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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June 30, 1997
Commission file number 1-442
THE BOEING COMPANY
7755 East Marginal Way South
Seattle, Washington 98108
Telephone: (206) 655-2121
State of incorporation: Delaware
IRS identification number: 91-0425694
The registrant has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months and has been subject to such filing requirements for the past 90
days.
As of August 8, 1997, there were 1,001,257,711 shares of common stock,
$5.00 par value, issued and outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE BOEING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET EARNINGS
(Dollars in millions except per share data)
(Unaudited)
Six months ended Three months ended
June 30 June 30
- ------------------------------------------------------------------------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------
Sales and other operating revenues $16,607 $10,568 $9,289 $6,275
Costs and expenses 15,633 9,930 8,756 5,791
- ------------------------------------------------------------------------------
Earnings from operations 974 638 533 484
Other income, principally interest 165 128 91 71
Interest and debt expense (119) (75) (58) (34)
ShareValue Trust appreciation change (2) (100)
- ------------------------------------------------------------------------------
Earnings before federal taxes on income 1,018 691 466 521
Federal taxes on income 307 104 132 53
- ------------------------------------------------------------------------------
Net earnings $ 711 $ 587 $ 334 $ 468
==============================================================================
Earnings per share $1.02 $ .85 $ .48 $ .68
==============================================================================
Cash dividends per share $ .28 $ .26 $ .14 $ .14
==============================================================================
See notes to consolidated financial statements.
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THE BOEING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollars in millions except per share data)
June 30 December 31
1997 1996
- ------------------------------------------------------------------------------
(Unaudited)
Assets
- ------------------------------------------------------------------------------
Cash and cash equivalents $ 5,413 $ 4,375
Short-term investments 968 883
Accounts receivable 2,056 1,988
Current portion of customer financing 193 150
Deferred income taxes 368 745
Inventories, net of advances and progress billings 7,497 6,939
- ------------------------------------------------------------------------------
Total current assets 16,495 15,080
Customer financing 508 648
Property, plant and equipment, net 6,814 6,813
Deferred income taxes 511 415
Goodwill 2,437 2,478
Prepaid pension expense 1,910 1,708
Other assets 186 112
- ------------------------------------------------------------------------------
$28,861 $27,254
==============================================================================
Liabilities and Shareholders' Equity
- ------------------------------------------------------------------------------
Accounts payable and other liabilities $ 8,383 $ 7,306
Advances in excess of related costs 1,002 973
Income taxes payable 404 350
Current portion of long-term debt 316 13
- ------------------------------------------------------------------------------
Total current liabilities 10,105 8,642
Accrued retiree health care 3,694 3,691
Long-term debt 3,619 3,980
Shareholders' equity:
Common shares, par value $5.00 -
1,200,000,000 shares authorized;
Shares issued - 721,780,808 and 720,875,336 3,609 1,802
Additional paid-in capital 1,941 1,951
Treasury shares, at cost - 20,747 and 30,440 (1) (1)
Retained earnings 7,152 8,447
ShareValue Trust shares - 26,249,537 and 26,119,702 (1,258) (1,258)
- ------------------------------------------------------------------------------
Total shareholders' equity 11,443 10,941
- ------------------------------------------------------------------------------
$28,861 $27,254
==============================================================================
See notes to consolidated financial statements.
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THE BOEING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)
Six months ended
June 30
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
Cash flows - operating activities:
Net earnings $ 711 $ 587
Adjustments to reconcile net earnings to net cash
provided by operating activities:
ShareValue Trust appreciation change 2
Depreciation and amortization 600 496
Changes in assets and liabilities -
Short-term investments (85) (783)
Accounts receivable (68) 165
Inventories, net of advances and progress billings (558) 668
Accounts payable and other liabilities 1,063 123
Advances in excess of related costs 29 150
Income taxes payable and deferred 335 101
Other assets (276) (312)
Accrued retiree health care 3 62
- ------------------------------------------------------------------------------
Net cash provided by operating activities 1,756 1,257
- ------------------------------------------------------------------------------
Cash flows - investing activities:
Customer financing additions (99) (400)
Customer financing reductions 183 1,009
Property, plant and equipment, net additions (546) (363)
- ------------------------------------------------------------------------------
Net cash provided (used) by investing activities (462) 246
- ------------------------------------------------------------------------------
Cash flows - financing activities:
Long-term debt financing, net (40) (256)
Dividends paid (202) (183)
Treasury stock acquired, stock options exercised, net (14) 63
- ------------------------------------------------------------------------------
Net cash used by financing activities (256) (376)
- ------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,038 1,127
Cash and cash equivalents at beginning of year 4,375 3,730
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of 2nd quarter $5,413 $4,857
==============================================================================
See notes to consolidated financial statements.
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THE BOEING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 1 - Merger With McDonnell Douglas Corporation Subsequent to June 30, 1997
Effective August 1, 1997, McDonnell Douglas Corporation merged with the
Company through a stock-for-stock exchange in which 1.3 shares of Company
stock was issued for each share of McDonnell Douglas stock outstanding.
Approximately 279 million shares were issued in connection with the
merger. The combined company will operate in the name of The Boeing
Company.
The merger will be accounted for as a pooling-of-interests. Accordingly,
except for adjustments to reflect conformed accounting policies
(principally associated with applying the Company's method of revenue
recognition for fixed-price contracts), the historical results of
operations of the two companies will be combined, and no acquisition
revaluations or goodwill will be recorded. Combined reporting of the
merged Company will be effective beginning third quarter 1997.
The merger was subject to approval by the United States Federal Trade
Commission and the European Commission. Future requirements or
obligations associated with obtaining these approvals are not expected to
have a material impact on future operations or liquidity of the Company.
Note 2 - Consolidated Financial Statements
The consolidated interim financial statements included in this report have
been prepared by the Company without audit. In the opinion of management,
all adjustments necessary for a fair presentation are reflected in the
interim financial statements. Such adjustments are of a normal and
recurring nature. The results of operations for the period ended June 30,
1997, are not necessarily indicative of the operating results for the full
year. The interim financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the
Company's 1996 Annual Report.
Note 3 - Earnings per Share
Net earnings per share are computed based on the weighted average number
of shares outstanding excluding the outstanding shares held by the
ShareValue Trust (694.9 million and 690.7 million for the six-month
periods ended June 30, 1997 and 1996). There is no material dilutive
effect on net earnings per share due to common stock equivalents. See
Note 11 regarding the ShareValue Trust.
Statement of Financial Accounting Standards No. 128, Earnings per Share,
is required to be implemented in financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier
adoption is not permitted. The Company does not anticipate that adoption
of this Statement will have a material effect on earnings per share.
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Note 4 - Federal Taxes on Income
The federal income tax provision rate of 30.2% for the first six months of
1997 is lower than the statutory rate principally due to a 5.1% reduction
attributable to Foreign Sales Corporation tax benefits. For the first six
months of 1996, the federal income tax provision rate was 15.0%,
reflecting reductions from the statutory rate of 13.8% for a $95 one-time
tax benefit related to prior years' investment tax credits and a 4.9%
reduction attributable to Foreign Sales Corporation tax benefits.
Net income tax payments (refunds) were $(53) and $31 for the six months
ended June 30, 1997 and 1996.
Note 5 - Accounts Receivable
Accounts receivable consisted of the following:
June 30 December 31
1997 1996
- ------------------------------------------------------------------------------
Accounts receivable under U.S. Government contracts $1,476 $1,515
Accounts receivable from commercial
and foreign military customers 580 473
- ------------------------------------------------------------------------------
$2,056 $1,988
==============================================================================
Note 6 - Inventories
Inventories consisted of the following:
June 30 December 31
1997 1996
- ------------------------------------------------------------------------------
Commercial jet transport programs
and long-term contracts in progress $17,009 $15,378
Commercial spare parts, general stock
materials and other 1,236 1,150
- ------------------------------------------------------------------------------
18,245 16,528
Less advances and progress billings (10,748) (9,589)
- ------------------------------------------------------------------------------
$ 7,497 $ 6,939
==============================================================================
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Note 7 - Customer Financing
Long-term customer financing, less current portion, consisted of the
following:
June 30 December 31
1997 1996
- ------------------------------------------------------------------------------
Notes receivable $ 175 $ 253
Investment in sales-type leases 185 237
Operating lease aircraft, at cost,
less accumulated depreciation of $89 and $77 248 258
- ------------------------------------------------------------------------------
608 748
Less valuation allowance (100) (100)
- ------------------------------------------------------------------------------
$ 508 $ 648
==============================================================================
Financing for aircraft is collateralized by security in the related asset,
and historically the Company has not experienced a problem in accessing
such collateral when necessary.
Note 8 - Accounts Payable and Other Liabilities
Accounts payable and other liabilities consisted of the following:
June 30 December 31
1997 1996
- ------------------------------------------------------------------------------
Accounts payable $3,997 $3,554
Accrued compensation and employee benefit costs 1,756 1,597
Lease and other deposits 784 399
Other 1,846 1,756
- ------------------------------------------------------------------------------
$8,383 $7,306
==============================================================================
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Note 9 - Long-Term Debt
Long-term debt consisted of the following:
June 30 December 31
1997 1996
- ------------------------------------------------------------------------------
Unsecured debentures and notes:
7 5/8% due Feb. 17, 1998 $ 303 $ 306
8 7/8% due Sep. 15, 1999 314 319
8 3/8% due Feb. 15, 2001 183 212
6 3/4% due Sep. 15, 2002 298 297
6.35% due Jun. 15, 2003 300 299
7 7/8% due Feb. 15, 2005 209 210
6 5/8% due Jun. 1, 2005 291 290
8 1/10% due Nov. 15, 2006 175 175
8 3/4% due Aug. 15, 2021 398 398
7.95% due Aug. 15, 2024 300 300
7 1/4% due Jun. 15, 2025 247 247
8 3/4% due Sep. 15, 2031 248 248
8 5/8% due Nov. 15, 2031 173 173
7.50% due Aug. 15, 2042 100 100
7 7/8% due Apr. 15, 2043 173 173
6 7/8% due Oct. 15, 2043 125 125
Other notes 98 121
Less current portion (316) (13)
- ------------------------------------------------------------------------------
$3,619 $3,980
==============================================================================
The Company has $2,000 currently available under credit line agreements
with a group of commercial banks. Under these agreements, there are
compensating balance arrangements, and retained earnings totaling $2,122
are free from dividend restrictions. The Company has complied with the
restrictive covenants contained in debt agreements.
Total debt interest, including amounts capitalized, was $151 and $103 for
the six-month periods ended June 30, 1997 and 1996, and interest payments
were $157 and $108.
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Note 10 - Shareholders' Equity
Changes in shareholders' equity for the six-month periods ended June 30,
1997 and 1996, consisted of the following:
(Shares in thousands - all numbers of shares reflect 1997 2-for-1 stock split)
1997 1996
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
Common Stock
Beginning balance - January 1 720,875 $ 1,802 698,514 $ 1,746
Shares issued for incentive stock plans 906 3
Stock split, 2-for-1 1,804
- ------------------------------------------------------------------------------
Ending balance - June 30 721,781 $ 3,609 698,514 $ 1,746
==============================================================================
Additional paid-in capital
Beginning balance - January 1 $ 1,951 $ 615
Treasury shares issued for incentive
stock plans, net (42) (5)
Tax benefit related to incentive
stock plans 25 34
Stock appreciation rights expired or
surrendered 5 6
ShareValue Trust market value adjustment 2
- ------------------------------------------------------------------------------
Ending balance - June 30 $ 1,941 $ 650
==============================================================================
Treasury stock
Beginning balance - January 1 30 $ (1) 10,608 $ (209)
Treasury shares issued for incentive
stock plans, net (1,228) 99 (5,522) 110
Treasury shares acquired 1,216 (99) 1,967 (82)
Shares transferred from ShareValue Trust 3
- ------------------------------------------------------------------------------
Ending balance - June 30 21 $ (1) 7,053 $ (181)
==============================================================================
Retained earnings
Beginning balance - January 1 $ 8,447 $7,746
Stock split, 2-for-1 (1,804)
Net earnings 711 587
Cash dividends declared (202) (194)
- ------------------------------------------------------------------------------
Ending balance - June 30 $ 7,152 $ 8,139
==============================================================================
ShareValue Trust
Beginning balance - January 1 26,120 $(1,258) 0 $ 0
Shares transferred to treasury stock (3)
Shares acquired from dividend reinvestment 133
Market value adjustment (2)
Accrual of distributable appreciation 2
- ------------------------------------------------------------------------------
Ending balance - June 30 26,250 $(1,258) 0 $ 0
==============================================================================
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The total number of shares of authorized stock was increased from 610 million
to 1,220 million as a result of approval by shareholders at the Company's
Annual Meeting on April 28, 1997, and a 2-for-1 stock split was effective as
of the close of business June 6, 1997.
Note 11 - ShareValue Trust
In July 1996, the Company established a self-sufficient, irrevocable 12-
year trust, the ShareValue Trust, designed to allow substantially all
employees to share in the results of increasing shareholder value over the
long term. As of June 30, 1997, the Trust had acquired 26,025,460 shares
of the Company's common stock, equivalent to $1,150 of market value based
upon a stock price of $44 3/16, which was the average price per share on
June 28, 1996, plus 224,077 shares acquired from reinvested dividends.
Shares of common stock held by the Trust are legally outstanding and
entitled to receive dividends. Dividends received by the Trust are
reinvested in additional shares of common stock. If the term of the Trust
is not extended beyond the initial irrevocable 12-year period, any
residual trust balance will revert to the Company.
Two investment periods began on July 1, 1996. One period has a duration
of two years and the other has a duration of four years. Each period was
allocated a fund of one-half of the total shares. Distributions from the
ShareValue Trust to employees in the form of common stock will be made to
the extent the market value of the ShareValue Trust has increased above a
pre-defined threshold amount of 3% per annum at the end of that fund's
investment period. The ShareValue Trust bears its own nominal
administrative costs paid out of the Trust assets. At the end of each
investment period, a new, four-year investment period will begin,
resulting in overlapping periods with potential distributions every two
years. The Trust fund market value after distribution will be the base
from which the distributable market value appreciation over the threshold
for the succeeding investment period will be determined.
Although the obligation to make these distributions is solely that of the
Trust and no assets of the Company will be required in the future to
satisfy the Trust distribution obligations, the change in Trust
appreciation above the threshold amounts for the respective investment
periods is charged or credited to earnings based on the Trust valuation as
of the end of the reporting period. ShareValue Trust charges and credits
reflected in earnings will not impact the Company's current or future cash
flow. As of June 30, 1997, the increased value of both current funds
exceeded the thresholds by $135.
The shares held by the ShareValue Trust, recorded in the contra equity
account "ShareValue Trust," are legally outstanding for registration
purposes and dividend payments. The ShareValue Trust is adjusted to
market value at each reporting period, with an offsetting adjustment to
additional paid-in capital.
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As a result of the merger of McDonnell Douglas Corporation with a wholly-
owned subsidiary of the Company effective August 1, 1997, McDonnell
Douglas became a wholly-owned subsidiary of the Company. The
approximately 60,000 employees of the McDonnell Douglas subsidiary are not
currently participants in the ShareValue Trust. It is currently
anticipated that these employees will become participants effective
January 1, 1998. Additional funding of the ShareValue Trust is subject to
approval by the Company's Board of Directors. The ShareValue Trust
currently has approximately 150,000 active participants.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Note: All "forward-looking" information in this Management's Discussion
and Analysis of Financial Condition and Results of Operations is without
consideration of the merger with McDonnell Douglas Corporation, which was
effective August 1, 1997. Reporting for the combined Company will be
effective beginning third quarter 1997.
Sales of $16.6 billion for the first six months of 1997 were 57% higher
than sales for the comparable period of 1996. A total of 160 commercial
jet aircraft were delivered, compared with 102 in the first six months of
1996. Approximately 340-350 commercial aircraft deliveries are currently
projected for the full year 1997, compared with 218 in 1996. Total sales
for 1997 are projected to be in the $34 billion range, compared with $22.7
billion in 1996.
Sales by business segment were as follows ($ in millions):
First Six Months Second Quarter
---------------- --------------
1997 1996 1997 1996
---- ---- ---- ----
Commercial aircraft $12,551 $ 7,738 $7,215 $4,722
Defense and space 4,056 2,830 2,074 1,553
------- ------- ------ ------
Total $16,607 $10,568 $9,289 $6,275
======= ======= ====== ======
Sales for 1997 include the operations of the defense and space units
acquired from Rockwell International Corporation in December 1996.
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Commercial jet transport deliveries were as follows:
First Six Months Second Quarter
---------------- --------------
Model 1997 1996 1997 1996
----- ---- ---- ---- ----
737 60 38 35 23
747 22 11 12 8
757 24 19 12 12
767 23 19 12 12
777 31 15 21 7
---- ---- ---- ----
Total 160 102 92 62
==== ==== ==== ====
==============================================================================
Forward-Looking Information Is Subject to Risk and Uncertainty
Certain statements in the financial discussion and analysis by management
contain "forward-looking" information that involves risk and uncertainty,
including projections for deliveries, sales, research and development
expense, and other trend projections. Actual future results and trends
may differ materially depending on a variety of factors, including the
Company's successful execution of internal performance plans; future
integration of McDonnell Douglas Corporation; product performance risks
associated with regulatory certifications of the Company's commercial
aircraft by the U.S. Government and foreign governments; other regulatory
uncertainties; collective bargaining labor disputes; performance issues
with key suppliers and subcontractors; governmental export and import
policies; factors that result in significant and prolonged disruption to
air travel worldwide; global trade policies; worldwide political stability
and economic growth; changing priorities or reductions in the U.S.
Government defense and space budgets; termination of government contracts
due to unilateral government action or failure to perform; and legal
proceedings.
=============================================================================
Net earnings before and after the effect of the ShareValue Trust (SVT)
accounting were as follows ($ in millions except per share data):
First Six Months Second Quarter
---------------- --------------
1997 1996 1997 1996
---- ---- ---- ----
($ in millions except per share data)
Before SVT accounting:
Net earnings $ 712 $ 587 $ 399 $ 468
Earnings per share $ .99 $ .85 $ .55 $ .68
Average shares (millions) 721.1 690.7* 721.2 692.0*
After SVT accounting:
Net earnings $ 711 $ 587 $ 334 $ 468
Earnings per share $1.02 $ .85 $ .48 $ .68
Average shares (millions) ** 694.9 690.7* 695.0 692.0*
* Adjusted for 2-for-1 split effective June 6, 1997.
** Excludes outstanding shares held by the ShareValue Trust.
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The first-half 1996 earnings included income of $176 million or $.25 per
share for the settlement of certain defense and space contract issues and
the recognition of prior years' investment tax credits. The higher net
earnings for the first six months of 1997 compared with the same period of
1996, excluding the contract settlements and prior years' investment tax
credits, were primarily attributed to the significantly higher level of
commercial aircraft deliveries and the inclusion in 1997 of the operations
of the defense and space units acquired from Rockwell International
Corporation in December 1996. Partially offsetting the increased income
associated with the higher sales in 1997 were higher research and
development expense, joint venture development expense in the defense and
space business units, and a higher effective income tax rate.
The overall operating earnings margin, exclusive of research and
development expense and joint venture development costs expensed as
incurred ($40 million in 1997, compared with $10 million in 1996), was
10.5% for the first half of 1997, compared with 10.7% for the same period
in 1996, excluding the impact of the settlement of contract issues. The
1997 margin has been impacted by the model mix of commercial aircraft
deliveries that included 31 777s in the first six months of 1997, compared
with 15 777s in the first half of 1996, as well as increased pricing
pressure and near-term production problems associated with increased
commercial aircraft production rates. Margins for the balance of 1997 are
expected to be somewhat lower due to 777 deliveries and the initial
deliveries of the 737-700 in the fourth quarter. New commercial jet
aircraft programs, such as the 777 and 737-700 programs, normally have
lower operating profit margins due to initial tooling amortization and
higher unit production costs in the early years of a program.
Research and development expense for the first half of 1997 was $735
million or $138 million higher than in the comparable period of 1996.
Full development of the 767-400ER, a stretched version of the 767-300ER,
commenced with the Delta Airlines order for first delivery in the year
2000. Increased efforts have been focused on the 757-300, a stretched
derivative of the 757-200, which will be delivered to launch customer
Condor-Flugdienst in early 1999. The 757-300 will have the shortest
design-to-delivery time of any Boeing derivative aircraft program.
Development continues on schedule for the 737 derivatives (737-600,-700,-
800). Certification and first delivery of the 737-700 and the 737-800 are
planned for the fourth quarter of 1997 and first quarter of 1998,
respectively. In addition, the Defense & Space Group, including the
business units acquired from Rockwell, had a higher level of development
spending on commercial space and communication activities compared with
prior periods.
Based on current programs and schedules, research and development expense
for the full year 1997 is projected to be in the $1.4 billion range,
compared with $1.2 billion in 1996.
The higher effective income tax rate for the first half of 1997, compared
with the same period of 1996, was primarily due to the recognition of a
one-time tax benefit of $95 million related to prior years' investment tax
credits in the first half of 1996. Without the investment tax credit
benefit, the effective income tax rate would have been 28.8% for the first
half of 1996, compared with 30.2% for the first half of 1997. The
effective tax rate for the first half of 1997 reflects the current
estimated annualized rate for 1997.
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The Company recently announced planned 1998 production rates for its
commercial aircraft programs. At the beginning of 1997, commercial
aircraft production was 22.5 aircraft per month. Production is currently
over 30 aircraft per month, and is scheduled to increase to 43 per month
by the second quarter of 1998. Production will continue to be adjusted to
respond to customer orders.
The rapid production rate buildup has resulted in a substantial increase
in employment, material, and fabrication demand at the Company and its
suppliers. Skill training requirements and parts shortages have created
out-of-sequence work at Company facilities and at supplier locations.
Overtime in engineering and production areas continues at high levels. As
a result, the commercial aircraft business is experiencing a near-term
decline in productivity. For the longer term, progress continues to be
made in developing and implementing design and production systems to
improve efficiency and reduce cycle times.
The Defense & Space Group's largest program, International Space Station
Alpha, projected to represent approximately $1.4 billion of 1997 revenues,
has experienced some technical, schedule and funding difficulties.
Operational capability is now scheduled for August 1999. However, key
hardware elements and testing are on track to support the first U.S.
launch scheduled for July 1998. The station, being built by Boeing with
international participants, will represent a state-of-the-art, earth-
orbiting scientific laboratory dedicated to zero-gravity research.
During the second quarter, the F-22 fighter aircraft was unveiled at
Lockheed Martin's final assembly plant in Marietta, Georgia. Built by the
team of Boeing, Lockheed Martin, and Pratt & Whitney, the F-22 is regarded
as the most advanced fighter in the world. The roll-out aircraft is the
first of nine F-22As being built for the U.S. Air Force under the current
Engineering and Manufacturing Development contract.
By the end of the second quarter, commitments for 32 Bell Boeing 609 Civil
Tiltrotor aircraft had been received by the Bell Boeing joint venture.
The Bell Boeing 609 will carry six to nine passengers at twice the speed
and three to five times the range of a helicopter, with the same vertical
takeoff and landing capabilities.
Liquidity and Capital Resources
The Company's financial liquidity position remains strong, with cash and
short-term investments totaling $6.4 billion at June 30, 1997, and total
long-term debt at 26% of total shareholders' equity plus debt. The
Company continues to maintain its $2.0 billion revolving credit line.
14
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Backlog
Contractual backlog of unfilled orders (which excludes purchase options
and announced orders for which definitive contracts have not been
executed, and unobligated Government contract funding) was as follows
(dollars in billions):
June 30 March 31 Dec. 31
1997 1997 1996
------- -------- -------
Commercial aircraft $77.8 $79.8 $79.2
Defense and space 9.0 9.4 8.5
------- -------- -------
Total $86.8 $89.2 $87.7
======= ======== =======
Unobligated U.S. Government contract funding not included in backlog
totaled $10.6 billion at June 30, 1997, $9.2 billion at March 31, 1997,
and $9.0 billion at December 31, 1996.
REVIEW BY INDEPENDENT ACCOUNTANTS
The consolidated statement of financial position as of June 30, 1997, the
consolidated statements of net earnings for the six-month periods ended
June 30, 1997 and 1996, and the consolidated statements of cash flows for
the six-month periods ended June 30, 1997 and 1996, have been reviewed by
the registrant's independent accountants, Deloitte & Touche LLP, whose
report covering their review of the financial statements follows.
15
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INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors and Shareholders
The Boeing Company
Seattle, Washington
We have reviewed the accompanying consolidated statement of financial
position of The Boeing Company and subsidiaries as of June 30, 1997, the
related consolidated statements of net earnings for the three-month and
six-month periods ended June 30, 1997 and 1996, and the related
consolidated statements of cash flows for the six-month periods ended June
30, 1997 and 1996. These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with the standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying analytical
procedures to financial data and of making inquiries of persons
responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression of
an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial position of The Boeing
Company and subsidiaries as of December 31, 1996, and the related
consolidated statements of net earnings, shareholders' equity, and cash
flows for the year then ended (not presented herein); and in our report
dated January 23, 1997, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set
forth in the accompanying consolidated statement of financial position as
of December 31, 1996, is fairly stated, in all material respects, in
relation to the consolidated statement of financial position from which it
has been derived.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Seattle, Washington
July 21, 1997
16
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PART II - OTHER INFORMATION
Item 2. Changes in Securities
A Certificate of Amendment of Restated Certificate of Incorporation
was filed with the Secretary of State of Delaware on May 13, 1997.
This amendment effected the increase in the number of shares of
stock authorized to be issued (to 20 million shares of preferred
stock and 1.2 billion shares of common stock) that was approved by
vote of the shareholders at the Annual Meeting held on April 28,
1997.
The Rights issued on August 7, 1987, pursuant to the Stockholders
Rights Plan (the "Plan") expired at the close of business on August
7, 1997. Each Right entitled the registered holder to purchase from
the Company one one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $1.00 per share (the
"Preferred Stock"), under circumstances set forth in the Plan. The
Rights were attached to certificates for shares of the common stock,
par value of $5 each, of the Company and were transferred only with
such common stock certificates. No Preferred Stock has been issued.
A Certificate of Elimination of Series A Junior Participating
Preferred Stock was filed with the Secretary of State of Delaware on
August 13, 1997, eliminating Article Thirteenth of the Restated
Certificate of Incorporation, which authorized the issuance of the
Series A Junior Participating Preferred Stock.
Item 4. Submission of Matters to a Vote of Security Holders
On July 25, 1997, the Company held a Special Meeting of
Shareholders, at which the shareholders approved a management
proposal to issue up to 278,796,294 new shares of common stock to
the shareholders of McDonnell Douglas Corporation ("MDC") in
connection with the merger of a wholly-owned subsidiary of the
Company with and into MDC. The votes were as follows:
FOR AGAINST ABSTAIN
---------- ---------- ----------
446,046,279 1,969,174 2,166,420
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3) Articles of Incorporation and By-Laws.
(i) Certificate of Amendment of Restated Certificate
of Incorporation, filed with the Secretary of
State of Delaware on May 13, 1997. Filed
herewith.
(ii) Certificate of Elimination, filed with the
Secretary of State of Delaware on
August 13, 1997. Filed herewith.
(iii) Restated Certificate of Incorporation, filed with
the Secretary of State of Delaware on August
14, 1997. Filed herewith.
17
<PAGE> 18
(10) Material Contracts.
Management Contracts and Compensatory Plans.
(i) Employment Agreement with Harry C. Stonecipher
dated August 1, 1997. Filed herewith.
(15) Letter From Independent Accountants Regarding
Unaudited Interim Financial Information. Page 19.
(99) Additional Exhibits.
(i) Post-Merger Combined Statements of
Operations and Financial Position. Pages 20-24.
(b) Reports on Form 8-K
Reports on Form 8-K were filed to report, under Item 5,
events of the following dates:
July 1, 1997
July 21, 1997
July 23, 1997
July 25, 1997
July 30, 1997
Additionally, a report on Form 8-K was filed to report,
under Item 2, an event dated August 1, 1997.
- - - - - - -
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE BOEING COMPANY
--------------------
(Registrant)
August 14, 1997 /s/ Gary W. Beil
------------------- -----------------------------
(Date) Gary W. Beil
Vice President and Controller
18
<PAGE> 19
EXHIBIT (15)
Letter From Independent Accountants Regarding
Unaudited Interim Financial Information
The Boeing Company and Subsidiaries
The consolidated statement of financial position as of June 30, 1997, the
consolidated statements of net earnings for the six-month periods ended
June 30, 1997 and 1996, and the statements of cash flows for the six-month
periods ended June 30, 1997 and 1996, have been reviewed by the
registrant's independent accountants, Deloitte & Touche LLP, whose letter
regarding such unaudited interim financial information follows.
August 14, 1997
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 six-month periods ended June 30, 1997 and 1996, as indicated in our
report dated July 21, 1997; because we did not perform an audit, we
expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, is
incorporated by reference in Registration Statement Nos. 2-48576,
33-25332, 33-31434, 33-43854, 33-58798, 333-03191, 333-16363, 333-26867,
333-32461, 333-32499, 333-32491, and 333-32567 of The Boeing Company on
Form S-8.
We are also aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, is not considered a part of the
Registration Statements 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
19
<PAGE> 20
EXHIBIT (99)
Post-Merger Combined Statements of Operations and Financial Position
The Boeing Company and Subsidiaries
Consolidated Statements of Financial Position
Reflecting Merger Combination with McDonnell Douglas Corporation
(Dollars in millions except per share data)
(Unaudited)
June 30 December 31
1997 1996
- ------------------------------------------------------------------------------
Assets
- ------------------------------------------------------------------------------
Cash and cash equivalents $ 5,580 $ 5,469
Short-term investments 968 883
Accounts receivable 2,998 2,870
Current portion of customer financing 732 774
Deferred income taxes 986 1,362
Inventories, net of advances and progress billings 10,124 9,151
- ------------------------------------------------------------------------------
Total current assets 21,388 20,509
Customer financing and properties on lease 3,274 3,114
Property, plant and equipment, net 8,308 8,266
Deferred income taxes 122 143
Goodwill 2,437 2,478
Prepaid pension expense 3,295 3,014
Other assets 426 356
- ------------------------------------------------------------------------------
$39,250 $37,880
==============================================================================
Liabilities and Shareholders' Equity
- ------------------------------------------------------------------------------
Accounts payable and other liabilities $10,855 $ 9,901
Advances in excess of related costs 1,880 1,714
Income taxes payable 395 474
Short-term debt and current portion of long-term debt 575 637
- ------------------------------------------------------------------------------
Total current liabilities 13,705 12,726
Accrued retiree health care 4,803 4,800
Long-term debt 6,405 6,789
- ------------------------------------------------------------------------------
Total liabilities 24,913 24,315
Minority interest 63 63
Common stock less treasury shares 5,791 3,962
Retained earnings 9,780 10,820
Unearned compensation (39) (22)
ShareValue Trust (1,258) (1,258)
- ------------------------------------------------------------------------------
Total shareholders' equity 14,274 13,502
- ------------------------------------------------------------------------------
$39,250 $37,880
==============================================================================
See accompanying notes.
20
<PAGE> 21
EXHIBIT (99) (continued)
The Boeing Company and Subsidiaries
Consolidated Statements of Operations
Reflecting Merger Combination with McDonnell Douglas Corporation
(Dollars in millions except per share data)
(Unaudited)
Six months ended Three months ended
June 30 June 30
- ------------------------------------------------------------------------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------
Sales and other operating revenues $22,670 $16,467 $12,311 $9,420
Operating costs and expenses 19,199 13,636 10,511 7,766
General and administrative expense 948 789 496 431
Research and development expense 1,008 814 529 414
- ------------------------------------------------------------------------------
21,155 15,239 11,536 8,611
- ------------------------------------------------------------------------------
Earnings from operations 1,515 1,228 775 809
Other income, principally interest 215 165 112 86
Interest and debt expense (243) (199) (112) (97)
ShareValue Trust appreciation change (2) (100)
- ------------------------------------------------------------------------------
Earnings before income taxes 1,485 1,194 675 798
Income taxes 469 286 199 152
- ------------------------------------------------------------------------------
Net earnings $ 1,016 $ 908 $ 476 $ 646
==============================================================================
Earnings per share $1.05 $ .93 $ .49 $ .66
==============================================================================
See accompanying notes.
21
<PAGE> 22
EXHIBIT (99) (continued)
The Boeing Company and Subsidiaries
Consolidated Statements of Operations
Reflecting Merger Combination with McDonnell Douglas Corporation
(Dollars in millions except per share data)
(Unaudited)
- ------------------------------------------------------------------------------
Year ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------
Sales and other operating revenues $35,453 $32,960 $34,969
Operating costs and expenses 29,446 27,476 28,905
General and administrative expense 1,756 1,688 1,693
Research and development expense 1,633 1,674 2,076
MD-11 accounting charge 1,838
Special retirement program expense 600
- ------------------------------------------------------------------------------
32,835 33,276 32,674
- ------------------------------------------------------------------------------
Earnings from operations 2,618 (316) 2,295
Other income, principally interest 388 280 194
Interest and debt expense (393) (376) (379)
ShareValue Trust appreciation change (133)
- ------------------------------------------------------------------------------
Earnings before income taxes 2,480 (412) 2,110
Income taxes 662 (376) 627
- ------------------------------------------------------------------------------
Net earnings $ 1,818 $ (36) $ 1,483
==============================================================================
Earnings per share $1.88 $(.04) $1.50
==============================================================================
See accompanying notes.
22
<PAGE> 23
EXHIBIT (99) (continued)
Notes to Consolidated Statements of Operations and Consolidated Statements
of Financial Position Reflecting Merger Combination with McDonnell Douglas
Corporation
(Unaudited)
Note 1 - Merger With McDonnell Douglas Corporation
Effective August 1, 1997, McDonnell Douglas Corporation merged with the
Company through a stock-for-stock exchange in which 1.3 shares of Company
stock was issued for each share of McDonnell Douglas stock outstanding.
Approximately 279 million shares were issued in connection with the
merger. The combined company will operate in the name of The Boeing
Company.
The merger is being accounted for as a pooling-of-interests. Accordingly,
except for adjustments to reflect conformed accounting policies, the
historical results of operations of the two companies are combined, and no
acquisition revaluations or goodwill is recorded. Combined reporting of
the merged Company will be effective beginning third quarter 1997.
The merger was subject to approval by the United States Federal Trade
Commission and the European Commission. Future requirements or
obligations associated with obtaining these approvals are not expected to
have a material impact on future operations or liquidity of the Company.
Note 2 - Conforming Accounting Adjustments
The unaudited consolidated statements of operations and consolidated
statements of financial position presented here are based on the
historical consolidated financial statements of The Boeing Company and
McDonnell Douglas Corporation and reflect the following adjustments:
(1) Adjustment to eliminate sales between Boeing and McDonnell Douglas.
(2) Adjustment to reclassify to "Other Income" McDonnell Douglas income
associated with cash and short-term investments and gains on sale of
assets.
(3) Adjustment to conform the accounting for long-term contracts,
including the related tax provisioning, as follows:
To conform the application of the percentage of completion method
of recognizing sales and earnings for fixed-price contracts to
the method applied by Boeing. McDonnell Douglas applies the
percentage of completion method generally as costs are incurred
(cost-to-cost basis of revenue recognition); Boeing applies the
percentage of completion method generally as deliveries occur
(delivery basis of revenue recognition). The two bases, both
consistent with generally accepted accounting principles, result
in differences in the timing of sales recognition, with sales
under the delivery basis being recognized in a deferred manner
relative to sales under the cost-to-cost basis.
23
<PAGE> 24
EXHIBIT (99) (continued)
Notes to Consolidated Statements of Operations and Consolidated Statements
of Financial Position Reflecting Merger Combination with McDonnell Douglas
Corporation
(Unaudited)
To conform the method of accounting and classification relating
to general and administrative costs and research and development
costs to the method and classification applied by McDonnell
Douglas. Boeing accounts for general and administrative costs
and research and development costs directly recoverable on
flexibly priced government contracts as contract costs, whereas
McDonnell Douglas accounts for such costs as period costs.
(4) Adjustments to present a conformed classified balance sheet
segregating current and non-current balances.
24
<PAGE> 25
EXHIBIT (10)(i)
Employment Agreement with Harry C. Stonecipher
Dated August 1, 1997
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is
entered into as of the Closing Date (as hereinafter defined) by and between The
Boeing Company, a Delaware corporation (the "Company"), and Harry C.
Stonecipher ("Executive").
RECITALS
--------
WHEREAS, the Company, West Acquisition Corp., a wholly owned
subsidiary of the Company, and McDonnell Douglas Corporation have entered into
an Agreement and Plan of Merger (the "Merger Agreement"), dated as of December
14, 1996, pursuant to which West Acquisition Corp. will be merged with and into
McDonnell Douglas Corporation, with McDonnell Douglas Corporation continuing as
the surviving corporation;
WHEREAS, the Executive is currently serving as Chief Executive
Officer of McDonnell Douglas Corporation, and the Company desires to secure the
continued employment of the Executive in accordance herewith;
WHEREAS, McDonnell Douglas Corporation has entered into an
employment agreement with the Executive (the "Prior Employment Agreement") as
of the 24th day of September, 1994 (the "Prior Commencement Date");
WHEREAS, Executive has agreed to become President and Chief
Operating Officer of the Company and a member of the Board of Directors of the
Company pursuant to the terms and conditions of this Agreement (it being
understood and agreed that Executive will not receive any additional
compensation for serving as a member of the Board of Directors of the Company
or as a member of the board of directors of any other company at the Company's
request); and
WHEREAS, the parties desire to enter into this Agreement, as of
the effective date of the consummation of the transactions
contemplated by the Merger Agreement (the "Closing Date"),
setting forth the terms and conditions for the employment relationship of the
Executive with the Company during the Employment Period (as hereinafter
defined).
NOW THEREFORE, in consideration of the foregoing, and the
representations, warranties and covenants hereinafter, the parties hereto agree
as follows:
1. Employment. At all times during the Employment Period (as
hereinafter defined), the Company shall employ Executive in the capacity of
President and Chief Operating Officer. In such capacity, Executive shall
devote his full time and professional efforts to such position, shall be
assigned and undertake only such duties and tasks as are appropriate for a
person in the position of President and Chief Operating Officer, and shall
exercise such authority as is customarily exercised by a President and Chief
Operating Officer, subject to the overall supervision of the Chief Executive
Officer of the Company and the Board of Directors of the Company (the "Board").
25
<PAGE> 26
2. Employment Period. The term of this Agreement shall commence
as of the Closing Date and shall expire, subject to earlier termination
of employment as hereinafter provided, on September 24, 1998 (the
"Employment Period"); provided, however, that on September 24, 1997 and
each anniversary of such date, the Employment Period shall
automatically be extended for an additional one year period unless
prior thereto either party has given written notice to the other that
such party does not wish to extend the term of this Agreement; and further
provided that if the Merger Agreement is terminated, then, at the time of such
termination, this Agreement shall be deemed canceled and of no force or
effect. Notwithstanding any other provision of this Section 2, in no event
shall the Employment Period extend beyond May 16, 2001.
3. Compensation. Except as otherwise provided for herein,
throughout the Employment Period the Company shall pay or provide
Executive with the following, and Executive shall accept the same, as
compensation for the performance of his undertakings and the services
to be rendered by him throughout the Employment Period under this
Agreement:
(a) Annual Compensation.
(i) Base Salary: $900,000 per year, to be reviewed
annually by the Compensation Committee ("Compensation Committee") of the Board,
but Base Salary may not be reduced by the Compensation Committee to a rate that
is less than the highest rate Executive has attained on an annualized basis
unless such reduction is part of a general salary reduction applied to members
of the Company's senior management as a group.
(ii) Annual Incentive Compensation: $635,000 target
incentive compensation for 1997 pursuant to the terms and conditions of the
McDonnell Douglas Corporation Senior Executive Performance Sharing Plan or any
successor plan (collectively "PSP"); this amount will be payable in 1998 first
quarter. Thereafter, the amount determined in accordance with the terms and
conditions of the Company Incentive Compensation Plan as applied for other
members of senior management of the Company.
(b) Long Term Incentive Compensation.
(i) Stock equivalent units relating to 360,000
shares of McDonnell Douglas Corporation common stock will be converted, in
accordance with the applicable provisions of the Merger Agreement, into stock
equivalent units with respect to Company common stock, with vesting as
follows:
(a) 252,000 McDonnell Douglas Corporation
stock equivalent units have vested prior to the Closing Date.
(b) the remaining 108,000 McDonnell Douglas
Corporation stock equivalent units no later than the end of the first quarter
of 2002.
The stock equivalent units shall remain subject to the terms
and conditions set forth in the letter from Steven N. Frank to the Executive
dated March 25, 1995 (the "March 25, 1995 Letter") a copy of which is attached
as Exhibit B hereto.
26
<PAGE> 27
(ii) Performance Based Restricted Stock: 60,000
shares of performance based restricted stock of McDonnell Douglas Corporation
previously granted to the Executive will be converted, in accordance with the
applicable provisions of the Merger Agreement, into performance based
restricted stock of the Company. Unless otherwise agreed to by the Company
and the Executive, the Company will grant to the Executive 78,000 performance
based restricted shares of the Company, no later than the end of the first
quarter of 1998. Vesting, performance periods and other criteria to be the
same as (or equivalent to) those set for the Executive's award of performance
based restricted stock in 1997 (unless otherwise agreed to by the Company and
the Executive).
(iii) Stock Options: Options to purchase 900,000
shares of McDonnell Douglas Corporation common stock will be converted, in
accordance with the applicable provisions of the Merger Agreement, into options
to purchase Company common stock, vesting and exercisable as follows: 180,000
shares of McDonnell Douglas Corporation common stock per year beginning on the
second anniversary of the Prior Commencement Date, exercisable over a ten-year
period, continuing after Executive's retirement.
(c) All restricted stock and stock options shall be granted
and issued under the terms and conditions of the McDonnell Douglas Corporation
1994 Performance and Equity Incentive Plan ("PEIP") (including agreements to
be issued pursuant to the terms thereof), or any successor thereto, and
Executive's participation thereunder shall continue as long as such plan
remains in effect, with participation on the same basis as other corporate
officers in any future incentive compensation or other bonus plan covering the
Company's executive employees. Stock equivalents granted hereunder are granted
outside the PEIP; however, Sections 3.3 ("Adjustments"), 19.2 ("Unfunded Status
of the Plan"), 19.3 ("Designation of Beneficiary") and 19.4
("Nontransferability") of the PEIP are incorporated herein and will govern the
stock equivalents as if they were issued under the PEIP. Capitalized terms in
such sections shall have the meanings ascribed to such terms in the PEIP.
Notwithstanding the foregoing, the Long Term Incentive Compensation in Section
3(b) herein is intended to be the total long term incentive compensation of
Executive during his employment with Company. Additional long term incentive
awards to Executive, if any, will be granted at the sole discretion of the Com-
pensation Committee. Executive shall also participate in the Company's other
employee benefit plans, policies, practices and arrangements in which senior
Company executives are presently eligible to participate, or plans and
arrangements substituted therefor or in addition thereto, including without
limitation any defined benefit retirement plan, excess or supplementary plan,
profit sharing plan, savings plan, health and dental plan, disability plan,
survivor income and life insurance plan, executive financial planning program,
or other arrangement (PEIP and such other benefit plans collectively
hereinafter referred to as the "Benefit Plans").
(d) Paid vacation of no less than four (4) weeks per year
in accordance with the Company's vacation policy as in effect from time to
time, and all paid holidays given by the Company to its executive officers.
(e) All fringe benefits and perquisites including without
limitation the payment by the Company of initiation fees and dues for one
country club in accordance with the policies of McDonnell Douglas Corporation
as in effect immediately prior to the Closing Date.
27
<PAGE> 28
(f) Moving and relocation expenses incurred by Executive to
move his residence to Seattle, including third party relocation service for
disposal of Executive's current residence. Any pay-back provision contained in
the Company's moving and relocation policy shall not apply to Executive unless
he is terminated for "Cause" as hereinafter defined. Executive shall receive a
lump sum payment in an amount sufficient to reimburse him for income taxes
payable by him as a result of such moving and relocation expenses and the
payment received under this paragraph.
(g) The Executive's entitlement to any other compensation
or benefits shall be determined in accordance with the terms and conditions of
this Agreement and the Benefit Plans and other applicable programs, practices
and arrangements then in effect, to the extent that such plans, programs,
practices and arrangements do not conflict with the terms of this Agreement.
(h) If all or any portion of the payments and benefits
provided to Executive under this Agreement constitute "excess parachute
payments" within the meaning of Section 280G of the Code that are subject to
the tax imposed by Section 4999 of the Code (or similar tax and/or assessment),
the Company (or its successor) shall make a single lump sum payment to
Executive in an amount equal to the amount necessary to place Executive in the
same after-tax position as he would have been in (taking into account any taxes
which would be payable on such amount including, but not limited to, income
taxes) had no such tax been imposed on such payments and benefits. The
determination of the amount payable to Executive hereunder shall initially be
made, at the Company's expense, by the independent accounting firm employed by
the Company immediately prior to the occurrence of any change of control of the
Company which will result in the imposition of such tax. If, after such lump
sum payment has been made to Executive, it is determined (pursuant to final
regulations or published rulings of the Internal Revenue Service, final
judgment of a court of competent jurisdiction or otherwise) that the amount of
tax payable by Executive pursuant to Section 4999 of the Code is greater than
the amount of such tax as calculated by the Company's independent accounting
firm and reflected in the lump sum payment made to Executive as aforesaid, then
the Company (or its successor) shall pay Executive an amount equal to the sum
of (i) the difference between the amount of such tax as initially determined
by such independent accounting firm hereunder and the amount of such tax which
is determined to be payable by Executive, (ii) any interest, fines and
penalties imposed on Executive by any taxing authority due to any underpayment
of such taxes by Executive, plus (iii) the amount necessary to reimburse
Executive for any income, excise or other taxes which are payable by Executive
with respect to the amounts specified in (i) and (ii) above, and the
reimbursement provided for by this clause (iii).
4. Expenses. During the Employment Period, the Company shall
promptly pay or reimburse Executive for all reasonable out-of-pocket
expenses incurred by Executive in the performance of duties hereunder
in accordance with the Company's policies and procedures then in
effect.
28
<PAGE> 29
5. Conditions of Employment. Throughout the Employment Period,
(a) the Company shall not require or assign duties to Executive that
would require him to have the location of his principal business office
or his principal place of residence other than in the Seattle, Washington
metropolitan area, (b) the Company shall not require or assign duties to
Executive that would require him to spend more than ninety (90) normal working
days away from his office during any consecutive twelve-month period, (c) the
Company shall provide an office to Executive, the location and furnishings of
which shall be equivalent to the offices provided to other senior executives
of the Company on the date of this Agreement; and (d) the Company shall
provide secretarial services and other administrative services to Executive
that shall be equivalent to the secretarial services and other administrative
services provided to other senior executives of the Company on the date of
this Agreement.
6. Termination. In addition to the termination rights in Section
2 of this Agreement, this Agreement shall terminate upon the following
circumstances:
(a) At any time at the election of Company for Cause.
"Cause" for this purpose shall mean (i) Executive committing a material breach
of this Agreement or acts involving moral turpitude, including fraud,
dishonesty, disclosure of confidential information or the commission of a
felony, or direct and deliberate acts constituting a material breach of his
duty of loyalty to Company; (ii) Executive willfully or continuously refusing
to perform the material duties reasonably assigned to him by the Chief
Executive Officer of the Company or the Board that are consistent with the
provisions of this Agreement; or (iii) the inability of Executive to obtain
and maintain appropriate United States security clearances.
(b) At any time at the election of Executive for Good
Reason. "Good Reason" for this purpose shall mean (i) a material breach of
this Agreement by the Company; (ii) the failure of the Executive to continue
to serve as a member of the Company's Board of Directors (except such failure
which results from voluntary resignation by the Executive), or removal from his
position as President and Chief Operating Officer, other than for Cause; (iii)
the assignment to Executive of duties that are reasonably deemed by Executive
not to be appropriate for someone in the position of President and Chief
Operating Officer; (iv) the Executive's responsibilities hereunder are
reasonably deemed by Executive to be substantially diminished, or any other
person (other than the Chief Executive Officer of the Company) shall be ap-
pointed by the Board or the shareholders of Company to a position equal to or
superior to the Executive's position; or (v) the Company providing written
notice to the Executive pursuant to Section 2 hereof that it does not wish to
extend the term of this Agreement.
(c) Executive's death or his being unable to render the
services required to be rendered by him during the Employment Period for a
period of one hundred eighty (180) days during any twelve-month period
("Disability").
(d) In the event the Company or Executive intend to
terminate this Agreement for Cause or Good Reason, respectively, such
termination may only be accomplished upon compliance with the following
procedures:
29
<PAGE> 30
(i) The party seeking to terminate the Agreement
(the "Notifying Party") shall provide the other (the "Defaulting Party") with
written notice of its or his belief that Cause or Good Reason, as the case may
be, exists. The parties shall for a period of 30 days from the date of such
notice attempt to resolve to their mutual satisfaction whether or not Cause or
Good Reason exists, and, if so, the rights and obligations of the parties.
(ii) In the event the parties are unable to reach
a mutually acceptable resolution during such 30-day period, the Notifying Party
shall afford the Defaulting Party an additional thirty (30) days or such
longer period as the Notifying Party may determine to cure the alleged breach.
(iii) In the event the Defaulting Party does not cure
the breach during such 30-day period, the Notifying Party shall be required to
institute an arbitration proceeding to determine whether Cause or Good Reason,
as the case may be, existed and has not been cured. The arbitration will be
conducted in Seattle, Washington and shall be conducted in accordance with the
then governing rules of the American Arbitration Association.
(iv) This Agreement shall be terminated as of the
date when the Notifying Party institutes an arbitration proceeding in
accordance with subsection (iii) preceding; provided, however, that in the
event Good Reason exists as a result of the application of Section 6(b)(v), no
further employment services will be required or expected of Executive and
Executive and Company will coordinate the timing and press releases of his
departure. The sole decision of the arbitrator in such proceeding shall be to
determine whether Cause (if initiated by Company) or Good Reason (if initiated
by Executive) exists. Thereafter, the obligations of the parties to each
other shall be determined by applying the decision of the arbitrator(s) in
accordance with Exhibit A hereto. In the event the Company does not prevail
in any such proceeding initiated by it for Cause, Executive's termination
shall be deemed to have occurred for Good Reason. In the event Executive does
not prevail in any such proceeding initiated by him for Good Reason, Executive
shall be considered as having voluntarily terminated employment other than for
Good Reason, and his rights under this Agreement shall be determined as if he
had been terminated by Company for Cause.
(e) Upon expiration or termination of this Agreement under
Section 2 or Section 6 herein, Executive shall be entitled to receive
compensation and other benefits provided for herein in accordance with Exhibit
A hereto. The parties agree that, in the event of termination by Executive for
Good Reason under Section 6, such payments and benefits shall be deemed to
constitute liquidated damages for the breach of this Agreement by Company.
(f) In the event it is determined by the arbitrator that
Executive has terminated this Agreement for Good Reason, Executive shall be
entitled to receive within 30 days of such determination the net present value
of annual Base Salary and targeted Annual Incentive Compensation for the
remainder of the Employment Period, with targeted Annual Incentive Compensation
being determined for this purpose based upon the targeted Annual Incentive
Compensation for the year of termination and with net present value calculated
by using an interest rate discount factor of 6.5%. Notwithstanding the fore-
going, in the event the acceleration of any amount payable in accordance with
the preceding sentence would result in such amount not being deductible by the
Company under Section 162(m) of the Code, as currently in effect or as may be
hereafter amended, or under any regulations promulgated thereunder, the non-
30
<PAGE> 31
deductible amount shall be deferred and be paid to Executive as early as
possible in the next year in which the deductibility of his compensation is not
subject to or would not exceed the limitations of Section 162(m).
7. Covenant Not to Compete. Without the consent of the Company,
Executive shall not directly or indirectly at any time during the period
provided for in Section 9 undertake employment as an owner, director, partner,
officer, employee, affiliate or consultant with any business entity directly
engaged in the manufacture and/or sale of products competitive with any
material product or product line of the Company or any of its subsidiaries;
provided, however, that Executive shall not be deemed to have breached this
undertaking if his sole relation with such entity consists of his holding,
directly or indirectly, an equity interest in such entity not greater than two
percent (2%) of such entity's outstanding equity interest so long as such
holding does not exceed 10% of the liquid net worth of Executive. For purposes
hereof, the term "material product or product line of the Company or any of its
subsidiaries" shall mean any product or product line of the Company or any of
its subsidiaries, the gross sales of which during any calendar year during the
five (5) year period preceding Executive's undertaking such employment were at
least $50 million.
8. Disclosure of Confidential Information. Without the express
written consent of the Company, Executive shall not at any time (either during
or after the termination of this Agreement for any reason) disclose to any
other business entity proprietary or confidential information concerning the
Company or any of its subsidiaries or the Company's or any of its subsidiaries'
trade secrets of which Executive has gained knowledge during his employment
with the Company or McDonnell Douglas Corporation.
9. Effect of Breach of Sections 7 or 8. So long as any restricted
stock, stock equivalent or stock option provided for in Section 3(b) herein
shall not be vested or shall not have been exercised, the vesting of such
restricted shares or stock equivalents and the exercise of such stock options
shall each be subject to Executive's full compliance with the terms and condi-
tions of Section 7 (which shall continue to apply for this purpose) and Section
8 herein; provided, however, that any such breach will not have any effect on
restricted stock or stock equivalents vested or stock options exercised prior
to the date of such breach. Executive further agrees that a breach of Sections
7 or 8 cannot adequately be compensated by money damages and, therefore, the
Company shall be entitled, in addition to any other right or remedy available
to it (including, but not limited to, an action for damages), to an injunction
restraining such breach or a threatened breach and to specific performance of
either such provision, and Executive hereby consents to the issuance of such
injunction and to the ordering of specific performance.
10. Legal Expenses. The Company shall pay to Executive all out-of-
pocket expenses, including reasonable attorneys' fees, incurred by Executive in
connection with any claim or legal action or proceeding brought under or
involving this Agreement, whether brought by Executive or by or on behalf of
the Company or by another party; provided, however, the Company shall not be
obligated to pay to Executive out-of-pocket expense, including attorneys' fees,
incurred by Executive in any claim or legal action or proceeding involving
Sections 6, 7, 8 or 9 of this Agreement if the Company prevails in such liti-
gation or arbitration. The Company agrees to reimburse Executive for
reasonable attorneys' fees and out-of-pocket expenses in an amount not to
exceed $15,000, which are incurred by him in the negotiation and preparation of
this Agreement.
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11. Retirement Plans. Notwithstanding anything stated herein to
the contrary, the benefits and obligations payable to Executive under the
Employee Retirement Income Plan of McDonnell Douglas Corporation - Salaried
Plan ("Pension Plan"), the Supplemental Employee Retirement Income Plan of
McDonnell Douglas Corporation ("Supplemental Pension Plan"), and any other
retirement plan provided by McDonnell Douglas Corporation and the Company shall
not be reduced, offset or otherwise limited by the Executive's coverage or
benefit entitlement pursuant to any retirement plan provided by any former
employer of the Executive, except as provided in this Section 11. For the
purposes of calculating the Executive's benefits under the retirement plans of
McDonnell Douglas Corporation and the Company, Executive will receive credit
for twice as many years of service as he actually works for McDonnell Douglas
Corporation and the Company (it being understood and agreed that, for purposes
hereof, during any period of time which Executive works for both McDonnell
Douglas Corporation and the Company, Executive will only be deemed to have
worked for one year for each year of actual service to both companies, but
will receive credit for retirement plan benefits calculation purposes on a two
year for one year basis) with the excess benefit above what the Pension Plan
provides to be paid through the Supplemental Pension Plan. In addition, the
Company agrees to provide a supplemental pension payment in an amount equal to
the difference between (i) what Executive would have received from Sundstrand
Corporation, had he stayed with Sundstrand Corporation through the end of the
Employment Period, or the earlier termination date of this Agreement if it is
terminated by the Company for Cause or as a result of Executive's death or
disability (the "Calculation Period"), and (ii) the pension payments he is
actually entitled to receive from Sundstrand Corporation and McDonnell Douglas
Corporation and the Company (determined without regard to this sentence). The
Calculation Period shall be increased by one year in the event this Agreement
expires on a scheduled expiration date, or if terminated by Executive for Good
Reason. In determining the amount of this supplemental pension payment, in
addition to amounts payable to Executive under the Pension Plan and
Supplemental Pension Plan, the actuarial equivalent of the value of the
Company's matching contributions for Executive's benefit under its Savings
Plan and Supplemental Savings Plan shall be included. For this purpose, the
actuarial assumptions set forth in the Pension Plan shall be used. In
determining amounts which would have been payable to Executive by Sundstrand
Corporation, it will be assumed that Executive's final average earnings under
Executive's Sundstrand Corporation's retirement plans (as reflected in
Executive's "Personal Statement of Benefits" from Sundstrand Corporation dated
April 14, 1994) increases at an annual rate of 4% from January 1, 1995 to the
end of the Calculation Period. Such additional pension amounts payable to
Executive shall be made under the Supplemental Pension Plan.
12. No Mitigation. The Executive shall not be required to mitigate
the amount of any payment provided for in this Agreement by seeking other
employment or otherwise and no such payment shall be offset or reduced by the
amount of any compensation or benefits provided to the Executive in any
subsequent employment.
13. Notices. All notices required or permitted under this
Agreement shall be in writing, may be made by personal delivery or facsimile
transmission, effective on the day of such delivery or receipt of such
transmission, or may be mailed by registered or certified mail, effective two
(2) days after the date of mailing, addressed as follows:
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to Company: The Boeing Company
7755 East Marginal Way South
Seattle, WA 98108
Attention: Theodore J. Collins, Esq.
Facsimile number: (206) 544-4900
or such other person or address as designated in writing to Executive.
to Executive: Harry C. Stonecipher
at his last known residence address or to such other addresses as designated by
him in writing to Company.
14. Successors. This Agreement may not be assigned by the Company
(other than by merger or operation of law) without the express written consent
of Executive, and the obligations of the Company provided for in this Agreement
shall be binding legal obligations of any successor to the Company or the
principal business of Company by purchase, merger, consolidation, or otherwise.
This Agreement may not be assigned by Executive during his life, and upon his
death will be binding upon and inure to the benefit of his heirs, legatees and
the legal representatives of his estate.
15. Waiver, Modification and Interpretation. No provisions of this
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in a writing signed by Executive and an
appropriate officer of the Company empowered to sign same by the Board. No
waiver by either party at any time of any breach by the party of, or compliance
with, any condition or provision of this Agreement to be performed by the other
party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same time or at any prior to subsequent time. The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of Washington; provided, however, that the
corporate law of the state of incorporation of the Company shall govern issues
related to the issuance of shares of the Company's common stock. Any action
brought to enforce or interpret this Agreement (other than an action arising
under Section 6 herein, for which the arbitration procedures provided for
therein shall govern) shall be maintained in the State courts of Washington or
the U.S. Federal District Court for the Western District of Washington located
in Seattle, Washington. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
16. Headings. The headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
any provision of this Agreement.
17. Entire Agreement. This Agreement (together with the Exhibits
hereto) constitutes the entire agreement between the parties, supersedes in all
respects any prior agreement (including the Prior Employment Agreement but
excluding the March 25, 1995 Letter) between the Company and Executive and may
not be changed except by a writing duly executed and delivered by the Company
and Executive in the same manner as this Agreement.
18. Counterparts. Company and Executive may execute this Agreement
in any number of counterparts, each of which shall be deemed to be an original
but all of which shall constitute but one instrument. In proving this
Agreement, it shall not be necessary to produce or account for more than one
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<PAGE> 34
such counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY
THE PARTIES.
THE BOEING COMPANY
By: /s/ Philip M. Condit
---------------------------
Philip M. Condit
Chief Executive Officer
Executive:
By: /s/ Harry C. Stonecipher
---------------------------
Harry C. Stonecipher
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EXHIBIT (3) (i)
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
The Boeing Company, a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), does hereby
certify that the following amendment to the Corporation's Restated Certificate
of Incorporation was duly proposed by the Corporation's Board of Directors and
adopted by the Corporation's stockholders in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware:
The first sentence of Article FOURTH of the Restated Certificate of
Incorporation is amended to read in its entirety as follows:
FOURTH: The total number of shares of stock of all classes which
the Corporation shall have authority to issue is 1,220,000,000
shares, of which 20,000,000 shares shall be Preferred Stock of the
par value of $1 each (hereinafter called "Preferred Stock") and
1,200,000,000 shares shall be common stock of the par value of $5
each (hereinafter called "Common Stock").
IN WITNESS WHEREOF, The Boeing Company has caused this certificate to be
signed and attested by its duly authorized officers, this second day of May,
1997.
THE BOEING COMPANY
By: /s/ Theodore J. Collins
--------------------------------
Theodore J. Collins
Senior Vice President
and General Counsel
ATTEST:
By: /s/ Heather Howard
-----------------------------
Heather Howard
Corporate Secretary
and Corporate Counsel
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EXHIBIT (3) (ii)
THE BOEING COMPANY
CERTIFICATE OF ELIMINATION
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
The Boeing Company, a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Company"), pursuant to Section
151 of the General Corporation Law of the State of Delaware, does hereby
certify that the following resolution was duly adopted by the Board of
Directors of the Company on June 30, 1997, and does further certify that at
the date of adoption of said resolution, and at the date hereof, no shares of
the Series A Junior Participating Preferred Stock of the Company (the "Series
A Stock") were issued or outstanding, and no shares of the Series A Stock will
be issued, and the Series A Stock is hereby eliminated.
RESOLVED, That upon the expiration on August 7, 1997, of the Rights
Agreement, dated as of July 27, 1987, by and between The Boeing
Company and The First National Bank of Boston, as Rights Agent, the
Company shall, pursuant to Section 151(g) of the Delaware General
Corporation Law, eliminate from its Restated Certificate of
Incorporation Article THIRTEENTH, which was added thereto by a
certificate of designations of the Series A Junior Participating
Preferred Stock (the "Series A Stock"), and the officers of the
Company are hereby authorized and directed, after such date, to
execute on behalf of the Company a certificate of elimination
stating that no shares of the Series A Stock are outstanding and
none shall be issued subject to the certificate of designations
previously filed, and to file the same with the Secretary of the
State of Delaware in accordance with the provisions of Section
151(g).
IN WITNESS WHEREOF, The Boeing Company has caused this Certificate of
Elimination to be signed by its duly authorized officers this 13th day
of August, 1997.
THE BOEING COMPANY
By: /s/ Theodore J. Collins
--------------------------------
Theodore J. Collins
Senior Vice President
and General Counsel
ATTEST:
/s/ Kathryn A. Brown
-----------------------------
Kathryn A. Brown
Assistant Corporate Secretary
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EXHIBIT (3) (iii)
RESTATED CERTIFICATE OF INCORPORATION
OF THE BOEING COMPANY
THE BOEING COMPANY, a corporation organized and existing under the General
Corporation Law of the State of Delaware, does hereby certify that:
1. The original Certificate of Incorporation was filed with the Secretary
of State of Delaware on July 19, 1934, and the name under which it was
originally incorporated is Boeing Airplane Company.
2. The following Restated Certificate of Incorporation was duly adopted by
the Corporation's Board of Directors in accordance with the provisions
of Section 245 of the General Corporation Law of the State of Delaware,
and only restates and integrates and does not further amend the
provisions of the Corporation's Certificate of Incorporation as
heretofore amended and supplemented, and there is no discrepancy
between those provisions and the following:
FIRST: The name of the Corporation is THE BOEING COMPANY.
SECOND: Its registered office or place of business in the State of Delaware is
to be located at 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent is The Corporation Trust Company, and
the address of said registered agent is 1209 Orange Street, in said City of
Wilmington.
THIRD: The nature of the business, or objects or purposes to be transacted,
promoted, or carried on, are those necessary to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock of all classes which the
Corporation shall have authority to issue is 1,220,000,000 shares, of which
20,000,000 shares shall be Preferred Stock of the par value of $1 each
(hereinafter called "Preferred Stock") and 1,200,000,000 shares shall be
Common Stock of the par value of $5 each (hereinafter called "Common Stock").
The designations and the powers, preferences, and rights and the
qualifications, limitations, or restrictions thereof of the shares of each
class are as follows:
1. The Preferred Stock may be issued from time to time in one or more
series, the shares of each series to have such voting powers, full or limited,
and such designations, preferences, and relative, participating, optional, or
other special rights and qualifications, limitations, or restrictions
thereof as are stated and expressed herein or in the resolution or
resolutions providing for the issue of such series adopted by the Board of
Directors as hereinafter provided.
2. Authority is hereby expressly granted to the Board of Directors of the
Corporation, subject to the provisions of this Article FOURTH and to the
limitations prescribed by law, to authorize the issue of one or more
series of Preferred Stock and with respect to each such series to fix by
resolution or resolutions providing for the issue of such series the
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<PAGE> 38
voting powers, full or limited, if any, of the shares of such series and
the designations, preferences, and relative, participating, optional, or
other special rights and the qualifications, limitations, or restrictions
thereof. The authority of the Board of Directors with respect to each
series shall include but not be limited to the determination or fixing of
the following:
(a) The designation of such series.
(b) The dividend rate of such series, the conditions and dates upon
which such dividends shall be payable, the relation which such
dividends shall bear to the dividends payable on any other class or
classes of stock, and whether such dividends shall be cumulative or
noncumulative.
(c) Whether the shares of such series shall be subject to redemption by
the Corporation and, if made subject to such redemption, the times,
prices, and other terms and conditions of such redemption.
(d) The terms and amount of any sinking fund provided for the purchase
or redemption of the shares of such series.
(e) Whether or not the shares of such series shall be convertible into
or exchangeable for shares of any other class or classes or of any
other series of any class or classes of stock of the Corporation,
and, if provision be made for conversion or exchange, the times,
prices, rates, adjustments, and other terms and conditions of such
conversion or exchange.
(f) The extent, if any, to which the holders of the shares of such
series shall be entitled to vote with respect to the election of
directors or otherwise.
(g) The restrictions, if any, on the issue or reissue of any additional
Preferred Stock.
(h) The rights of the holders of the shares of such series upon the
dissolution of, or upon the distribution of assets of, the
Corporation.
3. Except as otherwise required by law and except for such voting powers
with respect to the election of directors or other matters as may be stated in
the resolution or resolutions of the Board of Directors providing for the
issue of any series of Preferred Stock, the holders of any such series
shall have no voting power whatsoever. Subject to Article EIGHTH herein
and to such restrictions as may be stated in the resolution or resolutions
of the Board of Directors providing for the issue of any series of
Preferred Stock, any amendment to the Certificate of Incorporation which
shall increase or decrease the authorized stock of any class or classes
may be adopted by the affirmative vote of the holders of a majority of the
outstanding shares of the voting stock of the Corporation.
4. No holder of stock of any class of the Corporation shall have, as such
holder, any preemptive or preferential right of subscription to any stock
of any class of the Corporation or to any obligations convertible into
stock of the Corporation, issued or sold, or to any right of subscription
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<PAGE> 39
to, or to any warrant or option for the purchase of any thereof, other
than such (if any) as the Board of Directors of the Corporation, in its
discretion, may determine from time to time.
5. Subject to Article EIGHTH herein, the Corporation may from time to time
issue and dispose of any of the authorized and unissued shares of Common
Stock or of Preferred Stock for such consideration not less than its par
value, as may be fixed from time to time by the Board of Directors,
without action by the stockholders. The Board of Directors may provide
for payment therefor to be received by the Corporation in cash, property,
or services. Any and all such shares of the Preferred or Common Stock of
the Corporation the issuance of which has been so authorized, and for
which consideration so fixed by the Board of Directors has been paid or
delivered, shall be deemed fully paid stock and shall not be liable to any
further call or assessment thereon.
6. Effective as of August 1, 1966, the stock of the Corporation is changed
to eliminate all fractions of one share that may then exist. In lieu of each
such fraction of one share there is created a money obligation of the
Corporation in an amount equal to said fraction multiplied by the closing
price per share of such stock on the New York Stock Exchange on August 1,
1966, such amount to be paid by the Corporation after such date to the
person or persons entitled thereto conditioned only upon the surrender of
the fractional share certificate to the Corporation's Transfer Agent. No
money obligation or payment provided for in this paragraph shall be a
charge upon or against the capital stock account of the Corporation.
FIFTH: The minimum amount of capital with which the Corporation will commence
business is One Thousand Dollars.
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: The private property of the stockholders shall not be subject to the
payment of corporate debts.
EIGHTH: In addition to any affirmative vote required by law or this
Certificate of Incorporation, any "Business Combination" (as hereinafter
defined) involving the Corporation shall be subject to approval in the manner
set forth in this Article EIGHTH.
1. For the purposes of Article EIGHTH, Article NINTH, and Article ELEVENTH
of this Certificate of Incorporation and Articles I, II and VIII of the By-
Laws of the Corporation:
(a) "Affiliate" and "beneficial owner" are used herein as defined in
Rule 12b-2 and Rule 13d-3, respectively, under the Securities
Exchange Act of 1934 as in effect on the date of adoption of this
Article EIGHTH by the stockholders of the Corporation (the "1934
Act"). The term "Affiliate" as used herein shall exclude the
Corporation, but shall include the definition of "Associate" as
contained in said Rule 12b-2.
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<PAGE> 40
(b) An "Interested Stockholder" is a Person other than the Corporation
who is (i) the beneficial owner of ten percent or more of the stock
of the Corporation entitled to vote for the election of directors
("Voting Stock") or (ii) an Affiliate of the Corporation and (A) at
any time within a two-year period prior to the record date to vote
on a Business Combination was the beneficial owner of ten percent or
more of the Voting Stock or (B) at the completion of the Business
Combination will be the beneficial owner of ten percent or more of
the Voting Stock.
For purposes of determining whether a Person is an Interested
Stockholder pursuant to paragraph (b) of this Section 1, (i) the
number of shares of Voting Stock deemed to be owned by the
Interested Stockholder shall include shares deemed owned through
application of paragraph (b) of this Section 1 together with Voting
Stock that may be issuable pursuant to any agreement, arrangement,
or understanding or upon the exercise of conversion rights,
warrants, or options, or otherwise and (ii) the number of shares of
Voting Stock deemed to be outstanding shall not include any shares
of Voting Stock that may be issuable pursuant to any agreement,
arrangement, or understanding or upon the exercise of conversion
rights, warrants, or options, or otherwise.
(c) A "Person" is a natural person or a legal entity of any kind,
together with any Affiliate of such person or entity, or any person
or entity with whom such person, entity, or an Affiliate has any
agreement or understanding relating to acquiring, voting, holding,
or disposing of Voting Stock.
(d) A "Continuing Director" is a member of the Board of Directors of the
Corporation (other than any Interested Stockholder or any Affiliate
of an Interested Stockholder) who was a director prior to the time
any Interested Stockholder became an Interested Stockholder, or any
director who was recommended for election or elected by the
Continuing Directors. Any action to be taken by the Continuing
Directors shall require the affirmative vote of a majority of the
Continuing Directors.
(e) A "Business Combination" is (i) a merger or consolidation of the
Corporation or any of its subsidiaries or an exchange of stock of
the Corporation with an Interested Stockholder or an Affiliate of an
Interested Stockholder; (ii) the sale, lease, exchange, pledge,
transfer, or other disposition (A) by the Corporation or any of its
subsidiaries of all or a Substantial Part of the Corporation's
Assets to an Interested Stockholder or an Affiliate of an Interested
Stockholder or (B) by an Interested Stockholder or an Affiliate of
an Interested Stockholder of any of its assets, except in the
ordinary course of business, to the Corporation or any of its
subsidiaries; (iii) the issuance of stock or other securities of the
Corporation or any of its subsidiaries to an Interested Stockholder
or an Affiliate of an Interested Stockholder, other than on a pro
rata basis to all holders of Voting Stock of the same class held by
the Interested Stockholder or any such Affiliate pursuant to a stock
split, stock dividend, or distribution of warrants or rights;
(iv) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or an Affiliate of an Interested Stockholder;
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<PAGE> 41
(v) any reclassification or redemption of securities,
recapitalization, merger, consolidation or other transaction which
has the effect, directly or indirectly, of increasing the
proportionate share of any Voting Stock beneficially owned by an
Interested Stockholder or an Affiliate of an Interested Stockholder;
(vi) any loan of money or other assets of the Corporation to, or
guarantee of indebtedness or other obligations of, an Interested
Stockholder or an Affiliate of an Interested Stockholder by the
Corporation; (vii) any redemption by the Corporation of shares of
outstanding stock of the Corporation or of options, warrants, or
rights to acquire shares of stock of the Corporation beneficially
owned by an Interested Stockholder or an Affiliate of an Interested
Stockholder, other than on a pro rata basis to all holders of such
stock or rights; or (viii) any agreement, contract, or other
arrangement providing for any of the foregoing transactions.
(f) A "Substantial Part of the Corporation's Assets" shall mean tangible
or intangible assets of the Corporation or any of its subsidiaries
with a fair market value, as determined by the Continuing Directors,
in an amount equal to twenty percent or more of the total
consolidated assets of the Corporation and its subsidiaries taken as
a whole as of the end of its most recent fiscal year ended prior to
the time the determination is made.
2. The affirmative vote of not less than seventy-five percent of the
Voting Stock shall be required for the adoption or authorization of a Business
Combination, unless:
(a) Such Business Combination shall have been approved by the
affirmative vote of a majority of the Continuing Directors or
(b) The Continuing Directors determine that:
(i) The fair market value of the consideration per share to be
received or retained by the holders of each class or series of
stock of the Corporation in a Business Combination is equal to
or greater than the higher of (A) the highest consideration
per share (including brokerage commissions and soliciting
dealer's fees) paid by such Interested Stockholder in
acquiring any shares of such class of stock previously
acquired in any one transaction or series of related
transactions, whether before or after the Interested
Stockholder became an Interested Stockholder, or (B) the
highest closing sale price during the two-year period
immediately preceding the date of completion of the Business
Combination of a share of such stock on the Composite Tape for
New York Stock Exchange Listed Stocks, or, if such stock is
not quoted on the Composite Tape, on the New York Stock
Exchange, and, if at any time during such two-year period such
stock is not listed on such Exchange, on the principal United
States securities exchange registered under the 1934 Act on
which such stock is listed, and, if such stock is not listed
on any such exchange, the highest closing sales price or bid
quotation with respect to a share of such stock during the
two-year period preceding the date of completion of the
Business Combination on the National Association of Securities
Dealers, Inc., Automated Quotations System or any system then
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<PAGE> 42
in use, or if no such quotations are available, the fair
market value on the date of completion of the Business
Combination of a share of such stock as determined by a
majority of the Continuing Directors in good faith; provided,
however, that the consideration to be received by holders of a
particular class or series of stock of the Corporation shall
be in cash or in the same form as was previously paid in order
to acquire beneficially shares of such class or series of
stock of the Corporation that are beneficially owned by the
Interested Stockholder and, if the Interested Stockholder
beneficially owns shares of any class or series of stock of
the Corporation that were acquired with varying forms of
consideration, the form of consideration to be received by
holders of such class or series of stock of the Corporation
shall be either cash or the form used to acquire beneficially
the largest number of shares of such class or series of stock
of the Corporation beneficially acquired by it whether before
or after the Interested Stockholder became an Interested
Stockholder and
(ii) the Interested Stockholder shall not have received or will not
receive the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges, or other financial assistance or tax
credits or other tax advantages provided by the Corporation,
whether in anticipation of or in connection with such Business
Combination or otherwise.
3. In the event any vote of holders of Voting Stock is required for the
adoption or approval of any Business Combination, a proxy or information
statement describing the Business Combination and complying with the
requirements of the 1934 Act shall be mailed at a date determined by the
Continuing Directors to all stockholders of the Corporation whether or not
such statement is required under the 1934 Act. The statement shall
contain any recommendations as to the advisability of the Business
Combination which the Continuing Directors, or any of them, may choose to
state and, if deemed advisable by the Continuing Directors, an opinion of
an investment banking firm as to the fairness of the terms of such
Business Combination. Such firm shall be selected by the Continuing
Directors and paid a fee for its services by the Corporation as approved
by the Continuing Directors.
NINTH: Any action by stockholders of the Corporation shall be taken at a
meeting of stockholders and no action may be taken by written consent of
stockholders entitled to vote upon such action unless such action shall have
been submitted to the stockholders after approval by the affirmative vote of a
majority of the Continuing Directors.
TENTH: Subject to the provisions of the laws of the State of Delaware, the
following provisions are adopted for the management of the business and for the
conduct of the affairs of the Corporation, and for defining, limiting, and
regulating the powers of the Corporation, the directors, and the stockholders:
(a) The books of the Corporation may be kept outside the State of
Delaware at such place or places as may from time to time be
designated by the Board of Directors.
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(b) The business of the Corporation shall be managed by its Board of
Directors, and the Board of Directors shall have power to exercise
all the powers of the Corporation, including (but without limiting
the generality hereof) the power to create mortgages upon the whole
or any part of the property of the Corporation, real or personal,
without any action of or by the stockholders, except as otherwise
provided by statute or by the By-Laws.
(c) The number of the directors shall be fixed by the By-Laws, subject
to alteration from time to time by amendment of the By-Laws either
by the Board of Directors or the stockholders. An increase in the
number of directors shall be deemed to create vacancies in the
Board, to be filled in the manner provided in the By-Laws. Any
director or any officer elected or appointed by the stockholders or
by the Board of Directors may be removed in such manner as shall be
provided in the By-Laws.
(d) The Board of Directors shall have power to make and alter By-Laws,
subject to such restrictions upon the exercise of such power as are
contained in this Certificate or the By-Laws.
(e) The Board of Directors shall have power, in its discretion, to fix,
determine, and vary from time to time the amount to be retained as
surplus and the amount or amounts to be set apart out of any of the
funds of the Corporation available for dividends as working capital
or a reserve or reserves for any proper purpose, and to abolish any
such reserve in the manner in which it was created.
(f) The Board of Directors shall have power, in its discretion, from
time to time to determine whether and to what extent and at what
times and places and under what conditions and regulations the books
and accounts of the Corporation, or any of them, other than the
stock ledger, shall be open to the inspection of stockholders; and
no stockholder shall have any right to inspect any account, book, or
document of the Corporation, except as conferred by law or
authorized by resolution of the directors or the stockholders.
(g) Upon any sale, exchange, or other disposal of the property and/or
assets of the Corporation, payment therefor may be made either to
the Corporation or directly to the stockholders in proportion to
their interests, upon the surrender of their respective stock
certificates, or otherwise, as the Board of Directors may determine.
(h) The right to cumulate votes in the election of directors shall not
exist with respect to shares of stock of the Corporation.
(i) In case the Corporation shall enter into any contract or transact
any business with one or more of its directors, or with any firm of
which any director is a member, or with any corporation or
association of which any director is a stockholder, director, or
officer, such contract or transaction shall not be invalidated or in
any way affected by the fact that such director has or may have an
interest therein which is or might be adverse to the interests of
the Corporation, even though the vote of such director might have
been necessary to obligate the Corporation upon such contract or
transaction; provided, that the fact of such interest shall have
43
<PAGE> 44
been disclosed to the other directors or the stockholders of the
Corporation, as the case may be, acting upon or with reference to
such contract or transaction.
(j) Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between
the Corporation and its stockholders or any class of them, any court
of equitable jurisdiction within the State of Delaware may, on the
application in a summary way of the Corporation or of any creditor
or stockholder thereof, or on the application of any receiver or
receivers appointed for the Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code, or on the application
of trustees in dissolution or of any receiver or receivers appointed
for the Corporation under the provisions of Section 279 of Title 8
of the Delaware Code, order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of
the Corporation, as the case may be, to be summoned in such manner
as the court directs. If a majority in number representing three-
fourths in value of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any
reorganization of the Corporation as a consequence of such
compromise or arrangement, said compromise or arrangement and said
reorganization shall, if sanctioned by the court to which said
application has been made, be binding on all the creditors or class
of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on
the Corporation.
ELEVENTH: The Corporation reserves the right to amend, alter, change, add to,
or repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by statute; and all rights herein conferred
are granted subject to this reservation.
Notwithstanding anything contained in this Certificate of Incorporation to the
contrary, either (a) the recommendation of a majority of the Continuing
Directors together with the affirmative vote of the holders of record of a
majority of the Voting Stock or (b) the affirmative vote of the holders of
record of at least seventy-five percent of the Voting Stock shall be required
to alter, amend, repeal, or adopt any provision inconsistent with Section 3
and 5 of Article FOURTH hereof, Article EIGHTH hereof, Article NINTH hereof,
paragraphs (c), (d), and (h) of Article TENTH hereof, this Article ELEVENTH,
and Article VIII of the By-Laws.
TWELFTH: To the full extent that the Delaware General Corporation Law, as it
exists on the date hereof or may hereafter be amended, permits the limitation
or elimination of the liability of directors, a director of the Corporation
shall not be liable to the Corporation or its stockholders for monetary damages
for conduct as a director. Any amendment to or repeal of this Article TWELFTH
shall not adversely affect any right or protection of a director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
44
<PAGE> 45
THE BOEING COMPANY
By: /s/ Philip M. Condit
--------------------------
Philip M. Condit
Chairman of the Board
ATTEST:
/s/ Heather Howard
-------------------------
Heather Howard
Corporate Secretary
45
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