligence; semiconductor-based
subsystems, and automotive components and systems for light-, medium-, and
heavy-duty vehicles. For financial reporting purposes, New Rockwell is the
continuing shareowner interest and will retain the Rockwell name.
Immediately after the Distribution and the conversion of all outstanding
shares of Rockwell Class A Common Stock into shares of Rockwell Common Stock,
the Merger Agreement provides for the merger of Rockwell, then consisting solely
of its Aerospace business, a substantial portion of its Defense Electronics
business, and certain corporate and other assets and liabilities (described
below) (collectively, A&D Business), with Boeing NA, Inc., with the corporation
resulting from the merger being a wholly-owned subsidiary of Boeing named Boeing
North American, Inc. (North American). As a result of the merger, North American
will retain certain liabilities of Rockwell, including $2.165 billion principal
amount of debt, and the shareowners of Rockwell will receive approximately $.9
billion of Boeing common stock. The A&D Business is presented as a discontinued
operation in the accompanying financial statements (see Note 2).
These transactions are subject to, among other things, the approval of the
shareowners of Rockwell, the consent of Rockwell noteholders, and the receipt of
various regulatory approvals.
Pursuant to the Merger Agreement, in addition to the A&D Business, North
American will acquire certain Rockwell corporate property and United States
pension plan assets and retain certain pension obligations related to former
employees of the New Rockwell businesses (see Note 17). North American will also
retain substantially all of the short- and long-term domestic borrowings of
Rockwell (see Notes 8 and 10). Accordingly, these amounts have been presented in
the accompanying balance sheet as net liabilities of the A&D Business.
Interest expense included in the Statement of Income has been allocated to
discontinued operations based on the actual interest expense associated with the
borrowings to be retained by North American.
The A&D Business utilizes certain services which are provided for all of
Rockwell's businesses on a centralized basis, including payroll administration,
data processing and telecommunications services. The A&D Business receives
allocations of costs of centrally administered programs, including employee
medical claims and property and casualty insurance. These costs are allocated to
the A&D Business based on actual usage of these centralized services and
programs. The A&D Business also benefits from other services provided by
Rockwell, including financial, legal, tax, corporate communications, and human
resources. These corporate costs have been allocated to the A&D Business using a
variety of factors, including sales, assets, inventory and payroll. Management
believes that the methods of allocating costs to the A&D Business are
reasonable. These corporate costs are allowable overhead costs on government
contracts. Corporate costs allocated to the A&D Business were $240 million, $208
million and $170 million in 1993, 1994 and 1995,
F-7
<PAGE> 144
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
respectively, and $129 million and $121 million for the nine months ended June
30, 1995 and 1996, respectively.
The financial statements have been prepared in accordance with generally
accepted accounting principles which require management to make estimates and
assumptions that affect the amounts reported in the financial statements. Actual
results could differ from those estimates.
All significant intercompany accounts and transactions have been
eliminated. Significant accounting policies are underlined as an integral part
of the notes to financial statements to which the policies relate. Certain prior
year amounts have been reclassified to conform with the current presentation.
In the opinion of management, the unaudited interim financial statements
contain all adjustments, consisting solely of adjustments of a normal recurring
nature, necessary to present fairly the financial position, results of
operations, and cash flows for the periods presented. The results of operations
for the nine months ended June 30, 1996 are not necessarily indicative of the
results to be expected for the full year. All amounts in these notes to
financial statements as of or for the nine months ended June 30, 1996 and 1995
are unaudited. It is the company's practice at the end of each interim reporting
period to make an estimate of the effective tax rate expected to be applicable
for the full fiscal year. The rate so determined is used in providing for income
taxes on a year-to-date basis.
The company is in the process of evaluating the effect of the adoption of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and For Long-Lived Assets to Be Disposed Of."
Management anticipates that the adoption of this standard will not have a
material effect on the financial statements.
2. DISCONTINUED OPERATIONS
Discontinued operations include the A&D Business, as described in Note 1,
and the Graphic Systems business segment. On October 15, 1996, the company sold
its Graphic Systems business for approximately $600 million.
F-8
<PAGE> 145
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The assets and liabilities of the A&D Business have been classified on the
balance sheet as net liabilities of the A&D Business and consist of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------- JUNE 30,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
Receivables................................................... $ 874 $ 799 $ 679
Inventories................................................... 198 251 376
Other current assets.......................................... 131 110 149
Net property.................................................. 591 583 550
Other assets.................................................. 1,231 1,301 1,334
------- ------- -------
Total assets of A&D Business............................. 3,025 3,044 3,088
------- ------- -------
Short-term debt............................................... 40 539 565
Accounts payable and accrued liabilities...................... 867 926 844
Long-term debt................................................ 799 1,597 1,597
Other liabilities............................................. 1,486 1,439 1,384
------- ------- -------
Total liabilities of A&D Business........................ 3,192 4,501 4,390
------- ------- -------
Net liabilities of A&D Business..................... $ 167 $1,457 $ 1,302
======= ======= =======
</TABLE>
The assets and liabilities of the Graphic Systems business have been
classified on the balance sheet as net assets of Graphic Systems and consist of
the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------- JUNE 30,
1994 1995 1996
---- ---- -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
Receivables.............................................. $210 $164 $ 176
Inventories.............................................. 202 224 203
Other current assets..................................... 58 44 54
Net Property............................................. 179 178 144
Other assets............................................. 315 361 331
---- ---- -----------
Total assets of Graphic Systems..................... 964 971 908
---- ---- -----------
Accounts payable and accrued liabilities................. 296 395 356
Other liabilities........................................ 14 7 11
---- ---- -----------
Total liabilities of Graphic Systems................ 310 402 367
---- ---- -----------
Net assets of Graphic Systems.................. $654 $569 $ 541
==== ==== =========
</TABLE>
F-9
<PAGE> 146
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The net income from operations of the A&D Business and Graphic Systems
business has been reflected on the consolidated statement of income as income
from discontinued operations. Summarized results of discontinued operations are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
1993 1994 1995
----------------- ----------------- -----------------
GRAPHIC GRAPHIC GRAPHIC
A&D SYSTEMS A&D SYSTEMS A&D SYSTEMS
------ -------- ------ -------- ------ --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenues.............................. $4,011 $660 $3,458 $674 $3,244 $717
Income before income taxes............ 397 15 425 28 353 62
Income taxes.......................... 146 6 159 11 141 25
Net income............................ 251 9 266 17 212 37
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
-------------------------------------
1995 1996
----------------- -----------------
GRAPHIC GRAPHIC
A&D SYSTEMS A&D SYSTEMS
------ -------- ------ --------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C>
Revenues............................................. $2,350 $540 $2,273 $497
Income (loss) before income taxes.................... 243 48 253 (6)
Income taxes......................................... 97 19 103 (1)
Net income (loss).................................... 146 29 150 (5)
</TABLE>
3. ACQUISITION OF RELIANCE
In January 1995, the company completed its acquisition of Reliance Electric
Company (Reliance), a major manufacturer of industrial products and
telecommunications equipment, for $1,586 million. The acquisition of Reliance
was accounted for as a purchase as of December 31, 1994 and the results of
operations, exclusive of the divested telecommunications business, have been
included since that date. The purchase price exceeded the fair value of net
assets acquired by $880 million, which is recognized as goodwill and is being
amortized over 40 years.
The following unaudited pro forma information has been prepared assuming
Reliance had been acquired as of the beginning of the periods presented. The pro
forma information is presented for informational purposes and is not necessarily
indicative of what would have occurred if the acquisition had been made as of
that date. The pro forma information is not intended to be a projection of
future results.
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30, NINE MONTHS
----------------- ENDED
PRO FORMA INFORMATION (UNAUDITED) 1994 1995 JUNE 30, 1995
----------------------------------------------------- ------ ------ -------------
(IN MILLIONS, EXCEPT PER SHARE)
<S> <C> <C> <C>
Revenues............................................. $8,311 $9,467 $ 6,948
Net income........................................... 600 742 553
Earnings per common share:
Primary............................................ 2.72 3.42 2.54
Fully diluted...................................... 2.67 3.36 2.49
</TABLE>
F-10
<PAGE> 147
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1994 1995
------ ------ JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
(IN MILLIONS)
Finished goods........................................ $ 300 $ 456 $ 481
Work in process....................................... 529 749 879
Raw materials, parts, and supplies.................... 346 445 454
------ ------ ------
Total............................................ 1,175 1,650 1,814
Less allowance to adjust the carrying value of certain
inventories (1994, $421; 1995, $801) to a LIFO
basis............................................... 42 54 63
------ ------ ------
Inventories...................................... $1,133 $1,596 $ 1,751
====== ====== ======
</TABLE>
Inventories are stated at the lower of cost (using LIFO, FIFO, or average
methods) or market (determined on the basis of estimated realizable values).
5. PROPERTY AND DEPRECIATION
Property is stated at cost. Depreciation of property is provided based on
estimated useful lives generally using accelerated and straight-line methods.
Significant renewals and betterments are capitalized and replaced units are
written off. Maintenance and repairs, as well as renewals of minor amount, are
charged to expense. Maintenance and repairs were $156 million in 1993, $165
million in 1994, and $182 million in 1995.
6. INTANGIBLE ASSETS
Intangible assets are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- JUNE 30,
1994 1995 1996
----- ------- -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
Goodwill, less accumulated amortization (1994, $156
million; 1995, $200 million; 1996, $217 million)..... $ 437 $ 1,328 $ 1,316
Trademarks, patents, product technology, and other
intangibles, less accumulated amortization (1994,
$327 million; 1995, $350 million; 1996, $368
million)............................................. 181 533 511
---- ------ ------
Intangible assets................................. $ 618 $ 1,861 $ 1,827
==== ====== ======
</TABLE>
Goodwill represents the excess of the cost of purchased businesses over the
fair value of their net assets at date of acquisition and is being amortized by
the straight-line method over periods ranging from 10 to 40 years.
Trademarks, patents, product technology, and other intangibles are being
amortized on a straight-line basis over their estimated useful lives, ranging
from 5 to 40 years.
Management has reviewed the realizability of goodwill and other intangible
assets based on an evaluation of remaining useful lives, cash flows, and
profitability projections and has determined that there is no impairment at June
30, 1996.
F-11
<PAGE> 148
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. OTHER ASSETS
Other assets are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------- JUNE 30,
1994 1995 1996
----- ----- -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
Prepaid pension costs (see Note 17)...................... $ 153 $ 163 $ 132
Net deferred income taxes (see Note 18).................. 155 -- --
Investments and other assets............................. 88 95 120
----- ----- -----
Other assets........................................ $ 396 $ 258 $ 252
===== ===== =====
</TABLE>
8. SHORT-TERM DEBT
Short-term debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------- JUNE 30,
1994 1995 1996
----- ----- -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
Short-term foreign bank borrowings....................... $ 105 $ 97 $ 125
Current portion of long-term debt........................ 14 18 13
---- ---- ----
Short-term debt..................................... $ 119 $ 115 $ 138
==== ==== ====
</TABLE>
Pursuant to the Merger Agreement, North American will retain, and Boeing
will assume, pay down or guarantee $2,165 million face amount of borrowings of
the company, which represents substantially all of the outstanding domestic
short- and long-term debt of the company at June 30, 1996. Accordingly, domestic
short-term debt of $40 million, $539 million, and $565 million at September 30,
1994, 1995, and June 30, 1996, respectively, has been included in net
liabilities of the A&D Business.
The weighted average interest rates on the remaining short-term borrowings
were 4.9% and 4.6% at September 30, 1994 and 1995, respectively.
Short-term credit facilities available to foreign subsidiaries amounted to
$521 million at September 30, 1995 and consisted of arrangements for which there
are no significant commitment fees.
9. OTHER CURRENT LIABILITIES
Other current liabilities are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------- JUNE 30,
1994 1995 1996
----- ----- -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
Accounts payable -- other................................ $ 202 $ 280 $ 357
Accrued product warranties............................... 159 184 199
Contract reserves and advance payments................... 72 117 130
Accrued taxes other than income taxes.................... 62 67 69
Other.................................................... 102 154 186
---- ---- ----
Other current liabilities........................... $ 597 $ 802 $ 941
==== ==== ====
</TABLE>
F-12
<PAGE> 149
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1994 1995
---- ----
JUNE 30,
1996
-----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
6.8% notes, payable in 2003............................... $-- $138 $ 139
Other obligations, principally foreign.................... 44 58 40
--- ---- ----
Total................................................ 44 196 179
Less current portion...................................... 14 18 13
--- ---- ----
Long-term debt....................................... $30 $178 $ 166
=== ==== ====
</TABLE>
The 6.8% notes represent long-term debt of Reliance existing at the date of
acquisition.
Pursuant to the Merger Agreement and subject to the consent of the holders
of a majority of each series of notes, North American will retain, and Boeing
will guarantee, substantially all of the company's long-term debt obligations in
the United States. Accordingly, debt obligations of $799 million, $1,597
million, and $1,597 million are included in net liabilities of the A&D Business
at September 30, 1994, 1995, and June 30, 1996 respectively.
Interest payments on short- and long-term borrowings, including the debt to
be retained by North American, were $110 million in 1993, $98 million in 1994,
and $154 million in 1995. At September 30, 1995 aggregate maturities of
long-term debt during the five years ending September 30, 2000 were as follows
(in millions): 1996, $18; 1997, $16; 1998, $5; 1999, $5; and 2000, $3.
11. FINANCIAL INSTRUMENTS
The company's financial instruments include cash, short- and long-term
debt, and foreign currency forward exchange contracts. At June 30, 1996, the
carrying values of the company's financial instruments approximated their fair
values based on current market prices and rates.
It is the policy of the company not to enter into derivative financial
instruments for speculative purposes. The company does enter into foreign
currency forward exchange contracts to protect itself from adverse currency rate
fluctuations on foreign currency commitments entered into in the ordinary course
of business. These commitments are generally for terms of less than one year.
The foreign currency forward exchange contracts are executed with creditworthy
banks and are denominated in currencies of major industrial countries. The
notional amount of outstanding foreign currency forward exchange contracts
aggregated $415 million, $681 million, and $862 million at September 30, 1994,
1995, and June 30, 1996, respectively. The company does not anticipate any
material adverse effect on its results of operations or financial position
relating to these foreign currency forward exchange contracts.
12. CAPITAL STOCK
The authorized stock of the company consists of 600 million shares of
Common Stock and 200 million shares of Class A Common Stock, each with a $1 par
value, and 12 million shares of preferred stock without par value. The Class A
Common Stock is substantially identical to the Common Stock except that each
share of Class A Common Stock entitles the holder to ten votes on all matters on
which holders of Common Stock are entitled to vote, is not transferable except
in certain limited circumstances, and is convertible at any time into Common
Stock on a share-for-share basis. At September 30, 1995, 28 million shares of
common stock were reserved for various employee incentive plans and conversions
of preferred stock.
F-13
<PAGE> 150
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Series A and B preferred stocks are stated in the accompanying
financial statements at the aggregate par value of the number of shares of
common stock into which such preferred stocks were convertible as of the date
presented. On July 1, 1996, the company redeemed all of its outstanding Series A
and B preferred stock at redemption prices of $100.00 per share for the Series A
stock and $36.00 per share for the Series B stock and the conversion rights
thereof terminated. Each share of Series A Preferred Stock was convertible
(subject to adjustment under certain conditions) into 9.8985 shares each of
Common Stock and Class A Common Stock. Each share of Series B Preferred Stock
was convertible (subject to adjustment under certain conditions) into 3.6 shares
each of Common Stock and Class A Common Stock.
Changes in outstanding common shares are summarized as follows:
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Beginning balance........................................... 220.3 221.0 218.6
Treasury stock purchases.................................... (2.3) (4.1) (3.5)
Other, principally stock option exercises................... 3.0 1.7 1.9
----- ----- -----
Ending balance......................................... 221.0 218.6 217.0
===== ===== =====
</TABLE>
Outstanding common stock at September 30, 1995 consisted of 184.1 million
shares of Common Stock and 32.9 million shares of Class A Common Stock. There
were also outstanding at September 30, 1995, 25,347 shares of Series A Preferred
Stock and 79,716 shares of Series B Preferred Stock.
Pursuant to the Distribution Agreement, owners of Rockwell Common Stock and
Class A Common Stock will receive one share of New Rockwell Common Stock and
Class A Common Stock, respectively, on a share-for-share basis.
13. EMPLOYEE STOCK OPTIONS
Options to purchase common stock of the company have been granted under
various incentive plans to officers and other key employees at prices equal to
or above the fair market value of such stock on the dates the options were
granted. The plans provide that the option price for certain options granted
under the plans may be paid in cash, the company's common stock, or a
combination thereof. The options have vesting periods which range from 1 to 3
years.
Information relative to employee stock options is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Number of shares under option:
Outstanding at beginning of year..................... 9,659 9,676 10,336
Granted.............................................. 2,781 2,157 1,776
Exercised............................................ (2,647) (1,401) (1,713)
Expired.............................................. (117) (96) (36)
------ ------ ------
Outstanding at end of year........................... 9,676 10,336 10,363
====== ====== ======
Exercisable at end of year........................... 6,915 8,222 8,601
====== ====== ======
The ranges of exercise prices per share for options
outstanding at September 30:
High................................................. $31.50 $41.88 $46.75
Low.................................................. $13.13 $16.75 $16.75
</TABLE>
F-14
<PAGE> 151
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Options outstanding and exercisable at September 30, 1995 included 356,981
related to shares of Rockwell Class A Common Stock. Shares available for future
grant or payment under various incentive plans were 16.3 million at September
30, 1995. Outstanding options expire at various dates from December 4, 1995 to
July 10, 2005. None of the incentive plans presently permit options to be
granted after September 30, 2005.
In connection with the Distribution Agreement, stock options of Rockwell
will be converted into stock options of New Rockwell. The number of options and
exercise price of each option will be adjusted to preserve the aggregate
intrinsic value of the options.
14. RENTAL AND LEASE INFORMATION
The company leases certain facilities and equipment under operating leases,
many of which contain renewal options and escalation clauses. Total rental
expense on operating leases (net of immaterial income from sublease rentals) was
$84 million, $92 million, and $112 million in 1993, 1994, and 1995,
respectively. Contingent rentals under operating leases were not significant.
Minimum future rental commitments under operating leases having
noncancelable lease terms in excess of one year aggregated $232 million as of
September 30, 1995 and are payable as follows (in millions): 1996, $57; 1997,
$43; 1998, $33; 1999, $26; 2000, $22; and after 2000, $51.
15. RESEARCH AND DEVELOPMENT COSTS
Research and development costs aggregated $526 million, $571 million, and
$608 million in 1993, 1994, and 1995, respectively.
16. RETIREMENT MEDICAL PLANS
The company has retirement medical plans which cover most of its United
States employees and provide for the payment of medical costs of eligible
employees and dependents upon retirement.
The components of retirement medical expense for the New Rockwell
businesses are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
--- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost -- benefits attributed to service during the
period..................................................... $ 9 $ 9 $ 9
Interest accrued on accumulated retirement medical
obligation................................................. 68 64 72
Amortization of plan amendments and net actuarial gains...... (9) (21) (22)
--- ---- ----
Retirement medical expense.............................. $68 $ 52 $ 59
=== ==== ====
</TABLE>
F-15
<PAGE> 152
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The company's retirement medical obligation at September 30, 1994 and 1995
for the New Rockwell businesses consisted of the following:
<TABLE>
<CAPTION>
1994 1995
----- ------
(IN MILLIONS)
<S> <C> <C>
Accumulated retirement medical obligation:
Retirees....................................................... $ 610 $ 753
Employees eligible to retire................................... 61 99
Employees not eligible to retire............................... 136 179
----- ------
Total.................................................. 807 1,031
Unamortized amounts:
Plan amendments................................................ 111 98
Net actuarial gains (losses)................................... 8 (106)
----- ------
Recorded liability............................................... $ 926 $1,023
===== ======
Assumptions used (June 30 measurement date):
Discount rate.................................................. 8.25% 7.5%
Health care cost trend rates................................... 8.5%* 8.5%*
</TABLE>
- ---------------
* Decreasing to 5.5% after 2015
Retirement medical liabilities of $1,571 million and $1,516 million are
included in net liabilities of the A&D Business at September 30, 1994 and 1995,
respectively.
The unamortized amounts for plan amendments will be recognized over the
next 3 to 12 years and, accordingly, reduce retirement medical expense. Net
actuarial losses and gains will be considered in the determination of retirement
medical expense in the future.
Changing the health care cost trend rates by one percentage point would
change the accumulated retirement medical obligation at September 30, 1995 by
approximately $82 million and would change retirement medical expense by
approximately $7 million.
17. RETIREMENT PENSION PLANS
The company has pension plans which cover most of its employees and provide
for monthly pension payments to eligible employees upon retirement. Pension
benefits for salaried employees generally are based on years of credited service
and average earnings. Pension benefits for hourly employees generally are based
on specified benefit amounts and years of service.
Net pension expense related to employees and retirees of New Rockwell
businesses consisted of the following:
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year........ $ (49) $ (60) $ (65)
Interest accrued on projected benefit obligation....... (230) (238) (269)
Assumed return on plan assets.......................... 228 240 261
Initial net asset amortization......................... 23 23 23
Prior service cost amortization........................ (10) (12) (20)
Net actuarial loss amortization........................ (10) (36) (16)
----- ----- -----
Net pension expense............................... $ (48) $ (83) $ (86)
===== ===== =====
</TABLE>
F-16
<PAGE> 153
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Pension plan assets are primarily equity securities, United States
Government obligations, and fixed income investments whose values are subject to
fluctuations of the securities market. The actual return on plan assets was $338
million, $52 million, and $511 million in 1993, 1994, and 1995, respectively.
Differences between these actual returns and the related assumed returns on plan
assets are deferred and considered in the determination of net pension income or
expense in future periods.
Pursuant to the Distribution Agreement, pension plan obligations
attributable to United States active employees of the New Rockwell businesses as
of January 1, 1996 and a proportionate share of pension plan assets will be
transferred from the Rockwell Retirement Plan for Eligible Employees (Rockwell
Retirement Plan) to a newly-established New Rockwell Retirement Plan. The
following table reconciles the funded status of the New Rockwell Retirement Plan
to amounts recorded in the balance sheet:
<TABLE>
<CAPTION>
1994 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
Accumulated benefit obligation, principally vested............... $1,118 $1,304
Effects of projected compensation increases...................... 220 271
------ ------
Projected benefit obligation..................................... 1,338 1,575
Fair value of plan assets........................................ 1,306 1,522
------ ------
Plan assets less than projected benefit obligation............... (32) (53)
Items not yet recognized in the balance sheet:
Net actuarial losses........................................... 217 245
Prior service cost............................................. 58 51
Remaining initial net asset.................................... (89) (80)
------ ------
Prepaid pension costs at September 30............................ $ 154 $ 163
====== ======
Assumptions used (June 30 measurement date):
Discount rate.................................................. 8.25% 7.5%
Compensation increase rate..................................... 4.5% 4.5%
Long-term rate of return on plan assets........................ 9.0% 9.0%
</TABLE>
Pension plan assets and obligations related to employees and retirees of
the A&D Business and United States retirees of New Rockwell's businesses as of
January 1, 1996 have been classified as net liabilities of the A&D Business as
the remainder of the Rockwell Retirement Plan will be retained by North American
pursuant to the Distribution Agreement.
The company also sponsors certain defined contribution savings plans for
eligible employees. Expense related to these plans was $31 million, $34 million,
and $35 million for 1993, 1994, and 1995, respectively.
F-17
<PAGE> 154
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
18. INCOME TAXES
The components of the provision for income taxes from continuing operations
are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Current:
United States........................................... $ 93 $138 $202
Foreign................................................. 52 77 81
State and local......................................... 15 29 42
---- ---- ----
Total current................................... 160 244 325
---- ---- ----
Deferred:
United States........................................... 9 (13) (15)
Foreign................................................. 12 (4) 14
State and local......................................... 9 (10) (6)
---- ---- ----
Total deferred.................................. 30 (27) (7)
---- ---- ----
Provision for income taxes................................ $190 $217 $318
==== ==== ====
</TABLE>
Net deferred income tax benefits included in Other Current Assets in the
accompanying balance sheet at September 30, 1994 and 1995 consist of the tax
effects of temporary differences related to the following:
<TABLE>
<CAPTION>
1994 1995
---- ----
(IN MILLIONS)
<S> <C> <C>
Accrued compensation and benefits................................... $120 $130
Accrued product warranties.......................................... 68 79
Other -- net........................................................ 2 13
---- ----
Current deferred income taxes....................................... $190 $222
==== ====
</TABLE>
Net deferred income tax benefits included in Other Assets (Liabilities) in
the accompanying balance sheet at September 30, 1994 and 1995 consist of the tax
effects of temporary differences related to the following:
<TABLE>
<CAPTION>
1994 1995
----- -----
(IN MILLIONS)
<S> <C> <C>
Accrued retirement medical costs.................................... $ 317 $ 352
Pension costs....................................................... (53) (12)
Property............................................................ (126) (221)
Intangible assets................................................... 39 (116)
Loss carryforwards.................................................. 44 46
Foreign tax credit carryforwards.................................... 52 57
Other -- net........................................................ (26) (121)
---- -----
Subtotal............................................................ 247 (15)
Valuation allowance................................................. (92) (96)
---- -----
Long-term deferred income taxes..................................... $ 155 $(111)
==== =====
</TABLE>
Management believes it is more likely than not that current and long-term
tax assets will be realized through the reduction of future taxable income.
Significant factors considered by management in its determination of the
probability of the realization of the deferred tax assets included: (a) the
historical operating results of the company ($1.9 billion of United States
income from continuing operations before
F-18
<PAGE> 155
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
income taxes over the past three years), (b) expectations of future earnings,
and (c) the extended period of time over which the retirement medical liability
will be paid. The valuation allowance represents the amount of tax benefits
related to net operating loss and foreign tax credit carryforwards that has not
yet been recognized. The carryforward period for net operating losses expires
between 1996 and 2003. The carryforward period for foreign tax credits expires
between 1996 and 2000.
The consolidated effective tax rate was different from the United States
statutory rate for the reasons set forth below:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate............................................. 35.0% 35.0% 35.0%
State and local income taxes................................... 3.2 2.7 3.1
Foreign income taxes........................................... 4.8 3.7 2.8
Non-deductible goodwill........................................ 1.0 .9 2.1
Utilization of foreign loss carryforwards...................... (2.4) (1.9) (2.0)
Tax credits.................................................... (1.5) (.7) (.2)
Deferred income tax rate changes............................... (2.2) -- --
Other.......................................................... .7 (1.5) (1.6)
---- ---- ----
Effective tax rate............................................. 38.6% 38.2% 39.2%
==== ==== ====
</TABLE>
The income tax provisions were calculated based upon the following
components of income before income taxes:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
United States income.......................................... $335 $374 $545
Foreign income................................................ 157 194 266
---- ---- ----
Total............................................... $492 $568 $811
==== ==== ====
</TABLE>
No provision has been made for United States, state, or additional foreign
income taxes related to approximately $615 million of undistributed earnings of
foreign subsidiaries which have been or are intended to be permanently
reinvested.
Income tax payments were $340 million in 1993, $299 million in 1994, and
$448 million in 1995. The company's United States income tax returns for the
years 1989 through 1991 are currently under examination. Pursuant to the Merger
Agreement, the company will retain all tax liabilities and the right to all tax
refunds related to operations of the A&D Business for periods prior to the
merger. Management believes that adequate provision for income taxes has been
made for all years through 1995.
19. EARNINGS PER COMMON SHARE
Primary earnings per Rockwell common share, after recognition of the Series
A and B preferred stock dividend requirements, are based on the weighted average
number of Rockwell common shares outstanding during each year. The computation
does not include a negligible dilutive effect of stock options.
Fully diluted earnings per Rockwell common share are based on the
assumption that all preferred stocks were converted at the beginning of the year
and all dilutive stock options were exercised at the beginning of the year or at
date of grant, if later. The computation assumes the elimination of preferred
dividends.
F-19
<PAGE> 156
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
20. CONTINGENT LIABILITIES
Various lawsuits, claims and proceedings have been or may be instituted or
asserted against the company relating to the conduct of its business, including
those pertaining to product liability, environmental, safety and health, and
employment matters. Pursuant to the Merger Agreement, New Rockwell has agreed to
indemnify Boeing and North American for certain government contract and
environmental matters related to operations of the A&D Business for periods
prior to the merger. Although the outcome of litigation cannot be predicted with
certainty and some lawsuits, claims, or proceedings may be disposed of
unfavorably to the company, management believes the disposition of matters which
are pending or asserted will not have a material adverse effect on the company's
financial statements.
21. BUSINESS SEGMENT INFORMATION
The company's business segments are engaged in research, development, and
manufacture of diversified products as follows:
Electronics:
Automation -- industrial automation equipment and systems, including
control logic, sensors, human-machine interface devices, motors, power
and mechanical devices and software products.
Avionics and Communications -- avionics products and systems and related
communications technologies primarily used in commercial and military
aircraft, defense electronic systems for command, control,
communications, and intelligence.
Semiconductor Systems -- system-level semiconductor chipset solutions
for personal communication electronics markets, including facsimile and
personal computer data modem products and wireless communications
products such as global positioning systems, packet data, cordless and
cellular chipsets and automated call distribution equipment.
Automotive -- components and systems for heavy- and medium-duty trucks,
buses, trailers and heavy-duty off-highway vehicles (Heavy Vehicle
Systems); and components and systems for light trucks and passenger cars
(Light Vehicle Systems).
Divested businesses include the sales, operating results, and gains or
losses on the disposition of significant businesses and product lines. Divested
businesses include the Semiconductor Systems Local Area Networking product line
in 1995 and the Automotive Plastics business in 1994.
F-20
<PAGE> 157
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following tables summarize segment information:
Sales and Earnings by Business Segment
<TABLE>
<CAPTION>
SALES
------------------------------------------------------
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
---------------------------- ---------------------
BUSINESS SEGMENT 1993 1994 1995 1995 1996
- ---------------------------------------------- ------ ------ ------ -------- --------
(IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Electronics:
Automation.................................. $1,716 $2,085 $3,590 $2,575 $3,063
Avionics and Communications................. 1,407 1,419 1,468 1,008 1,067
Semiconductor Systems....................... 530 691 875 606 1,189
------ ------ ------ ------ ------
Total Electronics........................ 3,653 4,195 5,933 4,189 5,319
Automotive:
Heavy Vehicle Systems....................... 1,455 1,744 1,929 1,473 1,386
Light Vehicle Systems....................... 893 900 1,192 901 1,007
------ ------ ------ ------ ------
Total Automotive......................... 2,348 2,644 3,121 2,374 2,393
------ ------ ------ ------ ------
Sales of ongoing businesses................... 6,001 6,839 9,054 6,563 7,712
Divested businesses........................... 203 190 11 8 --
------ ------ ------ ------ ------
Total............................... $6,204 $7,029 $9,065 $6,571 $7,712
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
EARNINGS
------------------------------------------------------
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
---------------------------- ---------------------
BUSINESS SEGMENT 1993 1994 1995 1995 1996
- ---------------------------------------------- ------ ------ ------ -------- --------
(IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Electronics:
Automation.................................. $ 193 $ 265 $ 481 $ 368 $ 379
Avionics and Communications................. 221 182 178 125 110
Semiconductor Systems....................... 57 98 113 60 248
------ ------ ------ ------ ------
Total Electronics........................ 471 545 772 553 737
Automotive.................................... 135 114 212 171 154
------ ------ ------ ------ ------
Operating earnings of ongoing businesses...... 606 659 984 724 891
Divested businesses........................... (13) 8 (31) (8) --
General corporate -- net...................... (83) (82) (117) (74) (79)
Interest expense.............................. (18) (17) (25) (17) (23)
Provision for income taxes.................... (190) (217) (318) (247) (305)
Income from discontinued operations, net of
tax......................................... 260 283 249 175 145
------ ------ ------ ------ ------
Total............................... $ 562 $ 634 $ 742 $ 553 $ 629
====== ====== ====== ====== ======
</TABLE>
F-21
<PAGE> 158
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Asset Information by Segment
<TABLE>
<CAPTION>
PROVISION FOR
DEPRECIATION
AND AMORTIZATION
IDENTIFIABLE ASSETS ----------------------
----------------------------
YEAR ENDED SEPTEMBER
SEPTEMBER 30, 30,
---------------------------- ----------------------
BUSINESS SEGMENT 1993 1994 1995 1993 1994 1995
- ----------------------------------------- ------ ------ ------ ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Electronics:
Automation............................. $1,690 $1,799 $4,254 $116 $121 $192
Avionics and Communications............ 810 827 918 47 50 48
Semiconductor Systems.................. 434 586 730 42 53 72
------ ------ ------ ---- ---- ----
Total Electronics.............. 2,934 3,212 5,902 205 224 312
Automotive............................... 1,342 1,473 1,595 92 93 97
------ ------ ------ ---- ---- ----
Business segment totals.................. 4,276 4,685 7,497 297 317 409
Corporate................................ 1,245 1,224 1,156 14 16 14
Divested businesses...................... 133 30 7 11 9 5
Net assets of Graphic Systems............ 644 654 569 -- -- --
------ ------ ------ ---- ---- ----
Total.......................... $6,298 $6,593 $9,229 $322 $342 $428
====== ====== ====== ==== ==== ====
</TABLE>
Automation assets for 1995 include $1,234 million of intangible assets and
goodwill related to the acquisition of Reliance. Automation provision for
depreciation and amortization includes $27 million related to the amortization
of Reliance intangible assets and goodwill.
Corporate identifiable assets include cash and net deferred income tax
assets.
Capital Expenditures by Segment
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES
----------------------
YEAR ENDED SEPTEMBER
30,
----------------------
BUSINESS SEGMENT 1993 1994 1995
- ---------------------------------------------------------------------- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Electronics:
Automation.......................................................... $ 96 $120 $237
Avionics and Communications......................................... 55 51 49
Semiconductor Systems............................................... 55 151 175
---- ---- ----
Total Electronics........................................... 206 322 461
Automotive............................................................ 100 102 119
---- ---- ----
Business segment totals............................................... 306 424 580
Corporate............................................................. 6 36 9
Divested businesses................................................... 7 10 1
---- ---- ----
Total....................................................... $319 $470 $590
==== ==== ====
</TABLE>
F-22
<PAGE> 159
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Sales, Earnings and Assets by Geographic Area
<TABLE>
<CAPTION>
SALES EARNINGS
---------------------------- ----------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------
1993 1994 1995 1993 1994 1995
------ ------ ------ ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
United States............................ $4,366 $4,977 $6,645 $431 $466 $726
Canada................................... 368 454 592 54 85 70
Europe................................... 1,344 1,473 1,863 73 80 141
Asia-Pacific............................. 223 286 396 10 3 19
Latin America............................ 285 352 428 38 25 28
Eliminations............................. (585) (703) (870) -- -- --
------ ------ ------ ----- ----- -----
Total sales and operating
earnings of ongoing
businesses................... $6,001 $6,839 $9,054 $606 $659 $984
Divested businesses...................... 203 190 11 (13) 8 (31)
------ ------ ------ ----- ----- -----
Total.......................... $6,204 $$7,029 $9,065 593 667 953
====== ====== ======
General corporate-net.................... (83) (82) (117)
Interest expense......................... (18) (17) (25)
----- ----- -----
Income from continuing operations before
income taxes........................... $492 $568 $811
====== ====== ======
</TABLE>
United States sales include export sales to customers and international
subsidiaries of $998 million in 1993, $1,152 million in 1994, and $1,513 million
in 1995.
<TABLE>
<CAPTION>
IDENTIFIABLE ASSETS
-------------------------------------------------------------
SEGMENTS CORPORATE
---------------------------- ----------------------------
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
GEOGRAPHIC AREA 1993 1994 1995 1993 1994 1995
- ------------------------------------- ------ ------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
United States........................ $2,938 $3,177 $5,641 $ 731 $ 641 $ 513
Canada............................... 154 190 227 342 399 429
Europe............................... 873 921 1,103 133 151 141
Asia-Pacific......................... 121 185 267 22 32 62
Latin America........................ 190 212 259 17 1 11
------ ------ ------ ------ ------ ------
Total identifiable assets
of ongoing businesses.... $4,276 $4,685 $7,497 $1,245 $1,224 $1,156
====== ====== ======
Divested businesses.................. 133 30 7
Net assets of Graphic Systems........ 644 654 569
------ ------ ------
Total assets............... $5,053 $5,369 $8,073
====== ====== ======
</TABLE>
F-23
<PAGE> 160
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
22. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1994 FISCAL QUARTERS
---------------------------------------
FIRST SECOND THIRD FOURTH 1994
------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales......................................... $1,642 $1,741 $1,850 $1,796 $7,029
Cost of sales................................. 1,257 1,336 1,443 1,419 5,455
Income from continuing operations............. 91 92 86 82 351
Income from discontinued operations........... 58 63 79 83 283
Earnings per common share:
Primary
Continuing operations....................... $ .41 $ .42 $ .39 $ .37 $ 1.59
Discontinued operations..................... .27 .28 .35 .38 1.28
------ ------ ------ ------ ------
Net income.................................. $ .68 $ .70 $ .74 $ .75 $ 2.87
====== ====== ====== ====== ======
Continuing operations....................... $ .40 $ .41 $ .38 $ .37 $ 1.56
Discontinued operations..................... .26 .28 .35 .37 1.26
------ ------ ------ ------ ------
Net income.................................. $ .66 $ .69 $ .73 $ .74 $ 2.82
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1995 FISCAL QUARTERS
---------------------------------------
FIRST SECOND THIRD FOURTH 1995
------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales......................................... $1,747 $2,348 $2,476 $2,494 $9,065
Cost of sales................................. 1,366 1,793 1,897 1,935 6,991
Income from continuing operations............. 93 133 152 115 493
Income from discontinued operations........... 72 58 45 74 249
Earnings per common share:
Primary
Continuing operations.................... $ .43 $ .61 $ .70 $ .53 $ 2.27
Discontinued operations.................. .33 .27 .20 .35 1.15
------ ------ ------ ------ ------
Net income............................. $ .76 $ .88 $ .90 $ .88 $ 3.42
====== ====== ====== ====== ======
Fully diluted
Continuing operations.................... $ .42 $ .60 $ .68 $ .53 $ 2.23
Discontinued operations.................. .32 .27 .20 .34 1.13
------ ------ ------ ------ ------
Net income............................. $ .74 $ .87 $ .88 $ .87 $ 3.36
====== ====== ====== ====== ======
</TABLE>
The above quarterly financial information has been restated to reflect the
A&D Business and the Graphic Systems business as discontinued operations.
F-24
<PAGE> 161
INDEPENDENT AUDITORS' REPORT
To the Directors and Shareowners of Rockwell International Corporation:
We have audited the accompanying statement of assets and liabilities of the
Aerospace and Defense business of Rockwell International Corporation (A&D),
consisting of the Aerospace business, a substantial portion of the Defense
Electronics business, and certain corporate and other assets and liabilities of
Rockwell International Corporation (Rockwell), as of September 30, 1995 and
1994, to be merged with Boeing NA, Inc. (Boeing NA), a wholly-owned subsidiary
of The Boeing Company (Boeing) pursuant to an Agreement and Plan of Merger dated
as of July 31, 1996 (the Merger Agreement) between Rockwell, Boeing and Boeing
NA, as described in Note 1 to the financial statements. We have also audited the
related statements of income and cash flows of A&D for each of the three years
in the period ended September 30, 1995. These financial statements are the
responsibility of Rockwell's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements were prepared to present the assets
and liabilities and related results of operations and cash flows of A&D, which
is to be merged with Boeing NA pursuant to the Merger Agreement described in
Note 1 to the financial statements, and are not intended to be a complete
presentation of the financial position, results of operations and cash flows as
if A&D had operated as a stand-alone company.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities as of September 30, 1995
and 1994 of A&D, which is to be merged with Boeing NA pursuant to the Merger
Agreement referred to in Note 1 to the financial statements, and its results of
operations, and cash flows for each of the three years in the period ended
September 30, 1995 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
July 31, 1996
F-25
<PAGE> 162
A&D BUSINESS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- JUNE 30,
1994 1995 1996
------- ------- -----------
(IN MILLIONS)(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... $ 48 $ 12 $ 29
Receivables............................................... 874 799 679
Inventories............................................... 198 251 376
Other current assets...................................... 83 98 120
------- ------- -------
Total current assets................................... 1,203 1,160 1,204
NET PROPERTY................................................ 591 583 550
OTHER ASSETS................................................ 1,231 1,301 1,334
------- ------- -------
TOTAL ASSETS...................................... 3,025 3,044 3,088
------- ------- -------
LIABILITIES
CURRENT LIABILITIES
Short-term debt (principally commercial paper)............ 40 539 565
Accounts payable -- trade................................. 307 289 214
Accrued compensation and benefits......................... 279 275 278
Advance payments from customers........................... 179 183 147
Other current liabilities................................. 102 179 205
------- ------- -------
Total current liabilities.............................. 907 1,465 1,409
LONG-TERM DEBT.............................................. 799 1,597 1,597
ACCRUED RETIREMENT BENEFITS................................. 1,459 1,407 1,357
OTHER LIABILITIES........................................... 27 32 27
------- ------- -------
TOTAL LIABILITIES................................. 3,192 4,501 4,390
------- ------- -------
NET LIABILITIES................................... $ (167) $(1,457) $(1,302)
======= ======= =======
</TABLE>
See notes to financial statements.
F-26
<PAGE> 163
A&D BUSINESS
STATEMENT OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
----------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Sales......................................... $ 4,018 $ 3,447 $ 3,238 $ 2,351 $ 2,275
Other income.................................. 7 19 25 13 11
------ ------ ------ ------ ------
Total revenues........................... 4,025 3,466 3,263 2,364 2,286
------ ------ ------ ------ ------
COSTS AND EXPENSES
Cost of sales................................. 3,504 2,934 2,712 1,991 1,894
Selling, general, and administrative.......... 50 40 66 36 26
Interest...................................... 82 75 142 100 120
------ ------ ------ ------ ------
Total costs and expenses................. 3,636 3,049 2,920 2,127 2,040
------ ------ ------ ------ ------
INCOME BEFORE INCOME TAXES.................... 389 417 343 237 246
Provision for income taxes.................... 140 154 126 84 92
------ ------ ------ ------ ------
NET INCOME.......................... $ 249 $ 263 $ 217 $ 153 $ 154
====== ====== ====== ====== ======
</TABLE>
See notes to financial statements.
F-27
<PAGE> 164
A&D BUSINESS
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
--------------------------- -----------------
1993 1994 1995 1995 1996
----- ----- ------- ------- -----
(IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................... $ 249 $ 263 $ 217 $ 153 $ 154
Adjustments to net income to arrive at cash
provided by operating activities:
Depreciation................................ 137 121 112 83 74
Deferred income taxes....................... (25) 77 84 53 25
Net pension income.......................... (108) (114) (153) (114) (109)
Contributions to pension plan............... (40) (66) (1) (1) (1)
Changes in assets and liabilities, excluding
effects of acquisitions and foreign
currency adjustments:
Receivables.............................. 82 61 91 132 122
Inventories.............................. 55 (36) (30) (20) (123)
Accounts payable -- trade................ (3) (14) (23) (113) (75)
Accrued compensation and benefits........ -- (36) (12) (6) 3
Advance payments from customers.......... (33) (57) (3) (52) (38)
Other assets and liabilities............. (76) (59) (49) (22) (14)
----- ----- ----- ----- -----
CASH PROVIDED BY OPERATING
ACTIVITIES.......................... 238 140 233 93 18
----- ----- ----- ----- -----
INVESTING ACTIVITIES
Property additions............................ (101) (86) (83) (50) (45)
Acquisition of business....................... -- -- (26) (31) (15)
Proceeds from the disposition of property..... 2 9 18 15 10
----- ----- ----- ----- -----
CASH USED FOR INVESTING ACTIVITIES..... (99) (77) (91) (66) (50)
----- ----- ----- ----- -----
FINANCING ACTIVITIES
Increase in short-term borrowings............. -- 40 498 1,117 26
Payments of long-term debt.................... -- (198) -- -- --
Long-term borrowings.......................... -- -- 798 797 --
Net transfers (to) from Rockwell.............. (147) 78 (1,474) (1,976) 23
----- ----- ----- ----- -----
CASH (USED FOR) PROVIDED BY FINANCING
ACTIVITIES.......................... (147) (80) (178) (62) 49
----- ----- ----- ----- -----
(DECREASE) INCREASE IN CASH................... (8) (17) (36) (35) 17
CASH AT BEGINNING OF PERIOD................... 73 65 48 48 12
----- ----- ----- ----- -----
CASH AT END OF PERIOD......................... $ 65 $ 48 $ 12 $ 13 $ 29
===== ===== ===== ===== =====
</TABLE>
See notes to financial statements.
F-28
<PAGE> 165
A&D BUSINESS
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On July 31, 1996 Rockwell International Corporation (Rockwell) entered into
an Agreement and Plan of Merger (such agreement together with related agreements
attached as exhibits thereto are referred to herein as the Merger Agreement) to
merge its Aerospace and Defense business (A&D), which consists of its Aerospace
business, a substantial portion of its Defense Electronics business, and certain
corporate and other assets and liabilities of Rockwell (described below) with
Boeing NA, Inc., a wholly-owned subsidiary of The Boeing Company (Boeing).
Immediately prior to the merger, Rockwell will transfer all of its non-A&D
businesses and certain corporate and other assets and liabilities (New Rockwell
Business) into a newly formed entity, New Rockwell International Corporation
(New Rockwell) and distribute all of the outstanding shares of New Rockwell to
Rockwell's shareowners as part of a tax-free reorganization. Rockwell, then
consisting solely of A&D, will merge with Boeing NA, Inc., with the corporation
resulting from the merger being a wholly-owned subsidiary of Boeing named Boeing
North American, Inc. (North American). These transactions are subject to, among
other things, the approval of the shareowners of Rockwell, the consent of
Rockwell noteholders, and the receipt of various regulatory approvals.
The financial statements present the assets and liabilities and results of
operations and cash flows of A&D and are not intended to be a complete
presentation of the financial position, results of operations and cash flows as
if A&D had operated as a stand-alone company. The financial statements have been
prepared in accordance with generally accepted accounting principles which
require management to make estimates and assumptions, in particular estimates of
anticipated contract costs and revenues utilized in the earnings recognition
process, that affect the amounts reported in the financial statements. Actual
results could differ from those estimates.
In the opinion of management, the unaudited interim financial statements
contain all adjustments, consisting solely of adjustments of a normal recurring
nature, necessary to present fairly the assets and liabilities, results of
operations, and cash flows for the periods presented. The results of operations
for the nine months ended June 30, 1996 are not necessarily indicative of the
results for the full year. All amounts in these notes to financial statements as
of or for the nine months ended June 30, 1995 and 1996 are unaudited. At the end
of each interim reporting period, management makes an estimate of the effective
tax rate expected to be applicable for the full fiscal year. The rate so
determined is used in providing for income taxes on a year-to-date basis.
A&D is engaged in research, development and manufacture of aerospace and
defense electronics products, including manned and unmanned space systems,
rocket engines, advanced space-based surveillance systems, high-energy laser and
other directed energy systems, space electric power, military aircraft, military
and commercial aircraft components and defense electronics systems, and products
for precision guidance and control and tactical weapons.
The Statement of Assets and Liabilities of A&D excludes certain facilities
no longer used by A&D and includes certain Rockwell corporate property (see Note
4), United States pension plan assets and obligations related to certain former
employees of non-A&D businesses (see Note 13), and short- and long-term United
States borrowings of Rockwell (see Note 7).
A&D utilizes certain services which are provided for all of Rockwell's
United States businesses on a centralized basis, including payroll
administration, data processing and telecommunications services. A&D receives
allocations of costs from centrally administered programs, including employee
medical claims and property and casualty insurance. These costs are allocated to
A&D based on actual usage of these centralized services and programs. A&D also
benefits from other services provided by Rockwell, including financial, legal,
tax, corporate communications, and human resources. These corporate costs have
been allocated to A&D using a variety of factors, including sales, assets,
inventory and payroll. Management believes that the methods
F-29
<PAGE> 166
A&D BUSINESS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of allocating costs to A&D are reasonable. A&D's allocations of these costs were
$252 million, $218 million and $179 million in fiscal years 1993, 1994 and 1995,
respectively, and $136 million and $129 million for the nine months ended June
30, 1995 and 1996, respectively, and are included in the Statement of Income. A
substantial portion of these amounts are allowable overhead costs on government
contracts. The cost of providing these services on a stand-alone basis has not
been estimated because A&D will be owned by a wholly-owned subsidiary of Boeing
upon consummation of the Merger.
Interest expense included in the Statement of Income has been allocated to
A&D based on the actual interest expense associated with the borrowings to be
retained by North American.
Sales from A&D to the New Rockwell Business of $15 million, $8 million and
$19 million in 1993, 1994 and 1995, respectively, and $14 million in each of the
nine-month periods ended June 30, 1995 and 1996, have been included in the
Statement of Income. All other intercompany amounts have been eliminated.
A&D's United States operations participate in a centralized cash management
system wherein cash receipts are transferred to Rockwell's corporate office and
cash disbursements are funded by Rockwell's corporate office. Accordingly, the
Statement of Assets and Liabilities excludes all cash and cash equivalents
related to A&D's United States operations, except for cash held in escrow
pursuant to contracts, which is recorded in Other Assets in the Statement of
Assets and Liabilities. Outstanding checks have been included in accounts
payable. Cash balances of A&D subsidiaries located outside the United States are
included in the Statement of Assets and Liabilities. Pursuant to the Merger
Agreement, A&D will retain a United States cash balance equal to the excess, if
any, of (a) the sum of $4.5 million and the amount of accrued interest on the
borrowings (see Note 7) on the merger date over (b) $2,165 million less the face
amount of debt outstanding on the merger date.
Management is in the process of evaluating the effect of the adoption of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Management anticipates that the adoption of this standard will not have a
material effect on the financial statements.
Significant accounting policies are underlined as an integral part of the
notes to financial statements to which the policies relate.
2. RECEIVABLES
Receivables are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1994 1995
---- ---- JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
(IN MILLIONS)
Accounts receivable:
Commercial, less allowance for doubtful accounts (1994,
$3 million; 1995, $5 million; 1996, $8 million)..... $110 $ 97 $ 105
United States Government............................... 93 103 98
Unbilled costs and accrued profits, less related progress
payments (1994, $356 million; 1995, $198 million; 1996,
$179 million).......................................... 671 599 476
---- ---- ----
Receivables......................................... $874 $799 $ 679
==== ==== ====
</TABLE>
Unbilled costs and accrued profits consist principally of revenues
recognized on United States Government contracts under the
percentage-of-completion (cost-to-cost) method of accounting (see Note 9).
Unbilled costs and accrued profits, less related progress payments, are billed
in accordance with applicable contract terms.
F-30
<PAGE> 167
A&D BUSINESS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Certain U.S. Government contracts of A&D have been terminated for
convenience during the past several years. A&D has filed claims for termination
costs it believes are reimbursable under the contract terms. At June 30, 1996,
such outstanding termination claims aggregated approximately $220 million, net
of $8 million collected through progress payments. In addition, A&D has
submitted claims, most recently in 1995, aggregating $547 million with respect
to contractual disputes first raised in 1989 on the AC-130U Gunship full-scale
development and production contracts.
The financial statements of A&D have been prepared on the basis of
reasonable estimates of the revenue expected to be recovered from these claims.
The estimate with respect to the AC-130U Gunship claim is supported by the
opinion of outside legal counsel, McKenna & Cuneo L.L.P. At June 30, 1996,
receivables included $199 million relating to these claims, a major portion of
which related to the AC-130U Gunship claim. While management cannot reasonably
estimate the length of time that will be required to resolve its claims or
whether they will be resolved through negotiation or litigation, it believes
their resolution will not have a material adverse effect on the financial
statements of A&D. Pursuant to the Transactions, all claims related to A&D will
be retained by A&D and will be prosecuted by North American.
3. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1994 1995
---- ---- JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
(IN MILLIONS)
Long-term contracts in process........................... $158 $182 $ 251
Work in process.......................................... 52 75 83
Raw materials, parts, and supplies....................... 45 43 69
---- ---- ----
Total............................................... 255 300 403
Less related progress payments........................... 57 49 27
---- ---- ----
Inventories......................................... $198 $251 $ 376
==== ==== ====
</TABLE>
Inventories are stated at the lower of cost (using FIFO or average methods)
or market (determined on the basis of estimated realizable values), less related
progress payments received. Pursuant to contract provisions the United States
Government has title to, or a security interest in, certain inventories as a
result of progress payments.
Long-term contracts in process consist of inventoried costs principally
relating to fixed-price-type contracts. Such inventoried costs include direct
costs of manufacturing, engineering and tooling, and allocable overhead costs
including general and administrative expenses allowable in accordance with
United States Government contract cost principles. In accordance with industry
practice, such inventoried costs include amounts which are not expected to be
realized within one year.
General and administrative expenses related to United States Government
contracts incurred and charged to inventoried costs were $398 million, $360
million and $350 million in 1993, 1994 and 1995, respectively. General and
administrative expenses remaining in inventoried costs before consideration of
progress payments were estimated at $33 million and $36 million at September 30,
1994 and 1995, respectively. Inventories include $11 million and $50 million at
September 30, 1994 and 1995, respectively, of deferred costs, principally
unamortized tooling and learning curve costs. Management expects to realize
these costs as the related contracts are completed.
F-31
<PAGE> 168
A&D BUSINESS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND DEPRECIATION
Property is stated at cost less accumulated depreciation. Depreciation of
property is provided based on estimated useful lives generally using accelerated
and straight-line methods. Significant renewals and betterments are capitalized
and replaced units are written off. Maintenance and repairs, as well as renewals
of minor amounts, are charged to expense. Maintenance and repairs were $55
million in 1993, $57 million in 1994 and $55 million in 1995.
Property is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------- JUNE 30,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
Land.................................................. $ 27 $ 32 $ 32
Land and leasehold improvements....................... 79 72 69
Buildings............................................. 577 608 604
Machinery and equipment............................... 649 641 611
Office and data processing equipment.................. 640 559 513
Construction in progress.............................. 63 54 58
------ ------ ------
Total............................................ 2,035 1,966 1,887
Less accumulated depreciation......................... 1,444 1,383 1,337
------ ------ ------
Net property..................................... $ 591 $ 583 $ 550
====== ====== ======
</TABLE>
Pursuant to the Merger Agreement, certain Rockwell corporate assets,
principally the world headquarters and information systems center in Seal Beach,
California, are included in A&D. Certain A&D property, principally facilities no
longer used by A&D in Canoga Park, California, Lakewood, California, and El
Segundo, California, will be transferred to New Rockwell and are not included in
the Statement of Assets and Liabilities.
5. OTHER ASSETS
Other assets are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------- JUNE 30,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
Prepaid pension costs (see Note 13)................... $1,057 $1,158 $ 1,239
Deferred income taxes (see Note 14)................... 144 93 44
Investments and other assets.......................... 30 50 51
------ ------ ------
Other assets..................................... $1,231 $1,301 $ 1,334
====== ====== ======
</TABLE>
F-32
<PAGE> 169
A&D BUSINESS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. OTHER CURRENT LIABILITIES
Other current liabilities are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------- JUNE 30,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
Contract reserves..................................... $ 34 $ 88 $ 105
Accounts payable -- other............................. 13 17 18
Accrued product warranties............................ 18 12 10
Accrued taxes other than income taxes................. 17 15 6
Accrued interest...................................... 4 15 36
Other................................................. 16 32 30
------ ------ ------
Other current liabilities........................ $ 102 $ 179 $ 205
====== ====== ======
</TABLE>
7. BORROWINGS
Pursuant to the Merger Agreement and subject to the consent of the holders
of a majority of each series of notes, North American will be the sole obligor
of $2,165 million of borrowings of Rockwell, which is equal to the face value of
all domestic short- and long-term borrowings of Rockwell at June 30, 1996.
Accordingly, the Statement of Assets and Liabilities includes all domestic
short-term debt and the following long-term debt:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------- JUNE 30,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
7-5/8% notes, payable in 1998......................... $ 300 $ 300
8-7/8% notes, payable in 1999......................... $ 300 300 300
8-3/8% notes, payable in 2001......................... 200 200 200
6-3/4% notes, payable in 2002......................... 300 300 300
7-7/8% notes, payable in 2005......................... 200 200
6-5/8% notes, payable in 2005......................... 300 300
Less unamortized discount............................. (1) (3) (3)
------ ------ ------
Total....................................... $ 799 $1,597 $ 1,597
====== ====== ======
</TABLE>
At September 30, 1995, aggregate maturities of long-term debt during the
five years ending September 30, 2000 were as follows (in millions): 1996, $0;
1997, $1; 1998, $300; 1999, $300; and 2000, $0.
The weighted average interest rates on short-term borrowings were 4.9% and
5.8% at September 30, 1994 and 1995, respectively.
Interest expense included in the Statement of Income has been allocated to
A&D based on the actual interest expense associated with the borrowings to be
retained by North American.
8. FINANCIAL INSTRUMENTS
A&D's financial instruments include cash, short- and long-term debt, and
foreign currency forward exchange contracts. The carrying values of A&D's
financial instruments approximated their fair values based on current market
prices and rates with the exception of long-term debt and derivatives. The fair
value of long-term debt was $805 million, $1,673 million and $1,625 million at
September 30, 1994 and 1995 and June 30, 1996, respectively.
F-33
<PAGE> 170
A&D BUSINESS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
It is the policy of A&D not to enter into derivative financial instruments
for speculative purposes. A&D does enter into foreign currency forward exchange
contracts to protect itself from adverse currency rate fluctuations on foreign
currency commitments entered into in the ordinary course of business. The
foreign currency forward exchange contracts consist principally of contracts
related to firm identifiable commitments pursuant to various long-term contracts
denominated in Australian dollars. The contracts are for terms of up to seven
years and are executed with creditworthy banks. The notional amount of
outstanding foreign currency forward exchange contracts aggregated $26 million,
$220 million and $202 million at September 30, 1994 and 1995 and June 30, 1996,
respectively. The net unrealized market gain on foreign currency contracts was
$1.2 million, $15.9 million and $24.6 million at September 30, 1994 and 1995 and
June 30, 1996, respectively. A&D does not anticipate any material adverse effect
on its results of operations or its assets and liabilities relating to these
foreign currency forward exchange contracts.
9. CONTRACT SALES
Sales under fixed-price contracts are generally recorded upon delivery.
Sales under all cost-type and certain fixed-price-type contracts requiring
performance over several periods are accounted for under the
percentage-of-completion (cost-to-cost) method of accounting.
Expected profits or losses on contracts are based on A&D's estimates of
total sales values and costs at completion. These estimates are reviewed and
revised periodically throughout the lives of the contracts, and adjustments
resulting from such revisions are recorded in the periods in which the revisions
are made. In certain cases the estimated sales values include amounts expected
to be realized from contract adjustments or claims subject to negotiations or
legal proceedings. Losses on contracts are recorded in full as they are
identified.
Sales under United States Government contracts accounted for 89 percent of
total sales in 1993 and 91 percent in both 1994 and 1995. United States
Government sales by contract type were as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Cost........................................................ 75 % 81 % 83 %
Firm-fixed-price............................................ 19 13 13
Fixed-price-incentive....................................... 6 6 4
--- --- ---
Total............................................. 100 % 100 % 100 %
=== === ===
</TABLE>
The major portion of work performed for the United States Government is
under contracts that contain cost or performance incentives or both. These
incentives provide for increases in fees or profits for surpassing stated
targets or other criteria, or for decreases in fees or profits for failure to
achieve such targets or other criteria. Performance incentives, for which a
reasonable prediction of accomplishment cannot be made in advance, are included
in sales at the time there is sufficient information to relate actual
performance to targets or other criteria.
10. RENTAL AND LEASE INFORMATION
A&D leases certain facilities and equipment under operating leases, many of
which contain renewal options and escalation clauses. Total rental expense on
operating leases (net of immaterial income from sublease rentals) was $28
million, $22 million and $20 million in 1993, 1994 and 1995, respectively.
Contingent rentals under operating leases were not significant.
Minimum future rental commitments under operating leases having
noncancelable lease terms in excess of one year aggregated $94 million as of
September 30, 1995 and are payable as follows (in millions): 1996, $16; 1997,
$13; 1998, $12; 1999, $11; 2000, $9; and after 2000, $33.
F-34
<PAGE> 171
A&D BUSINESS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. RESEARCH AND DEVELOPMENT COSTS
A&D performs research and development under both company-initiated programs
and contracts with others, primarily the United States Government.
Company-initiated programs include independent research and development and bid
and proposal work related to government products or services and research and
development for commercial products. A large portion of the costs incurred for
independent research and development and bid and proposal work are allowable
overhead costs on government contracts. Research and development costs are
comprised of the following:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Company-initiated.................................... $ 158 $ 146 $ 151
Government-funded.................................... 900 870 934
------ ------ ------
Total research and development costs....... $1,058 $1,016 $1,085
====== ====== ======
</TABLE>
12. RETIREMENT MEDICAL PLANS
A&D sponsors retirement medical plans which cover most of its United States
employees and provide for the payment of medical costs of eligible employees and
dependents upon retirement.
The components of retirement medical expense are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost -- benefits attributed to service during the
period................................................. $ 10 $ 8 $ 5
Interest accrued on accumulated retirement medical
obligation............................................. 118 95 97
Amortization of plan amendments and net actuarial
gains.................................................. (20) (35) (35)
------ ------ ------
Retirement medical expense............................... $ 108 $ 68 $ 67
====== ====== ======
</TABLE>
A&D's retirement medical obligation at September 30 consisted of the
following:
<TABLE>
<CAPTION>
1994 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
Accumulated retirement medical obligation:
Retirees....................................................... $1,046 $1,080
Employees eligible to retire................................... 90 85
Employees not eligible to retire............................... 97 88
------ ------
Total.................................................. $1,233 $1,253
------ ------
Unamortized amounts:
Plan amendments................................................ 248 213
Net actuarial gains............................................ 90 50
------ ------
Recorded liability............................................... $1,571 $1,516
====== ======
Assumptions used (June 30 measurement date):
Discount rate.................................................. 8.25% 7.5%
Health care cost trend rates................................... 8.5%* 8.5%*
</TABLE>
- ---------------
* Decreasing to 5.5% after 2015
Changing the health care cost trend rates by one percentage point would
change the accumulated retirement medical obligation at September 30, 1995 by
approximately $93 million and would change retirement medical expense by
approximately $8 million.
F-35
<PAGE> 172
A&D BUSINESS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. RETIREMENT PENSION PLANS
A&D sponsors pension plans which cover most of its employees and provide
for monthly pension payments to eligible employees upon retirement. Pension
benefits for salaried employees generally are based on years of credited service
and average earnings. Pension benefits for hourly employees generally are based
on specified benefit amounts and years of service.
Net pension income consisted of the following:
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year........ $ (59) $ (64) $ (55)
Interest accrued on projected benefit obligation....... (319) (315) (324)
Assumed return on plan assets.......................... 406 426 439
Initial net asset amortization......................... 113 113 113
Prior service cost amortization........................ (24) (13) (12)
Net actuarial loss amortization........................ (9) (33) (8)
----- ----- -----
Net pension income................................ $ 108 $ 114 $ 153
===== ===== =====
</TABLE>
Pension plan assets are primarily equity securities, United States
Government obligations, and fixed income investments whose values are subject to
fluctuations of the securities market. The actual return on plan assets was $587
million, $69 million and $879 million in 1993, 1994 and 1995, respectively.
Pursuant to the Merger Agreement, pension plan obligations attributable to
New Rockwell United States active employees as of January 1, 1996 and a
proportionate share of pension plan assets will be transferred from the Rockwell
Retirement Plan for Eligible Employees (Rockwell Retirement Plan) to a newly
established New Rockwell Retirement Plan. The Rockwell Retirement Plan will
retain pension plan obligations attributable to all current and former United
States employees of A&D as well as former United States employees of the non-A&D
businesses who terminated employment prior to January 1, 1996 and a
proportionate share of pension plan assets. The following table reconciles the
funded status of the Rockwell Retirement Plan (after giving effect to the
anticipated transfer of obligations and assets to the New Rockwell Retirement
Plan) to amounts included in the Statement of Assets and Liabilities:
<TABLE>
<CAPTION>
1994 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
Accumulated benefit obligation, principally vested............... $5,560 $6,148
Effects of projected compensation increases...................... 235 253
------ ------
Projected benefit obligation..................................... 5,795 6,401
Fair value of plan assets........................................ 6,439 7,106
------ ------
Plan assets in excess of projected benefit obligation............ 644 705
Items not yet recognized in the financial statements:
Net actuarial losses........................................... 943 864
Prior service cost............................................. 34 27
Remaining initial net asset.................................... (564) (438)
------ ------
Prepaid pension costs at September 30............................ $1,057 $1,158
====== ======
Assumptions used (June 30 measurement date):
Discount rate.................................................. 8.25% 7.5%
Compensation increase rate..................................... 4.5% 4.5%
Long-term rate of return on plan assets........................ 9.0% 9.0%
</TABLE>
F-36
<PAGE> 173
A&D BUSINESS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Should A&D terminate the Rockwell Retirement Plan, the United States
Government would be entitled to an equitable share of any assets remaining after
providing for Plan obligations.
A&D sponsors defined contribution savings plans for eligible employees.
Employer contributions related to these plans were $52 million, $48 million and
$45 million for 1993, 1994 and 1995, respectively.
14. INCOME TAXES
The operations of A&D are included in the consolidated income tax returns
of Rockwell. Pursuant to the Merger Agreement, New Rockwell will indemnify North
American for all income tax liabilities and retain rights to all tax refunds
relating to operations prior to the merger date. Accordingly, the Statement of
Assets and Liabilities does not include current or prior period income tax
receivables or payables. The income tax provisions included in the Statement of
Income have been determined as if A&D were a separate taxpayer.
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Current:
United States............................................... $125 $ 66 $ 32
Foreign..................................................... 5 (7) (1)
State and local............................................. 35 18 11
---- ---- ----
Total current............................................ 165 77 42
---- ---- ----
Deferred:
United States............................................... (21) 62 67
State and local............................................. (4) 15 17
---- ---- ----
Total deferred........................................... (25) 77 84
---- ---- ----
Provision for income taxes.................................... $140 $154 $126
==== ==== ====
</TABLE>
Net deferred income tax benefits included in Other Current Assets in the
Statement of Assets and Liabilities at September 30 consist of the tax effects
of temporary differences as follows:
<TABLE>
<CAPTION>
1994 1995
---- ----
(IN MILLIONS)
<S> <C> <C>
Accrued compensation and benefits.................................... $ 24 $ 23
Contract reserves.................................................... 22 41
Workers' compensation reserves....................................... 13 12
Deferred contract revenues........................................... (41) (51)
Accrued product warranties........................................... 7 4
Other -- net......................................................... 35 44
---- ----
Current deferred income taxes........................................ $ 60 $ 73
==== ====
</TABLE>
F-37
<PAGE> 174
A&D BUSINESS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Net deferred income tax benefits included in Other Assets in the Statement
of Assets and Liabilities at September 30 consist of the tax effects of
temporary differences as follows:
<TABLE>
<CAPTION>
1994 1995
----- -----
(IN MILLIONS)
<S> <C> <C>
Accrued retirement medical costs.................................... $ 580 $ 558
Loss carryforwards.................................................. -- 28
Pension costs....................................................... (420) (459)
Property............................................................ (26) (16)
Other -- net........................................................ 10 10
----- -----
Subtotal............................................................ 144 121
Valuation allowance................................................. -- (28)
----- -----
Long-term deferred income taxes..................................... $ 144 $ 93
===== =====
</TABLE>
Management believes it is more likely than not that current and long-term
tax assets will be realized through the reduction of future taxable income.
Significant factors considered by management in its determination of the
probability of the realization of the deferred tax assets included: (a) the
historical operating results of A&D ($1.1 billion of United States income before
income taxes over the past three fiscal years), (b) expectations of future
earnings, and (c) the extended period of time over which the retirement medical
liability will be paid. The valuation allowance has been established for the tax
benefits related to net operating loss carryforwards acquired in connection with
a business combination. These net operating loss carryforwards are available
indefinitely.
The consolidated effective tax rate was different from the United States
statutory rate for the reasons set forth below:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate............................................. 35.0% 35.0% 35.0%
State and local income taxes................................... 5.2 5.2 5.3
Foreign income taxes........................................... 1.4
Tax credits.................................................... (3.3) (3.7) (4.3)
Deferred income tax rate changes............................... (1.4)
Other.......................................................... (.9) .4 .7
---- ---- ----
Effective tax rate............................................. 36.0% 36.9% 36.7%
==== ==== ====
</TABLE>
The income tax provisions were calculated based upon the following
components of income before income taxes:
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
United States income.......................................... $ 376 $ 413 $ 342
Foreign income................................................ 13 4 1
---- ---- ----
Total............................................... $ 389 $ 417 $ 343
==== ==== ====
</TABLE>
No provision has been made for United States, state, or additional foreign
income taxes related to approximately $25 million of undistributed earnings of
foreign subsidiaries which have been or are intended to be permanently
reinvested.
F-38
<PAGE> 175
A&D BUSINESS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
15. CONTINGENT LIABILITIES
Various lawsuits, claims and proceedings have been or may be instituted or
asserted against A&D relating to the conduct of its business, including those
pertaining to product liability, environmental, safety and health, employment,
and government contract matters. Pursuant to the Merger Agreement, New Rockwell
will indemnify North American for certain environmental and government contract
matters. Although the outcome of litigation and claims cannot be predicted with
certainty and some lawsuits, claims, or proceedings may be disposed of
unfavorably to North American, management believes the disposition of matters
which are pending or asserted will not have a material adverse effect on A&D's
financial statements.
16. JOINT VENTURE
Rockwell and Lockheed Martin Corporation have formed a joint venture,
United Space Alliance, LLC (USA), to oversee the National Aeronautics and Space
Administration's (NASA) Space Shuttle program, including flight operations,
ground operations, flight-certified hardware and software elements, and related
subcontracts. On June 1, 1996, Rockwell transferred its Space Operations
Contract and related assets and liabilities to USA and on October 1, 1996,
intends to transfer its contract for logistics at Kennedy Space Center and
related assets and liabilities to USA.
The accompanying financial statements include sales of approximately $430
million per year related to the contracts with NASA which will be managed by USA
in fiscal 1997. A&D will recognize its share of the earnings of USA using the
equity method of accounting.
F-39
<PAGE> 176
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of New Rockwell International Corporation:
We have audited the accompanying balance sheet of New Rockwell
International Corporation (a wholly-owned subsidiary of Rockwell International
Corporation) as of September 16, 1996. This balance sheet is the responsibility
of the company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of New Rockwell International Corporation (a
wholly-owned subsidiary of Rockwell International Corporation) as of September
16, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
September 16, 1996
F-40
<PAGE> 177
NEW ROCKWELL INTERNATIONAL CORPORATION
BALANCE SHEET
SEPTEMBER 16, 1996
<TABLE>
<S> <C>
Shareowners' Equity
Common stock, $1.00 par value:
1,000 shares authorized; 1 share issued and outstanding....................... $ 1
Additional paid-in capital....................................................... 999
Receivable from Rockwell International Corporation............................... (1,000)
-------
$ --
=======
</TABLE>
F-41
<PAGE> 178
NEW ROCKWELL INTERNATIONAL CORPORATION
NOTE TO BALANCE SHEET
SEPTEMBER 16, 1996
NOTE -- BASIS OF PRESENTATION
The balance sheet of New Rockwell International Corporation (New Rockwell),
consists of the accounts of an inactive wholly-owned subsidiary of Rockwell
International Corporation (the company). New Rockwell was incorporated in
Delaware on August 29, 1996 in anticipation of a proposed reorganization of the
company. The reorganization, which is expected to be completed by the end of
1996, will result in the transfer to New Rockwell of substantially all of the
company's businesses and assets except those used in or held primarily for use
in or otherwise necessary for the operation, as presently conducted, of the
company's Aerospace and Defense businesses and certain corporate and other
assets and liabilities. The transfer will be recorded at book value, which is
estimated at approximately $5.5 billion.
Once the proposed reorganization is completed, New Rockwell will be renamed
Rockwell International Corporation.
F-42
<PAGE> 179
APPENDIX I
LOGO
July 31, 1996
Board of Directors
Rockwell International Corporation
World Headquarters
2201 Seal Beach Boulevard
Seal Beach, CA 90740-8250
Ladies and Gentlemen:
We understand that Rockwell International Corporation ("Rockwell" or the
"Company"), The Boeing Company ("Boeing" or the "Acquiror") and a wholly owned
subsidiary of Acquiror ("Acquisition Sub"), have entered into an Agreement and
Plan of Merger, dated as of July 31, 1996, (the "Merger Agreement"), which
provides, among other things, for the acquisition of the Company's Aerospace and
Defense businesses ("A&D") by the Acquiror through a merger (the "Merger") of
Acquisition Sub with and into the Company. We further understand that prior to
the Merger, some or all of Acquiror, the Company, a to be formed wholly owned
subsidiary of the Company ("Newco") and certain other subsidiaries of the
Company or Newco now existing or to be formed (collectively the "Operating
Subsidiaries") propose to enter into an Agreement and Plan of Distribution, a
Post-Closing Covenants Agreement and a Tax Allocation Agreement substantially in
the forms thereof attached to the Merger Agreement (together with the Merger
Agreement, the "Agreements"), which provide, among other things, for (i) the
contribution by the Company to Newco and/or the Operating Subsidiaries of
certain assets, (ii) the contribution by the Company to Newco of the capital
stock of the Operating Subsidiaries and certain other assets, (iii) assumption
by Newco and the Operating Subsidiaries of certain liabilities of the Company
(the transactions contemplated by clauses (i), (ii), and (iii) are collectively
referred to as the "Contribution"), and (iv) immediately following the
Contribution, all of the issued and outstanding shares of Common Stock and Class
A Common Stock, each par value $1.00 per share, of Newco (collectively, the
"Newco Common Stock"), will be distributed on a share-for-share basis (the
"Distribution" and together with the Merger, the "Transactions") to the holders
of shares of Common Stock, par value $1.00 per share, of the Company (the
"Company Common Stock") and Class A Common Stock, par value $1.00 per share, of
the Company ("Company Class A Common Stock"), respectively. Immediately
following the Distribution (i) each issued and outstanding share of Company
Class A Common Stock will be mandatorily converted into Company Common Stock
(the "Conversion") and (ii) each issued and outstanding share of Company Common
Stock following the Conversion, other than shares held in treasury or held by
Acquiror or any subsidiary of the Company or the Acquiror, will be converted
into the right to receive a certain number of shares of Common Stock, par value
$5.00 per share, of the Acquiror (the "Acquiror Common Stock"), determined
pursuant to a certain formula set forth in the Merger Agreement. The terms and
conditions of the Transactions are more fully set forth in the Agreements.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of Company Common Stock and Company Class A
Common Stock pursuant to the Distribution and the Merger, taken as a whole, is
fair from a financial point of view to such holders.
For purposes of the opinion set forth herein, we have:
(i) analyzed certain publicly available financial statements and other
information regarding the Company and the Acquiror, respectively;
(ii) analyzed certain internal financial statements and other
financial and operating data concerning the Company prepared by the
management of the Company;
I-1
<PAGE> 180
(iii) analyzed certain financial projections prepared by the
management of the Company;
(iv) discussed the past and current operations and financial condition
and the prospects of the Company with senior executives of the Company;
(v) discussed the past and current operations and financial condition
and the prospects of the Acquiror with senior management of the Acquiror;
(vi) reviewed and analyzed the pro forma financial effect of the
Transactions on the Company and the Acquiror;
(vii) reviewed the reported prices and trading activity for the
Company Common Stock and the Acquiror Common Stock;
(viii) compared the financial performance of the Company and the
Acquiror and the prices and trading activity of the Company Common Stock
and the Acquiror Common Stock with that of certain other comparable
publicly-traded companies and their securities;
(ix) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
(x) participated in discussions and negotiations among representatives
of the Company, the Acquiror and their financial and legal advisors;
(xi) participated in discussions with and responded to inquiries from
certain third parties concerning a possible transaction involving A&D;
(xii) reviewed the Merger Agreement, Distribution Agreement and
certain related documents; and
(xiii) performed such other analyses and considered such other factors
as we have deemed appropriate.
We have assumed and relied upon without independent verification of the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company, A&D, and Newco. We have not made any independent valuation or appraisal
of the assets or liabilities of the Company or the Acquiror, nor have we been
furnished with any such appraisals. Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to us as of, the date hereof. In addition we have, with your approval,
assumed the Transactions will be consummated in accordance with the terms set
forth in the Agreements, including, among other things, that the Transactions
will each be treated as a tax-free reorganization pursuant to the Internal
Revenue Code of 1986.
We have acted as financial advisor to the Board of Directors of Rockwell in
connection with this transaction and will receive a fee for our services, a
significant portion of which is contingent upon consummation of the
Transactions. In the past, Morgan Stanley & Co. Incorporated and its affiliates
have provided financial advisory and financing services for Rockwell and Boeing
and have received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company; except that this letter may be included in its
entirety in any filings made by the Company with the Securities and Exchange
Commission in connection with the Transactions. In addition, we express no
opinion as to the price at which the shares of Newco Common Stock will actually
trade following consummation of the Transactions, and we express no
recommendation as to how the holders of Company Common Stock and Company Class A
Common Stock should vote at the shareholders' meeting held in connection with
the Transactions.
I-2
<PAGE> 181
Based on the foregoing, we are of the opinion on the date hereof that the
consideration to be received by the holders of shares of Company Common Stock
and Company Class A Common Stock pursuant to the Distribution and the Merger,
taken as a whole, is fair from a financial point of view to such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ GORDON E. DYAL
------------------------------------
Gordon E. Dyal
Managing Director
I-3
<PAGE> 182
APPENDIX II
LOGO
July 31, 1996
Board of Directors
Rockwell International Corporation
2201 Seal Beach Boulevard
Seal Beach, California 90740
Ladies and Gentlemen:
We understand that Rockwell International Corporation (the "Company") is
considering a transaction whereby The Boeing Company ("Boeing") would acquire
the Aerospace and Defense businesses ("A&D") of the Company (the "Merger"),
pursuant to the terms of an Agreement and Plan of Merger, dated as of July 31,
1996 (the "Merger Agreement"), and related agreements, following the tax-free
spin-off to the Company's shareholders of a newly formed subsidiary ("New
Rockwell") which will hold substantially all of the businesses and assets, and
certain of the liabilities, of the Company other than A&D (the "Distribution",
and collectively with the Merger, the "Transactions"). Pursuant to the Merger
Agreement, immediately after the Distribution and immediately prior to the
Merger, all outstanding shares of the Company's Class A common stock, $1.00 par
value (the "Company Class A Common Shares"), will be converted into shares of
common stock, $1.00 par value, of the Company ("Company Common Stock"), and in
the Merger all outstanding shares of Company Common Stock will be converted into
approximately $860 million in shares of Boeing common stock (subject to
adjustment as provided for in the Merger Agreement), par value $5.00 per share,
and Boeing will assume or guarantee approximately $2.165 billion aggregate
principal amount of existing Company indebtedness. The terms and conditions of
the Transactions are more fully set forth in the Merger Agreement and the
exhibits thereto.
You have requested our opinion as to whether the consideration to be
received by the shareholders of the Company in the Transactions is fair, from a
financial point of view, to such shareholders.
For its services, Dillon, Read & Co. Inc. ("Dillon Read") will receive a
fee, all of which is contingent upon the consummation of the Transactions. In
the ordinary course of business, Dillon Read trades the debt and equity
securities of the Company and Boeing for our own account and the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
In arriving at our opinion, we have, among other things: (i) reviewed
certain publicly available business and historical financial information
relating to the Company and Boeing, (ii) reviewed certain financial information
and other data provided to us by the Company that is not publicly available
relating to the business and prospects of A&D, including financial projections
for A&D prepared by the managements of A&D and the Company, (iii) conducted
discussions with members of the senior managements of A&D, the Company and
Boeing, (iv) reviewed publicly available financial and stock market data with
respect to certain other companies in lines of business we believe to be
generally comparable to those of A&D, (v) reviewed the historical market prices
and trading volumes of the common stock of Boeing, (vi) compared the financial
terms of the Merger with the financial terms of certain other transactions which
we believe to be generally comparable to the Merger, (vii) reviewed the Merger
Agreement and related agreements in the form provided to us, and (viii)
conducted such other financial studies, analyses and investigations, and
considered such other information as we deemed necessary or appropriate. Our
opinion does not address the Company's underlying business decision to effect
the Transactions or constitute a recommendation to any shareholder of the
II-1
<PAGE> 183
LOGO
Company as to how such shareholder should vote with respect to the Transactions.
Our opinion does not imply any conclusion as to the likely trading range for the
common stocks of Boeing or New Rockwell following the consummation of the
Transactions, which may vary depending on numerous factors which generally
influence the price of securities, nor constitute a recommendation to
shareholders of the Company with respect to the advisability of disposing or
retaining such common stocks of Boeing or New Rockwell. With your consent, we
have assumed that the Transactions will be treated as tax-free to both the
Company and the shareholders of the Company.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have, with your
consent, relied on its being complete and accurate in all material respects. In
addition, we have not made any evaluation or appraisal of any of the assets or
liabilities (contingent or otherwise) of A&D, the Company or Boeing, nor have we
been furnished with any such evaluation or appraisal. We have not been requested
to, nor have we, solicited third party offers for the acquisition of all or any
portion of A&D. With respect to the financial projections referred to above, we
have assumed, with your consent, that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's and A&D's managements as to the future financial performance of A&D.
Further, our opinion is based on economic, monetary and market conditions
existing on the date hereof. Our opinion is also based on the fact that the
Distribution will be on a pro rata basis to the shareholders of the Company.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be received by the shareholders of the Company
in the Transactions is fair to such shareholders from a financial point of view.
Very Truly Yours,
/s/ DILLON, READ & CO. INC.
Dillon, Read & Co. Inc.
II-2
<PAGE> 184
APPENDIX III
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF JULY 31, 1996,
AMONG
ROCKWELL INTERNATIONAL CORPORATION,
THE BOEING COMPANY
AND
BOEING NA, INC.
- --------------------------------------------------------------------------------
<PAGE> 185
TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I
THE MERGER
1.1. The Merger..................................................................... 1
1.2. Effective Time................................................................. 2
1.3. Closing........................................................................ 2
1.4. Certificate of Incorporation of the Surviving Corporation...................... 2
1.5. By-laws of the Surviving Corporation........................................... 2
1.6. Directors...................................................................... 2
1.7. Officers....................................................................... 2
ARTICLE II
MERGER CONSIDERATION; CONVERSION
OR CANCELLATION OF SHARES IN THE MERGER
2.1. Merger Consideration; Conversion or Cancellation of Shares..................... 2
2.2. Exchange of Certificates....................................................... 4
ARTICLE III
CERTAIN PRE-MERGER TRANSACTIONS
3.1. Consent Solicitation........................................................... 6
3.2. Ancillary Agreements........................................................... 6
3.3. Contribution of Assets and Assumption of Liabilities........................... 6
3.4. Distribution................................................................... 6
3.5. Conversion of Class A Common Stock............................................. 7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1. Representations and Warranties of the Company.................................. 7
4.2. Representations and Warranties of Acquiror and Sub............................. 19
ARTICLE V
COVENANTS
5.1. Covenants of the Company....................................................... 22
5.2. Covenant of Acquiror........................................................... 24
5.3. Tax-Free Contribution, Distribution and Merger................................. 25
5.4. Other Actions; Notification of Certain Matters................................. 25
5.5. Acquisition Proposals; Board Recommendation.................................... 25
5.6. Tax Representation Letters..................................................... 26
5.7. Filings; Other Actions......................................................... 27
5.8. Accountants' Letters........................................................... 28
5.9. Access......................................................................... 28
5.10. Distribution Agreement......................................................... 29
5.11. Publicity...................................................................... 29
5.12. Benefits....................................................................... 29
5.13. Expenses....................................................................... 30
5.14. Takeover Statutes.............................................................. 30
</TABLE>
III-i
<PAGE> 186
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
5.15. Securities Act Compliance...................................................... 31
5.16. Stock Exchange Listing......................................................... 31
5.17. Indebtedness................................................................... 31
5.18. Short-Term Debt................................................................ 31
ARTICLE VI
CONDITIONS
6.1. Conditions to Each Party's Obligation to Effect the Merger..................... 31
6.2. Conditions to Obligation of the Company........................................ 32
6.3. Conditions to Obligations of Acquiror and Sub.................................. 33
ARTICLE VII
TERMINATION
7.1. Termination by Mutual Consent.................................................. 34
7.2. Termination by Either the Company or Acquiror.................................. 34
7.3. Termination by the Company..................................................... 34
7.4. Termination by Acquiror........................................................ 34
7.5. Effect of Termination and Abandonment.......................................... 35
ARTICLE VIII
MISCELLANEOUS AND GENERAL
8.1. Survival....................................................................... 35
8.2. Modification or Amendment...................................................... 35
8.3. Waiver; Remedies............................................................... 35
8.4. Counterparts................................................................... 35
8.5. Governing Law.................................................................. 35
8.6. Notices........................................................................ 35
8.7. Entire Agreement............................................................... 36
8.8. Certain Obligations............................................................ 37
8.9. Assignment..................................................................... 37
8.10. Definition of "Subsidiary"..................................................... 37
8.11. Captions....................................................................... 37
8.12. Specific Performance........................................................... 37
8.13. Severability................................................................... 37
8.14. No Third Party Beneficiaries................................................... 37
8.15. Annexes and Schedules.......................................................... 37
8.16. No Representations or Warranties............................................... 37
8.17. Consent to Jurisdiction........................................................ 38
8.18. Definition of "Knowledge"...................................................... 38
</TABLE>
III-ii
<PAGE> 187
AGREEMENT AND PLAN OF MERGER dated as of July 31, 1996 (this "Agreement"),
among ROCKWELL INTERNATIONAL CORPORATION, a Delaware corporation (the
"Company"), THE BOEING COMPANY, a Delaware corporation ("Acquiror") and BOEING
NA, INC., a Delaware corporation and a wholly-owned subsidiary of Acquiror
("Sub").
W I T N E S S E T H :
WHEREAS, the Board of Directors of the Company has approved an agreement
and plan of distribution substantially in the form of Annex A attached hereto
(the "Distribution Agreement"), which will be entered into prior to the
Effective Time (as defined in Section 1.2), pursuant to which and subject to the
terms of which (a) all the assets of the Company, other than the Retained Assets
(as defined in the Distribution Agreement), will be contributed by the Company
to a wholly-owned Subsidiary (as defined in Section 8.10) of the Company to be
formed by the Company (such wholly-owned Subsidiary of the Company is referred
to herein as "Newco") and/or to one or more of the Operating Subsidiaries (as
defined in Section 3.2), (b) all the liabilities of the Company, other than the
Retained Liabilities (as defined in the Distribution Agreement), will be assumed
by Newco and/or by one or more of the Operating Subsidiaries and (c) all of the
issued and outstanding shares of Common Stock, par value $1.00 per share, of
Newco ("Newco Common Stock") and Class A Common Stock, par value $1.00 per
share, of Newco ("Newco Class A Common Stock"), in each case with the associated
Rights (as defined in the Distribution Agreement), will be distributed to the
holders of shares of Common Stock, par value $1.00 per share, of the Company
("Company Common Stock") and Class A Common Stock, par value $1.00 per share, of
the Company ("Company Class A Common Stock"), respectively, on a share-for-share
basis (the "Distribution");
WHEREAS, immediately following the Time of Distribution (as defined in the
Distribution Agreement) and immediately prior to the Effective Time, all issued
and outstanding shares of Company Class A Common Stock will be mandatorily
converted on a share-for-share basis into shares of Company Common Stock (the
"Conversion");
WHEREAS, the respective Boards of Directors of the Company, Acquiror and
Sub have determined that, following the Contribution (as defined in Section 3.3)
and the Distribution, the merger of Sub with and into the Company (the
"Merger"), with the Company as the surviving corporation, would be in the best
interests of their respective corporations and stockholders; and
WHEREAS, it is the intention of the parties to this Agreement that for
Federal income tax purposes (a) the Contribution and the Distribution shall
qualify as transactions described in Sections 351 and 355 of the Internal
Revenue Code of 1986, as amended (the "Code") and/or a "reorganization" within
the meaning of Section 368(a)(1)(D) of the Code and (b) the Merger shall qualify
as a "reorganization" within the meaning of Section 368(a)(1)(B) of the Code;
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, at the Effective Time, Sub will be merged with and into the
Company and the separate corporate existence of Sub will thereupon cease. The
Company, as the surviving corporation in the Merger (sometimes hereinafter
referred to as the "Surviving Corporation"), will continue to be governed by the
laws of the State of Delaware. The Merger will have the effects specified in the
Delaware General Corporation Law (the "DGCL"). Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time, all of the
properties, rights, privileges, powers, franchises, debts, liabilities,
obligations and duties of the Company will continue in the Surviving Corporation
unaffected by the Merger.
III-1
<PAGE> 188
1.2. Effective Time. As soon as practicable following the satisfaction or
waiver of the conditions set forth in Article VI, the parties will file a
certificate of merger (the "Certificate of Merger") executed in accordance with
the relevant provisions of the DGCL and will make all other filings or
recordings required under the DGCL to consummate the Merger. The Merger will
become effective upon the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware or at such other time as the parties hereto
may agree and as may be specified in the Certificate of Merger in accordance
with applicable law. The date and time when the Merger becomes effective is
herein referred to as the "Effective Time".
1.3. Closing. The closing of the Merger (the "Closing") will take place
(i) at the offices of Cravath, Swaine & Moore, 825 Eighth Avenue, New York, New
York, at 9:30 A.M. on the first business day on which all the conditions set
forth in Article VI (other than those that are waived by the party or parties
for whose benefit such conditions exist) are fulfilled or (ii) at such other
place, date and/or time as the parties hereto may agree. The date upon which the
Closing occurs is herein referred to as the "Closing Date".
1.4. Certificate of Incorporation of the Surviving Corporation. At the
Effective Time, in accordance with the DGCL, the Restated Certificate of
Incorporation of the Company (the "Company Charter"), as in effect immediately
prior to the Effective Time, will be amended to change the name of the Company
to "Boeing North American, Inc." and, as so amended, will be the certificate of
incorporation of the Surviving Corporation (the "Surviving Corporation's
Certificate of Incorporation") until amended in accordance with the terms
thereof and applicable law.
1.5. By-laws of the Surviving Corporation. The by-laws of the Company (the
"Company By-laws"), as in effect at the Effective Time, will be the by-laws of
the Surviving Corporation until amended in accordance with the terms thereof,
the Surviving Corporation's Certificate of Incorporation and applicable law.
1.6. Directors. The directors of Sub at the Effective Time will be the
directors of the Surviving Corporation until the earlier of their resignation or
removal or until their respective successors are duly elected and qualified, as
the case may be.
1.7. Officers. The officers of Sub at the Effective Time will be the
officers of the Surviving Corporation until the earlier of their resignation or
removal or until their respective successors are duly elected and qualified, as
the case may be.
ARTICLE II
MERGER CONSIDERATION; CONVERSION
OR CANCELLATION OF SHARES IN THE MERGER
2.1. Merger Consideration; Conversion or Cancellation of Shares.
(a) At the Effective Time, by virtue of the Merger and without any further
action on the part of the holders of any shares of capital stock of the Company
or any shares of capital stock of Sub:
(i) Each share of Company Common Stock (A) issued and outstanding
immediately prior to the Effective Time and (1) owned by Acquiror or any of
its wholly-owned Subsidiaries (but not by any employee benefit plan of
Acquiror or any of its Subsidiaries) or (2) owned by any Subsidiary of the
Company (but not by any employee benefit plan of the Company or any of its
Subsidiaries) or (B) held in the treasury of the Company immediately prior
to the Effective Time will cease to be outstanding, will be canceled and
retired without payment of any consideration therefor and will cease to
exist.
(ii) Subject to Section 2.2(c), each share of Company Common Stock
issued and outstanding immediately prior to the Effective Time (other than
shares to be canceled in accordance with Section 2.1(a)(i)) will be
converted into the right to receive that number (the "Per Share Merger
Consideration") of duly authorized, validly issued, fully paid and
nonassessable shares of common stock, par value $5.00 per share, of
Acquiror ("Acquiror Common Stock"), including associated rights to purchase
Series A Junior Participating Preferred Stock of Acquiror, equal to the
quotient, rounded to the nearest thousandth, or if there shall not be a
nearest thousandth, the next higher thousandth, of (x) the
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quotient of (A) $859,832,000 divided by (B) the number of shares of Company
Common Stock issued and outstanding immediately prior to the Effective Time
(after giving effect to the Conversion) (other than shares to be canceled
in accordance with Section 2.1 (a)(i)), divided by (y) the Market Price (as
defined below) of Acquiror Common Stock on the date of the Company Meeting
(as defined in Section 4.1(f)(iii)). The "Market Price" of Acquiror Common
Stock on any date means the average of the daily closing prices per share
of Acquiror Common Stock as reported on the New York Stock Exchange
("NYSE") Composite Transactions reporting system (as published in The Wall
Street Journal or, if not published therein, in another authoritative
source mutually selected by the Company and Acquiror) for the 20
consecutive full NYSE trading days (the "Averaging Period") immediately
preceding the second full NYSE trading day prior to such date; provided
that (A) if the Board of Directors of Acquiror declares a dividend on the
outstanding shares of Acquiror Common Stock having a record date after the
Effective Time but an ex-dividend date (based on "regular way" trading on
the NYSE of shares of Acquiror Common Stock, (the "Ex-Date")) that occurs
during the Averaging Period, then for purposes of computing the Market
Price, the closing price on the Ex-Date and any trading day in the
Averaging Period after the Ex-Date will be adjusted by adding thereto the
amount of such dividend and (B) if the Board of Directors of Acquiror
declares a dividend on the outstanding shares of Acquiror Common Stock
having a record date before the Effective Time and an Ex-Date that occurs
during the Averaging Period, then for purposes of computing the Market
Price, the closing price on any trading day before the Ex-Date will be
adjusted by subtracting therefrom the amount of such dividend.
Notwithstanding anything to the contrary contained herein, in the event
that the Market Price of Acquiror Common Stock on the date of the Company
Meeting is less than $74.23 (the "Minimum Price"), then solely for the
purposes of calculating the Per Share Merger Consideration, the Market
Price of Acquiror Common Stock on the date of the Company Meeting will be
deemed to be the Minimum Price, and in the event that the Market Price of
Acquiror Common Stock on the date of the Company Meeting is greater than
$100.42 (the "Maximum Price"), then solely for the purposes of calculating
the Per Share Merger Consideration, the Market Price of Acquiror Common
Stock on the date of the Company Meeting will be deemed to be the Maximum
Price. If prior to the Effective Time, the Board of Directors of Acquiror
declares a stock split, stock combination, stock dividend or other non-cash
distribution or extraordinary cash dividend on the outstanding shares of
Acquiror Common Stock, or Acquiror issues or sells (i) shares of Acquiror
Common Stock at a price per share that is lower at the date of such
issuance or sale than the closing price per share of Acquiror Common Stock
as reported on the NYSE Composite Transactions reporting system (as
published as aforesaid) on the full NYSE trading day immediately preceding
such issue or sale date (other than pursuant to any bona fide underwritten
public offering or offering pursuant to Rule 144A) or (ii) rights, options
or warrants for, or securities convertible or exchangeable into or
exercisable for, shares of Acquiror Common Stock, entitling the holders
thereof to subscribe for or purchase shares of Acquiror Common Stock at a
price per share that, together with the consideration paid to Acquiror upon
the issuance or sale of such securities, is lower at the record date for
such issuance than the closing price per share of Acquiror Common Stock as
reported on the NYSE Composite Transactions reporting system (as published
as aforesaid) on the full NYSE trading day immediately preceding such
record date (other than pursuant to any existing employee benefit plan or
arrangement (including any Acquiror Option Plan (as defined in Section
4.2(d))), then the Minimum Price, Maximum Price and the Market Price will
be appropriately adjusted to reflect such split, combination, dividend,
issuance, sale or other distribution.
(iii) All shares of Company Common Stock referred to in Section
2.1(a)(ii) will cease to be outstanding, will be canceled and retired and
will cease to exist, and each holder of a certificate (an "Old
Certificate") formerly representing such shares will thereafter cease to
have any rights with respect to such shares, except the right to receive,
without interest, upon exchange of such Old Certificate in accordance with
Section 2.2, the shares of Acquiror Common Stock and any payment to which
such holder is entitled pursuant to this Article II.
(b) At the Effective Time, by virtue of the Merger, each issued and
outstanding share of capital stock of Sub will be converted into and become
one fully paid and nonassessable share of Common Stock, par value $1.00 per
share, of the Surviving Corporation.
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2.2. Exchange of Certificates.
(a) Appointment of Exchange Agent. As of the Effective Time, Acquiror will
deposit with Mellon Bank, N.A., c/o Chase Mellon Shareholder Services, or
another bank or trust company appointed by Acquiror with the Company's prior
approval (the "Exchange Agent"), for the benefit of the holders of Old
Certificates, for exchange in accordance with this Article II, certificates
("New Certificates") representing Acquiror Common Stock in amounts sufficient to
allow the Exchange Agent to make all deliveries of New Certificates that may be
required in exchange for Old Certificates pursuant to this Article II. Acquiror
will provide to the Exchange Agent on a timely basis funds necessary to pay any
cash payable in lieu of fractional shares of Acquiror Common Stock pursuant to
Section 2.2(c) and funds and other property necessary to pay or make any
dividends or distributions with respect to shares of Acquiror Common Stock
pursuant to Section 2.2(d).
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Acquiror will cause the Exchange Agent to mail or deliver to
each person who was, at the Effective Time, a holder of record of an Old
Certificate a letter of transmittal (which will specify that delivery will be
effected, and risk of loss and title to the Old Certificates will pass, only
upon delivery of the Old Certificates to the Exchange Agent and will be in such
form and contain such other provisions as Acquiror and Newco may reasonably
specify) containing instructions for use in effecting the surrender of Old
Certificates in exchange for New Certificates and payments pursuant to this
Article II. Upon surrender to the Exchange Agent of an Old Certificate for
cancellation together with such letter of transmittal, duly executed and
completed in accordance with the instructions thereto, the holder of such Old
Certificate will be entitled to receive in exchange therefor a New Certificate
representing that number of whole shares of Acquiror Common Stock which such
holder has the right to receive pursuant to the provisions of this Article II, a
check in the amount of any cash which such holder has the right to receive
pursuant to this Article II for cash in lieu of fractional shares of Acquiror
Common Stock pursuant to Section 2.2(c) and any cash dividends with respect to
Acquiror Common Stock pursuant to Section 2.2(d) and any other dividends or
distributions with respect to Acquiror Common Stock pursuant to Section 2.2(d),
and the Old Certificate so surrendered will forthwith be canceled. No interest
will be paid or will accrue on the amount payable upon surrender of Old
Certificates. Until surrendered as contemplated by this Section 2.2, each Old
Certificate will be deemed at any time after the Effective Time to represent
only the right to receive, upon surrender of such Old Certificate, the New
Certificate, cash in lieu of fractional shares of Acquiror Common Stock and any
dividends or distributions with respect to shares of Acquiror Common Stock as
contemplated by this Section 2.2. In the event of a transfer of ownership of
Company Common Stock that is not registered on the transfer records of the
Company, New Certificates representing the proper number of shares of Acquiror
Common Stock and any cash in lieu of fractional shares and any dividends or
distributions as aforesaid may be issued to a person other than the person in
whose name the Old Certificate so surrendered is registered, if such Old
Certificate is properly endorsed or otherwise in proper form for transfer and
the person requesting such issuance pays any transfer or other taxes required by
reason of the issuance of shares of Acquiror Common Stock and any cash in lieu
of fractional shares and any dividends or distributions as aforesaid to a person
other than the registered holder of such Old Certificate or establish to the
satisfaction of Acquiror that such tax has been paid or is not applicable. Six
months after the Effective Time, Acquiror will be entitled to cause the Exchange
Agent to deliver to it any New Certificates, cash or other property (including
any interest thereon) deposited with the Exchange Agent that is unclaimed by the
former holders of Company Common Stock. Any such former holders of Company
Common Stock who have not theretofore exchanged their Old Certificates for New
Certificates and cash and other property pursuant to this Article II will
thereafter be entitled to look exclusively to Acquiror and only as general
creditors thereof for the Acquiror Common Stock and cash and other property to
which they become entitled upon exchange of their Old Certificates pursuant to
this Article II (including cash in lieu of fractional shares of Acquiror Common
Stock pursuant to Section 2.2(c) and any dividends or distributions with respect
to Acquiror Common Stock pursuant to Section 2.2(d)). Notwithstanding the
foregoing, neither the Exchange Agent nor any party hereto will be liable to any
former holder of Company Common Stock for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws. Acquiror will pay all charges and expenses, including those of the
Exchange Agent, in connection with the exchange of New Certificates and cash for
Old Certificates as contemplated hereby.
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(c) Fractional Shares. Notwithstanding Section 2.1 or any other provision
of this Section 2.2, no fractional shares of Acquiror Common Stock will be
issued hereunder and any holder of Company Common Stock entitled hereunder to
receive a fraction of a share of Acquiror Common Stock but for this Section
2.2(c) will be entitled hereunder to receive a cash payment in lieu thereof,
without interest, in an amount, less the amount of any withholding taxes which
may be required thereon, equal to the product of (i) the fraction of a share to
which such holder would otherwise have been entitled multiplied by (ii) the
Market Price of Acquiror Common Stock on the date of the Company Meeting
determined in accordance with Section 2.1(a)(ii), but without regard for the
Minimum Price or the Maximum Price. For purposes of paying such cash in lieu of
fractional shares, all Old Certificates representing shares of Company Common
Stock surrendered for exchange by a Company stockholder on the same letter of
transmittal shall be aggregated, and no such Company stockholder will receive
cash in lieu of fractional shares in an amount equal to or greater than the
value of one full share of Acquiror Common Stock with respect to such Old
Certificates surrendered.
(d) Distributions with Respect to Unexchanged Shares. Notwithstanding any
other provisions of this Agreement, after the Effective Time no dividends or
other distributions with respect to Acquiror Common Stock with a record date
after the Effective Time will be paid to any person holding an Old Certificate
until such Old Certificate is surrendered for exchange as provided herein.
Subject to the effect of applicable laws, following surrender of any such Old
Certificate by any holder thereof, there will be paid to the holder of the New
Certificate issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore payable with respect to the Acquiror
Common Stock represented thereby, less the amount of any withholding taxes which
may be required thereon, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to the time of such surrender and a payment date subsequent to the time of
such surrender payable with respect to the Acquiror Common Stock represented
thereby, less the amount of any withholding taxes which may be required thereon.
(e) No Further Ownership Rights in Company Common Stock. All shares of
Acquiror Common Stock issued upon the surrender for exchange of Old Certificates
in accordance with the terms of this Article II, any cash in lieu of fractional
shares of Acquiror Common Stock paid pursuant to Section 2.2(c) or any dividend
or distribution paid or made with respect to Acquiror Common Stock pursuant to
Section 2.2(d) will be deemed to have been issued, paid and made in full
satisfaction of all rights pertaining to the shares of Company Common Stock
theretofore represented by such Old Certificates, and there will be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time, Old
Certificates are presented to the Surviving Corporation or the Exchange Agent
for any reason, they will be canceled and exchanged as provided in this Article
II.
(f) No Liability. In the event that any Old Certificate has been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Old Certificate to be lost, stolen or destroyed and, if required
by the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Old Certificate, the
Surviving Corporation will, in exchange for such lost, stolen or destroyed Old
Certificate, issue or cause to be issued the number of shares of Acquiror Common
Stock and pay or cause to be paid the amounts deliverable in respect thereof
pursuant to this Article II.
(g) Withholding Rights. The Surviving Corporation will be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of Company Common Stock such amounts as may be required
to be deducted and withheld with respect to the making of such payment under the
Code, or under any provision of state, local or foreign Tax (as defined in the
Tax Allocation Agreement (as defined in Section 3.2)) law. To the extent that
amounts are so withheld and paid over to the appropriate taxing authority, such
withheld amounts will be treated for all purposes of this Agreement as having
been paid to the holder of Company Common Stock in respect of which such
deduction and withholding was made.
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(h) Transfer Taxes. Acquiror will pay or cause to be paid any Transfer
Taxes (as defined in the Tax Allocation Agreement) (other than Transfer Taxes
imposed solely on stockholders) imposed in connection with or as a result of the
Merger; provided that Newco will reimburse Acquiror for one-half of such amount
promptly after demand therefor, except to the extent that the Company has made
such reimbursement prior to the Effective Time.
ARTICLE III
CERTAIN PRE-MERGER TRANSACTIONS
The following transactions shall occur prior to the Effective Time:
3.1. Consent Solicitation. The Company and Acquiror will use their
reasonable best efforts (which may include the payment of consent solicitation
fees which shall be the sole responsibility, and in such amounts as are
determined in the sole discretion, of Acquiror) to consummate, on or prior to
the date of the Company Meeting, a consent solicitation or solicitations
(collectively, the "Consent Solicitation") and pursuant thereto to obtain from
the holders of each series of outstanding notes of the Company (the "Old Company
Notes") issued pursuant to that certain Indenture dated as of October 1, 1982
between the Company and Chemical Bank (as successor by merger to Manufacturers
Hanover Trust Company), as Trustee (the "Trustee"), as supplemented by the First
Supplemental Indenture dated as of February 27, 1987 between the Company and the
Trustee (such Indenture and First Supplemental Indenture are hereinafter
collectively referred to as the "Indenture"), consents to the waiver or
amendment of certain covenants in the Indenture (including, without limitation,
Sections 8.01 and 7.04 thereof). Subject to the foregoing, Acquiror will manage
and control all aspects of the Consent Solicitation, including decisions as to
the timing, sequence and terms of the solicitation and the nature, form, amount
and allocation of solicitation fees (if any) to be paid. However, Acquiror will
keep the Company apprised on a regular basis of all significant developments
relating to the Consent Solicitation and will consult with the Company prior to
taking any significant actions or making any significant decisions in connection
therewith.
Acquiror will use its reasonable best efforts to register under the
Securities Act of 1933, as amended (the "Securities Act"), and make applicable
to each outstanding Old Company Note, effective as of the Effective Time, a full
and unconditional guarantee by Acquiror of the Company's obligations under the
Old Company Notes in form and substance reasonably satisfactory to the Company
and Acquiror (the "Guarantee").
3.2. Ancillary Agreements. Prior to the Distribution, the Company will (a)
execute and deliver the Distribution Agreement, a tax allocation agreement
substantially in the form of Annex B attached hereto (the "Tax Allocation
Agreement") and a post-closing covenants agreement substantially in the form of
Annex C attached hereto (the "Post-Closing Covenants Agreement"), (b) cause
Newco to execute and deliver the Distribution Agreement, the Tax Allocation
Agreement and the Post-Closing Covenants Agreement and (c) cause each of
Allen-Bradley Company, Inc., Rockwell Collins, Inc., Rockwell Semiconductor
Systems, Inc., Rockwell Light Vehicle Systems, Inc., Rockwell Heavy Vehicle
Systems, Inc. and (if the Graphics Sale, as defined in the Distribution
Agreement, has not been consummated) Rockwell Graphic Systems, Inc.
(collectively, the "Operating Subsidiaries") to execute and deliver the
Distribution Agreement. Prior to the Distribution, Acquiror will execute and
deliver the Tax Allocation Agreement and the Post-Closing Covenants Agreement
and Sub will execute and deliver the Post-Closing Covenants Agreement.
3.3. Contribution of Assets and Assumption of Liabilities. Immediately
prior to the Distribution and pursuant to the terms of the Distribution
Agreement, the Company, Newco and the Operating Subsidiaries will consummate the
contribution of assets and assumption of liabilities contemplated by Article II
of the Distribution Agreement. For the purposes of this Agreement, (i) the
"Contribution" means the contribution of certain assets and the assumption of
certain liabilities contemplated by Article II of the Distribution Agreement and
(ii) the "Retained Business" means the Retained Assets and the Retained
Liabilities.
3.4. Distribution. Prior to the Effective Time, and pursuant to the terms
of Article III of the Distribution Agreement, the Company will cause Newco to be
recapitalized and effect the Distribution.
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3.5. Conversion of Class A Common Stock. Effective immediately following
the Time of Distribution and immediately prior to the Effective Time and
pursuant to Section 3.2(iv) under the heading "Common Stock and Class A Common
Stock" contained in Article Fourth of the Company Charter, the Board of
Directors of the Company will effect the Conversion. From and after the
Conversion, there will be no transfers on the stock transfer books of the
Company of the shares of Company Class A Common Stock which were issued and
outstanding immediately prior to the Conversion.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1. Representations and Warranties of the Company. Except as set forth in
the Disclosure Schedule (the "Company Disclosure Schedule") delivered by the
Company to Acquiror simultaneously with the execution and delivery of this
Agreement, the Company hereby represents and warrants to Acquiror as follows:
(a) Corporate Organization. As used in this Agreement, (i) any
reference to the Company and its Subsidiaries means the Company and each of
its Subsidiaries, (ii) any reference to the "Retained Company" and its
Subsidiaries or the Surviving Corporation and its Subsidiaries or the
"Retained Companies" means the Company (solely with respect to the Retained
Business) and those of its direct and indirect Subsidiaries included in the
Retained Business, (iii) any reference to the "Retained Subsidiaries" means
the direct and indirect Subsidiaries of the Company included in the
Retained Business, (iv) any reference to Newco and its Subsidiaries or the
"Newco Companies" means Newco immediately after the Time of Distribution
and those entities that immediately after the Time of Distribution will be
direct or indirect Subsidiaries of Newco and (v) any reference to
Subsidiaries of Newco means those entities that immediately after the Time
of Distribution will be direct or indirect Subsidiaries of Newco. As used
in this Agreement, any reference to any state of facts, event, change or
effect having a "Material Adverse Effect" on or with respect to an entity
(or group of entities taken as a whole) means such state of facts, event,
change or effect has had, or would reasonably be expected to have, a
material adverse effect on the business, properties, results of operations
or financial condition of such entity (or, if with respect thereto, of such
group of entities taken as a whole), or on the ability of such entity (or
group of entities) to consummate the transactions contemplated hereby,
including the Contribution, the Distribution and the Merger, or to perform
its obligations under this Agreement, the Distribution Agreement, the
Post-Closing Covenants Agreement and the Tax Allocation Agreement
(collectively, the "Reorganization Agreements") to which it is or will be a
party. The Company is, and Newco will be, a corporation duly incorporated,
validly existing and in good standing under the laws of the State of
Delaware. Each Retained Subsidiary is, and each Operating Subsidiary is or
will be, a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation as set
forth in the Company Disclosure Schedule. Each of the Retained Companies
is, and Newco and each Operating Subsidiary is or will be, duly qualified
and in good standing as a foreign corporation in each jurisdiction in which
the properties owned, leased or operated, or the business conducted, by it
require such qualification, except for any such failure so to qualify or be
in good standing which, individually or in the aggregate, would not have a
Material Adverse Effect on the Retained Companies, taken as a whole, or a
material adverse effect on the ability of the Newco Companies to consummate
the transactions contemplated by, or to satisfy their obligations under,
the Reorganization Agreements. Each of the Retained Companies has, and
Newco and each Operating Subsidiary has or will have, the requisite
corporate power and authority to carry on its businesses as they are now
being or will be (immediately after the Time of Contribution) conducted.
The Company has heretofore made available to Acquiror complete and correct
copies of the Company Charter and the Company By-laws and the certificate
of incorporation and by-laws, or the comparable organizational documents,
of each of the Retained Subsidiaries, each as amended to date and currently
in full force and effect.
(b) Corporate Authority. The Company has, and each of Newco and the
Operating Subsidiaries will have, the requisite corporate power and
authority to execute, deliver and perform each Reorganiza-
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tion Agreement to which it is or will be a party and to consummate the
transactions contemplated thereby (other than, with respect to the Merger,
the approval and adoption of this Agreement by the affirmative vote of the
holders of Company Common Stock and Company Class A Common Stock, voting
together as a class, entitled to cast at least a majority of the total
number of votes entitled to be cast, formal declaration of the Distribution
by the Company's Board of Directors and approval of the Contribution and
the Distribution by the affirmative vote of the holders of Company Common
Stock and Company Class A Common Stock, voting together as a class,
entitled to cast at least a majority of the total number of votes entitled
to be cast). The execution, delivery and performance of each Reorganization
Agreement by the Company and the consummation by the Company of the
Contribution, the Distribution and the Merger and of the other transactions
contemplated thereby have been duly authorized by the Company's Board of
Directors, and no other corporate proceedings on the part of the Company
are necessary to authorize any Reorganization Agreement or for the Company
to consummate the transactions so contemplated (other than, with respect to
the Merger, the approval and adoption of this Agreement by the affirmative
vote of the holders of Company Common Stock and Company Class A Common
Stock, voting together as a class, entitled to cast at least a majority of
the total number of votes entitled to be cast, formal declaration of the
Distribution by the Company's Board of Directors and approval of the
Contribution and the Distribution by the affirmative vote of the holders of
Company Common Stock and Company Class A Common Stock, voting together as a
class, entitled to cast at least a majority of the total number of votes
entitled to be cast). The execution, delivery and performance by each of
Newco and the Operating Subsidiaries of each Reorganization Agreement to
which it will be a party and the consummation by it of the transactions
contemplated thereby will be duly authorized by such entity's Board of
Directors and its stockholder, if required, and no other corporate
proceedings on the part of such entity will be necessary to authorize any
Reorganization Agreement to which it will be a party or for it to
consummate the transactions so contemplated. Each Reorganization Agreement
to which the Company, Newco or any of the Operating Subsidiaries is or will
be a party is, or when executed and delivered will be, a valid and binding
agreement of such party, enforceable against such party in accordance with
the terms thereof. At least two-thirds of the Continuing Directors (as
defined in Section 3.H. of Article Fifteenth of the Company Charter) of the
Company have approved the execution, delivery and performance by the
Company of this Agreement and the consummation of the transactions
contemplated hereby and the execution, delivery and performance by the
Company, Newco and the Operating Subsidiaries of the other Reorganization
Agreements to which they will be parties and the consummation of the
transactions contemplated thereby, and such approval is sufficient to
render inapplicable to the Merger and the other transactions contemplated
by the Reorganization Agreements the provisions of Section 1 of Article
Fifteenth of the Company Charter.
(c) No Violations; Consents and Approvals. (i) None of the execution,
delivery or performance by the Company, Newco and the Operating
Subsidiaries of each Reorganization Agreement to which any of them is or
will be a party or the consummation by the Company, Newco and the Operating
Subsidiaries of the transactions contemplated thereby (A) will conflict
with, or result in a violation or breach of, the Company Charter or the
Company By-laws or the certificate of incorporation or by-laws, or
comparable organizational documents, of Newco or any Operating Subsidiary
or (B) will conflict with, or result in a violation or breach of, or
constitute a default (with or without due notice or lapse of time or both)
under, or give rise to any right of termination, amendment, cancellation or
acceleration of any material obligation under, or result in the creation of
any adverse claim, restriction on voting or transfer or pledge, lien,
charge, encumbrance or security interest of any kind (a "Lien") upon any of
the properties or assets of the Company or Newco or any Subsidiary of
either under, (1) any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, contract, agreement, obligation,
understanding, commitment or other arrangement (a "Contract") or of any
license, franchise, permit, concession, certificate of authority, order,
approval, application or registration from, of or with a Governmental
Entity (as defined below) (a "Permit") to which the Company or any of its
Subsidiaries is a party or by which any of their properties or assets may
be bound or (2) subject to the governmental filings and other matters
referred to in clause (ii) below, any judgment, order, decree, statute,
law, regulation or rule applicable to the Company or any of its
Subsidiaries, except, in the case of clause (B), for conflicts,
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violations, breaches, defaults, rights or Liens that would not,
individually or in the aggregate, have a Material Adverse Effect on the
Retained Companies, taken as a whole, or a material adverse effect on the
ability of the Newco Companies to consummate the transactions contemplated
by, or to satisfy their obligations under, the Reorganization Agreements.
(ii) Except for consents, approvals, orders, authorizations,
registrations, declarations or filings as may be required under, and other
applicable requirements of, the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Securities Act and the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), filings
under state securities or "blue sky" laws and the filing of the Certificate
of Merger (collectively, the "Regulatory Filings") and other consents,
approvals, orders, authorizations, registrations, declarations, filings and
agreements expressly provided for in the Reorganization Agreements, no
consent, approval, order or authorization of, or registration, declaration
or filing with, any government or any court, arbitral tribunal,
administrative agency or commission or other governmental or other
regulatory authority or agency, Federal, state, local or foreign (a
"Governmental Entity"), is required with respect to the Company, Newco or
any Subsidiary of either, in connection with the execution, delivery or
performance by the Company, Newco and the Operating Subsidiaries of each
Reorganization Agreement to which any of them is or will be a party or the
consummation by the Company, Newco and the Operating Subsidiaries of the
transactions contemplated thereby (except where the failure to obtain such
consents, approvals, orders or authorizations, or to make such
registrations, declarations, filings or agreements would not, individually
or in the aggregate, have a Material Adverse Effect on the Retained
Companies, taken as a whole, or a material adverse effect on the ability of
the Newco Companies to consummate the transactions contemplated by, or to
satisfy their obligations under, the Reorganization Agreements).
(d) Capital Stock. The authorized capital stock of the Company
consists of (i) 600,000,000 shares of Company Common Stock and 200,000,000
shares of Company Class A Common Stock, of which an aggregate of
218,455,290 shares of Company Common Stock and Company Class A Common Stock
were issued and outstanding as of the close of business on July 25, 1996,
and (ii) 12,000,000 shares of preferred stock, without par value ("Company
Preferred Stock"), of which none are issued and outstanding or reserved for
issuance. As of the close of business on July 25, 1996, there were
outstanding under the Company's 1979 Stock Plan for Key Employees, the
Company's Directors Stock Plan, the Company's 1995 Long-Term Incentives
Plan and the Company's 1988 Long-Term Incentives Plan (collectively, the
"Company Stock Plans") options to acquire an aggregate of 10,834,113 shares
of Company Common Stock and 180,890 shares of Company Class A Common Stock
(subject to adjustment on the terms set forth in the Company Stock Plans).
As of the close of business on July 25, 1996, the Company had no shares of
Company Common Stock or Company Class A Common Stock reserved for issuance,
other than (i) shares of Company Common Stock reserved for issuance upon
conversion of Company Class A Common Stock and (ii) shares of Company
Common Stock and Company Class A Common Stock reserved for issuance
pursuant to the Company Stock Plans. All of the outstanding shares of
Company Common Stock and Company Class A Common Stock have been, and all
shares of Company Common Stock and Company Class A Common Stock which may
be issued pursuant to the terms of any options, securities or plans
referred to above will be, when issued, duly authorized and validly issued,
and are or will be, when issued, fully paid and nonassessable. Immediately
after the Time of Distribution and immediately prior to the Effective Time,
the Conversion shall have been consummated and, as a result thereof, as of
the Effective Time no shares of Company Class A Common Stock will be
outstanding and no shares of Company Class A Common Stock will be issuable
pursuant to the terms of any options, securities or plans referred to above
or reserved for issuance. The Company has outstanding no bonds, debentures,
notes or other obligations or securities (other than the Company Common
Stock and Company Class A Common Stock) the holders of which have the right
to vote (or are convertible or exchangeable into or exercisable for
securities having the right to vote other than Company Common Stock or
Company Class A Common Stock) with the stockholders of the Company on any
matter. Except as set forth above, as of the date of this Agreement, there
are no securities convertible into or exchangeable for, or options,
warrants, calls, subscriptions, rights or Contracts of any kind to which
the Company or any of its Subsidiaries is a party or by which any of them
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is bound obligating the Company or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other voting securities of the Company or of any
of the Retained Subsidiaries. There are no outstanding Contracts of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any shares of capital stock of the Company.
(e) Subsidiaries.
(i) The Company Disclosure Schedule lists each Retained Subsidiary.
Each of the outstanding shares of capital stock of each of the Retained
Subsidiaries has been duly authorized and validly issued, is fully paid
and nonassessable and, except for an immaterial number of shares held by
nominees of the Company and the Retained Subsidiaries, is owned, either
directly or indirectly, by the Company free and clear of all Liens.
There are no Contracts obligating the Company, or restricting the
Company's rights, to transfer, sell or vote, the capital stock of the
Retained Subsidiaries owned by it, directly or indirectly.
(ii) As of the date hereof the Company does not, directly or
indirectly, own any capital stock or other ownership interest in any
corporation, partnership, joint venture or other entity included in the
Retained Business (other than the Retained Subsidiaries listed on the
Company Disclosure Schedule) that is material to the Retained Business
or have any Contract relating to the issuance, sale or purchase of any
ownership interest in any such entity (other than the Retained
Subsidiaries listed on the Company Disclosure Schedule).
(f) SEC Filings.
(i) The Company has filed all reports, schedules, forms, statements
and other documents required to be filed by it with the Securities and
Exchange Commission (the "SEC") under the Securities Act and the
Exchange Act since September 30, 1995 (the "Company SEC Documents"). As
of its filing date, each Company SEC Document filed, as amended or
supplemented, if applicable, (A) complied in all material respects with
the applicable requirements of the Securities Act or the Exchange Act,
as applicable, and the rules and regulations thereunder and (B) did not,
at the time it was filed (and at the effective date thereof, in the case
of a registration statement), contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. Except to the extent that
information contained in any Company SEC Document has been revised or
superseded by a later Filed Company SEC Document (as defined in Section
4.1(h)), none of the Company SEC Documents as of the date hereof
contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(ii) The financial statements of the Company included in the
Company SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto and have been prepared in
accordance with United States generally accepted accounting principles
("GAAP") (except, in the case of unaudited statements, as permitted by
Form 10-Q of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto). Each of the
consolidated balance sheets of the Company and its Subsidiaries included
in or incorporated by reference into the Company SEC Documents
(including any related notes and schedules) fairly presents in all
material respects the consolidated financial position of the Company and
its Subsidiaries as of its date and each of the consolidated statements
of income, cash flows and shareowners' equity of the Company and its
Subsidiaries included in or incorporated by reference into the Company
SEC Documents (including any related notes and schedules) fairly
presents in all material respects the consolidated results of
operations, cash flows and retained earnings, as the case may be, of the
Company and its Subsidiaries for the periods set forth therein (subject,
in the case of unaudited statements, to normal year-end adjustments), in
each case in accordance with GAAP.
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(iii) None of the information supplied or to be supplied by the
Company or its representatives for inclusion or incorporation by
reference in (A) the registration statement on Form S-4 to be filed with
the SEC by Acquiror in connection with the issuance of shares of
Acquiror Common Stock in the Merger (the "Acquiror Form S-4"), the
registration statement on Form S-3 to be filed with the SEC by Acquiror
in connection with the Guarantee (the "Form S-3") or the registration
statement on Form S-4 to be filed with the SEC by Newco in connection
with the distribution of shares of Newco Common Stock and Newco Class A
Common Stock, in each case with the associated Rights, in the
Distribution (the "Newco Form S-4" and, together with the Acquiror Form
S-4 and the Form S-3, the "Registration Statements") will, at the time
such Registration Statements are filed with the SEC, at any time they
are amended or supplemented or at the time they become effective under
the Securities Act and at the Effective Time, in the case of the
Acquiror Form S-4 and the Form S-3, and at the time of the special
meeting of holders of Company Common Stock and Company Class A Common
Stock to be held in connection with the Merger, the Contribution and the
Distribution (the "Company Meeting"), and at the Time of Distribution,
in the case of the Newco Form S-4, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, (B) the proxy
statement-prospectus relating to the Company Meeting (the "Proxy
Statement-Prospectus") will, at the date mailed to the Company's
stockholders or at the time of the Company Meeting, contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading and (C) the consent statement (the "Consent Statement")
relating to the Consent Solicitation will, at the date mailed to holders
of Old Company Notes, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Newco Form
S-4 will comply as to form in all material respects with the provisions
of the Securities Act and the rules and regulations thereunder, and the
Proxy Statement-Prospectus will comply as to form in all material
respects with the provisions of the Exchange Act and the rules and
regulations thereunder, except that no representation is made by the
Company with respect to statements made therein based on information
supplied by Acquiror or any of its Subsidiaries for inclusion in the
Newco Form S-4 or the Proxy Statement-Prospectus, respectively, or with
respect to information concerning Acquiror or any of its Subsidiaries
incorporated by reference therein.
(g) Retained Business Financial Statements. (i) Included in the
Company Disclosure Schedule are (A) combined statements of assets and
liabilities as of September 30, 1995 and 1994 (the "Audited Balance
Sheets") and statements of combined income and combined cash flows for the
years ended September 30, 1995, 1994 and 1993, in each case for the
Retained Business (such financial statements, the "Retained Business
Audited Financial Statements"), together with the report of the Company's
independent accountants thereon, and (B) an unaudited combined statement of
assets and liabilities as of, and unaudited statements of combined income
and combined cash flows for the nine months ended, June 30, 1996 for the
Retained Business (such financial statements, the "Retained Business
Interim Financial Statements" and the statement of assets and liabilities
as of June 30, 1996 included therein, the "June 30 Balance Sheet"). Each of
the Audited Balance Sheets and the June 30 Balance Sheet (including any
related notes and schedules) fairly presents in all material respects the
combined financial position of the Retained Business as of its date, and
each of the statements of combined income and combined cash flows included
in the Retained Business Audited Financial Statements and the Retained
Business Interim Financial Statements (including any related notes and
schedules) fairly presents in all material respects the combined results of
operations and combined cash flows, as the case may be, of the Retained
Business for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end adjustments), in each case in
accordance with GAAP. The Retained Business Audited Financial Statements
and the Retained Business Interim Financial Statements may not necessarily
be indicative of the financial position, results of operations or cash
flows that would have existed if the Retained Business had operated as a
stand-alone company. The Retained Companies do not have any
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liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) with respect to any former or discontinued
business (other than any liabilities or obligations that constitute Assumed
Liabilities (as defined in the Distribution Agreement) and other than any
liabilities or obligations arising from or relating to a Discontinued
Business). As used herein, "Discontinued Business" means former or
discontinued operations of the Aerospace Business, the Defense Business or
the Additional Retained Facilities (i) that have not been sold, conveyed,
assigned, transferred or otherwise divested, in whole or in part, by the
Company or any of its Subsidiaries to any third party prior to the Time of
Contribution, (ii) that do not relate to any operations described in the
definition of "Special Liabilities" and (iii) either (a) for which the
Company continues to provide marketing, product support, spare parts or
other services as of the date of this Agreement or (b) that relate to, or
constitute the predecessor of, a continuing operation or product line of
the Aerospace Business, the Defense Business or the Additional Retained
Facilities (it being understood, for example, that a discontinued product
or product line or a completed contract would relate to, or constitute the
predecessor of, or constitute a continuing operation or product line if a
successor product or product line is currently being manufactured or sold
by the Aerospace Business, the Defense Business or the Additional Retained
Facilities) (all capitalized terms used in this definition and not defined
having the meanings ascribed thereto in the Distribution Agreement).
(ii) Except as provided below, the Retained Business includes all the
Company's right, title and interest (including minority interests) in and
to (a) all assets of the Company or any of its Subsidiaries that are used
primarily in or that are being held primarily for use in or that are
otherwise necessary for the operation, as presently conducted, of (i) the
Aerospace Business and the Defense Business (as such terms are defined in
the Distribution Agreement) of the Company, including, without limitation,
in the Company's Autonetics and Missile Systems Division, the Company's
North American Aircraft Division, the Company's North American Aircraft
Modification Division, the Company's Rocketdyne Division, the Company's
Space Systems Division and the Company's Airborne Laser Program, excluding
the Communication Systems Division but including Collins International
Service Company and Rockwell Australia Limited, and (ii) the Company's Seal
Beach, California headquarters, the Company's Systems Development Center,
the Company's Information Systems Center and the Company's Government
Affairs, Marketing and International Offices located in Washington, D.C.
(Arlington, VA) and related international and field offices listed in the
Company Disclosure Schedule and (b) whether or not included within the
assets set forth in clause (a) above, all assets (including, without
limitation, capital stock and partnership interests) reflected on the June
30 Balance Sheet, as such assets may have been added to, sold in the
ordinary course of business or otherwise changed since such date);
provided, however, that the Retained Business will exclude cash or cash
equivalents (except as otherwise provided in the Reorganization
Agreements), the Contributed A&D Assets identified on the Schedules to the
Distribution Agreement and the assets associated with the services to be
provided by Newco pursuant to Schedule 3.4 to the Post-Closing Covenants
Agreement and the assets associated with the headquarters functions
described in the Retained Business Audited Financial Statements.
(h) Absence of Certain Events and Changes. Except as disclosed in the
Company SEC Documents filed with the SEC and publicly available prior to
the date hereof (the "Filed Company SEC Documents") or as otherwise
contemplated by the Reorganization Agreements, since September 30, 1995 to
the date hereof the Company and its Subsidiaries have conducted the
Retained Business in the ordinary course, consistent with past practices,
and there have not been (i) any events, changes or developments which,
individually or in the aggregate, would have a Material Adverse Effect on
the Retained Companies, taken as a whole, or a material adverse effect on
the ability of the Newco Companies to consummate the transactions
contemplated by, or to satisfy their obligations under, the Reorganization
Agreements, other than events, changes or developments relating to the
economy in general or resulting from industry-wide developments affecting
companies in similar businesses; (ii) any declaration, setting aside or
payment of any dividend or other distribution with respect to the Company's
capital stock (other than cash dividends) or any redemption, purchase or
other acquisition of any of the Company's capital stock (other than, in
each case, for cash), (iii) (x) any granting by the Company or any of its
Subsidiaries to any officer of any Retained Company of any increase in
compensation, except in the ordinary course of business (including, but not
limited to, in connection with promotions) consistent
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with past practice or as was required under employment agreements in effect
as of September 30, 1995, (y) any granting by the Company or any of its
Subsidiaries to any such officer of any increase in severance or
termination pay, except as part of a standard employment package to any
person promoted or hired (but not including the five most senior officers),
or as was required under employment, severance or termination agreements in
effect as of September 30, 1995, or (z) except in the ordinary course of
business consistent with past practice, any entry by the Company or any of
its Subsidiaries into any employment, consulting, severance, termination or
indemnification agreement with any executive officer of any Retained
Company.
(i) Compliance with Applicable Laws. Except as disclosed in the Filed
Company SEC Documents, the Company and its Subsidiaries are in compliance
with all statutes, laws, regulations, rules, judgments, orders and decrees
of all Governmental Entities applicable to them that relate to the Retained
Business (including but not limited to the Truth-In-Negotiations-Act, the
Procurement Integrity Act, the Foreign Corrupt Practices Act, the Cost
Accounting Standards, the regulations and rules of applicable Governmental
Entities governing foreign military sales, and any other statutes, laws,
regulations, rules, judgments, orders and decrees incorporated expressly,
by reference or by operation of law into, or otherwise applicable to, any
Contract made with the United States of America (a "Government Contract")),
except where the failure to be in compliance would not, individually or in
the aggregate, have a Material Adverse Effect on the Retained Companies,
taken as a whole. Since September 30, 1995 to the date hereof, neither the
Company nor any Retained Subsidiary has received any written notice of any
administrative, civil or criminal investigation or audit (other than tax
audits) by any Governmental Entity (including any qui tam action brought
under the Civil False Claims Act alleging any irregularity, misstatement or
omission arising under or relating to any Government Contract) relating to
the Retained Business that, individually or in the aggregate, would have a
Material Adverse Effect on the Retained Companies, taken as a whole. This
Section 4.1(i) does not relate to employee benefits matters (for which
Section 4.1(m) is applicable), environmental matters (for which Section
4.1(n) is applicable) or tax matters (for which Section 4.1(l) is
applicable). Each of the Retained Companies has all Permits that are
required in order to permit it to carry on its business as it is presently
conducted, except where the failure to have such Permits would not,
individually or in the aggregate, have a Material Adverse Effect on the
Retained Companies, taken as a whole. All Permits are in full force and
effect, and the Retained Companies are in compliance with the terms of the
Permits, except where the failure to be in full force and effect or in
compliance would not, individually or in the aggregate, have a Material
Adverse Effect on the Retained Companies, taken as a whole.
(j) Title to Assets.
(i) Each of the Retained Companies has good title to its personal
properties and assets reflected on the June 30 Balance Sheet, except for
properties and assets disposed of in the ordinary course of business and
except for such defects in title which, individually or in the
aggregate, would not have a Material Adverse Effect on the Retained
Companies, taken as a whole, in each case free and clear of any Liens
except for Permitted Liens (as defined in clause (iii) below).
(ii) Each Retained Company has (A) good and insurable title to its
owned Retained Facilities and owned Additional Retained Facilities (as
such terms are defined in the Distribution Agreement and as set forth on
Schedules 2.1(b)(i)(A) and 2.1(b)(i)(B) thereto) and (B) valid and
subsisting leasehold interests in its leased Retained Facilities and
leased Additional Retained Facilities (as set forth on Schedules
2.1(b)(i)(A) and 2.1(b)(i)(B) to the Distribution Agreement), in each
case, free and clear of any Liens, except for (1) Permitted Liens, (2)
easements, covenants, rights-of-way, other matters of record and other
matters subject to which the leases of Retained Facilities and
Additional Retained Facilities are granted and (3) such state of facts
as an accurate survey would show.
(iii) "Permitted Liens" shall mean those Liens (A) referred to in
the June 30 Balance Sheet or the notes thereto, (B) referred to in the
Company Disclosure Schedule, (C) for Taxes not yet due or payable or
being contested in good faith, (D) that constitute mechanics',
carriers', workers' or like
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liens or (E) that, individually or in the aggregate, would not have a
Material Adverse Effect on the Retained Companies, taken as a whole.
(k) Litigation. To the Company's knowledge, the Company Disclosure
Schedule sets forth, as of the date hereof, (i) each suit, action or
proceeding which seeks damages of more than $1,000,000 and (ii) each
criminal investigation, in each case, pending against any of the Retained
Companies by or before any Governmental Entity. Except as disclosed in the
Filed Company SEC Documents, as of the date hereof there are no civil,
criminal or administrative actions, suits, claims, hearings, investigations
or proceedings pending or, to the knowledge of the Company, threatened,
against any of the Retained Companies (including any relating to the
suspension, debarment or similar preclusion of any Retained Company from
doing business with a Governmental Entity) that, individually or in the
aggregate, would have a Material Adverse Effect on the Retained Companies,
taken as a whole. Except as disclosed in the Filed Company SEC Documents,
as of the date hereof there are no outstanding judgments, orders, decrees,
stipulations or awards against any of the Retained Companies or their
respective properties or businesses that, individually or in the aggregate,
would have a Material Adverse Effect on the Retained Companies, taken as a
whole.
(l) Taxes. (i) No material Liens for Taxes exist with respect to any
of the assets or properties of any of the Retained Companies, except for
statutory liens for Taxes not yet due or payable or that are being
contested in good faith, (ii) all material Federal, state, local and
foreign Tax Returns (as defined in the Tax Allocation Agreement) required
to be filed by or on behalf of any of the Retained Companies, or any
consolidated, combined, affiliated or unitary group of which any of the
Retained Companies is or has ever been a member (together the "Company
Affiliated Group"), have been timely filed or requests for extensions have
been timely filed and any such extensions have been granted and have not
expired, (iii) each such Tax Return was complete and correct in all
material respects, (iv) all material Taxes with respect to taxable periods
covered by such Tax Returns and all other material Taxes for which any of
the Retained Companies is or might otherwise be liable (together "Relevant
Taxes") have been paid in full, or reserves therefor have been established
in accordance with generally accepted accounting principles on the balance
sheets contained in the Filed Company SEC Documents, and on a basis
consistent with past practice, (v) all Federal income Tax Returns filed by
or on behalf of the Company Affiliated Group have been examined by and
settled with the Internal Revenue Service (the "IRS"), or the statute of
limitations with respect to the relevant Tax liability has expired, for all
taxable periods through and including the period ended September 30, 1988,
(vi) all material Taxes due with respect to any completed and settled
audit, examination or deficiency litigation with any Taxing Authority (as
defined in the Tax Allocation Agreement) have been paid in full, (vii)
there is no audit, examination, deficiency, or refund litigation pending
with respect to any material Relevant Taxes and no Taxing Authority has
given written notice of the commencement of any audit, examination or
deficiency litigation, with respect to any material Relevant Taxes, (viii)
none of the Retained Companies is a party to a tax sharing agreement, (ix)
none of the Retained Companies shall be required to include in a taxable
period ending after the date on which the Effective Time occurs, a material
amount of taxable income attributable to income that economically accrued
in a prior taxable period as a result of Section 481 of the Code or any
comparable provision of state or local Tax law, (x) (A) no person has made
with respect to any of the Retained Companies, or with respect to any
property held by any of the Retained Companies, any consent under Section
341 of the Code and (B) none of the Retained Companies is a party to any
lease made pursuant to Section 168(f)(8) of the Internal Revenue Code of
1954, as amended and in effect prior to the date of enactment of the Tax
Equity and Fiscal Responsibility Act of 1982, (xi) there is no agreement or
other document extending, or having the effect of extending, the period of
assessment or collection of any Relevant Taxes, (xii) neither the Company
nor any of its Subsidiaries, nor any member of any controlled group (within
the meaning of Section 993(a)(3) of the Code) that includes the Company or
any of its Subsidiaries, nor any of their respective officers, directors,
employees or independent contractors acting on their behalf, has in any tax
year ended after September 30, 1986, participated in or cooperated with an
international boycott (within the meaning of Section 999(b)(3) of the Code)
and (xiii) neither the Company nor any of its Subsidiaries has taken any
action that would disqualify the Contribution and Distribution as
transactions described in Sections 351 or 355 of the Code
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and/or a "reorganization" within the meaning of Section 368(a)(1)(D) of the
Code or the Merger as a "reorganization" within the meaning of Section
368(a)(1)(B) of the Code.
(m) Employee Benefit Plans.
(i) With respect to each (A) "employee pension benefit plan" (as
defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")) (hereinafter a "Pension Plan"), (B)
"employee welfare benefit plan" (as defined in Section 3(1) of ERISA,
hereinafter a "Welfare Plan"), and (C) other plan, arrangement or policy
relating to stock options, stock purchases, compensation, deferred
compensation, severance, fringe benefits or other employee benefits
(hereinafter, an "Other Plan"), in each case maintained or contributed
to, or required to be maintained or contributed to, by the Company or
any of its Retained Subsidiaries or any other person or entity that,
together with the Company, is or was treated as a single employer under
Section 414(b), (c), (m) or (o) of the Code (each, together with the
Company, a "Commonly Controlled Entity") for the benefit of any present
or former directors, officers, employees, agents or independent
contractors of (1) any of the Retained Companies (all the foregoing
being herein called "Retained Company Plans") or (2) Newco or any of its
Subsidiaries with respect to which any of the Retained Companies has any
liability, in case of (1) or (2) except for any plan, arrangement or
policy for which Newco or one of its Subsidiaries has retained all
liability pursuant to Article VIII of the Distribution Agreement
(collectively, with the Retained Company Plans, the "Benefit Plans"),
the Company has delivered to Acquiror true, complete and correct copies
of each Benefit Plan that is a Pension Plan, a material Welfare Plan or
a material Other Plan. The Company has delivered (or, in the case of any
IRS Form 5500 under item (A) below filed (or required to be filed) on
July 31, 1996 or in the case of item (B) below, will deliver within 45
days of the date of execution of this Agreement or, if later, within 10
business days after it is filed) to Acquiror true, complete and correct
copies of (A) the most recent annual report on IRS Form 5500 (including
all schedules and attachments thereto) filed prior to July 31, 1996 with
the IRS with respect to each Benefit Plan that is a Pension Plan or a
material Welfare Plan (if any such report was required by applicable
law), and (B) the most recent summary plan description (or similar
document) for each Benefit Plan for which such a summary plan
description is required by applicable law or was otherwise provided to
plan participants or beneficiaries. To the knowledge of the Company,
each such IRS Form 5500 and each such summary plan description (or
similar document) was and is as of the date hereof true, complete and
correct in all material respects.
(ii) Each Benefit Plan has been administered in all material
respects in accordance with its terms. The Benefit Plans are on the date
hereof in compliance with the applicable provisions of ERISA and the
Code, the rules and regulations promulgated thereunder, all other
applicable laws and the terms of all applicable collective bargaining
agreements, except where such failure to be in compliance would not,
individually or in the aggregate, have a Material Adverse Effect on the
Retained Companies, taken as a whole. There are no investigations by any
Governmental Entity, or other claims (except routine claims for benefits
payable under the Benefit Plans), suits or proceedings against or with
respect to which any Benefit Plan is a party or asserting any rights to
or claims for benefits under any Benefit Plan that would give rise to
any liability that, individually or in the aggregate, would have a
Material Adverse Effect on the Retained Companies, taken as a whole. To
the Company's knowledge, there are no involuntary termination
proceedings which have been instituted against any Benefit Plans.
(iii) (A) All contributions to, and payments from, the Benefit
Plans that were required to be made in accordance with the terms of the
Benefit Plans, any applicable collective bargaining agreement and, when
applicable, Section 302 of ERISA or Section 412 of the Code, have been
timely made except where such failure would not result in material
liability to the Retained Companies, taken as a whole, (B) there has
been no application for waiver or waiver of the minimum funding
standards imposed by Section 412 of the Code with respect to any Benefit
Plan that is a Pension Plan (hereinafter a "Company Pension Plan") and
(C) no Company Pension Plan has or had at any time during the current
plan year an "accumulated funding deficiency" within the
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meaning of Section 412(a) of the Code. All such contributions to, and
payments from, the Benefit Plans, except those payments to be made from
a plan qualified under Section 401(a) of the Code, were properly accrued
and reflected in the Audited Balance Sheet as of September 30, 1995, to
the extent such contributions and payments were required to be so
accrued and reflected in accordance with GAAP.
(iv) Each Company Pension Plan that is intended to be a
tax-qualified plan has been the subject of either a (A) determination
letter from the IRS, or (B) pending determination letter request (a
"Determination Letter Request") filed with the IRS within the remedial
amendment period prescribed under Section 401(b) of the Code with
respect to compliance with the Tax Reform Act of 1986, in each case to
the effect that such Company Pension Plan is qualified under Section
401(a) of the Code, subject to the customary reservations as to the
plan's operational compliance with Code requirements; no such
determination letter has been revoked, and, to the Company's knowledge,
the IRS has not issued written notice of its intent to revoke the
qualified status of any such plan; to the Company's knowledge, no event
has occurred and no circumstances exist that would reasonably be
expected to result in the disqualification of such Company Pension Plan
or, with respect to each Determination Letter Request, would reasonably
be expected to cause the IRS not to issue a favorable determination
letter. The Company has delivered to Acquiror a copy of the most recent
determination letter received with respect to each Company Pension Plan
for which such a letter has been issued, as well as a copy of any
Determination Letter Request.
(v) (A) To the Company's knowledge, no Benefit Plan has engaged in
a "prohibited transaction" (as defined in Section 4975 of the Code or
Section 406 of ERISA) for which there is no exemption and, with respect
to any of the Retained Companies, has on the date hereof incurred any
material liability that has not been fully satisfied; (B) no Company
Pension Plan has been terminated by the Pension Benefit Guaranty
Corporation ("PBGC") or has been the subject of a "reportable event" (as
defined in Section 4043 of ERISA and the regulations thereunder) for
which the 30-day notice requirement has not been waived and (C) the
Company has not received written notice of the PBGC's intent to
terminate any such plan.
(vi) As of the most recent valuation date prior to the date hereof
for each Company Pension Plan that is a "defined benefit plan" (as
defined in Section 3(35) of ERISA (hereinafter a "Defined Benefit
Plan")), there was not any amount of "unfunded benefit liabilities" (as
defined in Section 4001(a)(18) of ERISA) under such Defined Benefit
Plan. The Company has furnished to Acquiror the most recent actuarial
report or valuation with respect to each Defined Benefit Plan.
(vii) No Commonly Controlled Entity has incurred any liability to a
Pension Plan (other than for contributions not yet due) or to the PBGC
(other than for the payment of premiums not yet due) that, when
aggregated with other such liabilities, would result in a material
liability to the Retained Companies, which liability has not been fully
paid as of the date hereof.
(viii) Except as contemplated by the Reorganization Agreements or
as specifically provided in the Benefit Plans heretofore delivered by
the Company to Acquiror (other than those Benefit Plans referred to in
Section 4.1(m)(xii)), no employee of the Company or any of its
Subsidiaries will be entitled to any additional benefits or any
acceleration of the time of payment or vesting of any benefits under any
Benefit Plan as a result of the transactions contemplated by this
Agreement which would result in a material liability to the Retained
Companies, taken as a whole.
(ix) No compensation payable by any of the Retained Companies to
any of their employees under any existing contract, Benefit Plan or
other employment arrangement or understanding (including by reason of
the transactions contemplated hereby) is subject to disallowance under
Section 162(m) of the Code.
(x) During the period beginning on the end of the plan year covered
by the most recent actuarial report and ending on the date of this
Agreement, there has been no change (a) in any actuarial or other
assumption used to calculate funding obligations with respect to any
Company
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Pension Plan or (b) in the manner in which contributions to any Company
Pension Plan are made or the basis on which such contributions are
determined.
(xi) Any amounts that could be received (whether in cash or
property or the vesting of property) as a result of any of the
transactions contemplated by the Reorganization Agreements by any
employee, officer, director or independent contractor of any of the
Retained Companies who is a "disqualified individual" (as such term is
defined in proposed Treasury Regulation Section 1.280G-1) under any
employment, severance or termination agreement or understanding, other
compensation arrangement or understanding or Benefit Plan currently in
effect which would be characterized as an "excess parachute payment" (as
such term is defined in Section 280G(b)(1) of the Code) will not in the
aggregate for all such disqualified individuals exceed $1,000,000.
(xii) The Board of Directors of the Company (or the applicable
committee designated under the Benefit Plan, if it has authority to do
so) has taken, or will timely take, all action necessary and appropriate
under each Benefit Plan which has change in control provisions) to cause
the transactions contemplated under this Agreement and the Distribution
Agreement not to constitute a change in control for purposes of such
plan to the extent the Board of Directors (or such committee) has sole
discretion to take such action under each such plan.
(xiii) Neither the Company nor any of the Retained Subsidiaries on
the date hereof participates in, or owes withdrawal liability to, or has
withdrawn within the past six years from, any "multiemployer" plan as
described under Section 4001(a)(3) of ERISA.
(xiv) To the Company's knowledge, all of the Benefit Plans covering
foreign employees are in compliance with applicable local law, except
where such failure to be in compliance would not, individually or in the
aggregate, have a Material Adverse Effect on the Retained Companies,
taken as a whole.
(n) Environmental Matters. Except as disclosed in the Filed Company
SEC Documents and except for such matters that, individually or in the
aggregate, would not have a Material Adverse Effect on the Retained
Companies, taken as a whole, (i) the Retained Companies are in compliance
with all applicable Environmental Laws (as defined below), (ii) the
Retained Companies have all Permits required under Environmental Laws for
the operation of the Retained Business as presently conducted
("Environmental Permits") and there are no violations, investigations or
proceedings pending with respect to such Environmental Permits and (iii) to
the Company's knowledge, as of the date hereof none of the Retained
Companies has received any written notices or demand letters from any
Governmental Entity or any other person, or any requests for information
from any Governmental Entity that remain outstanding and assert that any of
the Retained Companies may be in violation of, or liable under, any
Environmental Law.
For purposes of this Agreement, "Environmental Law" means any Federal,
state, local or foreign law, statute, regulation or common law, or any
judgment or decree, of any Governmental Entity, relating to (x) the
protection of the environment or (y) the use, storage, treatment,
generation, transportation, processing, handling, release or disposal of
Hazardous Substances, in each case as in effect on the date hereof.
"Hazardous Substance" means any waste, substance, material, pollutant or
contaminant presently listed, defined, designated or classified as
hazardous, toxic or radioactive, or otherwise regulated, under any
Environmental Law or any waste, material or substance contaminated by, or
alleged to be contaminated by, any Hazardous Substance.
(o) Takeover Statutes. Section 203 of the DGCL is inapplicable to the
Merger and the other transactions contemplated by the Reorganization
Agreements. To the knowledge of the Company, no other "fair price",
"moratorium", "control share acquisition" or other similar antitakeover
statute, law, regulation or rule of any Governmental Entity (each a
"Takeover Statute") is applicable to the transactions contemplated by the
Reorganization Agreements (after giving effect to any actions that will be
taken prior to the Effective Time).
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(p) Brokers and Finders. None of the Company or any of its directors,
officers or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated hereby, except that the
Company has retained Morgan Stanley & Co. Incorporated and Dillon, Read &
Co. Inc. as its financial advisors, the fees and expenses of which shall be
paid by Newco (or, if actually paid prior to the Effective Time, the
Company).
(q) Intellectual Property. As used herein, "Intellectual Property"
means domestic and foreign patents, patent applications, invention
disclosures to be filed or awaiting filing determinations, trademark and
service mark applications, registered trademarks, registered service marks,
registered copyrights, trademarks, servicemarks and tradenames. Section
4.1(q) of the Company Disclosure Schedule sets forth a listing including
all Intellectual Property (excluding trademarks, servicemarks and
tradenames) owned as of the date hereof by the Company or any of its
Subsidiaries and used primarily in connection with the Retained Business as
conducted on the date hereof. The Company and its Subsidiaries own or have
the right to use all material Intellectual Property (other than licenses)
and material trade secrets, inventions, know-how, formulae, processes,
procedures, research records, records of inventions, test information,
market surveys and marketing know-how and unregistered copyrights
("Technology") used in connection with the Retained Business as conducted
on the date hereof. The Company and its Subsidiaries have used commercially
reasonable measures to protect the secrecy, confidentiality and value of
the material Technology used in connection with the Retained Business. To
the Company's knowledge, no material Technology (other than unregistered
copyrights) used in connection with the Retained Business has been used,
divulged or appropriated for the benefit of any person other than the
Company and its Subsidiaries, except where such use, divulgence or
appropriation would not, individually or in the aggregate, have a Material
Adverse Effect on the Retained Companies, taken as a whole. As of the date
hereof, neither the Company nor any of its Subsidiaries has made any claim
in writing of a violation, infringement, misuse or misappropriation by
others of rights of the Company and its Subsidiaries to or in connection
with any material Intellectual Property or material Technology used in
connection with the Retained Business. To the Company's knowledge, as of
the date hereof, there is no pending or threatened claim by any third
person of a violation, infringement, misuse or misappropriation by any of
the Company or any of its Subsidiaries of any Intellectual Property or
Technology owned by any third person, or of the invalidity of any patent
used in connection with the Retained Business, that would, individually or
in the aggregate, have a Material Adverse Effect on the Retained Companies,
taken as a whole. There are no interferences or other contested inter
partes proceedings, either pending or, to the knowledge of the Company,
threatened, in any domestic or foreign copyright office, patent and
trademark office or any other domestic Governmental Entity relating to any
pending application with respect to any material Intellectual Property used
in connection with the Retained Business. As used in this Section 4.1(q),
the term "material", when applied to Intellectual Property or Technology,
means that the Intellectual Property or Technology, as the case may be, is
used in a significant manner to conduct the Retained Business as it is
currently conducted.
(r) Employees. There is no labor strike or work stoppage pending or,
to the knowledge of the Company, threatened against any of the Retained
Companies that, in any case, individually or in the aggregate, would have a
Material Adverse Effect on the Retained Companies, taken as a whole. None
of the Retained Companies is on the date hereof a party to any collective
bargaining agreement relating to its employees.
(s) Contracts. As of the date hereof neither the Company nor any of
its Subsidiaries is (with or without the lapse of time or the giving of
notice, or both) in breach or default in any material respect under any
Contract that is material to the operation of the Retained Business. To the
Company's knowledge, as of the date of this Agreement, none of the other
parties to any Contract that is material to the operation of the Retained
Business is (with or without the lapse of time or the giving of notice, or
both) in breach or default in any material respect thereunder. As of the
date of this Agreement, except where the same would not, individually or in
the aggregate, have a Material Adverse Effect on the Retained Companies,
taken as a whole, to the Company's knowledge, neither the Company nor any
of its
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Subsidiaries (i) has received any written notice of the intention of any
party to terminate any Contract, whether as a termination for convenience
or for default of the Company or any Subsidiary thereunder, or (ii) has
since January 1, 1995, received any written cure notice or show cause
notice (as defined in the Federal Acquisition Regulations Part 49,
para. 49.607(a) and (b), respectively) in respect of any such Contract
which is a Government Contract. To the Company's knowledge, as of the date
hereof, there is no pending written claim or request for equitable
adjustment under any Government Contract by any Governmental Entity that
would have a Material Adverse Effect on the Retained Companies, taken as a
whole. To the Company's knowledge, the Retained Companies are in compliance
in all material respects with all of their obligations relating to any
equipment or fixtures owned by any Governmental Entity and loaned, bailed
or otherwise furnished to or held by any of the Retained Companies, except
where the failure to so comply would not, individually or in the aggregate,
have a Material Adverse Effect on the Retained Companies, taken as a whole.
(t) Opinions of Financial Advisors. The Company has received the oral
opinions of Morgan Stanley & Co. Incorporated and Dillon, Read & Co. Inc.,
to the effect that, as of the date hereof, the consideration to be received
by the Company's stockholders in the Distribution and the Merger, taken as
a whole, is fair to such stockholders from a financial point of view.
4.2. Representations and Warranties of Acquiror and Sub. Acquiror and Sub
hereby represent and warrant to the Company as follows:
(a) Corporate Organization and Qualification. Each of Acquiror and
Sub is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation and is duly qualified
and in good standing as a foreign corporation in each jurisdiction in which
the properties owned, leased or operated, or the business conducted, by it
require such qualification, except for any such failure so to qualify or be
in good standing which, individually or in the aggregate, would not have a
Material Adverse Effect on Acquiror and its Subsidiaries, taken as a whole.
Each of Acquiror and Sub has the requisite corporate power and authority to
carry on its businesses as they are now being conducted. Acquiror has
heretofore made available to the Company complete and correct copies of the
certificate of incorporation and by-laws of Acquiror and Sub, each as
amended to date and currently in full force and effect.
(b) Corporate Authority. Each of Acquiror and Sub has the requisite
corporate power and authority to execute, deliver and perform each
Reorganization Agreement to which it is or will be a party and to
consummate the transactions contemplated thereby. The execution, delivery
and performance by each of Acquiror or Sub of each Reorganization Agreement
to which it is or will be a party and the consummation by it of the
transactions contemplated thereby have been or will be duly authorized by
its Board of Directors, and no other corporate proceedings on its part are
or will be necessary to authorize each Reorganization Agreement to which it
is or will be a party or for it to consummate the transactions so
contemplated. Each Reorganization Agreement to which Acquiror or Sub is or
will be a party is, or when executed and delivered will be, a valid and
binding agreement of Acquiror or Sub, as the case may be, enforceable
against Acquiror or Sub, as the case may be, in accordance with the terms
thereof.
(c) No Violations; Consents and Approvals. (i) None of the execution,
delivery or performance by each of Acquiror and Sub of each Reorganization
Agreement to which it is or will be a party or the consummation by each of
Acquiror and Sub of the transactions contemplated thereby (A) will conflict
with, or result in a violation or breach of, the certificate of
incorporation or by-laws of Acquiror or Sub or (B) will conflict with, or
result in a violation or breach of, or constitute a default (with or
without due notice or lapse of time or both) under, or give rise to any
right of termination, amendment, cancellation or acceleration of any
material obligation under, or result in the creation of any Lien upon any
of the properties or assets of Acquiror or Sub under (1) any of the terms,
conditions or provisions of any Contract to which Acquiror or Sub is a
party or by which any of their properties or assets may be bound or of any
Permit, or (2) subject to the Regulatory Filings, any judgment, order,
decree, statute, law, regulation or rule applicable to Acquiror or Sub,
except, in the case of clause (B), for conflicts, violations,
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breaches, defaults, rights, losses or Liens that would not, individually or
in the aggregate, have a Material Adverse Effect on Acquiror and its
Subsidiaries, taken as a whole.
(ii) Except for the Regulatory Filings, the consents described in
Section 4.1(c) of the Company Disclosure Schedule under the caption
"Governmental Consents and Filings" and other consents, approvals, orders,
authorizations, registrations, declarations, filings and agreements
expressly provided for in the Reorganization Agreements, no consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required with respect to Acquiror or Sub,
in connection with the execution, delivery or performance by each of
Acquiror and Sub of each Reorganization Agreement to which it is or will be
a party or the consummation by it of the transactions contemplated thereby
(except where the failure to obtain such consents, approvals, orders or
authorizations, or to make such registrations, declarations, filings or
agreements would not, individually or in the aggregate, have a Material
Adverse Effect on Acquiror and its Subsidiaries, taken as a whole).
(d) Capital Stock. The authorized capital stock of Acquiror consists
of:
(i) 600,000,000 shares of Acquiror Common Stock, of which
348,445,160 shares were issued and outstanding and 811,632 shares were
held in the treasury of Acquiror on July 19, 1996; and
(ii) 10,000,000 shares of Acquiror preferred stock, of which no
shares are issued; rights to 6,000,000 shares of such preferred stock
(to be issued as Series A Junior Participating Preferred Stock) are
authorized; of those 6,000,000 rights, on July 19, 1996, rights to
3,484,451.6 shares of such Series A Junior Participating Preferred Stock
were associated with Acquiror Common Stock issued and outstanding and
rights to 8,116.32 shares of such Series A Junior Participating
Preferred Stock were associated with Acquiror Common Stock held in the
treasury of Acquiror; such rights are attached to the shares of Acquiror
Common Stock, are not currently exercisable and will become exercisable
only in accordance with the terms of Acquiror's Shareholder Rights Plan.
As of July 19, 1996, there were granted and outstanding under "The
Boeing Company 1984 Stock Option Plan," "The Boeing Company 1988 Stock
Option Plan," "The Boeing Company 1992 Stock Option Plan for Nonemployee
Directors," and "The Boeing Company 1993 Incentive Stock Plan for
Employees" (collectively, the "Acquiror Option Plans") options to
purchase an aggregate of 13,907,723 shares of Acquiror Common Stock
(subject to adjustment on the terms set forth in the Acquiror Option
Plans). As of July 19, 1996, there were outstanding under the "Incentive
Compensation Plan for Officers and Employees of The Boeing Company and
Subsidiaries," the "Deferred Compensation Plan for Employees of The
Boeing Company," and the "Deferred Compensation Plan for Directors of
The Boeing Company" rights to receive up to an aggregate of 359,901
shares of Acquiror Common Stock. As of July 19, 1996, Acquiror had no
shares of Acquiror Common Stock reserved for issuance other than as
described above. Acquiror has outstanding no bonds, debentures, notes or
other obligations or securities (other than Acquiror Common Stock) the
holders of which have the right to vote (or are convertible or
exchangeable into or exercisable for securities having the right to
vote, other than Acquiror Common Stock and rights to shares of Series A
Junior Participating Preferred Stock of Acquiror) with the stockholders
of Acquiror on any matter. Except as set forth above, as of the date of
this Agreement, there are no securities convertible into or exchangeable
for, or options, warrants, calls, subscriptions, rights or Contracts of
any kind to which Acquiror or any of its Subsidiaries is a party or by
which any of them is bound obligating Acquiror or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of capital stock or other voting securities
of Acquiror or of any of its Subsidiaries.
(iii) The shares of Acquiror Common Stock to be issued in the
Merger are duly authorized and, when issued in accordance with the terms
of this Agreement, will be duly and validly issued, fully paid,
non-assessable and free of preemptive rights.
(e) SEC Filings.
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(i) Acquiror has filed all reports, schedules, forms, statements
and other documents required to be filed with the SEC under the
Securities Act and the Exchange Act since December 31, 1995 (the
"Acquiror SEC Documents"). As of its filing date, each Acquiror SEC
Document filed, as amended or supplemented, if applicable, (A) complied
in all material respects with the applicable requirements of the
Securities Act or the Exchange Act, as applicable, and the rules and
regulations thereunder and (B) did not, at the time it was filed (and at
the effective date thereof, in the case of a registration statement),
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading. Except to the extent that information contained in
any Acquiror SEC Document has been revised or superseded by a later
Filed Acquiror SEC Document (as defined in Section 4.2(f)), as of the
date hereof, none of the Acquiror SEC Documents contains any untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(ii) The financial statements of Acquiror included in the Acquiror
SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
SEC with respect thereto and have been prepared in accordance with GAAP
(except, in the case of unaudited statements, as permitted by Form 10-Q
of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto). Each of the
consolidated balance sheets included in or incorporated by reference
into the Acquiror SEC Documents (including any related notes and
schedules) fairly presents in all material respects the consolidated
financial position of Acquiror and its Subsidiaries as of its date and
each of the consolidated statements of income, cash flows and
stockholders' equity included in or incorporated by reference into the
Acquiror SEC Documents (including any related notes and schedules)
fairly presents in all material respects the consolidated results of
operations, retained earnings and cash flows, as the case may be, of
Acquiror and its Subsidiaries for the periods set forth therein
(subject, in the case of unaudited statements, to normal year-end
adjustments), in each case in accordance with GAAP.
(iii) None of the information supplied or to be supplied by
Acquiror or its representatives for inclusion or incorporation by
reference in (A) the Acquiror Form S-4, the Newco Form S-4 or the Form
S-3 will, at the time such Registration Statements are filed with the
SEC, at any time they are amended or supplemented, at the time they
become effective under the Securities Act, at the Effective Time or at
the time of the Company Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, (B) the Proxy
Statement-Prospectus will, at the date mailed to the Company's
stockholders or at the time of the Company Meeting, contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading and (C) the Consent Statement relating to the Consent
Solicitation will, at the date mailed to holders of Old Company Notes,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein, in light of the
circumstances under which they were made, not misleading. The Acquiror
Form S-4 and the Form S3 will comply as to form in all material respects
with the provisions of the Securities Act or the Exchange Act, as
applicable, and the rules and regulations thereunder, except that no
representation is made by Acquiror or Sub with respect to statements
made therein based on information supplied by the Company or any of its
Subsidiaries for inclusion in the Acquiror Form S-4 or the Form S-3 or
with respect to information concerning the Company or any of its
Subsidiaries incorporated by reference therein.
(f) Absence of Certain Events and Changes. Except as disclosed in the
Acquiror SEC Documents filed with the SEC and publicly available prior to
the date hereof (the "Filed Acquiror SEC Documents") or as otherwise
contemplated by the Reorganization Agreements, since December 31, 1995
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to the date hereof Acquiror and its Subsidiaries have conducted their
respective businesses in the ordinary course, consistent with past
practices, and there have not been any events, changes or developments
which, individually or in the aggregate, would have a Material Adverse
Effect on Acquiror and its Subsidiaries, taken as a whole, other than
events, changes or developments relating to the economy in general or
resulting from industry-wide developments affecting companies in similar
businesses.
(g) Compliance with Applicable Laws. Except as disclosed in the Filed
Acquiror SEC Documents, Acquiror and its Subsidiaries are in compliance
with all statutes, laws, regulations, rules, judgments, orders and decrees
of all Governmental Entities applicable to them, except where the failure
to be in compliance would not, individually or in the aggregate, have a
Material Adverse Effect on Acquiror and its Subsidiaries, taken as a whole.
Since January 1, 1995 to the date hereof, neither Acquiror nor any of its
Subsidiaries has received any written notice of any administrative, civil
or criminal investigation or audit (other than tax audits) by any
Governmental Entity that, individually or in the aggregate, would have a
Material Adverse Effect on Acquiror and its Subsidiaries, taken as a whole.
Each of Acquiror and its Subsidiaries has all Permits that are required in
order to permit it to carry on its business as it is presently conducted,
except where the failure to have such Permits would not, individually or in
the aggregate, have a Material Adverse Effect on Acquiror and its
Subsidiaries, taken as a whole. All Permits are in full force and effect
and Acquiror and its Subsidiaries are in compliance with the terms of the
Permits, except where the failure to be in full force and effect or in
compliance would not, individually or in the aggregate, have a Material
Adverse Effect on Acquiror and its Subsidiaries, taken as a whole.
(h) Litigation. Except as disclosed in the Filed Acquiror SEC
Documents, as of the date hereof there are no civil, criminal or
administrative actions, suits, claims, hearings, investigations or
proceedings pending or, to the knowledge of Acquiror, threatened, against
Acquiror or any of its Subsidiaries that, individually or in the aggregate,
would have a Material Adverse Effect on Acquiror and its Subsidiaries,
taken as a whole. Except as disclosed in the Filed Acquiror SEC Documents,
as of the date hereof there are no outstanding judgments, orders, decrees,
stipulations or awards against Acquiror or any of its Subsidiaries or their
respective properties or businesses that, individually or in the aggregate,
would have a Material Adverse Effect on Acquiror and its Subsidiaries,
taken as a whole.
(i) Takeover Statutes. To the knowledge of Acquiror, no Takeover
Statute is applicable to the transactions contemplated by the
Reorganization Agreements (after giving effect to any actions that will be
taken prior to the Effective Time).
(j) Brokers and Finders. None of Acquiror or any of its directors,
officers or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated hereby, except that Acquiror
has retained CS First Boston Corporation as its financial advisor, the fees
and expenses of which shall be paid by Acquiror.
ARTICLE V
COVENANTS
5.1. Covenants of the Company. During the period from the date of this
Agreement and continuing until the Effective Time, the Company agrees as to
itself and its Subsidiaries that, except for the Contribution, the Distribution
and as required or otherwise expressly contemplated by the Reorganization
Agreements, or as set forth in the Company Disclosure Schedule, or to the extent
that Acquiror otherwise consents in writing:
(a) Ordinary Course. The Retained Business will be conducted in the
ordinary course, consistent with past practice (including, without
limitation, not taking any actions out of the ordinary course to generate
cash, such as delaying payables or accelerating receivables), and the
Company will use commercially reasonable efforts to keep available the
services of key employees engaged primarily in the Retained Business and to
preserve the relationships with key customers, suppliers and others having
business dealings with the Retained Business.
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(b) Issuance of Securities. Except as expressly contemplated by the
Reorganization Agreements, the Company will not, nor will the Company
permit any of the Retained Subsidiaries to issue, transfer, sell or dispose
of, or authorize or agree to the issuance, transfer, sale or disposition by
any of the Retained Companies of (whether through the issuance or granting
of options, warrants, commitments, subscriptions, rights to purchase or
otherwise), any shares of capital stock or any voting securities of the
Company (other than Company Common Stock and Company Class A Common Stock)
or any of the Retained Subsidiaries, or any options or other securities
convertible into or exchangeable for any such shares of capital stock or
any voting securities of the Company (other than Company Common Stock and
Company Class A Common Stock) or amend any of the terms of any such
securities or agreements relating to such capital stock outstanding on the
date hereof, other than the issuance, transfer, sale or disposition by a
wholly-owned Subsidiary of its capital stock to its parent.
(c) Governing Documents. The Company will not, nor will it permit any
Retained Subsidiary to, amend in any material respect the Company Charter
or the Company By-laws or the certificate of incorporation or by-laws or
comparable organizational documents of any Retained Subsidiary; provided,
however, that the Company may at any time amend the Company Charter or the
Company By-laws to provide for a customary shareholder rights plan that
expressly permits, and would not be triggered by, the transactions
contemplated by the Reorganization Agreements.
(d) No Acquisitions. The Company will not, nor will it permit any of
the Retained Subsidiaries to, (i) acquire or agree to acquire, by merging
or consolidating with, or by purchasing a substantial equity interest in or
substantial portion of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business organization
or division thereof or otherwise acquire or agree to acquire any assets
except in the ordinary course of business, in any such case, (other than
immaterial assets) that would be part of the Retained Business or (ii) make
or agree to make any other investment in any person (whether by means of
loan, capital contribution, purchase of capital stock or other securities
or otherwise) that would be part of the Retained Business, except for
acquisitions or investments by the Company pursuant to existing contractual
obligations or investments in any entity that was a Retained Subsidiary
before giving effect to such investment.
(e) No Dispositions. The Company will not, nor will it permit any of
the Retained Subsidiaries to, sell, lease, license, encumber or otherwise
dispose of, or agree to sell, lease, license, encumber or otherwise dispose
of, any of the assets of the Retained Business other than in the ordinary
course of business consistent with past practice or pursuant to existing
contractual obligations.
(f) Benefit Plans. Except as required by law or the terms of any
collective bargaining agreement or in the ordinary course of business
consistent with past practice with Acquiror's consent, such consent not to
be unreasonably withheld, the Company will not, nor will it permit any of
the Retained Subsidiaries to, adopt any plan, arrangement or policy which
would become a Benefit Plan or amend any Benefit Plan to the extent such
adoption or amendment would create or increase any material liability or
obligation on the part of the Retained Companies that will not either (i)
be fully performed or satisfied prior to the Effective Time or (ii) be
assumed by Newco or one of its Subsidiaries pursuant to the Distribution
Agreement.
(g) Accounting Policies and Procedures. The Company (with respect to
the conduct of the Retained Business) will not, and will not permit any of
the Retained Subsidiaries (with respect to the conduct of the Retained
Business) to, change any of its accounting principles, policies, practices
or procedures, except as may be required by GAAP or Regulation S-X of the
SEC.
(h) Liens. The Company will not, and will not permit any of its
Subsidiaries to, create, incur, suffer to exist or assume any Lien on the
Retained Assets, except for Permitted Liens.
(i) Further Covenants. The Company will, and will cause Newco and
each other Affiliate to, (i) except as disclosed on Section 4.1(l) of the
Company Disclosure Schedule relating to research tax credits, prepare and
timely file with the relevant Taxing Authority all Tax Returns and reports
("Post-Signing Returns") required to be filed which include any of the
Retained Companies, on a basis
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consistent with the elections, accounting methods, conventions and
principles of taxation used for the most recent taxable periods for which
Tax Returns involving similar Tax Items (as defined in the Tax Allocation
Agreement) have been filed and in a manner that does not unreasonably
accelerate deductions or defer income, (ii) timely pay all Taxes due and
payable, or establish reserves therefor in the books and records of the
Company in accordance with generally accepted accounting principles and
consistent with past practice, (iii) make adequate provision on their books
and records, to the extent required in accordance with generally accepted
accounting principles, for all Taxes due and payable after the Effective
Time, (iv) promptly notify Acquiror of any action, suit, proceeding, claim
or audit pending against or with respect to the Company, Newco or any other
Affiliate (as defined in the Distribution Agreement) in respect of any
Taxes where there is a reasonable possibility of a determination or
decision which would materially increase the Tax liabilities, or materially
decrease the Tax attributes, of any of the Retained Companies for any
Post-Tax Indemnification Period (as defined in the Tax Allocation
Agreement), and (v) not, without the prior written consent of Acquiror,
change any of the Tax elections, accounting methods, conventions or
principles which relate to the Retained Companies.
(j) Maintenance of Properties. The Company will, and will cause the
Retained Subsidiaries to, continue to maintain and repair all property
material to the operation of the Retained Business in a manner consistent
with past practice.
(k) Gunship Claims. The Company will not, and will not permit any
Retained Subsidiary to, settle, modify in any material respect, withdraw or
release the claim in the amount of $547.2 million against the United States
as set forth in the Company's complaint filed in the U.S. Court of Federal
Claims on June 26, 1995 and (ii) the related claim in the amount of $18
million against the U.S. Air Force that is currently the subject of an
appeal by the Company pending before the U.S. Armed Services Board of
Contract Appeals (such claims as the same may be asserted by or on behalf
of the Company against the United States in respect of the Gunship Contract
(as defined below), are herein referred to collectively as the "Gunship
Claims") or agree to any modification in any material respect of the
AC-13OU Gunship contract with the United States (Contract No.
F33657-86-C-0421) as in effect on the date hereof (the "Gunship Contract")
without Acquiror's prior written consent.
(l) Tax-Free Contribution, Distribution and Merger. The Company will
not, and will not permit any of its Subsidiaries, including Newco and any
of its Subsidiaries, to, take or cause to be taken any action prior to the
Effective Time that would disqualify the Contribution and the Distribution
as transactions described in Sections 351 and 355 of the Code and/or a
"reorganization" within the meaning of Section 368(a)(1)(D) of the Code or
the Merger as a "reorganization" within the meaning of Section 368(a)(1)(B)
of the Code. The Company shall use reasonable best efforts to do everything
reasonably necessary to have the Contribution, the Distribution and the
Merger qualify as aforesaid.
(m) Santa Susana. The Company shall pay prior to the Closing Date all
fines and penalties imposed prior to the Closing Date by any Governmental
Entity arising out of the explosion at Santa Susana in 1994.
(n) Deferred Tax Assets and Liabilities. Prior to the Effective Time,
except as set forth in, and subject to, Section 5.1(n) of the Company
Disclosure Schedule, the Company will not, and will not permit any of its
Subsidiaries to, take any action that would increase the amount of deferred
tax liabilities, or decrease the amount of deferred tax assets, of the
Company and its Subsidiaries (as determined for financial accounting
purposes), other than an action (i) in the ordinary course of business
consistent with past practice or (ii) as required by applicable law, in
each case which is either (x) based on events or circumstances occurring
after the date hereof or (y) a continuation of a course of action initiated
prior to the date of this Agreement.
5.2. Covenant of Acquiror. During the period from the date of this
Agreement and continuing until the Effective Time, Acquiror agrees as to itself
and its Subsidiaries that except as otherwise contemplated by the Reorganization
Agreements, Acquiror will conduct its commercial relationships with the Company
in the ordinary course, consistent with past practice, including, without
limitation, with respect to the billing and
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collection of accounts receivable and the payment of accounts payable and other
amounts due and owing to the Company.
5.3. Tax-Free Contribution, Distribution and Merger. Acquiror will not,
and will not permit any of its Subsidiaries to, take or cause or permit to be
taken, any action prior to the Effective Time that would disqualify the
Contribution and the Distribution as transactions described in Sections 351 and
355 of the Code and/or a "reorganization" within the meaning of Section
368(a)(1)(D) of the Code or the Merger as a "reorganization" within the meaning
of Section 368(a)(1)(B) of the Code. Prior to the Effective Time, the Acquiror
shall use its reasonable best efforts to do everything reasonably necessary to
have the Contribution, the Distribution and the Merger qualify as aforesaid.
5.4. Other Actions; Notification of Certain Matters. (a) Subject to
Section 5.5(b) and the respective rights of the parties to terminate this
Agreement under Article VII, the Company and Acquiror will use reasonable best
efforts not to, and will cause their respective Subsidiaries to use reasonable
best efforts not to, take any action that would, or that could reasonably be
expected to, result directly or indirectly in any of the conditions to the
Merger set forth in Article VI not being satisfied or that would, or that
reasonably could be expected to, materially impair the ability of the Company to
consummate the Contribution and the Distribution in accordance with the terms of
the Reorganization Agreements or the ability of the Company, Acquiror and Sub to
consummate the Merger in accordance with the terms hereof or that would, or that
reasonably could be expected to, materially delay such consummation.
(b) The Company and Acquiror will promptly advise the other party orally
and in writing of (i) any representation or warranty made by it contained in
this Agreement that is qualified as to materiality becoming untrue or inaccurate
in any respect or any such representation or warranty that is not so qualified
becoming untrue or inaccurate in any material respect or (ii) the failure by it
to comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement or (iii)
any event or change or impending occurrence of any event or change of which it
has knowledge and which has resulted, or which, insofar as can reasonably be
foreseen, would result, in any of the conditions to the Merger set forth in
Article VI not being satisfied; provided, however, that no such notification
shall affect the representations, warranties, covenants or agreements of the
parties or the conditions to the obligations of the parties under this
Agreement.
5.5. Acquisition Proposals; Board Recommendation. (a) The Company will,
and will direct and use reasonable efforts to cause its directors, officers,
employees, representatives and agents to, immediately cease any discussions or
negotiations with any parties that may be ongoing with respect to an Acquisition
Proposal (as defined below). The Company will not, nor will it permit any of its
Subsidiaries to, nor will it authorize or permit any of its directors, officers,
or employees or any investment banker, financial advisor, attorney, accountant
or other representative retained by it or any of its Subsidiaries to, directly
or indirectly, (i) solicit, initiate or knowingly encourage (including by way of
furnishing confidential information), or take any other action knowingly to
facilitate, any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, any Acquisition Proposal or (ii)
participate in any discussions or negotiations regarding any Acquisition
Proposal; provided, however, that if, the Board of Directors of the Company
determines in good faith, after consultation with outside counsel, that it is
necessary to do so in order to comply with its fiduciary duties to the Company's
stockholders under applicable law, the Company may, in response to an
Acquisition Proposal that was not solicited subsequent to the date hereof, and
subject to compliance with Section 5.5(c), (x) furnish information to any person
pursuant to a customary confidentiality agreement (as determined by the Company
after consultation with its outside counsel) and (y) participate in discussions
or negotiations regarding such Acquisition Proposal; and provided further,
however, that, if the Board of Directors of the Company determines in good
faith, after consultation with outside counsel, that it is necessary to do so in
order to comply with its fiduciary duties to the Company's stockholders under
applicable law, the Company may, in response to a Company Acquisition Proposal
(as defined below) that was not solicited subsequent to the date hereof, take
any of the actions prohibited by this sentence but only with respect to
soliciting, encouraging or facilitating other Company Acquisition Proposals (but
not A&D Acquisition Proposals (as defined below)). For purposes of this
Agreement, "Acquisition Proposal" means any inquiry, proposal or offer from any
person with respect to either (A) a merger, acquisition, consolidation
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or similar transaction involving, or any purchase of, all or substantially all
of the assets or more than 50% of the voting securities of the Company
(excluding any such transaction relating solely to the assets or voting
securities of the Newco Companies) (a "Company Acquisition Proposal") or (B) an
acquisition, or similar transaction involving the purchase, of a substantial
portion of the assets of or a substantial equity interest in the Retained
Business (an "A&D Acquisition Proposal").
(b) Except as set forth in this Section 5.5, neither the Board of Directors
of the Company nor any committee thereof will (i) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to Acquiror, the approval or
recommendation by such Board of Directors or such committee of the Merger or
this Agreement, (ii) approve or recommend, or propose publicly to approve or
recommend, any Acquisition Proposal or (iii) cause the Company to enter into any
letter of intent, agreement in principle, acquisition agreement or other similar
agreement (each, an "Acquisition Agreement") related to any Acquisition
Proposal. Notwithstanding the foregoing, in the event that the Board of
Directors of the Company determines in good faith, after consultation with
outside counsel, that it is necessary to do so in order to comply with its
fiduciary duties to the Company stockholders under applicable law, the Board of
Directors of the Company may (x) withdraw or modify its approval or
recommendation of the Merger and this Agreement or (y) approve or recommend a
Superior Proposal (as defined below) or (z) terminate this Agreement (and
concurrently with or after such termination, if it so chooses, cause the Company
to enter into any Acquisition Agreement with respect to any Superior Proposal),
but in each case only at a time that is following Acquiror's receipt of written
notice (a "Notice of Superior Proposal") advising Acquiror that the Board of
Directors of the Company has received a Superior Proposal, specifying the
material terms and conditions of such Superior Proposal and identifying the
person making such Superior Proposal. For purposes of this Agreement, a
"Superior Proposal" means any bona fide Acquisition Proposal made by a third
party which is (A) a Company Acquisition Proposal or (B) is otherwise on terms
which the Board of Directors of the Company determines in its good faith
judgment (based on the advice of a financial advisor of nationally recognized
reputation) to be more favorable to the Company's stockholders than the Merger
and the other transactions contemplated hereby.
(c) In addition to the obligations of the Company set forth in paragraphs
(a) and (b) of this Section 5.5, the Company will promptly advise Acquiror
orally and in writing of any request for confidential information in connection
with an Acquisition Proposal or of any Acquisition Proposal, the material terms
and conditions of such request or Acquisition Proposal and the identity of the
person making such request or Acquisition Proposal; provided, however, that with
respect to a Company Acquisition Proposal the Company shall not be required
under this paragraph (c) to provide the material terms or conditions of such
request or Acquisition Proposal. The Company will keep Acquiror reasonably
informed of the status of and material information concerning (including
amendments or proposed amendments) any A&D Acquisition Proposal.
(d) Nothing contained in this Section 5.5 will prohibit the Company from
making any disclosure to the Company stockholders if, in the good faith judgment
of the Board of Directors of the Company, after consultation with outside
counsel, failure so to disclose would be inconsistent with applicable law;
provided, however, neither the Company nor its Board of Directors nor any
committee thereof shall, except as permitted by Section 5.5(b), withdraw or
modify, or propose publicly to withdraw or modify, its position with respect to
this Agreement or the Merger or approve or recommend, or propose publicly to
approve or recommend, an Acquisition Proposal.
5.6. Tax Representation Letters. For purposes of the tax opinions to be
delivered pursuant to Sections 6.2(c) and 6.3(c), respectively, (a) Acquiror
will deliver a representation letter (the "Acquiror Tax Representation Letter")
substantially in the form of Annex D attached hereto dated as of the Closing
Date and (b) the Company will cause Newco to deliver a representation letter
(the "Newco Tax Representation Letter") substantially in the form of Annex E
attached hereto, dated as of the Closing Date, in each case, to Chadbourne &
Parke LLP, counsel to the Company, Wachtell, Lipton, Rosen & Katz, special
counsel to the Company, and Cravath, Swaine & Moore, special counsel to
Acquiror.
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5.7. Filings; Other Actions.
(a) The Company will use its reasonable best efforts promptly to prepare
and file with the SEC the Proxy Statement-Prospectus.
(b) The Company will use its reasonable best efforts (i) promptly to
prepare and file with the SEC the Newco Form S-4 in connection with the
distribution of Newco Common Stock and Newco Class A Common Stock in the
Distribution, (ii) promptly to prepare and file with the SEC a registration
statement on Form 8-A under the Exchange Act in connection with the distribution
of Newco Common Stock and Newco Class A Common Stock, in each case with the
associated Rights (the "Form 8-A"), (iii) assist Acquiror in the preparation of
the Consent Statement with respect to the Consent Solicitation, (iv) to cause
the Proxy Statement-Prospectus to be mailed to the Company's stockholders as
promptly as practicable after the Proxy Statement-Prospectus has been cleared by
the SEC and (v) to cause the Consent Statement to be mailed to the holders of
Old Company Notes as promptly as practicable following receipt of instructions
to do so from Acquiror.
(c) Acquiror will use its reasonable best efforts promptly to prepare and
file with the SEC the Acquiror Form S-4 and the Form S-3.
(d) None of the Registration Statements or the Proxy Statement-Prospectus
shall be filed with the SEC, and, prior to termination of this Agreement, no
amendment or supplement thereto shall be filed with the SEC, by the Company or
Acquiror without giving the other parties hereto and their counsel a reasonable
opportunity to review and comment on such filings prior to the filing thereof.
Each of the Company and Acquiror agrees to use its reasonable best efforts,
after consultation with the other party, to respond promptly to any comments
made by the SEC with respect to all of its filings referred to in clauses (a),
(b) and (c) above, including the preparation and filing of any amendments or
supplements thereto, and to have all such filings declared effective under the
Securities Act and the Exchange Act, as applicable, or cleared by the SEC, in
each case as promptly as practicable after the filing thereof. Each of the
Company and Acquiror will, and the Company will cause Newco to, use its
reasonable best efforts to obtain all necessary state securities law or "Blue
Sky" permits and approvals required to carry out the transactions contemplated
by the Reorganization Agreements and each of the Company and Acquiror agrees to
furnish all information as may be reasonably requested in connection with any
such action; provided, however, that Acquiror will not be required to qualify to
do business in any jurisdiction in which it is not now so qualified.
(e) Acquiror will use its reasonable efforts to comply promptly with all
legal and regulatory requirements which may be imposed on itself or its
Subsidiaries with respect to the Merger (which actions shall include, without
limitation, furnishing all information required in connection with approvals of
or filings with Governmental Entities required to be made or obtained by
Acquiror or its Subsidiaries). Subject to the terms and conditions hereof,
Acquiror will, and will cause its Subsidiaries to, promptly use its reasonable
efforts to obtain any consent, authorization, order or approval of, or any
exemption by, and to satisfy any condition or requirement imposed by, any
Governmental Entity or other public or private third party, required to be
obtained, made or satisfied by Acquiror or any of its Subsidiaries in connection
with the Merger or the taking of any action contemplated thereby or by this
Agreement or the other Reorganization Agreements.
(f) The Company will use its reasonable efforts to comply promptly with all
legal and regulatory requirements which may be imposed on itself or its
Subsidiaries with respect to the Distribution and the Merger (which actions
shall include, without limitation, furnishing all information required in
connection with approvals of or filings with Governmental Entities required to
be made or obtained by the Company or its Subsidiaries). Subject to the terms
and conditions hereof, the Company will, and will cause its Subsidiaries to,
promptly use its reasonable efforts to obtain any consent, authorization, order
or approval of, or any exemption by, and to satisfy any condition or requirement
imposed by, any Governmental Entity or other public or private third party,
required to be obtained, made or satisfied by the Company or any of its
Subsidiaries in connection with the Distribution or the Merger or the taking of
any action contemplated thereby or by this Agreement or the other Reorganization
Agreements.
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(g) Each of the Company and Acquiror will promptly cooperate with and
furnish information to each other in connection with any such requirements
imposed upon any of them or any of their respective Subsidiaries in connection
with the Distribution or the Merger.
(h) Subject to Section 5.5(b) and its right to terminate this Agreement
pursuant to Section 7.3, the Company agrees to take, in accordance with Delaware
law, the Company Charter and the Company By-laws, all action necessary to
convene the Company Meeting within 45 days after the Registration Statements are
declared effective, and the Proxy Statement-Prospectus is cleared, by the SEC,
to consider and vote upon the Contribution, the Distribution and the Merger and
the Company shall, through its Board of Directors, recommend to its stockholders
approval of the Contribution, the Distribution and the Merger.
(i) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties shall use its reasonable best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
possible, the transactions contemplated by the Reorganization Agreements.
(j) Each party hereto agrees, subject to applicable laws relating to the
exchange of information, promptly to furnish the other parties hereto with
copies of written communications (and memoranda setting forth the substance of
all oral communications) received by such party, or any of its subsidiaries,
affiliates or associates (as such terms are defined in Rule 12b-2 under the
Exchange Act as in effect on the date hereof), from, or delivered by any of the
foregoing to, any Governmental Entity in respect of the transactions
contemplated hereby.
(k) Each of the Company and Acquiror will promptly, and in any event within
30 days after execution and delivery of this Agreement, make all filings or
submissions as are required under the HSR Act. Each of the Company and Acquiror
will promptly furnish to the other such necessary information and reasonable
assistance as the other may request in connection with its preparation of any
filing or submission which is necessary under the HSR Act. Without limiting the
generality of the foregoing, each of the Company and Acquiror will promptly
notify the other of the receipt and content of any inquiries or requests for
additional information made by any Governmental Entity in connection therewith
and will promptly (i) comply with any such inquiry or request and (ii) provide
the other with a description of the information provided to any Governmental
Entity with respect to any such inquiry or request. In addition, each of the
Company and Acquiror will keep the other apprised of the status of any such
inquiry or request. Each of the Company and Acquiror will use its reasonable
efforts to obtain any clearance required under the HSR Act for the consummation
of the transactions contemplated hereby.
5.8. Accountants' Letters. Each party hereto agrees to use its reasonable
best efforts to cause to be delivered to the other parties hereto and their
respective directors a letter of its independent accountants, dated the date on
which each Registration Statement becomes effective, in form and substance
customary for "comfort" letters delivered by independent accountants in
connection with registration statements similar to the Registration Statements.
5.9. Access. (a) Upon reasonable notice, and except as may otherwise be
required by applicable law, the Company agrees to (and will cause each of its
Subsidiaries to) afford Acquiror's Representatives (as defined in the
Distribution Agreement) reasonable access, during normal business hours
throughout the period until the Closing Date, to all its properties, books,
contracts, commitments, personnel and records, to the extent related to the
Retained Business, and, during such period, will (and will cause each of its
Subsidiaries to) furnish promptly to Acquiror all information concerning its
business, properties and personnel, to the extent related to the Retained
Business, as may reasonably be requested; provided, however, that such access
will not unreasonably interfere with the normal operations of the Company and
the reasonable out-of-pocket expenses of the Company incurred in connection
therewith will be paid by Acquiror. All such information as may be furnished by
or on behalf of the Company or any of its Subsidiaries to Acquiror or its
Representatives pursuant to this Section 5.9 will be subject to the terms of the
confidentiality agreement dated February 26, 1996 between the Company and
Acquiror (the "Confidentiality Agreement") the terms of which are incorporated
herein by reference.
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It is understood and agreed by the parties hereto that until Acquiror
obtains the necessary governmental clearances, Acquiror shall have no access to
any properties, books, contracts, records or information with respect to any
proprietary programs conducted by any of the Retained Companies to the extent
such clearances are required with respect thereto.
(b) During the period prior to the Effective Time, the Company and Acquiror
will promptly furnish to the other a copy of each report, schedule, registration
statement and other documents filed by it with the SEC during such period
pursuant to the requirements of Section 13(a) or 15(d) of the Exchange Act.
5.10. Distribution Agreement. The Company agrees that prior to the
Effective Time it will not waive or amend the terms of the Distribution
Agreement without the consent of Acquiror.
5.11. Publicity. The initial press release relating to this Agreement and
the transactions contemplated by the Reorganization Agreements will be a joint
press release and thereafter the Company and Acquiror will consult with each
other prior to issuing any press releases or otherwise making public statements
with respect to the transactions contemplated by the Reorganization Agreements.
5.12. Benefits. (a) Continuing Employees. Except as set forth in the
Company Disclosure Schedule, Acquiror will or will cause a Retained Company to
(i) continue to employ with comparable compensation, commencing as of the
Effective Time (or such later time as an employee on layoff, leave or short-term
or long-term disability or other permitted absence from employment (an "Absent
Employee") is eligible to return to employment, it being understood that,
following the Effective Time, such an Absent Employee will continue to be
eligible to receive from the Retained Companies the same compensation and
benefits payable during the period prior to such Absent Employee's return to
employment that such employee is entitled to receive during such Absent
Employee's absence from employment immediately prior to the Effective Time),
each of the employees of the Retained Companies who are engaged primarily in the
Retained Business and employed (including, without limitation, those who are
actively employed and those who are Absent Employees) immediately prior to the
Effective Time, including all such employees covered by any collective
bargaining agreement, and (ii) offer employment with comparable compensation,
commencing as of the Effective Time (or such later time as an Absent Employee is
eligible to return to employment, it being understood that, following the
Effective Time, such an Absent Employee will continue to be eligible to receive
from the Retained Companies the same compensation and benefits payable during
the period prior to such Absent Employee's return to employment that such Absent
Employee is entitled to receive during such Absent Employee's absence from
employment immediately prior to the Effective Time) to each of the employees of
the Company or its Subsidiaries or affiliates (including, without limitation,
those who are actively employed and those who are Absent Employees) set forth in
the Company Disclosure Schedule. The employees who so continue to be employed or
who accept such an offer of employment by Acquiror or a Retained Company are
herein referred to as "Continuing Employees". Nothing in this Section 5.12(a) is
intended to confer upon any Continuing Employee any right to continued
employment by Acquiror or the Retained Companies after the Effective Time.
Notwithstanding the foregoing and subject to the terms of the collective
bargaining agreements set forth in the Company Disclosure Schedule, for a period
of at least one year following the Effective Time, Acquiror will not, nor will
it permit any of the Retained Companies to, terminate any Continuing Employee
without providing the same advance notice to such Continuing Employee that would
have been provided to such individual under the applicable severance policy or
program of the Company or its Subsidiaries had such Continuing Employee been
terminated immediately prior to the Effective Time, except in the circumstance
of termination for cause where no notice is required. All Continuing Employees
will be given credit for all service prior to the Effective Time with the
Company and its Subsidiaries and affiliates (i) for all purposes under any
Benefit Plan of the Company or any of its Retained Subsidiaries in effect as of
the Effective Time in which they are then participating and (ii) for eligibility
and vesting purposes only under any plan or program for which they become
eligible on or following the Effective Time; provided, however, that except as
otherwise required by law or by the terms of any collective bargaining
agreements, service will be recognized under clause (i) only to the extent such
service was recognized under the Benefit Plan prior to the Effective Time and
under clause (ii) only to the extent such service was recognized under a
comparable Benefit Plan prior to the Effective Time. It is Acquiror's present
intention to provide, or cause to be provided, to Continuing Employees following
the Effective Time a comprehensive
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benefits package which will provide benefits, in the aggregate, comparable to
their benefits package with the Company and its Subsidiaries immediately prior
to the Effective Time.
(b) Stock Options. All options to acquire shares of Company Common Stock
or Company Class A Common Stock pursuant to any Company Stock Plan which are
outstanding immediately prior to the Effective Time, whether or not then
exercisable, shall be assumed by Newco as provided in Section 8.5 of the
Distribution Agreement.
5.13. Expenses. (a) Except as otherwise provided in this Agreement,
whether or not the Merger is consummated, all costs and expenses incurred in
connection with the Reorganization Agreements and the transactions contemplated
thereby will be paid by the party to whom such expense is allocated on Schedule
3.7 to the Post-Closing Covenants Agreement.
(b) The Company will pay Acquiror $60 million (the "Termination Fee") plus
up to $2.5 million of Expenses, if (i) this Agreement is terminated pursuant to
Sections 7.2(i) (by the Company), 7.2(ii), 7.3(ii) or 7.4(ii), (ii) prior to the
termination of this Agreement, a bona fide Acquisition Proposal was commenced,
publicly proposed, publicly disclosed or, in the case of clause (iii)(x) below,
communicated to the Board of Directors of the Company (or the willingness of any
person to make such an Acquisition Proposal was publicly disclosed or, in the
case of clause (iii)(x) below, communicated to the Board of Directors of the
Company) and (iii) (x) the Board of Directors of the Company, in accordance with
Section 5.5, withdrew or modified its approval or recommendation of this
Agreement or the Merger in a manner materially adverse to Acquiror, approved or
recommended such Acquisition Proposal, caused the Company to enter into an
Acquisition Agreement with respect to an Acquisition Proposal or terminated this
Agreement or (y) the requisite approval of the Company's stockholders for the
Contribution, the Distribution or the Merger was not obtained at the Company
Meeting (or the Company Meeting was not held prior to February 28, 1997) and,
within twelve months following the date of the Company Meeting (or following the
date of termination of this Agreement, if the Company Meeting was not held prior
to such termination), an Acquisition Proposal shall have been consummated or the
Company shall enter into a definitive agreement with respect to any Acquisition
Proposal; provided, however, that the Termination Fee and Expenses will not be
payable if, at the time of any action referred to in clause (iii)(x) above or
the Company Meeting (or on the date of the termination of this Agreement, if the
Company Meeting was not held prior to such termination), Acquiror shall be in
material breach of its covenants or agreements contained in this Agreement. The
Termination Fee and Expenses will be paid (in same-day funds), in the case of
clause (iii)(x) above, on the second business day following the termination of
this Agreement, or in the case of clause (y) above, on the second business day
following the earlier of execution of such agreement or the consummation of such
Acquisition Proposal.
The Company will pay Acquiror the Termination Fee, plus up to $2.5 million
of Expenses, if (i) this Agreement shall have been terminated by the Company
pursuant to Section 7.2(i) because of the failure to satisfy the condition set
forth in Section 6.2(c) (other than as a result of an action taken by Acquiror),
"no adverse tax development" Section 6.2(d) or Section 6.1(g)(with respect to
actions by the PBGC as to which the Company shall not have waived satisfaction
thereof) and (ii) within twelve months of the date of termination, an A&D
Acquisition Proposal shall have been consummated or the Company shall enter into
a definitive agreement with respect to any A&D Acquisition Proposal, such
payment to be made (in same-day funds) on the second business day following the
execution of such agreement or the consummation of such A&D Acquisition
Proposal; provided, however, that the Termination Fee and Expenses will not be
payable if, at the time of the termination of this Agreement, Acquiror shall be
in material breach of its covenants or agreements contained in this Agreement.
In no event shall a Termination Fee and Expenses be payable under both this
paragraph and the preceding paragraph.
For purposes hereof, "Expenses" shall mean documented out-of-pocket fees
and expenses incurred or paid by or on behalf of Acquiror in connection with
efforts to consummate any of the transactions contemplated by the Reorganization
Agreements, including financing fees, consent fees, printing costs and fees and
expenses of counsel, investment banking firms, accountants, experts and
consultants.
5.14. Takeover Statutes. If any Takeover Statute is or may become
applicable to the transactions contemplated by the Reorganization Agreements,
each of the Company and Acquiror and their respective
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Boards of Directors will grant such approvals and take such actions as are
necessary so that the transactions contemplated by the Reorganization Agreements
may be consummated as promptly as practicable on the terms contemplated thereby
and otherwise act to eliminate or minimize the effects of any Takeover Statute
on any of the transactions contemplated by the Reorganization Agreements.
5.15. Securities Act Compliance. As soon as practicable after the date of
the Company Meeting, the Company will identify to Acquiror all individuals who
were reasonably believed by the Company to be, at the time of the Company
Meeting, "affiliates" of the Company as that term is used in paragraphs (c) and
(d) of Rule 145 under the Securities Act (the "Rule 145 Affiliates"). The
Company will use its reasonable best efforts to obtain a written agreement in
the form of Annex F hereto from each person who is so identified as a possible
Rule 145 Affiliate and will deliver such written agreements to Acquiror as soon
as practicable after the Company Meeting. If any Rule 145 Affiliate refuses to
provide such Agreement, Acquiror may place appropriate legends on the New
Certificates evidencing the shares of Acquiror Common Stock to be received by
such Affiliate and to issue appropriate stop transfer orders to the transfer
agent.
5.16. Stock Exchange Listing. (a) The Company will use its reasonable best
efforts to list on the NYSE prior to the Closing Date, subject to official
notice of issuance, the Newco Common Stock to be distributed by the Company
pursuant to the Distribution.
(b) Acquiror will use its reasonable best efforts to list on the NYSE prior
to the Closing Date, subject to official notice of issuance, the Acquiror Common
Stock to be issued pursuant to the Merger.
5.17. Indebtedness. The Company agrees that immediately prior to the
Effective Time, after giving effect to the Contribution and the other
transactions contemplated by the Reorganization Agreements, there will not be
outstanding any indebtedness for borrowed money, or any guarantees in respect of
any indebtedness for borrowed money of any third party, in respect of which any
of the Retained Companies is obligated, other than the Company Debt (as defined
in the Distribution Agreement).
5.18. Short-Term Debt. On the Closing Date, Acquiror will retire, repay,
purchase, redeem or assume up to $565 million aggregate principal amount of
short-term indebtedness constituting Company Debt (except for commercial paper,
which shall be assumed by Acquiror on the Closing Date or, if such assumption is
not permitted, guaranteed by Acquiror and retired, repaid, purchased or redeemed
by Acquiror not later than the maturity date thereof (which shall be within 60
days following the Closing Date)); provided that such retirement, repayment,
purchase, redemption or assumption is permitted by the terms of such
indebtedness and does not require the payment of any penalties, premiums or
fees.
ARTICLE VI
CONDITIONS
6.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party hereto to consummate the Merger are subject
to the satisfaction or waiver, on or prior to the Closing Date, of each of the
following conditions:
(a) Company Stockholder Approval. Each of the Contribution, the
Distribution and the Merger shall have been duly approved by the
affirmative vote of the holders of Company Common Stock and Company Class A
Common Stock, voting together a class, representing at least a majority of
the total number of votes entitled to be cast in accordance with the DGCL,
other applicable law, the Company Charter and the Company By-laws.
(b) NYSE Listing. The shares of Acquiror Common Stock to be issued
pursuant to the Merger shall have been approved for listing on the NYSE
prior to the Closing Date, subject to official notice of issuance.
(c) HSR. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
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(d) Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition shall be in effect
that prohibits consummation of the transactions contemplated by the
Reorganization Agreements.
(e) Registration Statements; Form 8-A. The Registration Statements
shall have become effective under the Securities Act, the Form 8-A shall
have become effective under the Exchange Act, no stop order suspending the
effectiveness of the Registration Statements or the Form 8-A shall have
been issued and no proceedings for that purpose shall have been initiated
or threatened by the SEC.
(f) Pre-Merger Transactions. The transactions contemplated by Article
III, including, without limitation, the Contribution, the Distribution, the
Conversion and the Consent Solicitation shall have been consummated in
accordance with the terms of this Agreement and the Distribution Agreement
(which includes additional conditions to such consummation).
(g) Advance Agreements. Acquiror, the Company and Newco shall each
have received, in form and substance reasonably satisfactory to each, the
advance agreements and approvals of Governmental Entities concerning the
matters described on Schedule 9.1(e) to the Distribution Agreement.
(h) Ancillary Agreements. The Distribution Agreement, the Tax
Allocation Agreement and the Post-Closing Covenants Agreement shall have
been executed and delivered in accordance with Section 3.2.
6.2. Conditions to Obligation of the Company. The obligation of the
Company to consummate the Merger is also subject to the satisfaction or waiver
by the Company on or prior to the Closing Date of each of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of Acquiror and Sub set forth in the Reorganization Agreements
(x) that are qualified as to materiality shall be true and correct and (y)
that are not so qualified shall be true and correct in all material
respects, in each case as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (except (i) that
the accuracy of representations and warranties that by their terms speak as
of the date of this Agreement or some other date will be determined as of
such date and (ii) for the effect of any activities or transactions which
are contemplated by the Reorganization Agreements), and the Company will
have received a certificate signed on behalf of Acquiror by the Chief
Financial Officer of Acquiror to such effect.
(b) Performance of Obligations of Acquiror and Sub. Acquiror and Sub
shall have performed in all material respects all obligations required to
be performed by them under the Reorganization Agreements at or prior to the
Closing Date, and the Company shall have received a certificate signed on
behalf of Acquiror by the Chief Financial Officer of Acquiror to such
effect.
(c) Tax Opinions. The Company shall have received the opinions of
Chadbourne & Parke LLP, counsel to the Company, and Wachtell, Lipton, Rosen
& Katz, special counsel to the Company, each dated the Closing Date, to the
effect that the Contribution and Distribution qualify as transactions
described in Sections 351 and Section 355 of the Code and/or a
"reorganization" within the meaning of Section 368(a)(1)(D) of the Code and
that the Merger qualifies as a "reorganization" within the meaning of
Section 368(a)(1)(B) of the Code.
(d) No Adverse Tax Development. The Company shall have determined,
after considering the advice of its independent tax counsel, that there has
not occurred on or after the date of this Agreement any Adverse Tax
Development (as defined below) that may or will result in the imposition of
a material amount of Federal income Tax to the Company, Newco or any of
their respective Subsidiaries or stockholders in respect of the
Contribution, the Distribution or the Merger; provided, however, that if
the Company (with the full and unconditional guarantee of Acquiror) agrees
to indemnify and hold harmless the Newco Companies and any affected
stockholders against the amount of income Tax imposed on them as result of
the Contribution, the Distribution or the Merger (but only to the extent
the amount of such income Tax exceeds the amount of such Tax that would
have been imposed on them absent a change in
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law, rules or regulations arising out of or related to such Adverse Tax
Development), then this Section 6.2(d) shall no longer constitute a
condition to the obligation of the Company to consummate the Merger, and
the Tax Allocation Agreement shall be amended to reflect such agreement of
the Company, Newco and Acquiror on terms mutually agreeable to the Company,
Newco and Acquiror. For purposes of this Section 6.2(d), an "Adverse Tax
Development" shall mean the enactment of any legislation; the passage of
any bill by either House of Congress; the action or announcement of
proposed action with respect to, or consideration of, proposed legislation
by any Congressional Committee or Member thereof; the introduction of
legislation by any Member of Congress; the announcement by any Member of
Congress of an intent to introduce legislation; the announcement by the
Executive branch of an intent to propose legislation; any announcement or
notice by the IRS or the Department of the Treasury, including the issuance
of any ruling or the proposal or adoption of any regulation; and any
similar action, event or development.
(e) NYSE Listing. The Newco Common Stock to be distributed by the
Company pursuant to the Distribution shall have been approved for listing
on the NYSE prior to the Closing Date, subject to official notice of
issuance.
(f) Certain Representations. The representations contained in
Sections 4.2(f), 4.2(g) and 4.2(h) shall be true and correct as of the
Closing Date as though made on and as of the Closing Date without giving
effect to the limitation in such representations stating that such
representations speak as of the date of this Agreement.
(g) Governmental and Regulatory Consents. All filings required to be
made prior to the Closing Date with, and all consents, approvals and
authorizations required to be obtained prior to the Closing Date from, any
Governmental Entity in connection with the execution, delivery and
performance of the Reorganization Agreements shall have been made or
obtained, except where the failure to make or obtain the same would not,
individually or in the aggregate, (A) have a Material Averse Effect on the
Newco Companies, taken as a whole, and (B) reasonably be expected to
subject the Company or any of its Subsidiaries, or any of their affiliates
or any directors or officers of any of the foregoing, to the risk of
criminal liability.
6.3. Conditions to Obligations of Acquiror and Sub. The obligations of
Acquiror and Sub to consummate the Merger are also subject to the satisfaction
or waiver by Acquiror on or prior to the Closing Date of each of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of the Company, Newco and the Operating Subsidiaries set forth
in the Reorganization Agreements (x) that are qualified as to materiality
shall be true and correct and (y) that are not so qualified shall be true
and correct in all material respects, in each case as of the date of this
Agreement and as of the Closing Date as though made on and as of the
Closing Date (except (i) that the accuracy of representations and
warranties that by their terms speak as of the date of this Agreement or
some other date will be determined as of such date and (ii) for the effect
of any activities or transactions which are contemplated by the
Reorganization Agreements) and Acquiror will have received a certificate
signed on behalf of the Company by the Chief Financial Officer of the
Company to such effect.
(b) Performance of Obligations. Each of the Company, Newco and the
Operating Subsidiaries shall have performed in all material respects all
obligations required to be performed by it under the Reorganization
Agreements at or prior to the Closing Date, and Acquiror shall have
received a certificate signed on behalf of the Company by the Chief
Financial Officer of the Company to such effect.
(c) Tax Opinion. Acquiror shall have received an opinion of Cravath,
Swaine & Moore, special counsel to Acquiror, dated the Closing Date, to the
effect that the Merger qualifies as a "reorganization" within the meaning
of Section 368(a)(1)(B) of the Code and shall have received opinions of
Chadbourne & Parke LLP and Wachtell, Lipton, Rosen & Katz satisfactory to
Acquiror in form and substance to the effect that the Contribution and
Distribution qualify as transactions described in
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Sections 351 and 355 of the Code and/or a "reorganization" within the
meaning of Section 368(a)(1)(D) of the Code.
(d) Distribution. The conditions to the obligations of the Company to
consummate the Distribution set forth in Section 9.1 of the Distribution
Agreement shall have been satisfied (without giving effect to any waiver of
any such condition not approved by Acquiror).
(e) Stock Options. No holder of any option to purchase Company Common
Stock or Company Class A Common Stock shall have the right to receive, upon
exercise of any such option following the Effective Time, any securities,
cash or other property of the Company or Acquiror.
(f) Accrued Interest. The Company shall have wired to an account
designated by Acquiror same day funds in an amount equal to the excess (if
any) of (1) the sum of (x) $4.5 million and (y) the Accrued Interest over
(2) the Paydown Amount (as such terms are defined in the Distribution
Agreement); provided, however, that cash in an amount not to exceed the
aggregate outstanding principal amount of the Rockwell Australia Debt (as
defined in the Distribution Agreement) retained by Rockwell Australia
Limited shall be deemed to be transferred to Acquiror for purposes of this
condition.
(g) Certain Representations. The representations contained in
Sections 4.1(h), 4.1(i) and 4.1(k) shall be true and correct as of the
Closing Date as though made on and as of the Closing Date without giving
effect to the limitation in such representations stating that such
representations speak as of the date of this Agreement.
(h) Governmental and Regulatory Consents. All filings required to be
made prior to the Closing Date with, and all consents, approvals and
authorizations required to be obtained prior to the Closing Date from, any
Governmental Entity in connection with the execution, delivery and
performance of the Reorganization Agreements shall have been made or
obtained, except where the failure to make or obtain the same would not,
individually or in the aggregate, (A) have a Material Adverse Effect on the
Retained Companies, taken as a whole, or on Acquiror and its Subsidiaries,
taken as a whole, and (B) reasonably be expected to subject the Company or
any of its Subsidiaries, or Acquiror or any of its Subsidiaries, or any of
their affiliates or any directors or officers of any of the foregoing, to
the risk of criminal liability.
ARTICLE VII
TERMINATION
7.1. Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, before or
after the approval by the stockholders of the Company, by the mutual written
consent of the Company and Acquiror.
7.2. Termination by Either the Company or Acquiror. This Agreement may be
terminated and the Merger may be abandoned by either the Company or Acquiror if
(i) the Merger shall not have been consummated by February 28, 1997 or (ii) at
the Company Meeting or at any adjournment thereof, the approvals of the
Company's stockholders referred to in Section 6.1(a) shall not have been
obtained; provided that in the case of a termination pursuant to clause (i)
above, the terminating party and its Subsidiaries shall not have breached in any
material respect their respective obligations under the Reorganization
Agreements in any manner that shall have caused or resulted in the failure
referred to above.
7.3. Termination by the Company. This Agreement may be terminated and the
Merger may be abandoned by the Company at any time prior to the Effective Time,
before or after the approval by stockholders of the Company referred to in
Section 6.1(a), (i) if Acquiror or Sub shall have breached in any material
respect any of the covenants, representations, warranties or agreements
contained in any Reorganization Agreement, which breach shall not have been
cured within 30 days following written notice of such breach, or (ii) pursuant
to Section 5.5(b) of this Agreement.
7.4. Termination by Acquiror. This Agreement may be terminated and the
Merger may be abandoned by Acquiror at any time prior to the Effective Time, (i)
if the Company, Newco or the Operating Subsidiaries
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shall have breached in any material respect any of the covenants,
representations, warranties or agreements contained in any Reorganization
Agreement, which breach shall not have been cured within 30 days following
written notice of such breach, or (ii) if the Board of Directors of the Company
shall have exercised any of its rights set forth in the second sentence of
Section 5.5(b) of this Agreement.
7.5. Effect of Termination and Abandonment. In the event of termination of
this Agreement and the abandonment of the Merger pursuant to this Article VII,
no party to the Reorganization Agreements (or any of its directors or officers)
shall have any liability or further obligation to any other party, except as set
forth in Sections 4.1(p), 4.2(j), 5.13, 7.5 and 8.17, and the second sentence of
Section 5.9(a), all of which shall survive such termination, and except that
nothing herein shall relieve any party from liability for any material and
willful breach of any of the Reorganization Agreements.
ARTICLE VIII
MISCELLANEOUS AND GENERAL
8.1. Survival. All representations and warranties contained in this
Agreement shall be deemed only to be conditions of the Merger and shall not
survive the Effective Time; provided, however, that the representations and
warranties of the Company contained herein shall survive the Effective Time
until 11:59 P.M. (New York City time) on the first anniversary of the Effective
Time and the representations and warranties of Acquiror contained in Sections
4.2(j) and 4.2(d)(iii) shall survive the Effective Time until 90 days after the
expiration of the relevant statute of limitations (including any extensions
thereof); provided, further, that the representations and warranties of the
Company set forth in clauses (ix) and (xii) of Section 4.1(l), Section 4.1(p)
and the covenants set forth in Section 2.2(h) and 5.1(n) shall survive the
Effective Time until 90 days after the expiration of the relevant statute of
limitations (including any extensions thereof), the representation and warranty
set forth in the penultimate sentence of the first paragraph of Section 4.1(g)
shall survive the Effective Time until 11:59 p.m. (New York City time) on the
tenth anniversary of the Effective Time and the representations and warranties
set forth in Section 4.1(1) (other than those set forth in clauses (ix) and
(xii) thereof) shall not survive the Effective Time. The covenants contained in
this Agreement shall not survive the Effective Time except to the extent that
they provide for or contemplate performance following the Effective Time.
8.2. Modification or Amendment. Subject to the applicable provisions of
the DGCL, at any time prior to the Effective Time, the parties hereto may modify
or amend this Agreement by written agreement executed and delivered by duly
authorized officers of the respective parties.
8.3. Waiver; Remedies. The conditions to each party's obligation to
consummate the Merger are for the sole benefit of such party and may be waived
(in writing) by such party in whole or in part to the extent permitted by
applicable law. No delay on the part of either Acquiror or the Company in
exercising any right, power or privilege hereunder will operate as a waiver
thereof, nor will any waiver on the part of either Acquiror or the Company of
any right, power or privilege hereunder operate as a waiver of any other right,
power or privilege hereunder, nor will any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder. Unless
otherwise provided, the rights and remedies herein provided are cumulative and
are not exclusive of any rights or remedies which the parties may otherwise have
at law or in equity.
8.4. Counterparts. For the convenience of the parties, this Agreement may
be executed in any number of separate counterparts, each such counterpart being
deemed to be an original instrument, and all such counterparts shall together
constitute the same agreement.
8.5. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York applicable to
contracts made and to be performed entirely within such State, without regard to
the conflicts of law principles of such State.
8.6. Notices. Any notice, request, instruction or other communication to
be given hereunder by any party to another shall be in writing and shall be
deemed to have been duly given (i) on the date of delivery if
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delivered personally, or by telecopy or telefacsimile, upon confirmation of
receipt, (ii) on the first business day following the date of dispatch if
delivered by Federal Express or other nationally reputable next-day courier
service, or (iii) on the third business day following the date of mailing if
delivered by registered or certified mail, return receipt requested, postage
prepaid. All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the party
to receive such notice.
(a) If to the Company:
Rockwell International Corporation
World Headquarters
2201 Seal Beach Boulevard
Seal Beach, California 90743-8750
Attention: William J. Calise, Jr., Esq.
Senior Vice President, General
Counsel and Secretary
Telecopy: (310) 797-5687
with copies to:
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Peter R. Kolyer, Esq.
Telecopy: (212) 541-5369
and
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Eric S. Robinson, Esq.
Telecopy: (212) 403-2000
(b) if to Acquiror or Sub:
The Boeing Company
P.O. Box 3707
M/S 13-08
Seattle, Washington 98124-2207
Attention: Theodore J. Collins, Esq.
Vice President & General Counsel
Telecopy: (206) 544-4900
with copies to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: Allen Finkelson, Esq.
Telecopy: (212) 474-3700
8.7. Entire Agreement. The Reorganization Agreements (including the
Annexes hereto, the Company Disclosure Schedule and the Acquiror Disclosure
Schedule), the Transition Agreement and the Confidentiality Agreement constitute
the entire agreement, and supersede all other prior agreements, understandings,
representations and warranties, both written and oral, among the parties, with
respect to the subject matter hereof and thereof.
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8.8. Certain Obligations. Whenever any Reorganization Agreement requires
any of the Subsidiaries of any party to take any action, this Agreement will be
deemed to include an undertaking on the part of such party to cause such
Subsidiary to take such action.
8.9. Assignment. No party to this Agreement shall convey, assign or
otherwise transfer any of its rights or obligations under this Agreement without
the express written consent of each other party hereto in its sole and absolute
discretion. Any such conveyance, assignment or transfer without the express
written consent of each other party shall be void ab initio. No assignment of
this Agreement shall relieve the assigning party of its obligations hereunder.
8.10. Definition of "Subsidiary". When a reference is made in this
Agreement to a Subsidiary of a party, the term "Subsidiary" means any
corporation or other organization, whether incorporated or unincorporated, of
which at least a majority of the securities or interests having by the terms
thereof ordinary voting power to elect at least a majority of the board of
directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or by any one or more of its Subsidiaries, or by such party and
one or more of its Subsidiaries.
8.11. Captions. The Article, Section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
8.12. Specific Performance. In the event of any actual or threatened
default in, or breach of, any of the terms, conditions and provisions of the
Reorganization Agreements, the party or parties who are or are to be thereby
aggrieved shall have the right of specific performance and injunctive relief
giving effect to its or their rights under the Reorganization Agreements, in
addition to any and all other rights and remedies at law or in equity, and all
such rights and remedies shall be cumulative. The parties agree that the
remedies at law for any breach or threatened breach, including monetary damages,
are inadequate compensation for any loss and that any defense in any action for
specific performance that a remedy at law would be adequate is waived.
8.13. Severability. If any provision of the Reorganization Agreements or
the application thereof to any person or circumstance is determined by a court
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions thereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated thereby is not affected in any manner
adverse to any party. Upon any such determination, the parties shall negotiate
in good faith in an effort to agree upon a suitable and equitable substitute
provision to effect the original intent of the parties.
8.14. No Third Party Beneficiaries. Nothing contained in this Agreement is
intended to confer upon any person or entity other than the parties hereto and
their respective successors and permitted assigns, any benefit, right or
remedies under or by reason of this Agreement.
8.15. Annexes and Schedules. All Annexes hereto and the Company Disclosure
Schedule (collectively, the "Schedules") attached hereto or referred to herein
are hereby incorporated in and made a part of this Agreement as if set forth in
full herein. Matters reflected on the Schedules are not necessarily limited to
matters required by this Agreement to be reflected on such Schedules. Such
additional matters are set forth for informational purposes only and do not
necessarily include other matters of a similar nature. Capitalized terms used in
any Schedule but not otherwise defined therein shall have the respective
meanings assigned to such terms in this Agreement.
8.16. No Representations or Warranties. Acquiror and Sub acknowledge that
none of the Company or any of its Subsidiaries, any of their affiliates
(including the Retained Companies) or any other person has made any
representation or warranty, expressed or implied, as to the accuracy or
completeness of any information regarding any of the Company, Newco, Newco's
Subsidiaries, the Retained Companies or the Retained Business not included in
the Reorganization Agreements, and none of the Company, any of its Subsidiaries
or affiliates or any other person will have or be subject to any liability to
Acquiror or any of its Subsidiaries, any of their affiliates or any other person
resulting from the distribution to Acquiror or Sub, or
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Acquiror's or Sub's use of, any such information. Acquiror and Sub further
acknowledge that, except as expressly set forth in the Reorganization
Agreements, there are no representations or warranties of any kind, expressed or
implied, with respect to any of the Company, Newco, Newco's Subsidiaries, the
Retained Companies or the Retained Business.
8.17. Consent to Jurisdiction. Each of the Company, Acquiror and Sub
irrevocably submits to the exclusive jurisdiction of (i) the Superior Court of
the State of California, San Francisco County and (ii) the United States
District Court for the Northern District of California for the purposes of any
suit, action or other proceeding arising out of this Agreement or any
transaction contemplated hereby (and agrees not to commence any action, suit or
proceeding relating hereto except in such courts). Each of the Company, Acquiror
and Sub further agrees that service of any process, summons, notice or document
hand delivered or sent by registered mail to such party's respective address set
forth in Section 8.6 will be effective service of process for any action, suit
or proceeding in California with respect to any matters to which it has
submitted to jurisdiction as set forth in the immediately preceding sentence.
Each of the Company, Acquiror and Sub irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement or the transactions contemplated hereby in (i) the Superior
Court of the State of California, San Francisco County or (ii) the United States
District Court for the Northern District of California, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
8.18. Definition of "Knowledge". For the purposes of this Agreement,
"knowledge" or "aware of" or a similar phrase with respect to (i) the Company
will mean the actual knowledge of the Chairman of the Board and Chief Executive
Officer, the President and Chief Operating Officer, the Senior Vice President,
Finance and Planning and Chief Financial Officer, the Senior Vice President,
General Counsel and Secretary, the Senior Vice President and President and Chief
Operating Officer -- Aerospace and Defense, the Vice President, Law, the
Corporate Intellectual Property Counsel, the Vice President,
Finance -- Aerospace and Defense, the President and Center Director -- Systems
Development Center, the Vice President and Program Director -- Airborne Laser
Program, the Vice President and General Manager -- Science Center, the
President -- Autonetics and Missile Systems Division, the Vice President and
General Manager -- North American Aircraft Division, the Vice President and
General Manager -- North American Aircraft Modification Division, the President,
Rocketdyne Division or the President, Space Systems Division of the Company, and
not any constructive or imputed knowledge of the Company or any of its
Subsidiaries or affiliates or any of their directors, officers or employees and
(ii) Acquiror will mean the actual knowledge of the Chief Executive Officer,
Chief Financial Officer, General Counsel, Controller or Secretary of Acquiror,
and not any constructive or imputed knowledge of Acquiror or one of its
Subsidiaries or affiliates or any of their directors, officers or employees.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto on the date first hereinabove
written.
ROCKWELL INTERNATIONAL
CORPORATION
/s/ DONALD R. BEALL
--------------------------------------
Name: Donald R. Beall
Title: Chairman of the Board and
Chief Executive Officer
THE BOEING COMPANY
/s/ PHILIP M. CONDIT
--------------------------------------
Name: Philip M. Condit
Title: President and Chief Executive
Officer
BOEING NA, INC.
/s/ BOYD E. GIVAN
--------------------------------------
Name: Boyd E. Givan
Title: Director
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ANNEX A
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF DISTRIBUTION
DATED AS OF , 1996
AMONG
ROCKWELL INTERNATIONAL CORPORATION,
NEW ROCKWELL INTERNATIONAL CORPORATION
ALLEN-BRADLEY COMPANY, INC.,
ROCKWELL COLLINS, INC.,
ROCKWELL SEMICONDUCTOR SYSTEMS, INC.,
ROCKWELL LIGHT VEHICLE SYSTEMS, INC.,
ROCKWELL HEAVY VEHICLE SYSTEMS, INC.
AND
ROCKWELL GRAPHIC SYSTEMS, INC.
- --------------------------------------------------------------------------------
<PAGE> 227
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<C> <S> <C>
ARTICLE I DEFINITIONS........................................................... 2
1.1. Definitions........................................................... 2
ARTICLE II CONTRIBUTION AND ASSUMPTION........................................... 7
2.1. Contribution.......................................................... 7
2.2. Assumption of Liabilities............................................. 9
2.3. Transfer and Assumption Documentation................................. 11
2.4. Nonassignable Contracts............................................... 11
2.5. Intercompany Arrangements............................................. 12
ARTICLE III RECAPITALIZATION OF NEWCO; MECHANICS OF DISTRIBUTION.................. 12
3.1. Newco Capitalization.................................................. 12
3.2. Recapitalization of Newco............................................. 12
3.3. Mechanics of Distribution............................................. 12
3.4. Timing of Distribution................................................ 12
ARTICLE IV OTHER AGREEMENTS...................................................... 13
4.1. Employment............................................................ 13
4.2. Cross-License of Intellectual Property................................ 13
4.3. Use of Names, Trademarks, etc. ....................................... 14
4.4. Further Assurances.................................................... 16
4.5. Cooperation........................................................... 16
ARTICLE V TAX MATTERS........................................................... 16
5.1. Tax Allocation........................................................ 16
5.2. Tax Matters........................................................... 16
5.3. Transfer Taxes........................................................ 16
ARTICLE VI MUTUAL RELEASE........................................................ 16
6.1. Mutual Release, etc................................................... 16
ARTICLE VII ACCESS TO INFORMATION................................................. 17
7.1. Provision of Corporate Records........................................ 17
7.2. Access to Information................................................. 17
7.3. Production of Witnesses............................................... 18
7.4. Retention of Records.................................................. 19
7.5. Confidentiality....................................................... 19
ARTICLE VIII EMPLOYEE BENEFIT PLANS................................................ 19
8.1. Employee Benefits Generally........................................... 19
8.2. Retirement Plans...................................................... 19
8.3. Savings Plans......................................................... 23
8.4. Deferred Compensation Plans and Nonqualified Retirement and Savings
Plans................................................................. 23
8.5. Employee Stock Options................................................ 24
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
8.6. Long-Term Incentive Plan.............................................. 24
8.7. Welfare Benefit Plans................................................. 25
8.8. Retiree Medical and Life Insurance.................................... 26
8.9. Retention and Severance Obligations................................... 26
8.10. Free-Standing Plans................................................... 27
8.11. Employment, Consulting and Severance Agreements....................... 27
8.12. Welfare Plan Funding.................................................. 27
8.13. Indemnification....................................................... 28
8.14. Cooperation........................................................... 29
8.15. Amendment, Modification or Termination of Benefits Plan............... 29
ARTICLE IX CONDITIONS............................................................ 29
9.1. Conditions to Obligations of the Company.............................. 29
ARTICLE X MISCELLANEOUS AND GENERAL............................................. 29
10.1. Modification or Amendment............................................. 29
10.2. Waiver; Remedies...................................................... 29
10.3. Counterparts.......................................................... 30
10.4. Governing Law......................................................... 30
10.5. Notices............................................................... 30
10.6. Entire Agreement...................................................... 31
10.7. Certain Obligations................................................... 31
10.8. Assignment............................................................ 31
10.9. Captions.............................................................. 31
10.10. Specific Performance.................................................. 31
10.11. Severability.......................................................... 31
10.12. Third Party Beneficiaries............................................. 31
10.13. Schedules............................................................. 31
10.14. Consent to Jurisdiction............................................... 32
</TABLE>
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AGREEMENT AND PLAN OF DISTRIBUTION, dated as of , 1996 (this
"Agreement"), among ROCKWELL INTERNATIONAL CORPORATION, a Delaware corporation
(the "Company"), NEW ROCKWELL INTERNATIONAL CORPORATION, a Delaware corporation
("Newco"), ALLEN-BRADLEY COMPANY, INC., a Wisconsin corporation ("A-B"),
ROCKWELL COLLINS, INC., a Delaware corporation ("Collins"), ROCKWELL
SEMICONDUCTOR SYSTEMS, INC., a Delaware corporation ("RSS"), ROCKWELL LIGHT
VEHICLE SYSTEMS, INC., a Delaware corporation ("LVS"), ROCKWELL HEAVY VEHICLE
SYSTEMS, INC., a Delaware corporation ("HVS"), and ROCKWELL GRAPHIC SYSTEMS,
INC., a Delaware corporation ("Graphics"; and together with A-B, Collins, RSS,
LVS and HVS, the "Operating Subsidiaries").
W I T N E S S E T H :
WHEREAS, the Company, The Boeing Company, a Delaware corporation
("Acquiror"), and Boeing NA, Inc., a Delaware corporation and a wholly-owned
subsidiary of Acquiror ("Sub"), have entered into an Agreement and Plan of
Merger dated as of July 31, 1996 (the "Merger Agreement"), providing for the
Merger (as defined in the Merger Agreement) of Sub with and into the Company;
WHEREAS, immediately prior to the Conversion (as defined in the recitals to
the Merger Agreement), the Company's Board of Directors, subject to the approval
of the Company's stockholders, expects to distribute to the holders of Common
Stock, par value $1.00 per share, of the Company ("Company Common Stock") and
Class A Common Stock, par value $1.00 per share, of the Company ("Company Class
A Common Stock"), other than shares held in the treasury of the Company, on a
pro rata basis all of the issued and outstanding shares of Common Stock, par
value $1.00 per share, of Newco ("Newco Common Stock") and Class A Common Stock,
par value $1.00 per share, of Newco ("Newco Class A Common Stock"), in each case
with the associated Rights (as defined in Section 1.1) (the "Distribution");
WHEREAS, immediately prior to the Distribution, the Company's Board of
Directors, subject to the approval of the Company's stockholders, expects to
cause (i) the Company to contribute certain assets to the Operating Subsidiaries
as a capital contribution or in exchange for shares of their stock, (ii) the
Company to contribute the stock of the Operating Subsidiaries and certain other
assets to Newco as a capital contribution and (iii) Newco and the Operating
Subsidiaries to assume certain liabilities of the Company, all as more
specifically provided herein (the transactions described in clauses (i), (ii)
and (iii) are referred to collectively as the "Contribution");
WHEREAS, the purpose of the Distribution is to make possible the Merger by
divesting the Company of the businesses and operations to be conducted by Newco
and the Operating Subsidiaries, which Acquiror is unwilling to acquire;
WHEREAS, it is the intention of the parties to this Agreement that the
Contribution and Distribution will qualify as transactions described in Sections
351 and Section 355 of the Internal Revenue Code of 1986, as amended (the
"Code") and/or a "reorganization" within the meaning of Section 368(a)(1)(D) of
the Code; and
WHEREAS, this Agreement sets forth or provides for certain agreements by
and among the Company, Newco and the Operating Subsidiaries in consideration of
the separation of the ownership of the Company and Newco;
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NOW, THEREFORE, in consideration of the premises, and of the respective
covenants and agreements set forth herein, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. Capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings assigned to such terms in the
Merger Agreement. As used in this Agreement, the following terms shall have the
following respective meanings:
"A-B Business" shall mean the business heretofore and currently
engaged in by the Company and its Subsidiaries and their respective
predecessors of designing, building, selling, installing, modifying,
repairing, servicing and supporting automation products and systems,
including, without limitation, programmable controllers, human/machine
interface devices, communications networks, programming and application
software, AC/DC drives and drive systems, sensing and motion control
devices, machine vision products, computer numeric control systems, data
acquisition products, standard and engineered motors, mechanical power
transmission equipment, and support services for all of the foregoing, and
activities related thereto, and shall include any former or discontinued
operations primarily related to the A-B Business as previously conducted.
"Accrued Interest" shall mean all accrued and unpaid interest on the
Company Debt to the Closing Date other than accretion on commercial paper
to the extent such accretion is included in Company Debt.
"Additional Retained Facilities" shall mean the Company's Seal Beach,
California world headquarters, the Company's Systems Development Center,
the Company's Information Systems Center and the Company's Government
Affairs, Marketing and International Offices located in Washington, D.C.
(Arlington, VA) and related international and field offices listed on
Schedule 2.1(b)(i)(D).
"Aerospace Business" shall mean the business heretofore and currently
engaged in by the Company and its Subsidiaries and their respective
predecessors of designing, building, selling, installing, modifying,
repairing, servicing and supporting spacecraft, liquid-fueled rocket
engines, military and civilian aircraft, tactical weapons, unmanned
missiles, applied energy technologies (including, without limitation,
solar, kinetic and laser), and parts, components and materials for the
foregoing, contract work for the National Aeronautics and Space
Administration and the Company's interest in United Space Alliance, LLC,
and activities related thereto, and shall include any former or
discontinued operations primarily related to the Aerospace Business as
previously conducted, including, without limitation, the former or
discontinued operations listed on Schedule 1.1(a)(i); provided, however,
that Aerospace Business does not include any part of the Collins Business,
any Contributed A&D Assets or any Divested Business of the Aerospace
Business, including, without limitation, the Divested Businesses listed on
Schedule 1.1(a)(ii).
"Affiliate" shall mean, with respect to any specified Person, a Person
that directly, or indirectly through one or more intermediaries, controls,
is controlled by, or is under common control with, such specified Person;
provided, however, that for purposes of this Agreement and the Post-Closing
Covenants Agreement, from and after the Time of Contribution, no member of
either Group shall be deemed to be an Affiliate of any member of the other
Group.
"Assets" shall mean any and all assets, properties and rights, whether
tangible or intangible, whether real, personal or mixed, whether fixed,
contingent or otherwise, and wherever located, including, without
limitation, the following:
(i) real property interests (including leases), land, plants,
buildings and improvements;
(ii) machinery, equipment, tooling, vehicles, furniture and
fixtures, leasehold improvements, repair parts, tools, plant, laboratory
and office equipment and other tangible personal property,
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together with any rights or claims arising out of the breach of any
express or implied warranty by the manufacturers or sellers of any of
such assets or any component part thereof;
(iii) inventories, including raw materials, work-in-process,
finished goods, parts, accessories and supplies;
(iv) cash, bank accounts, notes, loans and accounts receivable
(whether current or not current), interests as beneficiary under letters
of credit, advances and performance and surety bonds;
(v) certificates of deposit, banker's acceptances, shares of stock,
bonds, debentures, evidences of indebtedness, certificates of interest
or participation in profit-sharing agreements, collateral-trust
certificates, preorganization certificates or subscriptions,
transferable shares, investment contracts, voting-trust certificates,
puts, calls, straddles, options, swaps, collars, caps and other
securities or hedging arrangements of any kind;
(vi) financial, accounting and operating data and records
including, without limitation, books, records, notes, sales and sales
promotional data, advertising materials, credit information, cost and
pricing information, customer and supplier lists, reference catalogs,
payroll and personnel records, minute books, stock ledgers, stock
transfer records and other similar property, rights and information;
(vii) patents, patent applications, trademarks, trademark
applications and registrations, trade names, service marks, service
names, copyrights and copyright applications and registrations,
commercial and technical information including engineering, production
and other designs, drawings, specifications, formulae, technology,
computer and electronic data processing programs and software,
inventions, processes, trade secrets, know-how, confidential information
and other proprietary property, rights and interests;
(viii) agreements, leases, contracts, sale orders, purchase orders,
open bids and other commitments and all rights therein;
(ix) prepaid expenses, deposits and retentions held by third
parties;
(x) claims, causes of action, choses in action, rights under
insurance policies, rights under express or implied warranties, rights
of recovery, rights of set-off, rights of subrogation and all other
rights of any kind;
(xi) licenses, franchises, permits, authorizations and approvals;
and
(xii) goodwill and going concern value.
"Brooktree Acquisition" shall mean the proposed acquisition of
Brooktree Corporation, a California corporation ("Brooktree"), pursuant to
the Agreement and Plan of Merger dated as of July 1, 1996 among the
Company, ROK II Acquisition Corporation and Brooktree.
"Collins Business" shall mean the business heretofore and currently
engaged in by the Company and its Subsidiaries and their respective
predecessors of designing, building, selling, installing, modifying,
repairing, servicing and supporting avionics, communication and navigation
products and systems and parts, components and materials for the foregoing,
including without limitation: electronic equipment for flight control,
cockpit display, navigation, voice and data communication, cockpit
management, radar, global positioning and other systems for airlines,
corporate aircraft, government and military applications; call center
products and systems; mobile communication and information systems to the
land transportation market (including the Company's Automatic Vehicle
Locating System and Vision Sensor Initiatives Programs) and flat panel
displays and other optical components, and activities related thereto, and
shall include the Collins Avionics and Communications Division, Collins
Commercial Avionics, the Communication Systems Division and any former or
discontinued operations primarily related to the Collins Business as
previously conducted; provided, however, that Collins Business does not
include Collins International Service Company located at 3200 East Renner
Road, Richardson, Texas, Rockwell
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Australia Limited and its Subsidiaries or any business thereof (which shall
constitute part of the Defense Business).
"Communication Systems Division" shall mean the business heretofore
and currently engaged in by the Company and its Subsidiaries and their
respective predecessors of designing, building, selling, installing,
modifying, repairing, servicing and supporting information message handling
and communication systems and products that support command, control and
communications for land, sea and air applications, including without
limitation: integrated command and control systems for military and
civilian agencies; fixed and airborne VLF communications; multispectrum
tactical HF through satellite communications for fixed and transportable
applications; satellite communications through the EHF band; airborne
communication systems including platform integration; avionics and special
mission systems integration and aircraft modification; medical information
systems; global private networks; satellite-based air traffic management
and worldwide service and support for operations and maintenance,
construction and EF&I (engineer, furnish and install), and activities
related thereto, and shall include any former or discontinued operations
primarily related to the Communication Systems Division as previously
conducted; provided, however, that the Communication Systems Division does
not include Collins International Service Company located at 3200 East
Renner Road, Richardson, Texas, Rockwell Australia Limited and its
Subsidiaries or any business thereof (which shall constitute part of the
Defense Business).
"Company Debt" shall mean indebtedness of the Company in an aggregate
principal amount of $2,165,000,000, consisting of:
(i) Old Company Notes in the aggregate principal amount of
$1,600,000,000, as the same may be amended pursuant to the Consent
Solicitation;
(ii) commercial paper or other short-term borrowings in the
aggregate principal amount of $565,000,000 (with respect to commercial
paper issued at a discount, the accreted value at the Closing Date shall
be deemed to be the principal amount thereof), less the aggregate
principal amount of any outstanding Rockwell Australia Debt (as defined
below), or any indebtedness issued in replacement thereof or in exchange
therefor; and
(iii) bank borrowings of Rockwell Australia Limited in the
aggregate principal amount of not more than a United States dollar
equivalent of $30,000,000 (the "Rockwell Australia Debt") (it being
understood that it is the current intention of the Company to repay the
Rockwell Australia Debt prior to the Time of Contribution);
provided that no short-term debt other than commercial paper shall
constitute "Company Debt" unless it is prepayable in full at any time
without premium or penalty and no commercial paper shall constitute
"Company Debt" unless it matures or is payable or prepayable in full within
60 days after the Effective Time without premium or penalty.
For purposes of calculating the United States dollar equivalent of any
Rockwell Australia Debt, the New York foreign exchange selling rate
applicable to Australian dollars as published in The Wall Street Journal,
Eastern Edition, for the second business day preceding the Closing Date
shall be used.
"Company Group" shall mean the Company and its Subsidiaries, other
than Newco and its Subsidiaries (determined after giving effect to the
transfers contemplated by Article II of this Agreement).
"Contributed A&D Assets" shall have the meaning set forth in Section
2.1(a)(vii).
"DOE" shall mean the United States Department of Energy or any
predecessor Governmental Entity.
"Defense Business" shall mean the business heretofore and currently
engaged in by the Company and its Subsidiaries (including, without
limitation, Collins International Service Company and Rockwell
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Australia Limited) and their respective predecessors of designing,
building, selling, installing, modifying, repairing, servicing and
supporting the following for defense markets: aircraft electronic upgrades
and modifications, tactical weapons, space defense sensors and electronics,
navigation and guidance systems for strategic missiles, tactical weapons,
ships and submarines, naval combat systems for ships and submarines,
proprietary programs, and parts, components and materials for the
foregoing, and activities related thereto, and shall include any former or
discontinued operations primarily related to the Defense Business as
previously conducted, including, without limitation, the former or
discontinued operations listed on Schedule 1.1(b)(i); provided, however,
that the Defense Business does not include any part of the Collins Business
(including the Company's Automatic Vehicle Locating System and Vision
Sensor Initiatives Programs heretofore conducted by the Autonetics &
Missile Systems Division of the Company), any Contributed A&D Assets or any
Divested Business of the Defense Business, including, without limitation,
the Divested Businesses listed on Schedule 1.1(b)(ii).
"Divested Business" shall mean any corporation, division or other
business unit (including any Assets and Liabilities comprising the same)
that has been sold, conveyed, assigned, transferred or otherwise divested,
in whole or in part, by the Company or any of its Subsidiaries to any third
party prior to the Time of Contribution, but shall not include any
corporation, division, other business unit, product line or contract the
operations or production of which has been discontinued, completed or
otherwise terminated by the Company or any of its Subsidiaries, but not
sold, conveyed, assigned, transferred or otherwise divested to a third
party.
"Environmental Law" shall mean any Federal, state, local or foreign
statute, law, regulation, rule or common law of, or any judgment,
injunction, order or decree of or settlement agreement with, any
Governmental Entity, relating to (x) the protection of the environment or
(y) the use, storage, treatment, generation, transportation, processing,
handling, release or disposal of Hazardous Substances, in each case as in
effect on the date hereof or in the future.
"Environmental Liabilities" shall mean all Liabilities relating to or
arising out of any Environmental Law or contract or agreement relating to
environmental, health or safety matters (including removal, remediation or
cleanup costs, investigatory costs, governmental response costs and
administrative oversight costs, environmental monitoring costs, natural
resources damages, property damages, personal injury damages, costs of
medical monitoring, costs of compliance with any settlement, judgment or
other determination of Liability and indemnity, contribution or similar
obligations) irrespective of whether such Liabilities are asserted, in the
first instance, to be the responsibility of a Governmental Entity or any
other Person.
"Graphics Business" shall mean the business heretofore and currently
engaged in by the Company and its Subsidiaries and their respective
predecessors of designing, building, selling, installing, modifying,
repairing, servicing and supporting web offset presses and other graphic
arts and related equipment for newspaper and commercial printing, and
activities related thereto, and shall include any former or discontinued
operations primarily related to the Graphics Business as previously
conducted.
"Graphics Sale" shall mean the proposed sale of the Graphics Business
pursuant to the Stock and Asset Purchase Agreement between the Company and
Goss Graphic Systems, Inc. dated as of April 26, 1996, as amended, or any
agreement entered into subsequent thereto.
"Group" shall mean the Company Group or the Newco Group.
"HVS Business" shall mean the business heretofore and currently
engaged in by the Company and its Subsidiaries and their respective
predecessors of designing, building, selling, installing, modifying,
repairing, servicing and supporting drivetrain components and systems for
heavy- and medium-duty commercial trucks, trailers, buses, off-highway
commercial vehicles and government heavy-duty wheeled vehicles, and
activities related thereto, and shall include any former or discontinued
operations primarily related to the HVS Business as previously conducted.
"Information" shall mean all records, books, contracts, instruments,
computer data and other data and information.
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"Liabilities" shall mean any and all debts, liabilities, commitments
and obligations, whether fixed, contingent or absolute, matured or
unmatured, liquidated or unliquidated, accrued or not accrued, known or
unknown, whenever or however arising and whether or not the same would be
required by generally accepted accounting principles to be reflected in
financial statements or disclosed in the notes thereto.
"Litigation Matters" shall mean actual, threatened or future
litigations, investigations, proceedings (including arbitration
proceedings), claims or other legal matters that have been or may be
asserted by or against, or otherwise affect, the Company and/or Newco (or
members of either Group).
"LVS Business" shall mean the business heretofore and currently
engaged in by the Company and its Subsidiaries and their respective
predecessors of designing, building, selling, installing, modifying,
repairing, servicing and supporting sunroof, door access control and seat
adjusting systems, suspensions and wheels, anti-squeeze windows, electronic
controls and automobile global positioning systems for passenger car and
light truck industries, and activities related thereto, and shall include
any former or discontinued operations primarily related to the LVS Business
as previously conducted.
"Newco Group" shall mean Newco and its Subsidiaries, including the
Operating Subsidiaries (determined after giving effect to the transfers
contemplated by Article II of this Agreement).
"Paydown Amount" shall be the excess, if any, of $2.165 billion over
the aggregate principal amount of the Company Debt at the Effective Time
(calculated as set forth in the definition of Company Debt).
"Person" shall mean an individual, a partnership, a joint venture, a
corporation, a limited liability entity, a trust, an unincorporated
organization or other entity or a government or any department or agency
thereof.
"Preexisting Environmental Conditions" shall mean conditions of the
environment (including ambient air, the ocean, natural resources (including
flora and fauna), soil, surface water, groundwater (including potable
water, navigable water and wetlands), the land surface or subsurface strata
or as otherwise defined in any Environmental Law) existing at the Time of
Contribution relating to or arising from the presence, use, treatment, or
Release or threatened Release of any Hazardous Substance but does not
include any Special Liabilities. For purposes of the definition of the term
"Preexisting Environmental Condition", the term "Hazardous Substance" shall
include any waste, substance, material, pollutant or contaminant now, or in
the future, listed, defined, designated or classified as hazardous, toxic
or radioactive, or otherwise regulated, now or in the future, under any
Environmental Law, and any waste, material or substance contaminated by, or
alleged to be contaminated by, any Hazardous Substance.
"Privileged Information" shall mean, with respect to either Group,
Information regarding a member of such Group, or any of its operations,
employees, Assets or Liabilities (whether in documents or stored in any
other form or known to its employees or agents) that is or may be protected
from disclosure pursuant to the attorney-client privilege, the work product
doctrine or other applicable privileges, that a member of the other Group
may come into possession of or obtain access to pursuant to this Agreement
or otherwise.
"Release" shall have the same meaning given such term in the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), 42 U.S.C. sec. 9601(22).
"Representatives" shall mean directors, officers, employees, agents,
consultants, advisors, accountants, attorneys and representatives.
"Retained Facilities" shall mean the Company's facilities identified
on Schedule 2.1(b)(i)(A) and all buildings, improvements and fixtures at
such facilities.
"Right" shall mean a preferred share purchase right issued pursuant to
the Rights Agreement dated as of , 1996 between Newco and
, as Rights Agent.
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"Science Center" shall mean the Company's Science Center located at
1049 Camino Dos Rios, Thousand Oaks, California and other related
facilities located at Suite 400, 444 High Street, Palo Alto, California and
Building 241, 3370 Miraloma Avenue, Anaheim, California.
"Semiconductor Systems Business" shall mean the business heretofore
and currently engaged in by the Company and its Subsidiaries and their
respective predecessors of designing, building, selling, installing,
modifying, repairing, servicing and supporting semiconductors for fax,
voice and data modems for fax machines, personal computers and other uses,
chipsets for cellular and cordless phones, wireless modem devices for
laptop computers and modules for global positioning system receivers, and
activities related thereto, and shall include any former or discontinued
operations primarily related to the Semiconductor Systems Business as
previously conducted; provided, however, that if the Brooktree Acquisition
shall have been consummated prior to the Time of Contribution,
Semiconductor Systems Business shall include Brooktree.
"Special Liabilities" shall mean any Liabilities of the Company or any
of its Subsidiaries (including any Environmental Liability) arising out of
or relating to (i) the Rocky Flats Plant, Golden, Colorado, (ii) the
Hanford Nuclear Reservation, Hanford, Washington, (iii) the INEL complex in
Idaho, (iv) the Company's or any of its Subsidiaries decontamination and
decommissioning work at various atomic or nuclear facilities throughout the
United States (excluding, for purposes of the definition of Special
Liabilities only, Santa Susana and Canoga Park, California) and (v) the
Company's work relating to Interatom (Internationale Atomreaktorbau GmbH),
and any Liabilities of the Company or any of its Subsidiaries (including
any Environmental Liabilities), arising out of or relating to any products
manufactured or any services provided by the Company or any of its
Subsidiaries which involved the use, storage, treatment, generation,
transportation, processing, handling, release or disposal of radioactive,
fissionable or fusionable materials or any waste products or by-products of
any process involving radioactive, fissionable or fusionable materials
(other than activities of the Company and its Subsidiaries at Santa Susana
and Canoga Park, California).
"Tax" or "Taxes" shall have the meaning assigned to such term in the
Tax Allocation Agreement.
"Time of Contribution" shall mean the time immediately prior to the
Time of Distribution as of which the Contribution is effective.
"Time of Distribution" shall mean the time as of which the
Distribution is effective.
"Transfer Agent" shall mean Mellon Bank, N.A., c/o Chase Mellon
Shareholder Services, P.O. Box 444, Pittsburgh, Pennsylvania 15230-0444 or
120 Broadway, 33rd Floor, New York, New York 10271, telephone (800)
204-7800, the transfer agent for the Company Common Stock and Company Class
A Common Stock.
ARTICLE II
CONTRIBUTION AND ASSUMPTION
2.1. Contribution.
(a) Subject to Section 2.1(b) and effective as of the Time of Contribution,
the Company hereby contributes, grants, conveys, assigns, transfers and delivers
to Newco and the Operating Subsidiaries all the Company's right, title and
interest in and to any and all Assets of the Company (collectively, the
"Contributed Assets"), allocated as follows or as Newco shall otherwise direct:
(i) all Assets of the Company that are used primarily or that are held
primarily for use in the A-B Business (other than the capital stock of A-B)
and all of the issued and outstanding shares of capital stock of Reliance
Electric Company, a Delaware corporation, are contributed to A-B as a
capital contribution;
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(ii) all Assets of the Company that are used primarily or that are
held primarily for use in the Collins Business are contributed to Collins
in exchange for 1,000 shares of the Common Stock, par value $1.00 per
share, of Collins, constituting all of the outstanding shares of Collins;
(iii) all Assets of the Company that are used primarily or that are
held primarily for use in the Semiconductor Systems Business, and if the
Brooktree Acquisition shall have been consummated prior to the Time of
Contribution, all of the issued and outstanding shares of capital stock of
Brooktree, are contributed to RSS in exchange for 1,000 shares of the
Common Stock, par value $1.00 per share, of RSS, constituting all of the
outstanding shares of RSS;
(iv) all Assets of the Company that are used primarily or that are
held primarily for use in the LVS Business are contributed to LVS in
exchange for 1,000 shares of the Common Stock, par value $1.00 per share,
of LVS, constituting all of the outstanding shares of LVS;
(v) all Assets of the Company that are used primarily or that are held
primarily for use in the HVS Business are contributed to HVS in exchange
for 1,000 shares of the Common Stock, par value $1.00 per share, of HVS,
constituting all of the outstanding shares of HVS;
(vi) if the Graphics Sale has not been consummated prior to the Time
of Contribution, all Assets of the Company that are used primarily or that
are held primarily for use in the Graphics Business (other than the capital
stock of Graphics) are contributed to Graphics as a capital contribution;
(vii) the Company's properties at El Segundo, California, Lakewood,
California, and Building 37 at Canoga Park, California more specifically
identified on Schedule 2.1(a)(vii) (collectively, the "Contributed A&D
Assets") are contributed to A-B as a capital contribution;
(viii) the Science Center is contributed to Newco as a capital
contribution;
(ix) all issued and outstanding shares of Atomics International, Inc.,
Narland Corporation and Rockwell Aerospace & Electronics, Inc. are
contributed to Newco as a capital contribution;
(x) the Health Care Claims (as defined in the Post-Closing Covenants
Agreement) are contributed to Newco as a capital contribution; and
(xi) immediately following the contributions referred to in clauses
(i) through (x) above, all of the issued and outstanding shares of Common
Stock of A-B, Collins, RSS, LVS, HVS, Graphics (if the Graphics Sale shall
not theretofore have been consummated) and all other Assets of the Company
(other than the Retained Assets) not otherwise specifically contributed to
an Operating Subsidiary pursuant to this Section 2.1(a), including (x) all
cash and cash equivalents of the Company and its Subsidiaries (other than
as listed on Schedule 2.1(b)(i)(C) and other than cash (including for this
purpose cash held by Rockwell Australia Limited in an amount not to exceed
the aggregate outstanding principal amount of the Rockwell Australia Debt)
in an amount equal to the excess, if any, of (A) the sum of (1) $4.5
million and (2) the Accrued Interest over (B) the Paydown Amount), and (y)
the Company's rights under Article II of the Merger Agreement, the last
sentence of Section 3.1 of the Merger Agreement, Section 4.2(j) of the
Merger Agreement, Section 4.2(d)(iii) of the Merger Agreement, the second
sentence of Section 5.9(a) of the Merger Agreement, Section 5.13(a) of the
Merger Agreement, Section 5.18 of the Merger Agreement and Section 8.17 of
the Merger Agreement, are contributed to Newco as a capital contribution.
If any Assets that are used primarily or that are held primarily for use in
the A-B Business, the Collins Business, the Semiconductor Systems Business, the
LVS Business, the HVS Business or the Graphics Business are held in a Subsidiary
of the Company that would not be owned directly or indirectly by A-B, Collins,
RSS, LVS, HVS or Graphics, respectively, as a result of the foregoing
allocation, then, notwithstanding the foregoing allocation, the Company shall
cause each such Subsidiary to contribute such Assets to the appropriate
Operating Subsidiary or a Subsidiary thereof or as Newco otherwise directs.
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(b) Notwithstanding Section 2.1(a), the Company hereby retains and does not
contribute to Newco or the Operating Subsidiaries all the Company's right, title
and interest in and to the following Assets (collectively, the "Retained
Assets"):
(i) all the Company's right, title and interest (including minority
interests) in and to (A) all Assets of the Company or any of its
Subsidiaries that are used primarily in or that are held primarily for use
in or that are otherwise necessary for the operation, as presently
conducted, of (1) the Aerospace Business and the Defense Business,
including, without limitation, in the Company's Autonetics and Missile
Systems Division, the Company's North American Aircraft Division, the
Company's North American Aircraft Modification Division, the Company's
Rocketdyne Division, the Company's Space Systems Division and the Company's
Airborne Laser Program (excluding the Communication Systems Division, but
including Collins International Service Company and Rockwell Australia
Limited), and including, without limitation, the Retained Facilities, and
(2) the Additional Retained Facilities (other than miscellaneous
furnishings, artwork, computers and other equipment and personal property
used by Company employees who will become Newco Group Continuing Employees
following the Time of Contribution), (B) the helicopter and corporate jet
aircraft included on Schedule 2.1(b)(i)(B), and (C) whether or not included
within the Assets set forth in clause (A) above, all Assets (including,
without limitation, capital stock and partnership interests) reflected on
the June 30 Balance Sheet, as such Assets may have been added to, sold in
the ordinary course of business or otherwise changed since such date;
provided, however, that cash or cash equivalents (other than as listed on
Schedule 2.1(b)(i)(C) and cash (including for this purpose cash held by
Rockwell Australia Limited in an amount not to exceed the aggregate
outstanding principal amount of the Rockwell Australia Debt) in an amount
equal to the excess, if any, of (D) the sum of (1) $4.5 million and (2) the
Accrued Interest over (E) the Paydown Amount), the Contributed A&D Assets,
the assets associated with services to be provided by Newco pursuant to
Schedule 3.4 of the Post-Closing Covenants Agreement and the assets
associated with the headquarters functions described in the Retained
Business Audited Financial Statements shall not constitute Retained Assets;
(ii) all issued and outstanding shares of capital stock of the
Subsidiaries of the Company identified on Schedule 2.1(b)(ii) (the
"Retained Subsidiaries");
(iii) all rights in and use of the names "Autonetics", "North American
Aviation" and "Rocketdyne" and all derivatives thereof;
(iv) all rights of the Company under the Reorganization Agreements
(including the Merger Agreement), except as otherwise specifically provided
therein and except that the Company's rights under Section 2.1(a)(xi)(y) of
this Agreement shall not constitute Retained Assets; and
(v) the Environmental Coverage Claims.
If any Assets that are used primarily or that are held primarily for use in or
that are otherwise necessary for the operation, as presently conducted, of the
Aerospace Business, the Defense Business or the Additional Retained Facilities
(other than miscellaneous furnishings, artwork, computers and other equipment
and personal property used by Company employees who will become Newco Group
Continuing Employees following the Time of Contribution and other than the
assets excluded from the definition of Retained Assets by the proviso to Section
2.1(b)(i)) are held in a Subsidiary of the Company that is not a Retained
Subsidiary, then the Company shall cause each such Subsidiary to contribute such
Assets to the appropriate Retained Subsidiary.
2.2. Assumption of Liabilities.
(a) Subject to Section 2.2(b) and effective as of the Time of Contribution,
Newco and the Operating Subsidiaries, in partial consideration for the
Contribution, hereby unconditionally assume and undertake to pay, satisfy and
discharge when due in accordance with their terms the following Liabilities of
the Company
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and any of its Subsidiaries (collectively, the "Assumed Liabilities"), allocated
as follows or as Newco shall otherwise direct:
(i) all Liabilities relating primarily to or arising primarily from
the A-B Business are assumed by A-B and Newco;
(ii) all Liabilities relating primarily to or arising primarily from
the Collins Business are assumed by Collins and Newco;
(iii) all Liabilities relating primarily to or arising primarily from
the Semiconductor Systems Business are assumed by RSS and Newco;
(iv) all Liabilities relating primarily to or arising primarily from
the LVS Business are assumed by LVS and Newco;
(v) all Liabilities relating primarily to or arising primarily from
the HVS Business are assumed by HVS and Newco;
(vi) if the Graphics Sale has not been consummated on or prior to the
Time of Contribution, all Liabilities relating primarily to or arising
primarily from the Graphics Business are assumed by Graphics and Newco;
(vii) all Special Liabilities are assumed by Newco;
(viii) all Liabilities (including without limitation indemnification
obligations) relating primarily to or arising primarily from (A) the
reports, registration statements and other documents filed by the Company
with the SEC prior to the Time of Contribution (including the Company's
consolidated financial statements for periods prior to the Time of
Contribution included or incorporated by reference therein) and (B) any
breach or alleged breach by any director of the Company of his fiduciary
duties to the Company and its stockholders occurring at or prior to the
Time of Contribution, in each case referred to in the foregoing clauses (A)
and (B) notwithstanding the fact that such Liabilities may relate primarily
to or arise primarily from the Aerospace Business, the Defense Business or
the Additional Retained Facilities, are assumed by Newco, but excluding any
matter for which the Company would be required to provide indemnification
pursuant to Section 2.2(ii) of the Post-Closing Covenants Agreement;
(ix) all Liabilities relating primarily to or arising primarily from
any Divested Business of the Aerospace Business or the Defense Business,
including, without limitation, the Divested Businesses listed on Schedules
1.1(a)(ii) and 1.1(b)(ii), are assumed by Newco;
(x) all Liabilities relating primarily to or arising primarily from
Atomics International, Inc., Narland Corporation and Rockwell Aerospace &
Electronics, Inc. are assumed by Newco;
(xi) all Liabilities relating to the Contributed A&D Assets are
assumed by Newco;
(xii) all Liabilities in respect of indebtedness for borrowed money
(including any guarantees in respect of indebtedness for borrowed money of
any third party of the Company and any of its Subsidiaries) other than the
Company Debt are assumed by Newco;
(xiii) all Liabilities that are contemplated by the Reorganization
Agreements as Liabilities to be retained by any member of the Newco Group,
and any agreements, obligations and Liabilities of the Newco Group under
the Reorganization Agreements (including any Liabilities of the Company
described in Sections 4.1(p) and 5.13 of the Merger Agreement) are assumed
by Newco; and
(xiv) all other Liabilities, other than the Retained Liabilities, are
assumed by Newco.
The Liabilities referred to in clauses (i) - (xiii) above are referred to
collectively as the "Newco Liabilities". If any Liabilities relating primarily
to or arising primarily from the A-B Business, the Collins Business, the
Semiconductor Systems Business, the LVS Business, the HVS Business or the
Graphics Business are obligations of a Subsidiary of the Company other than A-B,
Collins, RSS, LVS, HVS or Graphics, or a direct
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or indirect Subsidiary thereof, as a result of the allocation of Assets of the
Company set forth in Section 2.1, then, notwithstanding the foregoing allocation
or the allocation of Assets of the Company set forth in Section 2.1, the
appropriate Operating Subsidiary or a Subsidiary thereof shall assume each such
Liability.
(b) Notwithstanding Section 2.2(a), the Company hereby retains, and Newco
and the Operating Subsidiaries do not assume and will have no liability with
respect to, the following Liabilities (collectively, the "Retained
Liabilities"):
(i) the Company Debt, together with the Accrued Interest;
(ii) all Liabilities (A) relating primarily to or arising primarily
from the Aerospace Business or the Defense Business as conducted at any
time prior to, on or after the Time of Contribution or any other Retained
Assets or (B) associated with the current and former operations of the
Additional Retained Facilities; provided, however, that the Retained
Liabilities shall not include any Newco Liabilities; and
(iii) all Liabilities that are contemplated by the Reorganization
Agreements (including the Schedules thereto) (other than the Merger
Agreement) as Liabilities to be retained by any member of the Company
Group, and any agreements, obligations and Liabilities of the Company Group
under the Reorganization Agreements (other than the Merger Agreement),
except as otherwise specifically provided herein or therein and except for
obligations which are required or contemplated to be performed prior to the
Effective Time.
If any Liabilities relating primarily to or arising primarily from the Aerospace
Business, the Defense Business or the Additional Retained Facilities are
obligations of a Subsidiary of the Company other than a Retained Subsidiary as a
result of the allocation of Assets of the Company set forth in Section 2.1,
then, notwithstanding the foregoing allocation or the allocation of Assets of
the Company set forth in Section 2.1, the Company shall, or shall cause the
appropriate Retained Subsidiary to, assume each such Liability.
2.3. Transfer and Assumption Documentation. In furtherance of the
contribution, grant, conveyance, assignment, transfer and delivery of the
Contributed Assets and the assumption of the Assumed Liabilities set forth in
this Article II, at the Time of Contribution or as promptly as practicable
thereafter (i) the Company shall execute and deliver, and cause its Subsidiaries
to execute and deliver, such deeds, bills of sale, stock powers, certificates of
title, assignments of leases and contracts and other instruments of
contribution, grant, conveyance, assignment, transfer and delivery necessary to
evidence such contribution, grant, conveyance, assignment, transfer and delivery
and (ii) Newco or the appropriate member of the Newco Group shall execute and
deliver such instruments of assumption as and to the extent necessary to
evidence such assumption.
2.4 Nonassignable Contracts. Anything contained herein to the contrary
notwithstanding, this Agreement shall not constitute an agreement to assign any
lease, license agreement, contract, agreement, sales order, purchase order, open
bid or other commitment or Asset if an assignment or attempted assignment of the
same without the consent of the other party or parties thereto would constitute
a breach thereof or in any way impair the rights of the Newco Group or the
Company Group thereunder. The Company shall, prior to the Time of Contribution,
use reasonable best efforts (it being understood that such efforts shall not
include any requirement of the Company Group to expend money or offer or grant
any financial accommodation) as requested by Newco, and Newco shall cooperate in
all reasonable respects with the Company, to obtain all consents and waivers and
to resolve all impracticalities of assignments or transfers necessary to convey
to Newco and the Operating Subsidiaries the Contributed Assets. If any such
consent is not obtained or if an attempted assignment would be ineffective or
would impair either Group's rights under any such lease, license agreement,
contract, agreement, sales order, purchase order, open bid or other commitment
or Asset so that Newco or the Operating Subsidiaries would not receive all such
rights, then (x) the Company shall use reasonable best efforts (it being
understood that such efforts shall not include any requirement of the Company
Group to expend money or offer or grant any financial accommodation) to provide
or cause to be provided to Newco or the appropriate Operating Subsidiary, to the
extent permitted by law, the benefits of any such lease, license agreement,
contract, agreement, sales order, purchase order, open bid or other commitment
or Asset and the Company shall promptly pay or cause to be paid to Newco or the
appropriate Operating
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Subsidiary when received all moneys received by the Company Group with respect
to any such lease, license agreement, contract, agreement, sales order, purchase
order, open bid or other commitment or Asset and (y) in consideration thereof
Newco or the appropriate Operating Subsidiary shall pay, perform and discharge
on behalf of the Company Group all of the Company Group's debts, liabilities,
obligations and commitments thereunder in a timely manner and in accordance with
the terms thereof. In addition, the Company shall take such other actions (at
Newco's expense) as may reasonably be requested by Newco in order to place
Newco, insofar as reasonably possible, in the same position as if such lease,
license agreement, contract, agreement, sales order, purchase order, open bid or
other commitment or Asset had been transferred as contemplated hereby and so all
the benefits and burdens relating thereto, including possession, use, risk of
loss, potential for gain and dominion, control and command, shall inure to the
Newco Group. If and when such consents and approvals are obtained, the transfer
of the applicable Asset shall be effected in accordance with the terms of this
Agreement.
2.5. Intercompany Arrangements. All agreements, contracts, arrangements
and commitments between the Retained Business or any operating unit thereof, on
the one hand, and the Company or any operating unit thereof (other than the
Retained Business or any operating unit thereof), on the other hand, entered
into prior to the Closing Date for the purchase or sale of goods or services
("Intercompany Arrangements") including, without limitation, Rockwell Internal
Customer Agreements, shall remain in effect on and after the Closing Date
(subject to amendment as provided in the Transition Agreement). All amounts
under such Intercompany Arrangements which are unbilled and have not been
charged to the related prime contract as of the Closing Date shall be billed and
payable on and after the Closing Date in accordance with the terms thereof. At
or before the Closing, the Company shall cause all intercompany indebtedness
(which shall include payables and receivables but which shall not include
unbilled amounts under Intercompany Arrangements) between the Retained Business
or any operating unit thereof, on the one hand, and the Company or any operating
unit thereof (other than the Retained Business or any operating unit thereof),
on the other hand, to be settled or otherwise eliminated.
ARTICLE III
RECAPITALIZATION OF NEWCO; MECHANICS OF DISTRIBUTION
3.1. Newco Capitalization. The current equity capitalization of Newco
consists of 1,000 issued and outstanding shares of Newco Common Stock (the
"Existing Newco Common Stock"), all of which is outstanding and owned
beneficially and of record by the Company.
3.2. Recapitalization of Newco. Immediately prior to the Time of
Distribution, the Company shall cause Newco to amend its Certificate of
Incorporation to, among other things, (i) increase the authorized number of
shares of capital stock of Newco to 1,125,000,000 shares, consisting of
25,000,000 shares of Preferred Stock, without par value, 1,000,000,000 shares of
Newco Common Stock and 100,000,000 shares of Newco Class A Common Stock, and
(ii) exchange the Existing Newco Common Stock owned by the Company for a total
number of shares of Newco Common Stock and Newco Class A Common Stock, in each
case with the associated Rights, equal to the total number of shares of Company
Common Stock and Company Class A Common Stock, respectively (other than Company
Common Stock and Company Class A Common Stock held in the treasury of the
Company), outstanding as of the Record Date (as defined below).
3.3. Mechanics of Distribution. The Distribution shall be effected by the
distribution to each holder of record of Company Common Stock and Company Class
A Common Stock, as of the record date designated for the Distribution by or
pursuant to the authorization of the Board of Directors of the Company (the
"Record Date"), of certificates representing one share of Newco Common Stock and
one associated Right for each share of Company Common Stock and one share of
Newco Class A Common Stock and one associated Right for each share of Company
Class A Common Stock held by such holder.
3.4. Timing of Distribution. The Board of Directors of the Company shall
formally declare the Distribution and shall authorize the Company to pay it
immediately prior to the Effective Time, subject to the satisfaction or waiver
of the conditions set forth in Article IX, by delivery of certificates for Newco
Common
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Stock and Newco Class A Common Stock to the Transfer Agent for delivery to the
holders entitled thereto. The Distribution shall be deemed to be effective upon
notification by the Company to the Transfer Agent that the Distribution has been
declared and that the Transfer Agent is authorized to proceed with the
distribution of Newco Common Stock and Newco Class A Common Stock.
ARTICLE IV
OTHER AGREEMENTS
4.1. Employment. Newco or one of its Subsidiaries shall offer employment
or continued employment from the Time of Contribution (or such later time as
Newco Inactive Employees (as defined herein) first become eligible to return to
employment, it being understood that each Newco Inactive Employee will continue
to be eligible to receive from the Newco Group the same compensation and
benefits payable during the period prior to such Newco Inactive Employee's
return to employment that such Newco Inactive Employee is entitled to receive
during such Newco Inactive Employee's absence from employment immediately prior
to the Time of Contribution) to all employees of the Company and its
Subsidiaries (including employees not actively at work at the Time of
Contribution due to leave of absence, disability leave, military leave or layoff
with recall rights ("Newco Inactive Employees")), except those to whom Acquiror
or the Company Group has an obligation to offer employment or continued
employment pursuant to Section 5.12(a) of the Merger Agreement (collectively
"Company Group Continuing Employees"), on terms that are substantially the same
as the terms on which they were employed by the Company or a Subsidiary of the
Company immediately prior to the Time of Contribution; provided, however, that
nothing contained in this Section 4.1 is intended to confer upon any employee
who so continues to be employed or who accepts such an offer of employment by
Newco or any of its Subsidiaries ("Newco Group Continuing Employees") any right
to continued employment after the Time of Contribution. The Company hereby
consents to Newco or one of its Subsidiaries making such offers. Newco shall
recognize the service with the Company and its Subsidiaries through the Time of
Contribution of each Newco Group Continuing Employee and, where applicable, each
former employee of the businesses which, at the Time of Contribution, comprise
the Newco Group (a "Newco Group Former Employee"), and shall credit, as of the
Time of Contribution, such service with Newco (i) for all plan purposes under
any employee benefit plan, arrangement or policy of the Newco Group in effect as
of the Time of Contribution in which they are then participating and (ii) for
eligibility and vesting purposes only under any employee benefit plan,
arrangement or policy for which they become eligible on or following the Time of
Contribution; provided, however, that, except as otherwise required by law or by
the terms of any collective bargaining agreement, service will be recognized
under clause (i) or (ii) only to the extent such service was recognized under
the Company's comparable plan or program prior to the Time of Contribution.
Newco shall, or shall cause the applicable member of the Newco Group to, assume
or maintain (as applicable) as of the Time of Contribution and perform the
obligations of each of the Company and its Subsidiaries under the collective
bargaining agreements relating to Newco Group Continuing Employees and Newco
Group Former Employees and any and all collateral agreements related thereto,
including those affecting all terms and conditions of employment, and to be
bound by such agreements. The Company shall, or shall cause the applicable
member of the Company Group to, assume or maintain (as applicable) as of the
Time of Contribution and perform the obligations of each of the Company and its
Subsidiaries under the collective bargaining agreements relating to Company
Group Continuing Employees and former employees of the businesses which, at the
Time of Contribution, comprise the Company Group ("Company Group Former
Employees"), and any and all collateral agreements related thereto, including
those affecting all terms and conditions of employment, and to be bound by such
agreements.
4.2. Cross-License of Intellectual Property. (a) Effective as of the Time
of Distribution, the Company on behalf of itself and its Subsidiaries, in
consideration for the rights granted by Newco and its Subsidiaries pursuant to
Section 4.2(b), hereby grants to the Newco Group a royalty-free, world-wide,
irrevocable, non-exclusive license, under all intellectual property rights
(including, without limitation, patents, patent applications, trade secrets,
copyrights or other similar industrial property rights, except for trademarks,
trade names, service marks, trade dress or any other form of trade identity)
which are owned by the Company Group as Retained Assets immediately after the
Time of Contribution or under which the Company Group
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has a right to license as Retained Assets immediately after the Time of
Contribution, and which are used in the conduct of the businesses of the Company
other than the Aerospace Business or the Defense Business (whether or not such
rights are also used in the conduct of the Aerospace Business or the Defense
Business) at the Time of Contribution to make, have made, use, import, sell or
otherwise dispose of products, or to practice any process in connection
therewith, in the businesses of the Newco Group as conducted by the Company at
the Time of Contribution; said non-exclusive license being transferable only in
connection with the sale of all or any part of the Newco Group's business to
which such intellectual property rights relate. To the extent that the Newco
Group does not have copies of any information or materials relating to such
intellectual property rights, the Company shall upon reasonable request supply
to the Newco Group copies of any such information or materials relating to such
intellectual property rights. The Company makes no representations or warranties
of any kind with respect to the validity, scope or enforceability of any such
intellectual property rights licensed hereunder and the Company has no
obligation to file or prosecute any patent applications or maintain any patents
in force in connection therewith. The Company will, at no cost to Newco,
promptly execute or cause a member of the Company Group promptly to execute such
further documents as Newco may reasonably request as necessary or desirable to
carry out the terms of this Section 4.2(a).
(b) Effective as of the Time of Distribution, Newco on behalf of itself and
its Subsidiaries, in consideration for the rights granted by the Company and its
Subsidiaries pursuant to Section 4.2(a), hereby grants to the Company Group a
royalty-free, world-wide, irrevocable, non-exclusive license, under all
intellectual property rights (including, without limitation, patents, patent
applications, trade secrets, copyrights or other similar industrial property
rights, except for trademarks, trade names, service marks, trade dress or any
other form of trade identity), which are owned by the Newco Group as Contributed
Assets immediately after the Time of Contribution or under which the Newco Group
has a right to license as Contributed Assets immediately after the Time of
Contribution, and which are used in the conduct of the Aerospace Business or the
Defense Business (whether or not such rights are also used in the conduct of the
other businesses of the Company) at the Time of Contribution to make, have made,
use, import, sell or otherwise dispose of products, or to practice any process
in connection therewith, in the Aerospace Business and the Defense Business as
conducted by the Company at the Time of Contribution; said non-exclusive license
being transferable only in connection with the sale of all or any part of the
Company Group's business to which such intellectual property rights relate. To
the extent that the Company Group does not have copies of any information or
materials relating to such intellectual property rights, Newco shall upon
reasonable request supply to the Company Group copies of any such information or
materials relating to such intellectual property rights. Newco makes no
representations or warranties of any kind with respect to the validity, scope or
enforceability of any such intellectual property rights licensed hereunder and
Newco has no obligation to file or prosecute any patent applications or maintain
any patents in force in connection therewith. Newco will, at no cost to the
Company, promptly execute or cause a member of the Newco Group promptly to
execute such further documents as the Company may reasonably request as
necessary or desirable to carry out the terms of this Section 4.2(b).
(c) No provision in the Reorganization Agreements shall be construed to
permit any transfer of intellectual property relating to the Airborne Laser
Program from any member of the Company Group to Acquiror or any other Subsidiary
of Acquiror prior to award of a Government Contract for the Airborne Laser
Program.
4.3. Use of Names, Trademarks, etc. (a) From and after the Effective Time,
Newco shall have all rights in and, except as provided in Section 4.3(b), use of
the names "Rockwell", "Rockwell International" and "Collins" and all other
names, marks, scripts, type fonts, forms, styles, logos, designs, devices, trade
dress, symbols and other forms of trade identity constituting Contributed
Assets, and all derivatives thereof. From and after the Effective Time, the
Company shall have all rights in and, except as provided in Section 4.3(c), use
of the names "Autonetics", "North American Aviation" and "Rocketdyne" and all
other names, marks, scripts, type fonts, forms, styles, logos, designs, devices,
trade dress, symbols and other forms of trade identity constituting Retained
Assets, and all derivatives thereof. Prior to or promptly after the Effective
Time, the Company shall change the name of any Subsidiary or other Person under
its control to eliminate therefrom the
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names "Rockwell", "Rockwell International" and "Collins" and all derivatives
thereof, and Newco shall change the name of any Subsidiary or other Person under
its control to eliminate therefrom the names "Autonetics", "North American
Aviation" and "Rocketdyne" and all derivatives thereof.
(b) From and after the Effective Time, except as permitted in this Section
4.3(b), the Company Group shall not use or have any rights to the names
"Rockwell", "Rockwell International" and "Collins" or any derivatives thereof or
any trademark, trade name, service mark or logo of the Newco Group constituting
a Contributed Asset, including the trademarks, trade names and service marks
"Rockwell", "Rockwell International" and "Collins", or any corporate symbol
related thereto or any thereof or any name or mark which includes the words
"Rockwell", "Rockwell International" or "Collins" or any other Contributed Asset
or any derivative thereof or name or mark confusingly similar thereto or special
script, type font, form, style, logo, design, device, trade dress, or symbol
used or possessed by the Company before the Effective Time or Newco after the
Effective Time which contains the trademark, trade name or service mark
"Rockwell", "Rockwell International" or "Collins" or any other Contributed Asset
or any derivative thereof or name or mark confusingly similar thereto and the
Company Group will not hold itself out as having any affiliation with the Newco
Group. However, the Company Group may utilize without obligation to pay
royalties to Newco the trademarks or trade names "Rockwell", "Rockwell
International" or "Collins" or any corporate symbol related thereto or any
thereof in connection with stationery, supplies, labels, catalogs, vehicles,
signs, finished goods inventory and work-in-process constituting Retained Assets
as of the Time of Contribution, subject to the terms and conditions of this
Section 4.3:
(i) All documents constituting Retained Assets as of the Time of
Contribution within the following categories may be used for the duration
of the periods following the Effective Time indicated below or until the
supply is exhausted, whichever is the first to occur:
<TABLE>
<CAPTION>
MAXIMUM PERIOD
OF PERMITTED USE
FOLLOWING THE
CATEGORY OF DOCUMENTS EFFECTIVE TIME
------------------------------------------------------------------ ------------------
<S> <C> <C>
A. Stationery 4 months
B. Invoices, purchase orders, debit and credit memos and other
similar documents of a transactional nature 4 months
C. Business cards 3 months
D. Other outside forms such as packing lists, labels, packing
materials and cartons, etc. 4 months
E. Forms for internal use only 12 months
F. Product literature 12 months
</TABLE>
provided, however, that no document within any of the above categories
A, B or F may be used by the Company Group for any purpose within the
stated period unless such document clearly and prominently displays a
statement, the form of which is approved by Newco, to the effect that the
Aerospace Business or the Defense Business, as the case may be, is no
longer affiliated with Newco.
(ii) All vehicles constituting Retained Assets as of the Time of
Contribution may continue to be used without re-marking (except as to
legally required permit numbers, license numbers, etc.) for a period not to
exceed six months following the Effective Time or the date of disposition
of the vehicle, whichever is the first to occur. The Company shall cause
all markings on such vehicles to be removed or permanently obscured prior
to disposition of such vehicles.
(iii) Within three months following the Effective Time, the Company
shall cause to be removed from display at all facilities constituting
Retained Assets as of the Time of Contribution all demountable displays
which contain the trademarks or trade names "Rockwell", "Rockwell
International" or "Collins" or any corporate symbol related thereto or any
thereof constituting Contributed Assets and the Company shall remove, or
shall cause the removal of all signs displaying any such trademark, trade
name or corporate symbol constituting Contributed Assets at all such
facilities no later than six months following the Effective Time.
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(iv) Products in finished goods inventory and work-in-process
constituting Retained Assets as of the Time of Contribution may be disposed
of by the Company Group following the Effective Time without re-marking.
(c) From and after the Effective Time, the Newco Group will not hold itself
out as having an affiliation with the Company Group. However, the Newco Group
shall have rights to use trademarks or trade names or corporate symbols related
thereto or any thereof constituting Retained Assets of the Company Group in
connection with stationery, supplies, labels, catalogs, vehicles, signs and
finished goods inventory constituting Contributed Assets as of the Time of
Contribution on the same terms and subject to the same conditions as are set
forth in Section 4.3(b).
4.4. Further Assurances. Each of the parties hereto, at its own cost and
expense, promptly shall execute such documents and other instruments and take
such further actions as may be reasonably required or desirable to carry out the
provisions hereof and to consummate the transactions contemplated hereby.
4.5. Cooperation. The parties shall cooperate with each other in all
reasonable respects to ensure the transfer to Newco or to one of the Operating
Subsidiaries of the Contributed Assets, the Assumed Liabilities and the
businesses related thereto, and the retention by the Company of the Retained
Business, including, without limitation, (i) allocating rights and obligations
under contracts, agreements and other arrangements, if any, of the Company that
relate to both the Retained Business and the businesses contributed to Newco or
the Operating Subsidiaries and (ii) determining whether to enter into any
service or other sharing agreements on a mutually acceptable arms-length basis
that may be necessary to assure a smooth and orderly transition.
ARTICLE V
TAX MATTERS
5.1. Tax Allocation. Prior to the Time of Distribution, Newco, Acquiror
and the Company shall enter into a Tax Allocation Agreement in substantially the
form attached as Annex B to the Merger Agreement.
5.2. Tax Matters. Notwithstanding anything to the contrary in this
Agreement, liabilities of the parties for Taxes are subject to the terms of the
Tax Allocation Agreement. All obligations of Newco under the Tax Allocation
Agreement shall be treated as Assumed Liabilities and not as Retained
Liabilities under this Agreement and all obligations of the Company under the
Tax Allocation Agreement shall be treated as Retained Liabilities and not as
Assumed Liabilities under this Agreement. The Contribution and Distribution are
intended to qualify as transactions described in Sections 351 and 355 of the
Code and/or a "reorganization" within the meaning of Section 368(a)(1)(D) of the
Code and the Merger is intended to qualify as a "reorganization" within the
meaning of Section 368(a)(1)(B) of the Code.
5.3. Transfer Taxes. Newco (or, if actually paid prior to the Effective
Time, the Company) shall pay or cause to be paid any Transfer Taxes (as defined
in the Tax Allocation Agreement) imposed in connection with or as a result of
the Contribution or the Distribution.
ARTICLE VI
MUTUAL RELEASE
6.1. Mutual Release, etc. Effective as of the Time of Distribution and
except as otherwise specifically set forth in the Reorganization Agreements or
the Transition Agreement, each of Newco, on the one hand, and the Company, on
the other hand, on its own behalf and on behalf of each of its respective
Subsidiaries, releases and forever discharges the other and its Subsidiaries,
and its and their respective officers, directors, agents, Affiliates, record and
beneficial security holders (including, without limitation, trustees and
beneficiaries of trusts holding such securities), advisors and Representatives
(in their respective capacities as such) and their respective heirs, executors,
administrators, successors and assigns, of and from all debts, demands, actions,
causes of action, suits, accounts, covenants, contracts, agreements, damages,
claims and Liabilities whatsoever of every name and nature, both in law and in
equity, which the releasing party has or ever had,
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which arise out of or relate to events, circumstances or actions taken by such
other party occurring or failing to occur or any conditions existing on or prior
to the Time of Distribution; provided, however, that the foregoing general
release shall not apply to (i) any Liabilities (including Liabilities with
respect to indemnification) under the Transition Agreement or assumed,
transferred, assigned, allocated or arising under any of the Reorganization
Agreements and shall not affect any party's right to enforce the Reorganization
Agreements or the Transition Agreement in accordance with their terms, (ii) any
Liability arising from or relating to Intercompany Arrangements to the extent
such Liabilities are not required pursuant to Section 2.5 to be settled or
otherwise eliminated at or before the Closing, (iii) any Liability the release
of which would result in the release of any Person other than a Person released
pursuant to this Section 6.1 (provided that the parties agree not to bring suit
or permit any of their Subsidiaries to bring suit against any Person with
respect to any Liability to the extent such Person would be released with
respect to such Liabilities by this Section 6.1 but for the proviso to this
clause (iii)) or (iv) any matter set forth on Schedule 6.1. Each party
understands and agrees that, except as otherwise specifically provided in the
Reorganization Agreements, neither Group is, in the Reorganization Agreements or
otherwise, representing or warranting in any way as to the Assets, business or
Liabilities transferred, assumed or retained as contemplated hereby or as to any
consents or approvals required in connection with the consummation of the
transactions contemplated by the Reorganization Agreements, it being agreed and
understood that each party shall take or keep all of its Assets "as is" and that
it shall bear the economic and legal risk that conveyance of such Assets shall
prove to be insufficient or that the title to any Assets shall be other than
good and marketable and free from encumbrances of any nature whatsoever.
ARTICLE VII
ACCESS TO INFORMATION
7.1. Provision of Corporate Records. Prior to or as promptly as
practicable after the Time of Contribution the Company shall deliver to Newco
all minute books and other records of meetings of the Board of Directors,
committees of the Board of Directors, stockholders and security owners of the
Company and its predecessors, all stockholder and security owner records of the
Company and its predecessors, all corporate books and records of the Newco Group
in its possession and the relevant portions (or copies thereof) of all corporate
books and records of the Company Group relating directly and primarily to the
Contributed Assets or the Assumed Liabilities, including, in each case, all
active agreements, active litigation files and government filings. From and
after the Time of Contribution, all such books, records and copies shall be the
property of Newco. Prior to or as promptly as practicable after the Time of
Contribution, Newco shall deliver to the Company all corporate books and records
of the Retained Subsidiaries in Newco's possession and the relevant portions (or
copies thereof) of all corporate books and records of the Newco Group relating
directly and primarily to the Retained Assets, the Aerospace Business, the
Defense Business, the Additional Retained Facilities (except to the extent
relating primarily to the business of the Newco Companies) or the Retained
Liabilities, including, in each case, all active agreements, active litigation
files and government filings. From and after the Time of Contribution, all such
books, records and copies shall be the property of the Company.
7.2. Access to Information. From and after the Time of Contribution, each
of the Company and Newco shall afford to the other and to the other's
Representatives reasonable access and duplicating rights (at the requesting
party's expense) during normal business hours and upon reasonable advance notice
to all Information within the possession or control of any member of the Company
Group or the Newco Group, as the case may be, relating to the business, Assets
or Liabilities as they existed prior to the Time of Contribution or relating to
or arising in connection with the relationship between the constituent elements
of the Groups on or prior to the Time of Contribution, insofar as such access is
reasonably required for a reasonable purpose, subject to the provisions below
regarding Privileged Information. Without limiting the foregoing, Information
may be requested under this Section 7.2 for audit, accounting, claims,
litigation and Tax purposes, as well as for purposes of fulfilling disclosure
and reporting obligations. In furtherance of the foregoing:
(a) Each party hereto acknowledges that each of the Company and Newco
(and the members of the Company Group and the Newco Group, respectively)
has or may obtain Privileged Information;
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(ii) there are a number of Litigation Matters affecting each or all of the
Company, Newco and the Operating Subsidiaries; (iii) the Company, Newco and
the Operating Subsidiaries have a common legal interest in Litigation
Matters, in the Privileged Information, and in the preservation of the
confidential status of the Privileged Information, in each case relating to
the business of the Company Group or the Newco Group as it existed prior to
the Time of Contribution or relating to or arising in connection with the
relationship between the constituent elements of the Groups on or prior to
the Time of Contribution; and (iv) both the Company and Newco intend that
the transactions contemplated by the Reorganization Agreements and any
transfer of Privileged Information in connection therewith shall not
operate as a waiver of any potentially applicable privilege.
(b) Each of the Company and Newco agrees, on behalf of itself and each
member of the Group of which it is a member, not to disclose or otherwise
waive any privilege attaching to any Privileged Information relating to the
business of the Newco Group or the Company Group as it existed prior to the
Time of Contribution, respectively, or relating to or arising in connection
with the relationship between the Groups on or prior to the Time of
Contribution, without providing prompt written notice to and obtaining the
prior written consent of the other, which consent shall not be unreasonably
withheld and shall not be withheld if the other party certifies that such
disclosure is to be made in response to a likely threat of suspension or
debarment or similar action; provided, however, that the Company and Newco
may make such disclosure or waiver with respect to Privileged Information
if such Privileged Information relates solely to the business of the
Company Group as it existed prior to the Time of Contribution in the case
of the Company or the business of the Newco Group as it existed prior to
the Time of Contribution in the case of Newco. In the event of a
disagreement between any member of the Company Group and any member of the
Newco Group concerning the reasonableness of withholding such consent, no
disclosure shall be made prior to a final, nonappealable resolution of such
disagreement by a court of competent jurisdiction.
(c) Upon any member of the Company Group or any member of the Newco
Group receiving any subpoena or other compulsory disclosure notice from a
court, other governmental agency or otherwise which requests disclosure of
Privileged Information, in each case relating to the business of the Newco
Group or the Company Group, respectively, as it existed prior to the Time
of Contribution or relating to or arising in connection with the
relationship between the constituent elements of the Groups on or prior to
the Time of Contribution, the recipient of the notice shall promptly
provide to the other Group (following the notice provisions set forth
herein) a copy of such notice, the intended response, and all materials or
information relating to the other Group that might be disclosed. In the
event of a disagreement as to the intended response or disclosure, unless
and until the disagreement is resolved as provided in subsection (b), the
parties shall cooperate to assert all defenses to disclosure claimed by
either Group, at the cost and expense of the Group claiming such defense to
disclosure, and shall not disclose any disputed documents or information
until all legal defenses and claims of privilege have been finally
determined.
7.3. Production of Witnesses. Subject to Section 7.2, after the Time of
Contribution, each of the Company and Newco shall, and shall cause each member
of the Company Group and the Newco Group, respectively, to, make available to
Newco or any member of the Newco Group or to the Company or any member of the
Company Group, as the case may be, upon written request, such Group's directors,
officers, employees and agents as witnesses to the extent that any such Person
may reasonably be required in connection with any Litigation Matters,
administrative or other proceedings in which the requesting party may from time
to time be involved and relating to the business of the Newco Group or the
Company Group as it existed prior to the Time of Contribution or relating to or
in connection with the relationship between the constituent elements of the
Groups on or prior to the Time of Contribution, provided that the same shall not
unreasonably interfere with the conduct of business by the Group of which the
request is made. The Group requesting such assistance shall reimburse the other
Group for all reasonable out-of-pocket expenses incurred by the other Group in
complying with any such request.
7.4. Retention of Records. Except as provided in the Reorganization
Agreements or as otherwise agreed in writing, if any Information relating to the
business, Assets or Liabilities of a member of a Group as they
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existed prior to the Time of Contribution is retained by a member of the other
Group, each of the Company and Newco shall, and shall cause the members of the
Group of which it is a member to, retain all such Information in such Group's
possession or under its control until such Information is at least ten years old
except that if, prior to the expiration of such period, any member of either
Group wishes to destroy or dispose of any such Information that is at least
three years old, prior to destroying or disposing of any of such Information,
(1) Newco or the Company, on behalf of the member of its Group that is proposing
to dispose of or destroy any such Information, shall provide no less than 30
days' prior written notice to the other party, specifying the Information
proposed to be destroyed or disposed of, and (2) if, prior to the scheduled date
for such destruction or disposal, the other party requests in writing that any
of the Information proposed to be destroyed or disposed of be delivered to such
other party, the party whose Group is proposing to dispose of or destroy such
Information promptly shall arrange for the delivery of the requested Information
to a location specified by, and at the expense of, the requesting party.
7.5. Confidentiality. Subject to Section 7.2, which shall govern
Privileged Information, from and after the Time of Contribution, each of the
Company and Newco shall hold, and shall use reasonable efforts to cause its
Affiliates and Representatives to hold, in strict confidence all Information
concerning the other party's Group obtained by it prior to the Time of
Contribution or furnished to it by such other party's Group pursuant to the
Reorganization Agreements and shall not release or disclose such Information to
any other Person, except its Affiliates and Representatives, who shall be bound
by the provisions of this Section 7.5, and each party shall be responsible for a
breach of this Section 7.5 by any of its Affiliates or Representatives;
provided, however, that any member of the Company Group or the Newco Group may
disclose such Information to the extent that (a) disclosure is compelled by
judicial or administrative process or, in the opinion of such Person's counsel,
by other requirements of law, or (b) such Person can show that such Information
was (i) available to such Person on a nonconfidential basis (other than from a
member of the other party's Group) prior to its disclosure by such Person, (ii)
in the public domain through no fault of such Person or (iii) lawfully acquired
by such Person from another source after the time that it was furnished to such
Person by the other party's Group, and not acquired from such source subject to
any confidentiality obligation on the part of such source, or on the part of the
acquiror, known to the acquiror. Notwithstanding the foregoing, each of the
Company and Newco shall be deemed to have satisfied its obligations under this
Section 7.5 with respect to any Information (other than Privileged Information)
if it exercises the same care with regard to such Information as it takes to
preserve confidentiality for its own similar Information.
ARTICLE VIII
EMPLOYEE BENEFIT PLANS
8.1. Employee Benefits Generally. All obligations of the Newco Group under
this Article VIII with respect to employee benefit plans, arrangements or
policies for the benefit of employees and former employees (and their
beneficiaries) of the Company and its Subsidiaries in place immediately prior to
the Time of Contribution shall be treated as Assumed Liabilities and not as
Retained Liabilities under this Agreement. All obligations of the Company Group
under this Article VIII with respect to the employee benefit plans, arrangements
or policies for the benefit of employees and former employees (and their
beneficiaries) of the Company and its Subsidiaries in place immediately prior to
the Time of Contribution shall be treated as Retained Liabilities and not as
Assumed Liabilities under this Agreement.
8.2. Retirement Plans.
(a) Rockwell Retirement Plan for Eligible Employees.
(i) Prior to the Time of Contribution, the Company shall have
established a new group trust under the Rockwell Retirement Plan, which
shall be exempt from taxation under Section 501(a) of the Code (the "Newco
Group Trust") and the purpose of which shall be to hold, as provided below,
certain assets of the Rockwell Retirement Plan and assets attributable to
the liabilities under the defined benefit pension plans set forth in
Schedule 8.2(b) hereto (the "Reliance Retirement Plans"). Prior to the Time
of Contribution, an amount of assets equal to the sum of (A) the
accumulated benefit obligation
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("ABO") (as determined in the following sentence) of the current and former
employees of the Company and its Subsidiaries who are expected to be, as of
the Time of the Contribution, Newco Group Transferred Participants (as
defined in Section 8.2(a)(ii) hereof) and (B) $200,000,000 shall have been
transferred from the Rockwell Group Trust to the Newco Group Trust in the
amounts, form and manner described in Section 8.2(c) below. Such ABO shall
have been determined as of December 31, 1995 in accordance with the
Statement of Financial Accounting Standards No. 87 ("FAS 87") utilizing a
discount rate of 7% and actuarial assumptions (other than such discount
rate) specified in the actuarial valuation for the Rockwell Retirement Plan
prepared as of January 1, 1996 (the "January 1, 1996 Actuarial Valuation").
Such ABO shall have been determined by an enrolled actuary appointed by
Newco (the "Newco Actuary") and shall be binding and conclusive upon Newco,
the Company and Acquiror other than as provided in Sections 8.2(a)(iv) and
8.2(a)(v) hereof.
(ii) Prior to the Time of Contribution, the Company or Newco shall
have established a defined benefit pension plan which shall be qualified
under Section 401(a) of the Code (the "Newco Retirement Plan") effective as
of the Time of Contribution covering (A) Newco Group Continuing Employees
and (B) former employees of the Company and its Subsidiaries who terminated
employment on or after January 1, 1996 (other than Company Group Former
Employees) (such Newco Group Continuing Employees and such former employees
are hereinafter referred to as "Newco Group Transferred Participants"). The
Newco Retirement Plan shall contain provisions comparable in all material
respects to and no less favorable in the aggregate than those of the
Rockwell Retirement Plan immediately prior to the time of adoption of the
Newco Retirement Plan. As soon as practicable following the establishment
of the Newco Retirement Plan, but in no event later than 30 days prior to
the Time of Contribution, the Company and Newco shall have filed with the
IRS proper notice on IRS Forms 5310-A regarding the transfer of assets and
liabilities from the Rockwell Retirement Plan to the Newco Retirement Plan.
(iii) Effective as of the Time of Contribution, Newco shall sponsor
the Newco Retirement Plan and assume the Newco Group Trust. Effective as of
the Time of Contribution, the Company shall continue to sponsor the
Rockwell Retirement Plan and Rockwell Group Trust, and shall change the
name of the Rockwell Retirement Plan and Rockwell Group Trust to eliminate
any reference to "Rockwell". The Company and Newco shall take such further
actions as may be necessary or appropriate to (A) establish Newco as the
sponsor of the Newco Retirement Plan and provide for the assumption of the
Newco Group Trust by Newco and (B) provide for the continued sponsorship of
the Rockwell Retirement Plan and the Rockwell Group Trust by the Company.
As soon as practicable following the latest of (A) the Time of
Contribution, (B) the expiration of the applicable waiting period without
receiving an adverse response from the appropriate government agencies and
(C) receipt by the Company of an opinion of Newco's counsel, in a form
reasonably satisfactory to the Company, that the form of the Newco
Retirement Plan meets the requirements of Section 401(a) of the Code, the
Rockwell Retirement Plan shall transfer to the Newco Retirement Plan (1)
all accrued benefits and other liabilities attributable to Newco Group
Transferred Participants (collectively, the "Transferred Benefits") and (2)
the assets attributable thereto (the "Transferred Amount") in the amounts,
form and manner described in this Section 8.2(a) and Section 8.2(c) below.
Following the transfers of the Transferred Amount and the Transferred
Benefits from the Rockwell Retirement Plan and Rockwell Group Trust to the
Newco Retirement Plan and Newco Group Trust as provided herein, the Company
Group shall have no further liability whatsoever (either under this
Agreement or otherwise) with respect to the Newco Group Transferred
Participants for benefits under the Rockwell Retirement Plan and, except as
otherwise provided in Section 8.2(a)(vi), the Newco Group shall have no
further liability whatsoever (either under this Agreement or otherwise)
with respect to the participants under the Rockwell Retirement Plan. The
Rockwell Retirement Plan shall retain liability for the Newco Group Former
Employees who were participants in the Rockwell Retirement Plan and who
terminated employment with the Company or any of its Subsidiaries prior to
January 1, 1996.
(iv) Within 150 days following the Time of Contribution, Newco shall
cause the Newco Actuary to prepare and deliver to Newco an actuarial
valuation (the "Actuarial Valuation") which shall: (A) certify the ABO for
Newco Group Transferred Participants and the ABO for all other participants
in the
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Rockwell Retirement Plan and the Newco Retirement Plan as of the Time of
Contribution, each of which ABO shall be determined in accordance with FAS
87, utilizing a discount rate of 8% and actuarial assumptions (other than
such discount rate) specified in the January 1, 1996 Actuarial Valuation;
(B) set forth the fair market value of the assets for the Rockwell
Retirement Plan and the Newco Retirement Plan as of the Time of
Contribution and (C) set forth the calculation of the Transferred Amount
(equal to the product of (A) multiplied by (B) as defined in Section
8.2(a)(v)), which amount shall be calculated in accordance with Section
414(l) of the Code, the Treasury Regulations thereunder and this Section
8.2(a)(iv). Newco shall deliver to the Company the Actuarial Valuation.
Within 60 days of receipt of the Actuarial Valuation, the Company shall (A)
cause an enrolled actuary selected by the Company (the "Company Actuary")
to confirm the accuracy (based upon the assumptions referred to in clause
(A) of this Section 8.2(a)(iv)) of the Actuarial Valuation (including the
underlying data used by the Newco Actuary to prepare such Actuarial
Valuation) and (B) provide to Newco a written statement of whether the
Company Actuary has confirmed the accuracy of such Actuarial Valuation. In
the event that the Company Actuary disputes the accuracy of the Actuarial
Valuation within such 60-day period, Newco and the Company shall, within 30
days following the end of the 60-day period described in the preceding
sentence, make all reasonable efforts to cause the Newco Actuary and the
Company Actuary to resolve the dispute or, if such dispute cannot be
resolved, select an actuarial firm of national repute (the "Third Actuary")
to determine the amounts referred to in clauses (A), (B) and (C) of the
first sentence of this Section 8.2(a)(iv), which determination shall be
final and binding upon Newco, the Company and the Acquiror. In the event
that Newco and the Company are unable to select a Third Actuary within such
30-day period, an arbitrator shall appoint such Third Actuary, which
determination shall be final and binding upon Newco, the Company and the
Acquiror. Such arbitrator shall be appointed in accordance with the rules
of the New York, New York office of the American Arbitration Association.
The Company shall pay the cost of the Company Actuary, Newco shall pay the
cost of the Newco Actuary and, to the extent necessary, the cost of the
Third Actuary and arbitrator shall be shared equally by the Company and
Newco. The use of a Third Actuary and arbitrator and the allocation of the
costs thereof shall be referred to as the "Actuarial Dispute Resolution
Process".
(v) As soon as practicable following the satisfaction of the
conditions set forth in Section 8.2(a)(iv), an amount determined in
accordance with this Section 8.2(a)(v) shall be transferred from the
Rockwell Retirement Plan to the Newco Retirement Plan (or from the Newco
Retirement Plan to the Rockwell Retirement Plan, as the case may be). For
purposes of this Section 8.2(a)(v), (A) is the fraction, the numerator of
which is the ABO for the Newco Group Transferred Participants as of the
Time of Contribution, and the denominator of which is the total ABO for all
participants covered under the Rockwell Retirement Plan and Newco
Retirement Plan as of the Time of Contribution, (B) is the total combined
fair market value of the assets of the Rockwell Retirement Plan and Newco
Retirement Plan as of the Time of Contribution, (C) is the fair market
value of the assets in the Newco Retirement Plan as of the Time of
Contribution and (D) is an amount equal to the product of (A) multiplied by
(B). For all purposes of this Section 8.2(a)(v), the amount of ABO shall be
determined in accordance with Section 8.2(a)(iv). If (D) is greater than
(C), then an amount equal to the excess of (D) over (C) shall be
transferred from the Rockwell Retirement Plan to the Newco Retirement Plan.
If (D) is less than (C), then an amount equal to the excess of (C) over (D)
shall be transferred from the Newco Retirement Plan to the Rockwell
Retirement Plan. Any amount to be transferred pursuant to this Section
8.2(a)(v) shall bear interest from the Time of Contribution to the date of
payment (calculated based on actual days elapsed in a 365-day year) at a
rate of 8% per annum and, to the extent applicable, shall be decreased by
the amount of any benefit payments and normal expenses of administration
not attributable to participants in the plan from which the amount is
transferable.
(vi) Newco shall reimburse the Company, on an annual plan-year basis,
for any additional amounts paid to or in respect of Newco Group Former
Employees who are not Newco Group Transferred Participants and their
beneficiaries under the Rockwell Retirement Plan as a result of any
increase in the benefits provided to such Newco Group Former Employees and
their beneficiaries over the benefits payable to such persons at the Time
of Contribution which increase is implemented by the Company upon the
written request of Newco. Such increase for each year shall be the
aggregate amount actually
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paid under the Rockwell Retirement Plan to or in respect of the Newco Group
Former Employees who are not Newco Group Transferred Participants and their
beneficiaries during such plan year over the aggregate amount payable to
such persons under the Rockwell Retirement Plan as in effect at the Time of
Contribution. The determination of the amount to be reimbursed to the
Company by Newco shall be made by the Company Actuary and shall be subject
to review by the Newco Actuary. If the Company Actuary and the Newco
Actuary shall disagree as to the amount to be reimbursed, the Company and
Newco shall use the Actuarial Dispute Resolution Process to determine the
amount of reimbursement.
(b) Reliance Retirement Plans.
(i) Prior to the Time of Contribution, the assets attributable to the
liabilities under the Reliance Retirement Plans shall have been transferred
from the Rockwell Group Trust to the Newco Group Trust. The assets
transferred from the Rockwell Group Trust to the Newco Group Trust to fund
the liabilities under the Reliance Retirement Plans shall have been
determined in the manner set forth in Section 8.2(c).
(ii) Effective as of the Time of Contribution, Newco shall cause the
appropriate member or members of the Newco Group to continue sponsorship of
the Reliance Retirement Plans. Prior to, on and after the Time of
Contribution, the Company and Newco and the appropriate member of the Newco
Group each shall have taken and shall take such actions as may be necessary
or appropriate to establish the appropriate member of the Newco Group to
continue the sponsorship of the Reliance Retirement Plans.
(c) Selection of Assets.
(i) The assets that shall have been transferred from the Rockwell
Group Trust to the Newco Group Trust pursuant to Sections 8.2(a)(i) and
8.2(b) shall have been selected as hereinafter set forth in this Section
8.2(c)(i). First, assets invested in insurance and annuity contracts that
were attributable specifically to the subplans and groups of Newco Group
Transferred Participants or participants in the Reliance Retirement Plans
(the "Earmarked Investments") shall have been transferred to the Newco
Group Trust. Second, the remaining assets transferred from the Rockwell
Group Trust to the Newco Group Trust shall have been comprised of assets
invested by each such investment manager set forth on Schedule 8.2(c)
(each, an "Investment Manager"). The amount of assets managed by each
Investment Manager that shall have been allocated to the Newco Group Trust
from the Rockwell Group Trust shall be an amount equal to the product of
(A) multiplied by (B), where (A) equals a fraction, the numerator of which
is the fair market value of the assets managed by such individual
Investment Manager as of the close of business on the day immediately
preceding the date of transfer and the denominator of which is the
aggregate fair market value of the assets as of the close of business on
the day immediately preceding the date of transfer managed by all of the
Investment Managers, and where (B) equals the amount of assets transferred
to the Newco Group Trust pursuant to Section 8.2(a)(i) and 8.2(b) minus the
amount of Earmarked Assets. The selection of specific assets managed by
each Investment Manager transferred to the Newco Group Trust or liquidated
to fund such transfer, in the amount determined in accordance with the
immediately preceding sentence, shall have been made on a pro rata basis
among the assets managed by such Investment Manager. Notwithstanding the
foregoing, if the total fair market value of the assets managed by the
Investment Managers as of the close of business on the day immediately
preceding the date of the transfer was less than the amount set forth in
clause (B) of the preceding sentence, then the remaining assets that shall
have been transferred to the Newco Group Trust shall have been determined
on a basis mutually agreed upon by the Company and Newco.
(ii) The assets to be transferred from the Rockwell Group Trust to the
Newco Group Trust or from the Newco Group Trust to the Rockwell Group
Trust, as the case may be, pursuant to Section 8.2(a)(v) shall be in cash
and marketable securities as mutually agreed upon by the Company and Newco.
(d) The Company and Newco shall use and shall have used their reasonable
best efforts to effectuate the actions contemplated under this Section 8.2 on a
timely basis as provided herein.
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8.3. Savings Plans.
(a) Rockwell International Corporation Savings Plan. Effective as of the
Time of Contribution, Newco shall assume sponsorship of the Rockwell
International Corporation Savings Plan (the "Rockwell Savings Plan") and trust
related thereto and shall cause each Company Group Continuing Employee to have a
fully nonforfeitable right to such Company Group Continuing Employee's account
balances, if any, under the Rockwell Savings Plan. The account balances of each
Company Group Continuing Employee shall be maintained under the Rockwell Savings
Plan until distributed in accordance with the terms of the Rockwell Savings Plan
and applicable law.
(b) Rockwell Hourly Savings Plans. Effective as of the Time of
Contribution, Newco shall, or shall cause one or more of its Subsidiaries to,
assume sponsorship of the Rockwell International Corporation Savings Plan for
Certain Represented Hourly Employees and the Rockwell Retirement Savings Plan
for Certain Employees (the "Rockwell Hourly Savings Plans") and the respective
trusts related thereto and shall cause each Company Group Continuing Employee to
have a fully nonforfeitable right to such Company Group Continuing Employee's
account balances, if any, under the applicable Rockwell Hourly Savings Plan. The
account balances of each Company Group Continuing Employee shall be maintained
under the applicable Rockwell Hourly Savings Plan until distributed in
accordance with the terms of the applicable Rockwell Hourly Savings Plan and
applicable law.
(c) Plant Savings Plans. Effective as of the Time of Contribution, Newco
shall, or shall cause one or more of its Subsidiaries to, assume sponsorship of
the Asheville Employees Retirement Savings Plan Truck Axle Division, the
Rockwell International Corporation Gordonsville, Tennessee Employees Savings
Plan, the Rockwell International Corporation Retirement Plan for Hourly
Employees, Gordonsville, Tennessee and the York Employees Retirement Savings
Plan Truck Axle Division and the respective trusts related thereto.
(d) Rockwell Savings Plan for Certain Eligible Employees. If the Rockwell
Savings Plan for Certain Eligible Employees has not been merged into and with
the Rockwell International Corporation Savings Plan as of the Time of
Contribution, then effective as of the Time of Contribution, the Company shall,
or shall cause a member of the Company Group to, assume sponsorship of the
Rockwell Savings Plan for Certain Eligible Employees and the trust related
thereto and shall cause each Newco Group Continuing Employee to have a fully
nonforfeitable right to such Newco Group Continuing Employee's account balances,
if any, under the Rockwell Savings Plan for Certain Eligible Employees. The
account balances of each Newco Group Continuing Employee shall be maintained
under the Rockwell Savings Plan for Certain Eligible Employees until distributed
in accordance with the terms thereof and applicable law.
8.4. Deferred Compensation Plans and Nonqualified Retirement and Savings
Plans.
(a) Deferred Compensation Plans. Effective as of the Time of Contribution,
Newco shall assume liability for and shall pay when due all benefits accrued as
of the Time of Contribution (including, in the case of Company Group Continuing
Employees and, if any, Company Group Former Employees, such individuals' vested
and nonvested benefits which are accrued as of the Time of Contribution) by, and
attributable to, all employees and former employees of the Company and its
Subsidiaries and all present and former non-employee directors of the Company
under the Rockwell International Corporation Deferred Compensation Plan as
amended and restated effective July 1, 1995, the Rockwell International
Corporation Annual Incentive Compensation Plan for Senior Executive Officers
effective as of October 1, 1995 and the Rockwell International Corporation
Deferred Compensation Policy for Non-Employee Directors (the "Deferred
Compensation Plans"), and shall perform, pay and discharge fully all of the
Company's and its Subsidiaries' duties, liabilities or obligations thereunder
with respect to such employees, former employees and present and former
non-employee directors of the Company and its Subsidiaries. Effective as of the
Time of Contribution, Newco shall cause each Company Group Continuing Employee
and Company Group Former Employee to have a fully nonforfeitable right to such
individual's entire account balance, if any, under the Deferred Compensation
Plans.
(b) Nonqualified Retirement Plans. Effective as of the Time of
Contribution, Newco shall assume liability for and shall pay when due all
benefits accrued as of the Time of Contribution by, and attributable to,
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employees and former employees of the Company and its Subsidiaries (other than
Company Group Continuing Employees and Company Group Former Employees) under the
Rockwell International Corporation Supplemental Retirement Plan for Highly
Compensated Employees, the Rockwell International Corporation Excess Benefit
Retirement Plan and the Rockwell International Corporation Excess Benefit Plan
(the "Nonqualified Retirement Plans"), and shall perform, pay and discharge
fully all of the Company's and its Subsidiaries' duties, liabilities or
obligations thereunder with respect to such employees and former employees.
Effective as of the Time of Contribution, the Company shall assume liability for
and shall pay when due all benefits accrued as of the Time of Contribution by,
and attributable to, Company Group Continuing Employees and Company Group Former
Employees (including such individual's vested and nonvested benefits which are
accrued as of the Time of Contribution) under the Nonqualified Retirement Plans
and shall perform, pay and discharge fully all of the Company's and its
Subsidiaries' duties, liabilities or obligations with respect thereto.
(c) Nonqualified Savings Plans. Effective as of the Time of Contribution,
Newco shall assume liability for and shall pay when due all benefits accrued as
of the Time of Contribution (including, in the case of Company Group Continuing
Employees and, if any, Company Group Former Employees, such individuals' vested
and nonvested benefits which are accrued as of the Time of Contribution) by, and
attributable to, all employees and former employees of the Company and its
Subsidiaries under the Rockwell International Corporation Supplemental Savings
Plan for Highly Compensated Employees and the Rockwell International Corporation
Excess Benefit Savings Plan (the "Nonqualified Savings Plans"), and shall
perform, pay and discharge fully all of the Company's and its Subsidiaries'
duties, liabilities or obligations thereunder with respect thereto. Effective as
of the Time of Contribution, Newco shall cause each Company Group Continuing
Employee and Company Group Former Employee to have a fully nonforfeitable right
to such individual's entire account balance, if any, under the Nonqualified
Savings Plans.
8.5. Employee Stock Options. Effective as of the Time of Contribution,
Newco shall assume the Company Stock Plans. The Board of Directors of the
Company shall amend the Company Stock Plans, make adjustments and take actions
(and Newco shall take such actions as are reasonably required to implement the
same) with respect to options to acquire shares of Company Common Stock or
Company Class A Common Stock, as the case may be, pursuant to any Company Stock
Plan ("Company Options") which are outstanding immediately prior to the Time of
Distribution to provide that, pursuant to the equitable adjustment provisions of
the applicable Company Stock Plan under which such Company Options were granted,
effective as of the Time of Distribution such Company Options will be converted
into and represent the right to acquire shares of Newco Common Stock and Newco
Class A Common Stock, in each case with the associated Rights, with such other
amendments and adjustments as are reasonable and appropriate, including such
amendments as are reasonable and appropriate to ensure that any optionholder who
becomes a Company Group Continuing Employee or a Company Group Former Employee
as of the Time of Contribution will not forfeit any such converted options on
such date under the termination of employment provisions of such plans as a
result of not becoming a Newco Group Continuing Employee or a Newco Group Former
Employee, and will be entitled to vesting and exercisability rights comparable
to those that such optionholder has immediately prior to the Time of
Contribution to the extent that such optionholder remains in continuous
employment with any member of the Company Group.
8.6. Long-Term Incentive Plan. Effective as of the Time of Contribution,
(i) the Company shall retain liability for all amounts due under the Rockwell
International Business Unit Long-Term Incentive Plan (the "LTIP") with respect
to the Company Group Continuing Employees and Company Group Former Employees and
(ii) Newco shall assume liability for all amounts due under the LTIP with
respect to the Newco Group Continuing Employees and Newco Group Former
Employees. The amounts payable under clause (i) of the preceding sentence shall
be determined by the Company on the basis that (x) the target award for each
uncompleted cycle will be prorated to reflect the portion of such cycle
completed as of the Time of Contribution and (y) where payment is based, in
whole or in part, on the trading price of the Company Common Stock, such price
shall be the average closing price per share of Company Common Stock reported on
the NYSE for each full trading day during the months of August and September
immediately preceding the Time of Contribution. The amount due each participant
under the LTIP who is a Company
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Group Continuing Employee shall be paid by the Company within 90 days following
the Time of Contribution. Newco shall promptly reimburse the Company, upon
written request from the Company therefor, for any amount paid by the Company
under the LTIP as a result of this Section 8.6 the expense of which is not
reimbursed by the United States of America under applicable Government
Contracts, provided, however, that Newco shall have the opportunity to
participate in any negotiations with the applicable Governmental Entity with
respect to such reimbursement or to designate counsel or a representative
reasonably satisfactory to the Company to so participate on Newco's behalf
unless such participation by Newco (or its counsel or representative) is barred
by such agency, in which case, the Company shall consult with Newco and keep
Newco apprised of any developments with respect to such negotiations. The
Company shall not establish, or cause to be established, any new performance
cycles under the LTIP with respect to Company Group Continuing Employees and
Company Group Former Employees prior to the Time of Contribution.
8.7. Welfare Benefit Plans.
(a) Effective as of the Time of Contribution, the Company shall, or shall
cause a member of the Company Group to, maintain each "employee welfare benefit
plan", as defined in Section 3(1) of ERISA, and each other employee welfare
benefit or fringe benefit arrangement (collectively, "Company Group Welfare
Benefit Plans") sponsored or maintained by the Company or any of its
Subsidiaries immediately prior to the Time of Contribution for the benefit of
Company Group Continuing Employees and Company Group Former Employees (including
but not limited to those plans set forth on Schedule 8.7(a)). The Company shall
credit the dollar amount of all expenses incurred by Company Group Continuing
Employees and Company Group Former Employees and their respective eligible
dependents during the applicable plan year in which occurs the Time of
Contribution for purposes of satisfying such plan year's deductible and
co-payment limitations and shall credit service with the Company and its
Subsidiaries earned prior to the Time of Contribution under the relevant welfare
benefit plans of the Company Group. The Company shall credit each Company Group
Continuing Employee with the unused vacation days and any personal and sickness
days accrued in accordance with the vacation and personnel policies and labor
agreements of the Company and its Subsidiaries applicable to such employees in
effect as of the Time of Contribution.
(b) Effective as of the Time of Contribution, Newco shall, or shall cause a
member of the Newco Group to, establish or maintain "employee welfare benefit
plans", as defined in Section 3(1) of ERISA, and other employee welfare benefit
or fringe benefit arrangements (collectively, "Newco Group Welfare Benefit
Plans") which are comparable in the aggregate to the "employee welfare benefit
plans" and other employee benefit welfare or fringe benefit arrangements which
had been maintained by the Company and its Subsidiaries immediately prior to the
Time of Contribution for the benefit of Newco Group Continuing Employees and
Newco Group Former Employees. Newco shall credit the dollar amount of all
expenses incurred by Newco Group Continuing Employees and Newco Group Former
Employees and their respective eligible dependents during the applicable plan
year in which occurs the Time of Contribution for purposes of satisfying such
plan year's deductible and co-payment limitations and shall credit service with
the Company and its Subsidiaries earned prior to the Time of Contribution under
the relevant welfare benefit plans of the Newco Group. Newco shall credit each
Newco Group Continuing Employee with the unused vacation days and any personal
and sickness days accrued in accordance with the vacation and personnel policies
and labor agreements of the Company and its Subsidiaries applicable to such
employees in effect as of the Time of Contribution.
(c) As of the Time of Contribution, the Company shall retain and continue
to be responsible for all welfare benefit programs (including, but not limited
to, medical, dental, life, travel accident, short- and long-term disability,
hospitalization and other insurance benefits) under which claims have been
incurred for expenses prior to the Time of Contribution by Company Group
Continuing Employees, Company Group Former Employees and their dependents and
such reimbursement for such medical and dental expenses associated with such
claims (including claims submitted on behalf of disabled employees and their
dependents) shall be determined in accordance with the terms of the welfare
benefit programs of the Company Group as in effect immediately prior to the Time
of Contribution. As of the Time of Contribution, Newco shall assume and be
responsible for all welfare benefit programs (including, but not limited to,
medical, dental, life, travel accident, short- and long-term disability,
hospitalization and other insurance
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benefits) under which claims have been incurred for expenses incurred prior to
the Time of Contribution by Newco Group Continuing Employees, Newco Group Former
Employees and their dependents and such reimbursement for such medical and
dental expenses associated with such claims (including claims submitted on
behalf of disabled employees and their dependents) shall be determined in
accordance with the terms of the welfare benefit programs of the Company Group
as in effect immediately prior to the Time of Contribution.
8.8. Retiree Health and Life Insurance.
(a) The Company and the Company Group, or where appropriate, the Company
Group Welfare Benefit Plans, shall retain liability for all retiree health
benefits and retiree life insurance which were payable prior to the Time of
Contribution and/or are payable on or after the Time of Contribution to (i) all
eligible Company Group Continuing Employees (and their beneficiaries) and (ii)
all eligible Company Group Former Employees (and their beneficiaries). The
Company shall credit the dollar amount of all expenses incurred by Company Group
Continuing Employees and Company Group Former Employees and their respective
eligible dependents during the applicable plan year in which occurs the Time of
Contribution for purposes of satisfying such plan year's deductible and
co-payment limitations and shall credit service with the Company and its
Subsidiaries earned prior to the Time of Contribution under the relevant retiree
welfare benefit plans of the Company Group.
(b) Newco and the Newco Group, or where appropriate, the Newco Group
Welfare Benefit Plans, shall assume liability for all retiree health benefits
and retiree life insurance benefits which were payable prior to the Time of
Contribution and/or are payable on or after the Time of Contribution to (i) all
eligible Newco Group Continuing Employees (and their beneficiaries) and (ii) all
eligible Newco Group Former Employees (and their beneficiaries). Newco shall
credit the dollar amount of all expenses incurred by Newco Group Continuing
Employees and Newco Group Former Employees and their respective eligible
dependents during the applicable plan year in which occurs the Time of
Contribution for purposes of satisfying such plan year's deductible and
co-payment limitations and shall credit service with the Company and its
Subsidiaries earned prior to the Time of Contribution under the relevant retiree
welfare benefit plans of the Newco Group.
(c) As of the Time of Contribution, the Company shall retain and continue
to be responsible for all retiree welfare benefit programs (including, but not
limited to, medical, dental, life, travel accident, short- and long-term
disability, hospitalization and other insurance benefits) under which claims
have been incurred for expenses prior to the Time of Contribution by Company
Group Continuing Employees, Company Group Former Employees and their dependents
and such reimbursement for such medical and dental expenses associated with such
claims (including claims submitted on behalf of disabled employees and their
dependents) shall be determined in accordance with the terms of the welfare
benefit programs of the Company and its Subsidiaries as in effect immediately
prior to the time of Contribution. As of the Time of Contribution, Newco shall
assume and be responsible for all retiree welfare benefit programs (including,
but not limited to, medical, dental, life, travel accident, short- and long-term
disability, hospitalization and other insurance benefits) under which claims
have been incurred for expenses incurred prior to the Time of Contribution by
Newco Group Continuing Employees, Newco Group Former Employees and their
dependents and such reimbursement for such medical and dental expenses
associated with such claims (including claims submitted on behalf of disabled
employees and their dependents) shall be determined in accordance with the term
of the retiree welfare benefit programs of the Company and its Subsidiaries as
in effect immediately prior to the Time of Contribution.
8.9. Retention and Severance Obligations. The Company and Newco agree that
the transactions contemplated by this Agreement shall not constitute a severance
of employment of any Company Group Continuing Employee and Newco Group
Continuing Employee prior to or as a result of the consummation of the
transactions contemplated hereby, and that such employees will have continuous
and uninterrupted employment with the Company Group or Newco Group, as
applicable, before and immediately after the Time of Contribution. Without
limiting the generality of Section 8.9, effective as of the Time of
Contribution, the Company shall retain liability for and shall pay when due all
amounts which may become payable under the Rockwell Retention and Severance
Arrangement.
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8.10. Free-Standing Plans. Effective as of the Time of Contribution, Newco
shall assume, or shall cause the Newco Group to assume, all liabilities and
obligations under each employee benefit plan, arrangement or policy which, prior
to the Time of Contribution, is exclusively for the benefit of Newco Group
Continuing Employees, Newco Group Former Employees, and their eligible
beneficiaries (the "Newco Group Free-Standing Plans"). Effective as of the Time
of Contribution, the Company shall retain, or shall cause the Company Group to
retain, all liabilities and obligations under each employee benefit plan,
arrangement or policy which, prior to the Time of Contribution, is exclusively
for the benefit of Company Group Continuing Employees, Company Group Former
Employees, and their eligible beneficiaries (the "Company Group Free-Standing
Plans"). The Company and Newco shall take, or cause to be taken, all such action
as may be necessary or appropriate to establish Newco as successor to the
Company or its Subsidiaries as to all rights, assets, duties, liabilities and
obligations under, or with respect to, the Newco Group Free-Standing Plans and
to establish the Company Group as successor to the Company or its Subsidiaries
as to all rights, assets, duties, liabilities and obligations with respect to
the Company Group Free-Standing Plans.
8.11. Employment, Consulting and Severance Agreements. Effective as of the
Time of Contribution, Newco shall assume, or cause the Newco Group to assume,
all liabilities and obligations attributable to Newco Group Continuing Employees
and Newco Group Former Employees under their respective employment, consulting
and severance agreements with the Company or its Subsidiaries, as the same are
in effect immediately prior to the Time of Contribution. Effective as of the
Time of Contribution, the Company shall retain, or cause the Company Group to
retain, all liabilities and obligations attributable to Company Group Continuing
Employees and Company Group Former Employees under their respective employment,
consulting and severance agreements with the Company or its Subsidiaries, as the
same are in effect immediately prior to the Time of Contribution.
8.12. Welfare Plan Funding.
(a) Non-Collectively Bargained Voluntary Employees' Beneficiary
Association. Prior to the Time of Contribution, Newco shall have established a
voluntary employees' beneficiary association (the "Newco VEBA") under Section
501(c)(9) of the Code covering Newco Group Continuing Employees and Newco Group
Former Employees who are covered under the Trust for Employee Welfare Benefit
Programs of Rockwell International Corporation (the "Rockwell VEBA"). The Newco
VEBA shall contain provisions comparable in all material respects to and no less
favorable in the aggregate to its participants than those of the Rockwell VEBA.
Prior to the Time of Contribution, the Rockwell VEBA shall have transferred to
the Newco VEBA assets attributable to the Newco Group Continuing Employees and
Newco Group Former Employees covered under the Rockwell VEBA. The amount of
assets transferred from the Rockwell VEBA to the Newco VEBA pursuant to this
Section 8.12(a) shall have been based upon the value of the assets in the
applicable employee group insurance plan as of the date of the transfer
multiplied by the ratio that the costs allocated for the Newco Group Continuing
Employees and Newco Group Former Employees bear to the total costs allocated
under the Rockwell VEBA from the first day of the fiscal year in which such
transfer occurs to the date of the transfer. The Company and Newco agree to
adjust the initial asset allocation set forth in the preceding sentence, based
upon actual claims cost experience at such time as the actual experience is
known pursuant to the Company's practices existing on the date hereof. Effective
as of the Time of Contribution, Newco shall continue to sponsor the Newco VEBA.
Effective as of the Time of Contribution, the Company shall continue to sponsor
the Rockwell VEBA and shall change the name of the Rockwell VEBA to eliminate
any reference to "Rockwell".
(b) Collectively Bargained Voluntary Employees' Beneficiary
Association. Prior to the Time of Contribution, Newco shall have established a
voluntary employees' beneficiary association (the "Newco Collectively Bargained
VEBA") under Section 501(c)(9) of the Code covering Newco Group Continuing
Employees and Newco Group Former Employees who are covered under the Agreement
of Trust for Certain Collectively Bargained Welfare Benefit Plans of Rockwell
International Corporation (the "Rockwell Collectively Bargained VEBA"). The
Newco Collectively Bargained VEBA shall contain provisions comparable in all
material respects to and no less favorable in the aggregate to its participants
than those of the Rockwell Collectively Bargained VEBA. Prior to the Time of
Contribution, the Rockwell Collectively Bargained VEBA shall have transferred to
the Newco Collectively Bargained VEBA assets attributable to the Newco Group
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Continuing Employees and Newco Group Former Employees covered under the Rockwell
Collectively Bargained VEBA. The amount of assets transferred from the Rockwell
Collectively Bargained VEBA to the Newco Collectively Bargained VEBA pursuant to
this Section 8.12(b) shall have been based upon the value of the assets in the
Rockwell Collectively Bargained VEBA as of the date of the transfer multiplied
by the ratio that the costs allocated for the Newco Group Continuing Employees
and Newco Group Former Employees bear to the total costs allocated under the
applicable employee group insurance plan from the first day of the fiscal year
in which such transfer occurs to the date of the transfer. The Company and Newco
agree to adjust the initial asset allocation set forth in the preceding
sentence, based upon actual claims cost experience at such time as the actual
experience is known pursuant to the Company's practices existing on the date
hereof. Effective as of the Time of Contribution, Newco shall continue to
sponsor the Newco Collectively Bargained VEBA. Effective as of the Time of
Contribution, the Company shall continue to sponsor the Rockwell Collectively
Bargained VEBA and shall change the name of the Rockwell Collectively Bargained
VEBA to eliminate any reference to "Rockwell".
(c) Continued Life Insurance Reserve Fund. Prior to the Time of
Contribution, Newco shall have established a continued life insurance reserve
fund (the "Newco CLIR Fund") covering Newco Group Continuing Employees and Newco
Group Former Employees who are covered under the Continued Life Insurance
Reserve Fund (the "Rockwell CLIR Fund"). The Newco CLIR Fund shall contain
provisions comparable in all material respects to and no less favorable in the
aggregate to its participants than those of the Rockwell CLIR Fund. Prior to the
Time of Contribution, the Rockwell CLIR Fund shall have transferred to the Newco
CLIR Fund assets attributable to the Newco Group Continuing Employees and Newco
Group Former Employees covered under the Rockwell CLIR Fund. The amount of
assets transferred from the Rockwell CLIR Fund to the Newco CLIR Fund pursuant
to this Section 8.12(c) shall have been based upon the proportionate values of
the assets in the Rockwell CLIR Fund attributable to Newco Group Continuing
Employees and Newco Group Former Employees as of the most recent actuarial
valuation for the Rockwell CLIR Fund prepared by the Newco Actuary, subject to
review by the Company Actuary. In the event of a dispute between the Newco
Actuary and the Company Actuary, the Actuarial Dispute Resolution Process shall
be used to determine the amount of assets to be transferred. Effective as of the
Time of Contribution, Newco shall continue to sponsor the Newco CLIR Fund.
Effective as of the Time of Contribution, the Company shall continue to sponsor
the Rockwell CLIR Fund and shall change the name of the Rockwell CLIR Fund to
eliminate any reference to "Rockwell".
(d) Additional Action. Prior to, on and after the Time of Contribution,
the Company and Newco each shall take and shall have taken such further actions
as may be necessary or appropriate to (i) establish Newco as the sponsor of the
Newco VEBA, Newco Collectively Bargained VEBA and Newco CLIR Fund, (ii) provide
for the continued sponsorship by the Company of the Rockwell VEBA, Rockwell
Collectively Bargained VEBA and Rockwell CLIR Fund and (iii) cause the transfers
described in this Section 8.12 to be made in accordance with applicable law and
the terms of any applicable collective bargaining agreement.
8.13. Indemnification. Except as otherwise provided in this Article VIII,
Newco shall indemnify, defend and hold harmless the Company Group from and
against, and pay or reimburse the Company Group for, any claims made by any
Newco Group Continuing Employee or Newco Group Former Employee for severance or
other separation benefits, any claims based on breach of contract and any other
claims arising out of or in connection with the employment or the failure to
offer employment to, or the termination of employment of, any Newco Group
Continuing Employee or Newco Group Former Employee. The Company shall indemnify,
defend and hold harmless the Newco Group from and against, and pay or reimburse
the Newco Group for, any claims made by any Company Group Continuing Employee or
Company Group Former Employee for severance or other separation benefits, any
claims based on breach of contract and any other claims arising out of or in
connection with the employment or the failure to offer employment to, or the
termination of employment of, any Company Group Continuing Employee or Company
Group Former Employee. Newco shall indemnify, defend and hold harmless the
Company Group from and against, and pay or reimburse the Company Group for, all
liabilities resulting from any failure to file a determination letter request
with the IRS within the remedial amendment period prescribed under Section
401(b) of the Code
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with respect to compliance with the Tax Reform Act of 1986 for any Company
Pension Plan that is intended to be tax-qualified under Section 401(a) of the
Code.
8.14. Cooperation. Without limiting the generality of Article VII hereof,
the Company Group and Newco Group agree to promptly furnish each other with such
information concerning employees and employee benefit plans, arrangements or
policies as is necessary and appropriate to effect the transactions contemplated
by this Article VIII.
8.15. Amendment, Modification or Termination of Benefit Plans. From and
after the Time of Contribution, (i) the Company Group expressly reserves the
right, in accordance with applicable law and the terms of any applicable
collective bargaining agreement, to amend, modify or terminate any Benefit Plan
it sponsors or maintains for Company Group Continuing Employees and Company
Group Former Employees and (ii) the Newco Group expressly reserves the right, in
accordance with applicable law and the terms of any applicable collective
bargaining agreement, to amend, modify or terminate any Benefit Plan it sponsors
or maintains for Newco Group Continuing Employees or Newco Group Former
Employees.
ARTICLE IX
CONDITIONS
9.1. Conditions to Obligations of the Company. The obligations of the
Company to consummate the Distribution hereunder shall be subject to the
fulfillment of each of the following conditions:
(a) All of the transactions contemplated by Article II shall have been
consummated.
(b) The recapitalization of Newco in accordance with Section 3.2 shall
have been consummated.
(c) Each condition to the Closing of the Merger Agreement set forth in
Article VI thereof, other than (i) the condition set forth in Section
6.1(f) thereof as to the consummation of the Contribution and the
Distribution and (ii) the condition to the Acquiror's obligations set forth
in Section 6.3(d) thereof as to the satisfaction of conditions contained in
this Agreement, shall have been fulfilled or waived by the party for whose
benefit such condition exists.
(d) The Board of Directors of the Company shall be reasonably
satisfied that, after giving effect to the Contribution, (i) the Company
will not be insolvent and will not have unreasonably small capital with
which to engage in its businesses and (ii) the Company's surplus would be
sufficient to permit, without violation of Section 170 of the DGCL, the
Distribution.
(e) Acquiror, the Company and Newco shall each have received, in form
and substance reasonably satisfactory to each, the advance agreements and
approvals of Governmental Entities concerning the matters described on
Schedule 9.1(e).
ARTICLE X
MISCELLANEOUS AND GENERAL
10.1. Modification or Amendment. The parties hereto may modify or amend
this Agreement only by written agreement executed and delivered by duly
authorized officers of the respective parties.
10.2. Waiver; Remedies. The conditions to the Company's obligation to
consummate the Distribution are for the sole benefit of the Company and may be
waived in writing by the Company in whole or in part to the extent permitted by
applicable law. No delay on the part of any party hereto in exercising any
right, power or privilege hereunder will operate as a waiver thereof, nor will
any waiver on the part of any party hereto of any right, power or privilege
hereunder operate as a waiver of any other right, power or privilege hereunder,
nor will any single or partial exercise of any right, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder. Unless otherwise provided, the rights
and remedies herein provided are cumulative and are not exclusive of any rights
or remedies which the parties may otherwise have at law or in equity.
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10.3. Counterparts. For the convenience of the parties, this Agreement may
be executed in any number of separate counterparts, each such counterpart being
deemed to be an original instrument, and all such counterparts shall together
constitute the same agreement.
10.4. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York applicable to
contracts made and to be performed entirely within such State, without regard to
the conflicts of law principles of such State.
10.5. Notices. Any notice, request, instruction or other communication to
be given hereunder by any party to any other party shall be in writing and shall
be deemed to have been duly given (i) on the date of delivery if delivered
personally, or by telecopy or telefacsimile, upon confirmation of receipt, (ii)
on the first business day following the date of dispatch if delivered by Federal
Express or other nationally reputable next-day courier service, or (iii) on the
third business day following the date of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid. All notices hereunder
shall be delivered as set forth below, or pursuant to such other instructions as
may be designated in writing by the party to receive such notice:
(a) If to Newco or the Operating Subsidiaries:
New Rockwell International Corporation
2201 Seal Beach Boulevard
Seal Beach, California 90740-8250
Attention: William J. Calise, Jr., Esq.
Telecopy: (310) 797-5687
with copies to:
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Peter R. Kolyer, Esq.
Telecopy: (212) 541-5369
and
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Eric S. Robinson, Esq.
Telecopy: (212) 403-2000
(b) If to the Company:
Boeing NA, Inc.
c/o The Boeing Company
P.O. Box 3707
M/S 13-08
Seattle, Washington 98124-2207
Attention: Theodore J. Collins, Esq.
Vice President & General Counsel
Telecopy: (206) 544-4900
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<PAGE> 259
and
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: Allen Finkelson, Esq.
Telecopy: (212) 474-3700
10.6. Entire Agreement. The Reorganization Agreements (including the
Annexes and Schedules thereto), the Transition Agreement and the Confidentiality
Agreement constitute the entire agreement, and supersede all other prior
agreements, understandings, representations and warranties, both written and
oral, among the parties, with respect to the subject matter hereof and thereof.
10.7. Certain Obligations. Whenever this Agreement requires any of the
Subsidiaries of any party to take any action, this Agreement will be deemed to
include an undertaking on the part of such party to cause such Subsidiary to
take such action.
10.8. Assignment. No party to this Agreement shall convey, assign or
otherwise transfer any of its rights or obligations under this Agreement without
the express written consent of the other parties hereto in their sole and
absolute discretion, except that any party hereto may assign any of its rights
hereunder to a successor to all or any part of its business. Except as
aforesaid, any such conveyance, assignment or transfer without the express
written consent of the other parties shall be void ab initio. No assignment of
this Agreement shall relieve the assigning party of its obligations hereunder.
10.9. Captions. The Article, Section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
10.10. Specific Performance. In the event of any actual or threatened
default in, or breach of, any of the terms, conditions and provisions of this
Agreement, the party or parties who are or are to be thereby aggrieved shall
have the right of specific performance and injunctive relief giving effect to
its or their rights under this Agreement, in addition to any and all other
rights and remedies at law or in equity, and all such rights and remedies shall
be cumulative. The parties agree that the remedies at law for any breach or
threatened breach, including monetary damages, are inadequate compensation for
any loss and that any defense in any action for specific performance that a
remedy at law would be adequate is waived.
10.11. Severability. If any provision of this Agreement or the application
thereof to any person or circumstance is determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions
hereof, or the application of such provision to persons or circumstances other
than those as to which it has been held invalid or unenforceable, shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated thereby, so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner adverse to any
party. Upon any such determination, the parties shall negotiate in good faith in
an effort to agree upon a suitable and equitable substitute provision to effect
the original intent of the parties.
10.12. Third Party Beneficiaries. Acquiror shall be a third party
beneficiary of this Agreement. Nothing contained in this Agreement is intended
to confer upon any Person or entity other than the parties hereto and their
respective successors and permitted assigns (other than Acquiror), any benefit,
right or remedies under or by reason of this Agreement, except that the
provisions of Sections 6.1 and 8.13 hereof shall inure to the benefit of the
persons referred to therein.
10.13. Schedules. All Schedules attached hereto or referred to herein are
hereby incorporated in and made a part of this Agreement as if set forth in full
herein. Matters reflected on the Schedules are not necessarily limited to
matters required by this Agreement to be reflected on such Schedules. Such
additional matters are set forth for informational purposes only and do not
necessarily include other matters of a similar
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<PAGE> 260
nature. Capitalized terms used in any Schedule but not otherwise defined therein
shall have the respective meanings assigned to such terms in this Agreement.
10.14. Consent to Jurisdiction. Each of the parties hereto irrevocably
submits to the exclusive jurisdiction of (i) the Superior Court of the State of
California, San Francisco County and (ii) the United States District Court for
the Northern District of California for the purposes of any suit, action or
other proceeding arising out of this Agreement or any transaction contemplated
hereby (and agrees not to commence any action, suit or proceeding relating
hereto except in such courts). Each of the parties hereto further agrees that
service of any process, summons, notice or document hand delivered or sent by
registered mail to such party's respective address set forth in Section 10.5
will be effective service of process for any action, suit or proceeding in
California with respect to any matters to which it has submitted to jurisdiction
as set forth in the immediately preceding sentence. Each of the parties hereto
irrevocably and unconditionally waives any objection to the laying of venue of
any action, suit or proceeding arising out of this Agreement or the transactions
contemplated hereby in (i) the Superior Court of the State of California, San
Francisco County or (ii) the United States District Court for the Northern
District of California, and hereby further irrevocably and unconditionally
waives and agrees not to plead or claim in any such court that any such action,
suit or proceeding brought in any such court has been brought in an inconvenient
forum.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first
hereinabove written.
ROCKWELL INTERNATIONAL
CORPORATION
By:
------------------------------------
Name:
Title:
NEW ROCKWELL INTERNATIONAL
CORPORATION
By:
------------------------------------
Name:
Title:
ALLEN-BRADLEY COMPANY, INC.
By:
------------------------------------
Name:
Title:
ROCKWELL COLLINS, INC.
By:
------------------------------------
Name:
Title:
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<PAGE> 261
ROCKWELL SEMICONDUCTOR
SYSTEMS, INC.
By:
------------------------------------
Name:
Title:
ROCKWELL LIGHT VEHICLE SYSTEMS, INC.
By:
------------------------------------
Name:
Title:
ROCKWELL HEAVY VEHICLE
SYSTEMS, INC.
By:
------------------------------------
Name:
Title:
ROCKWELL GRAPHIC SYSTEMS, INC.
By:
------------------------------------
Name:
Title:
A-33
<PAGE> 262
ANNEX B
- --------------------------------------------------------------------------------
TAX ALLOCATION AGREEMENT
DATED AS OF , 1996,
BY AND AMONG
ROCKWELL INTERNATIONAL CORPORATION,
NEW ROCKWELL INTERNATIONAL CORPORATION
AND
THE BOEING COMPANY
- --------------------------------------------------------------------------------
<PAGE> 263
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE I
DEFINITIONS............................................................................. 1
1.1. Definitions.................................................................... 1
ARTICLE II
FILING OF TAX RETURNS................................................................... 5
2.1. Preparation of Tax Returns..................................................... 5
2.2. Pre-Merger Tax Returns......................................................... 5
2.3. Post-Merger Tax Returns........................................................ 6
ARTICLE III
PAYMENT OF TAXES........................................................................ 6
3.1. Allocation of Tax Liabilities.................................................. 6
3.2. Tax Refunds, Carrybacks and California Tax Credits............................. 6
ARTICLE IV
ALLOCATION AND CALCULATION OF TAXES..................................................... 7
4.1. Straddle Period Taxes.......................................................... 7
4.2. Share of Allowable Taxes....................................................... 7
4.3. Calculations and Determinations................................................ 8
4.4. Principles of Determination.................................................... 8
4.5. Change in Law.................................................................. 8
ARTICLE V
NEWCO OPTIONS; COMPENSATION PAYMENTS; CERTAIN CONTRACTS; GUNSHIP CLAIMS; ENVIRONMENTAL
COVERAGE CLAIMS; HEALTH CARE CLAIMS; B-1B CONTRACTS; FOREIGN SUBSIDIARIES; CONSENT
SOLICITATION.......................................................................... 8
5.1. Tax Deductions Arising in Respect of Newco Options............................. 8
5.2. Compensation Payments.......................................................... 9
5.3. Percentage Completion Contracts................................................ 10
5.4. Gunship Claims................................................................. 10
5.5. Environmental Coverage Claims and Health Care Claims........................... 11
5.6. B-1B Contracts................................................................. 11
5.7. Research and Experimentation Credit............................................ 11
5.8. Foreign Subsidiaries........................................................... 11
5.9. Consent Solicitation; Repayment of Short-Term Debt............................. 12
ARTICLE VI
TAX INDEMNIFICATION; TAX CONTESTS....................................................... 12
6.1. Indemnification................................................................ 12
6.2. Notice of Indemnity............................................................ 13
6.3. Tax Contests................................................................... 14
6.4. Timing Adjustments............................................................. 14
6.5. Certain Post-Distribution Transactions......................................... 15
6.6. Payments Net of Taxes.......................................................... 15
ARTICLE VII
COOPERATION AND EXCHANGE OF INFORMATION................................................. 16
7.1. Preparation of Returns......................................................... 16
7.2. Cooperation and Exchange of Information........................................ 16
7.3. Record Retention............................................................... 17
7.4. Notification of Certain Dispositions........................................... 17
</TABLE>
B-i
<PAGE> 264
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE VIII
MISCELLANEOUS........................................................................... 17
8.1. Entire Agreement............................................................... 17
8.2. Modification or Amendment...................................................... 17
8.3. Notices........................................................................ 17
8.4. No Third Party Beneficiaries................................................... 18
8.5. Assignment..................................................................... 18
8.6. Term........................................................................... 18
8.7. Captions....................................................................... 18
8.8. Severability................................................................... 18
8.9. Specific Performance........................................................... 19
8.10. Counterparts................................................................... 19
8.11. Governing Law.................................................................. 19
8.12. Agent.......................................................................... 19
</TABLE>
B-ii
<PAGE> 265
TAX ALLOCATION AGREEMENT
This TAX ALLOCATION AGREEMENT (this "Agreement"), dated as of
, among ROCKWELL INTERNATIONAL CORPORATION, a Delaware
corporation (the "Company"), NEW ROCKWELL INTERNATIONAL CORPORATION, a Delaware
corporation and a wholly owned subsidiary of the Company ("Newco"), and THE
BOEING COMPANY, a Delaware corporation ("Acquiror").
W I T N E S S E T H :
WHEREAS, the Company, Acquiror and R Acquisition Corp., a wholly owned
subsidiary of Acquiror ("Sub"), have entered into an Agreement and Plan of
Merger dated as of July 31, 1996 (the "Merger Agreement"), providing for the
Merger (as defined in the Merger Agreement) of Sub with and into the Company;
WHEREAS, the Board of Directors of the Company has approved an agreement
and plan of distribution in the form attached as Annex A to the Merger Agreement
(the "Distribution Agreement");
WHEREAS, the execution and delivery of this Agreement by the parties hereto
is a condition to the obligations of the parties to the Merger Agreement to
consummate the Merger;
WHEREAS, the execution and delivery of this Agreement by the parties hereto
is a condition to the obligations of the parties to the Distribution Agreement
to consummate the Distribution (as defined in the Distribution Agreement);
WHEREAS, Acquiror and the Company, on behalf of each of them and the
Company Group (as defined herein) and Newco, on behalf of itself and the Newco
Group (as defined herein), wish to provide for the allocation between the
Company Group and the Newco Group of all responsibilities, liabilities and
benefits relating to or affecting Taxes (as hereinafter defined) paid or payable
by either of them for all taxable periods, whether beginning before, on or after
the Distribution Date (as hereinafter defined) and to provide for certain other
matters; and
NOW, THEREFORE, in consideration of the premises and of the respective
covenants and agreements set forth herein, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. Capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings assigned to such terms in the
Merger Agreement or the Distribution Agreement, as the case may be. As used in
this Agreement, the following terms shall have the following respective
meanings:
"Acquiror Tax Opinion" means the opinion received by Acquiror from
Cravath, Swaine & Moore pursuant to Section 6.3(c) of the Merger Agreement.
"Acquiror's Tax Representation Letter" means the representation letter
delivered by Acquiror substantially in the form of Annex D to the Merger
Agreement.
"Actually Realized" or "Actually Realizes" means, for purposes of
determining the timing of any Taxes (or related Tax cost or benefit)
relating to any payment, transaction, occurrence or event (including any
Tax Refund), the time at which the amount of Taxes payable by such person
is increased above or reduced below, as the case may be, the amount of
Taxes that such person would be required to pay but for such payment,
transaction, occurrence or event.
"Affiliated Group" means the affiliated group of which the Company is
the common parent.
"Allowable Tax" means any Tax of the Company Group which is an
allowable cost under the Federal Acquisition Regulation, 48 C.F.R. Chapter
1, and associated regulations and agreements between the Company and any
U.S. governmental entity, which agreements are described on Schedule 1.
B-1
<PAGE> 266
"B-1B Contracts" means the B-1B Full Scale Development Contract (No.
F33657-81-C-0208) and the B-1B Production Contract (No. F33657-81-C-0201).
"California Tax Credits" means any California Tax credits for
manufacturing and research property resulting from qualified costs paid or
incurred on or before the Distribution Date by any member of the Company
Group or the Newco Group.
"California Tax Deficiency" means any Tax Deficiency with respect to
California Taxes.
"Code" means the Internal Revenue Code of 1986, as amended, and shall
include corresponding provisions of any subsequently enacted Federal Tax
laws.
"Combined Taxes" means all Taxes due with respect to any combined,
consolidated or unitary state, local or foreign corporate Tax liability for
all Pre-Merger Taxable Periods and Straddle Periods with respect to Joint
Tax Returns.
"Company Employees and Former Employees" means individuals who were
employees of the Company Group on or before the Distribution Date and who
do not become employees of the Newco Group between the Distribution Date
and the date of the event giving rise to a deduction in respect of any
Newco Options held by such individuals or Compensation Payments made to
such individuals or who become employees of the Newco Group on or after the
Distribution Date but are employees of the Company Group when any such
Newco Options are exercised or Compensation Payments are made.
"Company Group" means, solely for purposes of this Agreement and not
for purposes of any other Reorganization Agreement, the Company and its
affiliates, other than Newco and its affiliates (determined after giving
effect to the transfers contemplated by Article II of the Distribution
Agreement) and, for Post-Tax Indemnification Periods, shall include
Acquiror and its affiliates.
"Company Tax Item" means a Tax Item that is attributable to the
Company Group and is not a Newco Tax Item.
"Company Tax Opinions" means the opinions received by the Company from
Chadbourne & Parke LLP and Wachtell, Lipton, Rosen & Katz pursuant to
Section 6.2(c) of the Merger Agreement.
"Compensation Payments" means all payments made by any member of the
Newco Group under Sections 8.4 and 8.6 of the Distribution Agreement, to
the extent that such payments relate to benefits accrued as of the Time of
Contribution (as defined in the Distribution Agreement).
"Contract Profitability" as of the Distribution Date shall mean (i) in
the case of any long-term contract a portion of which is accounted for on
the "percentage completion method" of accounting and a portion of which is
accounted for on the "completed contract method" of accounting, in each
case for Federal Income Tax purposes, the excess of (A) the aggregate
amount of taxable income that would have been reportable for Federal Income
Tax purposes for all Tax Indemnification Periods with respect to such
contract if the contract had been accounted for in its entirety on the
percentage completion method of accounting for Federal Income Tax purposes
over (B) the actual amount of taxable income reportable for Federal Income
Tax purposes for all Tax Indemnification Periods with respect to such
contract, and (ii) in the case of any other long-term contract accounted
for on the completed contract or percentage of completion method of
accounting for Federal Income Tax purposes, the deferred contract
profitability with respect to such contract as of the Distribution Date as
calculated for financial accounting purposes.
"Debt Refinancing" has the meaning set forth in Section 5.9.
"Distribution Date" means the later of (i) the date on which the
Distribution occurs or is deemed to occur for Federal Income Tax purposes
and (ii) the date on which the Merger occurs or is deemed to occur for
Federal Income Tax purposes. Solely for purposes of this Agreement, the
Distribution or the Merger, as the case may be, shall be deemed effective
as of the close of business on the Distribution Date.
"Environmental Coverage Claims" shall have the meaning ascribed
thereto in the Post-Closing Covenants Agreement.
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<PAGE> 267
"Group" means either the Company Group or the Newco Group, as the
context provides.
"Health Care Claims" shall have the meaning ascribed thereto in
Section 3.8 of the Post-Closing Covenants Agreement.
"Income Tax Benefit" means for any taxable period the excess of (i)
the hypothetical Income Tax liability of the taxpayer for the taxable
period calculated as if the Timing Difference or Reverse Timing Difference,
as the case may be, had not occurred but with all other facts unchanged,
over (ii) the actual Income Tax liability of the taxpayer for the taxable
period, calculated taking into account the Timing Difference or Reverse
Timing Difference, as the case may be (treating an Income Tax Refund as a
negative Income Tax liability for purposes of such calculation).
"Income Tax Detriment" means for any taxable period the excess of (A)
the actual Income Tax liability of the taxpayer for the taxable period,
calculated taking into account the Timing Difference or Reverse Timing
Difference, as the case may be, over (B) the hypothetical Income Tax
liability of the taxpayer for the taxable period, calculated as if the
Timing Difference or Reverse Timing Difference, as the case may be, had not
occurred but with all other facts unchanged (treating an Income Tax Refund
as a negative Income Tax liability for purposes of such calculation).
"Income Taxes" means any Tax based upon, measured by, or calculated
with respect to (i) net income or profits (including, but not limited to,
any capital gains, minimum Tax and any Tax on items of Tax preference, but
not including sales, use, real property gains, real or personal property,
gross or net receipts, transfer or similar Taxes) or (ii) multiple bases
(including, but not limited to, corporate franchise, doing business or
occupation Taxes) if one or more of the bases upon which such Tax may be
based, measured by, or calculated with respect to, is described in clause
(i) above.
"Indemnitee" has the meaning set forth in Section 6.2.
"Indemnitor" has the meaning set forth in Section 6.2.
"Indemnity Issue" has the meaning set forth in Section 6.2.
"IRS" means the Internal Revenue Service.
"Joint Tax Return" means any Tax Return that includes a member of the
Company Group and a member of the Newco Group.
"Newco Group" means Newco and its affiliates, determined immediately
after the Distribution and the Merger.
"Newco Options" means those options to purchase Newco Common Stock or
Newco Class A Common Stock, as the case may be, resulting from the
conversion of Company Options in accordance with the Distribution
Agreement.
"Newco Tax Item" means a Tax Item solely attributable to the Newco
Group.
"Newco's Tax Representation Letter" means the representation letter
delivered by Newco and the Company substantially in the form of Annex E to
the Merger Agreement.
"Other Individuals" means individuals other than Company Employees and
Former Employees.
"Other Taxes" has the meaning set forth in Section 3.1(c).
"Post-Merger Taxable Period" means a taxable period beginning after
the Distribution Date.
"Post-Tax Indemnification Period" means any Post-Merger Taxable Period
and that portion of any Straddle Period that begins on the day after the
Distribution Date.
"Pre-Merger Taxable Period" means a taxable period ending on or before
the Distribution Date.
"Prior Arrangement" means the Company's existing finance policy for
allocation of Taxes (including disclosed practices) a copy of which finance
policy (in effect as of the date hereof) is attached hereto as
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<PAGE> 268
Schedule 2 and the advance agreements between the Company and any U.S.
governmental entity a copy of which is attached hereto as Schedule 1.
"Responsible Party" has the meaning set forth in Section 6.3.
"Reverse Timing Difference" means an increase in income, gain or
recapture, or a decrease in deduction, loss or credit, as calculated for
Income Tax purposes, of the taxpayer for the Tax Indemnification Period
coupled with an increase in deduction, loss or credit, or a decrease in
income, gain or recapture, of the taxpayer for any Post-Tax Indemnification
Period.
"Rockwell Australia" has the meaning set forth in Section 5.8(a).
"Straddle Period" means a taxable period that includes but does not
end on the Distribution Date.
"Tax" or "Taxes" means all forms of taxation, whenever created or
imposed, and whether of the United States or elsewhere, and whether imposed
by a local, municipal, governmental, state, foreign, federal or other body,
and without limiting the generality of the foregoing, shall include income,
sales, use, ad valorem, gross receipts, license, value added, franchise,
transfer, recording, withholding, payroll, wage withholding, employment,
excise, occupation, unemployment insurance, social security, business
license, business organization, stamp, environmental, premium and property
taxes, together with any related interest (including the actual interest
that would have accrued if there were no netting of Taxes), penalties and
additions to any such tax, or additional amounts imposed by any Taxing
Authority (domestic or foreign) upon the Company Group, the Newco Group,
the Acquiror or any of their respective members or divisions or branches or
affiliates.
"Tax Audit Proceeding" means any audit or other examination, judicial
or administrative proceeding relating to liability for or refunds or
adjustments with respect to Taxes.
"Tax Deficiency" means a net increase in Taxes payable as a result of
a Tax Audit Proceeding or an amendment of a Tax Return or an event having a
similar effect.
"Tax Indemnification Period" means any Pre-Merger Taxable Period and
that portion of any Straddle Period that ends on the Distribution Date.
"Tax Item" means any item of income, gain, loss, deduction, credit,
provisions for reserves, recapture of credits or any other item which is
taken into account in determining taxable income or is otherwise taken into
account in determining Taxes paid or payable, including an adjustment under
Section 481 of the Code resulting from a change in accounting method.
"Tax Opinions" means the Acquiror Tax Opinion and the Company Tax
Opinions.
"Tax Records" has the meaning set forth in Section 7.3.
"Tax Refund" means a refund of Taxes (including a reduction in Taxes
as a result of any credit or any offset against Taxes or Tax Items) reduced
(but not below zero) by any net increase in Taxes Actually Realized by the
recipient (or its affiliate) thereof as a result of the receipt thereof;
provided, however, that for purposes of determining any net increase in
Taxes resulting from the refund of 1994 Australian Taxes of Rockwell
Australia, any reduction of foreign tax credits for U.S. Tax purposes
attributable to the receipt of such refund shall not be taken into account.
"Tax Return" means any return, filing, questionnaire, information
return or other document required to be filed, including requests for
extensions of time, filings made with respect to estimated tax payments,
claims for refund and amended returns that may be filed, for any period
with any Taxing Authority (whether domestic or foreign) in connection with
any Tax or Taxes (whether or not a payment is required to be made with
respect to such filing).
"Taxing Authority" means any governmental or quasi-governmental body
exercising any Taxing authority or Tax regulatory authority.
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<PAGE> 269
"Timing Difference" means an increase in income, gain or recapture, or
a decrease in deduction, loss or credit, as calculated for Income Tax
purposes, of the taxpayer for any Post-Tax Indemnification Period coupled
with an increase in deduction, loss or credit, or a decrease in income,
gain or recapture, of the taxpayer for the Tax Indemnification Period.
"Transfer Taxes" means all transfer, documentary, sales, use,
registration, value-added and other similar Taxes (including all applicable
real estate transfer Taxes and real property transfer gains Taxes) and
related amounts (including any penalties, interest and additions to Tax)
arising as a result of or otherwise incurred in connection with any of the
transactions contemplated by the Reorganization Agreements.
ARTICLE II
FILING OF TAX RETURNS
2.1. Preparation of Tax Returns.
(a) Consistent with Agreements. Each of the parties to this Agreement
agrees to, and to cause each of its relevant affiliates to, report the
Contribution and Distribution as transactions described in Sections 351 and 355
of the Code and/or a "reorganization" under Section 368(a)(1)(D) of the Code and
the Merger as a "reorganization" under Section 368(a)(1)(B) of the Code on all
Tax Returns and other filings, to take no position inconsistent therewith or
with the consummation of such transactions as set forth in the Merger Agreement,
the Distribution Agreement, the Acquiror's Tax Representation Letter, Newco's
Tax Representation Letter and the Tax Opinions (in the absence of a controlling
change in law or circumstance), and to file or cause to be filed all such Tax
Returns on a timely basis (including extensions).
(b) Consistent with Past Practice. All Tax Returns described in Section
2.2 hereof filed after the date of this Agreement, in the absence of a
controlling change in law or circumstances, shall be prepared on a basis
consistent with the elections, accounting methods, conventions and principles of
taxation used for the most recent taxable periods for which Tax Returns
involving similar Tax Items have been filed and in a manner that does not
unreasonably accelerate deductions or defer income between Tax Indemnification
Periods and Post-Tax Indemnification Periods to the extent that a failure to do
so would result in an increase in Tax payable by, or a reduction in Tax
attributes of, a member of the Company Group in a Post-Tax Indemnification
Period. Subject to the provisions of this Agreement, all decisions relating to
the preparation of Tax Returns shall be made in the sole discretion of the party
responsible under this Agreement for such preparation.
(c) Newco Obligations. Newco agrees to cooperate in good faith with the
Company to determine the appropriate amount of Tax Items attributable to the
Company Group to be reflected on any Tax Returns for Pre-Merger Taxable Periods
or Straddle Periods to be prepared and filed by Newco in accordance with Section
2.2. Newco further agrees to provide the Company with a copy of each such Tax
Return at least three weeks before it is filed and to follow the procedures in
Section 4.3 relating to the calculation of Taxes and to not file any such Tax
Returns without the prior written consent of the Company, which consent shall
not be unreasonably withheld. If such consent is withheld, the Company shall so
notify Newco at least two weeks prior to the due date for filing such Tax
Returns. Newco will promptly provide the Company with copies of all such Tax
Returns after filing.
2.2. Pre-Merger Tax Returns.
(a) Consolidated Federal Tax Returns. The Affiliated Group consolidated
Federal Tax Returns (including amendments thereto) required to be filed or
actually filed for any Pre-Merger Taxable Period after the date hereof shall be
prepared and filed or caused to be prepared and filed by Newco, and the Company
hereby irrevocably designates, and agrees to cause each of its affiliates to so
designate, Newco as its agent to take any and all actions necessary or
incidental to the preparation and filing of such Tax Returns.
(b) Other Pre-Merger Taxable Period and Straddle Period Tax Returns. All
Tax Returns (including amendments thereto) other than those described in Section
2.2(a) which include a member of the Newco Group or the Company Group that are
required to be filed or are actually filed for any Pre-Merger Taxable
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Period or Straddle Period shall be prepared and filed or caused to be prepared
and filed by Newco. The Company hereby irrevocably designates and agrees to
cause each of its affiliates to designate Newco as its agent to take any and all
actions necessary or incidental to the preparation and filing of such other Tax
Returns.
2.3. Post-Merger Tax Returns. All Tax Returns for all Post-Merger Taxable
Periods shall be the responsibility of the Newco Group if such Tax Returns
relate to a member or members of the Newco Group or their respective assets or
businesses, and shall be the responsibility of the Company Group if such Tax
Returns relate to a member or members of the Company Group or their respective
assets or businesses.
ARTICLE III
PAYMENT OF TAXES
3.1. Allocation of Tax Liabilities.
(a) Consolidated Federal Tax Liabilities. Except as otherwise provided in
this Agreement, Newco shall pay or cause to be paid, on a timely basis, all
Taxes due with respect to the consolidated Federal Tax liability for all
Pre-Merger Taxable Periods of the Affiliated Group. The Company and Acquiror on
behalf of the Company Group hereby assume and agree to pay directly to or at the
direction of Newco, at least two days prior to the date payment (including
estimated payment) thereof is due, the Company Group's allocable share of those
Federal Taxes which are Allowable Taxes for all Pre-Merger Taxable Periods which
have not been paid on or before the Distribution Date.
(b) Combined, Consolidated and Unitary Corporate Taxes. Except as
otherwise provided in this Agreement, Newco or a member of the Newco Group shall
pay or cause to be paid, on a timely basis, all Combined Taxes. The Company and
Acquiror on behalf of the Company Group hereby assume and agree to pay directly
to or at the direction of Newco, at least two days prior to the date payment
(including estimated payment) thereof is due, (i) the Company Group's allocable
share of those Combined Taxes which are Allowable Taxes for all Pre-Merger
Taxable Periods and the portion of any Straddle Period ending on the
Distribution Date which have not been paid on or before the Distribution Date
and (ii) the Company Group's allocable share of those Combined Taxes for the
portion of any Straddle Period commencing on the day after the Distribution Date
which have not been paid on or before the Distribution Date.
(c) Other Taxes. Except as otherwise provided in this Agreement, Newco
shall pay or cause to be paid all Taxes of the Company Group and the Newco Group
other than those described in Sections 3.1(a) and 3.1(b) ("Other Taxes") for all
Pre-Merger Taxable Periods and Straddle Periods. The Company and Acquiror on
behalf of the Company Group hereby assume and agree to pay directly to or at the
direction of Newco, at least two days prior to the date payment (including
estimated payment) thereof is due, (i) the Company Group's allocable share of
those Other Taxes which are Allowable Taxes for all Pre-Merger Taxable Periods
and the portion of any Straddle Period ending on the Distribution Date and which
have not been paid on or before the Distribution Date and (ii) the Company
Group's allocable share of those Other Taxes for the portion of any Straddle
Period commencing on the day after the Distribution Date which have not been
paid on or before the Distribution Date.
(d) Post-Merger Taxes. Except as provided otherwise in this Agreement, all
Taxes for all Post-Merger Taxable Periods shall be paid or caused to be paid by
the party responsible under this Agreement for filing the Tax Return pursuant to
which such Taxes are due or, if no such Tax Returns are due, by the party liable
for such Taxes.
3.2. Tax Refunds, Carrybacks and California Tax Credits.
(a) Retention and Payment of Tax Refunds. Except as otherwise provided in
this Agreement, Newco shall be entitled to retain, and to receive within ten
days after Actually Realized by the Company Group, the portion of all Tax
Refunds (including without limitation Tax Refunds of Australian Taxes) of Taxes
for which the Newco Group is liable pursuant to Section 3.1 or Section 6.1(a),
and the Company shall be entitled to retain, and to receive within ten days
after Actually Realized by the Newco Group, the portion of all Tax
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Refunds of Taxes for which the Company Group is liable pursuant to Section 3.1
or Section 6.1(b). Notwithstanding the foregoing, all Tax Refunds (i) of
Allowable Taxes or (ii) resulting from the carryback of any Company Tax Item
arising in a Post-Tax Indemnification Period to a Tax Indemnification Period
(determined in a manner analogous to the determination of an Income Tax Benefit)
shall be for the account and benefit of the Company Group.
(b) Carrybacks. Except as otherwise provided in this Agreement, any Tax
Refund (other than a Refund of Allowable Taxes) resulting from the carryback of
any Newco Tax Item arising in a Post-Tax Indemnification Period to a Tax
Indemnification Period (determined in a manner analogous to the determination of
an Income Tax Benefit) shall be for the account of Newco, and the Company shall
pay over to Newco any such Tax Refund within ten days after it is Actually
Realized by the Company.
(c) Refund Claims. Newco shall be permitted to file at Newco's sole
expense, and the Company shall reasonably cooperate with Newco in connection
with, any claims for Tax Refund to which Newco is entitled pursuant to this
Section 3.2 or any other provision of this Agreement. Newco shall reimburse the
Company for any reasonable out-of-pocket costs and expenses incurred by any
member of the Company Group in connection with such cooperation. The Company
shall be permitted to file at the Company's sole expense, and Newco shall
reasonably cooperate with the Company in connection with, any claims for Tax
Refund to which the Company is entitled pursuant to this Section 3.2 or any
other provision of this Agreement. The Company shall reimburse Newco for any
reasonable out-of-pocket costs and expenses incurred by any member of the Newco
Group in connection with such cooperation.
Any claim for a Tax Refund to which Newco is entitled under this Agreement
shall be subject to the Company Group's consent (such consent not to be
unreasonably withheld), to be exercised in a manner analogous to that set forth
in Section 2.1(c). Any claim for a Tax Refund to which the Company Group is
entitled under this Agreement shall be subject to the Newco Group's consent
(such consent not to be unreasonably withheld), to be exercised in a manner
analogous to that set forth in Section 2.1(c).
(d) California Tax Credits. Notwithstanding anything to the contrary in
this Agreement, Newco shall be entitled to receive, within ten days after
Actually Realized by the Company Group, any Tax Refund attributable to any
California Tax Credits.
ARTICLE IV
ALLOCATION AND CALCULATION OF TAXES
4.1. Straddle Period Taxes. In the case of any Straddle Period:
(i) the periodic Taxes of the Company Group and the Newco Group that
are not based on income or receipts (e.g., property Taxes) for the portion
of any Straddle Period ending on the Distribution Date shall be computed
based on the ratio of the number of days in such portion of the Straddle
Period and the number of days in the entire taxable period;
(ii) Taxes of the Company Group and the Newco Group for the portion of
any Straddle Period ending on the Distribution Date (other than Taxes
described in Section 4.1(i) above) shall be computed as if such taxable
period ended as of the close of business on the Distribution Date, and, in
the case of any Taxes of the Company Group and the Newco Group attributable
to the ownership by any member of the Company Group and the Newco Group of
any equity interest in any partnership or other "flowthrough" entity, as if
a taxable period of such partnership or other "flowthrough" entity ended as
of the close of business on the Distribution Date; and
(iii) with respect to any Joint Tax Return for a Straddle Period, the
allocation of Tax liability between the Company Group, on the one hand, and
the Newco Group, on the other hand, shall be determined in a manner
analogous to that set forth in Treasury Regulation Section 1.1552-1(a)(2).
4.2. Share of Allowable Taxes. The Company Group's and the Newco Group's
allocable share of Tax liability which is attributable to Allowable Taxes for
all Pre-Merger Taxable Periods and the portion of any
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Straddle Period ending on the Distribution Date shall be determined in
accordance with the Prior Arrangement.
4.3. Calculations and Determinations. All calculations and determinations
required to be made pursuant to this Agreement shall be made in good faith by
Newco on a basis consistent with prior years and in a manner that does not
unreasonably accelerate deductions or defer income between Tax Indemnification
Periods and Post-Tax Indemnification Periods, and such calculations and
determinations shall be subject to the written approval of the Company, which
approval shall not be unreasonably withheld. Whenever Newco is required to make
any of the calculations or determinations referred to in the prior sentence,
Newco shall provide the Company with (i) preliminary drafts of any material
calculations (including calculations of the amount for which the Company Group
will be liable under this Agreement) or determinations as early as practicable,
and final copies of such calculations (including calculations of the amount for
which the Company Group will be liable under this Agreement) or determinations
no later than nine weeks prior to the date on which applicable Tax Returns are
to be filed, and such other information as the Company shall reasonably request
and (ii) if requested by the Company, access (during reasonable business hours
and upon reasonable advance notice) to copies of the relevant portions of any
Tax Returns, reports or other statements. If the Company's written approval of
such calculations and determinations is withheld, the Company shall so notify
Newco no later than six weeks prior to the date on which the applicable Tax
Returns are to be filed.
4.4. Principles of Determination. In implementing this Agreement, except
as otherwise specifically provided, the parties shall make any adjustments that
are necessary to ensure that, with respect to Taxes for Straddle Periods or
Pre-Merger Taxable Periods, payments and reimbursements between the parties
reflect the principles that the Company is to bear responsibility for Taxes for
the Company Group (and any affiliates) that (i) are attributable to the portion
of any Straddle Period after the Distribution Date (calculated by treating the
day after the Distribution Date as the first day of a taxable period) or (ii)
are Allowable Taxes for any Pre-Merger Taxable Period or for any Straddle
Period, and that Newco is to bear responsibility for all other Taxes for
Straddle Periods and Pre-Merger Taxable Periods.
4.5. Change in Law. Notwithstanding the agreement with respect to
reporting of Tax Items attributable to Newco Options, Compensation Payments,
Environmental Coverage Claims and Health Care Claims set forth in Sections
5.1(a), 5.2(a) and 5.5(a) of this Agreement, respectively, neither the Company
Group nor the Newco Group shall have any obligation to report any such Tax Items
as set forth in such Sections in the event that either such party determines
that there is no substantial authority to support reporting such Tax Items on a
Tax Return filed by such party as a result of a change in or amendment to any
law or regulation, or any change in the official interpretation thereof,
effective or occurring after the date of this Agreement, and such Group provides
prompt notice to the other Group of any such determination.
ARTICLE V
NEWCO OPTIONS; COMPENSATION PAYMENTS; CERTAIN CONTRACTS;
GUNSHIP CLAIMS; ENVIRONMENTAL COVERAGE CLAIMS; HEALTH CARE
CLAIMS; B-1B CONTRACTS; FOREIGN SUBSIDIARIES;
CONSENT SOLICITATION
5.1. Tax Deductions Arising in Respect of Newco Options.
(a) Tax Deductions. Notwithstanding anything to the contrary in this
Agreement, unless the IRS issues a contrary private letter ruling to the Company
or Newco, or Newco and the Company otherwise agree in writing, (x) the Company
Group (and not the Newco Group) shall claim the post-Distribution Date Tax
deductions in respect of Newco Options held by Company Group Employees and
Former Employees (e.g., due to an option cash-out, an exercise of non-incentive
stock options or a disqualifying disposition) and shall pay to Newco the amount
of any Tax Refund (such Tax Refund not to include, or be tax-effected for any
Tax Refund of the Company's allocable share of Allowable Taxes) arising in
respect of such deductions within ten days after such Tax Refund is Actually
Realized by the Company Group (including the time estimated Tax payments are
due), and (y) the Newco Group shall claim any post-Distribution Date Tax
deductions in
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respect of Newco Options held by any Other Individuals. Notwithstanding anything
to the contrary contained herein, to the extent that any Tax deductions of the
Company Group in respect of Newco Options held by Company Group Employees and
Former Employees are carried back from a Post-Tax Indemnification Period to a
Tax Indemnification Period, the Company shall pay to Newco any resulting Tax
Refunds to the extent required pursuant to this Section 5.1(a), but the Company
shall have no obligation to pay to Newco any additional amounts under any other
provision of this Agreement (other than Section 6.6(a)) with respect to such Tax
Refunds.
(b) Notices, Withholding, Reporting. Newco shall promptly notify the
Company of any post-Distribution Date event giving rise to income to any Company
Employees and Former Employees in connection with the Newco Options and, if
required by law, the Company shall withhold applicable Taxes and satisfy
applicable Tax reporting obligations in connection therewith. Newco shall within
10 days of demand thereof reimburse the Company for all reasonable out-of-pocket
expenses incurred in connection with the Newco Options, including with respect
to incremental Tax reporting obligations and any incremental employment Tax
obligations; provided that the Company shall use reasonable efforts to collect
any such amounts required to be paid by Company Employees and Former Employees.
(c) Tax Audit Adjustments. Notwithstanding the provisions of Section
5.1(a), in the event a Tax Audit Proceeding shall determine (by settlement or
otherwise), or the parties otherwise determine pursuant to Section 4.5, that all
or a portion of the Tax deductions in respect of Newco Options held by Company
Employees and Former Employees was not available to the Company Group, Newco
shall pay to the Company the amount of the resulting Tax Deficiency (such Tax
Refund not to include, or be tax-effected for, any Tax Refund of the Company's
allocable share of Allowable Taxes) within 10 days after the Company Group has
notified the Newco Group that such Tax Deficiency has been Actually Realized. In
the event a Tax Audit Proceeding shall determine (by settlement or otherwise),
or the parties otherwise determine pursuant to Section 4.5, that all or a
portion of the Tax deductions in respect of Newco Options held by Other
Individuals should have been claimed by the Company Group, the Company shall
claim such Tax deductions (by an amended Tax Return or otherwise) and shall pay
to Newco the amount of any Tax Refund (such Tax Refund not to include, or be
tax-effected for, any Tax Refund of the Company's allocable share of Allowable
Taxes) arising in respect of such Tax deduction, in each case within 10 days
after such Tax Refund is Actually Realized by the Company Group (including at
the time estimated Tax payments are due). In the event that any Tax Audit
Proceeding shall determine (by settlement or otherwise) that the Company Group
realized taxable income directly or indirectly as a result of the exercise or
settlement (including payment by Newco in cash or stock) of the Newco Options or
the disqualifying disposition of any stock received upon exercise thereof
(determined in a manner analogous to the determination of an Income Tax
Detriment), Newco shall pay to the Company the amount of any resulting Tax
Deficiency (such Tax Refund not to include, or be tax-effected for, any Tax
Refund of the Company's allocable share of Allowable Taxes) within 10 days after
the Company Group has notified the Newco Group that such Tax Deficiency has been
Actually Realized.
(d) IRS Ruling Request. At Newco's request and sole expense, Newco and the
Company shall jointly seek a private letter ruling from the IRS regarding the
proper party to claim the post-Distribution Date Tax deductions in respect of
Newco Options.
5.2. Compensation Payments.
(a) Tax Deductions. Notwithstanding anything to the contrary in this
Agreement, unless Newco and the Company otherwise agree in writing, (x) the
Company Group (and not the Newco Group) shall claim the post-Distribution Date
Tax deductions in respect of Compensation Payments paid to Company Group
Employees and Former Employees and shall pay to Newco the amount of any Tax
Refund (such Tax Refund not to include, or be tax-effected for, any Tax Refund
of the Company's allocable share of Allowable Taxes) arising in respect of such
Tax deductions within ten days after such Tax Refund is Actually Realized by the
Company Group (including the time estimated Tax payments are due) and (y) the
Newco Group shall claim any post-Distribution Date Tax deductions in respect of
Compensation Payments paid to Other Individuals. Notwithstanding anything to the
contrary contained herein, to the extent that any Tax deductions of the Company
Group in respect of Compensation Payments are carried back from a Post-Tax
Indemnification
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period to a Tax Indemnification Period, the Company shall pay to Newco any
resulting Tax Refunds to the extent required pursuant to this Section 5.2(a),
but the Company shall have no obligation to pay to Newco any additional amounts
under any other provision of this Agreement (other than Section 6.6(a)) with
respect to such Tax Refunds.
(b) Notices, Withholding, Reporting. The Company shall withhold applicable
Taxes and satisfy applicable Tax reporting obligations in connection with the
Compensation Payments made to Company Group Employees and Former Employees.
Newco shall within 10 days of demand thereof reimburse the Company for all
reasonable out-of-pocket expenses incurred in connection with the Compensation
Payments, including with respect to incremental Tax reporting obligations and
any incremental employment Tax obligations resulting from such Compensation
Payments; provided that the Company shall use reasonable efforts to collect any
such amounts required to be paid by Company Employees and Former Employees.
(c) Tax Audit Adjustments. Notwithstanding the provisions of Section
5.2(a), in the event a Tax Audit Proceeding shall determine (by settlement or
otherwise), or the parties otherwise determine pursuant to Section 4.5, that all
or a portion of the Tax deductions in respect of Compensation Payments paid to
Company Employees and Former Employees was not available to the Company Group,
Newco shall pay to the Company the amount of the resulting Tax Deficiency (such
Tax Refund not to include, or be tax-effected for, any Tax Refund of the
Company's allocable share of Allowable Taxes) within 10 days after the Company
Group has notified the Newco Group that such Tax Deficiency has been Actually
Realized. In the event a Tax Audit Proceeding shall determine (by settlement or
otherwise), or the parties otherwise determine pursuant to Section 4.5, that all
or a portion of the Tax deductions in respect of Compensation Payments paid to
Other Individuals should have been claimed by the Company Group, the Company
shall claim such Tax deductions (by an amended Tax Return or otherwise) and
shall pay to Newco the amount of any Tax Refund (such Tax Refund not to include,
or be tax-effected for, any Tax Refund of the Company's allocable share of
Allowable Taxes) arising in respect of such deductions, in each case within 10
days after such Tax Refund is Actually Realized by the Company Group (including
at the time estimated Tax payments are due). In the event that any Tax Audit
Proceeding shall determine (by settlement or otherwise) that the Company Group
realized taxable income directly or indirectly as a result of the payment of any
Compensation Payments (determined in a manner analogous to the determination of
an Income Tax Detriment), Newco shall pay to the Company the amount of any
resulting Tax Deficiency (such Tax Refund not to include, or be tax-effected
for, any Tax Refund of the Company's allocable share of Allowable Taxes) within
10 days after the Company Group has notified the Newco Group that such Tax
Deficiency has been Actually Realized.
5.3. Percentage Completion Contracts.
(a) Adjustment to Contract Profitability. Newco and the Company shall each
bear one-half of any interest cost due to, and be entitled to receive one-half
of any interest refunded by, the IRS in respect of Tax Indemnification Periods
resulting from adjustments required subsequent to the Distribution Date with
respect to long-term contracts held by the Company pursuant to the look-back
method of Treasury Regulation Section 1.460-6 or any comparable provision of
State, local or foreign Tax law. The Company shall pay to Newco its share of any
such refunded interest within 10 days after such refund is Actually Realized by
the Company, and Newco shall pay to the Company its share of any such interest
due within 10 days after the Company Group has notified the Newco Group that
such interest cost has been Actually Realized by the Company Group.
5.4. Gunship Claims.
(a) Gunship Claims Income Tax Paid. Newco hereby represents that prior to
the date hereof the Company has reflected in taxable income on its U.S. Federal
Income Tax Returns $181 million of income relating to the Gunship Claims.
(b) Tax Item Timing Adjustments. If the Newco Group so requests, the
Company Group shall consent to Newco pursuing a claim for a Tax Refund, at
Newco's sole expense, in respect of Federal Income Taxes paid by the Company
prior to the date hereof with respect to income relating to the Gunship Claims.
Any such refund claim shall be governed by Section 3.2. Notwithstanding any
other provision in this
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Agreement, Newco shall pay to the Company the amount of any increase in Taxes
for the Post-Tax Indemnification Period attributable to the receipt of any
resulting Tax Refund within 10 days after the Company Group has notified the
Newco Group that such increase has been Actually Realized.
5.5. Environmental Coverage Claims and Health Care Claims.
(a) Tax Return Reporting. Newco and the Company shall each report its
proportionate share of Tax Items attributable to the Environmental Coverage
Claims and Health Care Claims, based on the allocation of the proceeds of the
Environmental Coverage Claims and Health Care Claims (in the case of income
Items), and the manner in which costs are shared (in the case of deduction
Items), pursuant to Sections 3.2 and 3.8, respectively, of the Post-Closing
Covenants Agreement.
(b) Tax Audit Adjustments. (i) In the event a Tax Audit Proceeding shall
determine (by settlement or otherwise), or the parties otherwise determine
pursuant to Section 4.5, that the Company Group should have reported Tax Items
in respect of the Environmental Coverage Claims or the Health Care Claims that
were reported by the Newco Group pursuant to Section 5.5(a), Newco shall pay to
the Company the amount of any resulting Tax Deficiency (and shall have the right
to receive or retain any resulting Tax Refund) within ten days after the Company
has notified Newco that it has Actually Realized such Tax Deficiency or after
the Company Group has Actually Realized such Tax Refund, as the case may be.
(ii) In the event a Tax Audit Proceeding shall determine (by settlement or
otherwise), or the parties otherwise determine pursuant to Section 4.5, that the
Newco Group should have reported Tax Items in respect of the Environmental
Coverage Claims or the Health Care Claims that were reported by the Company
Group pursuant to Section 5.5(a), the Company shall pay to the Newco Group the
amount of any resulting Tax Deficiency (and shall have the right to receive or
retain any resulting Tax Refund) within ten days after Newco has notified the
Company that it has Actually Realized such Tax Deficiency or after the Newco
Group has Actually Realized such Tax Refund, as the case may be.
(c) For purposes of determining when a party has Actually Realized a Tax
Deficiency under Section 5.5(b), in the event and to the extent Taxes payable by
that the Company or Newco, as the case may be, are not increased as a result of
including Tax Items in the nature of income attributable to the Environmental
Coverage Claims or the Health Care Claims because such Tax Items are offset by
losses, credits or other Tax Items of such party, such party shall be deemed to
have paid Taxes with respect to such offset Tax Items at the highest applicable
marginal rates.
5.6. B-1B Contracts.
(a) Tax Return Reporting. The Company Group shall report on its Post-Tax
Indemnification Period Income Tax Returns all Tax Items arising in respect of
the B-1B Contracts that are not reflected on the Company's Income Tax Returns
for any Tax Indemnification Period, shall pay all Taxes with respect to such Tax
Items and shall be entitled to all Tax Refunds attributable to such Tax Items.
5.7. Research and Experimentation Credit. The Company Group hereby
consents to Newco pursuing its claim for Tax Refund in respect of Tax Returns
filed for the Tax Indemnification Period relating to the research and
experimentation tax credit.
5.8. Foreign Subsidiaries.
(a) Distribution of Australian Subsidiary. Prior to the Distribution,
Rockwell Australia Limited ("Rockwell Australia") will be distributed to the
Company in a transaction intended to qualify as a transaction pursuant to
Section 355 of the Code. In the event that such transaction does not so qualify
and the Company Group sells or otherwise disposes of the stock of Rockwell
Australia, the Company shall pay to Newco, within 10 days after such Tax Refund
is Actually Realized by the Company, the amount of any Company Group Tax Refund
arising because such transaction failed to so qualify.
(b) Foreign Tax Credits, Subpart F Income and PFIC Income. In the event
that, during the period beginning on the Distribution Date and ending on
September 30, 1997, the Company Group engages in any transaction outside of the
ordinary course of business and such transaction (i) affects the foreign tax
credit
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computation with respect to any amount taken into income by the Company Group
with respect to Rockwell Australia and its subsidiaries for the Tax
Indemnification Period, (ii) increases the amount includible in the Company
Group's income pursuant to Section 951 et seq. of the Code that is attributable
to the Company's ownership interest in Rockwell Australia and its subsidiaries
for the Tax Indemnification Period or (iii) increases the Company Group's Tax
pursuant to Section 1291 et seq. of the Code that is attributable to the
Company's ownership interest in Rockwell Australia and its subsidiaries for the
Tax Indemnification Period, the Company shall pay to Newco any resulting
additional net Tax cost to the Newco Group for the Tax Indemnification Period
within ten days after notification by Newco that the Company Group has Actually
Realized such net Tax cost.
5.9. Consent Solicitation; Repayment of Short-Term Debt.
(a) Any net Income Tax cost attributable to cancellation of indebtedness
income ("CODI"), or net Income Tax benefit attributable to bond retirement
premium ("BRP") (determined in each case in a manner analogous to the
determination of an Income Tax Detriment and Income Tax Benefit, respectively),
recognized by the Company Group as a result of the transactions described in
Sections 3.1 and 5.18 of the Merger Agreement and/or a tender offer by Acquiror
for the outstanding notes of the Company (collectively, the "Debt Refinancing")
shall be for the account of Acquiror.
(b) The Company Group shall report any CODI or BRP resulting from the Debt
Refinancing as occurring in a Post-Tax Indemnification Period in accordance with
Treasury Regulation Section 1.1502-76(b)(ii)(B), unless the relevant Taxing
Authority will not accept a Tax Return on such basis.
ARTICLE VI
TAX INDEMNIFICATION; TAX CONTESTS
6.1. Indemnification.
(a) Newco Indemnification. Except as otherwise provided in Article V or
Section 6.1(b), Newco and the Newco Group shall be liable for and shall
indemnify, defend and hold harmless the members of the Company Group and
Acquiror and each of their respective affiliates and Representatives from and
against (A) all Taxes of the Company Group and the Newco Group for Pre-Merger
Taxable Periods other than the Company Group's allocable share of Allowable
Taxes for such Pre-Merger Taxable Periods, (B) all Taxes of the Company Group
and the Newco Group for the portion of any Straddle Period ending on the
Distribution Date other than the Company Group's allocable share of Allowable
Taxes for such portion of any such Straddle Period, (C) all Taxes of the Newco
Group for the portion of any Straddle Period beginning on the day after the
Distribution Date (calculated by treating the day after the Distribution Date as
the first day of a taxable period), (D) all Taxes of the Newco Group for
Post-Merger Taxable Periods, (E) all liability (as a result of Treasury
Regulation Section 1.1502-6(a) or otherwise) for Income Taxes of any person
(other than a member of the Company Group or the Newco Group) which is or has
ever been affiliated with any member of the Company Group or the Newco Group or
with which any member of the Company Group or the Newco Group joins or has ever
joined (or is or has ever been required to join) in filing any consolidated,
combined or unitary Tax Return for any Pre-Merger Taxable Period or Straddle
Period, (F) the amount of any California Tax Deficiency resulting from the
receipt by the Company Group of any Tax Refund attributable to any California
Tax Credits, and the amount of any other net Tax cost attributable to the
California Tax Credits or any refund thereof, (G) all Taxes for which Newco is
liable pursuant to Article V or Section 6.5, (H) any Transfer Taxes imposed in
connection with or as a result of the Contribution and/or the Distribution, and
one-half of any Transfer Taxes imposed in connection with or as a result of the
Merger, (I) 50% of any Income Taxes payable by the Company Group in any Post-Tax
Indemnification Period with respect to any long-term contract accounted for
Federal income Tax purposes pursuant to the "completed contract method" and/or
the "percentage completion method" of accounting to the extent attributable to
Contract Profitability with respect to such contract as of the Distribution
Date, but only to the extent such Contract Profitability exceeds $22 million in
the aggregate, (J) all Taxes for any taxable period (whether beginning before,
on or after the Distribution Date) that would not have been payable but for the
breach by any member of the Newco Group
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of any representation, warranty or obligation under this Agreement, (K) all
Taxes for any taxable period (whether beginning before, on or after the
Distribution Date) that would not have been payable but for the inaccuracy of
the representations and warranties contained in clauses (ix) or (xii) of Section
4.1(l) or clause (xi) of Section 4.1(m) of the Merger Agreement or the breach of
the covenant contained in Section 5.1(n) of the Merger Agreement, (L) all
liability for Taxes resulting from the Contribution, Distribution and/or Merger
(including the transactions described in the last sentence of each of Sections
2.1(a), 2.1(b), 2.2(a) and 2.2(b) of the Distribution Agreement), (but not
including any Taxes attributable to collateral consequences of such
transactions, such as a reassessment of Company property for property Tax
purposes resulting from the change in control incident to the Merger), and (M)
all liability for any reasonable legal, accounting, appraisal, consulting or
similar fees and expenses relating to the foregoing. Notwithstanding the
foregoing, Newco shall not indemnify, defend or hold harmless any member of the
Company Group from any liability for Taxes, other than Taxes resulting from the
failure of the Contribution or Distribution to qualify as transactions described
in Sections 351 or 355 of the Code and/or as a "reorganization" under Section
368(a)(1)(D) of the Code and the Merger as a "reorganization" pursuant to
Section 368(a)(1)(B) of the Code, resulting from any action taken by any member
of the Company Group on the Distribution Date after the Effective Time (other
than actions relating to the Debt Refinancing or in the ordinary course of
business) (a "Buyer Tax Act").
For purposes of clause (I) of the second preceding sentence, Newco's
indemnity obligation shall arise only at such time as the Company Group Actually
Realizes a Tax cost with respect to Contract Profitability in excess of
$22,000,000, which shall be deemed to occur only after the Company Group has
Actually Realized income items attributable to Contract Profitability with
respect to long-term contracts in existence on the Distribution Date in an
aggregate amount of $22,000,000.
(b) Company and Acquiror Indemnification. (i) Company
Indemnification. Except as otherwise provided in Article V or Section 6.1(a),
the Company shall be liable for and shall indemnify, defend and hold harmless
the Newco Group from and against (A) all Taxes of the Company Group for
Post-Merger Taxable Periods, (B) the Company Group's allocable share of
Allowable Taxes for Pre-Merger Taxable Periods and the portion of any Straddle
Period ending on the Distribution Date, (C) all Taxes of the Company Group for
the portion of any Straddle Period beginning on the day after the Distribution
Date (calculated by treating the day after the Distribution Date as the first
day of a taxable period), (D) all Taxes resulting from a Buyer Tax Act, (E) all
Taxes for which the Company is liable pursuant to Article V or Section 6.5, (F)
all Taxes for any taxable period (whether beginning before, on or after the
Distribution Date) that would not have been paid but for the breach by any
member of the Company Group of any representation, warranty or obligation under
this Agreement and (G) all liability for any reasonable legal, accounting,
appraisal, consulting or similar fees and expenses relating to the foregoing.
(ii) Acquiror Indemnification. Acquiror shall indemnify, defend and hold
harmless Newco for one-half of any Transfer Taxes imposed in connection with or
as a result of the Merger.
(c) Payments. Subject to Section 6.6(b), any indemnity payment required to
be made pursuant to this Section 6.1 shall be paid within thirty days after the
indemnified party makes written demand upon the indemnifying party, but in no
case earlier than five business days prior to the date on which the relevant
Taxes are required to be paid (or would be required to be paid if no such Taxes
are due) to the relevant Taxing Authority (including estimated Tax payments).
6.2. Notice of Indemnity. Whenever a party hereto (hereinafter an
"Indemnitee") becomes aware of the existence of an issue raised by any Taxing
Authority which could reasonably be expected to result in a determination that
would increase the liability for any Tax of the other party hereto or any member
of its Group for any Post-Tax Indemnification Period (in the case of the Company
Group) or for any Tax Indemnification Period (in the case of the Newco Group) or
require a payment hereunder to the other party (hereinafter an "Indemnity
Issue"), the Indemnitee shall in good faith promptly give notice to such other
party (hereinafter the "Indemnitor") of such Indemnity Issue. The failure of any
Indemnitee to give such notice shall not relieve any Indemnitor of its
obligations under this Agreement except to the extent such Indemnitor or its
affiliate is actually materially prejudiced by such failure to give notice.
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6.3. Tax Contests. The Indemnitor and its representatives, at the
Indemnitor's expense, shall be entitled to participate (A) in all conferences,
meetings or proceedings with any Taxing Authority, the subject matter of which
is or includes an Indemnity Issue and (B) in all appearances before any court,
the subject matter of which is or includes an Indemnity Issue. The party who has
responsibility for filing the Tax Return under this Agreement (the "Responsible
Party") with respect to which there could be an increase in liability for any
Tax or with respect to which a payment could be required hereunder shall have
the right to decide as between the parties hereto how such matter is to be dealt
with and finally resolved with the appropriate Taxing Authority and shall
control all audits and similar proceedings. If no Tax Return is or was required
to be filed in respect of an Indemnity Issue, the Indemnitor shall be treated as
the Responsible Party with respect thereto. The Responsible Party agrees to
cooperate in the settlement of any Indemnity Issue with the other party and to
take such other party's interests into account. If the Indemnitor is not the
Responsible Party, such cooperation may include permitting the Indemnitor, at
the Indemnitor's sole expense, to litigate or otherwise resolve any Indemnity
Issue. If Newco is the Responsible Party and if either (x) the Taxes at issue in
the aggregate may equal or exceed $50,000 (computed taking into account
reasonably anticipated future year Tax costs on a present value basis) or (y)
the Indemnity Issue relates to the qualification of the Contribution or the
Distribution as transactions described in Sections 351 and 355 of the Code
and/or a "reorganization" within the meaning of Section 368(a)(1)(D) of the Code
or the Merger as a "reorganization" within the meaning of Section 368(a)(1)(B)
of the Code, (i) Newco shall not settle any such Indemnity Issue without the
prior written consent of the Acquiror, which consent shall not be unreasonably
withheld, (ii) the Acquiror, and counsel of its own choosing, shall have the
right to participate fully, at its own expense, in all aspects of the defense of
such Indemnity Issue, (iii) Newco shall inform the Acquiror, reasonably promptly
in advance, of the date, time and place of all administrative and judicial
meetings, conferences, hearings and other proceedings relating to such Indemnity
Issue, (iv) the Acquiror shall, at its own expense, be entitled to have its
representatives (including counsel, accountants and consultants) attend and
participate in any such administrative and judicial meetings, conferences,
hearings and other proceedings relating to such Indemnity Issue, (v) Newco shall
provide to the Acquiror all information, document requests and responses,
proposed notices of deficiency, notices of deficiency, revenue agent's reports,
protests, petitions and any other documents relating to such Indemnity Issue
promptly upon receipt from, or in advance of submission to (as the case may be),
the relevant Taxing Authority or courts and (vi) Newco shall not file or submit
any protests, briefs, responses, petitions or other documents relating to such
Indemnity Issue with such relevant Taxing Authority or courts without the prior
written consent of the Acquiror, which consent shall not be unreasonably
withheld. Notwithstanding any other provision of this Agreement, if Newco has
materially satisfied its obligations under this Agreement and if the Company
fails to permit Newco to control any Indemnity Issue relating to the
qualification of the Contribution and Distribution as transactions described in
Sections 351 and 355 of the Code and/or a "reorganization" within the meaning of
Section 368(a)(1)(D) of the Code or the qualification of the Merger as a
"reorganization" within the meaning of Section 368(a)(1)(B) of the Code, then
Newco shall not be liable for and shall not indemnify the Company Group for any
Tax Deficiency resulting from an adverse determination of such Indemnity Issue.
6.4. Timing Adjustments.
(a) Timing Differences. If a Tax Audit Proceeding or an amendment of a Tax
Return results in a Timing Difference, and such Timing Difference results in a
decrease in an indemnity obligation Newco has or would otherwise have under
Section 6.1 and/or an increase in the amount of a Tax Refund to which Newco is
entitled under Section 3.2, then in each Post-Tax Indemnification Period in
which the Company Group Actually Realizes an Income Tax Detriment, Newco shall
pay to the Company an amount equal to such Income Tax Detriment; provided,
however, that the aggregate payments which Newco shall be required to make under
this Section 6.4(a) with respect to any Timing Difference shall not exceed the
aggregate amount of the Income Tax Benefits realized by the Newco Group for all
taxable periods and the Company Group for all Tax Indemnification Periods as a
result of such Timing Difference. Newco shall make all such payments within ten
days after the Company notifies Newco that the relevant Income Tax Detriment has
been Actually Realized.
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(b) Reverse Timing Differences. If a Tax Audit proceeding or an amendment
of a Tax Return results in a Reverse Timing Difference, and such Reverse Timing
Difference results in an increase in an indemnity obligation of Newco under
Section 6.1 and/or a decrease in the amount of a Tax Refund to which Newco is or
would otherwise be entitled to under Section 3.2, then in each Post-Tax
Indemnification Period in which the Company Group Actually Realizes an Income
Tax Benefit, the Company shall pay to Newco within ten days after the Company
has Actually Realized such Income Tax Benefit an amount equal to such Income Tax
Benefit; provided, however, that the aggregate payments which the Company shall
be required to make under this Section 6.4(b) with respect to any Reverse Timing
Difference shall not exceed the aggregate amount of the Income Tax Detriments
realized by the Company Group and the Newco Group for all Tax Indemnification
Periods as a result of such Reverse Timing Difference.
6.5. Certain Post-Distribution Transactions.
(a) Consistent with Agreements. Newco shall, and shall cause each Newco
Group member to, comply with and take no action inconsistent with Newco's Tax
Representation Letter. Acquiror shall, and shall cause each member of the
Company Group to, comply with and take no action inconsistent with Acquiror's
Tax Representation Letter. The Newco Group, Acquiror and the Company Group shall
use their respective best efforts to have the Contribution and the Distribution
qualify as transactions described in Sections 351 and 355 of the Code and/or a
"reorganization" within the meaning of Section 368(a)(1)(D) of the Code and to
have the Merger qualify as a "reorganization" within the meaning of Section
368(a)(1)(B) of the Code. The parties hereto intend that the sole remedy for
breach of the covenants contained in this Section 6.5(a) shall be as set forth
in Section 6.5(b) hereof.
(b) Tax-Free Reorganization Treatment. Acquiror and the Company agree to
indemnify and hold the Newco Group harmless from and against any Taxes resulting
from any Action (as hereinafter defined) which causes either the Contribution
and the Distribution to fail to qualify as transactions described in Sections
351 and 355 of the Code and/or a "reorganization" within the meaning of Section
368(a)(1)(D) of the Code or the Merger to qualify as a "reorganization" within
the meaning of Section 368(a)(1)(B) of the Code. An "Action" shall mean any of
the actions set forth on Schedule 6.5 hereof, taken by Acquiror or the Company
or any of their respective affiliates (other than the members of the Newco
Group) within the two-year period following the Distribution Date.
Notwithstanding the foregoing, an Action shall not include any transaction or
action disclosed or described in Newco's Tax Representation Letter or the
Acquiror's Tax Representation Letter, or required or otherwise contemplated by
any Reorganization Agreement (or any agreement or document included as an
exhibit thereto), or of which the Company or Newco has actual knowledge as of
the Distribution Date. An Action shall not include any action on the part of any
member of the Newco Group, or any of their respective shareholders, officers,
directors or agents. Newco agrees to indemnify and hold the Acquiror and the
Company Group harmless from and against any Tax liability resulting from or
otherwise attributable to the Contribution and Distribution failing to qualify
under Sections 351 and 355 of the Code and/or a "reorganization" under Section
368(a)(1)(D) of the Code or the Merger failing to qualify as a "reorganization"
under Section 368(a)(1)(B) of the Code, except to the extent such Tax liability
results from an Action. For purposes of this Section 6.5(b), the amount of any
Taxes resulting from an Action shall equal the difference between (i) the Taxes
actually paid with respect to the Contribution, Distribution and the Merger and
(ii) the greater of (x) the amount of Taxes that would have been payable with
respect to the Contribution and Distribution if such transactions had qualified
under Sections 351 and 355 of the Code and/or a "reorganization" under Section
368 (a)(1)(D) of the Code and the Merger if such transaction had qualified as a
"reorganization" under Section 368(a)(1)(B) and (y) the amount of Taxes that
would have been payable with respect to the Contribution, Distribution and the
Merger in the absence of such Action.
6.6. Payments Net of Taxes. (i) Gross-Up and Characterization. The amount
of any payment under this Agreement shall be (i) increased to take account of
any net Tax cost incurred by the recipient thereof as a result of the receipt or
accrual of payments hereunder (grossed-up for such increase) and (ii) reduced to
take account of any net Tax benefit realized by the recipient arising from the
incurrence or payment of any such payment, other than any such net Tax benefit
that the recipient is specifically entitled to retain pursuant to this
Agreement. In computing the amount of any such Tax cost or Tax benefit, the
recipient shall be deemed to recognize all other items of income, gain, loss,
deduction or credit before recognizing any item arising from the
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receipt or accrual of any payment hereunder. Except as provided in Section
6.6(b), or unless the parties otherwise agree to an alternative method for
determining the present value of any such anticipated Tax benefit or Tax cost,
any payment hereunder shall initially be made without regard to this Section and
shall be increased or reduced to reflect any such net Tax cost (including
gross-up) or net Tax benefit only after the recipient has Actually Realized such
cost or benefit. It is the intention of the parties that payments made pursuant
to this Agreement are to be treated as relating back to the Contribution as an
adjustment to the assets and liabilities contributed thereunder, and the parties
shall not take any position inconsistent with such intention before any Taxing
Authority, except to the extent that a final determination (as defined in
Section 1313 of the Code) with respect to the recipient party causes any such
payment not to be so treated.
(b) Time for Payment. Notwithstanding any other provision of this
Agreement, to simplify the administration of this Agreement, the payment of any
amount less than $25,000 required to be made pursuant to this Agreement by one
party hereto to another party hereto need not be made to such other party prior
to thirty days following the later of (i) the close of the calendar quarter
during which such payment obligation arose and (ii) the day during such calendar
quarter when the aggregate amount of all such less than $25,000 payment
obligations arising during such calendar quarter exceeds $150,000. Unless
otherwise specified by the recipient for items exceeding $100,000, any such
payment may be made on a net Tax basis (i.e., reduced to take account of any net
Tax benefit to be realized by the recipient (computed at an effective Tax rate
to be agreed upon from time-to-time by the parties)) to the extent such
recipient is entitled to a corresponding deduction.
(c) Right to Offset. Any party making a payment under this Agreement shall
have the right to reduce any such payment by any amounts owed to it by the other
party to this Agreement.
ARTICLE VII
COOPERATION AND EXCHANGE OF INFORMATION
7.1. Preparation of Returns. The Company shall, and shall cause each
appropriate member of the Company Group to, prepare and submit to Newco, at the
Company's expense, (i) no later than 120 days prior to the due date (taking into
account any extensions), but in no case earlier than 60 days after the close of
the relevant taxable period, for any Affiliated Group consolidated Federal Tax
Returns or any state, local or foreign combined or unitary corporate Joint Tax
Returns, all information that Newco shall reasonably request, in such form as
Newco shall have reasonably requested, to enable Newco to file such Tax Returns
and (ii) no later than 120 days prior to the due date (taking into account any
extensions), but in no case earlier than 60 days after the close of the relevant
taxable period, for any other Tax Return for Pre-Merger Taxable Periods and
Straddle Periods which Newco is responsible for filing, all information that
Newco shall reasonably request, in such form as Newco shall have reasonably
requested, to enable Newco to file such Tax Returns.
7.2. Cooperation and Exchange of Information. Each party hereto, on behalf
of itself and its affiliates, agrees to provide the other party hereto with such
cooperation and information as such other party shall reasonably request in
connection with the preparation or filing of any Tax Return or claim for Tax
Refund not inconsistent with this Agreement or in conducting any audit or other
proceeding in respect to Taxes or to carry out the provisions of this Agreement.
To the extent necessary to carry out the purposes of this Agreement and subject
to the other provisions of this Agreement, such cooperation and information
shall include without limitation the non-exclusive designation of an officer of
Newco as an officer of the Company and Acquiror and each of their affiliates for
the purpose of signing Tax Returns, cashing refund checks, pursuing refund
claims, dealing with Taxing Authorities and defending audits as well as promptly
forwarding copies of appropriate notices and forms or other communications
received from or sent to any Taxing Authority which relate to the Company Group
for the Tax Indemnification Period and providing copies of all relevant Tax
Returns for the Tax Indemnification Period, together with accompanying schedules
and related workpapers, documents relating to rulings or other determinations by
Taxing Authorities, including without limitation, foreign Taxing Authorities,
and records concerning the ownership and Tax basis of property, which either
party may possess. Subject to the rights of the Company Group under the other
provisions of this Agreement, such officer shall have the authority to execute
powers of attorney (including Form 2848) on behalf of each member of the
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Company Group with respect to Tax Returns and Taxes for the Tax Indemnification
Period. Each party to this Agreement shall make, or shall cause its affiliates
to make, their employees and facilities available on a mutually convenient basis
to provide an explanation of any documents or information provided hereunder.
7.3. Record Retention. The Company and Newco agree to (i) retain all Tax
Returns, related schedules and workpapers, and all material records and other
documents as required under Section 6001 of the Code and the regulations
promulgated thereunder relating thereto ("Tax Records") existing on the date
hereof or created through the Distribution Date, for 10 years from the
Distribution Date and (ii) allow the other parties to this Agreement and their
Representatives (and Representatives of any of its affiliates), at times and
dates reasonably acceptable to the retaining party, to inspect, review and make
copies of such records, and have access to such employees, as the Company and
Newco may reasonably deem necessary or appropriate from time to time, such
activities to be conducted during normal business hours and without disruption
to either of its businesses. At the end of the 10-year period described in
clause (i), the Company or Newco, as the case may be, shall transfer such
records (or cause such records to be transferred) to the other party (at such
other party's sole expense), unless such other party notifies the Company or
Newco, as the case may be, within 90 days prior to the expiration of the 10-year
period, that such other party does not desire to receive such Tax Records, in
which case the Company or Newco, as the case may be, may destroy or otherwise
dispose of such undesired documents.
7.4. Notification of Certain Dispositions. Acquiror shall give Newco at
least 30 days prior written notice in the event that any time prior to October
1, 2002 Rockwell Australia disposes of all or any portion of the ownership
interest in, or all or a substantial portion of the assets of, A.C.N. 004 471
078 Pty. Ltd. Such notice shall describe any such disposition in sufficient
detail to enable Newco (i) to comply with the requirements of Section 367 of the
Code and applicable regulations thereunder and (ii) to enter into a revised gain
recognition agreement under Section 367 of the Code and the applicable
regulations if such disposition occurs in a transaction in which no gain or loss
is required to be recognized under U.S. income tax principles or gain is
recognized solely by reason of Section 357(c) of the Code.
ARTICLE VIII
MISCELLANEOUS
8.1. Entire Agreement. This Tax Allocation Agreement constitutes the
entire agreement, and supersedes all other prior agreements, understandings,
representations and warranties, both written and oral, among the parties, with
respect to the subject matter hereof and thereof.
8.2. Modification or Amendment. The parties hereto may modify or amend
this Agreement only by written agreement executed and delivered by duly
authorized officers of the respective parties. Anything in this Agreement or any
other Reorganization Agreement to the contrary notwithstanding, in the event and
to the extent that there shall be a conflict between the provisions of this
Agreement and any other Reorganization Agreement, the provisions of this
Agreement shall control.
8.3. Notices. Any notice, request, instruction or other communication to
be given hereunder by any party to any other party shall be in writing and shall
be deemed to have been duly given (i) on the date of delivery if delivered
personally, or by telecopy or telefacsimile, upon confirmation of receipt, (ii)
on the first business day following the date of dispatch if delivered by Federal
Express or other nationally reputable next-day courier service, or (iii) on the
third business day following the date of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid. All notices hereunder
shall be delivered as set forth
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below, or pursuant to such other instructions as may be designated in writing by
the party to receive such notice:
(a) If to Newco:
[NEW ROCKWELL INTERNATIONAL CORPORATION]
2201 Seal Beach Boulevard
Seal Beach, California 90740-8250
Attention: William J. Calise, Jr., Esq.
Telecopy: (310) 797-5687
with copies to:
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Peter R. Kolyer, Esq.
Telecopy: (212) 541-5369
(b) if to Acquiror or the Company:
The Boeing Company
P.O. Box 3707
M/S 13-08
Seattle, Washington 98124-2207
Attention: Theodore J. Collins
Vice President & General Counsel
Telecopy: (206) 544-4900
with copies to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: Allen Finkelson, Esq.
Telecopy: (212) 474-3700
8.4. No Third Party Beneficiaries. Except as otherwise expressly provided
herein, nothing contained in this Agreement is intended to confer upon any
person or entity other than the parties hereto and their respective successors
and permitted assigns, any benefit, right or remedies under or by reason of this
Agreement.
8.5. Assignment. No party to this Agreement shall convey, assign or
otherwise transfer any of its rights or obligations under this Agreement without
the express written consent of the other parties hereto in their sole and
absolute discretion. Any such conveyance, assignment or transfer without the
express written consent of the other parties shall be void ab initio. No
assignment of this Agreement shall relieve the assigning party of its
obligations hereunder.
8.6. Term. This Agreement shall commence on the date of execution
indicated below and shall continue in effect until otherwise agreed to in
writing by Newco and the Company, or their successors.
8.7. Captions. The Article, Section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
8.8. Severability. If any provision of this Agreement or the application
thereof to any person or circumstance is determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions
hereof, or the application of such provision to persons or circumstances other
than those
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as to which it has been held invalid or unenforceable, shall remain in full
force and effect and shall in no way be affected, impaired or invalidated
thereby, so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon any
such determination, the parties shall negotiate in good faith in an effort to
agree upon a suitable and equitable substitute provision to effect the original
intent of the parties.
8.9. Specific Performance. In the event of any actual or threatened
default in, or breach of, any of the terms, conditions and provisions of this
Agreement, the party or parties who are or are to be thereby aggrieved shall
have the right of specific performance and injunctive relief giving effect to
its or their rights under this Agreement, in addition to any and all other
rights and remedies at law or in equity, and all such rights and remedies shall
be cumulative. The parties agree that the remedies at law for any breach or
threatened breach, including monetary damages, are inadequate compensation for
any loss and that any defense in any action for specific performance that a
remedy at law would be adequate is waived.
8.10. Counterparts. For the convenience of the parties, this Agreement may
be executed in any number of separate counterparts, each such counterpart being
deemed to be an original instrument, and all such counterparts shall together
constitute the same agreement.
8.11. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York applicable to
contracts made and to be performed entirely within such State, without regard to
the conflicts of law principles of such State.
8.12. Agent. Any consent rights of members of the Newco Group under this
Agreement shall be exercised by Newco on behalf of the Newco Group, and any
notices given by the Company Group to Newco shall be deemed to be given to each
member of the Newco Group. Any consent rights of the Company Group under this
Agreement shall be exercised by Acquiror on behalf of the Company Group, and any
notices given by Newco to Acquiror shall be deemed to be given to each member of
the Company Group.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto on the date first hereinabove
written.
ROCKWELL INTERNATIONAL
CORPORATION
By:
------------------------------------
Name:
Title:
NEW ROCKWELL INTERNATIONAL
CORPORATION
By:
------------------------------------
Name:
Title:
THE BOEING COMPANY
By:
------------------------------------
Name:
Title:
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<PAGE> 284
ANNEX C
- --------------------------------------------------------------------------------
POST-CLOSING COVENANTS AGREEMENT
DATED AS OF , 1996,
AMONG
ROCKWELL INTERNATIONAL CORPORATION,
THE BOEING COMPANY
BOEING NA, INC.
AND
NEW ROCKWELL INTERNATIONAL CORPORATION
- --------------------------------------------------------------------------------
<PAGE> 285
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
DEFINITIONS
1.1. Definitions..................................................................... 1
ARTICLE II
INDEMNIFICATION
2.1. Indemnification by Newco........................................................ 2
2.2. Indemnification by the Company.................................................. 3
2.3. Procedures Relating to Indemnification.......................................... 4
2.4. Certain Limitations............................................................. 7
2.5. Limitation on Newco's Indemnification Obligation under Section 2.1(a)(iv)....... 7
2.6. Exclusivity of Tax Allocation Agreement......................................... 8
ARTICLE III
OTHER AGREEMENTS
3.1. Transfer Taxes.................................................................. 8
3.2. Conduct of Environmental Insurance Coverage Claims.............................. 8
3.3. Agreements with Respect to Acquiror Common Stock Received by Newco Savings 9
Plans...........................................................................
3.4. Transitional Arrangements....................................................... 9
3.5. Insurance....................................................................... 9
3.6. DOE Contracts................................................................... 10
3.7. Reorganization Expenses......................................................... 10
3.8. Conduct of Health Care Claims Audit............................................. 10
3.9. Guaranty of Acquiror............................................................ 11
3.10. Payments Adjustments to Contribution............................................ 11
ARTICLE IV
MISCELLANEOUS AND GENERAL
4.1. Modification or Amendment....................................................... 11
4.2. Waiver; Remedies................................................................ 11
4.3. Counterparts.................................................................... 11
4.4. Governing Law................................................................... 11
4.5. Notices......................................................................... 12
4.6. Entire Agreement................................................................ 12
4.7. Certain Obligations............................................................. 12
4.8. Assignment...................................................................... 12
4.9. Captions........................................................................ 12
4.10. Severability.................................................................... 12
4.11. No Third Party Beneficiaries.................................................... 12
4.12. Consent to Jurisdiction......................................................... 13
</TABLE>
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POST-CLOSING COVENANTS AGREEMENT dated as of , 1996 (this
"Agreement"), among ROCKWELL INTERNATIONAL CORPORATION, a Delaware corporation
(the "Company"), THE BOEING COMPANY, a Delaware corporation ("Acquiror"), BOEING
NA, INC., a Delaware corporation and a wholly-owned subsidiary of Acquiror
("Sub"), and NEW ROCKWELL INTERNATIONAL CORPORATION, a Delaware corporation
("Newco").
W I T N E S S E T H :
WHEREAS, the Company, Acquiror and Sub have entered into an Agreement and
Plan of Merger dated as of July 31, 1996 (the "Merger Agreement"), providing for
the Merger (as defined in the Merger Agreement) of Sub with and into the
Company;
WHEREAS, the Board of Directors of the Company has approved an agreement
and plan of distribution in the form attached as Annex A to the Merger Agreement
(the "Distribution Agreement"), which will be entered into prior to the
Effective Time (as defined in the Merger Agreement), pursuant to which (a) all
the assets of the Company, other than the Retained Assets (as defined in the
Distribution Agreement), will be contributed to Newco and/or to one or more of
the Operating Subsidiaries (as defined in the Distribution Agreement) and all of
the liabilities of the Company, other than the Retained Liabilities (as defined
in the Distribution Agreement), will be assumed by Newco and/or by one or more
of the Operating Subsidiaries, all as provided in the Distribution Agreement
(the "Contribution"), and (b) all of the issued and outstanding shares of Common
Stock, par value $1.00 per share, of Newco ("Newco Common Stock") and Class A
Common Stock, par value $1.00 per share, of Newco ("Newco Class A Common
Stock"), in each case with the associated Rights, will be distributed on a pro
rata basis to the Company's stockholders as provided in the Distribution
Agreement (the "Distribution");
WHEREAS, the execution and delivery of this Agreement by the parties hereto
is a condition to the obligations of the parties to the Merger Agreement to
consummate the Merger;
WHEREAS, the execution and delivery of this Agreement by the parties hereto
is a condition to the obligations of the parties to the Distribution Agreement
to consummate the Distribution; and
WHEREAS, the parties to this Agreement have determined that it is necessary
and desirable to set forth certain agreements that will govern certain matters
that may arise following the Contribution, the Distribution and the Merger.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. Capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings assigned to such terms in the
Merger Agreement or the Distribution Agreement, as the case may be. As used in
this Agreement, the following terms shall have the following respective
meanings:
"Acquiror Indemnitees" shall mean Acquiror, each Affiliate of
Acquiror, including any of its direct or indirect Subsidiaries (including,
after the Effective Time, the Retained Companies), and each of their
respective Representatives and each of the heirs, executors, successors and
assigns of any of the foregoing.
"Environmental Law" shall have the meaning ascribed thereto in the
Distribution Agreement.
"Environmental Proceeding" means any judicial, administrative or
regulatory proceeding (including, without limitation, any investigation or
inquiry) by or before any Governmental Entity that has been instituted or
commenced against an Acquiror Indemnitee by a party other than an Acquiror
Indemnitee based on a violation of, or to enforce compliance with, any
Environmental Law.
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"Filings" shall mean the Registration Statements, the Proxy
Statement-Prospectus, the Form 8-A and any other document filed or required
to be filed with the SEC in connection with the transactions contemplated
by the Reorganization Agreements, or any preliminary or final form thereof
or any amendment or supplement thereto.
"Indemnifiable Losses" shall mean, subject to Section 2.4, all losses,
liabilities, damages, deficiencies, obligations, fines, expenses, claims,
demands, actions, suits, proceedings, judgments or settlements, whether or
not resulting from Third Party Claims (as defined in Section 2.3(a)),
including interest and penalties recovered by a third party with respect
thereto and out-of-pocket expenses and reasonable attorneys' and
accountants' fees and expenses incurred in the investigation or defense of
any of the same or in asserting, preserving or enforcing any of the
Indemnitee's rights hereunder, suffered by an Indemnitee.
"Indemnitee" shall mean any of the Acquiror Indemnitees or the Newco
Indemnitees who or which may seek indemnification under this Agreement.
"Newco Indemnitees" shall mean Newco, each Affiliate of Newco,
including any of its direct or indirect Subsidiaries, and each of their
respective Representatives and each of the heirs, executors, successors and
assigns of any of the foregoing.
ARTICLE II
INDEMNIFICATION
2.1. Indemnification by Newco. (a) Except as otherwise specifically
provided in any Reorganization Agreement and subject to the provisions of this
Article II, Newco shall indemnify, defend and hold harmless the Acquiror
Indemnitees from and against, and pay or reimburse the Acquiror Indemnitees for,
all Indemnifiable Losses, as incurred:
(i) relating to or arising from the Contributed Assets or the Assumed
Liabilities, including without limitation the Special Liabilities
(including the failure by Newco or any member of the Newco Group to pay,
perform or otherwise discharge such Assumed Liabilities in accordance with
their terms), whether such Indemnifiable Losses relate to or arise from
events, occurrences, actions, omissions, facts or circumstances occurring,
existing or asserted before, at or after the Effective Time;
(ii) arising from or based upon any untrue statement or alleged untrue
statement of a material fact contained in any of the Filings or in the
Consent Statement, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; but only in each case with respect to information
provided by the Company relating to the Newco Group or the Company
contained in or omitted from the Filings or the Consent Statement;
(iii) relating to or arising from the breach by any member of the
Newco Group of any agreement or covenant contained in a Reorganization
Agreement which does not by its express terms expire at the Effective Time
or which is not by its express terms required to be performed prior to the
Effective Time;
(iv) relating to or arising from any breach of or inaccuracy in any
representation or warranty of the Company contained in the Merger
Agreement;
(v) relating to or arising from any Preexisting Environmental
Condition relating to the Aerospace Business, the Defense Business or the
Additional Retained Facilities;
(vi) relating to or arising from any actual or alleged criminal
violation of any law, rule or regulation of any Governmental Entity by the
Company or any of its Subsidiaries or any director, officer, employee or
agent of the Company or any of its Subsidiaries ("Criminal Matters")
occurring or alleged to have occurred prior to the Time of Contribution;
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(vii) relating to or arising from any breach of any covenant or
agreement of the Company contained in the Merger Agreement assumed by Newco
pursuant to the Distribution Agreement;
(viii) relating to or arising from any claim that the execution,
delivery or performance by the Company of each Reorganization Agreement to
which it is or will be a party or the consummation of the transactions
contemplated thereby results in a violation or breach of, or constitutes a
default or impermissible transfer under, or gives rise to any right of
termination, first refusal or consent under or gives rise to any right of
amendment, cancellation or acceleration of any material benefit under, any
Designated Contract listed on Schedule 2.1(a)(viii);
(ix) relating to or arising from fines and penalties and reasonable
attorneys' and accountants' fees and expenses in connection with any of the
alleged safety violations or alleged improper storage and/or disposal of
hazardous waste claims referred to in item 5(a) of Section 4.1(n) of the
Company Disclosure Schedule pertaining to the explosion at Santa Susana,
California in 1994; or
(x) incurred in connection with the enforcement by the Acquiror
Indemnitees of their rights to be indemnified, defended and held harmless
under this Agreement.
(b) RAN Contract. The Retained Assets include a Contract (Contract R1000)
(the "RAN Contract") between Rockwell Australia Limited and the Australian
Submarine Corporation. Newco shall indemnify, defend and hold harmless the
Acquiror Indemnitees for 80% of any decrease in the profit before tax realized
by Rockwell Australia Limited on the RAN Contract below 40.0 million Australian
dollars (A$40,000,000) as well as 80% of any loss in respect of the RAN
Contract. Likewise, the Company shall pay to Newco 80% of any increase in the
profit before tax realized by Rockwell Australia Limited on the RAN Contract
above 40.0 million Australian dollars (A$40,000,000). The determination of
profit before tax or loss for purposes of this Section 2.1(b) shall be based
upon the next quarterly Estimate at Completion ("EAC") for the RAN Contract
prepared after expiration of three (3) years from the Effective Time. The
determination of Rockwell Australia Limited's profit before tax or loss shall be
determined by the Company using the same accounting methods, policies,
practices, procedures, classifications, judgments, estimation methodologies and
accounting standards as were utilized in the preparation of the Retained
Business Audited Financial Statements. The obligations of Newco and the Company
to pay the amounts set forth in this Section 2.1(b) shall be determined without
regard to the acts or omissions of the Company or any Subsidiary with respect to
performance of the RAN Contract prior to, at or after the Effective Time. The
Company will provide Newco with copies of all quarterly EAC's in respect of the
RAN Contract and access to such books and records (including but not limited to
accountants' work papers) and personnel familiar with the RAN Contract and the
accounting therefor as Newco shall reasonably request. To the extent Newco
disputes the EAC, the designees of the chief financial officers of Acquiror and
Newco shall attempt a good faith resolution of such dispute. To the extent not
so resolved within 90 days following Newco's receipt of the determination of
such profit or loss, such dispute will be referred for resolution to the chief
financial officers of Acquiror and Newco, and failing their resolution of such
dispute within 90 days after such referral, to the chief executive officers of
Acquiror and Newco. To the extent the dispute is not so resolved within 90 days
following such referral, Acquiror and Newco will submit such dispute to
mediation using the procedures of the Center for Public Resources, before
commencing litigation to resolve such dispute.
2.2. Indemnification by the Company. Except as otherwise specifically
provided in any Reorganization Agreement and subject to the provisions of this
Article II, the Company shall indemnify, defend and hold harmless the Newco
Indemnitees from and against, and pay or reimburse the Newco Indemnitees for,
all Indemnifiable Losses, as incurred:
(i) relating to or arising from the Retained Assets or the Retained
Liabilities (including the failure by the Company or any member of the
Company Group to pay, perform or otherwise discharge such Retained
Liabilities in accordance with their terms), whether such Indemnifiable
Losses relate to or arise from events, occurrences, actions, omissions,
facts or circumstances occurring, existing or asserted before, at or after
the Effective Time;
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(ii) arising from or based upon any untrue statement or alleged untrue
statement of a material fact contained in any of the Filings or in the
Consent Statement, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; but only in each case with respect to information
provided by Acquiror relating to Acquiror or any of its Subsidiaries other
than the Company Group contained in or omitted from the Filings or in the
Consent Statement;
(iii) relating to or arising from the breach by Acquiror or any member
of the Company Group of any agreement or covenant contained in a
Reorganization Agreement (other than, in the case of the Company Group, an
agreement or covenant contained in the Merger Agreement assumed by Newco
pursuant to the Distribution Agreement) which does not by its express terms
expire at the Effective Time or which is not by its express terms required
to be performed prior to the Effective Time; or
(iv) incurred in connection with the enforcement by the Newco
Indemnitees of their rights to be indemnified, defended and held harmless
under this Agreement.
2.3. Procedures Relating to Indemnification. (a) In order for an
Indemnitee to be entitled to any indemnification provided for under this
Agreement in respect of, arising out of or involving a claim made by any Person
who is not an Indemnitee against the Indemnitee (a "Third Party Claim"), such
Indemnitee must notify the party who may become obligated to provide
indemnification hereunder (the "indemnifying party") in writing, and in
reasonable detail, of the Third Party Claim reasonably promptly, and in any
event within 20 business days after receipt by such Indemnitee of written notice
of the Third Party Claim; provided, however, that failure to give such
notification shall not affect the indemnification provided hereunder except to
the extent the indemnifying party shall have been actually prejudiced as a
result of such failure (except that the indemnifying party shall not be liable
for any expenses incurred during the period in which the Indemnitee failed to
give such notice); and provided further, however, that with respect to any
matter for which Newco is the indemnifying party, Newco shall be deemed to have
received notice with respect to all matters by or against any member of the
Company Group that were concluded or initiated prior to, or otherwise pending
at, the Time of Contribution. After any required notification (if applicable),
the Indemnitee shall deliver to the indemnifying party, promptly after the
Indemnitee's receipt thereof, copies of all notices and documents (including
court papers) received by the Indemnitee relating to the Third Party Claim.
(b) If a Third Party Claim is made against an Indemnitee, the indemnifying
party will be entitled to participate in the defense thereof and, if it so
chooses, to assume the defense thereof (at the expense of the indemnifying
party) with counsel selected by the indemnifying party and reasonably
satisfactory to the Indemnitee; provided, however, that in case of a claim made
by any person against an Indemnitee relating to a Special Liability (a "Special
Liability Claim"), Newco (at Newco's expense) shall assume the defense thereof
with counsel selected by Newco. Should the indemnifying party so elect (or, in
the case of a Special Liability Claim, be obligated) to assume the defense of a
Third Party Claim, the indemnifying party will not be liable to the Indemnitee
for any legal expenses subsequently incurred (or, in the case of a Special
Liability Claim, incurred) by the Indemnitee in connection with the defense
thereof (unless, in case of a Special Liability Claim, Newco breaches its
obligation to assume the defense thereof). If the indemnifying party assumes
(or, in the case of a Special Liability Claim, is obligated to assume) such
defense, the Indemnitee shall have the right to participate in the defense
thereof and to employ counsel, at its own expense, separate from the counsel
employed by the indemnifying party, it being understood that the indemnifying
party shall control such defense. The indemnifying party shall be liable for the
fees and expenses of counsel employed by the Indemnitee for any period during
which the indemnifying party has not assumed (or, in the case of a Special
Liability Claim, is in breach of its obligation to assume) the defense thereof
(other than during any period in which the Indemnitee shall have failed to give
notice of the Third Party Claim as provided above). If the indemnifying party
chooses (or, in the case of a Special Liability Claim, is obligated) to defend
or prosecute a Third Party Claim, all the parties hereto shall cooperate in the
defense or prosecution thereof, which cooperation shall include the retention in
accordance with the Distribution Agreement and (upon the indemnifying party's
request) the provision to the indemnifying party of records and information
which are reasonably relevant to such Third Party Claim, and making employees
available on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. If the indemnify-
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ing party chooses (or, in the case of a Special Liability Claim, is obligated)
to defend or prosecute any Third Party Claim, the Indemnitee will agree to any
settlement, compromise or discharge of such Third Party Claim which the
indemnifying party may recommend and which by its terms obligates the
indemnifying party to pay the full amount of liability in connection with such
Third Party Claim; provided, however, that, without the Indemnitee's consent,
the indemnifying party shall not consent to entry of any judgment or enter into
any settlement (w) that provides for injunctive or other nonmonetary relief
affecting the Indemnitee, (x) that does not include as an unconditional term
thereof the giving by each claimant or plaintiff to such Indemnitee of a release
from all liability with respect to such claim, (y) in the case of a Criminal
Matter or (z) that involves an allegation of conduct which could result in the
suspension or debarment of the Indemnitee from contracting with the United
States Government. Whether or not the indemnifying party shall have assumed the
defense of a Third Party Claim, the Indemnitee shall not admit any liability
with respect to, or settle, compromise or discharge, such Third Party Claim
without the indemnifying party's prior written consent (which consent shall not
be unreasonably withheld). Notwithstanding the foregoing, Newco shall be solely
responsible for, and shall pay directly, the fees and expenses of its counsel in
connection with any Special Liability Claim and shall reimburse the Company on a
monthly basis for any support or other services provided at Newco's request in
respect of any Special Liability Claim in an amount equal to the Company's costs
thereof determined in accordance with the cost accounting standards applicable
to Government Contracts.
(c) In order for an Indemnitee to be entitled to any indemnification
provided for under this Agreement in respect of a claim that does not involve a
Third Party Claim, the Indemnitee shall deliver notice of such claim with
reasonable promptness to the indemnifying party. The failure by any Indemnitee
so to notify the indemnifying party shall not relieve the indemnifying party
from any liability which it may have to such Indemnitee under this Agreement,
except to the extent that the indemnifying party shall have been actually
prejudiced by such failure. Any notice pursuant to this Section 2.3(c) shall
contain a statement, in prominent and conspicuous type, that if the indemnifying
party does not dispute its liability to the Indemnitee with respect to the claim
made in such notice by notice to the Indemnitee prior to the expiration of a
30-calendar-day period following the indemnifying party's receipt of the second
notice of such claim, the claim shall be conclusively deemed a liability of the
indemnifying party. If the Indemnitee has provided the indemnifying party two
such notices not less than 30 days apart and the indemnifying party does not
notify the Indemnitee prior to the expiration of a 30-calendar-day period
following its receipt of the second such notice that the indemnifying party
disputes its liability to the Indemnitee under this Agreement, such claim
specified by the Indemnitee in such notice shall be conclusively deemed a
liability of the indemnifying party under this Agreement and the indemnifying
party shall pay the amount of such liability to the Indemnitee on demand or, in
the case of any notice in which the amount of the claim (or any portion thereof)
is estimated, on such later date when the amount of such claim (or such portion
thereof) becomes finally determined. If the indemnifying party has timely
disputed its liability with respect to such claim, as provided above, the
indemnifying party and the Indemnitee shall proceed in good faith to negotiate a
resolution of such dispute and, if not resolved through negotiations, such
dispute shall be resolved by litigation in an appropriate court of competent
jurisdiction.
(d) Unless the Company or the appropriate Retained Subsidiary shall have
made a good faith determination that a particular Indemnifiable Loss relating to
or arising from a Preexisting Environmental Condition is not eligible for
treatment as an allowable overhead cost or other allowable cost (in which case,
the Company or the appropriate Retained Subsidiary may request Newco to
indemnify, defend and hold it harmless without complying with the following
additional procedures), Newco shall have no obligation to indemnify, defend or
hold harmless any Acquiror Indemnitee hereunder in respect of an Indemnifiable
Loss arising from or relating to a Preexisting Environmental Condition unless
(i) the Company or the appropriate Retained Subsidiary has submitted a claim for
such Indemnifiable Loss as an allowable overhead cost or other allowable cost in
connection with relevant Government Contracts and used its reasonable best
efforts to obtain a favorable determination of such claim, (ii) such claim has
been disallowed based on an act or omission by the Company or any of its
Subsidiaries prior to the Effective Time, (iii) the Company or the appropriate
Retained Subsidiary has given Newco timely notice of such disallowance and (iv)
Newco has been permitted, at its own expense, to direct and control the appeal
of such disallowance until finally determined pursuant to
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one or more final and nonappealable orders, decrees or judgments or by one or
more settlement agreements approved by Newco and the Company, such approval not
to be unreasonably withheld by the Company.
Notwithstanding anything in this Agreement to the contrary, Indemnifiable
Losses relating to or arising from Preexisting Environmental Conditions shall be
limited to costs and expenses of containing, removing, responding to,
remediating, cleaning-up and abating Preexisting Environmental Conditions,
natural resource damage claims, penalties and fines, and any administrative
oversight costs incurred by any Governmental Entity actually paid by an Acquiror
Indemnitee following the Time of Contribution relating to or arising from the
presence, use, treatment, Release or threatened Release of any Hazardous
Substance on or originating from a facility of the Retained Business prior to
the Time of Contribution, provided that any such containment, removal, response,
remediation, clean-up or abatement shall be (i) required by an enforcement order
or decree entered by a Governmental Entity as a result of an Environmental
Proceeding; (ii) necessary to comply with an Environmental Law in response to an
Environmental Proceeding or threatened Environmental Proceeding; or (iii) in
response to a condition which in the Company's reasonable judgment is likely to
result in an Environmental Proceeding if no responsive action is taken. The
costs and expenses for which Newco shall be obligated to indemnify, defend and
hold harmless the Acquiror Indemnitees shall be limited to those costs and
expenses which are necessary to achieve compliance with the minimum requirements
of Environmental Law based upon a reasonable low cost approach under the
circumstances. Without prejudice to the rights and obligations of the parties
under Section 2.3(a), (b) or (c), the Company shall provide Newco with all
information reasonably requested by Newco to allow Newco to evaluate all
proposed responsive actions in connection with any Preexisting Environmental
Condition. Newco shall have no obligation to indemnify, defend or hold harmless
an Acquiror Indemnitee in respect of any Preexisting Environmental Condition for
(i) any cost or expense incurred in connection with the normal, day-to-day
operation, including maintenance, of the facilities of the Retained Business
(except for groundwater monitoring costs or other maintenance expenses related
to any investigation or remediation), and including any discharges pursuant to,
and any closure or post-closure obligations under any permit or authorization
granted by a Governmental Entity unless such post-closure obligation is related
to or gives rise to an obligation to investigate, monitor or remediate under
Environmental Law, or (ii) any cost or expense relating to or arising from any
change in use of a facility of the Retained Business or acts or omissions of any
Acquiror Indemnitee or other person who is not a member of the Newco Group after
the Time of Contribution which increase the scope of any required containment,
removal, response, remediation, clean-up or abatement or otherwise increase the
liability of Newco hereunder.
(e) Unless the Company or the appropriate Retained Subsidiary shall have
made a good faith determination that a particular Indemnifiable Loss relating to
or arising from a Criminal Matter is not eligible for treatment as an allowable
overhead cost or other allowable cost (in which case, the Company or the
appropriate Retained Subsidiary may request Newco to indemnify, defend and hold
it harmless without complying with the following additional procedures), Newco
shall have no obligation to indemnify, defend or hold harmless any Acquiror
Indemnitee hereunder in respect of an Indemnifiable Loss arising from or
relating to a Criminal Matter unless (i) the Company or the appropriate Retained
Subsidiary has submitted a claim for such Indemnifiable Loss as an allowable
overhead cost or other allowable cost in connection with relevant Government
Contracts and used its reasonable best efforts to obtain a favorable
determination of such claim, (ii) such claim has been disallowed based on an act
or omission by the Company or its Subsidiaries prior to the Effective Time,
(iii) the Company or the appropriate Retained Subsidiary has given Newco prompt
notice of such disallowance and (iv) Newco has been permitted, at its own
expense, to direct and control the appeal of such disallowance until finally
determined pursuant to one or more final and nonappealable orders, decrees or
judgments or by one or more settlement agreements approved by Newco and the
Company, such approval not to be unreasonably withheld by the Company. Newco's
obligation to indemnify Acquiror Indemnitees for Criminal Matters pursuant to
Section 2.1(a)(vi) shall be limited to amounts paid for fines or penalties and
reasonable attorneys' and accountants' fees and expenses that are not allowable
or that are not allowed as an overhead cost or other allowable cost in
connection with a Government Contract. Any Criminal Matter for which
indemnification may be sought pursuant to Section 2.1(a)(vi) shall be a Third
Party Claim for purposes of this Agreement.
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2.4. Certain Limitations. (a) The amount of any Indemnifiable Losses or
other liability for which indemnification is provided under this Agreement shall
be net of any amounts actually recovered by the Indemnitee from third parties
(including, without limitation, amounts actually recovered under insurance
policies) with respect to such Indemnifiable Losses or other liability. Any
indemnifying party hereunder shall be subrogated to the rights of the Indemnitee
upon payment in full of the amount of the relevant Indemnifiable Loss. An
insurer who would otherwise be obligated to pay any claim shall not be relieved
of the responsibility with respect thereto or, solely by virtue of the
indemnification provisions hereof, have any subrogation rights with respect
thereto. If any Indemnitee recovers an amount from a third party in respect of
an Indemnifiable Loss for which indemnification is provided in this Agreement
after the full amount of such Indemnifiable Loss has been paid by an
indemnifying party or after an indemnifying party has made a partial payment of
such Indemnifiable Loss and the amount received from the third party exceeds the
remaining unpaid balance of such Indemnifiable Loss, then the Indemnitee shall
promptly remit to the indemnifying party the excess (if any) of (A) the sum of
the amount theretofore paid by the indemnifying party in respect of such
Indemnifiable Loss plus the amount received from the third party in respect
thereof, less (B) the full amount of such Indemnifiable Loss or other liability.
(b) The amount of any Indemnifiable Losses or other liability for which
indemnification is provided under this Agreement or any other amounts payable or
reimbursable by one party to another under this Agreement shall be increased or
decreased to take account of any net Tax (as defined in the Tax Allocation
Agreement) cost or any net Tax benefit in a manner analogous to that described
in Section 6.6 of the Tax Allocation Agreement.
2.5. Limitation on Newco's Indemnification Obligation under Section
2.1(a)(iv). (a) Newco shall not have any liability under Section 2.1(a)(iv)
unless the aggregate of all Indemnifiable Losses for which Newco would, but for
this Section 2.5, be liable under Section 2.1(a)(iv) exceeds on a cumulative
pre-tax basis an amount equal to $20,000,000 (the "Basket Amount"); provided,
however, that (i) if Indemnifiable Losses for which Newco would, but for this
Section 2.5, be liable under Section 2.1(a)(iv) as a result of the breach of or
the inaccuracy in any representation or warranty which arises from a particular
state of facts or event exceed $5,000,000 on a pre-tax basis, Newco shall be
liable under Section 2.1(a)(iv) for the entire amount of such Indemnifiable
Losses, and such Indemnifiable Losses shall not be taken into account in
calculating whether Newco's cumulative liability under Section 2.1(a)(iv) had
exceeded the Basket Amount or the Threshold Amount (as defined below), and (ii)
if the aggregate of all Indemnifiable Losses for which Newco would, but for this
Section 2.5, be liable under Section 2.1(a)(iv) exceeds on a cumulative pre-tax
basis the Basket Amount, Newco's liability under Section 2.1(a)(iv) shall be
equal to $10,000,000 (the "Threshold Amount") plus any Indemnifiable Losses
under Section 2.1(a)(iv) in excess of $20,000,000.
(b) Newco shall not have any liability under Section 2.1(a)(iv) with
respect to the breach of or inaccuracy in any representation or warranty which
arises from a particular state of facts or event if the Indemnifiable Losses
resulting therefrom are less than $250,000 on a pre-tax basis, and such
Indemnifiable Losses shall not be taken into account in calculating whether
Newco's cumulative liability under Section 2.1(a)(iv) had exceeded the Basket
Amount or the Threshold Amount.
(c) No Indemnifiable Losses actually paid by Newco pursuant to any
provision other than Section 2.1(a)(iv) and no Indemnifiable Losses relating to
or arising from a Preexisting Environmental Condition or a Criminal Matter for
which Newco is not yet obligated to provide indemnity pursuant to Section
2.1(a)(v) or Section 2.1(a)(vi) shall be deemed to be an Indemnifiable Loss
relating to or arising from a breach of or inaccuracy in a representation or
warranty of the Company contained in the Merger Agreement for purposes of
determining whether the aggregate amount of Indemnifiable Losses relating to or
arising from breaches of or inaccuracies in such representations or warranties
exceeds the Basket Amount or the Threshold Amount. Newco shall not have any
liability under Section 2.1(a)(iv) with respect to the breach of or inaccuracy
in any representation or warranty unless notice of any such breach or inaccuracy
is given pursuant to Section 2.3 prior to the expiration of the survival period
provided in the Merger Agreement for the relevant representation or warranty.
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2.6. Exclusivity of Tax Allocation Agreement. Notwithstanding anything in
this Agreement to the contrary, the Tax Allocation Agreement shall be the
exclusive agreement among the parties with respect to all Tax matters, including
indemnification in respect of Tax matters.
ARTICLE III
OTHER AGREEMENTS
3.1. Transfer Taxes. Newco and Acquiror shall comply with Section 2.2(h)
of the Merger Agreement.
3.2. Conduct of Environmental Insurance Coverage Claims. (a) Pursuant to
the Distribution Agreement, the Company will retain as part of the Retained
Assets the Environmental Coverage Claims (as defined below) to the extent that
they have not been resolved prior to the time of Contribution. As used herein,
"Environmental Coverage Claims" shall mean all existing and future claims, as
the same may be amended from time to time, by the Company against any and all
insurance companies that have provided (or that the Company or Newco alleges
have provided) to the Company, its predecessors or its or their affiliates,
insurance coverage in respect of environmental matters as the same may relate to
the businesses of the Company, its predecessors or its or their affiliates as
now or previously owned or operated (including without limitation any
discontinued or divested operations, including Divested Businesses) at any time
prior to the Effective Time, including without limitation the claims asserted in
the pending action against Aetna Casualty et al. filed in the Superior Court of
California for Los Angeles County and any other claims that may be asserted by
or on behalf of the Company against any provider or alleged provider of
insurance coverage for such environmental matters for any period prior to the
Effective Time. The Company agrees to use diligent efforts to prosecute the
Environmental Coverage Claims in accordance with this Section 3.2 until the same
are finally determined pursuant to one or more final and nonappealable orders,
decrees or judgments by a court of competent jurisdiction or by one or more
settlement agreements approved by Newco in its sole discretion. The Company
agrees (i) that Newco and such legal counsel as Newco may from time to time
designate shall have the exclusive right to control and to direct the
prosecution of all Environmental Coverage Claims (it being understood and agreed
that in connection with the prosecution or settlement of any Environmental
Coverage Claims, Newco may in its sole discretion agree on behalf of the Company
to surrender, cancel or otherwise limit any related insurance policies or
coverages thereunder in whole or in part or as to any particular business,
property, period or event), (ii) to make available such personnel, records and
other resources in its possession or reasonably accessible to it as shall be
reasonably required by Newco or its counsel to support the prosecution of the
Environmental Coverage Claims, and (iii) except as may otherwise be required by
law or judicial process, not to make any admission in respect of the
Environmental Coverage Claims or take any action in respect thereof without the
prior written consent of Newco. The Company shall pay to Newco any and all
amounts received by it in respect of the Environmental Coverage Claims as and
when the same are received, provided that the Company shall be entitled to
retain that portion of the amount, if any, received in respect of the
Environmental Coverage Claims as the Company shall be required to pay and/or
credit to the United States Government in accordance with the agreement to be
entered into between the Company and the appropriate United States Government
contracting officer referred to in Section 3.2(b).
(b) If, at the Time of Contribution, the Company has reached an agreement
with the appropriate government contracting officer on the amount required to be
paid to the United States Government in respect of the Environmental Coverage
Claims but such amount has not been paid and/or credited in full by the Company,
then Newco shall remit the unpaid balance to the Company on or before the date
that payment is required to be made and/or credited by the Company to the United
States Government. The Company agrees that if, at the Time of Contribution, the
Company has not entered into such an agreement with the appropriate government
contracting officer, Newco and such legal counsel as Newco may from time to time
designate shall have the exclusive right to control and to direct the
negotiation of such agreement. The Company shall enter into any such agreement
with the appropriate United States Government contracting officer which Newco
may recommend, provided that Newco pays to the Company on or before the date
that payment is required to be made and/or credited by the Company to the United
States Government an amount equal to the excess, if any, of the amount that the
Company is required to pay and/or credit to the United States
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Government over the amount received by the Company after the Effective Time in
respect of the Environmental Coverage Claims that has not previously been
remitted to Newco.
(c) Newco shall be solely responsible for and shall pay directly the fees
and expenses (including legal fees and expenses) of pursuing the Environmental
Coverage Claims and shall reimburse the Company periodically for any support or
other services provided at Newco's request in respect of the Environmental
Coverage Claims in an amount equal to the Company's costs thereof determined in
accordance with cost accounting standards applicable to Government Contracts.
(d) Taxes on amounts received and Tax benefits and Tax costs in respect of
amounts paid and/or credited with respect to the Environmental Coverage Claims
and the related agreement with the United States Government shall be allocated
between the Company and Newco in the manner set forth in Section 5.5 of the Tax
Allocation Agreement.
3.3. Agreements with Respect to Acquiror Common Stock Received by Newco
Savings Plans. (a) Acquiror and the Newco Savings Plan and any other savings
plan sponsored or maintained by Newco or any of its Affiliates (the "Savings
Plans") shall cooperate with each other in supplying such information as may be
necessary for any of such parties to complete and file any information reporting
forms presently or hereafter required by the SEC or any commissioner or other
authority administering the "blue sky" or securities laws of any jurisdiction
where the shares of Acquiror Common Stock received by the Savings Plans in the
Merger (the "Shares") are proposed to be sold which are required to be filed as
a condition to the availability of an exemption from registration or
qualification of an offer or sale of the Shares under the Securities Act, or any
such "blue sky" or securities laws.
(b) Until the earlier of two years from the Effective Time or the sale by
the Savings Plans of all Shares, Acquiror shall file in a timely manner all
reports contemplated by Rule 144 (c)(1) under the Securities Act as satisfying
the condition that adequate public information with respect to Acquiror is
available.
(c) The provisions of this Section 3.3 shall not be applicable if Newco or
the Company has obtained a "No-Action" letter or other written advice from the
staff of the SEC that the Savings Plans may sell the Shares publicly at any time
after the Effective Time without limitation in terms of the volume of Shares
that may be sold, the manner in which the Shares may be sold and the information
that must be publicly available with respect to Acquiror in order to permit such
sale and without any requirement that the Savings Plans file any notice of sale
of Shares or intention to sell Shares with the SEC other than any filings
required pursuant to Section 13(d) of the Exchange Act in respect of the
beneficial ownership by the Savings Plans of Acquiror Common Stock. Newco agrees
to use its reasonable best efforts to obtain such "No-Action" letter or other
written advice.
3.4. Transitional Arrangements. Concurrently herewith Newco, the Company
and Acquiror will enter into an agreement with respect to certain transitional
arrangements (the "Transition Agreement") in conformity with the Outline of
Terms set forth as Schedule 3.4 and such other transitional arrangements as
shall be mutually agreed upon.
3.5. Insurance. (a) Except as otherwise specifically provided in any
Reorganization Agreement or the Transition Agreement, with respect to any loss,
liability or damage with respect to the Retained Assets arising out of events
occurring prior to the Time of Contribution (other than any loss, liability or
damage arising out of or relating to any Environmental Coverage Claims) for
which Newco or any of its Subsidiaries would be entitled to assert a claim for
recovery under any third-party "occurrence basis" policy of insurance maintained
prior to the Time of Contribution ("Occurrence Basis Insurance") in accordance
with the terms thereof, at the request of Acquiror, Newco will use reasonable
efforts in asserting, or to assist Acquiror in asserting, claims under such
Occurrence Basis Insurance with respect to such loss, liability or damage;
provided that (i) all of Newco's costs and expenses incurred in connection with
the foregoing are promptly paid by Acquiror, (ii) Newco and its Subsidiaries
may, at any time, without liability or obligation to Acquiror, amend, buy-out,
extinguish liability under or otherwise modify any Occurrence Basis Insurance
(and such claims shall be subject to any such amendments, buy-outs,
extinguishments and modifications) and (iii) such claims shall be subject to
(and recovery thereon shall be reduced by the amount of) any applicable
deductibles, retentions,
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self-insurance provisions or any payment or reimbursement obligations of Newco
or any of its Subsidiaries or Affiliates in respect thereof.
(b) Except as otherwise specifically provided in any Reorganization
Agreement or the Transition Agreement, with respect to any loss, liability or
damage with respect to the Contributed Assets arising out of events occurring
prior to the Time of Contribution (other than any loss, liability or damage
arising out of or relating to any Environmental Coverage Claims) for which the
Company or any of the Retained Subsidiaries would be entitled to assert a claim
for recovery under any Occurrence Basis Insurance in accordance with the terms
thereof, at the request of Newco, Acquiror will use reasonable efforts in
asserting, or to assist Newco in asserting, claims under such Occurrence Basis
Insurance with respect to such loss, liability or damage; provided that (i) all
of Acquiror's costs and expenses incurred in connection with the foregoing are
promptly paid by Newco, (ii) Acquiror and its Subsidiaries may, at any time,
without liability or obligation to Newco, amend, buy-out, extinguish liability
under or otherwise modify any Occurrence Basis Insurance (and such claims shall
be subject to any such amendments, buy-outs, extinguishments and modifications)
and (iii) such claims shall be subject to (and recovery thereon shall be reduced
by the amount of) any applicable deductibles, retentions, self-insurance
provisions or any payment or reimbursement obligations of Acquiror or any of its
Subsidiaries or Affiliates in respect thereof.
3.6. DOE Contracts. As soon as practicable following the Effective Time,
Newco and the Company shall take such actions as shall be consistent with the
advance agreements referred to in Section 9.1(e) of the Distribution Agreement.
3.7. Reorganization Expenses. Except as otherwise expressly provided in
the Reorganization Agreements (including but not limited to the last sentence of
Section 2.2(b) of the Merger Agreement and Sections 2.2(h), 4.1(p), 4.2(j) and
5.13 of the Merger Agreement and Section 5.3 of the Distribution Agreement),
Acquiror and Newco (and not the Company) shall be responsible for and agree to
pay all reorganization expenses of the Company directly related to the
Contribution, the Distribution and the Merger in accordance with Schedule 3.7
hereto, provided that the Company may, prior to the Effective Time, pay any such
expenses that are otherwise the responsibility of Newco.
3.8. Conduct of Health Care Claims Audit. (a) Pursuant to the Distribution
Agreement, Newco will receive as part of the Contributed Assets the Health Care
Claims (as defined below). As used herein, "Health Care Claims" shall mean all
existing and future claims arising out of audits of health care claims paid by
the Company for any period prior to the Effective Time made by the Company (or
if after the Effective Time, Newco) against any and all health care
administrators ("Health Care Administrators") that have provided to the Company,
its predecessors or its or their affiliates, health care administration services
in respect of the employees of the Company, its predecessors or its or their
affiliates as now or previously owned or operated (including without limitation
any discontinued or divested operations, including Divested Businesses) at any
time prior to the Effective Time, including, without limitation, the claims
asserted in the pending audits of Metropolitan Insurance Company for the years
1993-1994 and Value Rx Pharmacy Program, Inc. for the years 1993-1995 and any
other claims that may be asserted by or on behalf of the Company (or if after
the Effective Time, Newco) against any Health Care Administrator for any period
prior to the Effective Time. Newco agrees to use diligent efforts to prosecute
the Health Care Claims in accordance with this Section 3.8 until the same are
finally settled by Newco in its sole discretion. The Company agrees (i) that
Newco shall have the exclusive right to control and to direct the audit of the
Health Care Administrators and the negotiation of all settlements of the Health
Care Claims, (ii) to make available such personnel, records and other resources
in its possession or reasonably accessible to it as shall be reasonably required
by Newco to support the prosecution of the Health Care Claims and (iii) not to
make any admission or settlement in respect of the Health Care Claims or take
any action in respect thereof without the prior written consent of Newco. Newco
shall pay to the Company as and when the same are received by Newco an equitable
allocation of the net proceeds from settlement of the Health Care Claims.
(b) Newco shall be solely responsible for and shall pay directly the fees
and expenses (including legal fees and expenses) of pursuing the Health Care
Claims and shall reimburse the Company periodically for any support or other
services provided at Newco's request in respect of the Health Care Claims in an
amount
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equal to the Company's costs thereof determined in accordance with cost
accounting standards applicable to Government Contracts.
(c) Taxes on amounts received and Tax benefits and Tax costs in respect of
amounts paid and/or credited with respect to the Health Care Claims and the
related agreement with the United States Government shall be allocated between
the Company and Newco in the manner set forth in Section 5.5 of the Tax
Allocation Agreement.
3.9. Guaranty of Acquiror. Acquiror, for itself and its successors in
interest and assigns, hereby unconditionally and irrevocably guarantees to Newco
and its successors in interest and assigns the full and faithful performance and
observation by the Company under the Reorganization Agreements (other than the
Merger Agreement) and the Transition Agreement of all covenants, conditions and
agreements (other than any indemnification obligations of the Company in respect
of Retained Assets or Retained Liabilities) in the Reorganization Agreements
(other than the Merger Agreement) and the Transition Agreement to be performed
and observed by the Company after the Effective Time without requiring any
notice of nonpayment, nonperformance or nonobservance or proof of notice or
demand whereby to charge Acquiror therefor, all of which Acquiror hereby
expressly waives. This is a continuing guaranty and shall remain in effect
notwithstanding any bankruptcy, reorganization or insolvency of the Company, or
any successor in interest or assignee thereof, or any disaffirmance or
abandonment by a trustee thereof. Acquiror hereby waives notice of acceptance of
this Guaranty. Acquiror hereby agrees to indemnify, defend and hold harmless
Newco for all Indemnifiable Losses, as incurred, relating to or arising from any
breach or inaccuracy in the representations and warranties contained in Sections
4.2(j) and 4.2(d)(iii) of the Merger Agreement. Effective as of the Effective
Time, Acquiror will execute and deliver guarantees of the Company's performance
and obligations under the Designated Contracts set forth in Schedule
2.1(a)(viii) to the counterparties on such Contracts.
3.10. Payments Adjustments to Contribution. It is the intention of the
parties to this Agreement that payments made by the parties to each other after
the Effective Time pursuant to the Reorganization Agreements are to be treated
as relating back to the Contribution as an adjustment to the assets and
liabilities contributed thereunder, and the parties shall take positions
consistent with such intention with any Taxing Authority, unless with respect to
any payment any party receives an opinion of counsel to the effect that there is
no substantial authority for such a position.
ARTICLE IV
MISCELLANEOUS AND GENERAL
4.1. Modification or Amendment. The parties hereto may modify or amend
this Agreement only by written agreement executed and delivered by duly
authorized officers of the respective parties.
4.2. Waiver; Remedies. No delay on the part of any party hereto in
exercising any right, power or privilege hereunder will operate as a waiver
thereof, nor will any waiver on the part of any party hereto of any right, power
or privilege hereunder operate as a waiver of any other right, power or
privilege hereunder, nor will any single or partial exercise of any right, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder. No waiver will be
effective hereunder unless it is in writing. Unless otherwise provided, the
rights and remedies herein provided are cumulative and are not exclusive of any
rights or remedies which the parties may otherwise have at law or in equity.
4.3. Counterparts. For the convenience of the parties, this Agreement may
be executed in any number of separate counterparts, each such counterpart being
deemed to be an original instrument, and all such counterparts shall together
constitute the same agreement.
4.4. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York applicable to
contracts made and to be performed entirely within such State, without regard to
the conflicts of law principles of such State.
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4.5. Notices. Any notice, request, instruction or other communication to
be given hereunder by any party to any other shall be in writing and shall be
deemed to have been duly given (i) on the date of delivery if delivered
personally, or by telecopy or telefacsimile, upon confirmation of receipt, (ii)
on the first business day following the date of dispatch if delivered by Federal
Express or other nationally reputable next-day courier service, or (iii) on the
third business day following the date of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid. All notices hereunder
shall be delivered as set forth below, or pursuant to such other instructions as
may be designated in writing by the party to receive such notice:
(a) If to Newco:
NEW ROCKWELL INTERNATIONAL CORPORATION
2201 Seal Beach Boulevard
Seal Beach, California 90740-8250
Attention: William J. Calise, Jr., Esq.
Telecopy: (310) 797-5687
(b) if to the Company:
BOEING NA, INC.
c/o The Boeing Company
P.O. Box 3707
M/S 13-08
Seattle, WA 98124-2207
Attention: Theodore J. Collins, Esq.
Vice President & General Counsel
Telecopy: (206) 544-4900
4.6. Entire Agreement. The Reorganization Agreements (including the
Annexes and Schedules thereto), the Transition Agreement and the Confidentiality
Agreement constitute the entire agreement, and supersede all other prior
agreements, understandings, representations and warranties, both written and
oral, among the parties, with respect to the subject matter hereof and thereof.
4.7. Certain Obligations. Whenever this Agreement requires any of the
Subsidiaries of any party to take any action, this Agreement will be deemed to
include an undertaking on the part of such party to cause such Subsidiary to
take such action.
4.8. Assignment. No party to this Agreement shall convey, assign or
otherwise transfer any of its rights or obligations under this Agreement without
the express written consent of the other parties hereto in their sole and
absolute discretion, except that any party hereto may assign any of its rights
hereunder to a successor to all or any part of its business. Except as
aforesaid, any such conveyance, assignment or transfer without the express
written consent of the other parties shall be void ab initio. No assignment of
this Agreement shall relieve the assigning party of its obligations hereunder.
4.9. Captions. The Article, Section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
4.10. Severability. If any provision of this Agreement or the application
thereof to any person or circumstance is determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions
hereof, or the application of such provision to persons or circumstances other
than those as to which it has been held invalid or unenforceable, shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated thereby, so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner adverse to any
party. Upon any such determination, the parties shall negotiate in good faith in
an effort to agree upon a suitable and equitable substitute provision to effect
the original intent of the parties.
4.11. No Third Party Beneficiaries. Nothing contained in this Agreement is
intended to confer upon any person or entity other than the parties hereto and
their respective successors and permitted assigns, any
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benefit, right or remedies under or by reason of this Agreement, except that the
provisions of Article II hereof shall inure to the benefit of Indemnitees and
the provisions of Section 3.3 shall inure to the benefit of the Savings Plans.
4.12. Consent to Jurisdiction. Each of the Company, Acquiror and Newco
irrevocably submits to the exclusive jurisdiction of (i) the Superior Court of
the State of California, San Francisco County and (ii) the United States
District Court for the Northern District of California for the purposes of any
suit, action or other proceeding arising out of this Agreement or any
transaction contemplated hereby (and agrees not to commence any action, suit or
proceeding relating hereto except in such courts). Each of the Company, Acquiror
and Newco further agrees that service of any process, summons, notice or
document hand delivered or sent by registered mail to such party's respective
address set forth in Section 4.5 will be effective service of process for any
action, suit or proceeding in California with respect to any matters to which it
has submitted to jurisdiction as set forth in the immediately preceding
sentence. Each of the Company, Acquiror and Newco irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (i) the Superior Court of the State of California, San Francisco
County or (ii) the United States District Court for the Northern District of
California, and hereby further irrevocably and unconditionally waives and agrees
not to plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto on the date first hereinabove
written.
ROCKWELL INTERNATIONAL
CORPORATION
By:
------------------------------------------
Name:
Title:
THE BOEING COMPANY
By:
------------------------------------------
Name:
Title:
NEW ROCKWELL INTERNATIONAL
CORPORATION
By:
------------------------------------------
Name:
Title:
BOEING NA, INC.
By:
------------------------------------------
Name:
Title:
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law reads as
follows:
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE.-- (a) A corporation may indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or
was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery
or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of
a corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in subsections
(a) and (b) of this section, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
(d) Any indemnification under subsections (a) and (b) of this
section (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper
in the circumstances because he has met the applicable standard of
conduct set forth in subsections (a) and (b) of this section. Such
determination shall be made (1) by a majority vote of the directors
who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written
opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer
or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be
determined that he is not
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entitled to be indemnified by the corporation as authorized in
this section. Such expenses (including attorneys' fees) incurred by
other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by,
or granted pursuant to, the other subsections of this section shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action
in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him
against such liability under this section.
(h) For purposes of this section, references to "the corporation"
shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence
had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who
is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under this section with respect to
the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had
continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes
duties on, or involves services by, such director, officer, employee,
or agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have
acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by,
or granted pursuant to, this section shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement of
expenses or indemnification brought under this section or under any
by-law, agreement, vote of stockholders or disinterested directors, or
otherwise. The Court of Chancery may summarily determine a
corporation's obligation to advance expenses (including attorneys'
fees).
Article VII, Section 4 of the registrant's By-Laws provides as follows:
Section 4. Indemnification of Directors and Officers.
4.1 Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved
(including, without limitation, as a witness) in any actual or
threatened action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a director or officer of
the Corporation or that,
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being or having been such a director or officer or an employee of the
Corporation, he or she is or was serving at the request of an
executive officer of the Corporation as a director, officer, employee,
or agent of another corporation or of a partnership, joint venture,
trust, or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis
of such proceeding is alleged action in an official capacity as such a
director, officer, employee, or agent or in any other capacity while
serving as such a director, officer, employee, or agent, shall be
indemnified and held harmless by the Corporation to the full extent
permitted by the Delaware General Corporation Law, as the same exists
or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than permitted prior thereto),
or by other applicable law as then in effect, against all expense,
liability, and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties, and amounts paid in settlement)
actually and reasonably incurred or suffered by such indemnitee in
connection therewith and such indemnification shall continue as to an
indemnitee who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the indemnitee's heirs,
executors, and administrators; provided, however, that except as
provided in Section 4.2 with respect to proceedings seeking to enforce
rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated
by such indemnitee only if such proceeding (or part thereof) was
authorized or ratified by the Board of Directors of the Corporation.
The right to indemnification conferred in this Section 4.1 shall be a
contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition (hereinafter an "advancement of
expenses"); provided, however, that an advancement of expenses
incurred by an indemnitee in his/her capacity as a director or officer
(and not in any other capacity in which service was or is rendered by
such indemnitee, including, without limitation, service to an employee
benefit plan) shall be made only upon delivery to the Corporation of
an undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further
right to appeal that such indemnitee is not entitled to be indemnified
for such expenses under this Section 4.1 or otherwise; and provided,
further, that an advancement of expenses shall not be made if the
Corporation's Board of Directors makes a good faith determination that
such payment would violate law or public policy.
4.2 Right of Indemnitee to Bring Suit. If a claim under Section
4.1 is not paid in full by the Corporation within sixty days after a
written claim has been received by the Corporation, except in the case
of a claim for an advancement of expenses, in which case the
applicable period shall be twenty days, the indemnitee may at any time
thereafter bring suit against the Corporation to recover the unpaid
amount of the claim. If successful in whole or in part in any such
suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall also be entitled to be paid the expense of
prosecuting or defending such suit. The indemnitee shall be presumed
to be entitled to indemnification under this Section 4 upon submission
of a written claim (and, in an action brought to enforce a claim for
an advancement of expenses, where the required undertaking has been
tendered to the Corporation), and thereafter the Corporation shall
have the burden of proof to overcome the presumption that the
indemnitee is not so entitled. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement
of such suit that indemnification of the indemnitee is proper in the
circumstances, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee is not entitled to indemnification
shall be a defense to the suit or create a presumption that the
indemnitee is not so entitled.
4.3 Nonexclusivity of Rights. The rights to indemnification and
to the advancement of expenses conferred in this Section 4 shall not
be exclusive of any other right which any person may have or hereafter
acquire under any statute, provisions of the Certificate of
Incorporation, By-Laws, agreement, vote of stockholders or
disinterested directors, or otherwise. Notwithstanding any amendment
to or repeal of this Section 4, or of any of the procedures
established by the Board of Directors pursuant to Section 4.7, any
indemnitee shall be entitled to indemnification in accordance with the
provisions hereof and thereof with respect to any acts or omissions of
such indemnitee occurring prior to such amendment or repeal.
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<PAGE> 302
4.4 Insurance, Contracts, and Funding. The Corporation may
maintain insurance, at its expense, to protect itself and any
director, officer, employee, or agent of the Corporation or another
corporation, partnership, joint venture, trust, or other enterprise
against any expense, liability, or loss, whether or not the
Corporation would have the power to indemnify such person against such
expense, liability, or loss under the Delaware General Corporation
Law. The Corporation may, without further stockholder approval, enter
into contracts with any indemnitee in furtherance of the provisions of
this Section 4 and may create a trust fund, grant a security interest,
or use other means (including, without limitation, a letter of credit)
to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Section 4.
4.5 Persons Serving Other Entities. Any person who is or was a
director, officer, or employee of the Corporation who is or was
serving (i) as a director or officer of another corporation of which a
majority of the shares entitled to vote in the election of its
directors is held by the Corporation or (ii) in an executive or
management capacity in a partnership, joint venture, trust, or other
enterprise of which the Corporation or a wholly owned subsidiary of
the Corporation is a general partner or has a majority ownership shall
be deemed to be so serving at the request of an executive officer of
the Corporation and entitled to indemnification and advancement of
expenses under Section 4.1.
4.6 Indemnification of Employees and Agents of the Corporation.
The Corporation may, by action of its Board of Directors, authorize
one or more executive officers to grant rights to advancement of
expenses to employees or agents of the Corporation on such terms and
conditions as such officer or officers deem appropriate under the
circumstances. The Corporation may, by action of its Board of
Directors, grant rights to indemnification and advancement of expenses
to employees or agents or groups of employees or agents of the
Corporation with the same scope and effect as the provisions of this
Section 4 with respect to the indemnification and advancement of
expenses of directors and officers of the Corporation; provided,
however, that an undertaking shall be made by an employee or agent
only if required by the Board of Directors.
4.7 Procedures for the Submission of Claims. The Board of
Directors may establish reasonable procedures for the submission of
claims for indemnification pursuant to this Section 4, determination
of the entitlement of any person thereto, and review of any such
determination. Such procedures shall be set forth in an appendix to
these By-Laws and shall be deemed for all purposes to be a part
hereof.
Officers and directors of the registrant are covered by insurance
which (with certain exceptions and within certain limitations) indemnifies
them against losses and liabilities arising from any breach of duty,
neglect, error, misstatement, misleading statement, act or omission by the
directors or officers in their respective capacities as such.
Item 21. Exhibits and Financial Statement Schedules.
(a) The following is a list of Exhibits included as part of this
Registration Statement. Boeing agrees to furnish supplementally a copy of
any omitted schedule to the SEC upon request.
2.1 Agreement and Plan of Merger dated as of July 31, 1996 among
Rockwell International Corporation, The Boeing Company and Boeing
NA, Inc. (included as Appendix III to the Proxy
Statement-Prospectus).
3.1 By-laws of The Boeing Company, amended as of August 26, 1996.
5.1 Opinion of T. J. Collins, Esq., as to the legality of the
securities being registered.
8.1 Opinion of Chadbourne & Parke LLP as to certain United States
federal income tax consequences of the Merger.
8.2 Opinion of Wachtell, Lipton, Rosen & Katz as to certain United
States federal income tax consequences of the Merger.
10.1 Copy of Deferred Compensation Plan for Directors of The Boeing
Company, as amended October 28, 1996.
10.2 Copy of 1984 Stock Option Plan, as amended February 23, 1987 and
August 28, 1989, filed as Exhibit (10)(iii)(a) to the Annual
Report on Form 10-K of The Boeing Company for the year ended
December 31, 1995 (herein referred to as "1995 Form 10-K"), is
hereby incorporated by reference.
II-4
<PAGE> 303
10.3 Forms of Stock Option Agreements under the 1984 Stock Option
Plan, filed as Exhibit (10)(vi)(b) to the Annual Report on Form
10-K of The Boeing Company for the year ended December 31, 1992
(herein referred to as "1992 Form 10-K"), are hereby incorporated
by reference.
10.4 Copy of 1988 Stock Option Plan, as amended December 14, 1992,
filed as Exhibit (10)(vii)(a) to the 1992 Form 10-K, is hereby
incorporated by reference.
10.5 Form of Notice of Terms of Stock Option Grant under the 1988
Stock Option Plan, filed as Exhibit (10)(vii)(b) to the 1992 Form
10-K, is hereby incorporated by reference.
10.6 Copy of 1992 Stock Option Plan for Nonemployee Directors, filed
as Exhibit 19 to the Quarterly Report on Form 10-Q of The Boeing
Company for the quarter ended March 31, 1992, is hereby
incorporated by reference.
10.7 Form of Stock Option Agreement under the 1992 Stock Option Plan
for Nonemployee Directors, filed as Exhibit (10)(viii)(b) to the
1992 Form 10-K, is hereby incorporated by reference.
10.8 Copy of Supplemental Benefit Plan for Employees of The Boeing
Company, as amended February 26, 1996, filed as Exhibit (10)(i)
to the Quarterly Report on Form 10-Q of The Boeing Company for
the quarter ended March 31, 1996 (herein referred to as "1996 Q1
Form 10-Q"), is hereby incorporated by reference.
10.9 Copy of Deferred Compensation Plan for Employees of The Boeing
Company, as amended February 26, 1996, filed as Exhibit (10)(ii)
to the 1996 Q1 Form 10-Q, is hereby incorporated by reference.
10.10 Copy of Supplemental Retirement Plan for Executives of The
Boeing Company, as amended February 26, 1996, filed as Exhibit
(10)(iii) to the 1996 Q1 Form 10-Q, is hereby incorporated by
reference.
10.11 Copy of 1993 Incentive Stock Plan for Employees, as amended
December 13, 1993, filed as Exhibit (10)(ix)(a) to the Annual
Report on Form 10-K of The Boeing Company for the year ended
December 31, 1993 (herein referred to as "1993 Form 10-K"), is
hereby incorporated by reference.
10.12 Form of Notice of Regular Annual Stock Option Grant under the
1993 Incentive Stock Plan for Employees, filed as Exhibit
(10)(ix)(b)(i) to the 1993 Form 10-K, is hereby incorporated by
reference.
10.13 Form of Notice of Supplemental Stock Option Grant under the 1993
Incentive Stock Plan for Employees, filed as Exhibit
(10)(ix)(b)(ii) to the 1993 Form 10-K, is hereby incorporated by
reference.
10.14 Copy of Incentive Compensation Plan for Officers and Employees
of the Company and Subsidiaries, as amended October 31, 1994,
filed as Exhibit (10)(v) to the 1994 Q3 Form 10-Q is hereby
incorporated by reference.
10.15 Copy of Form of SAR Deferral Agreement, filed as Exhibit
(10)(xii)(a) to the 1995 Form 10-K, is hereby incorporated by
reference.
10.16 Copy of Plan for Employees, as amended, filed as Exhibit
(10)(xii)(b) to the 1995 Form 10-K, is hereby incorporated by
reference.
10.17 Form of SAR Deferral Election Notice, filed as Exhibit
(10)(xiv)(c) to the 1992 Form 10-K, is hereby incorporated by
reference.
10.18 Copy of The Boeing Company Bank Credit Agreement Amended and
Restated as of September 27, 1996 [Seven-Year Facility].
10.19 Copy of The Boeing Company Bank Credit Amended and Restated as
of September 27, 1996 [364-Day Agreement].
10.20 The Boeing Company ShareValue Program dated as of July 1, 1996.
15.1 Letter of Deloitte & Touche LLP re unaudited interim financial
information.
23.1 Consent of Deloitte & Touche LLP with respect to their report on
the financial statements of Boeing.
23.2 Consent of Deloitte & Touche LLP with respect to their report on
the financial statements of Rockwell International Corporation,
New Rockwell International Corporation and the Aerospace and
Defense Business.
23.4 Consent of T. J. Collins, Esq. (included in Exhibit 5.1 to this
Registration Statement).
23.5 Consent of Chadbourne & Parke LLP (included in Exhibit 8.1 to
this Registration Statement).
23.6 Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit
8.2 to the Registration Statement).
23.7 Consent of Morgan Stanley & Co. Incorporated
23.8 Consent of Dillon, Read & Co. Inc.
24.1 Powers of Attorney (included on page II-8).
(b) Not applicable.
II-5
<PAGE> 304
(c) The opinion of Morgan Stanley & Co. Incorporated is included as
Appendix I to the Proxy Statement-Prospectus. The opinion of Dillon, Read &
Co. Inc. is included as Appendix II to the Proxy Statement-Prospectus.
Item 22. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(5) (a) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that
such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who may
be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(b) That every prospectus (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(6) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the
II-6
<PAGE> 305
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(7) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form S-4, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date
of the registration statement through the date of responding to the
request.
(8) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
II-7
<PAGE> 306
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Seattle, State of Washington, on the 28th day of October, 1996.
THE BOEING COMPANY
By /s/ PHILIP M. CONDIT
------------------------------
(Philip M. Condit)
President and Chief Executive Officer
POWER OF ATTORNEY
Each of the officers and directors of The Boeing Company whose
signature appears below hereby constitutes and appoints Philip M. Condit,
Boyd E. Givan and Douglas P. Beighle, and each of them, his true and lawful
attorneys and agents, with full power of substitution, each with power to
act alone, to sign, execute, and file with the Securities and Exchange
Commission on behalf of the undersigned in any and all capacities any
amendment or amendments to this registration statement on Form S-4,
including any post-effective amendments, and each of the undersigned does
hereby ratify and confirm all that each of said attorneys and agents, or
his substitutes, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed on the 28th day of October, 1996 by
the following persons in the capacities indicated.
Signature Title
--------- -----
Principal Executive Officer:
/s/ PHILIP M. CONDIT
- ------------------------------- President, Chief Executive Officer
(Philip M. Condit) and Director
Principal Financial Officer:
/s/ BOYD E. GIVAN Senior Vice President and
- ------------------------------- Chief Financial Officer
(Boyd E. Givan)
Principal Accounting Officer:
/s/ GARY W. BEIL Vice President and Comptroller
- -------------------------------
(Gary W. Beil)
II-8
<PAGE> 307
Signature Title
--------- -----
Directors:
/s/ FRANK SHRONTZ Chairman of the Board and Director
- -------------------------------
(Frank Shrontz)
/s/ JOHN E. BRYSON Director
------------------------------
(John E. Bryson)
/s/ JOHN B. FERY Director
------------------------------
(John B. Fery)
/s/ PAUL E. GRAY Director
------------------------------
(Paul E. Gray)
/s/ HAROLD J. HAYNES Director
------------------------------
(Harold J. Haynes)
/s/ STANLEY HILLER, JR. Director
------------------------------
(Stanley Hiller, Jr.)
/s/ DONALD E. PETERSEN Director
------------------------------
(Donald E. Petersen)
/s/ CHARLES M. PIGOTT Director
------------------------------
(Charles M. Pigott)
/s/ ROZANNE L. RIDGWAY Director
------------------------------
(Rozanne L. Ridgway)
/s/ GEORGE H. WEYERHAEUSER Director
------------------------------
(George H. Weyerhaeuser)
II-9
<PAGE> 308
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Exhibits Page
- ------- -------- -----------
2.1 Agreement and Plan of Merger dated as of July 31, 1996
among Rockwell International Corporation, The Boeing
Company and Boeing NA, Inc. (included as Appendix III
to the Proxy Statement-Prospectus).
3.1 By-laws of The Boeing Company, amended as of August 26,
1996.
5.1 Opinion of T. J. Collins, Esq., as to the legality of
the securities being registered.
8.1 Opinion of Chadbourne & Parke LLP as to certain United
States federal income tax consequences of the Merger.
8.2 Opinion of Wachtell, Lipton, Rosen & Katz as to certain
United States federal income tax consequences of the
Merger.
10.1 Copy of Deferred Compensation Plan for Directors of The
Boeing Company, as amended October 28, 1996.
10.2 Copy of 1984 Stock Option Plan, as amended February 23,
1987 and August 28, 1989, filed as Exhibit (10)(iii)(a)
to the Annual Report on Form 10-K of The Boeing Company
for the year ended December 31, 1995 (herein referred
to as "1995 Form 10-K"), is hereby incorporated by
reference.
10.3 Forms of Stock Option Agreements under the 1984 Stock
Option Plan, filed as Exhibit (10)(vi)(b) to the Annual
Report on Form 10-K of The Boeing Company for the year
ended December 31, 1992 (herein referred to as "1992
Form 10-K"), are hereby incorporated by reference.
10.4 Copy of 1988 Stock Option Plan, as amended December 14,
1992, filed as Exhibit (10)(vii)(a) to the 1992 Form
10-K, is hereby incorporated by reference.
10.5 Form of Notice of Terms of Stock Option Grant under the
1988 Stock Option Plan, filed as Exhibit (10)(vii)(b)
to the 1992 Form 10-K, is hereby incorporated by
reference.
10.6 Copy of 1992 Stock Option Plan for Nonemployee
Directors, filed as Exhibit 19 to the Quarterly Report
on Form 10-Q of The Boeing Company for the quarter
ended March 31, 1992, is hereby incorporated by
reference.
10.7 Form of Stock Option Agreement under the 1992 Stock
Option Plan for Nonemployee Directors, filed as Exhibit
(10)(viii)(b) to the 1992 Form 10-K, is hereby
incorporated by reference.
10.8 Copy of Supplemental Benefit Plan for Employees of The
Boeing Company, as amended February 26, 1996, filed as
Exhibit (10)(i) to the Quarterly Report on Form 10-Q of
The Boeing Company for the quarter ended March 31, 1996
(herein referred to as "1996 Q1 Form 10-Q"), is hereby
incorporated by reference.
10.9 Copy of Deferred Compensation Plan for Employees of The
Boeing Company, as amended February 26, 1996, filed as
Exhibit (10)(ii) to the 1996 Q1 Form 10-Q, is hereby
incorporated by reference.
<PAGE> 309
Sequentially
Exhibit Numbered
Number Exhibits Page
- ------- -------- -----------
10.10 Copy of Supplemental Retirement Plan for Executives of
The Boeing Company, as amended February 26, 1996, filed
as Exhibit (10)(iii) to the 1996 Q1 Form 10-Q, is
hereby incorporated by reference.
10.11 Copy of 1993 Incentive Stock Plan for Employees, as
amended December 13, 1993, filed as Exhibit (10)(ix)(a)
to the Annual Report on Form 10-K of The Boeing Company
for the year ended December 31, 1993 (herein referred
to as "1993 Form 10-K"), is hereby incorporated by
reference.
10.12 Form of Notice of Regular Annual Stock Option Grant
under the 1993 Incentive Stock Plan for Employees,
filed as Exhibit (10)(ix)(b)(i) to the 1993 Form 10-K,
is hereby incorporated by reference.
10.13 Form of Notice of Supplemental Stock Option Grant under
the 1993 Incentive Stock Plan for Employees, filed as
Exhibit (10)(ix)(b)(ii) to the 1993 Form 10-K, is
hereby incorporated by reference.
10.14 Copy of Incentive Compensation Plan for Officers and
Employees of the Company and Subsidiaries, as amended
October 31, 1994, filed as Exhibit (10)(v) to the 1994
Q3 Form 10-Q is hereby incorporated by reference.
10.15 Copy of Form of SAR Deferral Agreement, filed as
Exhibit (10)(xii)(a) to the 1995 Form 10-K, is hereby
incorporated by reference.
10.16 Copy of Plan for Employees, as amended, filed as
Exhibit (10)(xii)(b) to the 1995 Form 10-K, is hereby
incorporated by reference.
10.17 Form of SAR Deferral Election Notice, filed as Exhibit
(10)(xiv)(c) to the 1992 Form 10-K, is hereby
incorporated by reference.
10.18 Copy of The Boeing Company Bank Credit Agreement
Amended and Restated as of September 27, 1996
[Seven-Year Facility].
10.19 Copy of The Boeing Company Bank Credit Agreement
Amended and Restated as of September 27, 1996 [364-Day
Agreement].
10.20 The Boeing Company ShareValue Program dated as of July
1, 1996.
15.1 Letter of Deloitte & Touche LLP re unaudited interim
financial information.
23.1 Consent of Deloitte & Touche LLP with respect to their
report on the financial statements of Boeing.
23.2 Consent of Deloitte & Touche LLP with respect to their
report on the financial statements of Rockwell
International Corporation, New Rockwell International
Corporation and the Aerospace and Defense Business.
23.4 Consent of T. J. Collins, Esq. (included in Exhibit 5.1
to this Registration Statement).
23.5 Consent of Chadbourne & Parke LLP (included in Exhibit
8.1 to this Registration Statement).
23.6 Consent of Wachtell, Lipton, Rosen & Katz (included in
Exhibit 8.2 to the Registration Statement).
23.7 Consent of Morgan Stanley & Co. Incorporated
<PAGE> 310
Sequentially
Exhibit Numbered
Number Exhibits Page
- ------- -------- -----------
23.8 Consent of Dillon, Read & Co. Inc.
24.1 Powers of Attorney (included on page II-8).
<PAGE> 1
Exhibit 3.1
BY-LAWS
OF
THE BOEING COMPANY
(As amended and restated August 26, 1996)
<PAGE> 2
BY-LAWS
OF
THE BOEING COMPANY
ARTICLE I
Stockholders' Meetings
SECTION 1. Annual Meetings.
The Annual Meeting of the stockholders shall be held on the last Monday in the
month of April in each year, or, if that day be a legal holiday, on the next
succeeding day not a legal holiday, at 11:00 a.m., for the election of directors
and the transaction of such other business as may come before the meeting.
SECTION 2. Special Meetings.
A special meeting of the stockholders may be called at any time by the Board of
Directors, or by stockholders holding together at least twenty-five percent of
the outstanding shares of stock entitled to vote, except as otherwise provided
by statute or by the Certificate of Incorporation or any amendment thereto.
SECTION 3. Place of Meeting.
All meetings of the stockholders of the Corporation shall be held at such place
or places within or without the State of Delaware as may from time to time be
fixed by the Board of Directors or as shall be specified or fixed in the
respective notices or waivers of notice thereof.
SECTION 4. Notice of Meetings.
Except as otherwise required by statute and as set forth below, notice of each
annual or special meeting of stockholders shall be given to each stockholder of
record entitled to vote at such meeting not less than thirty nor more than sixty
(or the maximum number permitted by applicable law) days before the meeting
date. If the Corporation has an Interested Stockholder as defined in Article
EIGHTH of the Certificate of Incorporation, notice of each special meeting of
stockholders shall be given to each stockholder of record entitled to vote at
such meeting not less than fifty-five nor more than sixty (or the maximum number
permitted by applicable law) days before the meeting date, unless the calling of
such meeting is ratified by the affirmative vote of a majority of the Continuing
Directors as defined in Article EIGHTH of the Certificate of Incorporation, in
which case notice of such special meeting shall be given to each stockholder of
record entitled to vote at such meeting not less than thirty nor more than sixty
(or the maximum number permitted by applicable law) days before the meeting
date. Such notice shall be given by delivering to each stockholder a written or
printed notice thereof either personally or by mailing such notice in a
postage-prepaid envelope addressed to the stockholder's address as it appears on
the stock books of the Corporation. Except as otherwise required by statute, no
publication of any notice of a meeting of stockholders shall be required. Every
notice of a meeting of stockholders shall state the place, date, and hour of the
meeting and, in the case of a special meeting, the purpose or purposes for which
the meeting is called.
<PAGE> 3
SECTION 5. Waivers of Notice.
Whenever any notice is required to be given to any stockholder under the
provisions of these By-Laws, the Certificate of Incorporation, or the Delaware
General Corporation Law, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. The attendance
of a stockholder at a meeting, in person or by proxy, shall constitute a waiver
of notice of such meeting, except when a stockholder attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 6. Quorum.
At all meetings of stockholders, except when otherwise provided by statute or by
the Certificate of Incorporation or any amendment thereto, or by the By-Laws,
the presence, in person or by proxy duly authorized, of the holders of one-third
of the outstanding shares of stock entitled to vote shall constitute a quorum
for the transaction of business; and except as otherwise provided by statute or
rule of law, or by the Certificate of Incorporation or any amendment thereto, or
by the By-Laws, the vote, in person or by proxy, of the holders of a majority of
the shares constituting such quorum shall be binding upon all stockholders of
the Corporation. In the absence of a quorum, a majority of the shares present in
person or by proxy and entitled to vote may adjourn any meeting, from time to
time but not for a period of more than thirty days at any one time, until a
quorum shall attend. At any such adjourned meeting at which a quorum shall be
present, any business may be transacted which might have been transacted at the
meeting as originally called. Unless otherwise provided by statute, no notice of
an adjourned meeting need be given.
SECTION 7. Proxies.
7.1 Appointment. Each stockholder entitled to vote at a meeting of stockholders
or to express consent or dissent to corporate action in writing without a
meeting may authorize another person or persons to act for such stockholder by
proxy. Such authorization may be accomplished by (a) the stockholder or such
stockholder's authorized officer, director, employee, or agent executing a
writing or causing his or her signature to be affixed to such writing by any
reasonable means, including facsimile signature, or (b) by transmitting or
authorizing the transmission of a telegram, cablegram, or other means of
electronic trans-mission to the intended holder of the proxy or to a proxy
solicitation firm, proxy support service, or similar agent duly authorized by
the intended proxy holder to receive such transmission; provided, that any such
telegram, cablegram, or other electronic transmission must either set forth or
be accompanied by information from which it can be determined that the telegram,
cablegram, or other electronic transmission was authorized by the stockholder.
Any copy, facsimile telecommunication, or other reliable reproduction of the
writing or transmission by which a stockholder has authorized another person to
act as proxy for such stockholder may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication, or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
<PAGE> 4
7.2 Delivery to Corporation; Duration. A proxy shall be filed with the Secretary
of the Corporation before or at the time of the meeting or the delivery to the
Corporation of the consent to corporate action in writing. A proxy shall become
invalid three years after the date of its execution, unless otherwise provided
in the proxy. A proxy with respect to a specified meeting shall entitle the
holder thereof to vote at any reconvened meeting following adjournment of such
meeting but shall not be valid after the final adjournment thereof.
SECTION 8. Inspectors of Election.
8.1 Appointment. In advance of any meeting of stockholders, the Board of
Directors of the Corporation shall appoint one or more persons to act as
inspectors of election at such meeting and to make a written report thereof. The
Board of Directors may designate one or more persons to serve as alternate
inspectors to serve in place of any inspector who is unable or fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
chairman of such meeting shall appoint one or more persons to act as inspector
of elections at such meeting.
8.2 Duties. The inspectors shall: (a) ascertain the number of shares of the
Corporation outstanding and the voting power of each such share; (b) determine
the shares represented at the meeting and the validity of proxies and ballots;
(c) count all votes and ballots; (d) determine and retain for a reasonable
period of time a record of the disposition of any challenges made to any
determination by them; and (e) certify their determination of the number of
shares represented at the meeting and their count of the votes and ballots. Each
inspector of election shall, before entering upon the discharge of his or her
duties, take and sign an oath to faithfully execute the duties of inspector with
strict impartiality and according to the best of his or her ability. The
inspectors of election may appoint or retain other persons or entities to assist
them in the performance of their duties.
8.3 Determination of Proxy Validity. The validity of any proxy or ballot
executed for a meeting of stockholders shall be determined by the inspectors of
election in accordance with the applicable provisions of the Delaware General
Corporation Law as then in effect. In determining the validity of any proxy
transmitted by telegram, cablegram, or other electronic transmission, the
inspectors shall record in writing the information upon which they relied in
making such determination.
SECTION 9. Fixing the Record Date.
9.1 Meetings. For the purpose of determining stockholders entitled to notice of
and to vote at any meeting of stockholders or any adjournment thereof, the Board
of Directors may fix a record date, which record date shall not precede the date
on which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall be not fewer than thirty nor more than
sixty (or the maximum number permitted by applicable law) days before the date
of such meeting. If the corporation has an Interested Stockholder as defined in
Article EIGHTH of the Certificate of Incorporation, the record date for each
special meeting of stockholders shall be not fewer than fifty-five nor more than
sixty (or the maximum number permitted by applicable law) days before the
meeting date, unless the calling of such meeting is ratified by the affirmative
vote of a majority of the Continuing Directors, as defined in Article EIGHTH of
the Certificate of Incorporation. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of
and to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held. A determination of stockholders of record entitled to notice of
and to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
9.2 Consent to Corporate Action Without a Meeting. For the purpose of
determining the stockholders entitled to consent to corporate action in writing
without a meeting, the Board of Directors may fix a record date, which record
date shall not precede the date on which the resolution fixing the record date
is adopted by the Board of Directors, and which date shall not be more than ten
(or the maximum number permitted by applicable law) days after the date on which
the resolution fixing the record date is adopted by the Board of Directors. If
no record date has been fixed by the Board of Directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required by
Chapter 1 of the Delaware General Corporation Law as now or hereafter amended,
shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the Corporation by delivery
to its registered office in the State of Delaware, its principal place of
business, or an officer or agent of the Corporation having custody of the
records of proceedings of meetings of stockholders. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required by Chapter 1 of
the Delaware General Corporation Law as now or hereafter amended, the record
date for determining stockholders entitled to consent to corporate action in
writing without a meeting shall be at the close of business on the day on which
the Board of Directors adopts the resolution taking such prior action.
9.3 Dividends, Distributions, and Other Rights. For the purpose of determining
the stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to exercise
any rights in respect of any change, conversion, or exchange of stock, or for
the purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted, and which record date shall be not more than
sixty (or the maximum number permitted by applicable law) days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
9.4. Voting List. At least ten days before each meeting of stockholders, a
complete list of the stockholders entitled to vote at such meeting shall be
made, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
This list shall be open to examination by any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of ten days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at such meeting for inspection by any stockholder who is
present.
<PAGE> 5
SECTION 10. Action by Stockholders Without a Meeting.
Subject to the provisions of Article NINTH of the Certificate of Incorporation,
any action which could be taken at any annual or special meeting of stockholders
may be taken without a meeting, without prior notice, and without a vote, if a
consent or consents in writing, setting forth the action so taken, are (a)
signed by the holders of outstanding stock having not fewer than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
(b) delivered to the Corporation by delivery to its registered office in the
State of Delaware, its principal place of business, or an officer or agent of
the Corporation having custody of the records of proceedings of meetings of
stockholders. Delivery made to the Corporation's registered office shall be by
hand or by certified mail or registered mail, return receipt requested. Every
written consent shall bear the date of signature of each stockholder who signs
the consent and no written consent shall be effective to take the corporate
action referred to therein unless written consents signed by a sufficient number
of stockholders to take such action are delivered to the Corporation, in the
manner required by this section, within sixty (or the maximum number permitted
by applicable law) days of the date of the earliest dated consent delivered to
the Corporation in the manner required by this section. The validity of any
consent executed by a proxy for a stockholder pursuant to a telegram, cablegram,
or other means of electronic transmission transmitted to such proxy holder by or
upon the authorization of the stockholder shall be determined by or at the
direction of the Secretary of the Corporation. A written record of the
information upon which the person making such determination relied shall be made
and kept in the records of the proceedings of the stockholders. Any such consent
shall be inserted in the minute book as if it were the minutes of a meeting of
the stockholders. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
SECTION 11. Business and Nominations at Stockholders' Meetings.
11.1 Business and Nominations at Annual Meetings. In addition to the election of
directors, other proper business may be transacted at the annual meeting of
stockholders, provided that such business is a proper matter for stockholder
action and is properly brought before such meeting. To be properly brought
before an annual meeting, nominations of persons for election to the Board of
Directors and business to be considered by stockholders must be (a) made or
brought by or at the direction of the Board of Directors, or (b) made or brought
before the meeting by a stockholder of the Corporation who is a stockholder of
record at the time of giving notice as required in this By-Law, who is entitled
to vote at the meeting, and who complies with the notice procedures set forth in
this By-Law. Notice by a stockholder pursuant to (b) above must be in writing,
in accordance with Section 12 of this Article I, and received by the Secretary
not earlier than the one-hundred and twentieth day nor later than the close of
business on the ninetieth day prior to the date specified in Section 1 of this
Article I for such annual meeting; provided, however, that in the event that the
date of the annual meeting is more than thirty days before or more than sixty
days after such date, notice by the stockholder must be received by the
Secretary not earlier than the one-hundred and twentieth day prior to such
annual meeting and not later than the close of business on the ninetieth day
prior to such annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made by the Corporation.
11.2 Stockholder Notice. Any stockholder notice given pursuant to Section 11.1
shall set forth (i) the name and address of the stockholder proposing such
business and of the beneficial owner, if any, on whose behalf the proposal or
nomination is made; (ii) a representation that the stockholder is entitled to
vote at such meeting and a statement of the number of shares of the Corporation
which are owned by the stockholder and the number of shares which are
beneficially owned by the beneficial owner, if any; (iii) a representation that
the stockholder intends to appear in person or by proxy at the meeting to
nominate the person or persons or to propose the business specified in the
notice; and (iv) as to each person the stockholder proposes to nominate for
election or re-election as a director, the name and address of such person and
such other information regarding such nominee as would be required in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had such nominee been nominated by the Board of Directors, and a
description of any arrangements or understandings, between the stockholder and
such nominee and any other persons (including their names), pursuant to which
the nomination is to be made, and the written consent of each such nominee to
being named in the proxy statment as a nominee and to serving as a director if
elected; or, as to each matter the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting, the language
of the business matter (if appropriate), and any material interest of the
stockholder in such business.
11.3 Business and Nominations at Special Meetings. At any special meeting of the
stockholders, only such business as is specified in the notice of such special
meeting given by or at the direction of the person or persons calling such
meeting, in accordance with Section 2 of this Article I, shall come before such
meeting. Nominations of persons for election to the Board of Directors may be
made at a special meeting of stockholders at which directors are to be elected
pursuant to the Corporation's notice of meeting (a) by or at the direction of
the Board of Directors or (b) provided that the Board of Directors has
determined that directors shall be elected at such meeting, by any stockholder
of the Corporation who is a stockholder of record at the time of giving of
notice provided for in this By-Law, who shall be entitled to vote at the meeting
and who complies with the notice procedures set forth in this By-Law. In the
event the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons for election to such position(s) as specified
in the Corporation's notice of meeting, if the stockholder's notice required by
paragraph 11.1 of this By-Law shall be delivered to the Secretary not earlier
than the one hundred and twentieth day nor later than the ninetieth day prior to
such special meeting or the tenth day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting.
11.4 Stockholder Meeting Procedures. No business shall be conducted nor director
nominations made at any meeting of stockholders except in accordance with this
Section 11. If the facts warrant, the Board of Directors, or the chairman of a
stockholders' meeting at which directors are to be elected, may determine and
declare (a) that a proposal does not constitute proper business to be transacted
at the meeting or (b) that business was not properly brought before the meeting
in accordance with the provisions of this Section 11 or (c) that a nomination
was not made in accordance with this Section 11; and, if it is so determined,
the defective proposal or nomination shall be disregarded and shall not be
transacted or acted upon. The right of stockholders to bring business before or
to make nominations pursuant to the foregoing procedure is subject to the rights
of the holders of any class or series of stock having a preference over the
Common Stock as to dividends or upon liquidation. The procedures set forth in
this Section 11 for stockholders' bringing business before a stockholders'
meeting or stockholders' making nominations for the election of directors are in
addition to, and not in lieu or limitation of, (a) any procedures now in effect
or hereafter adopted by or at the direction of the Board of Directors or any
committee thereof and (b) the requirements set forth in Rule 14a-8 and Rule
14a-11 under Section 14 of the Securities Exchange Act of 1934, or any successor
provisions.
11.5 Public Announcement of Stockholders' Meetings. For purposes of this By-Law,
"public announcement" as to an annual or special meeting of stockholders shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act. In no event shall the public
announcement of an adjournment of an annual or special meeting commence a new
time period for the giving of a stockholder's notice as described above.
SECTION 12. Notice to Corporation.
Any written notice required to be delivered by a stockholder to the Corporation
pursuant to Section 11.1 of this Article I or Section 2.1 of Article II must be
given, either by personal delivery or by registered or certified mail, postage
prepaid, to the Secretary at the Corporation's executive offices in the City of
Seattle, State of Washington.
ARTICLE II
Board of Directors
SECTION 1. Number and Term of Office.
<PAGE> 6
The number of directors shall be thirteen, but the number may be increased, or
decreased to not less than three, from time to time, either by the directors by
adoption of a resolution to such effect or by the stockholders by amendment of
the By-Laws in accordance with Article VIII hereof. The directors shall be
divided into three classes, each of which shall be composed as nearly as
possible of one-third of the directors. Each director shall serve for the term
to which the director was elected, and until a successor shall have been elected
and qualified or until the director's prior death, resignation, or removal. At
each annual election, directors shall be chosen for a full three-year term to
succeed those whose terms expire.
SECTION 2. Nomination and Election.
2.1 Nomination. Only persons who are nominated in accordance with Article I,
Section 11 of these By-Laws shall be eligible for election as directors.
2.2 Election. At each election of directors, the persons receiving the greatest
number of votes shall be the directors.
<PAGE> 7
SECTION 3. Place of Meeting.
Meetings of the Board of Directors, or of any committee thereof, may be held
either within or without the State of Delaware.
SECTION 4. Annual Meeting.
Each year the Board of Directors shall meet in connection with the annual
meeting of stockholders for the purpose of electing officers and for the
transaction of other business. No notice of such meeting is required. Such
annual meeting may be held at any other time or place which shall be specified
in a notice given as hereinafter provided for special meetings of the Board, or
in a consent and waiver of notice thereof, signed by all the directors.
SECTION 5. Stated Meetings.
The Board of Directors may, by resolution adopted by affirmative vote of a
majority of the whole Board, from time to time appoint the time and place for
holding stated meetings of the Board, if by it deemed advisable; and such stated
meetings shall thereupon be held at the time and place so appointed, without the
giving of any special notice with regard thereto. In case the day appointed for
a stated meeting shall fall upon a legal holiday, such meeting shall be held on
the next following day, not a legal holiday, at the regularly appointed hour.
Except as otherwise provided in the By-Laws, any and all business may be
transacted at any stated meeting.
SECTION 6. Special Meetings.
6.1 Convenors and Notice. Special meetings of the Board of Directors may be
called by or at the request of the Chairman of the Board or any two directors.
Notice of a special meeting of the Board of Directors, stating the place, day,
and hour of the meeting, shall be given to each director in writing (by mail,
wire, facsimile, or personal delivery) or orally (by telephone or in person).
6.2 Waiver of Notice. With respect to a special meeting of the Board of
Directors, a written waiver, signed by a director, shall be deemed equivalent to
notice to that director. A director's attendance at a meeting shall constitute
that director's waiver of notice of such meeting, except when the director
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting was not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need be specified
in the waiver of notice of such meeting.
SECTION 7. Quorum and Manner of Acting.
Except as herein otherwise provided, forty percent of the total number of
directors fixed by or in the manner provided in these By-Laws at the time of any
stated or special meeting of the Board or, if vacancies exist on the Board of
Directors, forty percent of such number of directors then in office, provided,
however, that such number may not be less than one-third of the total number of
directors fixed by or in the manner provided in these By-Laws, shall constitute
a quorum for the transaction of business; and, except as otherwise required by
statute or by the Certificate of Incorporation or any amendment thereto, or by
the By-Laws, the act of a majority of the directors present at any such meeting
at which a quorum is present shall be the act of the Board of Directors. In the
absence of a quorum, a majority of the directors present may adjourn any
meeting, from time to time, until a quorum is present. No notice of any
adjourned meeting need be given.
<PAGE> 8
SECTION 8. Chairman of the Board.
The Chairman of the Board shall preside, when present, at all meetings of the
Board, except as otherwise provided by law.
SECTION 9. Resignations.
Any director of the Corporation may resign at any time by giving written notice
thereof to the Secretary. Such resignation shall take effect at the time
specified therefor or if the time is not specified, upon delivery thereof; and,
unless otherwise specified with respect thereto, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 10. Removal of Directors.
Any director may be removed solely for cause by the affirmative vote of the
holders of record of a majority of the outstanding shares of stock entitled to
vote, at a meeting of the stockholders called for the purpose; and the vacancy
on the Board caused by any such removal may be filled by the stockholders at
such meeting or at any subsequent meeting.
SECTION 11. Filling of Vacancies Not Caused by Removal.
In case of any increase in the number of directors, or of any vacancy created by
death or resignation, the additional director or directors may be elected or, as
the case may be, the vacancy or vacancies may be filled, either (a) by the Board
of Directors at any meeting, (i) if the Corporation has an Interested
Stockholder as defined in Article EIGHTH of the Certificate of Incorporation, by
the affirmative vote of a majority of the Continuing Directors, as defined in
Article EIGHTH, or (ii) if the Corporation does not have an Interested
Stockholder, by the affirmative vote of a majority of the remaining directors,
though less than a quorum; or (b) by the stockholders entitled to vote, either
at an annual meeting or at a special meeting thereof called for the purpose, by
the affirmative vote of a majority of the outstanding shares entitled to vote at
such meeting.
SECTION 12. Directors' Fees.
The Board of Directors shall have authority to determine from time to time the
amount of compensation which shall be paid to its members for attendance at
meetings of the Board or of any committee of the Board.
SECTION 13. Action Without a Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors or any committee thereof may be
taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board or committee.
ARTICLE III
Board Committees
SECTION 1. Audit Committee.
In addition to any committees appointed pursuant to Section 2 of this Article,
there shall be an Audit Committee, appointed annually by the Board of Directors,
consisting of at least three directors who are not members of management. It
shall be the responsibility of the Audit Committee to review the scope and
results of the annual independent audit of books and
<PAGE> 9
records of the Corporation and its subsidiaries, to review compliance with all
corporate policies which have been approved by the Board of Directors, and to
discharge such other responsibilities as may from time to time be assigned to it
by the Board of Directors. The Audit Committee shall meet at such times and
places as the members deem advisable, and shall make such recommendations to the
Board of Directors as they consider appropriate.
SECTION 2. Other Committees.
2.1 Committee Powers. The Board of Directors may appoint standing or temporary
committees and invest such committees with such powers as it may see fit, with
power to subdelegate such powers if deemed desirable by the Board of Directors;
but no such committee shall have the power or authority of the Board of
Directors to adopt, amend, or repeal the By-Laws of the Corporation or approve,
adopt or recommend to the stockholders of the Corporation any action or matter
expressly required by the Certificate of Incorporation, these By-Laws or the
Delaware General Corporation Law to be submitted to stockholders for approval.
2.2 Committee Members. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board to act at the meeting in the place of any such absent or disqualified
member.
SECTION 3. Quorum and Manner of Acting.
A majority of the number of directors composing any committee of the Board of
Directors, as established and fixed by resolution of the Board of Directors,
shall constitute a quorum for the transaction of business at any meeting of such
committee but, if less than a majority are present at a meeting, a majority of
such directors present may adjourn the meeting from time to time without further
notice. The act of a majority of the members of a committee present at a meeting
at which a quorum is present shall be the act of such committee.
ARTICLE IV
Officers and Agents: Terms, Compensation, Removal, Vacancies
SECTION 1. Officers.
The elected officers of the Corporation shall be a Chairman of the Board (who
shall be a director), a President (who shall be a director), and one or more
Vice Presidents (each of whom may be assigned by the Board of Directors or the
Chief Executive Officer an additional title descriptive of the functions
assigned to such officer and one or more of whom may be designated Executive or
Senior Vice President). The Board may also elect one or more Vice Chairmen. The
Board of Directors shall also designate either the Chairman of the Board or the
President as the Chief Executive Officer of the Corporation. The Board of
Directors shall appoint a Controller, a Secretary, and a Treasurer. Any number
of offices, whether elective or appointive, may be held by the same person. The
Chief Executive Officer may, by a writing filed with the Secretary, designate
titles as officers for employees and agents and appoint Assistant Secretaries
and Assistant Treasurers, as, from time to time, may appear to be necessary or
advisable in the conduct of the affairs of the Corporation and may, in the same
manner, terminate or change such titles.
<PAGE> 10
SECTION 2. Term of Office.
So far as practicable, all elected officers shall be elected at the annual
meeting of the Board in each year, and shall hold office until the annual
meeting of the Board in the next subsequent year and until their respective
successors are chosen. The Controller, Secretary, and Treasurer shall hold
office at the pleasure of the Board.
SECTION 3. Salaries of Elected Officers.
The salaries paid to the elected officers of the Corporation shall be authorized
or approved by the Board of Directors.
SECTION 4. Bonuses.
None of the officers, directors, or employees of the Corporation or any of its
subsidiary corporations shall at any time be paid any bonus or share in the
earnings or profits of the Corporation or any of its subsidiary corporations
except pursuant to a plan approved by affirmative vote of two-thirds of the
members of the Board of Directors.
SECTION 5. Removal of Elected and Appointed Officers.
Any elected or appointed officer may be removed at any time, either for or
without cause, by affirmative vote of a majority of the whole Board of
Directors, at any meeting called for the purpose.
SECTION 6. Vacancies.
If any vacancy occurs in any office, the Board of Directors may elect or appoint
a successor to fill such vacancy for the remainder of the term.
ARTICLE V
Officers' Duties and Powers
SECTION 1. Chairman of the Board.
The Chairman of the Board shall preside, when present, at all meetings of the
stockholders (except as otherwise provided by statute) and at all meetings of
the Board of Directors. The Chairman shall have general power to execute bonds,
deeds, and contracts in the name of the Corporation; to affix the corporate
seal; to sign stock certificates; and to perform such other duties and services
as shall be assigned to or required of the Chairman by the Board of Directors.
SECTION 2. President.
The President shall have general power to execute bonds, deeds, and contracts in
the name of the Corporation and to affix the corporate seal; to sign stock
certificates; during the absence or disability of the Chairman of the Board to
exercise the Chairman's powers and to perform the Chairman's duties; and to
perform such other duties and services as shall be assigned to or required of
the President by the Board of Directors; provided, that if the office of
President is vacant, the Chairman shall exercise the duties ordinarily exercised
by the President until such time as a President is elected or appointed.
<PAGE> 11
SECTION 3. Chief Executive Officer.
The officer designated by the Board of Directors as the Chief Executive Officer
of the Corporation shall have general and active control of its business and
affairs. The Chief Executive Officer shall have general power to appoint or
designate all employees and agents of the Corporation whose appointment or
designation is not otherwise provided for and to fix the compensation thereof,
subject to the provisions of these By-Laws; to remove or suspend any employee or
agent who shall not have been elected or appointed by the Board of Directors or
other body; to suspend for cause any employee, agent, or officer, other than an
elected officer, pending final action by the body which shall have appointed
such employee, agent, or officer; and to exercise all the powers usually
pertaining to the office held by the Chief Executive Officer of a corporation.
SECTION 4. Vice Presidents and Controller.
The several Vice Presidents and the Controller shall perform all such duties and
services as shall be assigned to or required of them, from time to time, by the
Board of Directors or the Chief Executive Officer, respectively.
SECTION 5. Secretary.
The Secretary shall attend to the giving of notice of all meetings of
stockholders and of the Board of Directors and shall keep and attest true
records of all proceedings thereat. The Secretary shall have charge of the
corporate seal and have authority to attest any and all instruments or writings
to which the same may be affixed and shall keep and account for all books,
documents, papers, and records of the Corporation relating to its corporate
organization. The Secretary shall have authority to sign stock certificates and
shall generally perform all the duties usually appertaining to the office of
secretary of a corporation. In the absence of the Secretary, an Assistant
Secretary or Secretary pro tempore shall perform the duties of the Secretary.
SECTION 6. Treasurer.
The Treasurer shall have the care and custody of all moneys, funds, and
securities of the Corporation, and shall deposit or cause to be deposited all
funds of the Corporation in accordance with directions or authorizations of the
Board of Directors or the Chief Executive Officer. The Treasurer shall have
power to sign stock certificates, to indorse for deposit or collection, or
otherwise, all checks, drafts, notes, bills of exchange, or other commercial
paper payable to the Corporation, and to give proper receipts or discharges
therefor. In the absence of the Treasurer, an Assistant Treasurer shall perform
the duties of the Treasurer.
SECTION 7. Additional Powers and Duties.
In addition to the foregoing especially enumerated duties and powers, the
several officers of the Corporation shall perform such other duties and exercise
such further powers as may be provided in these By-Laws or as the Board of
Directors may from time to time determine, or as may be assigned to them by any
superior officer.
SECTION 8. Disaster Emergency Powers of Acting Officers.
If, as a result of a disaster or other state of emergency, the Chief Executive
Officer is unable to perform the duties of that office, (a) the powers and
duties of the Chief Executive Officer shall be performed by the employee with
the highest base salary who shall be available and capable of performing such
powers and duties and, if more than one such employee has the same base salary,
by the employee whose surname begins with the earliest letter of the alphabet
among the group of those employees with the same base salary; and (b) the
officer performing such duties shall continue to perform such powers and duties
until the Chief Executive Officer becomes capable of performing those duties or
until the Board of Directors shall have elected a new Chief Executive Officer or
designated another individual as Acting Chief Executive Officer; and (c) such
officer shall have the power in addition to all other powers granted to the
Chief Executive Officer by these By-Laws and by the Board of Directors to
appoint an acting President, acting Vice President - Finance, acting Controller,
acting Secretary, and acting Treasurer, if any of the persons duly elected to
any such office is not by reason of such disaster or emergency able to perform
the duties of such office, each of such acting appointees to serve in such
capacities until the officer for whom the appointee is acting becomes capable of
performing the duties of such office or until the Board of Directors shall have
designated another individual to perform such duties or have elected another
person to fill such office; and (d) any such acting officer so appointed shall
be entitled to exercise all powers vested by the By-Laws or the Board of
Directors in the duly elected officer for whom the acting officer is acting; and
(e) anyone transacting business with this Corporation may rely upon a
certification by any two officers of the Corporation that a specified individual
has succeeded to the powers of the Chief Executive Officer and that such person
has appointed other acting officers as herein provided and any person, firm,
corporation, or other entity to which such certification has been delivered by
such officers may continue to rely upon it until notified of a change in writing
signed by two officers of this Corporation.
ARTICLE VI
Stock and Transfers of Stock
SECTION 1. Stock Certificates.
Every stockholder shall be entitled to a certificate, signed by the Chairman of
the Board or the President or a Vice President and the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary, certifying the number of
shares owned by the stockholder in the Corporation. Any and all of the
signatures on a certificate may be a facsimile. If any officer, transfer agent,
or registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he or she were such officer, transfer agent, or registrar at
the date of issue.
SECTION 2. Transfer Agents and Registrars.
The Board of Directors may, in its discretion, appoint responsible banks or
trust companies in the Borough of Manhattan, in the City of New York, State of
New York, and in such other city or cities as the Board may deem advisable, from
time to time, to act as transfer agents and registrars of the stock of the
Corporation; and, when such appointments shall have been made, no stock
certificate shall be valid until countersigned by one of such transfer agents
and registered by one of such registrars.
<PAGE> 12
SECTION 3. Transfers of Stock.
Shares of stock may be transferred by delivery of the certificates therefor,
accompanied either by an assignment in writing on the back of the certificates
or by written power of attorney to sell, assign, and transfer the same, signed
by the record holder thereof; but no transfer shall affect the right of the
Corporation to pay any dividend upon the stock to the holder of record thereof,
or to treat the holder of record as the holder in fact thereof for all purposes,
and no transfer shall be valid, except between the parties thereto, until such
transfer shall have been made upon the books of the Corporation.
SECTION 4. Lost Certificates.
The Board of Directors may provide for the issuance of new certificates of stock
to replace certificates of stock lost, stolen, mutilated, or destroyed, or
alleged to be lost, stolen, mutilated, or destroyed, upon such terms and in
accordance with such procedures as the Board of Directors shall deem proper and
prescribe.
ARTICLE VII
Miscellaneous
SECTION 1. Fiscal Year.
The fiscal year of the Corporation shall be the calendar year.
SECTION 2. (Repealed in its entirety by vote of the stockholders, May 5, 1975.)
SECTION 3. Signing of Negotiable Instruments.
All bills, notes, checks, or other instruments for the payment of money shall be
signed or countersigned by such officer or officers and in such manner as from
time to time may be prescribed by resolution (whether general or special) of the
Board of Directors.
SECTION 4. Indemnification of Directors and Officers.
4.1 Right to Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is otherwise involved (including, without
limitation, as a witness) in any actual or threatened action, suit, or
proceeding, whether civil, criminal, administrative, or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
director or officer of the Corporation or that, being or having been such a
director or officer or an employee of the Corporation, he or she is or was
serving at the request of an executive officer of the Corporation as a director,
officer, employee, or agent of another corporation or of a partnership, joint
venture, trust, or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as such a director,
officer, employee, or agent or in any other capacity while serving as such a
director, officer, employee, or agent, shall be indemnified and held harmless by
the Corporation to the full extent permitted by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than permitted prior thereto), or by
other applicable law as then in effect, against all expense, liability, and loss
(including attorneys' fees,
<PAGE> 13
judgments, fines, ERISA excise taxes or penalties, and amounts paid in
settlement) actually and reasonably incurred or suffered by such indemnitee in
connection therewith and such indemnification shall continue as to an indemnitee
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of the indemnitee's heirs, executors, and administrators; provided,
however, that except as provided in Section 4.2 with respect to proceedings
seeking to enforce rights to indemnification, the Corporation shall indemnify
any such indemnitee in connection with a proceeding (or part thereof) initiated
by such indemnitee only if such proceeding (or part thereof) was authorized or
ratified by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section 4.1 shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that an advancement of
expenses incurred by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an under-taking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal that such indemnitee is
not entitled to be indemnified for such expenses under this Section 4.1 or
otherwise; and provided, further, that an advancement of expenses shall not be
made if the Corporation's Board of Directors makes a good faith determination
that such payment would violate law or public policy.
4.2 Right of Indemnitee to Bring Suit. If a claim under Section 4.1 is not paid
in full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall also be
entitled to be paid the expense of prosecuting or defending such suit. The
indemnitee shall be presumed to be entitled to indemnification under this
Section 4 upon submission of a written claim (and, in an action brought to
enforce a claim for an advancement of expenses, where the required undertaking
has been tendered to the Corporation), and thereafter the Corporation shall have
the burden of proof to overcome the presumption that the indemnitee is not so
entitled. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee is not entitled to indemnification shall be a
defense to the suit or create a presumption that the indemnitee is not so
entitled.
<PAGE> 14
4.3 Nonexclusivity of Rights. The rights to indemnification and to the
advancement of expenses conferred in this Section 4 shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, provisions of the Certificate of Incorporation, By-Laws, agreement,
vote of stockholders or disinterested directors, or otherwise. Notwithstanding
any amendment to or repeal of this Section 4, or of any of the procedures
established by the Board of Directors pursuant to Section 4.7, any indemnitee
shall be entitled to indemnification in accordance with the provisions hereof
and thereof with respect to any acts or omissions of such indemnitee occurring
prior to such amendment or repeal.
4.4 Insurance, Contracts, and Funding.
The Corporation may maintain insurance, at its expense, to protect itself and
any director, officer, employee, or agent of the Corporation or another
corporation, partnership, joint venture, trust, or other enterprise against any
expense, liability, or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability, or loss under the
Delaware General Corporation Law. The Corporation may, without further
stockholder approval, enter into contracts with any indemnitee in furtherance of
the provisions of this Section 4 and may create a trust fund, grant a security
interest, or use other means (including, without limitation, a letter of credit)
to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Section 4.
4.5 Persons Serving Other Entities. Any person who is or was a director,
officer, or employee of the Corporation who is or was serving (i) as a director
or officer of another corporation of which a majority of the shares entitled to
vote in the election of its directors is held by the Corporation or (ii) in an
executive or management capacity in a partnership, joint venture, trust, or
other enterprise of which the Corporation or a wholly owned subsidiary of the
Corporation is a general partner or has a majority ownership shall be deemed to
be so serving at the request of an executive officer of the Corporation and
entitled to indemnification and advancement of expenses under Section 4.1.
4.6 Indemnification of Employees and Agents of the Corporation. The Corporation
may, by action of its Board of Directors, authorize one or more executive
officers to grant rights to advancement of expenses to employees or agents of
the Corporation on such terms and conditions as such officer or officers deem
appropriate under the circumstances. The Corporation may, by action of its
Board of Directors, grant rights to indemnification and advancement of expenses
to employees or agents or groups of employees or agents of the Corporation with
the same scope and effect as the provisions of this Section 4 with respect to
the indemnification and advancement of expenses of directors and officers of the
Corporation; provided, however, that an undertaking shall be made by an employee
or agent only if required by the Board of Directors.
4.7 Procedures for the Submission of Claims. The Board of Directors may
establish reasonable procedures for the submission of claims for indemnification
pursuant to this Section 4, determination of the entitlement of any person
thereto, and review of any such determination. Such procedures shall be set
forth in an appendix to these By-Laws and shall be deemed for all purposes to be
a part hereof.
<PAGE> 15
ARTICLE VIII
Amendments
SECTION 1. Amendment of the By-Laws: General.
Except as herein otherwise expressly provided, the By-Laws of the Corporation
may be altered or repealed in any particular and new By-Laws, not inconsistent
with any provision of the Certificate of Incorporation or any provision of law,
may be adopted, either by the affirmative vote of the holders of record of a
majority in number of the shares present in person or by proxy and entitled to
vote at an annual meeting of stockholders or at a special meeting thereof, the
notice of which special meeting shall include the form of the proposed
alteration or repeal or of the proposed new By-Laws, or a summary thereof; or
either
(a) by the affirmative vote of a majority of the whole Board of Directors
at any meeting thereof, or
(b) by the affirmative vote of all the directors present at any meeting at
which a quorum, less than a majority, is present;
provided, in either of the latter cases, that the notice of such meeting shall
include the form of the proposed alteration or repeal or of the proposed new
By-Laws, or a summary thereof.
SECTION 2. Amendments as to Compensation and Removal of Officers.
Notwithstanding anything contained in these By-Laws to the contrary, the
affirmative vote of the holders of record of a majority of the Voting Stock, as
defined in Article EIGHTH of the Certificate of Incorporation, at a meeting of
the stockholders called for the purpose, shall be required to alter, amend,
repeal, or adopt any provision inconsistent with Sections 3, 4 and 5 of Article
IV hereof, notice of which meeting shall include the form of the proposed
amendment, or a summary thereof.
SECTION 3. Amendments as to Stockholders' Meetings, Directors.
Notwithstanding anything contained in these By-Laws to the contrary, either (a)
the affirmative vote of a majority of the Continuing Directors, as defined in
Article EIGHTH of the Certificate of Incorporation, or (b) the affirmative vote
of the holders of record of at least seventy-five percent of the Voting Stock,
as defined in Article EIGHTH of the Certificate of Incorporation, shall be
required to alter, amend, repeal, or adopt any provision inconsistent with
Sections 1, 2, and 4 of Article I and Sections 1, 10, and 11 of Article II.
SECTION 4. Amendment of this Article VIII.
Notwithstanding anything contained in these By-Laws to the contrary, either (a)
the recommendation of a majority of the Continuing Directors, as defined in
Article EIGHTH of the Certificate of Incorporation, together with the
affirmative vote of the holders of record of a majority of the Voting Stock, as
defined in Article EIGHTH of the Certificate of Incorporation, or (b) the
affirmative vote of the holders of record of at least seventy-five percent of
the Voting Stock, as defined in Article EIGHTH of the Certificate of
Incorporation, shall be required to alter, amend, repeal, or adopt any provision
inconsistent with this Article VIII.
<PAGE> 1
Exhibit 5.1
October 28, 1996
Members of the Board of Directors
The Boeing Company
7755 East Marginal Way South
Seattle, WA 98108
Dear Board Members:
I am Vice President and General Counsel of The Boeing Company
("Boeing") and in that capacity, I have acted as counsel for Boeing in
connection with the issuance of shares of its common stock, par value
$5.00 per share (the "Common Stock"), to be issued in connection with
the proposed merger of Boeing NA, Inc. with and into Rockwell
International Corporation pursuant to the Registration Statement on
Form S-4 (the "Registration Statement") to be filed by Boeing with the
Securities and Exchange Commission.
I have examined or caused to be examined such corporate records,
certificates and other documents and such questions of law as I have
considered necessary or appropriate for the purposes of this opinion.
On the basis of such examination, it is my opinion that the Common
Stock, when issued in the manner contemplated by the Registration
Statement, will be duly authorized, validly issued, fully paid and
nonassessable.
I hereby consent to the inclusion of this opinion as an exhibit
to the Registration Statement, and consent to the reference to this
opinion under the heading "Legal Matters" in said Registration
Statement and in the Proxy Statement-Prospectus included therein.
Very truly yours,
/s/ THEODORE J. COLLINS
Theodore J. Collins
Vice President and General Counsel
<PAGE> 1
Exhibit 8.1
[Chadbourne & Parke LLP Letterhead]
October 28, 1996
Rockwell International Corporation
New Rockwell International
Corporation
2201 Seal Beach Boulevard
Seal Beach, California 90740-8250
Dear Sirs:
We have acted as counsel to Rockwell International Corporation
(the "Company") and New Rockwell International Corporation ("New Rockwell") in
connection with the Contribution, the Distribution and the Merger (as such terms
are defined in the Agreement and Plan of Merger dated as of July 31, 1996 (the
"Merger Agreement") among the Company, The Boeing Company ("Boeing") and Boeing
NA, Inc.). Capitalized terms used herein and not otherwise defined shall have
the meanings attributed thereto in the Merger Agreement and the Distribution
Agreement (as defined in the Merger Agreement).
We have assisted in the preparation of the section headed
"Certain Federal Income Tax Considerations - Federal
<PAGE> 2
Rockwell International -2- October 28, 1996
Corporation
New Rockwell International
Corporation
Income Tax Consequences of the Transactions" contained in the Proxy
Statement-Prospectus of the Company, New Rockwell and Boeing (the "Proxy
Statement-Prospectus") filed as part of the Registration Statement of New
Rockwell on Form S-4 (the "Registration Statement").
In rendering our opinion, we have examined and relied upon the
accuracy and completeness of the facts, information, covenants and
representations contained in originals or copies, certified or otherwise
identified to our satisfaction, of the Merger Agreement, the Distribution
Agreement, the Proxy Statement-Prospectus and such other documents as we have
deemed necessary or appropriate as a basis for the opinion set forth below. We
have assumed that the Contribution, the Distribution and the Merger will be
consummated in accordance with the Merger Agreement and the Distribution
Agreement and as described in the Proxy Statement-Prospectus.
In rendering our opinion, we have considered the applicable
provisions of the Internal Revenue Code of 1986, as amended, Treasury
Regulations promulgated thereunder, pertinent judicial authorities, interpretive
rulings of the Internal Revenue Service and such other authorities as we have
<PAGE> 3
Rockwell International -3- October 28, 1996
Corporation
New Rockwell International
Corporation
considered relevant, in each case as in effect on the date hereof.
Based solely on the foregoing, we are of the opinion that the
material United States Federal income tax consequences of the Contribution, the
Distribution and the Merger are as set forth under the heading "Certain Federal
Income Tax Considerations - Federal Income Tax Consequences of the Transactions"
in the Proxy Statement-Prospectus. The United States Federal income tax
consequences with respect to any shareowner of the Company will depend upon that
shareowner's particular circumstances and tax situation, and we express no
opinion with respect to the accuracy or completeness of the discussion under the
heading "Certain Federal Income Tax Considerations - Federal Income Tax
Consequences of the Transactions" in the Proxy Statement-Prospectus as applied
to any shareowner in particular.
Except as set forth above, we express no opinion as to the tax
consequences, whether Federal, state, local or foreign, of the Contribution, the
Distribution or the Merger or of any transactions related thereto. This opinion
is solely for your benefit and is not to be used, circulated, quoted or
otherwise referred to for any purpose without our
<PAGE> 4
Rockwell International -4- October 28, 1996
Corporation
New Rockwell International
Corporation
express written permission. Notwithstanding the previous sentence, we hereby
consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit to the Registration Statement and the Registration
Statement on Form S-4 of Boeing, of which the Proxy Statement-Prospectus is also
a part, and to the reference to our firm under the heading "Certain Federal
Income Tax Considerations - Federal Income Tax Consequences of the
Transactions". In giving such consent, we do not thereby admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Very truly yours,
CHADBOURNE & PARKE LLP
<PAGE> 1
Exhibit 8.2
[Wachtell, Lipton, Rosen & Katz Letterhead]
October 28, 1996
Rockwell International Corporation
New Rockwell International
Corporation
2201 Seal Beach Boulevard
Seal Beach, California 90740-8250
Dear Sirs:
We have acted as special counsel to Rockwell International
Corporation (the "Company") and New Rockwell International Corporation ("New
Rockwell") in connection with the Contribution, the Distribution and the Merger
(as such terms are defined in the Agreement and Plan of Merger dated as of July
31, 1996 (the "Merger Agreement") among the Company, The Boeing Company
("Boeing") and Boeing NA, Inc.). Capitalized terms used herein and not otherwise
defined shall have the meanings attributed thereto in the Merger Agreement and
the Distribution Agreement (as defined in the Merger Agreement).
<PAGE> 2
Rockwell International -2- October 28, 1996
Corporation
New Rockwell International
Corporation
We have assisted in the preparation of the section headed
"Certain Federal Income Tax Considerations - Federal Income Tax Consequences of
the Transactions" contained in the Proxy Statement-Prospectus of the Company,
New Rockwell and Boeing (the "Proxy Statement-Prospectus") filed as part of the
Registration Statement of New Rockwell on Form S-4 (the "Registration
Statement").
In rendering our opinion, we have examined and relied upon the
accuracy and completeness of the facts, information, covenants and
representations contained in originals or copies, certified or otherwise
identified to our satisfaction, of the Merger Agreement, the Distribution
Agreement, the Proxy Statement-Prospectus and such other documents as we have
deemed necessary or appropriate as a basis for the opinion set forth below. We
have assumed that the Contribution, the Distribution and the Merger will be
consummated in accordance with the Merger Agreement and the Distribution
Agreement and as described in the Proxy Statement-Prospectus.
In rendering our opinion, we have considered the applicable
provisions of the Internal Revenue Code of 1986, as amended, Treasury
Regulations promulgated thereunder,
<PAGE> 3
Rockwell International -3- October 28, 1996
Corporation
New Rockwell International
Corporation
pertinent judicial authorities, interpretive rulings of the Internal Revenue
Service and such other authorities as we have considered relevant, in each case
as in effect on the date hereof.
Based solely on the foregoing, we are of the opinion that the
material United States Federal income tax consequences of the Contribution, the
Distribution and the Merger are as set forth under the heading "Certain Federal
Income Tax Considerations - Federal Income Tax Consequences of the Transactions"
in the Proxy Statement-Prospectus. The United States Federal income tax
consequences with respect to any shareowner of the Company will depend upon that
shareowner's particular circumstances and tax situation, and we express no
opinion with respect to the accuracy or completeness of the discussion under the
heading "Certain Federal Income Tax Considerations - Federal Income Tax
Consequences of the Transactions" in the Proxy Statement-Prospectus as applied
to any shareowner in particular.
Except as set forth above, we express no opinion as to the tax
consequences, whether Federal, state, local or foreign, of the Contribution, the
Distribution or the Merger or of any transactions related thereto. This opinion
is
<PAGE> 4
Rockwell International -4- October 28, 1996
Corporation
New Rockwell International
Corporation
solely for your benefit and is not to be used, circulated, quoted or otherwise
referred to for any purpose without our express written permission.
Notwithstanding the previous sentence, we hereby consent to the filing of this
opinion with the Securities and Exchange Commission as an exhibit to the
Registration Statement and the Registration Statement on Form S-4 of Boeing, of
which the Proxy Statement-Prospectus is also a part, and to the reference to our
firm under the heading "Certain Federal Income Tax Considerations - Federal
Income Tax Consequences of the Transactions". In giving such consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
WACHTELL, LIPTON, ROSEN & KATZ
<PAGE> 1
Exhibit 10.1
DEFERRED COMPENSATION PLAN FOR
DIRECTORS OF THE BOEING COMPANY
As amended October 28, 1996
1. PURPOSE. The purposes of the Deferred Compensation Plan for Directors
of The Boeing Company (the "Plan") are
(i) to credit to members of the Board of Directors of The
Boeing Company (the "Company") any portions of
director retainers that are required to be paid in
Boeing stock units and
(ii) to provide for elective deferral of payment of all or
a portion of any retainers, meeting fees, or both,
otherwise payable in cash to such directors.
2. ELIGIBILITY. Every member of the Company's Board of Directors
entitled to compensation as a director shall be eligible to
participate in the Plan.
3. PLAN ADMINISTRATION. The Plan shall be administered by the
Compensation Committee of the Board of Directors (the "Committee"),
which shall have full power and authority to construe and interpret
the Plan.
4. PARTICIPATION. Every Participant shall participate in the Plan as to
the portions of retainers or fees which are required to be paid in
Boeing stock units.
4.1 ELECTION TO DEFER. A Participant also may elect to defer all or a
specified portion of retainers, meeting fees, or both, that may
thereafter be payable in cash. Such election shall be made by
executing and delivering to the Company a notice which states the
percentage of the retainers or fees or both to be deferred and the
deferral account (dollar denominated or stock units) to which the fees
are to be credited. An election or change in election must be made by
December 1 to be effective for retainers or fees to be paid in the
following calendar year.
4.2 ELECTION DURATION. An election to participate will remain in effect
until participation in the Plan terminates, or until the election is
changed by a notice from the Participant to the Company increasing or
decreasing the percentage of retainer or fees to be deferred or
changing the account for future elective deferrals. If a Participant
terminates elective participation in the Plan, all amounts accumulated
in the Participant's account(s) prior to termination will continue to
be held subject to the Plan.
5. ACCOUNTS. All payments required to be made to a Participant in stock
units shall be credited to a stock unit account for the Participant (a
"Stock Unit account"). All retainers and fees a Participant elects be
deferred under the Plan shall be credited to the Participant either in
a dollar denominated, interest bearing account (an "Interest Credit
deferral account") or in the Participant's Stock Unit account, at the
election of the Participant, such election to be irrevocable once made
as to payments made in the following calendar year. In the absence of
an election, all retainers and fees elected to be deferred shall be
credited to an Interest Credit deferral account. Retainers and fees
shall be credited at the time they otherwise are payable.
5.1 STOCK UNITS ACCOUNTS. At the time a retainer or fee is credited to a
Participant's Stock Unit account, the account shall be credited with
the number of shares of the Company's common stock that could be
purchased with the retainer or fee, based on the Fair Market Value of
such stock on the day as of which the retainer or fee is credited (or
on the next business day on which the New York Stock Exchange is open,
if the Exchange is closed on the day as of which the retainer or the
fee is credited), excluding commission, taxes, and other charges; and
such number (carried to two decimal places) shall be recorded as stock
units in the Participant's account, for bookkeeping purposes only. For
purposes of the Plan, "Fair Market Value" for a single trading day
equals the mean of the high and low per share trading prices of the
common stock of the Company for that day as reported in The Wall
Street Journal for the "New York Stock Exchange--Composite
Transactions." The
-1-
<PAGE> 2
number of stock units in an account shall be appropriately adjusted to
reflect stock splits, stock dividends, and other like adjustments in
the Company's common stock.
5.2 EARNINGS ON ACCOUNTS. Each Participant's account(s) shall be credited
with earnings thereon as follows:
Interest Credit Deferral Account. A Participant's Credit
deferral account shall be credited monthly with interest on
all amounts in that account during the proceeding month. Each
calendar year interest will be computed during at the mean
between the high and the low during the first eleven months of
the preceding year of yields on As-rated Industrial Bonds as
reported by Moody's Investors Service, Inc., rounded to the
nearest 1/4 of one percent. The Company will notify
Participants annually of the established interest rate and the
status of their respective Interest Credit deferral accounts.
Stock Unit Account. As of each of the Company's dividend
payment dates, each Participant's Stock Unit account shall be
credited with the number of shares of the Company's common
stock that could be purchased, as set forth in Section 5.1,
with an amount equal to the cash dividends that would be
payable on the number of shares of the Company's common stock
that equals the number of stock units in the Participant's
Stock Unit account. The Company will notify Participants
annually of the number of stock units, and the dividend
equivalents, credited to their respective Stock Unit accounts.
6. DISTRIBUTION. Distribution of amounts held under the Plan for a
Participant is intended to begin following the year in which the
Participant retires from the Board or otherwise terminates service
from the Board, and distributions must commence no later than the
January 15 immediately following (a) the year in which the Participant
reaches age 70-1/2 or (b) if the Participant continues service on the
Board beyond such age, the year the Participant retires from the Board
or otherwise terminates service from the Board. The exact timing
and manner of distribution of a Participant's account(s) shall be
determined by the Committee in its sole discretion.
6.1 DISTRIBUTION ELECTIONS. A Participant may submit elections to the
Committee, stating the following:
i. the number of years (which shall be between 1 and 15
years) over which distributions are to be made, and
ii. the initial year of distribution, (i and ii
together, the "distribution schedule") and
iii. in the case of payments to be made over 2 or more
years, the method of calculating the payment amount
(the "payment option")--as described below.
Participants may defer making distribution elections but election must
be submitted to the Committee not later than December 1 of the year in
which the Participant retires from the Board or otherwise terminates
service from the Board. Distributions shall be made in accordance
with the Participant's elections unless the Committee determines that
distributions should be made at some difference times or in some
different manner.
6.2 PAYMENT OPTIONS. The payment options (in the case of payments to be
made over 2 or more years) are as follows:
Approximately Equal Option. The amount payable to a
Participant each year shall be computed so that the aggregate
amount in the Participant's account(s) under the Plan shall be
distributed in approximately equal installments in each year
for which distributions are to be made; or
Fractional Option. The amount payable to a Participant each
year shall be computed by multiplying a fraction, the
numerator of which is one and the denominator of which is the
number of years remaining in the distribution period, by the
balance in the account(s) on January 1 of such year.
Under either option, the Participant's account(s) shall be debited at
the time of payment, which shall be on or before January 15 of each
year, unless otherwise authorized by the Committee.
-2-
<PAGE> 3
6.3 APPROVED ELECTION. A Participant's approved distribution elections
shall be applicable to the Participant's total aggregate account(s)
under the Plan, including any accounts previously maintained that have
been combined into an account under this Plan.
6.4 STOCK UNIT ACCOUNT DISTRIBUTION. Distributions from a Participant's
Stock Unit account shall be made in whole shares of the Company's
common stock based on the number of shares equal to the whole number
of stock units credited to the Participant's Stock Unit account. No
fractional shares shall be distributed and any account balance
remaining after a stock distribution shall be paid in cash.
6.5 EARLY DISTRIBUTION; CHANGE IN DISTRIBUTION ELECTIONS. Distributions
during a Participant's term of office as a director of the Company
shall be permitted under the Plan except as approved by the Committee
in the case of the Participant's disability or as described below.
Disability, for these purposes, shall mean condition entitling the
Participant to "Disability Retirement" under the Company's Retirement
Plan as if such Retirement Plan were applicable to the Participant.
A Participant may request that amounts credited to the Participant's
account(s) (except any amounts, and any interest credited thereon,
which were deferred in the calendar year in which the request for
distribution is submitted) be distributed during the Participant's
term of office as a director of the Company, or that an approved
distribution schedule or payment option for the account be changed.
Any such request must be submitted to the Committee no later than
December 1 of the year prior to the year in which the distribution or
change is request to be made, must set forth the reason therefor, and
is subject to approval by the Committee in its sole and absolute
discretion.
6.6 COMMITTEE DISCRETION. The Committee may establish guidelines for its
own use in considering any such request or any other request or
election under the Plan, but such guidelines shall not in any way
limit the Committee's discretion in acting upon a request or election,
or in determining the timing and manner of any distributions to be
made un the Plan.
7. BENEFICIARIES. A Participant may designate one or more beneficiaries
to receive distributions from the Plan, upon the death of the
Participant. If no beneficiary has been designated, all distributions
shall be made to the personal representative of the Participant.
Except as provided in the following paragraph, the death of a
Participant shall not affect the timing or manner of distributions
from the Participant's account(s).
A Participant may elect that, following the Participant's death, one
or more fixed distributions be made from the Participant's account(s)
under the Plan, to the Participant's personal representative or
designated beneficiary. Such distributions, if approved by the
Committee, shall be made within 15 months after the Participant's
death. Any amounts thereafter remaining in the account(s) will be
distributed at the time and in the manner approved by the Committee.
8. PARTICIPANT'S RIGHTS. Amounts accumulated and deferred under the Plan
remain the property of the Company, and no Participant or other person
shall acquire any property interest in the account(s) or any other
assets of the Company on account of participation in the Plan, a
Participant's rights being limited to receiving from the Company the
payments provided for in the Plan. The Plan in unfunded, and to the
extent that any Participant acquires a right to receive payments from
the Plan, such right shall be no greater than the right of an
unsecured creditor of the Company. The right of a Participant or the
Participant's legal representative or beneficiary to receive payments
from the Plan shall not be subject to anticipation, sale, assignment,
pledge, encumbrance or charge, nor shall such right be liable for or
subject to the debts, contracts, liabilities or torts of the
Participant, or the Participant's legal representative or
beneficiaries.
9. POWERS OF COMPENSATION COMMITTEE. Approval by the Committee of any
election or request made by a Participant pursuant to the Plan shall
be subject to the sole discretion of the Committee. No member of the
Committee shall act on any matter concerning such member's
participation in the Plan or such member's account(s) under the Plan.
Decisions of the Committee shall be final and binding upon the
Participants, their legal representatives and beneficiaries.
-3-
<PAGE> 4
10. TERMINATION OR AMENDMENT OF THE PLAN. The Plan may be terminated,
modified, or amended from time to time by resolution of the Board of
Directors. If the Plan is terminated, all amounts accumulated prior to
termination will continue to remain subject to the provisions of the
Plan as if the Plan had not been terminated.
-4-
<PAGE> 1
Exhibit 10.18
THE BOEING COMPANY BANK CREDIT AGREEMENT
Amended and Restated as of September 27, 1996
The Boeing Company, a Delaware corporation, the Banks (defined below) and
Citibank, N.A. as Agent for the Banks, hereby agree to amend and restate in its
entirety as of September 27, 1996 The Boeing Company Bank Credit Agreement as
amended and restated as of September 30, 1994 among The Boeing Company, the
banks party thereto and Citibank, N.A., as agent for such Banks, to read as
follows:
ARTICLE 1
Banks and Commitments
Section 1.01. Certain Definitions. (All other definitions are as set forth
in Article 9).
(a) "Bank"--Subject to the provisions of Section 2.18, any of the
banking institutions set forth in Section 1.02.
(b) "Commitment"--For each Bank, the full amount set forth opposite the
name of such Bank in Section 1.02, or, if such Bank has entered into one
or more assignments pursuant to Section 2.18, the amount set forth for
such Bank in the Register maintained by the Agent pursuant to Section
2.18(b), as such amount may be reduced pursuant to Section 2.08 or Section
2.17 or increased pursuant to Section 2.17.
<PAGE> 2
Section 1.02. Schedule of Banks and Commitments.
<TABLE>
<CAPTION>
Bank Commitment
<S> <C>
Citibank, N.A $ 100,000,000
The Chase Manhattan Bank 85,000,000
Long Term Credit Bank of Japan, Ltd. 85,000,000
Mitsubishi Trust and Banking Corp. 75,000,000
Bankers Trust Company 60,000,000
Credit Lyonnais 60,000,000
National Westminster Bank plc 60,000,000
ABN Amro Bank, N.V. 48,000,000
Industrial Bank of Japan, Ltd. 49,000,000
Bank of Tokyo - Mitsubishi 49,000,000
Nationsbank of Texas, N.A. 49,000,000
Bank of America, N.T. & S.A. 34,000,000
Bank of New York 34,000,000
The Sumitomo Bank Ltd. 34,000,000
Wachovia Bank of North Carolina, N.A. 34,000,000
PNC Bank, N.A. 27,000,000
Morgan Guaranty Trust Company of New York 25,000,000
Sumitomo Trust & Banking Co. Ltd. 25,000,000
CIBC Inc 25,000,000
First National Bank of Boston 20,000,000
U.S. Bank of Washington, N.A. 15,000,000
Bank IV, N.A. 7,000,000
Total $1,000,000,000
</TABLE>
ARTICLE 2
Amounts and Terms of the Advances
Section 2.01. The A Advances. Each Bank severally agrees, on the terms
and conditions hereinafter set forth, to make A Advances to the Company from
time to time on any Business Day during the period from the date hereof until
the Termination Date in an aggregate principal amount at any time outstanding
not to exceed such Bank's Commitment provided that the aggregate amount of the
Commitments of the Banks shall be deemed used from time to time to the extent of
the aggregate amount of the B Advances then outstanding and such deemed use of
the aggregate amount of the Commitments shall be applied to the Banks ratably
according to their respective Commitments (such deemed use of the aggregate
amount of the Commitments being a "B Reduction"). Each A Borrowing shall be in
an aggregate amount not less than $25,000,000 in the case of a Base Rate
Borrowing or $50,000,000 in the case of a Eurodollar Rate Borrowing or, in each
case, an integral multiple of $5,000,000 in excess thereof (or, if less, an
aggregate amount equal to the difference between the aggregate amount of a
proposed B Borrowing requested by the Company and the aggregate amount of B
Advances offered to be made by the Banks and accepted by the Company in respect
of such B Borrowing, if notice of such A Borrowing is given by the Company
within two Business Days of the date of such B Borrowing) and shall consist of A
Advances of the same Type made on the same day by the Banks ratably according to
their respective Commitments. Within the limits of each Bank's Commitment, the
Company may from time to time borrow, prepay pursuant to Section 2.12, and
reborrow under this Section 2.01.
Section 2.02. Making the A Advances.
2.02(a) Each A Borrowing shall be made on notice, given by the
Company to the Agent not later than 11:00 a.m. (New York City time) on the day
of the proposed A Borrowing in the case of a Base Rate Borrowing and on the
third Business Day prior to the date of the proposed A Borrowing in the case of
a Eurodollar Rate Borrowing. The Agent thereupon shall give to each Bank prompt
notice thereof by telecopier, telex or cable. Each such notice of an A Borrowing
(a "Notice of A Borrowing") shall be by telecopier, telex or cable, confirmed
immediately in writing, in substantially the form of Exhibit B-l hereto,
specifying therein the requested (i) date of such A Borrowing, (ii) Type of A
Advances comprising such A Borrowing, (iii) aggregate amount of such A
Borrowing, and (iv) in the case of an A Borrowing comprised of Eurodollar Rate
Advances, initial Interest Period for each such A Advance. Each Bank shall,
before 1:00 p.m. (New York City time) on the date of such A Borrowing, make
available for the account of its Applicable Lending Office to the Agent at its
address referred to in Section 8.02, in same day funds, such Bank's ratable
portion of such A Borrowing. After the Agent's receipt of such funds and upon
fulfillment of the applicable conditions set forth in Article 5, the Agent will
make such funds available to the Company at the Agent's aforesaid address.
2.02(b) Each Notice of A Borrowing shall be irrevocable and
binding on the Company. In the case of any A Borrowing which the related Notice
of A Borrowing specifies is to be comprised of Eurodollar Rate Advances, the
Company shall indemnify each Bank against any loss, cost or expense incurred by
such Bank on account of any failure to fulfill on or before the date specified
for such A Borrowing in such Notice of A Borrowing the applicable conditions set
forth in Article 5, including, without limitation, any loss (including loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Bank to fund the A
Advance to be made by such Bank as part of such A Borrowing when such A Advance,
as a result of such failure, is not made on such date.
2.02(c) Unless the Agent shall have received notice from a Bank
prior to 1:00 p.m. (New York City time) on the day of any A Borrowing that such
Bank will not make available to the Agent such Bank's ratable portion of such A
Borrowing, the Agent may assume that such Bank has made such portion available
to the Agent on the date of such A Borrowing in accordance with subsection (a)
of this Section 2.02 and the Agent may, in reliance upon such assumption, make
available to the Company on such date a corresponding amount. If and to the
extent that such Bank shall not have so made such ratable portion available to
the Agent, such Bank and the Company severally agree to repay to the Agent
forthwith on demand such corresponding amount together with interest thereon,
for each day from the date such amount is made available to the Company until
the date such amount is repaid to the Agent, at (i) in the case of the Company,
the interest rate applicable at the time to A Advances comprising such A
Borrowing and (ii) in the case of such Bank, the Federal Funds Rate. If such
Bank shall repay to the Agent such corresponding amount, such amount so repaid
shall constitute such Bank's A Advance as part of such A Borrowing for purposes
of this Agreement.
2.02(d) The failure of any Bank to make the A Advance to be made
by it as part of any A Borrowing shall not relieve any other Bank of its
obligation, if any, hereunder to make its A Advance on the date of such A
Borrowing, but no Bank shall be responsible for the failure of any other Bank to
make the A Advance to be made by such other Bank on the date of any A Borrowing.
Section 2.03. Repayment of A Advances. The Company shall repay on
September 30, 2003 the principal amount of each A Advance made by each Bank.
Section 2.04. Interest Rate on A Advances. The Company shall pay interest
on the unpaid principal amount of each A Advance made by each Bank from the date
of such A Advance until such principal amount shall be paid in full, at the
following rates per annum: (i) during each period in which such A Advance is a
Base Rate Advance, at a rate per annum equal at all times to the Base Rate in
effect from time to time, payable quarterly in arrears on the first day of each
January, April, July and October and on the Termination Date, and (ii) during
each period in which such A Advance is a Eurodollar Rate A Advance, at a rate
per annum equal at all times during each relevant Interest Period for such A
Advance to the Eurodollar Rate for such Interest Period plus the applicable
margin (the "Applicable Margin"), expressed as rate per annum, in effect from
time to time determined as set forth below, payable on the last day of each such
Interest Period.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Applicable Applicable
Margin Margin
Years 1-5 Years 6-7
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
(1) On each day on which the Company's long-term 0.125% 0.25%
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
senior unsecured debt is rated at least A- by S&P
or at least A3 by Moody's
- ---------------------------------------------------------------------------------------------
(2) On each day on which the Company's long-term 0.20% 0.325%
senior unsecured debt is rated lower than (1) but
BBB+ or higher by S&P and Baa1 or higher by
Moody's
- ---------------------------------------------------------------------------------------------
(3) On each day on which the Company's long-term 0.225% 0.35%
senior unsecured debt is rated lower than (2) but
BBB or higher by S&P and Baa2 or higher by Moody's
- ---------------------------------------------------------------------------------------------
(4) On each day on which the Company's long-term 0.425% 0.55%
senior unsecured debt is rated BBB- or lower by
S&P or Baa3 or lower by Moody's
- ---------------------------------------------------------------------------------------------
</TABLE>
If at any time no rating is available from S&P and Moody's or any other
nationally recognized statistical rating organization designated by the Company
and approved in writing by the Majority Banks, the Applicable Margin for each
Interest Period or each other period commencing during the thirty days following
such ratings becoming unavailable shall be the Applicable Margin in effect
immediately prior to such ratings becoming unavailable. Thereafter the rating to
be used for purposes of this Agreement until ratings from S&P and Moody's become
available shall be as agreed between the Company and the Agent, and the Company
and the Agent shall use good faith efforts to reach such agreement within such
thirty day period, provided, however, that if no such agreement is reached
within such thirty day period the Applicable Margin thereafter, until such
agreement shall have been reached, shall be (A) if any such rating shall have
become unavailable as a result of S&P or Moody's ceasing its business as a
rating agency, the Applicable Margin in effect immediately prior to such
cessation or (B) otherwise, the Applicable Margin as set forth under clause (4)
above.
Section 2.05. The B Advances.
2.05(a) Each Bank severally agrees that the Company may make B
Borrowings under this Section 2.05 from time to time on any Business Day during
the period from the date hereof until the Termination Date in the manner set
forth below, provided that, following the making of each B Borrowing, the
aggregate amount of the Advances then outstanding shall not exceed the aggregate
amount of the Commitments of the Banks.
2.05(a)(i) The Company may request a B Borrowing
under this Section 2.05 by delivering to the Agent, by telecopier, telex
or cable, confirmed immediately in writing, a notice of a B Borrowing (a
"Notice of B Borrowing"), in substantially the form of Exhibit B-2 hereto,
specifying the date and aggregate amount of the proposed B Borrowing, the
maturity date for repayment of each B Advance to be made as part of such B
Borrowing (which maturity date may not be later than the Termination Date
but may otherwise be from 14 to 180 days following the date of such B
Advance if the Company shall specify in the Notice of B Borrowing that the
rates of interest to be offered by the Banks shall be fixed rates per
annum (a "Fixed Rate Borrowing") and either 1, 2, 3, or 6 months from the
date of such B Borrowing if the Company shall specify in the Notice of B
Borrowing that such B Borrowing is to be a Borrowing consisting of
Eurodollar Rate B Advances (a "Eurodollar Rate B Borrowing")), the
interest payment date or dates relating thereto, and any other terms to be
applicable to such B Borrowing, not later than 11:00 a.m. (New York City
time) (A) at least one Business Day prior to the date of the proposed B
Borrowing if the Company shall specify in the Notice of B Borrowing that
such B Borrowing is to be a Fixed Rate Borrowing and (B) at least four
Business Days prior to the date of the proposed B Borrowing, if the
Company shall instead specify in the Notice of B Borrowing that such B
Borrowing is to be a Eurodollar Rate B Borrowing. The Agent shall in turn
promptly notify each Bank of each request for a B Borrowing received by it
from the Company by sending such Bank a copy of the related Notice of B
Borrowing.
2.05(a)(ii) Each Bank may, if, in its sole
discretion, it elects to do so, irrevocably offer to make one or more B
Advances to the Company as part of such proposed B Borrowing at a rate or
rates of interest specified by such Bank in its sole discretion (such rate
of interest to be a fixed rate if the Company requested Fixed Rate
Advances, or a margin over the Eurodollar Rate if the Company requested
Eurodollar Rate B Advances), by notifying the Agent (which shall give
prompt notice thereof to the Company), before 10:00 a.m. (New York City
time) (A) on the date of such proposed B Borrowing, in the case of a
Notice of B Borrowing delivered pursuant to clause (A) of paragraph (i)
above and (B) three Business Days before the date of such proposed B
Borrowing, in the case of a Notice of B Borrowing delivered pursuant to
clause (B) of paragraph (i) above, of the minimum amount and maximum
amount of each B Advance which such Bank would be willing to make as part
of such proposed B Borrowing (which amounts may, subject to the proviso to
the first sentence of this Section 2.05(a), exceed such Bank's
Commitment), the rate or rates of interest therefor (specified as stated
in this paragraph (ii)) and such Bank's Applicable Lending Office with
respect to such B Advance; provided that if the Agent in its capacity as a
Bank shall, in its sole discretion, elect to make any such offer, it shall
notify the Company of such offer before 9:30 a.m. (New York City time) on
the date on which notice of such election is to be given to the Agent by
the other Banks. If, by 10:00 a.m. (New York City time) on the date on
which notice of a Bank's election under this Section 2.05(a)(ii) is to be
made, the Agent fails to receive, at its address referred to in Section
8.02, the notice from a Bank provided for in this Section 2.05(a)(ii), the
Agent may conclusively presume that such Bank has elected not to offer to
make any B Advances to the Company with respect to the related Notice of B
Borrowing.
2.05(a)(iii) The Company shall, in turn, (A) before
11:00 a.m. (New York City time) on the date of such proposed B Borrowing,
in the case of a Notice of B Borrowing delivered pursuant to clause (A) of
paragraph (i) above and (B) before 12:00 noon (New York City time) three
Business Days before the date of such proposed B Borrowing, in the case of
a Notice of B Borrowing delivered pursuant to clause (B) of paragraph (i)
above, either:
(x) cancel such B Borrowing by giving the Agent
notice to that effect, or
(y) accept one or more of the offers made by any
Bank or Banks pursuant to Section 2.05(a)(ii), in its sole discretion, by
giving notice to the Agent of the amount of each B Advance (which amount
shall be equal to or greater than the minimum amount, and equal to or less
than the maximum amount, notified to the Company by the Agent on behalf of
such Bank for such B Advance pursuant to Section 2.05(a)(ii) above) to be
made by each Bank as part of such B Borrowing, and reject any remaining
offers made by Banks pursuant to Section 2.05(a)(ii) above by giving the
Agent notice to that effect.
2.05(a)(iv) If the Company notifies the Agent that
such B Borrowing is canceled pursuant to Section 2.05(a)(iii)(x) above,
the Agent shall give prompt notice thereof to the Banks and such B
Borrowing shall not be made.
2.05(a)(v) If the Company accepts one or more of the
offers made by any Bank or Banks pursuant to Section 2.05(a)(iii)(y)
above, the Agent shall in turn promptly (A) notify each Bank that has made
an offer as described in Section 2.05(a)(ii) above, of the date and
aggregate amount of such B Borrowing and whether or not any offer or
offers made by such Bank pursuant to Section 2.05(a)(ii) above have been
accepted by the Company, (B) notify each Bank that is to make a B Advance
as part of such B Borrowing, of the amount of each B Advance to be made by
such Bank as part of such B Borrowing, and (C) notify each Bank that is to
make a B Advance as part of such B Borrowing that the applicable
conditions set forth in Article 5 appear to have been satisfied. Each Bank
that is to make a B Advance as part of such B Borrowing shall, before 1:00
p.m. (New York City time) on the date of such B Borrowing specified in the
notice received from the Agent pursuant to clause (A) of the preceding
sentence and when such Bank shall have received notice from the Agent
pursuant to clause (C) of the preceding sentence, make available for the
account of its Applicable Lending Office to the Agent at its address
referred to in Section 8.02 such Bank's portion of such B Borrowing, in
same day funds. Upon fulfillment of the applicable conditions set forth in
Article 5 and after receipt by the Agent of such funds, the Agent will
make such funds available to the Company at the Agent's aforesaid address.
Promptly after each B Borrowing the Agent will notify each Bank of the
amount of the B Borrowing, the consequent B Reduction and the dates upon
which such B Reduction commenced and will terminate.
2.05(b) Each Notice of B Borrowing shall request an aggregate
amount of B Advances not less than
<PAGE> 4
$50,000,000 or an integral multiple of $5,000,000 in excess thereof provided
that the Company may accept offers aggregating less than $50,000,000 and offers
which are not an integral multiple of $5,000,000 and provided further that
following the making of each B Borrowing, the Company shall be in compliance
with the limitation set forth in the proviso to the first sentence of subsection
(a) above. Within the limits and on the conditions set forth in this Section
2.05, the Company may from time to time borrow under this Section 2.05, repay or
prepay pursuant to Section 2.05(c), and reborrow under this Section 2.05,
provided that a B Borrowing shall not be made within three Business Days of the
date of any other B Borrowing.
2.05(c) On the maturity date of each B Advance (such maturity date
being that specified by the Company for repayment of such B Advance in the
related Notice of B Borrowing delivered pursuant to Section 2.05(a)(i)) the
Company shall repay to the Agent for the account of the Bank which has made such
B Advance the then unpaid principal amount of such B Advance. The Company shall
have no right to prepay any principal amount of any B Advance.
2.05(d) The Company shall pay interest on the unpaid principal
amount of each B Advance, from the date of such B Advance to the date the
principal amount of such B Advance is repaid in full, at the fixed rate of
interest for such B Advance (in the case of a Fixed Rate B Advance) specified by
the Bank making such B Advance in its notice with respect thereto delivered
pursuant to Section 2.05(a)(ii) above or (in the case of a Eurodollar Rate B
Advance) the margin specified by the Bank making such B Advance in its notice
with respect thereto delivered pursuant to Section 2.05(a)(ii) above plus the
Eurodollar Rate determined with respect to such B Borrowing pursuant to Section
2.10, payable on the interest payment date or dates specified by the Company for
such B Advance in the related Notice of B Borrowing delivered pursuant to
Section 2.05(a)(i) above.
2.05(e) The indebtedness of the Company resulting from all B
Advances made by a Bank shall be evidenced by a single B Note payable to the
order of such Bank covering all Fixed Rate Advances, and a single B Note payable
to the order of such Bank covering all Eurodollar B Advances, made by such Bank.
2.05(f) Any Bank may, without the prior written consent of the
Company, sell or assign all or any part of such Bank's rights in any or all of
the B Advances made by such Bank or the B Notes in connection with such B
Advances, provided, however, that (i) any such sale or assignment shall not
require the Company to file a registration statement with the Securities and
Exchange Commission or apply to qualify the Notes under the blue sky laws of any
state and the selling or assigning Bank shall otherwise comply with all federal
and state securities laws applicable to such transaction; (ii) no purchaser or
assignee in such a transaction shall thereby become a "Bank" for any purpose
under this Agreement, (iii) such Bank's obligations under this Agreement
(including, without limitation, its Commitment to the Company hereunder) shall
remain unchanged, (iv) such Bank shall remain solely responsible to the other
parties hereto for the performance of such obligations, and (v) the Company, the
Agent and the other Banks shall continue to deal solely and directly with such
Bank in connection with such Bank's rights and obligations under this Agreement.
Section 2.06. Fees. The Company agrees to pay to the Agent for the account
of each Bank a facility fee ("Facility Fee") on such Bank's Commitment, without
regard to usage. Such fee shall be payable for the periods from the date hereof
in the case of each Bank named in Section 1.02, and from the effective date on
which any other Bank becomes a party hereto, until the Termination Date at the
rate per annum set forth below in effect from time to time determined as set
forth below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Facility Fee
- ------------------------------------------------------------------------------------
<S> <C>
(1) On each day on which the Company's long-term senior 0.08%
unsecured debt is rated at least A- by S&P or at least A3
by Moody's
- ------------------------------------------------------------------------------------
(2) On each day on which the Company's long-term senior 0.10%
unsecured debt is rated lower than (1) but BBB+ or higher
by S&P and Baa1 or higher by Moody's
- ------------------------------------------------------------------------------------
(3) On each day on which the Company's long-term senior 0.15%
unsecured debt is rated lower than (2) but BBB or higher
by S&P and Baa2 or higher by Moody's
- ------------------------------------------------------------------------------------
(4) On each day on which the Company's long-term senior 0.20%
unsecured debt is rated BBB- or lower by S&P or Baa3 or
lower by Moody's
- ------------------------------------------------------------------------------------
</TABLE>
Facility Fees shall be payable in arrears on each January 1, April 1, July 1 and
October 1 during the term of this Agreement and on the Termination Date.
If at any time no rating is available from S&P and Moody's or any other
nationally recognized statistical rating organization designated by the Company
and approved in writing by the Majority Banks, the fees during the thirty days
following such ratings becoming unavailable shall be those in effect immediately
prior to such ratings becoming unavailable. Thereafter the rating to be used for
purposes of this Agreement until ratings from S&P and Moody's become available
shall be as agreed between the Company and the Agent, and the Company and the
Agent shall use good faith efforts to reach such agreement within such thirty
day period, provided, however, that if no such agreement is reached within such
thirty day period the fees thereafter, until such agreement shall have been
reached, shall be (A) if any such rating shall have become unavailable as a
result of S&P or Moody's ceasing its business as a rating agency, the fees in
effect immediately prior to such cessation or (B) otherwise, the fees as set
forth under clause(4) above.
Section 2.07. Compensating Balances. The Company shall (i) maintain with
each Bank during each calendar year during which such Bank has any Commitment
hereunder a compensating balance of demand deposits equal to one percent (1%) of
the amount of such Bank's Commitment in effect from time to time without regard
to usage or (ii) pay a fee in lieu thereof as follows. On February 15 of each
year the Company shall pay to each Bank a fee (if such fee is payable pursuant
to the preceding sentence), calculated with respect to the calendar year ending
the preceding December 31 in an amount equal to the average Federal Funds Rate
during such year times the excess, if any, of the average compensating balance
required with respect to such Bank pursuant to this Section 2.07 during such
calendar year over the Company's average balances of demand deposits maintained
with such Bank during such calendar year. The amount of compensating balance and
fees required during a calendar year shall be prorated for any calendar year
during which this Agreement is not in effect for the entire year.
Section 2.08. Reduction of the Commitments. The Company shall have the
right, upon at least 10 Business Days' notice to the Agent, to terminate in
whole or reduce ratably in part the unused portions of the Commitments of the
Banks, provided that the aggregate amount of the Commitments of the Banks shall
not be reduced to an amount which is less than the aggregate principal amount of
the B Advances then outstanding.
Section 2.09. Additional Interest on Eurodollar Rate A Advances. The
Company shall pay to each Bank, so long as such Bank shall be required under
regulations of the Board of Governors of the Federal Reserve System to maintain
reserves with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities, additional interest on the unpaid principal amount of
each Eurodollar Rate A Advance of such Bank, from the date of such A Advance
until such principal amount is paid in full, at an interest rate per annum equal
at all times to the remainder obtained by subtracting (i) the Eurodollar Rate
for the Interest Period for such A Advance from (ii) the rate obtained by
dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar
Rate Reserve Percentage of such Bank for such Interest Period, payable on each
date on which interest is payable on such A Advance. Such additional interest
shall be determined by such Bank and notified to the Company through the Agent.
<PAGE> 5
Section 2.10. Eurodollar Interest Rate Determination.
2.10(a) Each Reference Bank agrees to furnish to the Agent timely
information for the purpose of determining each Eurodollar Rate. If any one or
more of the Reference Banks shall not furnish such timely information to the
Agent for the purpose of determining any such interest rate, the Agent shall
determine such interest rate on the basis of timely information furnished by the
remaining Reference Banks.
2.10(b) The Agent shall give prompt notice to the Company and the
Banks of the Eurodollar Rate determined by the Agent.
2.10(c) If fewer than two Reference Banks furnish timely
information to the Agent for determining the Eurodollar Rate for any Eurodollar
Rate Advances, the Agent shall determine the interest rate for deposits in U.S.
Dollars for a period equal to that of the relevant Interest Period on the
Telerate page 3750 quoted as of 11:00 a.m. (London time) two Business Days
before the first day of such Interest Period or, if such page on such service
ceases to display such information, such other page as may replace it on that
service for the purpose of displaying such information, and the rate so
determined shall be used as the Eurodollar Rate for such Eurodollar Rate
Advances. If such rate is not so displayed on that service,
(i) the Agent shall forthwith notify the Company and the
Banks that the interest rate cannot be determined for such Eurodollar Rate
Advances,
(ii) each such Advance, if an A Advance, will
automatically, on the last day of the then existing Interest Period
therefor, Convert into a Base Rate Advance (or if the Company was
attempting to Convert a Base Rate Advance into a Eurodollar Rate A
Advance, such Advance will continue as a Base Rate Advance), and
(iii) the obligation of the Banks to make Eurodollar Rate B
Advances, or to make, or to Convert A Advances into, Eurodollar Rate A
Advances shall be suspended until the Agent shall notify the Company and
the Banks that the circumstances causing such suspension no longer exist.
2.10(d) If, with respect to any Eurodollar Rate A Advances, the
Majority Banks notify the Agent that the Eurodollar Rate for any Interest Period
for such A Advances will not adequately reflect the cost to such Majority Banks
of making, funding or maintaining their respective Eurodollar Rate A Advances
for such Interest Period, the Agent shall forthwith so notify the Company and
the Banks, whereupon
(i) each Eurodollar Rate A Advance will automatically, on
the last day of the then existing Interest Period therefor, Convert into a
Base Rate Advance, and
(ii) the obligation of the Banks to make, or to Convert A
Advances into, Eurodollar Rate A Advances shall be suspended until the
Agent shall notify the Company and such Banks that the circumstances
causing such suspension no longer exist.
2.10(e) If the Company shall fail to select the duration of any
Interest Period for any Eurodollar Rate A Advances in accordance with the
provisions contained in the definition of "Interest Period" in Section 9.01, the
Agent will forthwith so notify the Company and the Banks and such A Advances
will automatically, on the last day of the then existing Interest Period
therefor, Convert into Base Rate Advances.
Section 2.11. Voluntary Conversion of A Advances. The Company may on any
Business Day, upon notice given to the Agent not later than 11:00 a.m. (New York
City time) on the third Business Day prior to the date of the proposed
Conversion and subject to the provisions of Sections 2.10 and 2.14, Convert all
A Advances of one Type comprising the same A Borrowing into Advances of another
Type; provided, however, that any Conversion of any Eurodollar Rate A Advances
into Base Rate Advances shall be made on, and only on, the last day of an
Interest Period for such Eurodollar Rate A Advances. Each such notice of a
Conversion shall, within the restrictions specified above, specify (i) the date
of such Conversion, (ii) the A Advances to be Converted, and (iii) if such
Conversion is into Eurodollar Rate A Advances, the duration of the Interest
Period for each such A Advance.
Section 2.12. Prepayments. The Company shall have the right at any time
and from time to time, upon prior written notice from the Company to the Agent,
to prepay the outstanding principal obligations evidenced by the A Notes in
whole or ratably (except as provided in Section 2.13(b), 2.14 or 2.17) in part
and may be obligated to make certain prepayments of obligations evidenced by one
or more A Notes subject to and in accordance with the following:
2.12(a) With respect to Base Rate Borrowings, such prepayment
shall be without premium or penalty and shall be made on at least two Business
Days' prior written notice. The Company shall designate in such notice the
amount and date of such prepayment. Accrued interest on the amount so prepaid
shall be payable on the first Business Day of the calendar quarter next
following the prepayment. The minimum amount of Base Rate Borrowings which may
be prepaid on any occasion shall be $25,000,000 or an integral multiple of
$5,000,000 in excess thereof or, if less, the total amount of A Advances then
outstanding.
2.12(b) With respect to Eurodollar Rate A Borrowings, such
prepayment shall be made on at least 5 Business Days' prior written notice. The
Company shall designate in such notice the amount and date of such prepayment
and the Eurodollar Rate A Borrowings against which each portion of each
prepayment shall be applied, which portion shall be ratable as among the Banks.
The minimum amount of each prepayment shall be an amount necessary to prepay the
entire amount of the Eurodollar Rate A Borrowing with respect to which such
prepayment is being made. The Company shall, on the date of the prepayment, pay
to the Agent for the account of each Bank interest accrued to such date of
prepayment on the principal amount prepaid plus, in the case only of a
prepayment on any date which is not the last day of an applicable Eurodollar
Interest Period, any amounts which may be required to compensate such Bank for
any losses or out-of-pocket costs or expenses (including any loss, cost or
expense incurred by reason of the liquidation or reemployment of deposits or
other funds, but excluding loss of anticipated profits) incurred by such Bank as
a result of such prepayment, provided that such Bank shall exercise reasonable
efforts to minimize any such losses, costs and expenses.
2.12(c) If due to any prepayment pursuant to Section 2.14 or to
the acceleration of any of the A Notes pursuant to Section 6.01 or otherwise,
any Bank receives payment of its portion of, or is subject to any Conversion
from, any Eurodollar Rate A Advance on any day other than the last day of an
Interest Period with respect to such A Advance, the Company will pay to the
Agent for the account of such Bank any amounts which may be payable to such Bank
by the Company by reason of payment on such day as provided in Section 2.12(b).
Section 2.13. Increases in Costs.
2.13(a) If, due to either (1) the introduction of, or any change
(other than, in the case of Eurodollar Rate Borrowings, a change by way of
imposition or increase of reserve requirements referred to in Section 2.09) in,
or new interpretation of, any law or regulation effective at any time and from
time to time on or after August 15, 1980 or (2) the compliance with any request
from or by any central bank or other governmental authority (whether or not
having the force of law), there shall be any increase in the costs incurred by
any Bank in agreeing to make or making, funding or maintaining any Eurodollar
Rate A Advance then or at any time thereafter outstanding, then the Company
shall from time to time, upon demand of such Bank (with a copy of such demand to
the Agent), pay to the Agent for the account of such Bank such amounts as shall
be required to compensate such Bank for such increased cost, provided that such
Bank shall exercise reasonable efforts (consistent with its internal policy and
legal and regulatory restrictions) to minimize any such increased cost. A
certificate as to the amount of such increase in costs, submitted to the Company
and the Agent by such Bank, shall be conclusive and binding for all purposes
under this Section 2.13(a), absent manifest error.
2.13(b) If any Bank determines that compliance with any law or
regulation or any guidelines or request from any central bank or other
governmental authority (whether or not having the force of law) which is
enacted, adopted or issued at any time and from time to time after December 31,
1990 affects or would affect the amount of capital required or expected to be
maintained by such Bank or any corporation controlling such Bank and that the
amount of such capital is increased by or based upon the existence of such
Bank's commitment to lend hereunder and other commitments of this type, then,
upon demand by such Bank (with a copy of such demand to the Agent), the Company
shall immediately pay to the Agent for the account of such Bank, from time to
<PAGE> 6
time as specified by such Bank, additional amounts sufficient to compensate such
Bank in the light of such circumstances, to the extent that such Bank reasonably
determines such increase in capital to be allocable to the existence of such
Bank's commitment to lend hereunder, provided that such Bank shall exercise
reasonable efforts (consistent with its internal policy and legal and regulatory
restrictions) to minimize any such compensation payable by the Company
hereunder. A certificate as to such amounts submitted to the Company and the
Agent by such Bank, shall be conclusive and binding for all purposes, absent
manifest error. Upon receipt of notice from any Bank claiming compensation
pursuant to this Section 2.13(b) and as long as no Event of Default and no event
which with notice or lapse of time or both would constitute an Event of Default
shall have occurred and be continuing, the Company shall have the right, on or
before the 30th day after the date of receipt of such notice, (i) to arrange for
one or more Banks or other commercial banks to assume the Commitment of such
Bank or (ii) to arrange for the Commitment of such Bank to be terminated and all
A Advances owed to such Bank to be prepaid.
Section 2.14. Illegality. If there is any introduction of, or change in,
or in the interpretation of, any law or regulation, which in the opinion of
counsel for the Agent in the relevant jurisdiction shall make it unlawful, or if
any central bank or other governmental authority shall assert that it is
unlawful, for any Bank to continue to fund or maintain any Eurodollar Rate
Advances or to perform its obligations with respect to Eurodollar Rate Advances
as provided hereunder, upon the issuance of such opinion of counsel or such
assertion by a central bank or other governmental authority and notice given to
the Company (accompanied by such opinion, if applicable) by the Agent, the
Company shall forthwith either (1) prepay in full all Eurodollar Rate A Advances
made by such Bank as a part of Eurodollar Rate A Borrowings, with accrued
interest thereon and all other amounts which may be payable to such Bank by the
Company as provided in Section 2.12(b) or (2) Convert all such Eurodollar Rate A
Advances made by such Bank into A Borrowings of another Type as provided in
Section 2.11. Upon such demand or such notice of prepayment or Conversion, the
obligation of such Bank to make or to Convert A Advances into, Eurodollar Rate A
Advances shall be suspended until such time as the event giving rise to such
prepayment or Conversion shall no longer apply, at which time the Commitment of
such Bank to make A Advances for the funding of, or Conversion to, Eurodollar
Rate A Borrowings shall be reinstated, subject to its then available Commitment.
Section 2.15. Payments and Computations.
2.15(a) The Company shall make each payment hereunder and under
the Notes not later than 11:00 a.m. (New York City time) on the day when due in
U.S. dollars to the Agent at its address referred to in Section 8.02 in same day
funds. The Agent will promptly thereafter cause to be distributed like funds
relating to the payment of principal or interest or fees ratably (other than
amounts payable pursuant to Section 2.05, 2.09, 2.13, 2.14, or 2.17) to the
Banks for the account of their respective Applicable Lending Offices, and like
funds relating to the payment of any other amount payable to any Bank to such
Bank for the account of its Applicable Lending Office, in each case to be
applied in accordance with the terms of this Agreement. From and after the
effective date of an assignment pursuant to Section 2.18, the Agent shall make
all payments hereunder and under the Notes in respect of the interest assigned
thereby to the Bank assignee thereunder, and the parties to such assignment
shall make all appropriate adjustments in such payments for the periods prior to
such effective date directly between themselves.
2.15(b) All computations of interest based on the Base Rate and of
fees shall be made by the Agent on the basis of a year of 365 or 366 days, as
the case may be, and all computations of interest based on the Eurodollar Rate
or the Federal Funds Rate shall be made by the Agent, and all computations of
interest pursuant to Section 2.09 shall be made by a Bank, on the basis of a
year of 360 days, in each case for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest or fees are payable. Each determination by the Agent (or, in the case
of Section 2.09, by a Bank) of an interest rate hereunder shall be conclusive
and binding for all purposes, absent manifest error.
2.15(c) Whenever any payment hereunder or under the Notes shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest or fee, as the case
may be; provided, however, if such extension would cause payment of interest on
or principal of Eurodollar Rate Advances to be made in the next following
calendar month, such payment shall be made on the next preceding Business Day.
2.15(d) Unless the Agent shall have received notice from the
Company prior to the date on which any payment is due to the Banks hereunder
that the Company will not make such payment in full, the Agent may assume that
the Company has made such payment in full to the Agent on such date and the
Agent may, in reliance upon such assumption, cause to be distributed to each
Bank on such due date an amount equal to the amount then due such Bank. If and
to the extent that the Company shall not have so made such payment in full to
the Agent, each Bank shall repay to the Agent forthwith on demand such amount
distributed to such Bank together with interest thereon, for each day from the
date such amount is distributed to such Bank until the date such Bank repays
such amount to the Agent, at the Federal Funds Rate.
Section 2.16. Sharing of Payments, Etc. If any Bank shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the A Advances made by it (other than
pursuant to Sections 2.09, 2.13, 2.14 or 2.17), in excess of its ratable share
of payments on account of the A Advances obtained by all the Banks, such Bank
shall forthwith purchase from the other Banks such participations in the A
Advances made by them as shall be necessary to cause such purchasing Bank to
share the excess payment ratably with each of them, provided, however, that if
all or any portion of such excess payment is thereafter recovered from such
purchasing Bank, such purchase from each Bank shall be rescinded and such Bank
shall repay to the purchasing Bank the purchase price to the extent of such
recovery together with an amount equal to such Bank's ratable share (according
to the proportion of (i) the amount of such Bank's required repayment to (ii)
the total amount so recovered from the purchasing Bank) of any interest or other
amount paid or payable by the purchasing Bank in respect of the total amount so
recovered. The Company agrees that any Bank so purchasing a participation from
another Bank pursuant to this Section 2.16 may, to the fullest extent permitted
by law, exercise all its rights of payment (including the right of set-off) with
respect to such participation as fully as if such Bank were creditor of the
Company in the amount of such participation.
Section 2.17. Alteration of Commitments and Addition of Banks. By a
written agreement executed only by the Company, the Agent and the Bank or bank
affected:
(i) the Commitment of such Bank may be increased to the amount
set forth in such agreement;
(ii) such bank may be added as a Bank with a Commitment as set
forth in such agreement provided that it agrees to be bound by all the
terms and provisions of this Agreement; and
(iii) the unused portion of the Commitment of such Bank may be
reduced or terminated and the A Advances owing to such Bank may be prepaid
in whole or in part, all as set forth in such agreement.
The Agent may execute any such agreement without the prior consent of any Bank
(other than the Bank or bank affected), except that if at the time the Agent
proposes to execute such agreement either (A) the Company's long-term senior
unsecured debt is rated BBB- or lower by S&P or Baa3 or lower by Moody's or (B)
an Event of Default, or an event which with notice or lapse of time or both
would constitute an Event of Default, shall have occurred and be continuing,
then the Agent shall not execute any such agreement unless it has first obtained
the prior written consent of the Majority Banks and provided that the Agent
shall not execute any such agreement without the prior written consent of the
Majority Banks if such agreement would increase the total of the Commitments to
an amount in excess of $1,100,000,000. The Agent shall give each Bank prompt
notice of any such agreement becoming effective. All requests for Bank consent
under the provisions of this Section 2.17 shall specify the date upon which any
such increase, addition, reduction, termination, or prepayment shall become
effective (the "Effective Date") and shall be made by means of a Request for
Alteration substantially in the form as set forth in Exhibit C. On the Effective
Date on which the Commitment of any Bank is increased, decreased, terminated or
created or on which prepayment is made, all as described in such Request for
Alteration, the Company or such Bank, as the case may be, shall make available
to the Agent not later than 12:30 p.m. (New York City time) on such date, in
same day funds, the amount, if any, which may be required (and the Agent shall
distribute such funds received by it to the Company or to such Banks, as the
case may be) so that at the close of business on such date the sum of the A
Advances of each Bank then outstanding shall be in the same proportion to the
total of the A Advances of all the Banks then outstanding as the Commitment of
each Bank is to the total of the Commitments. The Agent shall give each Bank
notice of the amount to be made available by, or to be distributed to, such Bank
at least 5 Business Days before such payment is made.
Section 2.18. Assignments; Sales of Participations and Other Interests
in Notes.
2.18(a) From time to time each Bank may with the prior consent of
the Company and subject to the
<PAGE> 7
qualifications set forth below, assign to one or more Banks or other commercial
banks (each such Bank or bank being an "Eligible Assignee") a portion of its
rights and obligations under this Agreement (including, without limitation, a
portion of its Commitment, the A Advances owing to it and all A Notes held by
it) and will, at any time, if arranged by the Company pursuant to clause (A) of
this sentence upon at least 30 days' notice to such Bank and the Agent, assign
to one or more Eligible Assignees all of its rights and obligations under this
Agreement (including without limitation, all of its Commitment, the A Advances
owing to it and all A Notes held by it); provided, however, that if such Bank
shall notify the Company and the Agent of its intent to request the Company's
consent to an assignment, the Company shall have the right, for 30 days after
receipt of such notice and so long as no Event of Default shall have occurred
and be continuing, in its sole discretion either (A) to arrange for one or more
Eligible Assignees to accept such assignment (a "Required Assignment") or (B) to
arrange for the rights and obligations of such Bank (including, without
limitation, such Bank's Commitment), and the total Commitments of the Banks to
be reduced by an amount equal to the amount of such Bank's Commitment to be
assigned and in connection with such reduction, to prepay that portion of the A
Advances owing to such Bank which it proposes to assign; provided further that
if the Company fails to notify such Bank that it has arranged for an assumption
or reduction of the portion of Commitment to be assigned within 30 days of the
receipt by the Company of such Bank's request for consent to assignment, the
Company shall be deemed to consent to the proposed assignment; provided further
that (i) any such assignment shall not require the Company to file a
registration statement with the Securities and Exchange Commission or apply to
qualify the A Notes under the blue sky laws of any state and the assigning Bank
shall otherwise comply with all federal and state securities laws applicable to
such assignment; (ii) the amount of the Commitment of the assigning Bank being
assigned pursuant to each such assignment (determined as of the date of the
assignment) shall either (A) equal 50% of all such rights and obligations (or
100% in the case of a Required Assignment) or (B) not be less than $10,000,000
and be an integral multiple of $5,000,000, and (iii) the aggregate amount of the
Commitment of the assigning Bank assigned pursuant to all such assignments of
such Bank (after giving effect to such assignment) shall in no event exceed 50%
(except in the case of a Required Assignment) of all such Bank's Commitment (as
set forth in Section 1.02, in the case of each Bank that is a party hereto as of
September 27, 1996, or as set forth in the Register as the aggregate Commitment
assigned to such Bank pursuant to one or more assignments, in the case of any
assignee). No Bank shall be obligated to make a Required Assignment unless such
Bank shall have received payments in an aggregate amount at least equal to the
outstanding principal amount of all A Advances being assigned, together with
accrued interest thereon to the date of payment of such principal amount and all
other amounts payable to such Bank under this Agreement (including without
limitation Section 2.12(c) provided that such Bank shall receive its pro rata
share of the Facility Fee on the next date on which the Facility Fee is
payable). From and after the effective date of any assignment pursuant to this
Section 2.18(a), (x) the assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such assignment have the rights and obligations of a Bank hereunder except
that such assignee may not elect to assign any of its rights and obligations
under this Agreement acquired by any assignment pursuant to this Section 2.18(a)
for a period of nine months following the effective date specified in such
assignment and (y) the Bank assignor thereunder shall, to the extent that rights
and obligations hereunder have been assigned by it pursuant to such assignment
relinquish its rights and be released from its obligations under this Agreement
(and, in the case of an assignment covering all or the remaining portion of an
assigning Bank's rights and obligations under this Agreement, such Bank shall
cease to be a party hereto). Notwithstanding any other provision in this
Agreement, any Bank may at any time create a security interest in all or any
portion of its rights under this Agreement (including without limitation, the
Advances owing to it and the Notes held by it) in favor of any Federal Reserve
Bank in accordance with Regulation A of the Board of Governors of the Federal
Reserve System.
2.18(b) The Agent shall maintain at its address referred to in
Section 8.02 a copy of each assignment delivered to and accepted by it and a
register for the recordation of the names and addresses of the Banks and the
Commitment of, and principal amount of the A Advances owing to, each Bank from
time to time (the "Register"). The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and the Company, the Agent
and the Banks may treat each entity whose name is recorded in the Register as a
Bank hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Company or any Bank at any reasonable time and
from time to time upon reasonable prior notice. Upon receipt by the Agent from
the assigning Bank of an assignment in form and substance satisfactory to the
Agent executed by an assigning Bank and an assignee representing that it is an
Eligible Assignee, together with each A Note subject to such assignment, and a
processing and recording fee of $2,000, the Agent shall, if such assignment is a
Required Assignment or has been consented to by the Company to the extent
required by Section 2.18(a), (i) accept such assignment, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Company. Within five Business Days after its receipt of such
notice, the Company, at its own expense, shall execute and deliver to the Agent
in exchange for each surrendered A Note a new A Note to the order of such
Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to
such assignment, and if the assigning Bank has retained a Commitment hereunder,
a new A Note to the order of the assigning Bank in an amount equal to the
Commitment retained by it hereunder. Such new A Note or A Notes shall be in an
aggregate principal amount equal to the principal amount of such surrendered A
Note, shall be dated the effective date of such assignment and shall otherwise
be substantially in the form of Exhibit A-1 or A-2 hereto, as appropriate.
2.18(c) Each Bank may sell participations in all or a portion
of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitments, the Advances owing to it and
the Notes held by it) to one or more affiliates of such Bank or to one or more
other commercial banks; provided, however, that (i) any such participation shall
not require the Company to file a registration statement with the Securities and
Exchange Commission or apply to qualify the Notes under the blue sky laws of any
state and the Bank selling or granting such participation shall otherwise comply
with all federal and state securities laws applicable to such transaction, (ii)
no purchaser of such a participation shall be considered to be a "Bank" for any
purpose under the Agreement, (iii) such Bank's obligations under this Agreement
(including, without limitation, its Commitment to the Company hereunder) shall
remain unchanged, (iv) such Bank shall remain solely responsible to the other
parties hereto for the performance of such obligations, (v) such Bank shall
remain the holder of such Notes for all purposes of this Agreement, and (vi) the
Company, the Agent and the other Banks shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and obligations
under this Agreement.
2.18(d) Any Bank may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
2.18, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Company furnished to such Bank by
or on behalf of the Company; provided, however, that, prior to any such
disclosure of information that is not publicly available, such Bank shall obtain
the written consent of the Company, and the assignee or participant or proposed
assignee or participant shall agree to preserve the confidentiality of any such
information received by it from such Bank except as disclosure may be required
or appropriate to governmental authorities, pursuant to legal process or by law
or governmental regulation or authority.
ARTICLE 3
Representations, Warranties and Certain Covenants
Section 3.01. Representations and Warranties by the Company. The
Company represents and warrants as follows:
3.01(a) The Company is a duly organized corporation existing in
good standing under the laws of the State of Delaware and is duly qualified to
do business in, among other jurisdictions, the States of Florida, Kansas and
Washington and in the Commonwealth of Pennsylvania.
3.01(b) The execution and delivery and the performance of the
terms of this Agreement and the Notes are within the Company's corporate powers,
have been duly authorized by all necessary corporate action, have received all
necessary governmental approval and do not contravene any law, any provision of
the Certificate of Incorporation or By-Laws of the Company or any contractual
restriction binding on the Company.
3.01(c) This Agreement is, and the Notes when duly executed and
delivered for value will be, legal and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms.
3.01(d) In the Company's opinion, there are no pending or
threatened actions or proceedings before any court or administrative agency
which can reasonably be expected to materially adversely affect the financial
condition or operations of the Company or any Subsidiary.
<PAGE> 8
3.01(e) The Consolidated statement of financial position as of
December 31, 1995 and the related Consolidated statement of earnings and
retained earnings for the year then ended (copies of which have been furnished
to each Bank) correctly set forth the Consolidated financial condition of the
Company and the Subsidiaries as of such date and the result of the Consolidated
operations for such year, and since such date there has been no material adverse
change in such condition or operations which is likely to impair the ability of
the Company to repay the Advances.
3.01(f) The Company is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock within the meaning
of Regulation U issued by the Board of Governors of the Federal Reserve System,
and no proceeds of any Advance will be used to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing or carrying
any margin stock. Following application of the proceeds of each Advance, not
more than 25 percent of the value of the assets (either of the Company only or
of the Company and its subsidiaries on a consolidated basis) subject to the
provisions of Section 4.02(h) will be margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve System).
Section 3.02. Representation by the Banks. Each Bank represents that its
present intent is that it will acquire the A Notes drawn to its order for its
own account and that each such A Note is being acquired for the purpose of
investment and not with a view to distribution or resale thereof, subject,
nevertheless, to the necessity that such Bank remain in control at all times of
the disposition of property held by it for its own account.
ARTICLE 4
Covenants of the Company
Section 4.01. Affirmative Covenants of the Company. From the date of this
Agreement and so long as any amount shall be payable by the Company to any Bank
hereunder or any Commitment shall be outstanding the Company will:
4.01(a) Furnish to the Banks: (1) within 60 days after the close
of each of the first three quarters of each of the Company's fiscal years, a
Consolidated statement of financial position of the Company and the Subsidiaries
as of the end of such quarter and a Consolidated comparative statement of
earnings and retained earnings of the Company and the Subsidiaries for the
period commencing at the end of the previous fiscal year and ending with the end
of such quarter, each certified by an authorized officer of the Company, (2)
within 120 days after the close of each of the Company's fiscal years, and if
requested by the Agent, within 60 days after the close of each of the first
three quarters thereof, a statement certified by an authorized officer of the
Company showing in detail the computations required by the provisions of
Sections 4.01(d), 4.02(a), 4.02(b), 4.02(c), 4.02(e), 4.02(f), 4.03(a), 4.03(b)
and 4.03(c) hereof, based on the figures which appear on the books of account of
the Company and the Subsidiaries at the close of such quarters, (3) within 120
days after the close of each of the Company's fiscal years, a copy of the annual
audit report of the Company, certified by independent public accountants of
recognized standing acceptable to the Agent, together with financial statements
consisting of a Consolidated statement of financial position of the Company and
the Subsidiaries as of the end of such fiscal year and a Consolidated statement
of earnings and retained earnings of the Company and the Subsidiaries for such
fiscal year, (4) within 120 days after the close of each of the Company's fiscal
years, a statement certified by the independent public accountants who shall
have prepared the corresponding audit report furnished to the Banks pursuant to
the provisions of clause (3) of this subsection (a), to the effect that, in the
course of preparing such audit report, such accountants had obtained no
knowledge, except as specifically stated, that the Company had been in violation
of the provisions of any one of the following Sections : Sections 4.01(d),
4.02(a), 4.02(b), 4.02(c), 4.02(e), 4.02(f), 4.03(a), 4.03(b) and 4.03(c), at
any time during such fiscal year, (5) promptly upon their becoming available,
all financial statements, reports and proxy statements which the Company may
send to its stockholders, (6) promptly upon their becoming available, all
regular and periodic financial reports which the Company or any Subsidiary shall
file with the Securities and Exchange Commission or any national securities
exchange, (7) within 3 Business Days after the discovery of the occurrence of
any event which constitutes an Event of Default or would constitute an Event of
Default with the passage of time or the giving of notice, or both, notice of
such occurrence together with a detailed statement by a responsible officer of
the Company of the steps being taken by the Company or the appropriate
Subsidiary to cure the effect of such event and (8) such other information
respecting the financial condition and operations of the Company or the
Subsidiaries as the Agent may from time to time reasonably request.
4.01(b) Duly pay and discharge, and cause each Subsidiary duly to
pay and discharge, all taxes, assessments and governmental charges upon it or
against its properties prior to a date which is 5 Business Days after the date
on which penalties are attached thereto, except and to the extent only that the
same shall be contested in good faith and by appropriate proceedings by the
Company or the appropriate Subsidiary.
4.01(c) Maintain, and cause each Subsidiary to maintain, with
financially sound and reputable insurance companies or associations, insurance
of the kinds, covering the risks and in the relative proportionate amounts
usually carried by companies engaged in businesses similar to that of the
Company or the appropriate Subsidiary, except, to the extent consistent with
good business practices, such insurance may be provided by the Company through
its program of self insurance.
4.01(d) Maintain an excess of Consolidated Current Assets over
Consolidated Current Indebtedness of at least $250,000,000.
Section 4.02. General Negative Covenants of the Company. From the date of
this Agreement and so long as any amount shall be payable by the Company to any
Bank hereunder or any Commitment shall be outstanding, the Company will not:
4.02(a) Create, incur, assume or suffer to exist any mortgage,
pledge, lien, security interest or other charge or encumbrance (including the
lien or retained security title of a conditional vendor) upon or with respect to
any of its Fixed Assets, or upon or with respect to the Fixed Assets of any
Subsidiary, or assign or otherwise convey, or permit any Subsidiary to assign or
otherwise convey, any right to receive income from or with respect to its Fixed
Assets, except (1) liens in connection with workmen's compensation, unemployment
insurance or other social security obligations, (2) liens securing the
performance of bids, tenders, contracts (other than for the repayment of
borrowed money), leases, statutory obligations, surety and appeal bonds, liens
to secure progress or partial payments made to the Company or such Subsidiary
and other liens of like nature made in the ordinary course of business, (3)
mechanics', workmen's, materialmen's or other like liens arising in the ordinary
course of business in respect of obligations which are not due or which are
being contested in good faith, (4) liens for taxes not yet due or being
contested in good faith and by appropriate proceedings by the Company or the
affected Subsidiary, and (5) other liens, charges and encumbrances, so long as
the aggregate amount of the Consolidated Indebtedness for which all such liens,
charges and encumbrances serve as security does not exceed 15% of Consolidated
Net Fixed Assets; provided, however, that any liens, charges or encumbrances
permitted by this clause (5) must secure only Funded Indebtedness permitted by
the terms of this Agreement (including the current portion of any Indebtedness
the remainder of which is Funded Indebtedness).
4.02(b) Create, incur, assume or suffer to exist any Funded
Indebtedness of the Company or of any Subsidiary which would cause Consolidated
Funded Indebtedness (exclusive of Subordinated Indebtedness) at such time to
exceed 90% of the total at such time of Consolidated Net Worth and Consolidated
Subordinated Indebtedness.
4.02(c) Create, incur, assume or suffer to exist any Indebtedness
of the Company or of any Subsidiary which would cause indebtedness for borrowed
money (exclusive of Subordinated Indebtedness) on a Consolidated basis at such
time to exceed 115% of the total at such time of Consolidated Net Worth and
Consolidated Subordinated Indebtedness.
4.02(d) Make any payment, or permit any Subsidiary to make any
payment, of principal or interest on any Indebtedness which payment would
constitute a violation of the terms of this Agreement or of the terms of any
indenture or agreement binding on such corporation or to which such corporation
is a party.
4.02(e) Sell, lease or otherwise transfer, or permit any
Subsidiary to sell, lease or otherwise transfer, a portion of its Fixed Assets
constituting a division, branch or other operating unit, which shall cause the
total of all such sales, leases or other transfers by the Company and the
Subsidiaries to equal or exceed a value of $50,000,000 in any one fiscal year or
a total value of $150,000,000. Any value as used in
<PAGE> 9
this subsection (e) shall be measured by the depreciated value as reflected on
the books of account of the Company or the appropriate Subsidiary.
4.02(f) Declare or pay any dividends, purchase, redeem or
otherwise acquire for value any of its stock now or hereafter outstanding,
return any capital to its stockholders, or make any distribution of its assets
to its stockholders as such, except that the Company may (1) declare and deliver
stock dividends, (2) redeem stock with the proceeds received from the issuance
of new shares and (3) declare and pay dividends to its stockholders and purchase
its own outstanding capital stock solely out of a fund made up of the total of
(A) 50% of Consolidated net earnings of the Company arising after January 1,
1990 computed on a cumulative basis, (B) the net proceeds received by the
Company after January 1, 1990 from the sale of additional shares of its capital
stock or of convertible securities to the extent that such convertible
securities have been converted into capital stock, (C) an amount equal to the
cost of all shares of its common stock held as of January 1, 1990 plus the cost
of any shares of its common stock reacquired by the Company after January 1,
1990 and distributed pursuant to the Company's incentive compensation plan, (D)
an amount equal to the cost of all shares of its common stock reacquired by the
Company after January 1, 1990 and sold pursuant to the exercise of options
issued under a stock option plan of the Company and (E) $100,000,000.
4.02(g) Enter into any merger or consolidation unless, in the case
of a merger, the Company shall be the surviving corporation, and, in the case of
either a merger or a consolidation, there shall have been no violation of any of
the terms of this Agreement as a result of, or in existence immediately after,
such merger or consolidation.
4.02(h) Sell or otherwise transfer, or pledge, hypothecate or
otherwise encumber, the ownership interest of the Company in any Subsidiary
excepting (1) any such sale, transfer or pledge to any Subsidiary, (2) any such
sale to any party for fair market value received in cash or (3) any such sale to
any party for fair market value received in proceeds other than cash provided
all such proceeds received from time to time with respect to such sales do not
exceed 10% of the sum of Consolidated Net Worth and Consolidated Subordinated
Indebtedness, computed after giving effect to such sales.
Section 4.03. Negative Covenants of the Company with Respect to Equipment
Financing. From the date of this Agreement and so long as any amount shall be
payable by the Company to any Bank hereunder or any Commitment shall be
outstanding, the Company will not:
4.03(a) At any time permit the total of (1) the aggregate value of
all Equipment owned by the Company and the Subsidiaries and capitalized on their
books of account (other than items of Equipment used by the Company and the
Subsidiaries for transportation or demonstration in the conduct of business)
after deduction of any related Investment Tax Credit and (2) the unpaid
principal amount of indebtedness of customers to the Company and the
Subsidiaries arising out of the purchase by such customers of Equipment, to
exceed 65% of the total at such time of Consolidated Net Worth and Consolidated
Subordinated Indebtedness.
4.03(b) At any time permit the aggregate of the "Net Value" of all
Equipment owned by the Company and the Subsidiaries and capitalized on their
books of account (other than items of Equipment used by the Company and the
Subsidiaries for transportation or demonstration in the conduct of business) to
exceed 30% of the total at such time of Consolidated Net Worth and Consolidated
Subordinated Indebtedness. For the purposes of this subsection (b), the "Net
Value" of any item of Equipment shall be determined by subtracting from the
value of such item as reflected on the books of account of the Company or the
appropriate Subsidiary (1) any related Investment Tax Credit and (2) the amount
of all lease rental payments to be made by the lessee of such item to the
Company or to the appropriate Subsidiary (exclusive of any such payments to be
made during any period of the term of the lease of such item which may be
canceled at the option of the lessee acting alone and exclusive of any portion
of such lease payments in excess of the book value of such item).
4.03(c) Create, incur, assume or suffer to exist any Contingent
Customer Indebtedness of the Company or of any Subsidiary which would cause
Consolidated Contingent Customer Indebtedness at such time to exceed 35% of the
total at such time of Consolidated Net Worth and Consolidated Subordinated
Indebtedness.
Section 4.04. Waivers of Covenants. The departure by the Company or any
Subsidiary from the requirements of any of the provisions of this Article 4
shall be permitted only if such departure shall have been consented to in
advance in a writing signed by Banks representing 66-2/3% or more of the then
outstanding aggregate principal amount of the A Notes or, if no such principal
or face amount is outstanding, Banks having at least 66-2/3% of the total of the
Commitments, and such writing shall be effective as a consent only to the
specific departure described in such writing. Such departure by the Company or
any Subsidiary when properly consented to by the required number of Banks as set
out in the preceding sentence shall not constitute an Event of Default under
Section 6.01(c).
<PAGE> 10
ARTICLE 5
Conditions Precedent to Borrowings
Section 5.01. Conditions Precedent to the Initial Borrowing. The
obligation of each Bank to make its initial Advance is subject to the
fulfillment of all of the following conditions:
The Agent shall have received on or before the day of the initial
Borrowing all of the following, each dated the day of the initial Borrowing, in
form and substance satisfactory to the Agent and its counsel.
5.01(a) A Base Rate A Note, a Eurodollar A Note, a Fixed Rate B
Note and a Eurodollar B Note drawn to the order of each Bank executed and
delivered by the Company to the Agent for delivery to each Bank.
5.01(b) Copies of all documents, certified by an officer of the
Company, evidencing necessary corporate action by the Company and governmental
approvals, if any, with respect to this Agreement and the Notes.
5.01(c) A certificate of the Secretary or an Assistant Secretary
of the Company which shall certify the names of the officers of the Company
authorized to sign the Notes and the other documents to be delivered hereunder,
together with true specimen signatures of such officers and facsimile signatures
of officers authorized to sign by facsimile signature. Each Bank may
conclusively rely on such certificate until it shall have received a further
certificate of the Secretary or an Assistant Secretary of the Company canceling
or amending the prior certificate and submitting signatures of the officers
named in such further certificate.
5.01(d) A favorable opinion of the chief legal officer of the
Company substantially in the form of Exhibit D hereto and as to such other
matters as the Agent may reasonably request, which opinion the Company hereby
expressly instructs such chief legal officer to prepare and deliver.
5.01(e) A favorable opinion of Shearman & Sterling, counsel for
the Agent, substantially in the form of Exhibit E hereto.
Section 5.02. Conditions Precedent to Each A Borrowing. The obligation of
each Bank to make an A Advance on the occasion of each A Borrowing (including
the initial Borrowing) is subject to the further conditions precedent that on
the date of such request and the date of such Borrowing, the following
statements shall be true, and each of the giving of the applicable Notice of A
Borrowing and the acceptance by the Company of the proceeds of such A Borrowing
shall be a representation by the Company that:
(i) the representations and warranties contained in Section 3.01
hereof are true and accurate on and as of each such date as though made on and
as of each such date (except to the extent that such representations and
warranties relate solely to an earlier date); and
(ii) as of each such date no event has occurred and is continuing,
or would result from the proposed A Borrowing which constitutes an Event of
Default or would constitute such an Event of Default but for the requirement
that notice be given or time elapse or both.
Section 5.03. Conditions Precedent to Each B Borrowing. The obligation of
each Bank to make a B Advance on the occasion of each B Borrowing (including the
initial Borrowing) is subject to the further conditions precedent that (1) the
Company shall have furnished to the Agent in connection with such B Borrowing,
(x) a Consolidated statement of financial position of the Company and the
Subsidiaries as of the end of each of the first three quarters of the Company's
fiscal year (other than a quarter ending within sixty days prior to the date of
the related Notice of B Borrowing) and a Consolidated comparative statement of
earnings and retained earnings of the Company and the Subsidiaries for the
period commencing at the end of the previous fiscal year and ending with the end
of such quarter, each certified by an authorized officer of the Company and (y)
a copy of the annual audit report of the Company, certified by independent
public accountants of recognized standing acceptable to the Agent, together with
financial statements consisting of a Consolidated statement of the financial
position of the Company and the Subsidiaries as of the end of the applicable
fiscal year and a Consolidated statement of earnings and retained earnings of
the Company and the Subsidiaries for such fiscal year (the applicable fiscal
year being the most recent year with respect to which the annual audit report of
the Company is due pursuant to Section 4.01(a)(3)) and (2) on the date of such
request and the date of such Borrowing, the following statements shall be true,
and each of the giving of the applicable Notice of B Borrowing and the
acceptance by the Company of the proceeds of such B Borrowing shall be a
representation by the Company that:
(i) the representations and warranties contained in Section 3.01
hereof are true and accurate on and as of each such date as though made on and
as of each such date (except to the extent that such representations and
warranties relate solely to an earlier date);
(ii) as of each such date no event has occurred and is continuing,
or would result from the proposed B Borrowing which constitutes an Event of
Default or would constitute such an Event of Default but for the requirement
that notice be given or time elapse or both; and
(iii) no event has occurred and no circumstance exists as a result
of which the information concerning the Company that has been provided by the
Company to the Agent or the Banks in connection with such B Borrowing would
include an untrue statement of a material fact or omit to state any material
fact or any fact necessary to make the statements contained therein, in light of
the circumstances under which they were made, not misleading.
ARTICLE 6
Events of Default
Section 6.01. Events of Default. The following shall constitute the
Events of Default:
6.01(a) Failure by the Company to make when due any payment of
principal of or interest on any Note when the same becomes due and payable and
such failure is not remedied within 5 Business Days thereafter.
6.01(b) When any representation or warranty made by the Company in
connection with the execution and delivery of this Agreement, or the Notes or
otherwise furnished pursuant hereto shall prove to be at any time incorrect in
any material respect.
6.01(c) Failure by the Company to perform any other term, covenant
or agreement contained in this Agreement, and such failure is not remedied
within 15 days after written notice thereof shall have been given to the Company
by the Agent, at the request, or with the consent, of Banks representing 33-1/3%
or more of the total of the Commitments.
6.01(d) Failure of (1) the Company or (2) any Subsidiary with an
aggregate Net Worth and Subordinated Indebtedness exceeding 3% of the sum of
Consolidated Net Worth and Consolidated Subordinated Indebtedness to pay when
due on any regularly scheduled payment date or following acceleration thereof
any obligation for the payment of borrowed money or for the deferred purchase
price of property, or any interest thereon, if the aggregate unpaid principal
amount of the obligation with respect to which such failure to pay occurred
equals or exceeds $3,000,000 and such failure is not remedied within 5 Business
Days after notice thereof is received from the Agent or the creditor on such
obligation.
6.01(e) The Company or any Subsidiary
(1) shall incur liability with respect to any employee pension
benefit plan in excess of $100,000,000 in the aggregate under
<PAGE> 11
(A) Sections 4062, 4063, 4064 or 4201 of the Employee
Retirement Income Security Act of 1974 ("ERISA"); or
(B) otherwise under Title IV of ERISA as a result of any
reportable event within the meaning of ERISA (other than
a reportable event as to which the provision of 30 days'
notice is waived under applicable regulations);
(2) shall have or shall be likely to have a lien imposed on its
property and rights to property under Section 4068 of ERISA on
account of a liability in excess of $25,000,000 in the aggregate;
or
(3) shall incur or shall be likely to incur liability under Title
IV of ERISA
(A) in excess of $25,000,000 in the aggregate as a result
of the Company or any Subsidiary having filed a notice of
intent to terminate any employee pension benefit plan
under the "distress termination" provision of Section
4041 of ERISA or
(B) in excess of $25,000,000 in the aggregate as a result
of the Pension Benefit Guaranty Corporation having
instituted proceedings to terminate, or to have a trustee
appointed to administer, any such plan.
6.01(f) With respect to the Company, on the happening of any of
the following events and, with respect to any Subsidiary with an aggregate Net
Worth and Subordinated Indebtedness exceeding 3% of the sum of Consolidated Net
Worth and Consolidated Subordinated Indebtedness, 5 Business Days after the
happening of any such event, provided the same has not then been cured or
stayed: (1) the insolvency or bankruptcy of the Company or any such Subsidiary,
(2) the cessation by the Company or any such Subsidiary of the payment of its
debts as they mature, (3) the making of an assignment for the benefit of the
creditors of the Company or any such Subsidiary, (4) the appointment of a
trustee or receiver or liquidator for the Company or any such Subsidiary or for
a substantial part of the property of any of them, or (5) the institution of
bankruptcy, reorganization, arrangement, insolvency or similar proceedings by or
against the Company or any such Subsidiary under the laws of any jurisdiction.
If an Event of Default shall occur or be continuing, then, the Agent shall
at the request, or may with the consent, of Banks having at least 33-1/3% of the
total of the Commitments, by notice to the Company, (A) declare the obligation
of each Bank to make further Advances to be terminated, whereupon the same shall
forthwith terminate, and (B) declare the Notes, all interest thereon and all
other amounts payable under this Agreement to be forthwith due and payable,
whereupon the Notes, all such interest and all such amounts shall become and be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Company
provided, however, that in the event of any order for relief with respect to the
Company under the Federal Bankruptcy Code (whether in connection with a
voluntary or an involuntary case), (A) the obligation of each Bank to make
Advances shall automatically be terminated and (B) the Notes, all such interest
and all such amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Company.
ARTICLE 7
The Agent
Section 7.01. Authorization and Action. Each Bank hereby appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto. As to
any matters not expressly provided for by this Agreement (including without
limitation, enforcement or collection of the Notes), the Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of holders of at least 50% in
principal amount of the A Notes then outstanding (or if no A Notes are at the
time outstanding, upon the instructions of Banks having at least 50% of the
Commitments), and such instructions shall be binding upon all Banks and all
holders of Notes; provided, however, that the Agent shall not be required to
take any action which exposes the Agent to personal liability or which is
contrary to this Agreement or applicable law. The Agent agrees to give to each
Bank prompt notice of each notice given to it by the Company pursuant to the
terms of this Agreement.
Section 7.02. Agent's Reliance, Etc. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them under or in connection with this Agreement,
except for its or their own gross negligence or willful misconduct. Without
limiting the generality of the foregoing, the Agent: (a) may treat the payee of
any Note as the holder thereof until the Agent receives and accepts an
assignment entered into by the Bank which is the payee of such Note, as
assignor, and an Eligible Assignee, as assignee, as provided in Section 2.18;
(b) may consult with legal counsel (including counsel for the Company),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or other experts; (c)
makes no warranty or representation to any Bank and shall not be responsible to
any Bank for any statements, warranties or representations (whether written or
oral) made in or in connection with this Agreement; (d) shall not have any duty
to ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions of this Agreement on the part of the Company or
to inspect the property (including the books and records) of the Company; (e)
shall not be responsible to any Bank for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any other
instrument or document furnished pursuant hereto; and (f) shall incur no
liability under or in respect of this Agreement by acting upon any notice,
consent, certificate or other instrument or writing (which may be by telecopier,
telegram, cable or telex) believed by it to be genuine and signed or sent by the
proper party or parties.
Section 7.03. Citibank, N.A. and Affiliates. With respect to its
Commitment, the Advances made by it, and the Notes issued to it, Citibank, N.A.
shall have the same rights and powers under this Agreement as any other Bank and
may exercise the same as though it were not the Agent; and the term "Bank" or
"Banks" shall, unless otherwise expressly indicated, include Citibank, N.A. in
its individual capacity. Citibank, N.A. and its affiliates may accept deposits
from, lend money to, accept drafts drawn by, act as trustee under indentures of,
and generally engage in any kind of business with, the Company, any of its
subsidiaries and any person or entity who may do business with or own securities
of the Company or any subsidiary, all as if Citibank, N.A. were not the Agent
and without any duty to account therefor to the other Banks.
Section 7.04. Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank and based on
the financial statements referred to in Section 3.01(e) and the representations
and warranties contained in Sections 3.01 and 3.02 and such other documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Bank also acknowledges that it will,
independently and without reliance upon the Agent or any other Bank and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement.
Section 7.05. Indemnification. The Banks agree to indemnify the Agent (to
the extent not reimbursed by the Company), ratably according to the respective
principal amounts of the A Notes then held by each of them (or if no A Notes are
at the time outstanding or if any A Notes are held by persons which are not
Banks, ratably according to the respective amounts of their Commitments), from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against the
Agent in any way relating to or arising out of this Agreement or any action
taken or omitted by the Agent under this Agreement, provided that no Bank shall
be liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Agent's gross negligence or willful misconduct. Without limitation of
the foregoing, each Bank agrees to reimburse the Agent promptly upon demand for
its ratable share of any out-of-pocket expenses (including counsel fees)
incurred by the Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, to the extent that the Agent
is not reimbursed for such expenses by the Company.
Section 7.06. Successor Agent. The Agent may resign at any time by giving
written notice thereof to the
<PAGE> 12
Banks and the Company and may be removed at any time with or without cause by
the Majority Banks. Upon any such resignation or removal, the Majority Banks
shall have the right to appoint a successor Agent, which shall be a commercial
bank organized or licensed under the laws of the United States of America or of
any State thereof and having a combined capital and surplus of at least
$50,000,000. If no successor Agent shall have been so appointed by the Majority
Banks, and shall have accepted such appointment, within 30 days after the
retiring Agent's giving of notice of resignation or the removal of the retiring
Agent as provided herein, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent which meets the requirements set out in the previous
sentence. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations under
this Agreement. After any retiring Agent's resignation or removal hereunder as
Agent, the provisions of this Article 7 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement.
Section 7.07. Certain Obligations May be Performed by Affiliates. The
Agent may appoint any of its Affiliates to perform its obligations hereunder
other than any obligation requiring the Agent to receive, pay, or otherwise
handle funds or Notes and provided that the Agent shall continue to be
responsible to the Company and the Banks for the due performance of the Agent's
obligations under this Agreement.
ARTICLE 8
Miscellaneous
Section 8.01. Modification, Consents and Waivers. No failure or delay on
the part of any Bank in exercising any power or right hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right or
power preclude any other or further exercise thereof or the exercise of any
other right or power hereunder. No notice to or demand on the Company in any
case shall entitle the Company to any other or further notice or demand in
similar or other circumstances. No amendment or waiver of any provision of this
Agreement or of the A Notes, nor consent to any departure by the Company
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Majority Banks, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver or consent shall, unless in
writing and signed by all the Banks, do any of the following: (a) waive any of
the conditions specified in Section 5.01, 5.02, or 5.03, (b) except as provided
in Section 2.17, increase the Commitments of the Banks or subject the Banks to
any additional obligations, (c) reduce the principal of, or interest on, the A
Notes or any fees or other amounts payable hereunder, (d) postpone any date
fixed for any payment of principal of, or interest on, the A Notes or any fees
or other amounts payable hereunder, (e) change the percentage of the Commitments
or of the aggregate unpaid principal amount of the A Notes or the number of
Banks required for the Banks or any of them to take any action hereunder, or (f)
amend this Section 8.01; and provided further, that no amendment, waiver, or
consent shall, unless in writing and signed by the Agent in addition to the
Banks required above to take such action, affect the rights or duties of the
Agent under this Agreement or any Note. Notwithstanding the foregoing, this
Section 8.01 shall not affect the provisions of Section 4.04 or 6.01.
Section 8.02. Addresses for Notices. All communications and notices
provided for hereunder shall be by telex or in writing and, if to the Agent,
mailed, telexed or delivered to it, addressed to it at its office at Citibank,
N.A., New York Transportation - Airlines, 399 Park Avenue, New York, New York
10043 and, if to the Company, mailed, telexed or delivered to it, addressed to
it at its office at 7755 East Marginal Way South, Seattle, Washington 98108,
Attention: Treasurer, and, if to any Bank, to its office at the address given on
the signature pages of this Agreement; or, as to each party, at such other
address as shall have been designated by such party in a written notice to each
other party referring specifically to this Agreement.
Section 8.03. Costs, Expenses and Taxes. The Company agrees to pay all
costs and expenses in connection with the preparation, execution and delivery of
this Agreement and the Notes (including printing costs and the reasonable fees
and out-of-pocket expenses of counsel for the Agent) and costs and expenses, if
any, in connection with the enforcement of this Agreement and the Notes (whether
through negotiations, legal proceedings or otherwise and including, without
limitation, the reasonable fees and out-of pocket expenses of counsel), as well
as any and all stamp and other taxes, and to save the Banks and other holders of
the Notes harmless from any and all liabilities with respect to or resulting
from any delay or omission to pay such taxes, if any, which may be payable or
determined to be payable in connection with the execution and delivery of this
Agreement and the Notes.
Section 8.04. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company, the Banks and the Agent, and their
respective successors and assigns, except that the Company may not assign or
transfer its rights hereunder without the prior written consent of the Banks.
Section 8.05. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 8.06. Governing Law. This Agreement and the Notes shall be deemed
to be contracts under the laws of the State of New York and for all purposes
shall be construed in accordance with the laws of such State.
Section 8.07. Headings. The Table of Contents and Article and Section
headings used in this Agreement are for convenience only and shall not affect
the construction of this Agreement.
Section 8.08. Execution in Counterparts. This Agreement may be executed by
the parties hereto individually or in any combinations of the parties hereto in
several separate counterparts, each of which shall be an original and all of
which taken together shall constitute one and the same agreement.
Section 8.09. Right of Set-Off. Upon (i) the occurrence and during the
continuance of any Event of Default and (ii) the making of the request or the
granting of the consent specified by Section 6.01 to authorize the Agent to
declare the Notes due and payable pursuant to the provisions of Section 6.01,
each Bank is hereby authorized at any time and from time to time to the fullest
extent permitted by law, without notice to the Company (any such notice being
expressly waived by the Company), to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Bank to or for the credit or the
account of the Company against any and all of the obligations of the Company now
or hereafter existing under this Agreement and the Notes held by such Bank,
irrespective of whether or not such Bank shall have made any demand under this
Agreement or such Notes and although such obligations may be unmatured. Each
Bank shall promptly notify the Company after any such setoff and application
made by such Bank, provided that the failure to give such notice shall not
affect the validity of such setoff and application. The rights of each Bank
under this Section are in addition to other rights and remedies (including,
without limitation, other rights of setoff) which such Bank may have.
Section 8.10. Amended and Restated Agreement. This Agreement shall become
effective upon its execution and delivery, respectively, to the Agent and the
Company by the Company, the Agent, and each Bank listed in Section 1.02. This
Amended and Restated Agreement supersedes as of September 27, 1996 all prior
versions of The Boeing Company Bank Credit Agreement and all references to "this
Agreement," "herein," "hereof" and the like shall be deemed references to this
Amended and Restated Agreement.
ARTICLE 9
Definitions and Accounting Terms
Section 9.01. Defined Terms. As used in this Agreement, the following
terms shall have the meanings set out respectively after each:
"A Advance"--An advance made by a Bank to the Company as part of an A
Borrowing and refers to a Base Rate Advance or a Eurodollar Rate A Advance, each
of which shall be a "Type" of A Advance.
"A Borrowing"--A borrowing consisting of simultaneous A Advances of the
same Type made by each of the Banks pursuant to Section 2.01.
<PAGE> 13
"A Note"--A promissory note of the Company payable to the order of any
Bank, in substantially the form of Exhibit A-1 or A-2 hereto, evidencing the
indebtedness of the Company to such Bank resulting from the aggregate of all
Base Rate Advances and the aggregate of all Eurodollar Rate A Advances,
respectively, made by such Bank.
"Advance"--An A Advance or a B Advance.
"Agent"--Citibank, N.A. acting in its capacity as agent for the Banks,
or any successor Agent appointed pursuant to Section 7.06.
"Agreement"--This agreement, as it may be amended or otherwise modified
from time to time, and any written additions or supplements hereto.
"Applicable Lending Office"--With respect to each Bank, such Bank's
Domestic Lending Office in the case of a Base Rate Advance, and such Bank's
Eurodollar Lending Office in the case of a Eurodollar Rate Advance and, in the
case of a B Advance, the office of such Bank notified by such Bank to the Agent
as its Applicable Lending Office with respect to such B Advance.
"Applicable Margin"--As defined in Section 2.04.
"B Advance"--An advance by a Bank to the Company as part of a B Borrowing
resulting from the auction bidding procedure described in Section 2.05 and
refers to a Fixed Rate Advance or a Eurodollar Rate B Advance.
"B Borrowing"--A borrowing consisting of simultaneous B Advances from each
of the Banks whose offer to make one or more B Advances as part of such
borrowing has been accepted by the Company under the auction bidding procedure
described in Section 2.05.
"B Note"--A Promissory note of the Company payable to the order of any
Bank, in substantially the form of Exhibit A-3 or A-4 hereto, evidencing the
indebtedness of the Company to such Bank resulting from the aggregate of all
Fixed Rate Advances and the aggregate of all Eurodollar Rate B Advances,
respectively, made by such Bank.
"B Reduction"--As defined in Section 2.01.
"Bank"--As defined in Section 1.01.
"Base Rate"--The rate of interest announced publicly by Citibank, N.A., in
New York, New York, from time to time, as Citibank's base rate.
"Base Rate Advance"--An A Advance which bears interest at the Base Rate.
"Base Rate A Note"--An A Note evidencing Base Rate Advances.
"BFC"--Boeing Financial Corporation, a Delaware corporation.
"Borrowing"--An A Borrowing or a B Borrowing.
"Business Day"--A day of the year on which banks are not required or
authorized to close in New York City, and, if the applicable Business Day
relates to any Eurodollar Rate Advances, on which dealings are carried on in the
London interbank market.
"Commitment"--As defined in Section 1.01.
"Company"--The Boeing Company, a Delaware corporation.
"Consolidated"--Indicating, as to any accounting concept or statement, the
consolidation of such concept or statement with the same concepts or statements
of all other members of a class made up of the Company and the Subsidiaries.
"Contingent Customer Indebtedness"--The total, for the Company or any
Subsidiary, of all indebtedness, obligations or liabilities of parties other
than such corporation, in respect of which such corporation is contingently
liable to pay or advance money or property as guarantor, endorser or otherwise
and which was incurred in connection with any Equipment Obligations or which
arose out of the agreement by such corporation to repurchase, for cash or other
consideration, in a fixed or determinable amount, any Equipment sold by such
corporation to a customer or to purchase, for cash or other consideration, in a
fixed or determinable amount, Equipment from such customers; provided, however,
that the Contingent Customer Indebtedness of the Company and the Subsidiaries
shall not include (1) any amount of such indebtedness, obligations or
liabilities for which the Company or the appropriate Subsidiary has provided
reserves on its books of account, according to generally accepted accounting
principles, (2) any amount of such indebtedness, obligations or liabilities
which is payable by the Company or the appropriate Subsidiary only upon the
occurrence of a contingency which is the subject of a guaranty agreement or an
insurance agreement satisfactory in form and substance to the Agent, (3) any
amount of such indebtedness, obligations or liabilities to the exclusion of
which the Agent shall have consented in writing and (4) the total amount of the
fair market value of any Equipment subject to any repurchase obligations.
"Convert," "Conversion" and "Converted"--Each refers to a conversion of A
Advances of one Type into A Advances of another Type pursuant to Section 2.10,
2.11 or 2.14.
"Current Assets"--All assets of any corporation which would, in accordance
with generally accepted accounting principles, be classified as current assets
of a corporation conducting a business the same as or similar to that of the
concerned corporation.
"Current Indebtedness"--Any Indebtedness of any corporation which would,
in accordance with generally accepted accounting principles, be classified as
current indebtedness and, without limiting the generality of the foregoing,
including (1) all Indebtedness of such corporation, secured or unsecured, then
payable or payable on demand or maturing within one year after the date of
measurement (excluding any Indebtedness the maturity of which is renewable or
extendable at the option of the obligor, absolutely or conditionally, for a
period or periods ending more than one year after the date of measurement,
whether or not theretofore renewed or extended), and (2) any fixed prepayment
of, and any sinking fund payment with respect to, Indebtedness (including the
Notes) required to be made within one year after such date.
"Domestic Lending Office"--With respect to any Bank, the office of such
Bank specified as its "Domestic Lending Office" as indicated in the signature
block of this Agreement, or in the assignment or other agreement pursuant to
which it became a Bank, or such other office of such Bank as such Bank may from
time to time specify to the Company and the Agent.
"Effective Date"--As defined in Section 2.17.
"Eligible Assignee"--As defined in Section 2.18.
"Equipment"--Any aircraft of any type after completion of production,
whether manufactured by the Company, any Subsidiary or any other person, and any
other product manufactured by the Company and the Subsidiaries for sale or lease
to a customer of the Company or of a Subsidiary.
"Equipment Obligation"--Any indebtedness, obligation or liability of
customers of the Company or of customers of any Subsidiary arising out of the
sale or lease of any Equipment and any note, chattel mortgage, conditional sales
contract, trust receipt, lease with or without option to buy or other evidence
of, or any other contract related to, such indebtedness or obligation.
"Eurocurrency Liabilities"--Has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar A Note"--An A Note evidencing Eurodollar Rate A Advances.
"Eurodollar B Note"--A B Note evidencing Eurodollar Rate B Advances.
"Eurodollar Lending Office"--With respect to any Bank, the office of such
Bank specified as its "Eurodollar Lending Office" as indicated in the signature
block of this Agreement (or, if no such office is specified, its Domestic
Lending Office), or in the assignment or other agreement pursuant to which it
became a
<PAGE> 14
Bank, or such other office of such Bank as such Bank may from time to time
specify to the Company and the Agent.
"Eurodollar Rate"--For any Interest Period for each Eurodollar Rate A
Advance comprising part of the same Borrowing, and for the relevant period
specified in the applicable Notice of B Borrowing for each Eurodollar Rate B
Advance, an interest rate per annum equal to the average (rounded upward to the
nearest whole multiple of 1/16 of 1% per annum, if such average is not such a
multiple) of the rate per annum at which deposits in U.S. dollars are offered by
the principal office of each of the Reference Banks in banks in the London
interbank market at 11:00 a.m. (London time) two Business Days before the first
day of such Interest Period or the first day of the relevant period specified in
such Notice of B Borrowing (i) in an amount, for such Eurodollar A Advance,
substantially equal to such Reference Bank's Eurodollar Rate Advance comprising
part of such A Borrowing and for a period equal to such Interest Period or, (ii)
in an amount, for such Eurodollar Rate B Advance, substantially equal to the
amount of the Eurodollar Rate B Borrowing which includes such B Advance
multiplied by a fraction equal to such Reference Bank's ratable portion of the
Commitments and for a period equal to the relevant period specified in such
Notice of B Borrowing. The Eurodollar Rate for any Interest Period for each
Eurodollar Rate A Advance comprising part of the same Borrowing and for the
relevant period specified in a Notice of B Borrowing for each Eurodollar Rate B
Advance shall be determined by the Agent on the basis of applicable rates
furnished to and received by the Agent from the Reference Banks two Business
Days before the first day of such Interest Period or period, as the case may be,
subject, however, to the provisions of Section 2.10.
"Eurodollar Rate Advance"--An A Advance (a "Eurodollar Rate A Advance") or
a B Advance (a "Eurodollar Rate B Advance") which bears interest at a rate of
interest quoted as a margin (which shall be the Applicable Margin in the case of
an A Advance or as offered by a Bank and accepted by the Company in the case of
a B Advance) over the Eurodollar Rate.
"Eurodollar Rate B Borrowing"--As defined in Section 2.05(a)(i).
"Eurodollar Rate Reserve Percentage"--Of any Bank for any Interest Period
for any Eurodollar Rate Advance means the reserve percentage applicable during
such Interest Period (or if more than one such percentage shall be so
applicable, the daily average of such percentages for those days in such
Interest Period during which any such percentage shall be so applicable) under
regulations issued from time to time by the Board of Governors of the Federal
Reserve System (or any successor) for determining the maximum reserve
requirement (including, without limitation, any emergency, supplemental or other
marginal reserve requirement) for such Bank with respect to liabilities or
assets consisting of or including Eurocurrency Liabilities having a term equal
to such Interest Period.
"Event of Default"--Any of the events described in Section 6.01 hereof.
"Facility Fee"--As defined in Section 2.06.
"Federal Funds Rate"--For any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.
"Fixed Assets"--Any item of real property, or any interest therein,
buildings, improvements and machinery.
"Fixed Rate Advance"--An Advance made by a Bank to the Company as part of
a Fixed Rate Borrowing.
"Fixed Rate Borrowing"--As defined in Section 2.05(a)(i).
"Funded Indebtedness"--The total, for any corporation, of (1) all
Indebtedness of such corporation which is not Current Indebtedness and (2) the
aggregate liability of such corporation during the entire terms of all leases of
both real and personal property each having a term of one year or more
(exclusive of the liability of such corporation during the one-year period
commencing with the date of computation and exclusive of any portion of such
term which may be cancelled at the option of the lessee acting alone).
"Indebtedness"--The total, for any corporation, of (1) all items of
indebtedness, obligation or liability of such corporation which in accordance
with generally accepted accounting principles would be included in determining
total liabilities as shown on the liability side of a statement of financial
position of such corporation as at the date as of which Indebtedness is to be
determined and (2) all items of indebtedness, obligation or liability of persons
other than such corporation, in respect of which such corporation is liable,
contingently or otherwise, to pay or advance money or property as guarantor,
endorser or otherwise (except as endorser for collection in the ordinary course
of business), or which such corporation has agreed to purchase or otherwise
acquire; provided, however, that Indebtedness of the Company or of any
Subsidiary shall not include Contingent Customer Indebtedness of such
corporation. Any indebtedness of a Subsidiary (including, without limitation,
Indebtedness secured by a mortgage, pledge or lien on its property, whether or
not assumed by such Subsidiary) outstanding at the time it became a Subsidiary
shall be deemed to have been incurred at such time.
"Interest Period"--For each Eurodollar Rate A Advance comprising part of
the same Borrowing, the period commencing on the date of such A Advance or the
date of the Conversion of any A Advance into such a Eurodollar Rate A Advance
and ending on the last day of the period selected by the Company pursuant to the
provisions below and, thereafter, each subsequent period commencing on the last
day of the immediately preceding Interest Period and ending on the last day of
the period selected by the Company pursuant to the provisions below. The
duration of each such Interest Period shall be one, two, three, or six months,
as the Company may, upon notice received by the Agent not later than 11:00 a.m.
(New York City time) on the third Business Day prior to the first day of such
Interest Period, select, provided however, that:
(i) no Interest Period shall end on a date later than the
Termination Date;
(ii) Interest Periods commencing on the same date for A
Advances comprising part of the same A Borrowing shall be of the
same duration; and
(iii) Whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day
of such Interest Period shall be extended to occur on the next
succeeding Business Day, provided, that if such extension would
cause the last day of such Interest Period to occur in the next
following calendar month, the last day of the Interest Period
shall occur on the next preceding Business Day.
"Investment Tax Credit"--Any credit against United States income taxes of
the concerned corporation available to such corporation pursuant to the
provisions of Section 38 of the United States Internal Revenue Code of 1986, as
amended.
"Limited Recourse Obligation"--Any indebtedness, obligation or liability
of the Company or of any Subsidiary for the payment of which the obligee thereof
is expressly limited to the income, proceeds or value of a specific asset or
group of assets.
"Majority Banks"--Banks holding at least 50% of the then aggregate unpaid
principal amount of the A Notes held by Banks, or, if no such principal amount
is then outstanding, Banks having at least 50% of the Commitment (provided that,
for purposes hereof, neither the Company, nor any of its affiliates, if a Bank,
shall be included in (i) the Banks holding such amount of the A Advances or
having such amount of the Commitments or (ii) determining the aggregate unpaid
principal amount of the A Advances or the total Commitments).
"Moody's"--Moody's Investor Services, Inc.
"Net Fixed Assets"--The excess, as to any corporation of (1) the value as
reflected on the books of account of such corporation of Fixed Assets, taken at
their cost, over (2) the value at such date of all depreciation, amortization,
retirement and other valuation reserves with respect thereto, as determined in
accordance with generally accepted accounting principles consistently applied.
"Net Worth"--As to any corporation, the total of the stockholders'
investment as reflected on the books of account of such corporation and any
deferred Investment Tax Credit of such corporation.
"Note"--An A Note or a B Note.
<PAGE> 15
"Notice of A Borrowing"--As defined in Section 2.02(a).
"Notice of B Borrowing"--As defined in Section 2.05(a)(i).
"Reference Banks"--The Chase Manhattan Bank, Citibank, N.A., First
National Bank of Boston, Bank of New York, and National Westminster Bank plc.
"Register"--As defined in Section 2.18.
"Required Assignment"--As defined in Section 2.18.
"Request for Alteration"--A document substantially in the form of Exhibit
C hereto, duly executed by the Company, pursuant to the provisions of Section
2.17.
"S&P"--Standard & Poor's Corporation.
"Subordinated Indebtedness"--The total, for any corporation, of all
Indebtedness of such corporation which shall have been subordinated in right of
payment, in terms satisfactory to the Banks, to all indebtedness of the Company
to the Banks.
"Subsidiary"--Any corporation, except BFC, in which more than 50% of the
Voting Stock is owned by the Company, by the Company and any one or more other
Subsidiaries, or by any one or more other Subsidiaries.
"Termination Date"--September 30, 2003 or the earlier date of termination
in whole of the Commitments pursuant to Section 2.08 or 6.01.
"Voting Stock"--All the outstanding capital stock of any corporation
having general voting power under ordinary circumstances to elect a majority of
the Board of Directors of such corporation (irrespective of whether or not any
capital stock of any other class or classes shall or might have voting power
upon the occurrence of any contingency).
Section 9.02. Use of Defined Terms. Any defined term used in the plural
preceded by the definite article shall be taken to encompass all members of the
relevant class. Any defined term used in the singular preceded by "any" shall be
taken to indicate any number of the members of the relevant class.
Section 9.03. Accounting Terms.
9.03(a) All accounting terms not specifically defined herein shall
be construed in accordance with generally accepted accounting principles
consistently applied, except that the following principles shall be applied for
the purposes of the provisions of Sections 4.01(d), 4.02(a), 4.02(b), 4.02(c),
4.03(a), 4.03(b) and 4.03(c) regardless of whether such principles shall be
generally accepted:
(i) There shall be excluded from the Consolidated Net Worth
of the Company and the Subsidiaries any investment in BFC.
(ii) There shall be excluded from Indebtedness of the
Company and any Subsidiary any Limited Recourse Obligation of the Company
or any Subsidiary and, to the extent of the amount of such Limited
Recourse Obligation, there shall be excluded from the assets of the owner
thereof the asset or group of assets to the income, proceeds or value of
which the obligee of such Limited Recourse Obligation is limited in
recourse.
(iii) The value of any asset of the Company or any
Subsidiary shall be reduced by the amount of all depreciation,
amortization, retirement, valuation and other contingency reserves
maintained with respect thereto on the books of account of the Company or
the appropriate Subsidiary.
9.03(b) FAS 106. Notwithstanding anything to the contrary in this
Agreement, any computations made in connection with the covenants set out in
Sections 4.01, 4.02, or 4.03 (including without limitation computations
contemplated by the defined terms used therein) shall be adjusted so that the
effect of Statement of Financial Accounting Standards 106 shall be disregarded.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized as of the day and year
first above written.
THE BOEING COMPANY
By
Its Assistant Treasurer
CITIBANK, N.A.
Individually and as Agent
399 Park Avenue
Eighth Floor, Zone 6
New York, New York 10043
By
Its Vice-President
<PAGE> 16
ABN AMRO Bank, N.V.
Seattle Branch
One Union Square
600 University Place, Suite 2323
Seattle, Washington 98101
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
BANK IV, N.A.
100 N. Broadway
P. O. Box 4
Wichita, Kansas 67201-0004
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
<PAGE> 17
Bank of America National Trust and Savings Association
555 South Flower Street, 11th Floor
Unit #5618
Los Angeles, California 90071
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
Bank of America NT&SA
GPO Account Administration #5693
1850 Gateway Boulevard
Concord, California 94520
Attn: Ms. Nona Merritt
Phone: (510) 675-7052
Bankers Trust Company
Airline, Airframe, Aerospace Division
130 Liberty Street, MS 2232
New York, New York 10006
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
<PAGE> 18
Bank of New York
10990 Wilshire Boulevard
Suite 1700
Los Angeles, California 90024
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
The Bank of New York
One Wall St. 22nd Flr.
New York, NY 10005
Attn. Lorna Alleyne
Assistant Treasurer
Bank of Tokyo - Mitsubishi
(address)
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
CIBC Inc
425 Lexington Avenue
New York, New York 10017
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
2727 Taces Ferry Road
Building #2, Suite 1200
Atlanta, Georgia 30339
Attn: Atlanta Client Support
Center - Susan Wood
fax: 770-319-4950
The Chase Manhattan Bank
270 Park Avenue
10th Floor
New York, New York 10017
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
<PAGE> 19
Credit Lyonnais
acting through its New York Branch
Credit Lyonnais Building
1301 Avenue of the Americas, 20th Floor
New York, New York 10019
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
First National Bank of Boston
U. S. Corporate/01-21-01
100 Federal Street (02110)
P.O. Box 2016
Boston, Massachusetts 02106-2016
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
<PAGE> 20
Industrial Bank of Japan, Ltd.
Los Angeles Agency
350 South Grand Avenue
Suite 1500
Los Angeles, California 90071
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
Long-Term Credit Bank of Japan, Ltd.
Los Angeles Agency
444 So. Flower Street
Suite 3700
Los Angeles, California 90071-2936
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
Mitsubishi Trust and Banking
Corporation
New York Branch - 25th Floor
520 Madison Avenue
New York, New York 10022
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
Morgan Guaranty Trust Company of
New York
c/o J.P. Morgan Services, Inc.
Loan Operations - 3rd Floor
500 Stanton Christiana Road
Newark, DE 19713
Telex Number/Answerback: 177425 MBDEL UT
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
Morgan Guaranty Trust Company of New York
Nassau Bahamas Office
c/o J. P. Morgan Services, Inc.
Loan Operations - 3rd Floor
500 Stanton Christiana Road
Newark, DE 19713
Telex Number/Answerback: 177425 MBDEL UT
Nationsbank of Texas, N.A.
(address)
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
<PAGE> 21
============================
============================
National Westminster Bank plc
Level 5
135 Bishopsgate
London, EC2M 3UR
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
National Westminster Bank PLC
Nassau Branch
175 Water Street
New York, NY 10038
PNC Bank, National Association
Broad & Chesnut Streets
P.O. Box 7648, MS 12-07-01
Philadelphia, Pennsylvania 19101
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
The Sumitomo Bank, Limited
Los Angeles Branch
777 South Figueroa Street
Suite 2600
Los Angeles, California 90017
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
Sumitomo Trust and Banking Company, Ltd.
Los Angeles Agency
333 South Grand Avenue
Suite 5300
Los Angeles, California 90071
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
U. S. Bank of Washington, N.A.
1420 - 5th Avenue - 11th Floor
Seattle, Washington 98108
By:
(Signature)
----------------------------
<PAGE> 22
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
Wachovia Bank of
North Carolina, N.A.
Wachovia Corporate Services
191 Peachtree Street, N.E. 28th Floor
Atlanta, Greorgia 30303
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
<PAGE> 1
Exhibit 10.19
THE BOEING COMPANY BANK CREDIT AGREEMENT
Amended and Restated as of September 27, 1996
The Boeing Company, a Delaware corporation, the Banks (defined below) and
Citibank, N.A. as Agent for the Banks, hereby agree to amend and restate in its
entirety as of September 27, 1996, The Boeing Company Bank Credit Agreement
entered into as of September 30, 1994, among The Boeing Company, the banks party
thereto, and Citibank, N.A., as agent for such banks, to read as follows:
ARTICLE 1
Banks and Commitments
Section 1.01. Certain Definitions. (All other definitions are as set forth in
Article 9).
(a) "Bank"--Subject to the provisions of Section 2.18, any of the
banking institutions set forth in Section 1.02.
(b) "Commitment"--For each Bank, the full amount set forth opposite the
name of such Bank in Section 1.02, or, if such Bank has entered into one
or more assignments pursuant to Section 2.18 or Section 2.19, the amount
set forth for such Bank in the Register maintained by the Agent pursuant
to Section 2.18(b), as such amount may be reduced pursuant to Section
2.03, Section 2.08 or Section 2.17 or increased pursuant to Section 2.17.
<PAGE> 2
Section 1.02. Schedule of Banks and Commitments.
<TABLE>
<CAPTION>
Bank Commitment
<S> <C>
Citibank, N.A $100,000,000
The Chase Manhattan Bank 85,000,000
Long Term Credit Bank of Japan, Ltd. 85,000,000
Mitsubishi Trust and Banking Corp. 75,000,000
Bankers Trust Company 60,000,000
Credit Lyonnais 60,000,000
National Westminster Bank plc 60,000,000
ABN Amro Bank, N.V. 48,000,000
Industrial Bank of Japan, Ltd. 49,000,000
Bank of Tokyo - Mitsubishi 49,000,000
Nationsbank of Texas, N.A. 49,000,000
Bank of America, N.T. & S.A. 34,000,000
Bank of New York 34,000,000
The Sumitomo Bank Ltd. 34,000,000
Wachovia Bank of North Carolina, N.A. 34,000,000
PNC Bank, N.A. 27,000,000
Morgan Guaranty Trust Company of New York 25,000,000
Sumitomo Trust & Banking Co. Ltd. 25,000,000
CIBC Inc 25,000,000
First National Bank of Boston 20,000,000
U.S. Bank of Washington, N.A. 15,000,000
Bank IV, N.A. 7,000,000
Total $1,000,000,000
</TABLE>
ARTICLE 2
Amounts and Terms of the Advances
Section 2.01. The A Advances. Each Bank severally agrees, on the terms
and conditions hereinafter set forth, to make A Advances to the Company from
time to time on any Business Day during the period from the date hereof until
the Termination Date in an aggregate principal amount at any time outstanding
not to exceed such Bank's Commitment provided that the aggregate amount of the
Commitments of the Banks shall be deemed used from time to time to the extent of
the aggregate amount of the B Advances then outstanding and such deemed use of
the aggregate amount of the Commitments shall be applied to the Banks ratably
according to their respective Commitments (such deemed use of the aggregate
amount of the Commitments being a "B Reduction"). Each A Borrowing shall be in
an aggregate amount not less than $25,000,000 in the case of a Base Rate
Borrowing or $50,000,000 in the case of a Eurodollar Rate Borrowing or, in each
case, an integral multiple of $5,000,000 in excess thereof (or, if less, an
aggregate amount equal to the difference between the aggregate amount of a
proposed B Borrowing requested by the Company and the aggregate amount of B
Advances offered to be made by the Banks and accepted by the Company in respect
of such B Borrowing, if notice of such A Borrowing is given by the Company
within two Business Days of the date of such B Borrowing) and shall consist of A
Advances of the same Type made on the same day by the Banks ratably according to
their respective Commitments. Within the limits of each Bank's Commitment, the
Company may from time to time borrow, prepay pursuant to Section 2.12, and
reborrow under this Section 2.01.
Section 2.02. Making the A Advances.
2.02(a) Each A Borrowing shall be made on notice, given by the
Company to the Agent not later than 11:00 a.m. (New York City time) on the day
of the proposed A Borrowing in the case of a Base Rate Borrowing and on the
third Business Day prior to the date of the proposed A Borrowing in the case of
a Eurodollar Rate Borrowing. The Agent thereupon shall give to each Bank prompt
notice thereof by telecopier, telex or cable. Each such notice of an A Borrowing
(a "Notice of A Borrowing") shall be by telecopier, telex or cable, confirmed
immediately in writing, in substantially the form of Exhibit B-l hereto,
specifying therein the requested (i) date of such A Borrowing, (ii) Type of A
Advances comprising such A Borrowing, (iii) aggregate amount of such A
Borrowing, and (iv) in the case of an A Borrowing comprised of Eurodollar Rate
Advances, initial Interest Period for each such A Advance. Each Bank shall,
before 1:00 p.m. (New York City time) on the date of such A Borrowing, make
available for the account of its Applicable Lending Office to the Agent at its
address referred to in Section 8.02, in same day funds, such Bank's ratable
portion of such A Borrowing. After the Agent's receipt of such funds and upon
fulfillment of the applicable conditions set forth in Article 5, the Agent will
make such funds available to the Company at the Agent's aforesaid address.
2.02(b) Each Notice of A Borrowing shall be irrevocable and
binding on the Company. In the case of any A Borrowing which the related Notice
of A Borrowing specifies is to be comprised of Eurodollar Rate Advances, the
Company shall indemnify each Bank against any loss, cost or expense incurred by
such Bank on account of any failure to fulfill on or before the date specified
for such A Borrowing in such Notice of A Borrowing the applicable conditions set
forth in Article 5, including, without limitation, any loss (including loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Bank to fund the A
Advance to be made by such Bank as part of such A Borrowing when such A Advance,
as a result of such failure, is not made on such date.
2.02(c) Unless the Agent shall have received notice from a Bank
prior to 1:00 p.m. (New York City time) on the day of any A Borrowing that such
Bank will not make available to the Agent such Bank's ratable portion of such A
Borrowing, the Agent may assume that such Bank has made such portion available
to the Agent on the date of such A Borrowing in accordance with subsection (a)
of this Section 2.02 and the Agent may, in reliance upon such assumption, make
available to the Company on such date a corresponding amount. If and to the
extent that such Bank shall not have so made such ratable portion available to
the Agent, such Bank and the Company severally agree to repay to the Agent
forthwith on demand such corresponding amount together with interest thereon,
for each day from the date such amount is made available to the Company until
the date such amount is repaid to the Agent, at (i) in the case of the Company,
the interest rate applicable at the time to A Advances comprising such A
Borrowing and (ii) in the case of such Bank, the Federal Funds Rate. If such
Bank shall repay to the Agent such corresponding amount, such amount so repaid
shall constitute such Bank's A Advance as part of such A Borrowing for purposes
of this Agreement.
2.02(d) The failure of any Bank to make the A Advance to be made
by it as part of any A Borrowing shall not relieve any other Bank of its
obligation, if any, hereunder to make its A Advance on the date of such A
Borrowing, but no Bank shall be responsible for the failure of any other Bank to
make the A Advance to be made by such other Bank on the date of any A Borrowing.
Section 2.03 Conversion to Term Loan, Repayment. On the Termination
Date, immediately prior to the time when the aggregate unpaid principal amount
of the A Advances would otherwise be due, the aggregate unpaid principal amount
of the A Advances then outstanding shall automatically convert into a term loan
which the Company shall repay to the Agent for the ratable account of the Banks
on the Maturity Date. The amounts so converted shall be treated for all purposes
of this Agreement as A Advances except that after the Termination Date:
(a) the Company may not make any additional borrowings;
(b) any amounts paid or prepaid may not be reborrowed;
(c) the amount of each Bank's Commitment shall be equal at all
times to the principal amount of the A Borrowing payable to
such Bank from time to time, and the Company shall continue to
pay the Facility Fee based on each Bank's Commitment through
the Maturity Date;
(d) the provisions of Section 2.17 shall not be effective;
(e) no Bank shall have the right to assign its rights in any A
Advances outstanding.
<PAGE> 3
Section 2.04. Interest Rate on A Advances. The Company shall pay interest
on the unpaid principal amount of each A Advance made by each Bank from the date
of such A Advance until such principal amount shall be paid in full, at the
following rates per annum: (i) during each period in which such A Advance is a
Base Rate Advance, at a rate per annum equal at all times to the Base Rate in
effect from time to time, payable quarterly in arrears on the first day of each
January, April, July and October and on the Termination Date, and (ii) during
each period in which such A Advance is a Eurodollar Rate Advance, at a rate per
annum equal at all times during each relevant Interest Period for such A Advance
to the Eurodollar Rate for such Interest Period plus the Applicable Margin,
payable on the last day of each such Interest Period.
Section 2.05. The B Advances.
2.05(a) Each Bank severally agrees that the Company may make B
Borrowings under this Section 2.05 from time to time on any Business Day during
the period from the date hereof until the Termination Date in the manner set
forth below, provided that, following the making of each B Borrowing, the
aggregate amount of the Advances then outstanding shall not exceed the aggregate
amount of the Commitments of the Banks.
2.05(a)(i) The Company may request a B Borrowing
under this Section 2.05 by delivering to the Agent, by telecopier, telex
or cable, confirmed immediately in writing, a notice of a B Borrowing (a
"Notice of B Borrowing"), in substantially the form of Exhibit B-2 hereto,
specifying the date and aggregate amount of the proposed B Borrowing, the
maturity date for repayment of each B Advance to be made as part of such B
Borrowing (which maturity date may not be later than the Termination Date
but may otherwise be from 14 to 180 days following the date of such B
Advance if the Company shall specify in the Notice of B Borrowing that the
rates of interest to be offered by the Banks shall be fixed rates per
annum (a "Fixed Rate Borrowing") and either 1, 2, 3, or 6 months from the
date of such B Borrowing if the Company shall specify in the Notice of B
Borrowing that such B Borrowing is to be a Borrowing consisting of
Eurodollar Rate B Advances (a "Eurodollar Rate B Borrowing")), the
interest payment date or dates relating thereto, and any other terms to be
applicable to such B Borrowing, not later than 11:00 a.m. (New York City
time) (A) at least one Business Day prior to the date of the proposed B
Borrowing if the Company shall specify in the Notice of B Borrowing that
such B Borrowing is to be a Fixed Rate Borrowing and (B) at least four
Business Days prior to the date of the proposed B Borrowing, if the
Company shall instead specify in the Notice of B Borrowing that such B
Borrowing is to be a Eurodollar Rate B Borrowing. The Agent shall in turn
promptly notify each Bank of each request for a B Borrowing received by it
from the Company by sending such Bank a copy of the related Notice of B
Borrowing.
2.05(a)(ii) Each Bank may, if, in its sole
discretion, it elects to do so, irrevocably offer to make one or more B
Advances to the Company as part of such proposed B Borrowing at a rate or
rates of interest specified by such Bank in its sole discretion (such rate
of interest to be a fixed rate if the Company requested Fixed Rate
Advances, or a margin over the Eurodollar Rate if the Company requested
Eurodollar Rate B Advances), by notifying the Agent (which shall give
prompt notice thereof to the Company), before 10:00 a.m. (New York City
time) (A) on the date of such proposed B Borrowing, in the case of a
Notice of B Borrowing delivered pursuant to clause (A) of paragraph (i)
above and (B) three Business Days before the date of such proposed B
Borrowing, in the case of a Notice of B Borrowing delivered pursuant to
clause (B) of paragraph (i) above, of the minimum amount and maximum
amount of each B Advance which such Bank would be willing to make as part
of such proposed B Borrowing (which amounts may, subject to the proviso to
the first sentence of this Section 2.05(a), exceed such Bank's
Commitment), the rate or rates of interest therefor (specified as stated
in this paragraph (ii)) and such Bank's Applicable Lending Office with
respect to such B Advance; provided that if the Agent in its capacity as a
Bank shall, in its sole discretion, elect to make any such offer, it shall
notify the Company of such offer before 9:30 a.m. (New York City time) on
the date on which notice of such election is to be given to the Agent by
the other Banks. If, by 10:00 a.m. (New York City time) on the date on
which notice of a Bank's election under this Section 2.05(a)(ii) is to be
made, the Agent fails to receive, at its address referred to in Section
8.02, the notice from a Bank provided for in this Section 2.05(a)(ii), the
Agent may conclusively presume that such Bank has elected not to offer to
make any B Advances to the Company with respect to the related Notice of B
Borrowing.
2.05(a)(iii) The Company shall, in turn, (A) before
11:00 a.m. (New York City time) on the date of such proposed B Borrowing,
in the case of a Notice of B Borrowing delivered pursuant to clause (A) of
paragraph (i) above and (B) before 12:00 noon (New York City time) three
Business Days before the date of such proposed B Borrowing, in the case of
a Notice of B Borrowing delivered pursuant to clause (B) of paragraph (i)
above, either:
(x) cancel such B Borrowing by giving the Agent
notice to that effect, or
(y) accept one or more of the offers made by any
Bank or Banks pursuant to Section 2.05(a)(ii), in its sole discretion, by
giving notice to the Agent of the amount of each B Advance (which amount
shall be equal to or greater than the minimum amount, and equal to or less
than the maximum amount, notified to the Company by the Agent on behalf of
such Bank for such B Advance pursuant to Section 2.05(a)(ii) above) to be
made by each Bank as part of such B Borrowing, and reject any remaining
offers made by Banks pursuant to Section 2.05(a)(ii) above by giving the
Agent notice to that effect.
2.05(a)(iv) If the Company notifies the Agent that
such B Borrowing is canceled pursuant to Section 2.05(a)(iii)(x) above,
the Agent shall give prompt notice thereof to the Banks and such B
Borrowing shall not be made.
2.05(a)(v) If the Company accepts one or more of the
offers made by any Bank or Banks pursuant to Section 2.05(a)(iii)(y)
above, the Agent shall in turn promptly (A) notify each Bank that has made
an offer as described in Section 2.05(a)(ii) above, of the date and
aggregate amount of such B Borrowing and whether or not any offer or
offers made by such Bank pursuant to Section 2.05(a)(ii) above have been
accepted by the Company, (B) notify each Bank that is to make a B Advance
as part of such B Borrowing, of the amount of each B Advance to be made by
such Bank as part of such B Borrowing, and (C) notify each Bank that is to
make a B Advance as part of such B Borrowing that the applicable
conditions set forth in Article 5 appear to have been satisfied. Each Bank
that is to make a B Advance as part of such B Borrowing shall, before 1:00
p.m. (New York City time) on the date of such B Borrowing specified in the
notice received from the Agent pursuant to clause (A) of the preceding
sentence and when such Bank shall have received notice from the Agent
pursuant to clause (C) of the preceding sentence, make available for the
account of its Applicable Lending Office to the Agent at its address
referred to in Section 8.02 such Bank's portion of such B Borrowing, in
same day funds. Upon fulfillment of the applicable conditions set forth in
Article 5 and after receipt by the Agent of such funds, the Agent will
make such funds available to the Company at the Agent's aforesaid address.
Promptly after each B Borrowing the Agent will notify each Bank of the
amount of the B Borrowing, the consequent B Reduction and the dates upon
which such B Reduction commenced and will terminate.
2.05(b) Each Notice of B Borrowing shall request an aggregate
amount of B Advances not less than $50,000,000 or an integral multiple of
$5,000,000 in excess thereof provided that the Company may accept offers
aggregating less than $50,000,000 and offers which are not an integral multiple
of $5,000,000 and provided further that following the making of each B
Borrowing, the Company shall be in compliance with the limitation set forth in
the proviso to the first sentence of subsection (a) above. Within the limits and
on the conditions set forth in this Section 2.05, the Company may from time to
time borrow under this Section 2.05, repay or prepay pursuant to Section
2.05(c), and reborrow under this Section 2.05, provided that a B Borrowing shall
not be made within three Business Days of the date of any other B Borrowing.
2.05(c) On the maturity date of each B Advance (such maturity date
being that specified by the Company for repayment of such B Advance in the
related Notice of B Borrowing delivered pursuant to Section 2.05(a)(i)) the
Company shall repay to the Agent for the account of the Bank which has made such
B Advance the then unpaid principal amount of such B Advance. The Company shall
have no right to prepay any principal amount of any B Advance.
2.05(d) The Company shall pay interest on the unpaid principal
amount of each B Advance, from the date of such B Advance to the date the
principal amount of such B Advance is repaid in full, at the fixed rate of
interest for such B Advance (in the case of a Fixed Rate B Advance) specified by
the Bank making such B Advance in its notice with respect thereto delivered
pursuant to Section 2.05(a)(ii) above or (in the case of a Eurodollar Rate B
Advance) the margin specified by the Bank making such B Advance in its notice
with respect thereto delivered pursuant to Section 2.05(a)(ii) above plus the
Eurodollar Rate determined with respect to such B Borrowing pursuant to Section
2.10, payable on the interest payment date or dates specified by the Company for
such B Advance in the related Notice of B Borrowing delivered pursuant to
Section 2.05(a)(i) above.
<PAGE> 4
2.05(e) The indebtedness of the Company resulting from all B
Advances made by a Bank shall be evidenced by a single B Note payable to the
order of such Bank covering all Fixed Rate Advances, and a single B Note payable
to the order of such Bank covering all Eurodollar B Advances, made by such Bank.
2.05(f) Any Bank may, without the prior written consent of the
Company, sell or assign all or any part of such Bank's rights in any or all of
the B Advances made by such Bank or the B Notes in connection with such B
Advances, provided, however, that (i) any such sale or assignment shall not
require the Company to file a registration statement with the Securities and
Exchange Commission or apply to qualify the Notes under the blue sky laws of any
state and the selling or assigning Bank shall otherwise comply with all federal
and state securities laws applicable to such transaction; (ii) no purchaser or
assignee in such a transaction shall thereby become a "Bank" for any purpose
under this Agreement, (iii) such Bank's obligations under this Agreement
(including, without limitation, its Commitment to the Company hereunder) shall
remain unchanged, (iv) such Bank shall remain solely responsible to the other
parties hereto for the performance of such obligations, and (v) the Company, the
Agent and the other Banks shall continue to deal solely and directly with such
Bank in connection with such Bank's rights and obligations under this Agreement.
Section 2.06. Fees. The Company agrees to pay to the Agent for the account
of each Bank a facility fee ("Facility Fee") on such Bank's Commitment, without
regard to usage. Such fee shall be payable for the periods from the date hereof
in the case of each Bank named in Section 1.02, and from the effective date on
which any other Bank becomes party hereto, until the Termination Date at the
rate of .05% per annum. Facility Fees shall be payable in arrears on each
January 1, April 1, July 1 and October 1 during the term of this Agreement and
on the Termination Date.
Section 2.07. Compensating Balances. The Company shall (i) maintain with
each Bank during each calendar year during which such Bank has any Commitment
hereunder a compensating balance of demand deposits equal to one percent (1%) of
the amount of such Bank's Commitment in effect from time to time without regard
to usage or (ii) pay a fee in lieu thereof as follows. On February 15 of each
year the Company shall pay to each Bank a fee (if such fee is payable pursuant
to the preceding sentence), calculated with respect to the calendar year ending
the preceding December 31 in an amount equal to the average Federal Funds Rate
during such year times the excess, if any, of the average compensating balance
required with respect to such Bank pursuant to this Section 2.07 during such
calendar year over the Company's average balances of demand deposits maintained
with such Bank during such calendar year. The amount of compensating balance and
fees required during a calendar year shall be prorated for any calendar year
during which this Agreement is not in effect for the entire year.
Section 2.08. Reduction of the Commitments.
2.08(a) Optional Reductions. The Company shall have the right,
upon at least 10 Business Days' notice to the Agent, to terminate in whole or
reduce ratably in part the unused portions of the Commitments of the Banks,
provided that the aggregate amount of the Commitments of the Banks shall not be
reduced to an amount which is less than the aggregate principal amount of the B
Advances then outstanding.
2.08(b) Mandatory Reduction. At the close of business on the
Termination Date, the aggregate Commitments of the Banks shall be automatically
and permanently reduced, on a pro rata basis, by an amount equal to the amount
by which the aggregate Commitments immediately prior to giving effect to such
reduction exceeds the aggregate unpaid principal amount of the A Advances then
outstanding.
Section 2.09. Additional Interest on Eurodollar Rate A Advances. The
Company shall pay to each Bank, so long as such Bank shall be required under
regulations of the Board of Governors of the Federal Reserve System to maintain
reserves with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities, additional interest on the unpaid principal amount of
each Eurodollar Rate A Advance of such Bank, from the date of such A Advance
until such principal amount is paid in full, at an interest rate per annum equal
at all times to the remainder obtained by subtracting (i) the Eurodollar Rate
for the Interest Period for such A Advance from (ii) the rate obtained by
dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar
Rate Reserve Percentage of such Bank for such Interest Period, payable on each
date on which interest is payable on such A Advance. Such additional interest
shall be determined by such Bank and notified to the Company through the Agent.
Section 2.10. Eurodollar Interest Rate Determination.
2.10(a) Each Reference Bank agrees to furnish to the Agent timely
information for the purpose of determining each Eurodollar Rate. If any one or
more of the Reference Banks shall not furnish such timely information to the
Agent for the purpose of determining any such interest rate, the Agent shall
determine such interest rate on the basis of timely information furnished by the
remaining Reference Banks.
2.10(b) The Agent shall give prompt notice to the Company and the
Banks of the Eurodollar Rate determined by the Agent.
2.10(c) If fewer than two Reference Banks furnish timely
information to the Agent for determining the Eurodollar Rate for any Eurodollar
Rate Advances, the Agent shall determine the interest rate for deposits in U.S.
Dollars for a period equal to that of the relevant Interest Period on the
Telerate page 3750 quoted as of 11:00 a.m. (London time) two Business Days
before the first day of such Interest Period or, if such page on such service
ceases to display such information, such other page as may replace it on that
service for the purpose of displaying such information, and the rate so
determined shall be used as the Eurodollar Rate for such Eurodollar Rate
Advances. If such rate is not so displayed on that service,
(i) the Agent shall forthwith notify the Company and the
Banks that the interest rate cannot be determined for such Eurodollar Rate
Advances,
(ii) each such Advance, if an A Advance, will
automatically, on the last day of the then existing Interest Period
therefor, Convert into a Base Rate Advance (or if the Company was
attempting to Convert a Base Rate Advance into a Eurodollar Rate A
Advance, such Advance will continue as a Base Rate Advance), and
(iii) the obligation of the Banks to make Eurodollar Rate B
Advances, or to make, or to Convert A Advances into, Eurodollar Rate A
Advances shall be suspended until the Agent shall notify the Company and
the Banks that the circumstances causing such suspension no longer exist.
2.10(d) If, with respect to any Eurodollar Rate A Advances, the
Majority Banks notify the Agent that the Eurodollar Rate for any Interest Period
for such A Advances will not adequately reflect the cost to such Majority Banks
of making, funding or maintaining their respective Eurodollar Rate A Advances
for such Interest Period, the Agent shall forthwith so notify the Company and
the Banks, whereupon
(i) each Eurodollar Rate A Advance will automatically, on
the last day of the then existing Interest Period therefor, Convert into a
Base Rate Advance, and
(ii) the obligation of the Banks to make, or to Convert A
Advances into, Eurodollar Rate A Advances shall be suspended until the
Agent shall notify the Company and such Banks that the circumstances
causing such suspension no longer exist.
2.10(e) If the Company shall fail to select the duration of any
Interest Period for any Eurodollar Rate A Advances in accordance with the
provisions contained in the definition of "Interest Period" in Section 9.01, the
Agent will forthwith so notify the Company and the Banks and such A Advances
will automatically, on the last day of the then existing Interest Period
therefor, Convert into Base Rate Advances.
Section 2.11. Voluntary Conversion of A Advances. The Company may on any
Business Day, upon notice given to the Agent not later than 11:00 a.m. (New York
City time) on the third Business Day prior to the date of the proposed
Conversion and subject to the provisions of Sections 2.10 and 2.14, Convert all
A Advances of one Type comprising the same A Borrowing into Advances of another
Type; provided, however, that any Conversion of any Eurodollar Rate A Advances
into Base Rate Advances shall be made on, and only on, the last day of an
Interest Period for such Eurodollar Rate A Advances. Each such notice of a
Conversion shall, within the restrictions specified above, specify (i) the date
of such Conversion, (ii) the A Advances to be Converted, and (iii) if such
Conversion is into Eurodollar Rate A Advances, the duration of the Interest
Period for each such A Advance.
Section 2.12. Prepayments. The Company shall have the right at any time
and from time to time, upon prior written notice from the Company to the Agent,
to prepay the outstanding principal obligations evidenced by the A Notes in
whole or ratably (except as provided in Section 2.13(b), 2.14 or 2.17) in part
and may be obligated to make certain prepayments of obligations evidenced by one
or more A Notes subject to and in
<PAGE> 5
accordance with the following:
2.12(a) With respect to Base Rate Borrowings, such prepayment
shall be without premium or penalty and shall be made on at least two Business
Days' prior written notice. The Company shall designate in such notice the
amount and date of such prepayment. Accrued interest on the amount so prepaid
shall be payable on the first Business Day of the calendar quarter next
following the prepayment. The minimum amount of Base Rate Borrowings which may
be prepaid on any occasion shall be $25,000,000 or an integral multiple of
$5,000,000 in excess thereof or, if less, the total amount of A Advances then
outstanding.
2.12(b) With respect to Eurodollar Rate A Borrowings, such
prepayment shall be made on at least 5 Business Days' prior written notice. The
Company shall designate in such notice the amount and date of such prepayment
and the Eurodollar Rate A Borrowings against which each portion of each
prepayment shall be applied, which portion shall be ratable as among the Banks.
The minimum amount of each prepayment shall be an amount necessary to prepay the
entire amount of the Eurodollar Rate A Borrowing with respect to which such
prepayment is being made. The Company shall, on the date of the prepayment, pay
to the Agent for the account of each Bank interest accrued to such date of
prepayment on the principal amount prepaid plus, in the case only of a
prepayment on any date which is not the last day of an applicable Eurodollar
Interest Period, any amounts which may be required to compensate such Bank for
any losses or out-of-pocket costs or expenses (including any loss, cost or
expense incurred by reason of the liquidation or reemployment of deposits or
other funds, but excluding loss of anticipated profits) incurred by such Bank as
a result of such prepayment, provided that such Bank shall exercise reasonable
efforts to minimize any such losses, costs and expenses.
2.12(c) If due to any prepayment pursuant to Section 2.14 or to
the acceleration of any of the A Notes pursuant to Section 6.01 or otherwise,
any Bank receives payment of its portion of, or is subject to any Conversion
from, any Eurodollar Rate A Advance on any day other than the last day of an
Interest Period with respect to such A Advance, the Company will pay to the
Agent for the account of such Bank any amounts which may be payable to such Bank
by the Company by reason of payment on such day as provided in Section 2.12(b).
Section 2.13. Increases in Costs.
2.13(a) If, due to either (1) the introduction of, or any change
(other than, in the case of Eurodollar Rate Borrowings, a change by way of
imposition or increase of reserve requirements referred to in Section 2.09) in,
or new interpretation of, any law or regulation effective at any time and from
time to time on or after August 15, 1980 or (2) the compliance with any request
from or by any central bank or other governmental authority (whether or not
having the force of law), there shall be any increase in the costs incurred by
any Bank in agreeing to make or making, funding or maintaining any Eurodollar
Rate A Advance then or at any time thereafter outstanding, then the Company
shall from time to time, upon demand of such Bank (with a copy of such demand to
the Agent), pay to the Agent for the account of such Bank such amounts as shall
be required to compensate such Bank for such increased cost, provided that such
Bank shall exercise reasonable efforts (consistent with its internal policy and
legal and regulatory restrictions) to minimize any such increased cost. A
certificate as to the amount of such increase in costs, submitted to the Company
and the Agent by such Bank, shall be conclusive and binding for all purposes
under this Section 2.13(a), absent manifest error.
2.13(b) If any Bank determines that compliance with any law or
regulation or any guidelines or request from any central bank or other
governmental authority (whether or not having the force of law) which is
enacted, adopted or issued at any time and from time to time after December 31,
1990 affects or would affect the amount of capital required or expected to be
maintained by such Bank or any corporation controlling such Bank and that the
amount of such capital is increased by or based upon the existence of such
Bank's commitment to lend hereunder and other commitments of this type, then,
upon demand by such Bank (with a copy of such demand to the Agent), the Company
shall immediately pay to the Agent for the account of such Bank, from time to
time as specified by such Bank, additional amounts sufficient to compensate such
Bank in the light of such circumstances, to the extent that such Bank reasonably
determines such increase in capital to be allocable to the existence of such
Bank's commitment to lend hereunder, provided that such Bank shall exercise
reasonable efforts (consistent with its internal policy and legal and regulatory
restrictions) to minimize any such compensation payable by the Company
hereunder. A certificate as to such amounts submitted to the Company and the
Agent by such Bank, shall be conclusive and binding for all purposes, absent
manifest error. Upon receipt of notice from any Bank claiming compensation
pursuant to this Section 2.13(b) and as long as no Event of Default and no event
which with notice or lapse of time or both would constitute an Event of Default
shall have occurred and be continuing, the Company shall have the right, on or
before the 30th day after the date of receipt of such notice, (i) to arrange for
one or more Banks or other commercial banks to assume the Commitment of such
Bank or (ii) to arrange for the Commitment of such Bank to be terminated and all
A Advances owed to such Bank to be prepaid.
Section 2.14. Illegality. If there is any introduction of, or change in,
or in the interpretation of, any law or regulation, which in the opinion of
counsel for the Agent in the relevant jurisdiction shall make it unlawful, or if
any central bank or other governmental authority shall assert that it is
unlawful, for any Bank to continue to fund or maintain any Eurodollar Rate
Advances or to perform its obligations with respect to Eurodollar Rate Advances
as provided hereunder, upon the issuance of such opinion of counsel or such
assertion by a central bank or other governmental authority and notice given to
the Company (accompanied by such opinion, if applicable) by the Agent, the
Company shall forthwith either (1) prepay in full all Eurodollar Rate A Advances
made by such Bank as a part of Eurodollar Rate A Borrowings, with accrued
interest thereon and all other amounts which may be payable to such Bank by the
Company as provided in Section 2.12(b) or (2) Convert all such Eurodollar Rate A
Advances made by such Bank into A Borrowings of another Type as provided in
Section 2.11. Upon such demand or such notice of prepayment or Conversion, the
obligation of such Bank to make or to Convert A Advances into, Eurodollar Rate A
Advances shall be suspended until such time as the event giving rise to such
prepayment or Conversion shall no longer apply, at which time the Commitment of
such Bank to make A Advances for the funding of, or Conversion to, Eurodollar
Rate A Borrowings shall be reinstated, subject to its then available Commitment.
Section 2.15. Payments and Computations.
2.15(a) The Company shall make each payment hereunder and under
the Notes not later than 11:00 a.m. (New York City time) on the day when due in
U.S. dollars to the Agent at its address referred to in Section 8.02 in same day
funds. The Agent will promptly thereafter cause to be distributed like funds
relating to the payment of principal or interest or fees ratably (other than
amounts payable pursuant to Section 2.05, 2.09, 2.13, 2.14, or 2.17) to the
Banks for the account of their respective Applicable Lending Offices, and like
funds relating to the payment of any other amount payable to any Bank to such
Bank for the account of its Applicable Lending Office, in each case to be
applied in accordance with the terms of this Agreement. From and after the
effective date of an assignment pursuant to Section 2.18, the Agent shall make
all payments hereunder and under the Notes in respect of the interest assigned
thereby to the Bank assignee thereunder, and the parties to such assignment
shall make all appropriate adjustments in such payments for the periods prior to
such effective date directly between themselves.
2.15(b) All computations of interest based on the Base Rate and of
fees shall be made by the Agent on the basis of a year of 365 or 366 days, as
the case may be, and all computations of interest based on the Eurodollar Rate
or the Federal Funds Rate shall be made by the Agent, and all computations of
interest pursuant to Section 2.09 shall be made by a Bank, on the basis of a
year of 360 days, in each case for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest or fees are payable. Each determination by the Agent (or, in the case
of Section 2.09, by a Bank) of an interest rate hereunder shall be conclusive
and binding for all purposes, absent manifest error.
2.15(c) Whenever any payment hereunder or under the Notes shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest or fee, as the case
may be; provided, however, if such extension would cause payment of interest on
or principal of Eurodollar Rate Advances to be made in the next following
calendar month, such payment shall be made on the next preceding Business Day.
2.15(d) Unless the Agent shall have received notice from the
Company prior to the date on which any payment is due to the Banks hereunder
that the Company will not make such payment in full, the Agent may assume that
the Company has made such payment in full to the Agent on such date and the
Agent may, in reliance upon such assumption, cause to be distributed to each
Bank on such due date an amount equal to the amount then due such Bank. If and
to the extent that the Company shall not have so made such payment in full to
the Agent, each Bank shall repay to the Agent forthwith on demand such amount
distributed to such Bank together with interest thereon, for each day from the
date such amount is distributed to such Bank until the date such Bank repays
such amount to the Agent, at the Federal Funds Rate.
<PAGE> 6
Section 2.16. Sharing of Payments, Etc. If any Bank shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the A Advances made by it (other than
pursuant to Sections 2.09, 2.13, 2.14 or 2.17), in excess of its ratable share
of payments on account of the A Advances obtained by all the Banks, such Bank
shall forthwith purchase from the other Banks such participations in the A
Advances made by them as shall be necessary to cause such purchasing Bank to
share the excess payment ratably with each of them, provided, however, that if
all or any portion of such excess payment is thereafter recovered from such
purchasing Bank, such purchase from each Bank shall be rescinded and such Bank
shall repay to the purchasing Bank the purchase price to the extent of such
recovery together with an amount equal to such Bank's ratable share (according
to the proportion of (i) the amount of such Bank's required repayment to (ii)
the total amount so recovered from the purchasing Bank) of any interest or other
amount paid or payable by the purchasing Bank in respect of the total amount so
recovered. The Company agrees that any Bank so purchasing a participation from
another Bank pursuant to this Section 2.16 may, to the fullest extent permitted
by law, exercise all its rights of payment (including the right of set-off) with
respect to such participation as fully as if such Bank were creditor of the
Company in the amount of such participation.
Section 2.17. Alteration of Commitments and Addition of Banks. By a
written agreement executed only by the Company, the Agent and the Bank or bank
affected:
(i) the Commitment of such Bank may be increased to the amount set
forth in such agreement;
(ii) such bank may be added as a Bank with a Commitment as set
forth in such agreement provided that it agrees to be bound by all the
terms and provisions of this Agreement; and
(iii)the unused portion of the Commitment of such Bank may be
reduced or terminated and the A Advances owing to such Bank may be prepaid
in whole or in part, all as set forth in such agreement.
The Agent may execute any such agreement without the prior consent of any Bank
(other than the Bank or bank affected), except that if at the time the Agent
proposes to execute such agreement either (A) the Company's long-term senior
unsecured debt is rated lower than BBB by S&P or lower than Baa2 by Moody's or
(B) an Event of Default, or an event which with notice or lapse of time or both
would constitute an Event of Default, shall have occurred and be continuing,
then the Agent shall not execute any such agreement unless it has first obtained
the prior written consent of the Majority Banks and provided that the Agent
shall not execute any such agreement without the prior written consent of the
Majority Banks if such agreement would increase the total of the Commitments to
an amount in excess of $1,100,000,000. The Agent shall give each Bank prompt
notice of any such agreement becoming effective. All requests for Bank consent
under the provisions of this Section 2.17 shall specify the date upon which any
such increase, addition, reduction, termination, or prepayment shall become
effective (the "Effective Date") and shall be made by means of a Request for
Alteration substantially in the form as set forth in Exhibit C. On the Effective
Date on which the Commitment of any Bank is increased, decreased, terminated or
created or on which prepayment is made, all as described in such Request for
Alteration, the Company or such Bank, as the case may be, shall make available
to the Agent not later than 12:30 p.m. (New York City time) on such date, in
same day funds, the amount, if any, which may be required (and the Agent shall
distribute such funds received by it to the Company or to such Banks, as the
case may be) so that at the close of business on such date the sum of the A
Advances of each Bank then outstanding shall be in the same proportion to the
total of the A Advances of all the Banks then outstanding as the Commitment of
each Bank is to the total of the Commitments. The Agent shall give each Bank
notice of the amount to be made available by, or to be distributed to, such Bank
at least 5 Business Days before such payment is made.
Section 2.18. Assignments; Sales of Participations and Other Interests in
Notes.
2.18(a) From time to time each Bank may with the prior consent of
the Company and subject to the qualifications set forth below, assign to one or
more Banks or other commercial banks (each such Bank or bank being an "Eligible
Assignee") a portion of its rights and obligations under this Agreement
(including, without limitation, a portion of its Commitment, the A Advances
owing to it and all A Notes held by it) and will, at any time, if arranged by
the Company pursuant to clause (A) of this sentence upon at least 30 days'
notice to such Bank and the Agent, assign to one or more Eligible Assignees all
of its rights and obligations under this Agreement (including without
limitation, all of its Commitment, the A Advances owing to it and all A Notes
held by it); provided, however, that if such Bank shall notify the Company and
the Agent of its intent to request the Company's consent to an assignment, the
Company shall have the right, for 30 days after receipt of such notice and so
long as no Event of Default shall have occurred and be continuing, in its sole
discretion either (A) to arrange for one or more Eligible Assignees to accept
such assignment (a "Required Assignment") or (B) to arrange for the rights and
obligations of such Bank (including, without limitation, such Bank's
Commitment), and the total Commitments of the Banks to be reduced by an amount
equal to the amount of such Bank's Commitment to be assigned and in connection
with such reduction, to prepay that portion of the A Advances owing to such Bank
which it proposes to assign; provided further that if the Company fails to
notify such Bank that it has arranged for an assumption or reduction of the
portion of Commitment to be assigned within 30 days of the receipt by the
Company of such Bank's request for consent to assignment, the Company shall be
deemed to consent to the proposed assignment; provided further that (i) any such
assignment shall not require the Company to file a registration statement with
the Securities and Exchange Commission or apply to qualify the A Notes under the
blue sky laws of any state and the assigning Bank shall otherwise comply with
all federal and state securities laws applicable to such assignment; (ii) the
amount of the Commitment of the assigning Bank being assigned pursuant to each
such assignment (determined as of the date of the assignment) shall either (A)
equal 50% of all such rights and obligations (or 100% in the case of a Required
Assignment) or (B) not be less than $10,000,000 and be an integral multiple of
$5,000,000, and (iii) the aggregate amount of the Commitment of the assigning
Bank assigned pursuant to all such assignments of such Bank (after giving effect
to such assignment) shall in no event exceed 50% (except in the case of a
Required Assignment) of all such Bank's Commitment (as set forth in Section
1.02, in the case of each Bank that is a party hereto as of September 27, 1996,
or as set forth in the Register as the aggregate Commitment assigned to such
Bank pursuant to one or more assignments, in the case of any assignee). No Bank
shall be obligated to make a Required Assignment unless such Bank shall have
received payments in an aggregate amount at least equal to the outstanding
principal amount of all A Advances being assigned, together with accrued
interest thereon to the date of payment of such principal amount and all other
amounts payable to such Bank under this Agreement (including without limitation
Section 2.12(c) provided that such Bank shall receive its pro rata share of the
Facility Fee on the next date on which the Facility Fee is payable). From and
after the effective date of any assignment pursuant to this Section 2.18(a), (x)
the assignee thereunder shall be a party hereto and, to the extent that rights
and obligations hereunder have been assigned to it pursuant to such assignment
have the rights and obligations of a Bank hereunder except that such assignee
may not elect to assign any of its rights and obligations under this Agreement
acquired by any assignment pursuant to this Section 2.18(a) for a period of nine
months following the effective date specified in such assignment and (y) the
Bank assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such assignment relinquish its
rights and be released from its obligations under this Agreement (and, in the
case of an assignment covering all or the remaining portion of an assigning
Bank's rights and obligations under this Agreement, such Bank shall cease to be
a party hereto). Notwithstanding any other provision in this Agreement, any Bank
may at any time create a security interest in all or any portion of its rights
under this Agreement (including without limitation, the Advances owing to it and
the Notes held by it) in favor of any Federal Reserve Bank in accordance with
Regulation A of the Board of Governors of the Federal Reserve System.
2.18(b) The Agent shall maintain at its address referred to in
Section 8.02 a copy of each assignment delivered to and accepted by it and a
register for the recordation of the names and addresses of the Banks and the
Commitment of, and principal amount of the A Advances owing to, each Bank from
time to time (the "Register"). The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and the Company, the Agent
and the Banks may treat each entity whose name is recorded in the Register as a
Bank hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Company or any Bank at any reasonable time and
from time to time upon reasonable prior notice. Upon receipt by the Agent from
the assigning Bank of an assignment in form and substance satisfactory to the
Agent executed by an assigning Bank and an assignee representing that it is an
Eligible Assignee, together with each A Note subject to such assignment, and a
processing and recording fee of $2,000, the Agent shall, if such assignment is a
Required Assignment or has been consented to by the Company to the extent
required by Section 2.18(a) or has been effected pursuant to Section 2.19(c),
(i) accept such assignment, (ii) record the information contained therein in the
Register and (iii) give prompt notice thereof to the Company. Within five
Business Days after its receipt of such notice, the Company, at its own expense,
shall execute and deliver to the Agent in exchange for each surrendered A Note a
new A Note to the order of such Eligible Assignee in an amount equal to the
Commitment assumed by it pursuant to such assignment, and if the assigning Bank
has retained a Commitment hereunder, a new A Note to the order of the assigning
Bank in an amount equal to the Commitment retained by it hereunder. Such new A
Note or A Notes shall be in an aggregate principal amount equal to the principal
amount of such surrendered A Note, shall be dated the effective date of such
assignment and shall otherwise be substantially in the form of Exhibit A-1 or
A-2 hereto, as appropriate.
<PAGE> 7
2.18(c) Each Bank may sell participations in all or a portion
of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitments, the Advances owing to it and
the Notes held by it) to one or more affiliates of such Bank or to one or more
other commercial banks; provided, however, that (i) any such participation shall
not require the Company to file a registration statement with the Securities and
Exchange Commission or apply to qualify the Notes under the blue sky laws of any
state and the Bank selling or granting such participation shall otherwise comply
with all federal and state securities laws applicable to such transaction, (ii)
no purchaser of such a participation shall be considered to be a "Bank" for any
purpose under the Agreement, (iii) such Bank's obligations under this Agreement
(including, without limitation, its Commitment to the Company hereunder) shall
remain unchanged, (iv) such Bank shall remain solely responsible to the other
parties hereto for the performance of such obligations, (v) such Bank shall
remain the holder of such Notes for all purposes of this Agreement, and (vi) the
Company, the Agent and the other Banks shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and obligations
under this Agreement.
2.18(d) Any Bank may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
2.18, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Company furnished to such Bank by
or on behalf of the Company; provided, however, that, prior to any such
disclosure of information that is not publicly available, such Bank shall obtain
the written consent of the Company, and the assignee or participant or proposed
assignee or participant shall agree to preserve the confidentiality of any such
information received by it from such Bank except as disclosure may be required
or appropriate to governmental authorities, pursuant to legal process or by law
or governmental regulation or authority.
Section 2.19. Extension of Termination Date.
2.19(a) The Company may, by written notice to the Agent in the
form of Exhibit F (each such notice being an "Extension Request") given no
earlier than 60 days and no later than 30 days prior to the then applicable
Termination Date, request that the then applicable Termination Date be extended
to a date 364 days after the then applicable Termination Date. Such extension
shall be effective with respect to each Bank which, by a written notice in the
form of Exhibit G (a "Continuation Notice") to the Company and the Agent given
no earlier than 30 days and no later than 20 days prior to the then applicable
Termination Date, consents, in its sole discretion, to such extension (each Bank
giving a Continuation Notice being referred to sometimes as a "Continuing Bank"
and each Bank other than a Continuing Bank being a "Non-Extending Bank")
provided, however, that such extension shall be effective only if the aggregate
Commitments of the Continuing Banks are not less than 66-2/3% of the aggregate
Commitments of the Banks on the date of the Extension Request. No Bank shall
have any obligation to consent to any such extension of the Termination Date.
The Agent shall notify each Bank of the receipt of an Extension Request within
three (3) Business Days after receipt thereof. The Agent shall notify the
Company and the Banks no later than 15 days prior to the applicable Termination
Date whether the Agent has received Continuation Notices from Banks holding at
least 66-2/3% of the Aggregate Commitments on the date of the Extension Request.
2.19(b) The Commitment of each Non-Extending Bank shall terminate
at the close of business on the Termination Date in effect prior to the delivery
of such Extension Request without giving any effect to such proposed extension
and on such Termination Date the Company shall take one of the following three
actions:
(i) Replace the Non-Extending Banks pursuant to Section 2.19(c);
or
(ii) Pay to the Agent, for the account of the Non-Extending Banks,
an amount equal to the Non-Extending Banks' A Advances, together
with accrued but unpaid interest and fees thereon and all other
amounts then payable hereunder; or
(iii) By giving notice to the Agent no later than three days prior
to the Termination Date, elect not to extend the Termination Date
beyond the then applicable Termination Date and in this event the
Company may in its sole discretion repay any amount of the A
Advances then outstanding or make an A Borrowing pursuant to
Article 2 and the amount of the A Advances outstanding thereafter
shall convert to a term loan pursuant to Section 2.03.
2.19(c) A Non-Extending Bank shall be obligated, at the request of
the Company to assign at any time prior to the close of business on the
Termination Date applicable to such Non-Extending Bank all of its rights (other
than rights that would survive the termination of the Agreement pursuant to
Section 8.03) and obligations hereunder to one or more Banks or other commercial
banks nominated by the Company and willing to become Banks in place of such
Non-Extending Bank (the "Replacement Banks"). In order to qualify as a
Replacement Bank, a Bank or bank must satisfy all of the requirements of this
Agreement (including without limitation the terms of Section 2.18 relating to
Required Assignments). Such obligation of the Non-Extending Banks is subject to
such Non-Extending Bank receiving (i) payment in full from the Replacement Banks
of the principal amount of all Advances owing to such Non-Extending Bank
immediately prior to an assignment to the Replacement Banks and (ii) payment in
full from the Company of all accrued interest and fees and other amounts payable
hereunder and then owing to such Non-Extending Bank immediately prior to the
assignment to the Replacement Banks. Upon such assignment, the Non-Extending
Bank shall no longer be a Bank, such Replacement Banks shall become Continuing
Banks, and the Agent shall make appropriate entries in the Register to reflect
the foregoing.
ARTICLE 3
Representations, Warranties and Certain Covenants
Section 3.01. Representations and Warranties by the Company. The Company
represents and warrants as follows:
3.01(a) The Company is a duly organized corporation existing in
good standing under the laws of the State of Delaware and is duly qualified to
do business in, among other jurisdictions, the States of Florida, Kansas and
Washington and in the Commonwealth of Pennsylvania.
3.01(b) The execution and delivery and the performance of the
terms of this Agreement and the Notes are within the Company's corporate powers,
have been duly authorized by all necessary corporate action, have received all
necessary governmental approval and do not contravene any law, any provision of
the Certificate of Incorporation or By-Laws of the Company or any contractual
restriction binding on the Company.
3.01(c) This Agreement is, and the Notes when duly executed and
delivered for value will be, legal and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms.
3.01(d) In the Company's opinion, there are no pending or
threatened actions or proceedings before any court or administrative agency
which can reasonably be expected to materially adversely affect the financial
condition or operations of the Company or any Subsidiary.
3.01(e) The Consolidated statement of financial position as of
December 31, 1995 and the related Consolidated statement of earnings and
retained earnings for the year then ended (copies of which have been furnished
to each Bank) correctly set forth the Consolidated financial condition of the
Company and the Subsidiaries as of such date and the result of the Consolidated
operations for such year, and since such date there has been no material adverse
change in such condition or operations which is likely to impair the ability of
the Company to repay the Advances.
3.01(f) The Company is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock within the meaning
of Regulation U issued by the Board of Governors of the Federal Reserve System,
and no proceeds of any Advance will be used to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing or carrying
any margin stock. Following application of the proceeds of each Advance, not
more than 25 percent of the value of the assets (either of the Company only or
of the Company and its subsidiaries on a consolidated basis) subject to the
provisions of Section 4.02(h)
<PAGE> 8
will be margin stock (within the meaning of Regulation U issued by the Board of
Governors of the Federal Reserve System).
Section 3.02. Representation by the Banks. Each Bank represents that its
present intent is that it will acquire the A Notes drawn to its order for its
own account and that each such A Note is being acquired for the purpose of
investment and not with a view to distribution or resale thereof, subject,
nevertheless, to the necessity that such Bank remain in control at all times of
the disposition of property held by it for its own account.
ARTICLE 4
Covenants of the Company
Section 4.01. Affirmative Covenants of the Company. From the date of this
Agreement and so long as any amount shall be payable by the Company to any Bank
hereunder or any Commitment shall be outstanding the Company will:
4.01(a) Furnish to the Banks: (1) within 60 days after the close
of each of the first three quarters of each of the Company's fiscal years, a
Consolidated statement of financial position of the Company and the Subsidiaries
as of the end of such quarter and a Consolidated comparative statement of
earnings and retained earnings of the Company and the Subsidiaries for the
period commencing at the end of the previous fiscal year and ending with the end
of such quarter, each certified by an authorized officer of the Company, (2)
within 120 days after the close of each of the Company's fiscal years, and if
requested by the Agent, within 60 days after the close of each of the first
three quarters thereof, a statement certified by an authorized officer of the
Company showing in detail the computations required by the provisions of
Sections 4.01(d), 4.02(a), 4.02(b), 4.02(c), 4.02(e), 4.02(f), 4.03(a), 4.03(b)
and 4.03(c) hereof, based on the figures which appear on the books of account of
the Company and the Subsidiaries at the close of such quarters, (3) within 120
days after the close of each of the Company's fiscal years, a copy of the annual
audit report of the Company, certified by independent public accountants of
recognized standing acceptable to the Agent, together with financial statements
consisting of a Consolidated statement of financial position of the Company and
the Subsidiaries as of the end of such fiscal year and a Consolidated statement
of earnings and retained earnings of the Company and the Subsidiaries for such
fiscal year, (4) within 120 days after the close of each of the Company's fiscal
years, a statement certified by the independent public accountants who shall
have prepared the corresponding audit report furnished to the Banks pursuant to
the provisions of clause (3) of this subsection (a), to the effect that, in the
course of preparing such audit report, such accountants had obtained no
knowledge, except as specifically stated, that the Company had been in violation
of the provisions of any one of the following Sections : Sections 4.01(d),
4.02(a), 4.02(b), 4.02(c), 4.02(e), 4.02(f), 4.03(a), 4.03(b) and 4.03(c), at
any time during such fiscal year, (5) promptly upon their becoming available,
all financial statements, reports and proxy statements which the Company may
send to its stockholders, (6) promptly upon their becoming available, all
regular and periodic financial reports which the Company or any Subsidiary shall
file with the Securities and Exchange Commission or any national securities
exchange, (7) within 3 Business Days after the discovery of the occurrence of
any event which constitutes an Event of Default or would constitute an Event of
Default with the passage of time or the giving of notice, or both, notice of
such occurrence together with a detailed statement by a responsible officer of
the Company of the steps being taken by the Company or the appropriate
Subsidiary to cure the effect of such event and (8) such other information
respecting the financial condition and operations of the Company or the
Subsidiaries as the Agent may from time to time reasonably request.
4.01(b) Duly pay and discharge, and cause each Subsidiary duly to
pay and discharge, all taxes, assessments and governmental charges upon it or
against its properties prior to a date which is 5 Business Days after the date
on which penalties are attached thereto, except and to the extent only that the
same shall be contested in good faith and by appropriate proceedings by the
Company or the appropriate Subsidiary.
4.01(c) Maintain, and cause each Subsidiary to maintain, with
financially sound and reputable insurance companies or associations, insurance
of the kinds, covering the risks and in the relative proportionate amounts
usually carried by companies engaged in businesses similar to that of the
Company or the appropriate Subsidiary, except, to the extent consistent with
good business practices, such insurance may be provided by the Company through
its program of self insurance.
4.01(d) Maintain an excess of Consolidated Current Assets over
Consolidated Current Indebtedness of at least $250,000,000.
Section 4.02. General Negative Covenants of the Company. From the date of
this Agreement and so long as any amount shall be payable by the Company to any
Bank hereunder or any Commitment shall be outstanding, the Company will not:
4.02(a) Create, incur, assume or suffer to exist any mortgage,
pledge, lien, security interest or other charge or encumbrance (including the
lien or retained security title of a conditional vendor) upon or with respect to
any of its Fixed Assets, or upon or with respect to the Fixed Assets of any
Subsidiary, or assign or otherwise convey, or permit any Subsidiary to assign or
otherwise convey, any right to receive income from or with respect to its Fixed
Assets, except (1) liens in connection with workmen's compensation, unemployment
insurance or other social security obligations, (2) liens securing the
performance of bids, tenders, contracts (other than for the repayment of
borrowed money), leases, statutory obligations, surety and appeal bonds, liens
to secure progress or partial payments made to the Company or such Subsidiary
and other liens of like nature made in the ordinary course of business, (3)
mechanics', workmen's, materialmen's or other like liens arising in the ordinary
course of business in respect of obligations which are not due or which are
being contested in good faith, (4) liens for taxes not yet due or being
contested in good faith and by appropriate proceedings by the Company or the
affected Subsidiary, and (5) other liens, charges and encumbrances, so long as
the aggregate amount of the Consolidated Indebtedness for which all such liens,
charges and encumbrances serve as security does not exceed 15% of Consolidated
Net Fixed Assets; provided, however, that any liens, charges or encumbrances
permitted by this clause (5) must secure only Funded Indebtedness permitted by
the terms of this Agreement (including the current portion of any Indebtedness
the remainder of which is Funded Indebtedness).
4.02(b) Create, incur, assume or suffer to exist any Funded
Indebtedness of the Company or of any Subsidiary which would cause Consolidated
Funded Indebtedness (exclusive of Subordinated Indebtedness) at such time to
exceed 90% of the total at such time of Consolidated Net Worth and Consolidated
Subordinated Indebtedness.
4.02(c) Create, incur, assume or suffer to exist any Indebtedness
of the Company or of any Subsidiary which would cause indebtedness for borrowed
money (exclusive of Subordinated Indebtedness) on a Consolidated basis at such
time to exceed 115% of the total at such time of Consolidated Net Worth and
Consolidated Subordinated Indebtedness.
4.02(d) Make any payment, or permit any Subsidiary to make any
payment, of principal or interest on any Indebtedness which payment would
constitute a violation of the terms of this Agreement or of the terms of any
indenture or agreement binding on such corporation or to which such corporation
is a party.
4.02(e) Sell, lease or otherwise transfer, or permit any
Subsidiary to sell, lease or otherwise transfer, a portion of its Fixed Assets
constituting a division, branch or other operating unit, which shall cause the
total of all such sales, leases or other transfers by the Company and the
Subsidiaries to equal or exceed a value of $50,000,000 in any one fiscal year or
a total value of $150,000,000. Any value as used in this subsection (e) shall be
measured by the depreciated value as reflected on the books of account of the
Company or the appropriate Subsidiary.
4.02(f) Declare or pay any dividends, purchase, redeem or
otherwise acquire for value any of its stock now or hereafter outstanding,
return any capital to its stockholders, or make any distribution of its assets
to its stockholders as such, except that the Company may (1) declare and deliver
stock dividends, (2) redeem stock with the proceeds received from the issuance
of new shares and (3) declare and pay dividends to its stockholders and purchase
its own outstanding capital stock solely out of a fund made up of the total of
(A) 50% of Consolidated net earnings of the Company arising after January 1,
1990 computed on a cumulative basis, (B) the net proceeds received by the
Company after January 1, 1990 from the sale of
<PAGE> 9
additional shares of its capital stock or of convertible securities to the
extent that such convertible securities have been converted into capital stock,
(C) an amount equal to the cost of all shares of its common stock held as of
January 1, 1990 plus the cost of any shares of its common stock reacquired by
the Company after January 1, 1990 and distributed pursuant to the Company's
incentive compensation plan, (D) an amount equal to the cost of all shares of
its common stock reacquired by the Company after January 1, 1990 and sold
pursuant to the exercise of options issued under a stock option plan of the
Company and (E) $100,000,000.
4.02(g) Enter into any merger or consolidation unless, in the case
of a merger, the Company shall be the surviving corporation, and, in the case of
either a merger or a consolidation, there shall have been no violation of any of
the terms of this Agreement as a result of, or in existence immediately after,
such merger or consolidation.
4.02(h) Sell or otherwise transfer, or pledge, hypothecate or
otherwise encumber, the ownership interest of the Company in any Subsidiary
excepting (1) any such sale, transfer or pledge to any Subsidiary, (2) any such
sale to any party for fair market value received in cash or (3) any such sale to
any party for fair market value received in proceeds other than cash provided
all such proceeds received from time to time with respect to such sales do not
exceed 10% of the sum of Consolidated Net Worth and Consolidated Subordinated
Indebtedness, computed after giving effect to such sales.
Section 4.03. Negative Covenants of the Company with Respect to Equipment
Financing. From the date of this Agreement and so long as any amount shall be
payable by the Company to any Bank hereunder or any Commitment shall be
outstanding, the Company will not:
4.03(a) At any time permit the total of (1) the aggregate value of
all Equipment owned by the Company and the Subsidiaries and capitalized on their
books of account (other than items of Equipment used by the Company and the
Subsidiaries for transportation or demonstration in the conduct of business)
after deduction of any related Investment Tax Credit and (2) the unpaid
principal amount of indebtedness of customers to the Company and the
Subsidiaries arising out of the purchase by such customers of Equipment, to
exceed 65% of the total at such time of Consolidated Net Worth and Consolidated
Subordinated Indebtedness.
4.03(b) At any time permit the aggregate of the "Net Value" of all
Equipment owned by the Company and the Subsidiaries and capitalized on their
books of account (other than items of Equipment used by the Company and the
Subsidiaries for transportation or demonstration in the conduct of business) to
exceed 30% of the total at such time of Consolidated Net Worth and Consolidated
Subordinated Indebtedness. For the purposes of this subsection (b), the "Net
Value" of any item of Equipment shall be determined by subtracting from the
value of such item as reflected on the books of account of the Company or the
appropriate Subsidiary (1) any related Investment Tax Credit and (2) the amount
of all lease rental payments to be made by the lessee of such item to the
Company or to the appropriate Subsidiary (exclusive of any such payments to be
made during any period of the term of the lease of such item which may be
canceled at the option of the lessee acting alone and exclusive of any portion
of such lease payments in excess of the book value of such item).
4.03(c) Create, incur, assume or suffer to exist any Contingent
Customer Indebtedness of the Company or of any Subsidiary which would cause
Consolidated Contingent Customer Indebtedness at such time to exceed 35% of the
total at such time of Consolidated Net Worth and Consolidated Subordinated
Indebtedness.
Section 4.04. Waivers of Covenants. The departure by the Company or any
Subsidiary from the requirements of any of the provisions of this Article 4
shall be permitted only if such departure shall have been consented to in
advance in a writing signed by Banks representing 66-2/3% or more of the then
outstanding aggregate principal amount of the A Notes or, if no such principal
or face amount is outstanding, Banks having at least 66-2/3% of the total of the
Commitments, and such writing shall be effective as a consent only to the
specific departure described in such writing. Such departure by the Company or
any Subsidiary when properly consented to by the required number of Banks as set
out in the preceding sentence shall not constitute an Event of Default under
Section 6.01(c).
ARTICLE 5
Conditions Precedent to Borrowings
Section 5.01. Conditions Precedent to the Initial Borrowing. The
obligation of each Bank to make its initial Advance is subject to the
fulfillment of all of the following conditions:
The Agent shall have received on or before the day of the initial
Borrowing all of the following, each dated the day of the initial Borrowing, in
form and substance satisfactory to the Agent and its counsel.
5.01(a) A Base Rate A Note, a Eurodollar A Note, a Fixed Rate B
Note and a Eurodollar B Note drawn to the order of each Bank executed and
delivered by the Company to the Agent for delivery to each Bank.
5.01(b) Copies of all documents, certified by an officer of the
Company, evidencing necessary corporate action by the Company and governmental
approvals, if any, with respect to this Agreement and the Notes.
5.01(c) A certificate of the Secretary or an Assistant Secretary
of the Company which shall certify the names of the officers of the Company
authorized to sign the Notes and the other documents to be delivered hereunder,
together with true specimen signatures of such officers and facsimile signatures
of officers authorized to sign by facsimile signature. Each Bank may
conclusively rely on such certificate until it shall have received a further
certificate of the Secretary or an Assistant Secretary of the Company canceling
or amending the prior certificate and submitting signatures of the officers
named in such further certificate.
5.01(d) A favorable opinion of the chief legal officer of the
Company substantially in the form of Exhibit D hereto and as to such other
matters as the Agent may reasonably request, which opinion the Company hereby
expressly instructs such chief legal officer to prepare and deliver.
5.01(e) A favorable opinion of Shearman & Sterling, counsel for
the Agent, substantially in the form of Exhibit E hereto.
Section 5.02. Conditions Precedent to Each A Borrowing. The obligation of
each Bank to make an A Advance on the occasion of each A Borrowing (including
the initial Borrowing) is subject to the further conditions precedent that on
the date of such request and the date of such Borrowing, the following
statements shall be true, and each of the giving of the applicable Notice of A
Borrowing and the acceptance by the Company of the proceeds of such A Borrowing
shall be a representation by the Company that:
(i) the representations and warranties contained in Section 3.01
hereof are true and accurate on and as of each such date as though made on and
as of each such date (except to the extent that such representations and
warranties relate solely to an earlier date); and
(ii) as of each such date no event has occurred and is continuing,
or would result from the proposed A Borrowing which constitutes an Event of
Default or would constitute such an Event of Default but for the requirement
that notice be given or time elapse or both.
Section 5.03. Conditions Precedent to Each B Borrowing. The obligation of
each Bank to make a B Advance on the occasion of each B Borrowing (including the
initial Borrowing) is subject to the further conditions precedent that (1) the
Company shall have furnished to the Agent in connection with such B Borrowing,
(x) a Consolidated statement of financial position of the Company and the
Subsidiaries as of the end of each of the first three quarters of the Company's
fiscal year (other than a quarter ending within sixty days prior to the date of
the related Notice of B Borrowing) and a Consolidated comparative statement of
earnings and retained earnings of the Company and the Subsidiaries for the
period commencing at the end of the previous fiscal year and ending with the end
of such quarter, each certified by an authorized officer of the Company and (y)
a copy of the annual audit report of the Company, certified by independent
public accountants of recognized standing acceptable to the Agent, together with
financial statements consisting of a Consolidated statement of the financial
position of the Company and the Subsidiaries as of the end of the applicable
fiscal year and a
<PAGE> 10
Consolidated statement of earnings and retained earnings of the Company and the
Subsidiaries for such fiscal year (the applicable fiscal year being the most
recent year with respect to which the annual audit report of the Company is due
pursuant to Section 4.01(a)(3)) and (2) on the date of such request and the date
of such Borrowing, the following statements shall be true, and each of the
giving of the applicable Notice of B Borrowing and the acceptance by the Company
of the proceeds of such B Borrowing shall be a representation by the Company
that:
(i) the representations and warranties contained in Section 3.01
hereof are true and accurate on and as of each such date as though made on and
as of each such date (except to the extent that such representations and
warranties relate solely to an earlier date);
(ii) as of each such date no event has occurred and is continuing,
or would result from the proposed B Borrowing which constitutes an Event of
Default or would constitute such an Event of Default but for the requirement
that notice be given or time elapse or both; and
(iii) no event has occurred and no circumstance exists as a result
of which the information concerning the Company that has been provided by the
Company to the Agent or the Banks in connection with such B Borrowing would
include an untrue statement of a material fact or omit to state any material
fact or any fact necessary to make the statements contained therein, in light of
the circumstances under which they were made, not misleading.
ARTICLE 6
Events of Default
Section 6.01. Events of Default. The following shall constitute the Events
of Default:
6.01(a) Failure by the Company to make when due any payment of
principal of or interest on any Note when the same becomes due and payable and
such failure is not remedied within 5 Business Days thereafter.
6.01(b) When any representation or warranty made by the Company in
connection with the execution and delivery of this Agreement, or the Notes or
otherwise furnished pursuant hereto shall prove to be at any time incorrect in
any material respect.
6.01(c) Failure by the Company to perform any other term, covenant
or agreement contained in this Agreement, and such failure is not remedied
within 15 days after written notice thereof shall have been given to the Company
by the Agent, at the request, or with the consent, of Banks representing 33-1/3%
or more of the total of the Commitments.
6.01(d) Failure of (1) the Company or (2) any Subsidiary with an
aggregate Net Worth and Subordinated Indebtedness exceeding 3% of the sum of
Consolidated Net Worth and Consolidated Subordinated Indebtedness to pay when
due on any regularly scheduled payment date or following acceleration thereof
any obligation for the payment of borrowed money or for the deferred purchase
price of property, or any interest thereon, if the aggregate unpaid principal
amount of the obligation with respect to which such failure to pay occurred
equals or exceeds $3,000,000 and such failure is not remedied within 5 Business
Days after notice thereof is received from the Agent or the creditor on such
obligation.
6.01(e) The Company or any Subsidiary
(1) shall incur liability with respect to any employee pension
benefit plan in excess of $100,000,000 in the aggregate under
(A) Sections 4062, 4063, 4064 or 4201 of the Employee
Retirement Income Security Act of 1974 ("ERISA"); or
(B) otherwise under Title IV of ERISA as a result of any
reportable event within the meaning of ERISA (other than
a reportable event as to which the provision of 30 days'
notice is waived under applicable regulations);
(2) shall have or shall be likely to have a lien imposed on its
property and rights to property under Section 4068 of ERISA on
account of a liability in excess of $25,000,000 in the aggregate;
or
(3) shall incur or shall be likely to incur liability under Title
IV of ERISA
(A) in excess of $25,000,000 in the aggregate as a result
of the Company or any Subsidiary having filed a notice of
intent to terminate any employee pension benefit plan
under the "distress termination" provision of Section
4041 of ERISA or
(B) in excess of $25,000,000 in the aggregate as a result
of the Pension Benefit Guaranty Corporation having
instituted proceedings to terminate, or to have a trustee
appointed to administer, any such plan.
6.01(f) With respect to the Company, on the happening of any of
the following events and, with respect to any Subsidiary with an aggregate Net
Worth and Subordinated Indebtedness exceeding 3% of the sum of Consolidated Net
Worth and Consolidated Subordinated Indebtedness, 5 Business Days after the
happening of any such event, provided the same has not then been cured or
stayed: (1) the insolvency or bankruptcy of the Company or any such Subsidiary,
(2) the cessation by the Company or any such Subsidiary of the payment of its
debts as they mature, (3) the making of an assignment for the benefit of the
creditors of the Company or any such Subsidiary, (4) the appointment of a
trustee or receiver or liquidator for the Company or any such Subsidiary or for
a substantial part of the property of any of them, or (5) the institution of
bankruptcy, reorganization, arrangement, insolvency or similar proceedings by or
against the Company or any such Subsidiary under the laws of any jurisdiction.
If an Event of Default shall occur or be continuing, then, the Agent shall
at the request, or may with the consent, of Banks having at least 33-1/3% of the
total of the Commitments, by notice to the Company, (A) declare the obligation
of each Bank to make further Advances to be terminated, whereupon the same shall
forthwith terminate, and (B) declare the Notes, all interest thereon and all
other amounts payable under this Agreement to be forthwith due and payable,
whereupon the Notes, all such interest and all such amounts shall become and be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Company
provided, however, that in the event of any order for relief with respect to the
Company under the Federal Bankruptcy Code (whether in connection with a
voluntary or an involuntary case), (A) the obligation of each Bank to make
Advances shall automatically be terminated and (B) the Notes, all such interest
and all such amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Company.
ARTICLE 7
The Agent
Section 7.01. Authorization and Action. Each Bank hereby appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto. As to
any matters not expressly provided for by this Agreement (including without
limitation, enforcement or collection of the Notes), the Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of holders of at least 50% in
principal amount of the A Notes then outstanding (or if no A Notes are at the
time outstanding, upon the instructions of Banks having at least 50% of the
Commitments), and such instructions shall be binding upon all Banks and all
holders of Notes; provided, however, that the Agent shall not be required to
take any action which exposes the Agent to personal liability or which is
contrary to this Agreement or applicable law. The Agent agrees to give to each
Bank prompt notice of each notice given to it by
<PAGE> 11
the Company pursuant to the terms of this Agreement.
Section 7.02. Agent's Reliance, Etc. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them under or in connection with this Agreement,
except for its or their own gross negligence or willful misconduct. Without
limiting the generality of the foregoing, the Agent: (a) may treat the payee of
any Note as the holder thereof until the Agent receives and accepts an
assignment entered into by the Bank which is the payee of such Note, as
assignor, and an Eligible Assignee, as assignee, as provided in Section 2.18;
(b) may consult with legal counsel (including counsel for the Company),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or other experts; (c)
makes no warranty or representation to any Bank and shall not be responsible to
any Bank for any statements, warranties or representations (whether written or
oral) made in or in connection with this Agreement; (d) shall not have any duty
to ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions of this Agreement on the part of the Company or
to inspect the property (including the books and records) of the Company; (e)
shall not be responsible to any Bank for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any other
instrument or document furnished pursuant hereto; and (f) shall incur no
liability under or in respect of this Agreement by acting upon any notice,
consent, certificate or other instrument or writing (which may be by telecopier,
telegram, cable or telex) believed by it to be genuine and signed or sent by the
proper party or parties.
Section 7.03. Citibank, N.A. and Affiliates. With respect to its
Commitment, the Advances made by it, and the Notes issued to it, Citibank, N.A.
shall have the same rights and powers under this Agreement as any other Bank and
may exercise the same as though it were not the Agent; and the term "Bank" or
"Banks" shall, unless otherwise expressly indicated, include Citibank, N.A. in
its individual capacity. Citibank, N.A. and its affiliates may accept deposits
from, lend money to, accept drafts drawn by, act as trustee under indentures of,
and generally engage in any kind of business with, the Company, any of its
subsidiaries and any person or entity who may do business with or own securities
of the Company or any subsidiary, all as if Citibank, N.A. were not the Agent
and without any duty to account therefor to the other Banks.
Section 7.04. Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank and based on
the financial statements referred to in Section 3.01(e) and the representations
and warranties contained in Sections 3.01 and 3.02 and such other documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Bank also acknowledges that it will,
independently and without reliance upon the Agent or any other Bank and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement.
Section 7.05. Indemnification. The Banks agree to indemnify the Agent (to
the extent not reimbursed by the Company), ratably according to the respective
principal amounts of the A Notes then held by each of them (or if no A Notes are
at the time outstanding or if any A Notes are held by persons which are not
Banks, ratably according to the respective amounts of their Commitments), from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against the
Agent in any way relating to or arising out of this Agreement or any action
taken or omitted by the Agent under this Agreement, provided that no Bank shall
be liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Agent's gross negligence or willful misconduct. Without limitation of
the foregoing, each Bank agrees to reimburse the Agent promptly upon demand for
its ratable share of any out-of-pocket expenses (including counsel fees)
incurred by the Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, to the extent that the Agent
is not reimbursed for such expenses by the Company.
Section 7.06. Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Banks and the Company and may be removed at any
time with or without cause by the Majority Banks. Upon any such resignation or
removal, the Majority Banks shall have the right to appoint a successor Agent,
which shall be a commercial bank organized or licensed under the laws of the
United States of America or of any State thereof and having a combined capital
and surplus of at least $50,000,000. If no successor Agent shall have been so
appointed by the Majority Banks, and shall have accepted such appointment,
within 30 days after the retiring Agent's giving of notice of resignation or the
removal of the retiring Agent as provided herein, then the retiring Agent may,
on behalf of the Banks, appoint a successor Agent which meets the requirements
set out in the previous sentence. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations under this Agreement. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Article 7
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement.
Section 7.07. Certain Obligations May be Performed by Affiliates. The
Agent may appoint any of its Affiliates to perform its obligations hereunder
other than any obligation requiring the Agent to receive, pay, or otherwise
handle funds or Notes and provided that the Agent shall continue to be
responsible to the Company and the Banks for the due performance of the Agent's
obligations under this Agreement.
ARTICLE 8
Miscellaneous
Section 8.01. Modification, Consents and Waivers. No failure or delay on
the part of any Bank in exercising any power or right hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right or
power preclude any other or further exercise thereof or the exercise of any
other right or power hereunder. No notice to or demand on the Company in any
case shall entitle the Company to any other or further notice or demand in
similar or other circumstances. No amendment or waiver of any provision of this
Agreement or of the A Notes, nor consent to any departure by the Company
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Majority Banks, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver or consent shall, unless in
writing and signed by all the Banks, do any of the following: (a) waive any of
the conditions specified in Section 5.01, 5.02, or 5.03, (b) except as provided
in Section 2.17 or Section 2.19, increase the Commitments of the Banks or
subject the Banks to any additional obligations, (c) reduce the principal of, or
interest on, the A Notes or any fees or other amounts payable hereunder, (d)
postpone any date fixed for any payment of principal of, or interest on, the A
Notes or any fees or other amounts payable hereunder, (e) change the percentage
of the Commitments or of the aggregate unpaid principal amount of the A Notes or
the number of Banks required for the Banks or any of them to take any action
hereunder, or (f) amend this Section 8.01; and provided further, that no
amendment, waiver, or consent shall, unless in writing and signed by the Agent
in addition to the Banks required above to take such action, affect the rights
or duties of the Agent under this Agreement or any Note. Notwithstanding the
foregoing, this Section 8.01 shall not affect the provisions of Section 4.04 or
6.01.
Section 8.02. Addresses for Notices. All communications and notices
provided for hereunder shall be by telex or in writing and, if to the Agent,
mailed, telexed or delivered to it, addressed to it at its office at Citibank,
N.A., New York Transportation - Airlines, 399 Park Avenue, New York, New York
10043 and, if to the Company, mailed, telexed or delivered to it, addressed to
it at its office at 7755 East Marginal Way South, Seattle, Washington 98108,
Attention: Treasurer, and, if to any Bank, to its office at the address given on
the signature pages of this Agreement; or, as to each party, at such other
address as shall have been designated by such party in a written notice to each
other party referring specifically to this Agreement.
Section 8.03. Costs, Expenses and Taxes. The Company agrees to pay all
costs and expenses in connection with the preparation, execution and delivery of
this Agreement and the Notes (including printing costs and the reasonable fees
and out-of-pocket expenses of counsel for the Agent) and costs and expenses, if
any, in connection with the enforcement of this Agreement and the Notes (whether
through negotiations, legal proceedings or otherwise and including, without
limitation, the reasonable fees and out-of pocket expenses of counsel), as well
as any and all stamp and other taxes, and to save the Banks and other holders of
the Notes harmless from any and all liabilities with respect to or resulting
from any delay or omission to pay such taxes, if any, which may be payable or
determined to be payable in connection with the execution and delivery of this
Agreement and the Notes.
<PAGE> 12
Section 8.04. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company, the Banks and the Agent, and their
respective successors and assigns, except that the Company may not assign or
transfer its rights hereunder without the prior written consent of the Banks.
Section 8.05. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 8.06. Governing Law. This Agreement and the Notes shall be deemed
to be contracts under the laws of the State of New York and for all purposes
shall be construed in accordance with the laws of such State.
Section 8.07. Headings. The Table of Contents and Article and Section
headings used in this Agreement are for convenience only and shall not affect
the construction of this Agreement.
Section 8.08. Execution in Counterparts. This Agreement may be executed by
the parties hereto individually or in any combinations of the parties hereto in
several separate counterparts, each of which shall be an original and all of
which taken together shall constitute one and the same agreement.
Section 8.09. Right of Set-Off. Upon (i) the occurrence and during the
continuance of any Event of Default and (ii) the making of the request or the
granting of the consent specified by Section 6.01 to authorize the Agent to
declare the Notes due and payable pursuant to the provisions of Section 6.01,
each Bank is hereby authorized at any time and from time to time to the fullest
extent permitted by law, without notice to the Company (any such notice being
expressly waived by the Company), to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Bank to or for the credit or the
account of the Company against any and all of the obligations of the Company now
or hereafter existing under this Agreement and the Notes held by such Bank,
irrespective of whether or not such Bank shall have made any demand under this
Agreement or such Notes and although such obligations may be unmatured. Each
Bank shall promptly notify the Company after any such setoff and application
made by such Bank, provided that the failure to give such notice shall not
affect the validity of such setoff and application. The rights of each Bank
under this Section are in addition to other rights and remedies (including,
without limitation, other rights of setoff) which such Bank may have.
Section 8.10. Agreement in Effect. This Agreement shall become effective
upon its execution and delivery, respectively, to the Agent and the Company by
the Company, the Agent, and each Bank listed in Section 1.02. This Amended and
Restated Agreement supersedes, as of September 27, 1996, all prior versions of
The Boeing Company Bank Credit Agreement, and all references to "this
Agreement," "herein," "hereof" and the like shall be deemed references to this
Amended and Restated Agreement.
<PAGE> 13
ARTICLE 9
Definitions and Accounting Terms
Section 9.01. Defined Terms. As used in this Agreement, the following
terms shall have the meanings set out respectively after each:
"A Advance"--An advance made by a Bank to the Company as part of an A
Borrowing and refers to a Base Rate Advance or a Eurodollar Rate A Advance, each
of which shall be a "Type" of A Advance.
"A Borrowing"--A borrowing consisting of simultaneous A Advances of the
same Type made by each of the Banks pursuant to Section 2.01.
"A Note"--A promissory note of the Company payable to the order of any
Bank, in substantially the form of Exhibit A-1 or A-2 hereto, evidencing the
indebtedness of the Company to such Bank resulting from the aggregate of all
Base Rate Advances and the aggregate of all Eurodollar Rate A Advances,
respectively, made by such Bank.
"Advance"--An A Advance or a B Advance.
"Agent"--Citibank, N.A. acting in its capacity as agent for the Banks, or
any successor Agent appointed pursuant to Section 7.06.
"Agreement"--This agreement, as it may be amended or otherwise modified
from time to time, and any written additions or supplements hereto.
"Applicable Lending Office"--With respect to each Bank, such Bank's
Domestic Lending Office in the case of a Base Rate Advance, and such Bank's
Eurodollar Lending Office in the case of a Eurodollar Rate Advance and, in the
case of a B Advance, the office of such Bank notified by such Bank to the Agent
as its Applicable Lending Office with respect to such B Advance.
"Applicable Margin"--Means 0.155%.
"B Advance"--An advance by a Bank to the Company as part of a B Borrowing
resulting from the auction bidding procedure described in Section 2.05 and
refers to a Fixed Rate Advance or a Eurodollar Rate B Advance.
"B Borrowing"--A borrowing consisting of simultaneous B Advances from each
of the Banks whose offer to make one or more B Advances as part of such
borrowing has been accepted by the Company under the auction bidding procedure
described in Section 2.05.
"B Note"--A Promissory note of the Company payable to the order of any
Bank, in substantially the form of Exhibit A-3 or A-4 hereto, evidencing the
indebtedness of the Company to such Bank resulting from the aggregate of all
Fixed Rate Advances and the aggregate of all Eurodollar Rate B Advances,
respectively, made by such Bank.
"B Reduction"--As defined in Section 2.01.
"Bank"--As defined in Section 1.01.
"Base Rate"--The rate of interest announced publicly by Citibank, N.A., in
New York, New York, from time to time, as Citibank's base rate.
"Base Rate Advance"--An A Advance which bears interest at the Base Rate.
"Base Rate A Note"--An A Note evidencing Base Rate Advances.
"BFC"--Boeing Financial Corporation, a Delaware corporation.
"Borrowing"--An A Borrowing or a B Borrowing.
"Business Day"--A day of the year on which banks are not required or
authorized to close in New York City, and, if the applicable Business Day
relates to any Eurodollar Rate Advances, on which dealings are carried on in the
London interbank market.
"Commitment"--As defined in Section 1.01.
"Company"--The Boeing Company, a Delaware corporation.
"Consolidated"--Indicating, as to any accounting concept or statement, the
consolidation of such concept or statement with the same concepts or statements
of all other members of a class made up of the Company and the Subsidiaries.
"Contingent Customer Indebtedness"--The total, for the Company or any
Subsidiary, of all indebtedness, obligations or liabilities of parties other
than such corporation, in respect of which such corporation is contingently
liable to pay or advance money or property as guarantor, endorser or otherwise
and which was incurred in connection with any Equipment Obligations or which
arose out of the agreement by such corporation to repurchase, for cash or other
consideration, in a fixed or determinable amount, any Equipment sold by such
corporation to a customer or to purchase, for cash or other consideration, in a
fixed or determinable amount, Equipment from such customers; provided, however,
that the Contingent Customer Indebtedness of the Company and the Subsidiaries
shall not include (1) any amount of such indebtedness, obligations or
liabilities for which the Company or the appropriate Subsidiary has provided
reserves on its books of account, according to generally accepted accounting
principles, (2) any amount of such indebtedness, obligations or liabilities
which is payable by the Company or the appropriate Subsidiary only upon the
occurrence of a contingency which is the subject of a guaranty agreement or an
insurance agreement satisfactory in form and substance to the Agent, (3) any
amount of such indebtedness, obligations or liabilities to the exclusion of
which the Agent shall have consented in writing and (4) the total amount of the
fair market value of any Equipment subject to any repurchase obligations.
"Continuing Bank" -- As defined in Section 2.19(a).
"Convert," "Conversion" and "Converted"--Each refers to a conversion of A
Advances of one Type into A Advances of another Type pursuant to Section 2.10,
2.11 or 2.14.
"Current Assets"--All assets of any corporation which would, in accordance
with generally accepted accounting principles, be classified as current assets
of a corporation conducting a business the same as or similar to that of the
concerned corporation.
<PAGE> 14
"Current Indebtedness"--Any Indebtedness of any corporation which would,
in accordance with generally accepted accounting principles, be classified as
current indebtedness and, without limiting the generality of the foregoing,
including (1) all Indebtedness of such corporation, secured or unsecured, then
payable or payable on demand or maturing within one year after the date of
measurement (excluding any Indebtedness the maturity of which is renewable or
extendable at the option of the obligor, absolutely or conditionally, for a
period or periods ending more than one year after the date of measurement,
whether or not theretofore renewed or extended), and (2) any fixed prepayment
of, and any sinking fund payment with respect to, Indebtedness (including the
Notes) required to be made within one year after such date.
"Domestic Lending Office"--With respect to any Bank, the office of such
Bank specified as its "Domestic Lending Office" as indicated in the signature
block of this Agreement, or in the assignment or other agreement pursuant to
which it became a Bank, or such other office of such Bank as such Bank may from
time to time specify to the Company and the Agent.
"Effective Date"--As defined in Section 2.17.
"Eligible Assignee"--As defined in Section 2.18.
"Equipment"--Any aircraft of any type after completion of production,
whether manufactured by the Company, any Subsidiary or any other person, and any
other product manufactured by the Company and the Subsidiaries for sale or lease
to a customer of the Company or of a Subsidiary.
"Equipment Obligation"--Any indebtedness, obligation or liability of
customers of the Company or of customers of any Subsidiary arising out of the
sale or lease of any Equipment and any note, chattel mortgage, conditional sales
contract, trust receipt, lease with or without option to buy or other evidence
of, or any other contract related to, such indebtedness or obligation.
"Eurocurrency Liabilities"--Has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar A Note"--An A Note evidencing Eurodollar Rate A Advances.
"Eurodollar B Note"--A B Note evidencing Eurodollar Rate B Advances.
"Eurodollar Lending Office"--With respect to any Bank, the office of such
Bank specified as its "Eurodollar Lending Office" as indicated in the signature
block of this Agreement (or, if no such office is specified, its Domestic
Lending Office), or in the assignment or other agreement pursuant to which it
became a Bank, or such other office of such Bank as such Bank may from time to
time specify to the Company and the Agent.
"Eurodollar Rate"--For any Interest Period for each Eurodollar Rate A
Advance comprising part of the same Borrowing, and for the relevant period
specified in the applicable Notice of B Borrowing for each Eurodollar Rate B
Advance, an interest rate per annum equal to the average (rounded upward to the
nearest whole multiple of 1/16 of 1% per annum, if such average is not such a
multiple) of the rate per annum at which deposits in U.S. dollars are offered by
the principal office of each of the Reference Banks in banks in the London
interbank market at 11:00 a.m. (London time) two Business Days before the first
day of such Interest Period or the first day of the relevant period specified in
such Notice of B Borrowing (i) in an amount, for such Eurodollar A Advance,
substantially equal to such Reference Bank's Eurodollar Rate Advance comprising
part of such A Borrowing and for a period equal to such Interest Period or, (ii)
in an amount, for such Eurodollar Rate B Advance, substantially equal to the
amount of the Eurodollar Rate B Borrowing which includes such B Advance
multiplied by a fraction equal to such Reference Bank's ratable portion of the
Commitments and for a period equal to the relevant period specified in such
Notice of B Borrowing. The Eurodollar Rate for any Interest Period for each
Eurodollar Rate A Advance comprising part of the same Borrowing and for the
relevant period specified in a Notice of B Borrowing for each Eurodollar Rate B
Advance shall be determined by the Agent on the basis of applicable rates
furnished to and received by the Agent from the Reference Banks two Business
Days before the first day of such Interest Period or period, as the case may be,
subject, however, to the provisions of Section 2.10.
"Eurodollar Rate Advance"--An A Advance (a "Eurodollar Rate A Advance") or
a B Advance (a "Eurodollar Rate B Advance") which bears interest at a rate of
interest quoted as a margin (which shall be the Applicable Margin in the case of
an A Advance or as offered by a Bank and accepted by the Company in the case of
a B Advance) over the Eurodollar Rate.
"Eurodollar Rate B Borrowing"--As defined in Section 2.05(a)(i).
"Eurodollar Rate Reserve Percentage"--Of any Bank for any Interest Period
for any Eurodollar Rate Advance means the reserve percentage applicable during
such Interest Period (or if more than one such percentage shall be so
applicable, the daily average of such percentages for those days in such
Interest Period during which any such percentage shall be so applicable) under
regulations issued from time to time by the Board of Governors of the Federal
Reserve System (or any successor) for determining the maximum reserve
requirement (including, without limitation, any emergency, supplemental or other
marginal reserve requirement) for such Bank with respect to liabilities or
assets consisting of or including Eurocurrency Liabilities having a term equal
to such Interest Period.
"Event of Default"--Any of the events described in Section 6.01 hereof.
"Facility Fee"--As defined in Section 2.06.
"Federal Funds Rate"--For any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.
"Fixed Assets"--Any item of real property, or any interest therein,
buildings, improvements and machinery.
"Fixed Rate Advance"--An Advance made by a Bank to the Company as part of
a Fixed Rate Borrowing.
"Fixed Rate Borrowing"--As defined in Section 2.05(a)(i).
"Funded Indebtedness"--The total, for any corporation, of (1) all
Indebtedness of such corporation which is not Current Indebtedness and (2) the
aggregate liability of such corporation during the entire terms of all leases of
both real and personal property each having a term of one year or more
(exclusive of the liability of such corporation during the one-year period
commencing with the date of computation and exclusive of any portion of such
term which may be cancelled at the option of the lessee acting alone).
<PAGE> 15
"Indebtedness"--The total, for any corporation, of (1) all items of
indebtedness, obligation or liability of such corporation which in accordance
with generally accepted accounting principles would be included in determining
total liabilities as shown on the liability side of a statement of financial
position of such corporation as at the date as of which Indebtedness is to be
determined and (2) all items of indebtedness, obligation or liability of persons
other than such corporation, in respect of which such corporation is liable,
contingently or otherwise, to pay or advance money or property as guarantor,
endorser or otherwise (except as endorser for collection in the ordinary course
of business), or which such corporation has agreed to purchase or otherwise
acquire; provided, however, that Indebtedness of the Company or of any
Subsidiary shall not include Contingent Customer Indebtedness of such
corporation. Any indebtedness of a Subsidiary (including, without limitation,
Indebtedness secured by a mortgage, pledge or lien on its property, whether or
not assumed by such Subsidiary) outstanding at the time it became a Subsidiary
shall be deemed to have been incurred at such time.
"Interest Period"--For each Eurodollar Rate A Advance comprising part of
the same Borrowing, the period commencing on the date of such A Advance or the
date of the Conversion of any A Advance into such a Eurodollar Rate A Advance
and ending on the last day of the period selected by the Company pursuant to the
provisions below and, thereafter, each subsequent period commencing on the last
day of the immediately preceding Interest Period and ending on the last day of
the period selected by the Company pursuant to the provisions below. The
duration of each such Interest Period shall be one, two, three, or six months,
as the Company may, upon notice received by the Agent not later than 11:00 a.m.
(New York City time) on the third Business Day prior to the first day of such
Interest Period, select, provided however, that:
(i) no Interest Period shall end on a date later than the
Termination Date (or in the case of an A Advance which is
converted to a term loan pursuant to Section 2.03, the Maturity
Date);
(ii) Interest Periods commencing on the same date for A
Advances comprising part of the same A Borrowing shall be of the
same duration; and
(iii) Whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day
of such Interest Period shall be extended to occur on the next
succeeding Business Day, provided, that if such extension would
cause the last day of such Interest Period to occur in the next
following calendar month, the last day of the Interest Period
shall occur on the next preceding Business Day.
"Investment Tax Credit"--Any credit against United States income taxes of
the concerned corporation available to such corporation pursuant to the
provisions of Section 38 of the United States Internal Revenue Code of 1986, as
amended.
"Limited Recourse Obligation"--Any indebtedness, obligation or liability
of the Company or of any Subsidiary for the payment of which the obligee thereof
is expressly limited to the income, proceeds or value of a specific asset or
group of assets.
"Majority Banks"--Banks holding at least 50% of the then aggregate unpaid
principal amount of the A Notes held by Banks, or, if no such principal amount
is then outstanding, Banks having at least 50% of the Commitment (provided that,
for purposes hereof, neither the Company, nor any of its affiliates, if a Bank,
shall be included in (i) the Banks holding such amount of the A Advances or
having such amount of the Commitments or (ii) determining the aggregate unpaid
principal amount of the A Advances or the total Commitments).
"Maturity Date" -- The date that is the three-year anniversary of the
Termination Date.
"Moody's"--Moody's Investor Services, Inc.
"Net Fixed Assets"--The excess, as to any corporation of (1) the value as
reflected on the books of account of such corporation of Fixed Assets, taken at
their cost, over (2) the value at such date of all depreciation, amortization,
retirement and other valuation reserves with respect thereto, as determined in
accordance with generally accepted accounting principles consistently applied.
"Net Worth"--As to any corporation, the total of the stockholders'
investment as reflected on the books of account of such corporation and any
deferred Investment Tax Credit of such corporation.
"Non-Extending Bank" -- As defined in Section 2.19(a).
"Note"--An A Note or a B Note.
"Notice of A Borrowing"--As defined in Section 2.02(a).
"Notice of B Borrowing"--As defined in Section 2.05(a)(i).
"Reference Banks"--The Chase Manhattan Bank, Citibank, N.A., First
National Bank of Boston, Bank of New York, and National Westminster Bank plc.
"Register"--As defined in Section 2.18.
"Replacement Banks" -- As defined in Section 2.19(c).
"Required Assignment"--As defined in Section 2.18.
"Request for Alteration"--A document substantially in the form of Exhibit
C hereto, duly executed by the Company, pursuant to the provisions of Section
2.17.
"S&P"--Standard & Poor's Corporation.
"Subordinated Indebtedness"--The total, for any corporation, of all
Indebtedness of such corporation which shall have been subordinated in right of
payment, in terms satisfactory to the Banks, to all indebtedness of the Company
to the Banks.
"Subsidiary"--Any corporation, except BFC, in which more than 50% of the
Voting Stock is owned by the Company, by the Company and any one or more other
Subsidiaries, or by any one or more other Subsidiaries.
"Termination Date"--The earlier to occur of (i) September 26, 1997, as
such date may be extended from time to time pursuant to Section 2.19 and (ii)
the date of termination in whole of the Commitments pursuant to Section 2.08 or
Section 6.01.
"Voting Stock"--All the outstanding capital stock of any corporation
having general voting power under ordinary circumstances to elect a majority of
the Board of Directors of such corporation (irrespective of whether or not any
capital stock of any other class or classes shall or might have voting power
upon the occurrence of any contingency).
Section 9.02. Use of Defined Terms. Any defined term used in the plural
preceded by the definite article shall be taken to encompass all members of the
relevant class. Any defined term used in the singular preceded by "any" shall be
taken to indicate any number of the members of the relevant class.
Section 9.03. Accounting Terms.
9.03(a) All accounting terms not specifically defined herein shall
be construed in accordance with generally accepted accounting principles
consistently applied, except that the following principles shall be applied for
the purposes of the provisions of Sections 4.01(d), 4.02(a), 4.02(b), 4.02(c),
4.03(a), 4.03(b) and 4.03(c) regardless of whether such principles shall be
generally accepted:
(i) There shall be excluded from the Consolidated Net Worth
of the Company and the Subsidiaries any investment in BFC.
(ii) There shall be excluded from Indebtedness of the
Company and any Subsidiary any
<PAGE> 16
Limited Recourse Obligation of the Company or any Subsidiary and, to the
extent of the amount of such Limited Recourse Obligation, there shall be
excluded from the assets of the owner thereof the asset or group of assets
to the income, proceeds or value of which the obligee of such Limited
Recourse Obligation is limited in recourse.
(iii) The value of any asset of the Company or any
Subsidiary shall be reduced by the amount of all depreciation,
amortization, retirement, valuation and other contingency reserves
maintained with respect thereto on the books of account of the Company or
the appropriate Subsidiary.
9.03(b) FAS 106. Notwithstanding anything to the contrary in this
Agreement, any computations made in connection with the covenants set out in
Sections 4.01, 4.02, or 4.03 (including without limitation computations
contemplated by the defined terms used therein) shall be adjusted so that the
effect of Statement of Financial Accounting Standards 106 shall be disregarded.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized as of the day and year
first above written.
THE BOEING COMPANY
By
Its Assistant Treasurer
CITIBANK, N.A.
Individually and as Agent
399 Park Avenue
Eighth Floor, Zone 6
New York, New York 10043
By
Its Vice-President
<PAGE> 17
ABN AMRO Bank, N.V.
Seattle Branch
One Union Square
600 University Place, Suite 2323
Seattle, Washington 98101
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
BANK IV, N.A.
100 N. Broadway
P. O. Box 4
Wichita, Kansas 67201-0004
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
<PAGE> 18
Bank of America National Trust and Savings Association
555 South Flower Street, 11th Floor
Unit #5618
Los Angeles, California 90071
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
Bank of America NT&SA
GPO Account Administration #5693
1850 Gateway Boulevard
Concord, California 94520
Attn: Ms. Nona Merritt
Phone: (510) 675-7052
Bankers Trust Company
Airline, Airframe, Aerospace Division
130 Liberty Street, MS 2232
New York, New York 10006
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
<PAGE> 19
Bank of New York
10990 Wilshire Boulevard
Suite 1700
Los Angeles, California 90024
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
The Bank of New York
One Wall St. 22nd Flr.
New York, NY 10005
Attn. Lorna Alleyne
Assistant Treasurer
Bank of Tokyo - Mitsubishi
(address)
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
CIBC Inc
425 Lexington Avenue
New York, New York 10017
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
2727 Taces Ferry Road
Building #2, Suite 1200
Atlanta, Georgia 30339
Attn: Atlanta Client Support
Center - Susan Wood
fax: 770-319-4950
The Chase Manhattan Bank
270 Park Avenue
10th Floor
New York, New York 10017
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
<PAGE> 20
Credit Lyonnais
acting through its New York Branch
Credit Lyonnais Building
1301 Avenue of the Americas, 20th Floor
New York, New York 10019
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
First National Bank of Boston
U. S. Corporate/01-21-01
100 Federal Street (02110)
P.O. Box 2016
Boston, Massachusetts 02106-2016
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
<PAGE> 21
Industrial Bank of Japan, Ltd.
Los Angeles Agency
350 South Grand Avenue
Suite 1500
Los Angeles, California 90071
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
Long-Term Credit Bank of Japan, Ltd.
Los Angeles Agency
444 So. Flower Street
Suite 3700
Los Angeles, California 90071-2936
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
Mitsubishi Trust and Banking
Corporation
New York Branch - 25th Floor
520 Madison Avenue
New York, New York 10022
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
Morgan Guaranty Trust Company of
New York
c/o J.P. Morgan Services, Inc.
Loan Operations - 3rd Floor
500 Stanton Christiana Road
Newark, DE 19713
Telex Number/Answerback: 177425 MBDEL UT
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
Morgan Guaranty Trust Company of New York
Nassau Bahamas Office
c/o J. P. Morgan Services, Inc.
Loan Operations - 3rd Floor
500 Stanton Christiana Road
Newark, DE 19713
Telex Number/Answerback: 177425 MBDEL UT
Nationsbank of Texas, N.A.
(address)
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
<PAGE> 22
============================
National Westminster Bank plc
Level 5
135 Bishopsgate
London, EC2M 3UR
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
National Westminster Bank PLC
Nassau Branch
175 Water Street
New York, NY 10038
PNC Bank, National Association
Broad & Chesnut Streets
P.O. Box 7648, MS 12-07-01
Philadelphia, Pennsylvania 19101
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
The Sumitomo Bank, Limited
Los Angeles Branch
777 South Figueroa Street
Suite 2600
Los Angeles, California 90017
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
Sumitomo Trust and Banking Company, Ltd.
Los Angeles Agency
333 South Grand Avenue
Suite 5300
Los Angeles, California 90071
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
U. S. Bank of Washington, N.A.
1420 - 5th Avenue - 11th Floor
Seattle, Washington 98108
By:
(Signature)
----------------------------
(Print Name)
<PAGE> 23
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
Wachovia Bank of
North Carolina, N.A.
Wachovia Corporate Services
191 Peachtree Street, N.E. 28th Floor
Atlanta, Georgia 30303
By:
(Signature)
----------------------------
(Print Name)
Its
Address for Eurodollar Rate Borrowings if different from above:
============================
============================
============================
<PAGE> 1
Exhibit 10.20
THE BOEING COMPANY
SHAREVALUE PROGRAM
Effective July 1, 1996
<PAGE> 2
ARTICLE I. THE BOEING COMPANY SHAREVALUE PROGRAM
1. Purpose
1.1 The purpose of this Program is to provide an opportunity for
Employees of the Company and of Participating Subsidiaries to
share in the profits of the Company by benefiting from increases
in shareholder value over a multiple-year period, to reinforce
the focus of Employees on shareholder value, and to encourage
Employees to view their actions and responsibilities as those of
"owners" of the Company.
2. Definitions
As used in the Program, the following words and phrases have the
meanings indicated:
2.1 "Active Payroll" means the status of an Employee who is not on
(a) layoff or (b) leave of absence for more than 90 days.
2.2 "Board of Directors" means the Board of Directors of the
Company.
2.3 "Boeing Common Stock" means the Company's common stock, par
value $5 per share.
2.4 "Code" means the Internal Revenue Code of 1986, as amended.
2.5 "Committee" means a committee of directors or officers of the
Company charged by the Board of Directors to administer the Plan
as set forth in Section 4.1 and Section 4.3 of the Plan.
2.6 "Company" means The Boeing Company.
2.7 "Designated Beneficiary" means a beneficiary, designated by a
Participant pursuant to Section 6.3 of the Plan, who is to
receive benefits under the Plan upon the Participant's death.
2.8 "Effective Date" means July 1, 1996.
2.9 "Eligible Employee" has the meaning specified in Section 1 of
the Plan.
<PAGE> 3
2.10 "Employee" means any person on the Active Payroll of the Company
or a Participating Subsidiary.
2.11 "Executive Payroll" means the payroll identified by the Company
or a Participating Subsidiary as its executive payroll.
2.12 "Final Investment Value" has the meaning specified in Section
3.2.2 of the Plan.
2.13 "Fair Market Value" means the mean of the high and low pershare
trading prices for the Boeing Common Stock as reported in The
Wall Street Journal for the "New York Stock Exchange--Composite
Transactions" for a single trading day.
2.14 "Fund" means the account established in the Trust Fund for each
Investment Period. Each Fund shall be numbered to correspond
with the Investment Period to which it relates.
2.15 "Initial Investment" has the meaning specified in Section 2.1 of
the Plan.
2.16 "Insolvent" or "Insolvency" means (a) inability to pay debts as
they become due or (b) being subject to a pending proceeding as
a debtor under the provisions of Title 11 of the United States
Code (the Bankruptcy Code).
2.17 "Investment Period" means a period of four years commencing on
July 1 of the first year of the four-year period and ending on
June 30 of the fourth year of the same four-year period;
provided that two Investment Periods shall commence on July 1,
1996, one of such Investment Periods being a two-year Investment
Period terminating on June 30, 1998 ("Investment Period 1") and
the other a four-year Investment Period terminating on June 30,
2000 ("Investment Period 2"). New four-year Investment Periods
shall commence on July 1, 1998 and on every second July 1
thereafter up to and including July 1, 2004. A new Investment
Period shall not commence on July 1, 2006, however, unless prior
to that date the Plan and the Trust Agreement have been amended,
in accordance with their terms, to extend the term of the Plan
and the Trust Agreement.
2.18 "Participant" means an Eligible Employee who is on the Active
Payroll and who receives one hour of pay for any month during an
Investment Period.
2.19 "Participant Distribution" means the portion of the ShareValue
Distribution for an Investment Period that is awarded to a
Participant with respect to that Investment Period.
<PAGE> 4
2.20 "Participating Subsidiary" means (a) a company that is included
with the Company in a "controlled group of corporations" as
determined under Section 1563 of the Code without regard to
subsections (a)(4) and (e)(3)(C) thereof or (b) any other trade
or business, whether or not incorporated, that, based on
principles similar to those defining a "controlled group of
corporations" for purposes of clause (a) hereof, is under common
control with the Company; provided that such company, trade or
business has adopted the Plan pursuant to its terms and the
Committee, in its sole discretion, approves such participation.
2.21 "Plan" means The Boeing Company ShareValue Plan, including all
amendments thereto, which is included as Article II of the
Program.
2.22 "Program" means The Boeing Company ShareValue Program, including
the Plan and the Trust, and including all amendments thereto.
2.23 "ShareValue Distribution" means the aggregate amount to be
distributed to all Participants at the conclusion of an
Investment Period.
2.24 "Stock Purchase and Restriction Agreement" means the Stock
Purchase and Restriction Agreement dated as of the date hereof
between the Company and the Trustee.
2.25 ""Threshold Amount" has the meaning specified in Section 3.2.1
of the Plan.
2.26 "Trust" means The Boeing Company ShareValue Trust established by
the Trust Agreement.
2.27 "Trust Agreement" means The Boeing Company ShareValue Trust
Agreement executed between the Company and the Trustee named
therein, effective as of July 1, 1996, including all amendments
thereto, which is included as Article III of the Program.
2.28 "Trust Fund" means the trust fund held by the Trustee consisting
of all contributions received by the Trustee together with all
proceeds of any investments and reinvestments thereof, the
earnings and income thereon, and proceeds of sales of Boeing
Common Stock awaiting distribution, less disbursements therefrom
and expenses charged thereto.
2.29 "Trust Termination Date" means the date on which the Trust is
terminated.
2.30 "Trustee" means Wachovia Bank of North Carolina, N.A. (not in
its corporate capacity but as trustee of the Trust), or any
successor trustee.
<PAGE> 5
2.31 "Year" means the period beginning on the Effective Date and
ending on June 30, 1997, and each 12-month period thereafter
beginning on July 1 and ending on June 30.
<PAGE> 6
ARTICLE II. THE BOEING COMPANY SHAREVALUE PLAN
1. Eligibility and Participation
1.1 An Employee shall be an Eligible Employee for purposes of the
Plan during
1.1.1 the period or periods that he or she is not within a group
of Employees covered by a collective bargaining agreement
between the Company or a Participating Subsidiary and a
collective bargaining representative certified under the
Labor-Management Relations Act, in the negotiation of
which agreement employee benefits were the subject of
good-faith bargaining, or
1.1.2 the period or periods that he or she is within such a
collective bargaining unit to the extent that such period
or periods are included within the time for which the Plan
is effective as to such unit, in accordance with the terms
of the collective bargaining agreement between the Company
or a Participating Subsidiary and the collective
bargaining representative certified under such act.
1.2 An Employee of a Participating Subsidiary who is not a resident
of the United States and who receives no earned income from such
Participating Subsidiary for services performed within the
United States shall not be an Eligible Employee unless the Plan
has been made applicable to such Employee by the Participating
Subsidiary.
1.3 An Employee of a Participating Subsidiary who is a citizen of
the United States and who (a) at the time of his or her
employment by the Participating Subsidiary was a bona fide
resident of a country other than the United States or (b) is
hired directly by an operation of such Participating Subsidiary
to perform services outside the United States shall not be an
Eligible Employee, unless the Plan has been made applicable to
such Employee by the Participating Subsidiary.
1.4 A person who is included on the Executive Payroll, or who is a
participant in an executive bonus or compensation plan of the
Company or a Participating Subsidiary, shall not be an Eligible
Employee for any period of time during which such person is so
included or so participates.
1.5 An Eligible Employee shall be a Participant in any Investment
Period during which such Eligible Employee is on the Active
Payroll and receives at least one
<PAGE> 7
hour of pay from the Company or a Participating Subsidiary. A
Participant shall be entitled to a Participant Distribution for
an Investment Period as described in Section 3.2.4 of the Plan,
notwithstanding his or her death, retirement, disability or
termination of employment during the Investment Period.
1.6 A person who is an Eligible Employee with respect to one
Investment Period does not, for that reason, become an Eligible
Employee with respect to any other Investment Period.
2. Contributions and Dividends
2.1 Contributions for Initial Investment Periods. On the Effective
Date or within 30 days thereafter, the Company shall contribute
to the Trust such number of shares of Boeing Common Stock as
equals $1 billion divided by the Fair Market Value on June 28,
1996; provided that the Company may, in lieu thereof, contribute
either (a) cash in an amount sufficient to enable the Trustee to
purchase such number of shares of Boeing Common Stock or (b) a
combination of Boeing Common Stock and cash sufficient for the
Trustee to purchase Boeing Common Stock so that the aggregate
number of shares acquired by the Trust through (i) contribution
of shares by the Company and (ii) purchases of shares by the
Trustee is equal to the number of shares that equals $1 billion
divided by the Fair Market Value on June 28, 1996.
2.2 Purchase of Boeing Common Stock. If either (a) or (b) of Section
2.1 applies, the cash portion of the contribution shall be used
by the Trustee to purchase shares of Boeing Common Stock
pursuant to the Trust Agreement and the Stock Purchase and
Restriction Agreement. If the Trustee requires additional cash
to purchase Boeing Common Stock so that the Trust will hold the
number of shares of Boeing Common Stock required under Section
2.1, the Company shall contribute such cash to the Trustee on a
timely basis. If less cash is required to purchase the number of
shares of Boeing Common Stock required under Section 2.1, the
Trustee shall, on a timely basis, refund any excess
contributions to the Company.
2.3 Initial Funds. After any cash portions of the Company's
contributions to the Trust have been invested by the Trustee in
Boeing Common Stock, the Trust Fund shall be divided into two
equal parts, one part of which shall constitute the Initial
Investment for Investment Period 1 and the other part of which
shall constitute the Initial Investment for Investment Period 2.
The Initial Investments for each of Investment Period 1 and
Investment Period 2, together with all proceeds of any
investments and reinvestments thereof, the earnings
<PAGE> 8
and income thereon, and proceeds of sales of Boeing Common Stock
awaiting distribution, less disbursements therefrom and expenses
charged thereto, shall be segregated into separate accounts
("Fund 1" and "Fund 2," respectively) within the Trust.
2.4 Subsequent Investment Periods. The Initial Investment for each
subsequent Investment Period shall be equal to the lesser of the
Threshold Amount or the Final Investment Value for the
Investment Period that terminates on the June 30 immediately
preceding the beginning of such succeeding Investment Period.
The Initial Investment for each subsequent Investment Period
shall be segregated into a separate account, such Fund to be
numbered the number following the number of the most recently
initiated Fund within the Trust.
2.5 Additional Contributions. The Trustee shall at any time, or from
time to time, accept from any person or entity, including the
Company, additional contributions of cash or Boeing Common Stock
to the Trust to augment the principal to be held, administered
and disposed of by the Trustee as provided in the Trust
Agreement; provided that the Board of Directors, in its sole
discretion, shall have approved such additional contributions to
the Trust. Neither the Trustee nor any Participant or
beneficiary shall have the right to compel such additional
contributions. Such additional contributions shall be divided
equally among the Funds then existing in the Trust, unless the
Board of Directors, in its sole discretion, shall have
prescribed a different allocation method with respect to such
additional contributions. Any such additional contributions made
in cash shall be invested by the Trustee in Boeing Common Stock
pursuant to the Trust Agreement and the Stock Purchase and
Restriction Agreement.
2.6 Dividends. Except as otherwise provided herein, dividends paid
in cash on the Boeing Common Stock held by the Trust shall be
invested by the Trustee in additional Boeing Common Stock as
soon as practicable. Dividends that are not paid in cash or in
Boeing Common Stock shall be reduced to cash by the Trustee and
reinvested in Boeing Common Stock as soon as practicable.
Dividends shall be allocated to the Fund holding the Boeing
Common Stock with respect to which such dividends are payable.
Investments in Boeing Common Stock may be made through open-
market purchases, the Company's Dividend Reinvestment and Stock
Purchase Plan, private transactions or (with the Company's
consent) purchases from the Company, in the Trustee's discretion
and subject to the Stock Purchase and Restriction Agreement.
<PAGE> 9
3. Distributions to Participants
3.1 Information to Be Provided to Trustee. The Committee shall, no
less than two months prior to the end of each Investment Period,
inform the Trustee in writing of the Committee's estimate of the
amount of any required or permitted withholding from the
Participant Distributions for all Participants for that
Investment Period. The Committee shall, within 90 days following
the end of each Investment Period, inform the Trustee in writing
of (a) the name and last known mailing address of each
Participant for the Investment Period, (b) the name and last
known mailing address of the Designated Beneficiary of each
Participant who has died during the Investment Period or, in the
absence of a Designated Beneficiary, the name and last known
mailing address of the person to whom such Participant's
Participant Distribution should be paid, and, if more than one
person is so designated to receive such Participant's
Participant Distribution, the share thereof to be paid to each,
(c) with respect to each Participant for the Investment Period,
the number of months during such Investment Period in which such
individual was a Participant, and (d) the total number of months
of participation in the Plan by all Participants during the
Investment Period.
3.2 Trustee's Determination of Distributions. The Trustee shall be
responsible for determining the amount of any ShareValue
Distribution for each Investment Period and any Participant
Distribution for each Participant. Such determination shall be
made as follows:
3.2.1 The Threshold Amount for an Investment Period shall be
equal to the Initial Investment for that Investment Period
increased and compounded by 3% per annum for each Year of
the Investment Period. If for any reason an Investment
Period does not terminate at the end of a Year, the
Threshold Amount for such Investment Period shall be
prorated.
3.2.2 During the last two months of an Investment Period, the
Trustee shall sell, in accordance with the Trust Agreement
and the Stock Purchase and Restriction Agreement, such
number of shares of Boeing Common Stock held in the Fund
for that Investment Period as the Trustee estimates will
be sufficient (in combination with any cash on hand in the
appropriate Fund) to pay the appropriate withholding and
cash payment for fractional shares on the estimated
Participant Distributions for that Investment Period.
(Notwithstanding the foregoing, if the Trustee is unable
for any reason to sell sufficient shares of Boeing Common
Stock to pay the appropriate withholding and cash payment
for fractional
<PAGE> 10
shares on the Participant Distributions before the end of
the Investment Period, the Trustee shall sell such shares
as soon as practicable after the end of such Investment
Period.) The fair market value of all cash and Boeing
Common Stock held in the Fund on the last day of the
Investment Period (with the Boeing Common Stock valued at
the Fair Market Value for the last day of the Investment
Period or, if that day is not a trading day, for the next
preceding trading day) shall constitute the Final
Investment Value for such Investment Period.
3.2.3 The Final Investment Value for that Investment Period
shall then be reduced (but not below zero) by the
Threshold Amount for that Investment Period. The result
shall be the ShareValue Distribution for that Investment
Period.
3.2.4 The ShareValue Distribution for an Investment Period shall
be proportionately distributed among the Participants for
that Investment Period as Participant Distributions, in
the ratio that the number of months in that Investment
Period in which the individual was a Participant bears to
the total number of months of Plan participation by all
Participants in that Investment Period.
3.2.5 A Participant Distribution shall be payable only in whole
shares of Boeing Common Stock after appropriate
withholding calculated in accordance with Section 3.3 of
the Plan and Section 4.3 of the Trust Agreement; provided
that a Participant Distribution of less than one full
share of Boeing Common Stock after appropriate withholding
calculated in accordance with Section 3.3 of the Plan and
Section 4.3 of the Trust Agreement shall be paid in cash.
3.3 Payment of Participant Distributions. Following the Trustee's
determination of the ShareValue Distribution for an Investment
Period pursuant to Section 3.2 of the Plan, the Trustee shall
report to the Committee in writing the amount of any ShareValue
Distribution as so determined. Within 90 days following the
report from the Trustee, the Committee shall instruct the
Trustee in writing of the amount of any required or permitted
withholding from the Participant Distribution of each
Participant. As soon as practicable following receipt of such
information from the Committee, the Trustee shall remit to the
Company the amount of the withholding as instructed and
distribute the Participant Distributions to Participants (or
their beneficiaries) for such Investment Period. The number of
shares of Boeing Common Stock payable to a Participant (or
beneficiary) shall equal the amount of the Participant
<PAGE> 11
Distribution (as determined by the Trustee pursuant to Section
3.2 of the Plan) reduced by any withholding as provided herein
(and further reduced by any withholding determined by the
Trustee pursuant to Section 4.3 of the Trust Agreement) divided
by the Fair Market Value for the last day of the Investment
Period or, if that day is not a trading day, for the next
preceding trading day. Fractional shares shall not be issued,
and the value thereof shall be used first to pay withholding and
then, for Participant Distributions of less than one full share
of Boeing Common Stock, shall be paid to the Participant in
cash. No payment of a Participant Distribution may be deferred
or paid in installments.
The Trustee may, by contract with the Company, on such terms as
they may mutually agree, delegate to the Committee such of its
functions under the Plan as it may determine. The Trustee may,
with the consent of the Committee, delegate to agents such
functions under the Plan as the Trustee and the Committee
determine.
4. Administration of the Plan
4.1 The Board of Directors shall have full power and authority to
administer the Plan. The Board of Directors, in its sole
discretion, may delegate some or all of its authority and duties
under the Plan to the Committee. (Where such delegation does not
exist, the term "Committee" as used in the Program shall also
refer to the Board of Directors.) Decisions of the Committee
shall be final, conclusive and binding on the Participants and
their Designated Beneficiaries and all other persons. Any action
taken by the Committee in respect of any election or request
made by a Participant or Designated Beneficiary pursuant to the
Plan shall be taken at the sole discretion of the Committee.
4.2 The Committee shall have the exclusive right to interpret the
terms and provisions of the Plan; to take all steps deemed
necessary or advisable by the Committee to correct mistakes in
administering the Plan; to determine any and all questions
arising under the Plan or in connection with the administration
thereof or the applicability thereof to any and all individuals;
and to remedy possible ambiguities, inconsistencies or
omissions. All interpretations, corrections and decisions of the
Committee in respect of any matter or question relating to the
Plan or the administration thereof shall be final, conclusive
and binding on all persons affected thereby.
4.3 The Committee may delegate all or part of its functions
hereunder to a committee appointed by the Board of Directors for
such purpose.
<PAGE> 12
4.4 Each member of the Committee or its delegate, if any, shall use
ordinary care and diligence in the performance of such person's
duties, but no such person shall be personally liable by reason
of any contract, agreement or other instrument made or executed
by such person, or on behalf of such person, or for any loss,
unless resulting from the willful misconduct of such person or
failure to exercise good faith in performing such functions. No
such person shall be liable for the neglect, omission or
wrongdoing of any other such person, or of the agents of or
counsel to the Company or such persons. The Company shall
indemnify each member of the Committee and of its delegate, if
any, against, and save him or her harmless from and against, any
and all expenses and liabilities arising out of any act or
omission to act hereunder, except such expenses and liabilities
as are due to such person's willful misconduct or failure to
exercise good faith in performing such functions.
5. Amendment and Termination
5.1 Except as provided in Section 5.3 of the Plan, Article I and
this Article II of the Program may be amended only by the
Committee and only to the extent such amendment is required by
law or is necessary or desirable to (a) prevent adverse tax
consequences to Participants or the Company, (b) provide for
financial reporting treatment deemed appropriate and desirable
by the Committee, or (c) cure administrative deficiencies.
5.2 No modification, amendment or termination of the Plan shall (a)
retroactively deprive a Participant of rights theretofore
accrued to the Participant under the Plan or (b) result in a
change in the duties of the Trustee under the Trust Agreement
without the Trustee's consent (to the extent and in the form
required by the Trust Agreement), except in either case to the
extent that any change is made necessary by law or governmental
regulation.
5.3 The Plan shall terminate on June 30, 2008, unless the Board of
Directors, in its sole discretion, amends the Plan prior to that
date to extend its term.
5.4 Upon termination of the Plan, the interests of the Participants
under the Plan shall be fully vested and nonforfeitable. Upon
such termination, the Trustee shall make the calculations
required pursuant to the Plan and shall pay Participant
Distributions to Participants based on such calculations, as
provided in Section 3.3 of the Plan. All assets remaining in the
Trust after completion of all Participant Distributions for all
Investment Periods and after payment of all amounts required to
be paid from the Trust pursuant to Section 4 of the Trust
Agreement shall be transferred to the Company.
<PAGE> 13
5.5 In the event of any merger, consolidation or reorganization of
the Company in which the Company is not the surviving
corporation, the successor corporation shall continue the Plan
and shall be substituted for the Company under the Plan.
6. Miscellaneous
6.1 Notices. Each Participant eligible to receive a Participant
Distribution under the Plan shall file with the Company or the
appropriate Participating Subsidiary, in writing, his or her
post office address and each change of post office address until
receipt of the benefit payment. Any communication, statement or
notice addressed to such Participant at his or her last post
office address filed with the Company or the Participating
Subsidiary (or if no post office address was filed with the
Company or the Participating Subsidiary, then the Participant's
last post office address shown by the Company's or the
Participating Subsidiary's payroll records) shall be binding on
such Participant for all purposes of the Plan, and the Company
or the Participating Subsidiary shall not be obligated to search
for or ascertain the whereabouts of any such Participant.
Participant Distributions that are undeliverable to a
Participant shall be remitted to the Company.
6.2 No Employment Contract. Nothing contained in the Plan shall
confer upon any person the right to be retained in the employ of
the Company or any Participating Subsidiary or shall interfere
with the right of the Company or a Participating Subsidiary to
discharge or otherwise deal with such person without regard to
the existence of the Plan.
6.3 Designation of Beneficiary. A Participant may designate a
beneficiary to receive benefits under the Plan upon the
Participant's death. The Participant may revoke or change such
designation at any time. A designation by a married Participant
of a beneficiary other than the Participant's spouse shall not
be valid without the written consent of the Participant's
spouse. Benefits payable under the Plan after the death of a
Participant shall be paid to the Designated Beneficiary. If
there is no valid designation of a beneficiary or no living
Designated Beneficiary at the Participant's death, the benefits
shall be paid to the Participant's surviving spouse or, if none,
to the Participant's children in equal shares or, if none, to
the Participant's estate. Beneficiary designations, revocations
or changes of a beneficiary hereunder must be on forms provided
by the Company or the Participating Subsidiary and filed with
the Company or the Participating Subsidiary during the
Participant's lifetime. Any beneficiary designation filed by a
Participant under the Company's
<PAGE> 14
Voluntary Investment Plan or any similar plans of Participating
Subsidiaries, shall constitute a designation under the Plan
until revoked or changed by the Participant.
6.4 No Rights to Assign or Alienate. No right or interest of a
Participant to receive distributions under the Plan shall be
subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, charge, execution,
attachment, garnishment or any other legal process, and any
attempt to make any such benefit so subject shall be void.
6.5 No Rights as Shareholder. No right or interest of a Participant
to receive distributions under the Plan shall entitle a
Participant to any dividend, voting or other right of a
shareholder of the Company unless and until shares of Boeing
Common Stock are issued under the Plan in payment of a
Participant Distribution.
6.6 No Rights Under Other Plans. Participant Distributions under the
Plan shall not be considered as compensation or wages, or
otherwise included in the determination of contributions or
benefits, under any other plan or benefit program maintained by
the Company, including, without limitation, the Employee
Retirement Plan and the Voluntary Investment Plan or any similar
plans of Participating Subsidiaries.
6.7 Plan Not Subject to ERISA. The Plan is not subject to the
provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), because it is neither an employee
pension benefit plan nor an employee welfare benefit plan under
the terms of ERISA.
6.8 Program. The Plan is included in the Program, and the
definitions of terms in Section 2 of the Program apply to the
Plan.
6.9 Governing Law. The Plan shall be construed according to the laws
of the State of Washington, without regard to conflict of law
rules.
6.10 Headings. Headings and subheadings in the Plan are inserted for
reference only and are not to be considered in construction of
the provisions of the Plan.
<PAGE> 15
ARTICLE III. THE BOEING COMPANY SHAREVALUE TRUST AGREEMENT
THIS TRUST AGREEMENT (the "Trust Agreement") is made effective as
of July 1, 1996 between The Boeing Company, a Delaware corporation,
and Wachovia Bank of North Carolina, N.A., a national banking
association with trust powers, as trustee.
RECITALS
A. The Company desires to establish the Trust in accordance with
the laws of the State of Washington and for the purposes stated in the
Trust Agreement.
B. The Trustee desires to act as trustee of the Trust, and to
hold legal title to the assets of the Trust, in trust, for the
purposes hereinafter stated and in accordance with the terms hereof.
C. The Company desires that the assets to be held in the Trust
Fund should be principally or exclusively securities of the Company
and, therefore, it expressly waives any diversification of investments
that might otherwise be necessary, appropriate or required pursuant to
applicable provisions of law.
D. The Trustee has been appointed as trustee and has accepted
such appointment as of the date first set forth above.
Accordingly, the parties hereto hereby establish the Trust and
agree that the Trust will be comprised, held and disposed of as
follows:
AGREEMENTS
1. Trust, Trustee and Trust Assets
1.1 Trust
The Trust Agreement and the Trust shall be known as The Boeing
Company ShareValue Trust. The parties intend that the Trust will be an
independent legal entity with title to and power to convey all of its
assets. The assets of the Trust will be held, invested and disposed of
by the Trustee, in accordance with the terms of the Trust.
<PAGE> 16
1.2 Trustee
The trustee named above, and its successor or successors, is
hereby designated as the Trustee hereunder, to receive, hold, invest,
administer and distribute the Trust Fund in accordance with the Trust
Agreement, the provisions of which shall govern the powers, duties and
responsibilities of the Trustee.
1.3 Trust Assets
The assets held at any time and from time to time under the Trust
collectively shall consist of contributions received by the Trustee,
proceeds of any investments and reinvestments thereof, the earnings
and income thereon, and proceeds of sales of Boeing Common Stock
awaiting distribution to meet cash requirements as described in
Section 3.3 of the Plan and Section 4.3 of the Trust Agreement, less
disbursements therefrom and expenses charged thereto. Except as herein
otherwise provided, title to the assets of the Trust shall at all
times be vested in the Trustee, and securities that are part of the
Trust shall be held in such manner that the Trustee's name and the
fiduciary capacity in which the securities are held are fully
disclosed, subject to the right of the Trustee to hold title in bearer
form or in the name of a nominee.
1.4 Trust Assets Subject to Creditor Claims
Notwithstanding any provision of the Trust Agreement to the
contrary, the assets of the Trust shall at all times remain subject to
the claims of the general creditors of the Company, under federal and
state law.
The Committee shall inform the Trustee in writing of the
Insolvency of the Company. If a person claiming to be a creditor of
the Company alleges in writing to the Trustee that the Company has
become Insolvent, the Trustee shall determine whether the Company is
Insolvent and, pending such determination, the Trustee shall
discontinue distributions pursuant to Section 3 of the Trust Agreement
to Participants.
Unless the Trustee has actual knowledge of the Insolvency of the
Company, or has received notice from the Company, or from a person
claiming to be a creditor alleging that the Company is Insolvent, the
Trustee shall have no duty to inquire whether the Company is
Insolvent. The Trustee may in all events rely on such evidence
concerning the solvency of the Company as may be furnished to the
Trustee and that provides the Trustee with a reasonable basis for
making a determination concerning Insolvency.
If at any time the Trustee has determined that the Company is
Insolvent, the Trustee shall discontinue payments pursuant to Section
3 of the Trust Agreement to
<PAGE> 17
Participants and shall hold the assets of the Trust for the benefit of
the general creditors of the Company.
The Trustee shall resume payments pursuant to Section 3 of the
Trust Agreement only after the Trustee has determined that the Company
is not Insolvent.
1.5 Program
The definitions of terms in Section 2 of the Program apply to the
Trust Agreement.
2. Contributions and Dividends
2.1 Contributions and Accounts
The Company shall make contributions and the Trustee shall
establish accounts and invest contributions as set forth in Sections
2.1 and 2.2 of the Plan, which are incorporated herein by reference.
All contributions made to the Trust shall be delivered to the
Trustee. The Trustee shall be accountable for all contributions
received by it, but shall have no duty to require any contributions to
be made to it.
2.2 Additional Contributions
Additional contributions to the Trust may be made as set forth in
Section 2.5 of the Plan, which is incorporated herein by reference.
2.3 Dividends
Dividends paid other than in Boeing Common Stock shall be
reinvested as set forth in Section 2.6 of the Plan, which is
incorporated herein by reference.
3. Distributions Under the Plan
Distributions shall be determined and paid as set forth in
Section 3 of the Plan, which is incorporated herein by reference.
4. Compensation, Expenses and Tax Withholding
4.1 Compensation and Expenses
The Trustee shall be entitled to such reasonable compensation for
its services as may be agreed upon from time to time by the Committee
and the Trustee, and to be
<PAGE> 18
reimbursed for its reasonable legal, accounting and appraisal fees,
expenses and other charges reasonably incurred in connection with the
administration, management, investment and distribution of the Trust.
Such compensation shall be paid, and such reimbursement shall be made
out of the Trust, and shall be allocated among the Funds within the
Trust as the Trustee in its sole discretion shall determine. The
Trustee is authorized to sell Boeing Common Stock in an amount equal
to its compensation and other amounts required to be paid from the
Trust pursuant to Section 4.2 of the Trust Agreement and to hold cash
dividends for the payment of such compensation and amounts required to
be paid from the Trust. To the extent the assets in the Trust are
insufficient to pay the compensation and expenses of the Trustee, the
Trustee shall be entitled to seek payment thereof directly from the
Company, and the Company agrees to pay the same directly to the
Trustee.
4.2 Expenses of the Trust or the Company
Any amounts required to be paid by the Trustee or by the Company
or any Participating Subsidiary, as a result of the Trust Agreement or
the establishment and operation of the Trust, whether by reason of any
distributions and payments provided for herein or otherwise,
including, without limitation, any amounts payable as taxes, interest,
penalties or damages, any amounts payable in settlement of any claims
against the Trust, the Trustee, the Company or any Participating
Subsidiary, any additional amounts due to Employees of the Company or
any Participating Subsidiary as a direct or indirect result of the
payments and distributions provided for herein, all expenses
(including reasonable attorneys' fees) incurred by the Trustee or by
the Company or any Participating Subsidiary as a result of the
investigation and defense of any claims hereunder, and any amounts due
from the Company to the Trustee pursuant to the indemnification
provisions of Section 5.7 of the Trust Agreement, shall be paid from
the Trust; provided that, in the case of the Company and any
Participating Subsidiary, the Company or such Participating
Subsidiary, in its sole discretion, shall have submitted a claim for
reimbursement for such amounts in accordance with this Section 4.2.
The Trustee, in its sole discretion, shall allocate such payments to
the appropriate Fund or Funds. Company claims for reimbursement shall
be submitted to the Trustee either prior to the date on which the
Company pays the reimbursable expense or within one year following the
date of such payment. The Trustee shall pay the Company's claim for
reimbursement within 60 days following the date on which it is
submitted. The Trustee shall have no duty to inquire into the basis
for any Company claim for reimbursement hereunder, or to challenge or
refuse to honor the same.
<PAGE> 19
4.3 Withholding of Taxes
While it is anticipated that the Company will make provisions for
complying with all applicable withholding requirements, the Trustee
may, on any distribution that it makes pursuant hereto, withhold,
require withholding of, or otherwise satisfy its withholding
obligation for such amount as it may deem reasonably necessary to
comply with applicable federal, state and local withholding
requirements. Upon settlement of such tax liability, the Trustee shall
distribute the balance of such amount, if any, in whole shares of
Boeing Common Stock or, for Participant Distributions of less than one
full share of Boeing Common Stock, in cash to the Participants
entitled thereto. Prior to making any distribution hereunder, the
Trustee may require such release or documents from any taxing
authority, or may require such indemnity, as the Trustee shall
reasonably deem necessary for its protection.
5. Administration of Trust Assets
5.1 Management and Control of Trust Assets
Subject to the terms of the Trust Agreement, the Trustee shall
have exclusive authority, discretion and responsibility to manage and
control the assets of the Trust Fund.
5.2 Investment of Funds
Except as otherwise provided in Section 2.2 of the Trust
Agreement and in this Section 5.2, the Trustee shall invest and
reinvest the assets of the Trust exclusively in Boeing Common Stock.
The Trustee shall invest any portion of the Trust temporarily pending
investment in Boeing Common Stock, distribution or payment of expenses
in (a) investments in U.S. Government obligations with maturities of
less than one year, (b) interest-bearing accounts, including, but not
limited to, certificates of deposit, time deposits, saving accounts
and money market accounts with maturities of less than one year in any
bank, including the Trustee's, with aggregate capital in excess of $1
billion and a Moody's Investor Services rating of at least P1, or an
equivalent rating from a nationally recognized ratings agency, which
accounts are insured by the Federal Deposit Insurance Corporation or
other similar federal agency, (c) obligations issued or guaranteed by
any agency or instrumentality of the United States of America with
maturities of less than one year, (d) short-term discount obligations
of the Federal National Mortgage Association, or (e) mutual funds,
including the Trustee's proprietary mutual funds, which are composed
of the assets described in (a), (b), (c) and (d) of this Section 5.2.
<PAGE> 20
5.3 Trustee's Administrative Powers
Except as otherwise provided herein, and subject to the Trustee's
duties hereunder, the Trustee shall have the following powers and
rights, in addition to those provided elsewhere in the Trust Agreement
or by law:
(a) to retain any asset of the Trust for the purposes set
forth herein;
(b) subject to Sections 2.3, 3, 5.2 and 5.4 of the Trust
Agreement, to sell, transfer or otherwise dispose of any Trust assets
at public or private sale;
(c) upon direction from the Committee or as provided herein,
to acquire Boeing Common Stock as authorized by the Stock Purchase and
Restriction Agreement and by the Trust Agreement;
(d) with the consent of the Committee, to settle, submit to
arbitration, compromise, contest, prosecute or abandon claims and
demands in favor of or against the Trust;
(e) to vote or to give any consent with respect to any
securities, including any Boeing Common Stock, held by the Trust
either in person or by proxy for any purpose; provided that the
Trustee shall vote, tender or exchange all shares of Boeing Common
Stock as provided in Section 5.4 of the Trust Agreement;
(f) to exercise any of the powers and rights of an
individual owner with respect to any assets of the Trust and to
perform any and all other acts that in its judgment are necessary or
appropriate for the proper administration of the Trust, even though
such powers, rights and acts are not specifically enumerated in the
Trust Agreement;
(g) to employ such accountants, actuaries, investment
bankers, appraisers, other advisors and agents as may be advisable in
collecting, managing, administering, investing, valuing, distributing
and protecting the Trust or the assets thereof; and to pay their
reasonable fees and expenses, which shall be reimbursed in accordance
with Section 4.1 of the Trust Agreement;
(h) to cause any asset of the Trust to be issued, held or
registered in the Trustee's name or in the name of the nominee, or in
such form that title will pass by delivery; provided that the records
of the Trustee shall indicate the true ownership of such asset;
(i) to utilize another entity as custodian to hold, but not
invest or otherwise manage or control, some or all of the assets of
the Trust;
<PAGE> 21
(j) to consult with legal counsel (who may also be counsel
for the Trustee or the Company generally) with respect to any of its
duties or obligations hereunder; and to pay reasonable fees and
expenses of such counsel, which shall be deemed to be expenses of the
Trust and for which the Trustee shall be reimbursed in accordance with
Section 4.1 of the Trust Agreement; and
(k) to enter agreements from time to time with the Company
pursuant to which the Company contracts to provide services to the
Trustee in connection with the Trust.
Notwithstanding the foregoing, neither the Trust nor the Trustee shall
have any power to, and shall not, engage in any trade or business.
5.4 Rights Regarding Boeing Common Stock
5.4.1 Voting Rights
The Trustee shall give its proxy, with respect to the shares of
Boeing Common Stock held in the Trust, to the Secretary of the Company
(or to such other person as the Committee may from time to time
designate in writing) with respect to any matter pending before an
annual or special meeting of stockholders of the Company and with
respect to any action proposed to be taken by written consent of the
stockholders in lieu of a meeting, with instructions to vote all of
such shares in accordance with the recommendation of the Board of
Directors as set forth in the related proxy statement.
5.4.2 Tender or Exchange Offer
If a tender or exchange offer is commenced for Boeing Common
Stock, the Trustee shall, with respect to the shares of Boeing Common
Stock held in the Trust, tender or exchange, or not tender or
exchange, such shares as directed in writing by the Board of
Directors. In the absence of such written instructions, the Trustee
shall not tender or exchange such shares.
5.4.3 Trustee Action
The Trustee shall not make any recommendations regarding the
manner of exercising any rights under this Section 5.4, including
whether or not any rights should be exercised.
<PAGE> 22
5.5 Purchase of Boeing Common Stock by Trustee
All purchases of Boeing Common Stock by the Trustee pursuant to
the Trust Agreement shall be made in accordance with the Stock
Purchase and Restriction Agreement and shall be made by the Trustee in
a manner and with the timing of purchases to not cause or contribute
to significant movements in the price of the Boeing Common Stock.
Subject to Section 2.1 of the Plan, the Trustee is empowered to make
purchases over such period of time as is reasonable to accomplish the
purpose of the Trust and not cause or contribute to significant
movements in the price of the Boeing Common Stock. The Trustee may
make block purchases of Boeing Common Stock at appropriate discounts.
5.6 Sale of Boeing Common Stock by Trustee
All sales of Boeing Common Stock by the Trustee pursuant to the
Trust Agreement shall be made in accordance with the Stock Purchase
and Restriction Agreement and shall be made by the Trustee in a manner
and with the timing of sales to not cause or contribute to significant
movements in the price of Boeing Common Stock. Subject to Section
3.2.1 of the Plan, the Trustee is empowered to make sales over such
period of time as is reasonable to accomplish the purpose of the Trust
and not cause or contribute to significant movements in the price of
the Boeing Common Stock. The Trustee may make blocks of Boeing Common
Stock available at appropriate discounts. The Trustee shall refrain
from sales of Boeing Common Stock on any trading day in which the most
recent sales price is 5% less than the opening price of the Boeing
Common Stock. To facilitate any such sales, the Company shall register
sales of Boeing Common Stock by the Trust under the Securities Act of
1933, as amended, pursuant to the terms and conditions of the Stock
Purchase and Restriction Agreement.
5.7 Indemnification
(a) To the extent lawfully allowable, the Company shall and
hereby does indemnify and hold harmless the Trustee from and against
any claims, demands, actions, administrative or other proceedings,
causes of action, liability, loss, costs, damage or expense (including
reasonable attorneys' fees), which may be asserted against it, in any
way arising out of or incurred as a result of its action or failure to
act in connection with the operation and administration of the Trust;
provided that such indemnification shall not apply to the extent that
the Trustee has acted in willful or negligent violation of applicable
law or its duties under the Trust Agreement or in bad faith. The
Trustee shall be under no liability to any person for any loss of any
kind
<PAGE> 23
that may result by reason of (i) any action taken by it in accordance
with any direction of the Committee pursuant to Section 3 or 5.4 of
the Trust Agreement, (ii) its failure to exercise any power or
authority or to take any action hereunder because of the failure of
the Committee to provide information to the Trustee, as provided for
in the Trust Agreement, or (iii) any act or omission of the Committee
with respect to its duties under the Trust Agreement. The Trustee
shall be fully protected in acting upon any instrument, certificate or
paper delivered by the Committee, the administrator of the Plan or any
Participant or beneficiary and believed in good faith by the Trustee
to be genuine and to be signed or presented by the proper person or
persons, and the Trustee shall be under no duty to make any
investigation or inquiry as to any statement contained in any such
writing, but may accept the same as conclusive evidence of the truth
and accuracy of the statements therein contained. The indemnity
provided by this Section 5.7 shall survive the termination of the
Trust Agreement.
(b) The Company may, but shall not be required to, maintain
liability insurance to insure its obligations hereunder. If any
payments made by the Company or the Trust pursuant to this indemnity
are covered by insurance, the Company or the Trust (as applicable)
shall be subrogated to the rights of the indemnified party against the
insurance company.
(c) Without limiting the generality of the foregoing, the
Company may, at the request of the Trustee, advance to the Trustee
reasonable amounts of expenses, including reasonable attorneys' fees
and expenses, that the Trustee advises have been incurred in
connection with its investigation or defense of any claim, demand,
action, cause of action, administrative or other proceeding arising
out of or in connection with the Trustee's performance of its duties
under the Trust Agreement.
(d) Any amounts due the Trustee pursuant to the
indemnification provisions of clause (a) of this Section 5.7, and any
advances made by the Company to the Trustee pursuant to clause (c) of
this Section 5.7, shall at the request of the Committee be reimbursed
to the Company from the assets of the Trust, pursuant to Section 4.2
of the Trust Agreement.
5.8 General Duty to Communicate to Committee
The Trustee shall promptly notify the Committee of all
communications with or from any government agency or with respect to
any legal proceeding with regard to the Trust and with or from any
Participants concerning their entitlements under the Plan or the Trust
Agreement.
<PAGE> 24
6. Accounts and Reports of Trustee
6.1 Records and Accounts of Trustee
The Trustee shall maintain accurate and detailed records and
accounts of all transactions of the Trust, which shall be available at
all reasonable times for inspection or audit by any person designated
by the Company and which shall be retained as required by applicable
law.
6.2 Reports of Trustee
The Trustee shall prepare and present to the Committee a report
for the period ending on the last day of each calendar month, and for
such shorter periods as the Committee may reasonably request, listing
all securities and other property acquired or disposed of and all
receipts, disbursements and other transactions effected by the Trust
after the date of the Trustee's last account, and further listing all
cash, securities and other property held by the Trust, together with
the value thereof, as determined by the Trustee as of the end of such
period. Boeing Common Stock held as part of the Trust shall be valued
at its Fair Market Value for the last day of the Year or the period
covered by the report, except that if such day is not a trading day,
for the next preceding trading day. In addition to the foregoing, the
report shall contain such information regarding Trust assets and
transactions as the Committee in its discretion may reasonably
request.
6.3 Final Report
In the event of the resignation or removal of a Trustee
hereunder, the Committee may request, and the Trustee shall with
reasonable promptness submit, for the period ending on the effective
date of such resignation or removal, a report similar in form and
purpose to that described in Section 6.2 of the Trust Agreement.
7. Succession of Trustee
7.1 Resignation of Trustee
The Trustee or any successor thereto may resign as Trustee
hereunder at any time upon delivering a written notice of such
resignation, to take effect 60 days after the delivery thereof to the
Committee, unless the Committee accepts shorter notice; provided that
no such resignation shall be effective until a successor Trustee has
assumed the office of Trustee hereunder.
<PAGE> 25
7.2 Removal of Trustee
The Trustee or any successor thereto may be removed by the
Committee by delivering to the Trustee so removed an instrument
executed by the Committee. Such removal shall take effect at the date
specified in such instrument, which shall not be less than 60 days
after delivery of the instrument, unless the Trustee accepts shorter
notice; provided that no such removal shall be effective until a
successor Trustee has assumed the office of Trustee hereunder.
7.3 Appointment of Successor Trustee
Whenever the Trustee or any successor thereto shall resign or be
removed or a vacancy in the position shall otherwise occur, the
Committee shall use its best efforts to appoint a successor Trustee as
soon as practicable after receipt by the Committee of a notice
described in Section 7.1 of the Trust Agreement, or the delivery to
the Trustee of an instrument described in Section 7.2 of the Trust
Agreement, as the case may be, but in no event more than 75 days after
receipt or delivery, as the case may be, of such notice. A successor
Trustee's appointment shall not become effective until such successor
shall accept such appointment by delivering its acceptance in writing
to the Committee. If a successor is not appointed within such 75-day
period, the Trustee, at the Committee's expense, may petition a court
of competent jurisdiction for appointment of a successor. In any
event, only a corporation with trust powers under applicable law,
which is not an affiliate of the Company, may be a successor trustee
hereunder.
7.4 Succession to Trust Assets
The title to all property held hereunder shall vest in any
successor Trustee acting pursuant to the provisions hereof without the
execution or filing of any further instrument, but a resigning or
removed Trustee shall execute all instruments and do all acts
necessary to vest title in the successor Trustee. Each successor
Trustee shall have, exercise and enjoy all of the powers, both
discretionary and ministerial, herein conferred upon its predecessor.
A successor Trustee shall not be obliged to examine or review the
accounts, records or acts of, or property delivered by, any previous
Trustee and shall not be responsible for any action or any failure to
act on the part of any previous Trustee.
7.5 Continuation of Trust
In no event shall the legal disability, resignation or removal of
a Trustee terminate the Trust, but the Committee shall forthwith
appoint a successor Trustee in
<PAGE> 26
accordance with Section 7.3 of the Trust Agreement to carry out the
terms of the Trust.
7.6 Changes to Organization of Trustee
In the event that any corporate Trustee hereunder shall be
converted into, shall merge or consolidate with, or shall sell or
transfer substantially all of its assets and business to, another
corporation, state or federal, the corporation resulting from such
conversion, merger or consolidation, or the corporation to which such
sale or transfer shall be made, shall thereafter become and be the
Trustee under the Trust with the same effect as though originally so
named but only if such corporation is qualified to be a successor
trustee hereunder.
8. Amendment, Revocation or Termination
8.1 Amendments
The Committee may amend the Trust Agreement at any time and from
time to time with the written consent of the Trustee, but only (a) to
extend the term of the Trust Agreement or (b) to the extent such
amendment is required by law or is necessary or desirable to (i)
prevent adverse tax consequences to Participants or the Company, (ii)
provide for financial reporting treatment deemed appropriate and
desirable by the Committee, or (iii) cure administrative deficiencies;
provided that no amendment may change the duties of the Trustee
without the Trustee's consent, which consent shall not be unreasonably
withheld.
8.2 Revocability
The Trust shall be irrevocable, and the Trust Fund shall be held
for the exclusive purpose of providing distributions to the
Participants and their beneficiaries and defraying expenses of the
Trust in accordance with the provisions of the Trust Agreement, until
the date on which all Participant Distributions for all Investment
Periods and all amounts required to be paid from the Trust pursuant to
Section 4 of the Trust Agreement shall have been paid in full.
8.3 Termination
The Trust Termination Date shall be the earlier of (a) December
31, 2008, unless the Trust Agreement is amended prior to that date to
extend its term, or (b) the date on which the Trust no longer holds
any assets.
Any assets remaining in the Trust after completion of all
Participant Distributions for all Investment Periods, and after
payment of all of the Trustee's fees
<PAGE> 27
and expenses and all other amounts required to be paid from the Trust
pursuant to Section 4 of the Trust Agreement, shall be transferred to
the Company.
8.4 Merger
In the event of any merger, consolidation or reorganization of
the Company in which the Company is not the surviving corporation, (a)
the successor corporation shall become the grantor of the Trust, (b)
the assets of the Trust shall be subject to the claims of the
creditors of the successor corporation in accordance with Section 1.4
of the Trust Agreement, and (c) the provisions of the Trust that apply
to Boeing Common Stock (including, without limitation, the provisions
of Section 3 of the Trust Agreement) shall apply to the stock of the
successor corporation held hereunder.
8.5 Form of Amendment
Any amendment of the Trust Agreement shall be evidenced by an
instrument in writing signed by an authorized officer of the Company,
certifying that said amendment or termination has been authorized and
directed by the Committee and, in the case of any amendment, shall be
consented to by signature of an authorized officer of the Trustee, if
required by Section 8.1 of the Trust Agreement.
9. Miscellaneous
9.1 Notices to the Company and Trustee
All notices, requests or other communications required or
permitted to be delivered hereunder shall be in writing, delivered by
registered or certified mail, return receipt requested, as follows:
To the Company or the Committee:
The Boeing Company
7755 East Marginal Way
Seattle, WA 98108
Attention: Corporate Secretary
MS 10-13
To the Trustee:
Wachovia Bank of North Carolina, N.A.
301 N. Main Street
Winston-Salem, NC 27102
<PAGE> 28
Any party hereto may from time to time, by written notice given
as aforesaid, designate any other address to which notices, requests
or other communications addressed to it shall be sent.
9.2 Trust Agreement Not Subject to ERISA
The Trust Agreement is not subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
because it is neither an employee pension benefit plan nor an employee
welfare benefit plan under the terms of ERISA.
9.3 No Rights in Trust Fund
No Participant in the Plan, or any other person, shall have any
right, title or interest in or to any assets of the Trust or any Fund,
except to the extent of any right to receive Participant Distributions
to the extent specifically set forth in the Plan and in the Trust
Agreement.
9.4 Protection of Persons Dealing With the Trustee
No person dealing with the Trustee shall be required or entitled
to monitor the application of any money paid or property delivered to
the Trustee, or determine whether or not the Trustee is acting
pursuant to authorities granted to it hereunder or to authorizations
or directions herein required.
9.5 Tax Status of Trust
The Trust is intended to be a grantor trust of which the Company
is the grantor, within the meaning of subpart E, part I, subchapter J,
chapter 1, subtitle A of the Code, and shall be construed accordingly.
For federal income tax purposes, the Company, as grantor hereunder,
shall be treated as the owner of the entire Trust and the trust assets
as provided in Section 671 et seq. of the Code. Until advised
otherwise by the Company, the Trustee may presume that the Trust is so
characterized for federal income tax purposes and shall make all
filings of tax returns, if any, on that presumption. Participants and
their beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of the Trust but shall
have mere unsecured contractual rights against the Company and the
Participating Subsidiaries. The Trust shall constitute an unfunded
arrangement and shall not affect the status of the Plan as an unfunded
plan under the Code.
<PAGE> 29
9.6 Governing Law
The Trust Agreement shall be construed according to the laws of
the State of Washington, without regard to conflict of law rules.
9.7 Severability
If any provision of the Trust Agreement shall be held illegal,
invalid or unenforceable for any reason, such provision shall not
affect the remaining parts hereof, but the Trust Agreement shall be
construed and enforced as if said provision had never been inserted
herein.
9.8 Headings
Headings and subheadings in the Trust Agreement are inserted for
reference only and are not to be considered in construction of the
provisions of the Trust.
IN WITNESS WHEREOF, the Company and the Trustee have caused the
Trust Agreement to be signed, and their seals affixed hereto, by their
authorized officers all as of the day, month and year first above
written.
THE BOEING COMPANY
By
-----------------------------
Its
-----------------------------
WACHOVIA BANK OF NORTH
CAROLINA, N.A.
By
-----------------------------
Its
-----------------------------
<PAGE> 30
STOCK PURCHASE AND RESTRICTION AGREEMENT
DATED AS OF
JULY 1, 1996
BETWEEN
THE BOEING COMPANY
AND
WACHOVIA BANK OF NORTH CAROLINA, N.A., AS
TRUSTEE
UNDER THE SHAREVALUE TRUST AGREEMENT DATED AS
OF
JULY 1, 1996
<PAGE> 31
CONTENTS
ARTICLE I REPRESENTATIONS AND WARRANTIES OF THE
COMPANY ........................................................ 1
1.1 Organization .......................................... 2
1.2 Authority ............................................. 2
1.3 Issuance .............................................. 2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE
TRUSTEE ........................................................ 2
2.1 Organization .......................................... 2
2.2 Authority ............................................. 2
2.3 Investment Intention .................................. 3
ARTICLE III COVENANTS OF THE TRUSTEE ................................ 3
3.1 Restrictions on Purchase of Shares .................... 3
3.2 Restrictions on Transfer of Shares .................... 3
3.3 Right of Purchase ..................................... 4
3.4 Legends ............................................... 5
ARTICLE IV COVENANTS OF THE COMPANY ................................. 6
4.1 Registration of Common Stock .......................... 6
ARTICLE V MISCELLANEOUS ............................................. 7
5.1 Binding Effect ........................................ 7
5.2 Governing Law ......................................... 7
5.3 Notices ............................................... 7
5.4 Amendments; Counterparts .............................. 8
5.5 Headings .............................................. 8
<PAGE> 32
INDEX OF DEFINITIONS
--------------------
The meaning of each of the following terms as used in this
Agreement can be found where referenced below:
Company First Paragraph
Composite List Section 3.3
Exchange Act Section 3.1
Offer Notice Section 3.3
Program First Paragraph
Securities Act Section 3.2
Shares Recital C
Trust Recital A
Trust Agreement First Paragraph
Trustee First Paragraph
<PAGE> 33
STOCK PURCHASE AND RESTRICTION AGREEMENT
This Stock Purchase and Restriction Agreement (this "Agreement")
is made effective as of July 1, 1996 between The Boeing Company, a
Delaware corporation (the "Company"), and Wachovia Bank of North
Carolina, N.A. (the "Trustee"), in its representative capacity as
trustee under the ShareValue Trust Agreement effective as of July 1,
1996, with the Company (the "Trust Agreement"), which is included in
The Boeing Company ShareValue Program (the "Program").
RECITALS
A. Pursuant to the Trust Agreement, the Company has established
a trust (the "Trust") to fund The Boeing Company ShareValue Plan, which
is included in the Program. The Trust is an irrevocable grantor trust
established under the laws of the State of Washington with the full
legal right, power and authority to acquire, own, transfer and dispose
of shares of the Company's stock and other assets.
B. Pursuant to the Trust Agreement, the Company shall, on July 1,
1996 or within 30 days thereafter, deposit in the Trust (i) shares of
the Company's Common Stock, par value $5 per share (the "Common
Stock"), or (ii) cash that the Trustee shall use to purchase Common
Stock, or (iii) a combination of Common Stock and cash that the
Trustee shall use to purchase Common Stock, all such Common Stock and
cash to be held, administered and disposed of by the Trustee as
provided in the Trust Agreement.
C. The parties hereto desire to provide for the purchase of
such shares of Common Stock by the Trustee and to restrict the sale,
assignment, transfer, pledge or other disposition by the Trust of any
such shares of Common Stock and any other shares of Common Stock that
the Trustee may otherwise acquire for the Trust (collectively, the
"Shares") and to provide the Trust certain rights and obligations in
respect thereto as hereinafter provided.
NOW THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the parties hereto agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Trustee as follows:
<PAGE> 34
1.1 Organization
The Company is a corporation validly existing and in good
standing under the laws of the State of Delaware, with corporate power
and authority to execute, deliver and perform this Agreement and the
Trust Agreement and the transactions contemplated hereby and thereby.
1.2 Authority
The Program has been duly authorized by the Company, and this
Agreement and the Trust Agreement have been duly authorized, executed
and delivered by the Company and, assuming, in the case of this
Agreement and the Trust Agreement, the due authorization, execution
and delivery thereof by the Trustee, constitute valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights
generally, by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law) or
by an implied covenant of good faith and fair dealing.
1.3 Issuance
Any Shares deposited by the Company in the Trust will, when so
deposited, be duly authorized, validly issued, fully paid and
nonassessable.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE TRUSTEE
The Trustee represents and warrants to the Company as follows:
2.1 Organization
The Trustee is a national banking association validly existing
and in good standing under the laws of the United States of America
and has all requisite corporate and trust power and authority to
execute, deliver and perform the Trust Agreement, this Agreement and
the transactions contemplated hereby or thereby.
2.2 Authority
The execution, delivery and performance of this Agreement by the
Trustee on behalf of the Trust have been duly authorized by all
necessary action on the part of the Trustee. This Agreement and the
Trust Agreement have been duly executed and delivered by the Trustee
on behalf of the Trust and, assuming due authorization, execution and
delivery by the Company, this Agreement and the Trust Agreement
<PAGE> 35
constitute valid and legally binding obligations of the Trustee,
enforceable in accordance with their terms, except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, by general equitable principles
(regardless of whether such enforceability is considered in a
proceeding in equity or at law) or by an implied covenant of good
faith and fair dealing.
2.3 Investment Intention
The Trustee represents and warrants that it is holding the Shares
solely for the account of the Trust for the purpose of investment and
not with a view to or for sale in connection with any distribution
thereof. The Trustee understands and acknowledges that the allocation,
acquisition, holding and distribution of Shares are governed by the
terms of the Trust Agreement and the Program, and that the Trust
Agreement and the Program contemplate distributions of Shares to
participants and beneficiaries of the Program from time to time.
ARTICLE III
COVENANTS OF THE TRUSTEE
The Trustee hereby covenants and agrees with the Company as
follows:
3.1 Restrictions on Purchase of Shares
The Trustee agrees that it will as soon as practicable after
receipt of any cash deposited in the Trust by the Company or any other
person or entity invest such cash in Common Stock. The Trustee
understands and acknowledges that for purposes of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), it may be
considered an agent of the Company in effecting such purchases and
therefore agrees to comply in making such purchases with all the
requirements of Rule 10b-18 under the Exchange Act or any successor
rule or any other rule under the Exchange Act governing such
purchases.
3.2 Restrictions on Transfer of Shares
The Trustee understands and acknowledges that (a) any Shares
acquired directly or indirectly from the Company in a transaction that
is not registered under the Securities Act of 1933, as amended (the
"Securities Act"), would constitute "restricted securities" within the
meaning of Rule 144(a)(3) under the Securities Act and (b) the Trust
may be deemed to be an "affiliate" of the Company within the meaning
of Rule 144(a)(1) under the Securities Act. Accordingly, the Trustee
hereby agrees not to sell, assign, transfer, pledge or otherwise
dispose of, or grant options or warrants with respect to, any Shares
without registering or qualifying the same under
<PAGE> 36
the Securities Act and other applicable securities laws, except in a
transaction that is exempt from the registration requirements of such
laws. Prior to any transfer of Shares that are not registered under an
effective registration statement under the Securities Act (other than
a transfer pursuant to Rule 144 under the Securities Act or other
comparable rule or a transfer to the Company pursuant to Section 3.3
hereof), the Trustee will, in addition to the Offer Notice required by
Section 3.3 hereof, give the Company written notice describing the
manner and circumstances of the proposed transfer in sufficient detail
to enable the Company to concur that such transfer may be effected
without registration. In this connection, the Company may seek and
rely on an unqualified written opinion of counsel knowledgeable in
securities laws matters, addressed to the Company and in form and
substance reasonably satisfactory to the Company, to the effect that
the proposed transfer may be effected without registration under the
Securities Act and other applicable securities laws.)
3.3 Right of Purchase
The Trustee hereby agrees that, if at any time the Trustee has a
bona fide intention to sell, assign, transfer, pledge or otherwise
dispose of, or grant options or warrants with respect to, any Shares
then held in the Trust, the Trustee shall promptly so notify the
Company in writing (an "Offer Notice"), specifying the number of
Shares involved, which Offer Notice shall constitute an offer by the
Trustee to sell the Shares subject thereto to the Company (or its
designee) at a price per Share equal to the mean between the high and
low sales prices per share of the Common Stock, as the case may be, as
reported on the New York Stock Exchange--Composite Transactions on the
date of receipt of the Offer Notice by the Company. The procedures for
acceptance or refusal of the offer contained in the Offer Notice shall
be as follows:
(a) The Company shall notify the Trustee by the close of business
on the first business day after receipt by the Company of the Offer
Notice of its decision to accept, in whole or in part, or reject the
offer contained in the Offer Notice. In the case of an acceptance in
whole or in part, the Company shall certify that the Company has the
funds or will use its best efforts to obtain the funds necessary to
enable the Company to pay for (or shall designate a buyer with funds
to pay for) the Shares specified in its acceptance of such Offer
Notice and shall specify a closing date within five business days
after the date of such acceptance.
(b) If the Company accepts the offer contained in the Offer
Notice in whole or in part, the Company (or its designee) and the
Trust shall be legally obligated to consummate the sale contemplated
thereby on the closing date set forth in the acceptance notice;
provided, however, that the Company (or its designee) may not acquire
less than all the Shares specified in the Offer Notice if the Trustee,
in its sole
<PAGE> 37
discretion, determines that the remainder of such Shares could not be
sold or otherwise disposed of by the Trust upon the same or
substantially comparable terms.
(c) If the Company does not notify the Trustee within the time
specified that it elects to purchase all the Shares specified in the
Offer Notice, rejects such offer or otherwise fails to purchase all
such Shares, the Trustee shall be free during the 60-day period after
receipt by the Company of the Offer Notice (or, in the case of a sale
pursuant to Section 4.1 hereof, such longer period as may be necessary
to complete the sale in accordance therewith) to sell the number of
Shares specified in such Offer Notice that the Company does not elect
to purchase in accordance with the terms of this Agreement.
(d) If the Trustee does not complete such sale within the period
contemplated by Section 3.3(c) hereof, the provisions of this Section
3.3 shall again apply and no sale or sales of Shares by the Trustee
shall be made otherwise than in accordance with the terms of this
Agreement.
3.4 Legends
Each certificate representing Shares (if acquired directly or
indirectly from the Company) shall be submitted to the Company for
imprinting legends thereon in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAW, AND MAY BE OFFERED OR SOLD
ONLY PURSUANT TO REGISTRATION UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH
REGISTRATION.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF THE STOCK PURCHASE AND RESTRICTION AGREEMENT, DATED
AS OF JULY 1, 1996, BETWEEN THE COMPANY AND WACHOVIA BANK OF
NORTH CAROLINA, N.A., AS TRUSTEE, AND NEITHER THIS CERTIFICATE
NOR THE SHARES REPRESENTED BY IT ARE ASSIGNABLE OR OTHERWISE
TRANSFERABLE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH
AGREEMENT, A COPY OF WHICH MAY BE OBTAINED FROM THE SECRETARY OF
THE COMPANY."
<PAGE> 38
Such legends may be removed from any certificate representing Shares
covered by an effective registration statement filed pursuant to
Section 4.1 hereof or that the Trustee has sold pursuant to Rule 144
under the Securities Act or other comparable rule.
ARTICLE IV
COVENANTS OF THE COMPANY
The Company hereby covenants and agrees with the Trustee as
follows:
4.1 Registration of Common Stock
The Company will, as promptly as reasonably practicable after
written request by the Trustee to register the Shares under the
Securities Act, prepare and file at the Company's expense a
registration statement with the Securities and Exchange Commission
sufficient to permit the public offering of such number of Shares as
shall be necessary, in the opinion of counsel to the Trustee, for the
Trustee to carry out its responsibilities under the Trust Agreement,
and the Company will use its reasonable best efforts in all matters
necessary or advisable to cause such registration statement to become
effective as promptly as practicable and to remain effective for a
reasonable period, all to the extent requisite to permit the sale or
other disposition of such Shares. The Company shall also use its
reasonable best efforts to register or qualify the Shares so
registered under the state securities ("blue sky") laws of such
jurisdictions within the United States as the Trustee may reasonably
request; provided, however, that the Company shall not be required to
file any general consent to service of process or to qualify as a
foreign corporation or as a dealer or to subject itself to taxation in
any jurisdiction in which it is not otherwise so subject in connection
with state blue sky or securities qualification.
ARTICLE V
MISCELLANEOUS
5.1 Binding Effect
This Agreement shall be binding on and inure to the benefit of
and be enforceable against the parties hereto and their respective
successors.
5.2 Governing Law
This Agreement shall in all respects be governed by, and enforced
and interpreted in accordance with, the substantive laws of the State
of Washington as applied to contracts made and performed within the
State of Washington without regard to principles of conflicts of law.
<PAGE> 39
5.3 Notices
All notices, consents, requests, instructions or other
communications provided for herein shall be in writing and shall be
delivered personally or sent by certified or registered mail, postage
prepaid, or delivered by a reputable overnight courier service with
charges prepaid, or transmitted by telegram or facsimile, and
addressed as follows:
If to the Company: The Boeing Company
7755 East Marginal Way
Seattle, WA 98108
Attn: Corporate Secretary
MS 10-13
If to the Trustee: Wachovia Bank of North Carolina, N.A.
Employee Benefit Trust Service
301 North Main Street
Winston-Salem, NC 27150-3099
Attn: John Smith
Either party may change the address to which notices are to be
addressed by giving the other party notice in the manner herein set
forth. Notice shall be deemed given (a) on the date of delivery or
transmission if personally delivered or transmitted by telegram or
facsimile, (b) on the next business day following delivery to a
reputable overnight courier, and (c) on the third business day
following the date mailed.
5.4 Amendments; Counterparts
This Agreement may be amended or modified only by written
instrument signed by the Company and the Trustee. This Agreement may
be executed in counterparts, each of which shall be deemed an original
and all of which, taken together, shall constitute one agreement.
5.5 Headings
Section and Article headings used in this Agreement have no legal
significance and are used solely for convenience of reference.
IN WITNESS WHEREOF, the Company and the Trustee have executed
this Agreement as of the date set forth in the first paragraph.
THE BOEING COMPANY
By
------------------------------
Its
------------------------------
WACHOVIA BANK OF NORTH
CAROLINA, N.A., TRUSTEE
By
------------------------------
Its
------------------------------
<PAGE> 1
Exhibit 15.1
October 25, 1996
The Boeing Company
Seattle, Washington
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of The Boeing Company and subsidiaries for the periods ended March
31, 1996 and 1995 and June 30, 1996 and 1995 as indicated in our reports dated
April 29, 1996 and August 1, 1996, respectively; because we did not perform an
audit, we express no opinion on that information.
We are aware that our reports referred to above, which were included in your
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and June
30, 1996, are being incorporated by reference in the Registration Statement on
Form S-4 of The Boeing Company.
We also are aware that the aforementioned reports, pursuant to Rule 436(c)
under the Securities Act of 1933, are not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Seattle, Washington
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement on
Form S-4 of The Boeing Company ("Boeing'') with respect to shares of Common
Stock, par value $5 per share, of Boeing (including the associated Preferred
Stock Purchase Rights) of our reports dated January 25, 1996, appearing in and
incorporated by reference in the Annual Report on Form 10-K of Boeing for the
year ended December 31, 1995 and to the reference to us under the heading
"Experts'' in the Proxy Statements-Prospectus, which is part of the
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Seattle, Washington
October 25, 1996
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement on Form S-4 of The Boeing
Company ("Boeing") with respect to shares of Common Stock, par value $5 per
share, of Boeing (including the associated Preferred Stock Purchase Rights) of
our report dated September 16, 1996 relating to the balance sheet of New
Rockwell International Corporation and our reports dated July 31, 1996 relating
to the consolidated financial statements of Rockwell International Corporation
("Rockwell") and the financial statements of the Aerospace and Defense business
of Rockwell, all such reports appearing in the Proxy Statement-Prospectus,
which is a part of this Registration Statement and to the reference to us under
the heading "Experts" in such Proxy Statement-Prospectus.
/s/ DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
October 25, 1996
<PAGE> 1
Exhibit 23.7
CONSENT OF MORGAN STANLEY & CO. INCORPORATED
October 28, 1996
New Rockwell International Corporation
2201 Seal Beach Blvd.
Seal Beach, California 90740
The Boeing Company
7755 East Marginal Way South
Seattle, Washington 98108
Dear Sirs:
We hereby consent to the inclusion in both the Registration Statement
of New Rockwell International Corporation ("New Rockwell") on Form S-4, with
respect to the shares of Common Stock, par value $1 per share, and Class A
Common Stock, par value $1 per share, of New Rockwell (including the associated
Preferred Share Purchase Rights), and the Registration Statement of The Boeing
Company ("Boeing") on Form S-4, with respect to the shares of Common Stock,
$5.00 par value, of Boeing (including the associated Preferred Stock Purchase
Rights), of our opinion letter appearing as Annex I to the Proxy
Statement-Prospectus which is a part of the Registration Statements, and to
the references to our firm name therein. In giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations adopted by the Securities and Exchange Commission
thereunder nor do we admit that we are experts with respect to any part of such
Registration Statements within the meaning of the term "experts" as used in the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
<PAGE> 1
Exhibit 23.8
CONSENT OF DILLON, READ & CO. INC.
We hereby consent to the use of Appendix II containing our opinion
letter dated July 31, 1996 to the Board of Directors of Rockwell International
Corporation in the Proxy Statement-Prospectus constituting a part of both the
Registration Statement on Form S-4 of New Rockwell International Corporation
("New Rockwell") with respect to shares of Common Stock, par value $1 per
share, and Class A Common Stock, par value $1 per share, of New Rockwell
(including the associated Preferred Share Purchase Rights) and the Registration
Statement on Form S-4 of The Boeing Company ("Boeing") with respect to shares
of Common Stock, $5.00 par value, of Boeing (including the associated Preferred
Stock Purchase Rights) and to the references to our firm in such Proxy
Statement-Prospectus. In giving this consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
DILLON, READ & CO. INC.
New York, New York
October 28, 1996
