<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrants [X]
Filed by a Party other than the Registrants [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
------------------------
Joint Filing by:
THE BOEING COMPANY AND MCDONNELL DOUGLAS CORPORATION
- --------------------------------------------------------------------------------
(Name of Each Registrant as Specified in Its Charter)
THE BOEING COMPANY AND MCDONNELL DOUGLAS CORPORATION
- --------------------------------------------------------------------------------
(Name of Persons Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
(i) Common stock, par value $5.00 per share, of The Boeing Company ("Boeing
Common Stock") and (ii) common stock, par value $1.00 per share, of McDonnell
Douglas Corporation ("McDonnell Douglas Common Stock"), to be acquired by The
Boeing Company in the transaction.
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
(i) 138,085,532 (or 276,171,063 if Boeing Common Stock is split two-for-one
prior to the consummation of the transaction), being the number of shares of
Boeing Common Stock expected to be issued in the transaction and (ii)
212,439,279, being the number of shares of McDonnell Douglas Common Stock
expected to be acquired in the transaction.
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
The filing fee of $2,782,955 is calculated in accordance with Rule 0-11(c)(1)
under the Securities Exchange Act of 1934 (the "Exchange Act") as follows:
one-fiftieth of one percent of the value of the Boeing Common Stock to be issued
to holders of McDonnell Douglas Common Stock in the transaction. The value of
the Boeing Common Stock was determined in accordance with Rule 0-11(a)(4) under
the Exchange Act based on the value of the McDonnell Douglas Common Stock to be
acquired by The Boeing Company in the transaction. The value of the McDonnell
Douglas Common Stock to be acquired was determined by multiplying (i) the number
of shares of McDonnell Douglas Common Stock expected to be acquired in the
transaction (212,439,279) by (ii) $65.50, the average of the high and low sale
prices for McDonnell Douglas Common Stock on the New York Stock Exchange
Composite Transactions Tape on March 21, 1997.
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$13,914,772,775.
- --------------------------------------------------------------------------------
(5) Total fee paid:
$2,782,955 ($2,777,621 of such fee was paid by wire transfer on March 26, 1997
and $5,334 of such fee was paid by check delivered on March 28, 1997.)
- --------------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11 (a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
LOGO
June 20, 1997
TO OUR SHAREHOLDERS:
On behalf of the Board of Directors and management of The Boeing Company, I
cordially invite you to attend a Special Meeting of Shareholders to be held in
the second-floor auditorium of the Company's 2-22 building, located at 7755 East
Marginal Way South in Seattle, Washington, on Friday, July 25, 1997, at 9:00
a.m., local time. A map and directions to the meeting are on the back of this
Joint Proxy Statement/ Prospectus. The Special Meeting will be accessible
through the use of a sign language interpreter.
At the Special Meeting, you will be asked to approve the issuance of Boeing
common stock (the "Share Issuance") pursuant to an Agreement and Plan of Merger
dated as of December 14, 1996 among Boeing, West Acquisition Corp., a
wholly-owned subsidiary of Boeing ("Sub"), and McDonnell Douglas Corporation
(the "Merger Agreement"). The Merger Agreement provides for the merger of Sub
into McDonnell Douglas (the "Merger"), with McDonnell Douglas surviving as a
wholly-owned subsidiary of Boeing. Subject to the terms and conditions of the
Merger Agreement, each share of McDonnell Douglas common stock outstanding
immediately prior to the effective time of the Merger will be converted into 1.3
shares of Boeing common stock. Cash will be paid in lieu of any fractional share
of Boeing common stock.
THE BOARD OF DIRECTORS OF BOEING HAS UNANIMOUSLY DETERMINED THAT THE MERGER
AND THE SHARE ISSUANCE ARE IN THE BEST INTERESTS OF BOEING AND ITS SHAREHOLDERS
AND HAS APPROVED THE MERGER AGREEMENT. THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU
VOTE IN FAVOR OF THE SHARE ISSUANCE AT THE SPECIAL MEETING.
The Merger, the Merger Agreement and the Share Issuance are described in
the accompanying Joint Proxy Statement/Prospectus. We urge you to read this
material carefully. If you have any questions about the meeting or the Merger,
please call D.F. King, our proxy solicitation agent, toll free at (800) 290-6428
or collect at (212) 269-5550.
Please complete and return the enclosed proxy card whether or not you plan
to attend the Special Meeting. If your shares are registered in your name and
you do attend and wish to vote in person, you can revoke your proxy at that
time.
Sincerely,
/s/ PHILIP M. CONDIT
PHILIP M. CONDIT
Chairman of the Board and
Chief Executive Officer
<PAGE> 3
THE BOEING COMPANY
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
JULY 25, 1997
------------------------
A Special Meeting of Shareholders (the "Special Meeting") of The Boeing
Company, a Delaware corporation ("Boeing"), will be held in the second floor
auditorium of the Boeing 2-22 building, located at 7755 East Marginal Way South
in Seattle, Washington, on Friday, July 25, 1997, at 9:00 a.m., local time, to
consider and vote on a proposal to approve the issuance of shares of common
stock, $5.00 par value, of Boeing ("Boeing Common Stock") pursuant to an
Agreement and Plan of Merger dated as of December 14, 1996 (the "Merger
Agreement") among Boeing, West Acquisition Corp., a Maryland corporation and a
wholly-owned subsidiary of Boeing, and McDonnell Douglas Corporation, a Maryland
corporation (the "Share Issuance").
A copy of the Merger Agreement is attached to the accompanying Joint Proxy
Statement/Prospectus as Annex I.
Shareholders of record at the close of business on June 13, 1997 are
entitled to receive notice of and to vote at the Special Meeting and any
adjournment or postponement of the meeting. Approval of the Share Issuance
requires the affirmative vote of a majority of the votes cast on the Share
Issuance; provided, however, that the total number of votes cast on the proposal
represents more than 50% of the outstanding shares of Boeing Common Stock
entitled to vote thereon at the Special Meeting.
It is important that your shares of Boeing Common Stock be represented at
the Special Meeting regardless of the number of shares you hold. You are urged
to specify your voting preference by marking, dating and signing the enclosed
proxy card and returning it in the enclosed business reply envelope. No postage
is required if mailed in the United States. If you wish to vote in accordance
with the recommendations of the Boeing Board of Directors, all you need to do is
date and sign the proxy card and return it in the enclosed envelope.
If your shares are not registered in your name and you would like to attend
the Special Meeting, please ask the broker, trust company, bank or other nominee
that holds such shares to provide you with evidence of your share ownership on
June 13, 1997, which will enable you to gain admission to the Special Meeting.
PLEASE COMPLETE AND RETURN THE PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING. If your shares are registered in your name and you do attend
and wish to vote in person, you may revoke your proxy at that time.
In accordance with the General Corporation Law of the State of Delaware, a
complete list of the holders of record of Boeing Common Stock entitled to vote
at the Special Meeting will be open to examination, during ordinary business
hours at Boeing headquarters for 10 days preceding the Special Meeting, by any
Boeing stockholder for any purpose germane to the Special Meeting.
By order of the Board of Directors
/s/ HEATHER HOWARD
HEATHER HOWARD
Corporate Secretary and
Corporate Counsel
7755 East Marginal Way South
Seattle, Washington 98108
June 20, 1997
REGARDLESS OF WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD APPOINTING CHARLES M. PIGOTT,
FRANK SHRONTZ AND GEORGE H. WEYERHAEUSER AS YOUR PROXIES.
<PAGE> 4
THE BOEING COMPANY
AND
MCDONNELL DOUGLAS CORPORATION
JOINT PROXY STATEMENT
------------------------
THE BOEING COMPANY
PROSPECTUS
SHARES OF COMMON STOCK,
PAR VALUE $5.00 PER SHARE
------------------------
This Joint Proxy Statement/Prospectus is being furnished to the holders of
common stock, $5.00 par value ("Boeing Common Stock"), of The Boeing Company, a
Delaware corporation ("Boeing"), in connection with the solicitation of proxies
by the Board of Directors of Boeing (the "Boeing Board") for use at a Special
Meeting of Shareholders of Boeing to be held in the second floor auditorium of
the Boeing 2-22 building, located at 7755 East Marginal Way South in Seattle,
Washington, on July 25, 1997, and at any and all adjournments or postponements
thereof (the "Boeing Special Meeting").
This Joint Proxy Statement/Prospectus is also being furnished to the holders
of common stock, par value $1.00 per share ("McDonnell Douglas Common Stock"),
of McDonnell Douglas Corporation, a Maryland corporation ("McDonnell Douglas"),
in connection with the solicitation of proxies by the Board of Directors of
McDonnell Douglas (the "McDonnell Douglas Board") for use at a Special Meeting
of Shareholders of McDonnell Douglas to be held at McDonnell Douglas'
Engineering Campus Auditorium (Bldg. 33) at Lindbergh Blvd. and McDonnell Blvd.,
in St. Louis County, Missouri, on July 25, 1997, and at any and all adjournments
or postponements thereof (the "McDonnell Douglas Special Meeting" and, together
with the Boeing Special Meeting, the "Special Meetings").
This Joint Proxy Statement/Prospectus relates to the Agreement and Plan of
Merger dated as of December 14, 1996 (the "Merger Agreement") among Boeing, West
Acquisition Corp., a Maryland corporation and a wholly-owned subsidiary of
Boeing ("Sub"), and McDonnell Douglas, which provides for the merger of Sub with
and into McDonnell Douglas (the "Merger"), with McDonnell Douglas surviving as a
wholly-owned subsidiary of Boeing. Subject to the terms and conditions of the
Merger Agreement, each share of McDonnell Douglas Common Stock outstanding
immediately prior to the Effective Time (as hereinafter defined) of the Merger
will be converted into 1.3 shares (the "Conversion Number") of Boeing Common
Stock, including (if the Boeing Rights (as hereinafter defined) are then
outstanding) rights to purchase shares of Series A Junior Participating
Preferred Stock, without par value ("Boeing Series A Preferred Stock"), of
Boeing ("Boeing Rights"). See Section 8(p), "THE MERGER -- Boeing Rights." Cash
will be paid in lieu of any fractional share of Boeing Common Stock.
The consummation of the Merger is subject, among other things, to (i) the
approval of the issuance of Boeing Common Stock pursuant to the Merger in
accordance with the terms of the Merger Agreement (the "Share Issuance") by the
affirmative vote of a majority of the votes cast on the Share Issuance at the
Boeing Special Meeting; provided, however, that the total number of votes cast
on such proposal represents more than 50% of the outstanding shares of Boeing
Common Stock entitled to vote thereon at the Boeing Special Meeting; (ii) the
approval of the Merger by holders of two-thirds of the outstanding shares of
McDonnell Douglas Common Stock; and (iii) the receipt of certain regulatory
approvals. A copy of the Merger Agreement is attached hereto as Annex I.
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
Boeing filed as part of a Registration Statement on Form S-4 (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
shares of Boeing Common Stock constituting the Share Issuance. It is anticipated
that approximately 278,796,000 shares of Boeing Common Stock will be issued in
the Share Issuance, representing approximately 28% of the shares of Boeing
Common Stock expected to be issued after giving effect to the consummation of
the Merger.
Boeing Common Stock is listed for trading under the symbol "BA" on the New
York Stock Exchange (the "NYSE"), and McDonnell Douglas Common Stock is listed
for trading under the symbol "MD" on the NYSE and the Pacific Stock Exchange
(the "PSE"). On December 13, 1996, the last trading day prior to the execution
of the Merger Agreement, the last reported sale prices of Boeing Common Stock
and McDonnell Douglas Common Stock, as reported on the NYSE Composite
Transactions Tape, were $48.375 per share (adjusted for the Boeing Stock Split
described herein) and $52.00 per share, respectively. On June 19, 1997, the last
trading day prior to the date of this Joint Proxy Statement/Prospectus, the last
reported sale prices of Boeing Common Stock and McDonnell Douglas Common Stock,
as reported on the NYSE Composite Transactions Tape, were $56.500 per share and
$69.750 per share, respectively, and the equivalent pro forma sale price of
McDonnell Douglas Common Stock (determined by multiplying the last reported sale
price of Boeing Common Stock by the Conversion Number) was $73.450 per share.
FOR A DESCRIPTION OF CERTAIN SIGNIFICANT CONSIDERATIONS IN CONNECTION WITH
THE MERGER AND RELATED MATTERS DESCRIBED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, SEE SECTION 5, "RISK FACTORS" BEGINNING ON PAGE 18.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to shareholders of Boeing and shareholders of McDonnell
Douglas on or about June 23, 1997.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/ PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Joint Proxy Statement/Prospectus is June 20, 1997.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<C> <S> <C>
1. AVAILABLE INFORMATION......................... 3
2. INCORPORATION OF DOCUMENTS BY REFERENCE.......
3
3. CAUTIONARY STATEMENT.......................... 5
4. SUMMARY....................................... 6
(a) The Companies............................ 6
(b) Boeing Special Meeting................... 7
(c) McDonnell Douglas Special Meeting........ 7
(d) The Merger and the Merger Agreement...... 8
(e) The Boeing Company Selected Consolidated
Financial Data......................... 13
(f) McDonnell Douglas Corporation Selected
Consolidated Financial Data............ 14
(g) The Boeing Company Selected Unaudited Pro
Forma Combined Financial Data.......... 15
(h) Comparative Per Share Data of Boeing and
McDonnell Douglas...................... 16
(i) Market Prices and Dividends.............. 17
(j) The Boeing Stock Split; Effect on
Conversion Number...................... 17
5. RISK FACTORS.................................. 18
6. BOEING SPECIAL MEETING........................ 20
(a) Purpose.................................. 20
(b) Record Date; Voting Rights............... 20
(c) Quorum................................... 21
(d) Proxies.................................. 21
(e) Solicitation of Proxies.................. 22
(f) Required Vote............................ 22
(g) Share Ownership of Management............ 22
7. MCDONNELL DOUGLAS SPECIAL MEETING.............
22
(a) Purpose.................................. 22
(b) Record Date; Voting Rights............... 23
(c) Quorum................................... 23
(d) Proxies.................................. 23
(e) Solicitation of Proxies.................. 24
(f) Required Vote............................ 24
(g) Share Ownership of Management............ 24
8. THE MERGER.................................... 25
(a) General.................................. 25
(b) Background of the Merger................. 25
(c) Boeing's Reasons for the Merger;
Recommendation of the Boeing Board..... 29
(d) Opinion of Boeing's Financial Advisor.... 31
(e) McDonnell Douglas' Reasons for the
Merger; Recommendation of the McDonnell
Douglas Board.......................... 35
(f) Opinion of McDonnell Douglas' Financial
Advisor................................ 38
(g) Composition of the Boeing Board.......... 42
(h) Executive Officers of Boeing............. 43
(i) Interests of Certain Persons in the
Transaction............................ 43
(j) Certain Federal Income Tax
Consequences........................... 46
(k) Anticipated Accounting Treatment......... 47
(l) Issuance of Additional Shares of
McDonnell Douglas Common Stock......... 47
(m) Governmental and Regulatory Approvals.... 48
(n) Percentage Ownership Interest of
McDonnell Douglas Shareholders After
the Merger............................. 49
(o) Absence of Appraisal Rights.............. 50
(p) Boeing Rights............................ 50
(q) McDonnell Douglas Rights................. 50
(r) Stock Exchange Listing................... 50
(s) Delisting and Deregistration of McDonnell
Douglas Common Stock................... 50
<CAPTION>
SECTION PAGE
- ------- ----
<C> <S> <C>
(t) Conduct of the Business of McDonnell
Douglas and Boeing if the Merger is Not
Consummated............................ 50
(u) Resales of Boeing Common Stock........... 50
(v) Coordination of Dividends................ 51
9. OTHER TERMS OF THE MERGER AGREEMENT...........
51
(a) Conversion of Shares in the Merger....... 51
(b) Exchange Agent; Procedures for Exchange
of Certificates........................ 52
(c) No Fractional Shares..................... 54
(d) Representations and Warranties........... 55
(e) Conduct of Business Pending the Merger... 55
(f) No Solicitation.......................... 58
(g) Conditions Precedent to the Merger....... 58
(h) McDonnell Douglas Stock Options.......... 59
(i) Employee Benefits and Restricted Stock... 59
(j) Indemnification; Directors' and Officers'
Insurance.............................. 60
(k) Termination.............................. 60
(l) Fees and Expenses........................ 61
(m) Termination Fee.......................... 61
(n) Amendment................................ 62
(o) Waiver................................... 62
10. UNAUDITED PRO FORMA COMBINED FINANCIAL
INFORMATION................................. 63
11. BOEING STOCK SPLIT............................ 68
12. COMPARISON OF THE RIGHTS OF HOLDERS OF BOEING
COMMON STOCK AND MCDONNELL DOUGLAS COMMON
STOCK.......................................
68
(a) Authorized Capital....................... 68
(b) Number of Directors; Election of
Directors; Removal; Vacancies.......... 68
(c) Charter Amendments....................... 69
(d) By-law Amendments........................ 70
(e) Advance Notice of Director Nominations
and New Business....................... 71
(f) Special Shareholder Meetings............. 71
(g) Cumulative Voting........................ 71
(h) Shareholder Action Without a Meeting..... 71
(i) Rights Plans............................. 72
(j) Business Combinations.................... 73
(k) State Takeover Legislation............... 73
(l) Standard of Conduct for Directors........ 75
(m) Indemnification of Directors and
Officers............................... 75
(n) Limitation of Personal Liability of
Directors and Officers................. 76
(o) Appraisal Rights......................... 77
(p) Preemptive Rights........................ 77
(q) Denial of Voting Rights.................. 78
(r) Payment of Dividends..................... 78
(s) Inspection of Books and Records.......... 78
13. BUSINESS OF BOEING............................ 79
14. BUSINESS OF MCDONNELL DOUGLAS................. 82
15. OWNERSHIP OF MCDONNELL DOUGLAS COMMON STOCK...
84
16. SHAREHOLDER PROPOSALS FOR 1998................ 86
17. EXPERTS....................................... 86
18. LEGAL OPINIONS................................ 87
19. ANNUAL REPORT AND FORM 10-K................... 87
ANNEXES
ANNEX I MERGER AGREEMENT
ANNEX II OPINION OF CREDIT SUISSE FIRST
BOSTON CORPORATION
ANNEX III OPINION OF J.P. MORGAN SECURITIES
INC.
</TABLE>
2
<PAGE> 6
1. AVAILABLE INFORMATION
Boeing and McDonnell Douglas are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the SEC. Such reports, proxy statements and other information may be inspected
and copied at the public reference facilities maintained by the SEC at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following Regional Offices of the SEC: Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material may also be obtained from the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington D.C.
20549, at prescribed rates. The SEC also maintains a World Wide Web site that
contains reports, proxy and information statements, and other information
regarding registrants (including Boeing and McDonnell Douglas) that file
electronically with the SEC (http://www.sec.gov). Boeing Common Stock is listed
on the NYSE and reports, proxy statements and other information relating to
Boeing can be inspected at the NYSE, 20 Broad Street, New York, New York 10005.
McDonnell Douglas Common Stock is listed on the NYSE and the PSE and reports,
proxy statements and other information relating to McDonnell Douglas can be
inspected at the NYSE, 20 Broad Street, New York, New York 10005 or the PSE, 301
Pine Street, San Francisco, California 94104.
This Joint Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. Reference is
made to the Registration Statement and the exhibits thereto for further
information. Exhibits to the Registration Statement that are omitted from the
Joint Proxy Statement/Prospectus may also be obtained at the SEC's World Wide
Web site described above. Statements contained or incorporated by reference
herein concerning the provisions of any agreement or other document filed as an
exhibit to the Registration Statement or otherwise filed with the SEC are not
necessarily complete, and readers are referred to the copy so filed for more
detailed information, each such statement being qualified in its entirety by
such reference.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS
(OTHER THAN EXHIBITS THERETO WHICH ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER OF SHARES OF BOEING COMMON STOCK OR MCDONNELL DOUGLAS COMMON
STOCK TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS SENT, UPON WRITTEN OR
ORAL REQUEST TO, IN THE CASE OF DOCUMENTS RELATING TO BOEING, DATA SHIPPING
DEPARTMENT, THE BOEING COMPANY, P.O. BOX 3707, MAIL STOP 3T-33, SEATTLE,
WASHINGTON 98124-2207, TELEPHONE (206) 393-4964 AND, IN THE CASE OF DOCUMENTS
RELATING TO MCDONNELL DOUGLAS, MCDONNELL DOUGLAS CORPORATION, ATTN: SHAREHOLDER
SERVICES, MAIL CODE S1001240, P.O. BOX 516, ST. LOUIS, MISSOURI 63166-0516,
TELEPHONE (314) 232-6283. IN ORDER TO ENSURE DELIVERY OF DOCUMENTS PRIOR TO THE
APPLICABLE SPECIAL MEETING, ANY SUCH REQUEST SHOULD BE MADE NOT LATER THAN JULY
15, 1997.
2. INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents heretofore filed with the SEC pursuant to the
Exchange Act are incorporated herein by reference:
1. the Boeing Proxy Statement on Schedule 14A dated March 10, 1997
(File No. 1-442);
2. the Boeing Annual Report on Form 10-K for the year ended December
31, 1996 (File No. 1-442);
3. the Boeing Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997 (File No. 1-442);
4. the Boeing Registration Statement on Form 10 (Registration No.
1-442) with respect to Boeing Common Stock and filed with the SEC on April
20, 1935, under Section 12(b) of the Exchange Act, including any amendments
or reports filed for the purpose of updating such registration;
3
<PAGE> 7
5. the description of the Boeing Rights contained in the Boeing
Registration Statement on Form 8-A dated July 30, 1987 (File No. 1-442);
6. the McDonnell Douglas Proxy Statement on Schedule 14A dated March
17, 1997 (File No. 1-3685);
7. the McDonnell Douglas Annual Report on Form 10-K for the year
ended December 31, 1996 (File No. 1-3685);
8. the McDonnell Douglas Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997 (File No. 1-3685);
9. the description of McDonnell Douglas Common Stock contained in
McDonnell Douglas' Registration Statement on Form 10 filed under the
Exchange Act, as amended under cover of Form 8 on March 10, 1981 (File No.
1-3685), and as supplemented by the description of such Common Stock
contained under the following captions: (i) "Proposal to Amend MDC's
Charter" in the McDonnell Douglas proxy statement dated March 20, 1984,
(ii) "Proposal to Amend Indemnification Bylaw" in the McDonnell Douglas
proxy statement dated March 20, 1985, (iii) "Proposal to Amend Article
Fifth of MDC's Charter to Classify the Board of Directors with Staggered
Terms of Office and Certain Other Matters" in the McDonnell Douglas proxy
statement dated March 24, 1986, (iv) "Amendment of MDC's Charter to Reduce
the Shareholder Vote Required for Certain Amendments to the Charter from
Two-Thirds Majority to a Majority of the Outstanding Shares Entitled to
Vote" in the McDonnell Douglas proxy statement dated March 17, 1987, and
(v) "Amendment of MDC's Charter to Limit Directors' and Officers'
Liability" in the McDonnell Douglas proxy statement dated March 21, 1988;
and
10. the description of the McDonnell Douglas Preferred Stock Purchase
Rights contained in the McDonnell Douglas Registration Statement on Form
8-A filed under the Exchange Act on August 6, 1990 (File No. 1-10592), as
supplemented by the description of the Amended and Restated Rights
Agreement in the McDonnell Douglas Current Report on Form 8-K filed with
the SEC on June 3, 1996.
All reports and other documents filed by either Boeing or McDonnell Douglas
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Joint Proxy Statement/Prospectus and prior to the date of its
Special Meeting shall be deemed to be incorporated by reference herein and to be
a part hereof from the dates of filing of such reports and documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Joint Proxy Statement/Prospectus to the extent that a statement contained
herein, or in any other subsequently filed document that also is incorporated or
deemed to be incorporated by reference herein, modifies or supersedes the
earlier statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR REPRESENTATIONS
WITH RESPECT TO THE MATTERS DESCRIBED IN THIS JOINT PROXY STATEMENT/PROSPECTUS
OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY EITHER BOEING OR MCDONNELL DOUGLAS. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES, NOR DOES IT CONSTITUTE THE SOLICITATION OF A
PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF BOEING OR MCDONNELL DOUGLAS SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
------------------------
4
<PAGE> 8
3. CAUTIONARY STATEMENT
When used in this Joint Proxy Statement/Prospectus with respect to Boeing,
the words "estimate," "project," "intend," "expect" and similar expressions are
intended to identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date of this Joint Proxy Statement/Prospectus. Such statements are subject
to risks and uncertainties that could cause actual results to differ materially
from those contemplated in such forward-looking statements. Such risks and
uncertainties include those risks, uncertainties and risk factors identified
under the heading "Forward-Looking Information Is Subject to Risk and
Uncertainty" accompanying "Management's Discussion and Analysis of Results of
Operations, Financial Condition and Business Environment" that is in the Boeing
1996 Annual Report to shareholders and that is incorporated by reference in the
Boeing Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
Boeing does not undertake any obligation to publicly release any revisions to
these forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
When used in this Joint Proxy Statement/Prospectus with respect to
McDonnell Douglas, the words "estimate," "project," "intend," "expect" and
similar expressions are intended to identify forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of this Joint Proxy Statement/Prospectus. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward-looking
statements. Such risks and uncertainties include those risks, uncertainties and
risk factors identified under the heading "Forward-Looking Information Is
Subject to Risk and Uncertainty" accompanying "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that is in the
McDonnell Douglas 1996 Annual Report to shareholders and that is incorporated by
reference in the McDonnell Douglas Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 and those risks, uncertainties and risk factors
identified in the McDonnell Douglas Current Report on Form 8-K filed with the
SEC on April 17, 1996. McDonnell Douglas does not undertake any obligation to
publicly release any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
------------------------
As used in this Joint Proxy Statement/Prospectus, unless the context
otherwise clearly requires: "Boeing" refers to The Boeing Company and its
consolidated subsidiaries, and "McDonnell Douglas" refers to McDonnell Douglas
Corporation and its consolidated subsidiaries. All information contained in this
Joint Proxy Statement/Prospectus with respect to Boeing and Sub has been
provided by Boeing. All information contained in this Joint Proxy
Statement/Prospectus with respect to McDonnell Douglas has been provided by
McDonnell Douglas. In February 1997, the Boeing Board declared a two-for-one
stock split with a record date of May 16, 1997, subject to shareholder approval
of an increase in the number of authorized shares of Boeing stock (the "Boeing
Stock Split"). The shareholders of Boeing approved the increase in the number of
authorized shares of Boeing stock at the Boeing annual meeting of shareholders
held on April 28, 1997 (the "Boeing Annual Meeting"). Unless otherwise stated,
all information contained in this Joint Proxy Statement/Prospectus gives effect
to the Boeing Stock Split. Unless otherwise stated, all information contained in
this Joint Proxy Statement/Prospectus also gives effect to a three-for-one split
of McDonnell Douglas Common Stock effected on January 3, 1995, and a two-for-one
split of McDonnell Douglas Common Stock effected on May 31, 1996.
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4. SUMMARY
The following is a summary of certain information contained elsewhere or
incorporated by reference in this Joint Proxy Statement/Prospectus. Reference is
made to, and this summary is qualified in its entirety by, the more detailed
information contained elsewhere or incorporated by reference in this Joint Proxy
Statement/Prospectus and the Annexes hereto.
------------------------
SHAREHOLDERS OF BOEING AND MCDONNELL DOUGLAS ARE URGED TO READ THIS JOINT
PROXY STATEMENT/ PROSPECTUS AND THE ANNEXES HERETO IN THEIR ENTIRETY.
------------------------
(a) The Companies
Boeing. Boeing is one of the world's major aerospace firms. Boeing
operates in two principal industries: commercial aircraft, and defense and
space. Commercial aircraft operations -- conducted through Boeing Commercial
Airplane Group -- involve development, production and marketing of commercial
jet aircraft and providing related support services to the commercial airline
industry worldwide. Defense and space operations -- conducted through Boeing
Defense & Space Group -- involve research, development, production, modification
and support of military aircraft and helicopters and related systems, space and
missile systems, rocket engines, and information services, primarily through
U.S. government contracts. Approximately 75% of Boeing's 1996 revenues were
attributable to the commercial aircraft segment, and 25% were attributable to
the defense and space segment. The mailing address and telephone number of the
principal executive offices of Boeing are 7755 East Marginal Way South, Seattle,
Washington 98108 and (206) 655-2121. Boeing was originally incorporated in
Washington in 1916 and was reincorporated in Delaware in 1934.
McDonnell Douglas. McDonnell Douglas, its divisions and its subsidiaries
operate principally in four industry segments: military aircraft; missiles,
space, and electronic systems; commercial aircraft; and financial services and
other. The military aircraft segment accounted for 57%, the missiles, space, and
electronic systems segment 16%, the commercial aircraft segment 24%, and the
financial services and other segment 3%, in each case, of operating revenues for
the year ended December 31, 1996. Operations in the first two industry segments
are conducted primarily by McDonnell Douglas Aerospace and by Military Transport
Aircraft, unincorporated operating divisions of McDonnell Douglas, which are
engaged in design, development, production, and support of military transport
aircraft, attack and fighter aircraft and training systems, military and
commercial helicopters and ordnance, tactical missiles, satellite launching
vehicles, space station design and development and space station shuttle payload
integration, and defense electronic components and systems. Operations in the
commercial aircraft segment are conducted by Douglas Aircraft Company ("DAC"),
an unincorporated operating division of McDonnell Douglas, which designs,
develops, produces, modifies and sells commercial transport aircraft and related
spare parts and support services. Through its McDonnell Douglas Financial
Services Corporation subsidiary, McDonnell Douglas is engaged in aircraft
financing and commercial equipment leasing. McDonnell Douglas' subsidiary,
McDonnell Douglas Realty Company, is a full-service developer and property
manager in the commercial real estate market as well as for McDonnell Douglas'
aerospace business. The mailing address of the principal executive offices of
McDonnell Douglas is Post Office Box 516, St. Louis, Missouri, 63166-0516; its
telephone number is (314) 232-0232. McDonnell Douglas was incorporated in
Maryland in 1939 under the name McDonnell Aircraft Corporation. On April 19,
1967, its shareholders approved the merger with DAC and the name of the
corporation was changed to McDonnell Douglas Corporation.
Sub. Sub was incorporated in Maryland on December 13, 1996, solely for the
purpose of consummating the Merger and the other transactions contemplated by
the Merger Agreement. Sub has minimal assets and no business and has carried on
no activities that are not directly related to its formation and its execution
of the Merger Agreement. The mailing address and telephone number of the
principal executive offices of Sub are 7755 East Marginal Way South, Seattle,
Washington 98108 and (206) 655-2121.
The Combined Company. With respect to the combined company, approximately
64% of the pro forma combined revenues for the year ending December 31, 1996,
were attributable to Boeing and 36% were
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attributable to McDonnell Douglas. As of December 31, 1996, approximately 72% of
the pro forma assets of the combined company were attributable to Boeing and 28%
were attributable to McDonnell Douglas.
There are currently no plans for the combined company to change the nature
of the operations described in the Boeing and McDonnell Douglas paragraphs
above, except to pursue consolidations that will result in operational
efficiencies.
(b) BOEING SPECIAL MEETING
Purpose. The Boeing Special Meeting will be held in the second floor
auditorium of the Boeing 2-22 building, located at 7755 East Marginal Way South
in Seattle, Washington, on Friday, July 25, 1997, to consider and vote on a
proposal to approve the Share Issuance (defined above as the issuance of Boeing
Common Stock pursuant to the Merger in accordance with the terms of the Merger
Agreement). The Boeing By-Laws provide that only such business as is specified
in the notice of a special meeting may come before the meeting. See Section
6(a), "BOEING SPECIAL MEETING -- Purpose."
Record Date. Only holders of record of Boeing Common Stock at the close of
business on June 13, 1997 (the "Boeing Record Date") are entitled to receive
notice of and to vote at the Boeing Special Meeting. At the close of business on
June 9, 1997, there were 695,264,978 shares of Boeing Common Stock outstanding
and entitled to vote. Each such share entitles the registered holder thereof to
one vote. See Section 6(b), "BOEING SPECIAL MEETING -- Record Date; Voting
Rights."
Quorum. The holders of one-third of the shares of Boeing Common Stock
outstanding and entitled to vote must be present in person or represented by
proxy at the Boeing Special Meeting in order for a quorum to be present.
However, as described under "-- Required Vote" below, approval of the Share
Issuance will require that the total number of votes cast represents more than
50% of the outstanding shares of Boeing Common Stock entitled to vote thereon at
the Boeing Special Meeting. See Section 6(c), "BOEING SPECIAL
MEETING -- Quorum."
Required Vote. Approval of the Share Issuance will require the affirmative
vote of a majority of the votes cast on the Share Issuance; provided, however,
that the total number of votes cast on such proposal represents more than 50% of
the outstanding shares of Boeing Common Stock entitled to vote thereon at the
Boeing Special Meeting.
An abstention with respect to the Share Issuance will have the effect of a
vote cast against the Share Issuance. Brokers who hold shares of Boeing Common
Stock as nominees will not have discretionary authority to vote such shares on
the Share Issuance in the absence of instructions from the beneficial owners
thereof. Any votes that are not cast because the nominee-broker lacks such
discretionary authority will not be counted as votes cast on such proposal and
will have no effect on the vote. See Section 6(f), "BOEING SPECIAL
MEETING -- Required Vote."
Share Ownership of Management. At the close of business on June 9, 1997,
directors and executive officers of Boeing and their affiliates were the
beneficial owners of an aggregate of 8,881,118 (approximately 1.28%) of the
shares of Boeing Common Stock then outstanding and eligible to vote. See Section
6(g), "BOEING SPECIAL MEETING -- Share Ownership of Management."
(c) MCDONNELL DOUGLAS SPECIAL MEETING
Purpose. The McDonnell Douglas Special Meeting will be held at McDonnell
Douglas' Engineering Campus Auditorium (Bldg. 33) at Lindbergh Blvd. and
McDonnell Blvd., in St. Louis County, Missouri, on Friday, July 25, 1997, to
consider and vote upon a proposal to approve the Merger. The McDonnell Douglas
By-Laws provide that no business except that referred to in the accompanying
Notice of McDonnell Douglas Special Meeting may be transacted at the McDonnell
Douglas Special Meeting. See Section 7(a), "MCDONNELL DOUGLAS SPECIAL
MEETING -- Purpose."
Record Date. Only holders of record of McDonnell Douglas Common Stock at
the close of business on June 13, 1997 (the "McDonnell Douglas Record Date") are
entitled to receive notice of and to vote at the
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McDonnell Douglas Special Meeting. At the close of business on June 6, 1997,
there were 209,978,016 shares of McDonnell Douglas Common Stock outstanding,
each of which entitles the registered holder thereof to one vote. See Section
7(b), "MCDONNELL DOUGLAS SPECIAL MEETING -- Record Date; Voting Rights."
Quorum. The presence in person or by proxy of McDonnell Douglas
shareholders entitled to cast a majority of all the votes entitled to be cast at
the McDonnell Douglas Special Meeting will constitute a quorum for the
transaction of business. See Section 7(c), "MCDONNELL DOUGLAS SPECIAL
MEETING -- Quorum."
Required Vote. Approval of the Merger will require the affirmative vote of
holders of two-thirds of the outstanding shares of McDonnell Douglas Common
Stock. An abstention will have the effect of a vote cast against the Merger.
Brokers who hold shares of McDonnell Douglas Common Stock as nominees will not
have discretionary authority to vote such shares in the absence of instructions
from the beneficial owners thereof. Broker nonvotes will have the same effect as
votes cast against the Merger. See Section 7(f), "MCDONNELL DOUGLAS SPECIAL
MEETING -- Required Vote."
Share Ownership of Management. At the close of business on June 6, 1997,
directors and executive officers of McDonnell Douglas and their affiliates were
the beneficial owners of an aggregate of approximately 26,599,085 (approximately
12.67%) of the shares of McDonnell Douglas Common Stock then outstanding. See
Section 7(g), "MCDONNELL DOUGLAS SPECIAL MEETING -- Share Ownership of
Management."
(d) THE MERGER AND THE MERGER AGREEMENT
General. At the Effective Time (as defined in the next succeeding
paragraph) of the Merger, Sub will be merged with and into McDonnell Douglas,
with McDonnell Douglas continuing as the surviving corporation (the "Surviving
Corporation") and a wholly-owned subsidiary of Boeing. As a result of the
Merger, the separate corporate existence of Sub will cease and McDonnell Douglas
will succeed to all the rights and be responsible for all the obligations of Sub
in accordance with the Maryland General Corporation Law (the "MGCL"). Subject to
the terms and conditions of the Merger Agreement, each share of McDonnell
Douglas Common Stock outstanding immediately prior to the Effective Time will be
converted into 1.3 shares of Boeing Common Stock. Cash will be paid in lieu of
any fractional share of Boeing Common Stock. See Section 9(a), "OTHER TERMS OF
THE MERGER AGREEMENT -- Conversion of Shares in the Merger."
The Merger will become effective upon the filing of Articles of Merger with
the State Department of Assessments and Taxation of Maryland unless the Articles
of Merger provide for a later date of effectiveness (not to exceed 30 days after
the date that the Articles of Merger are so filed). The filing of the Articles
of Merger will occur as soon as practicable following the satisfaction or waiver
of the conditions set forth in the Merger Agreement. As used in the Merger
Agreement and herein, the time the Merger becomes effective will be the
"Effective Time." See Section 9(g), "OTHER TERMS OF THE MERGER AGREEMENT --
Conditions Precedent to the Merger."
Recommendation of the Boeing Board. The Boeing Board has unanimously
determined that the Merger and the Share Issuance are in the best interests of
Boeing and its shareholders and has approved the Merger Agreement. THE BOEING
BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF BOEING VOTE IN FAVOR OF
THE SHARE ISSUANCE AT THE BOEING SPECIAL MEETING. See Section 8(c), "THE
MERGER -- Boeing's Reasons for the Merger; Recommendation of the Boeing Board."
Opinion of Boeing's Financial Advisor. Credit Suisse First Boston
Corporation ("CSFB") has acted as financial advisor to Boeing in connection with
the Merger and has delivered its written opinion dated December 14, 1996 to the
Boeing Board to the effect that, based upon and subject to the various
considerations set forth therein, as of the date of such opinion, the Conversion
Number was fair to Boeing from a financial point of view. The full text of the
written opinion of CSFB dated December 14, 1996, which
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<PAGE> 12
sets forth a description of the procedures followed, assumptions made, matters
considered and limitations on the review undertaken in connection with such
opinion, is attached hereto as Annex II and should be read carefully in its
entirety. The opinion of CSFB is directed to the Boeing Board and relates only
to the fairness to Boeing of the Conversion Number from a financial point of
view, does not address any other aspect of the Merger or any related matters and
does not constitute a recommendation to any shareholder as to how such
shareholder should vote at the Boeing Special Meeting. See Section 8(d), "THE
MERGER -- Opinion of Boeing's Financial Advisor."
Recommendation of the McDonnell Douglas Board. The McDonnell Douglas Board
has determined (by a twelve-to-one vote) that the Merger is in the best
interests of McDonnell Douglas and its shareholders and has approved the Merger
Agreement. THE MCDONNELL DOUGLAS BOARD RECOMMENDS THAT THE SHAREHOLDERS OF
MCDONNELL DOUGLAS VOTE IN FAVOR OF APPROVAL OF THE MERGER AT THE MCDONNELL
DOUGLAS SPECIAL MEETING. For a discussion of the interests that certain
executive officers of McDonnell Douglas have with respect to the Merger in
addition to their interests as shareholders of McDonnell Douglas generally and
information regarding the treatment of options to purchase shares of McDonnell
Douglas Common Stock and other equity-based awards and other rights of certain
members of the McDonnell Douglas Board, see Section 8(i), "THE
MERGER -- Interests of Certain Persons in the Transaction." Such interests,
together with other relevant factors, were considered by the McDonnell Douglas
Board in making its recommendation and approving the Merger Agreement. See
Section 8(e), "THE MERGER -- McDonnell Douglas' Reasons for the Merger;
Recommendation of the McDonnell Douglas Board."
Opinion of McDonnell Douglas' Financial Advisor. J.P. Morgan Securities
Inc. ("J.P. Morgan") has acted as financial advisor to McDonnell Douglas in
connection with the Merger and has delivered its written opinion dated December
14, 1996 to the McDonnell Douglas Board to the effect that, based upon and
subject to the various considerations set forth therein, as of the date of such
opinion, the consideration to be paid to McDonnell Douglas shareholders in
connection with the Merger was fair from a financial point of view to McDonnell
Douglas shareholders. The full text of J.P. Morgan's written opinion, which sets
forth a description of the assumptions made, matters considered and limitations
on the review undertaken, is attached hereto as Annex III and should be read
carefully in its entirety. J.P. Morgan's opinion is directed only to the
fairness of the consideration to be paid to McDonnell Douglas shareholders in
connection with the Merger from a financial point of view. J.P. Morgan's opinion
does not address any other aspect of the Merger or related transactions and does
not constitute a recommendation to any shareholder of McDonnell Douglas as to
how such shareholder should vote at the McDonnell Douglas Special Meeting. See
Section 8(f), "THE MERGER -- Opinion of McDonnell Douglas' Financial Advisor."
Composition of the Boeing Board of Directors. The Merger Agreement
provides that, immediately following the Effective Time, the Boeing Board will
fix the number of directors constituting the Boeing Board at between 12 and 15
members, and the McDonnell Douglas Board will select from among the current
members of the McDonnell Douglas Board such number of individuals acceptable to
Boeing for nomination as directors of Boeing as will constitute one-third of
such total number of members of the Boeing Board, allocated as equally as
practicable among the different classes of directors. The Boeing Board will
consult with the McDonnell Douglas Board selection committee described herein
prior to such selection so as to indicate to the committee which individuals
would be acceptable to Boeing. See Section 8(g), "THE MERGER -- Composition of
the Boeing Board."
Executive Officers of Boeing. The Merger Agreement provides that,
immediately following the Effective Time, Philip M. Condit will remain Chairman
of the Board and Chief Executive Officer of Boeing and Harry C. Stonecipher,
McDonnell Douglas' current President and Chief Executive Officer, will be
President and Chief Operating Officer of Boeing. See Section 8(h), "THE
MERGER -- Executive Officers of Boeing."
Interests of Certain Persons in the Transaction. In considering the
recommendation of the Merger by the McDonnell Douglas Board, the shareholders of
McDonnell Douglas should be aware that certain directors and executive officers
of McDonnell Douglas may be deemed to have conflicts of interest with respect to
the Merger; such interests, together with other relevant factors, were
considered by the McDonnell Douglas Board
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in recommending the Merger to the shareholders of McDonnell Douglas and
approving the Merger Agreement. Generally, the named executive officers (the
five most highly compensated executive officers of McDonnell Douglas) hold
restricted stock having the following aggregate value which will become vested
upon the approval by McDonnell Douglas shareholders of the Merger: Mr. Bavaria,
$1,677,000; Mr. Kuhlmann, $1,397,500; Mr. McDonnell, $0; Mr. Palmer, $1,537,250;
and Mr. Stonecipher, $8,385,000. In addition, if the employment of a named
executive officer were to terminate following the Merger in circumstances
entitling such named executive officer to payments pursuant to the employment or
severance agreement to which he is a party, then the following cash severance
payments for salary and incentive compensation continuation, short-year
incentive payment and cash termination lump sum payments (prior to any excise
tax gross-up payments) would be made to such named executive officer: Mr.
Kuhlmann, $2,966,269; Mr. Palmer, $3,235,693; and Mr. Stonecipher, $2,070,300;
in addition, increased payments for retirement savings and other benefits would
be payable to these and other executives. In addition, Mr. Stonecipher upon any
such termination would be paid stock equivalent units with an aggregate value,
based on the closing price of $69.875 per share on the NYSE Composite
Transactions Tape on June 10, 1997, of $17,608,500. See Section 8(i), "THE
MERGER -- Interests of Certain Persons in the Transaction" for a description of
the intention of Boeing and Mr. Stonecipher to enter into a written agreement to
confirm that Mr. Stonecipher's becoming President and Chief Operating Officer of
Boeing and relocating to Seattle will not constitute a breach of Mr.
Stonecipher's Employment Agreement (as defined below) entitling him to terminate
for "good reason." The approximate value of stock equivalent units which will be
paid to each director upon termination of his service with the McDonnell Douglas
Board is as follows: John H. Biggs, $296,600; B.A. Bridgewater, $296,600;
Beverly B. Byron, $296,600; William E. Cornelius, $296,600; William H. Danforth,
$360,400; Kenneth M. Duberstein, $365,400; William S. Kanaga, $375,800; James S.
McDonnell, $296,600; George A. Schaefer, $296,000; Ronald L. Thompson, $357,300;
and P. Roy Vagelos, $261,800. See Section 8(i), "THE MERGER -- Interests of
Certain Persons in the Transaction."
Certain Federal Income Tax Consequences. It is a condition to the
consummation of the Merger that McDonnell Douglas and Boeing receive an opinion
from their respective tax counsel to the effect that, for federal income tax
purposes, (i) the Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and (ii) no gain or loss will be recognized by Boeing, Sub, McDonnell Douglas or
its shareholders as a result of the Merger (other than with respect to cash paid
in lieu of fractional shares of Boeing Common Stock). See Section 8(j), "THE
MERGER -- Certain Federal Income Tax Consequences" and Section 9(g), "OTHER
TERMS OF THE MERGER AGREEMENT -- Conditions Precedent to the Merger."
Anticipated Accounting Treatment. The Merger is expected to be accounted
for as a pooling of interests in accordance with generally accepted accounting
principles. It is a condition to the consummation of the Merger that each of
Boeing and McDonnell Douglas receive a letter of its independent auditors, in
form and substance reasonably satisfactory to it, stating that they concur with
management's conclusion that the Merger will qualify as a transaction to be
accounted for as a pooling of interests. Because of purchases by McDonnell
Douglas of McDonnell Douglas Common Stock, McDonnell Douglas intends to issue
and sell up to 3,500,000 additional shares of McDonnell Douglas Common Stock
prior to the Effective Time in order to facilitate the treatment of the Merger
as a pooling of interests. See Section 8(l), "THE MERGER -- Issuance of
Additional Shares of McDonnell Douglas Common Stock," Section 8(k),
"-- Anticipated Accounting Treatment" and Section 9(g), "OTHER TERMS OF THE
MERGER AGREEMENT -- Conditions Precedent to the Merger."
Absence of Appraisal Rights. Under the General Corporation Law of the
State of Delaware (the "DGCL"), the shareholders of Boeing are not entitled to
appraisal rights with respect to the Share Issuance. Under the MGCL, the
shareholders of McDonnell Douglas are not entitled to dissenting shareholders'
appraisal rights with respect to the Merger. See Section 8(o), "THE
MERGER -- Absence of Appraisal Rights."
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Termination of the Merger Agreement; Fees and Expenses. The Merger
Agreement may be terminated at any time prior to the Effective Time, whether
before or after approval by the shareholders of Boeing of the Share Issuance or
approval by the shareholders of McDonnell Douglas of the Merger:
(i) by mutual written consent of Boeing and McDonnell Douglas;
(ii) by either Boeing or McDonnell Douglas if (A) the other materially
breaches any of its representations, warranties, covenants or agreements
contained in the Merger Agreement and does not cure such breach within 30
days after receipt of notice thereof, (B) the shareholders of McDonnell
Douglas fail to approve the Merger, or (C) the shareholders of Boeing fail
to approve the Share Issuance;
(iii) by either Boeing or McDonnell Douglas if (A) the Merger has not
been effected on or prior to December 31, 1997, subject to certain
limitations or (B) a statute, rule, regulation or executive order has been
enacted, or an order, decree, ruling or injunction has been entered, which
prohibits the consummation of the Merger substantially on the terms
contemplated in the Merger Agreement, subject to certain limitations;
provided, however, that a party seeking to terminate the Merger Agreement
must have used its reasonable best efforts to remove such injunction, order
or decree;
(iv) by either Boeing or McDonnell Douglas under specified
circumstances involving certain competing transactions; and
(v) by Boeing if a tender offer or exchange offer for 50% or more of
the outstanding shares of capital stock of McDonnell Douglas is commenced
prior to the McDonnell Douglas Special Meeting, and the McDonnell Douglas
Board fails to recommend against acceptance of such tender offer or
exchange offer within certain time periods.
See Section 9(k), "OTHER TERMS OF THE MERGER AGREEMENT -- Termination." The
Merger Agreement provides for the payment of fees in the amount of $200 million
following a termination of the Merger Agreement under certain circumstances. See
Section 9(m), "OTHER TERMS OF THE MERGER AGREEMENT -- Termination Fee."
No Solicitation. Pursuant to the Merger Agreement, McDonnell Douglas has
agreed that it will not, directly or indirectly, solicit, initiate or knowingly
encourage (including by way of furnishing information) any Takeover Proposal (as
defined herein) from any person, or engage in or continue discussions or
negotiations relating to any Takeover Proposal and will use its reasonable best
efforts not to permit any of its directors, officers, employees, attorneys,
financial advisors, agents and other authorized representatives to, directly or
indirectly, take any such action; provided, however, that McDonnell Douglas may
engage in discussions or negotiations with, or furnish information concerning
McDonnell Douglas and its subsidiaries, properties, assets and business to, any
third party that makes a Takeover Proposal if the McDonnell Douglas Board
concludes in good faith after consultation with its outside counsel that the
failure to take such action would present a reasonable possibility of violating
the obligations of the McDonnell Douglas Board to McDonnell Douglas or McDonnell
Douglas' shareholders under applicable law. See Section 9(f), "OTHER TERMS OF
THE MERGER AGREEMENT -- No Solicitation."
Conditions Precedent to the Merger. The obligations of Boeing, McDonnell
Douglas and Sub to effect the Merger are subject, among other things, to the
fulfillment of certain conditions, including without limitation: (i) approval of
the Merger by the requisite vote of the shareholders of McDonnell Douglas and
approval of the Share Issuance by the requisite vote of the shareholders of
Boeing; (ii) there not having been issued or in effect any provision of any
applicable law or regulation or any executive order, decree, ruling or
injunction prohibiting the consummation of the Merger substantially on the terms
contemplated by the Merger Agreement; (iii) the expiration or termination of any
waiting period applicable to the consummation of the Merger under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and the obtaining of all other approvals required to be obtained by
McDonnell Douglas and Boeing, except where the failure to obtain such approvals
would not have a Material Adverse Effect (as defined in Section 4.1 of the
Merger Agreement) on Boeing or McDonnell Douglas, as the case may be; (iv) the
effectiveness of the Registration Statement and the absence of a stop order
suspending such effectiveness; (v) the listing on the NYSE, subject only to
official notice of issuance, of the shares of Boeing Common Stock
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constituting the Share Issuance; (vi) each of Boeing and McDonnell Douglas
having received a letter of its independent auditors, in form and substance
reasonably satisfactory to it, stating that they concur with management's
conclusion that the Merger will qualify as a transaction to be accounted for as
a pooling of interests; and (vii) McDonnell Douglas and Boeing having received
an opinion of Skadden, Arps, Slate, Meagher & Flom LLP and Cravath, Swaine &
Moore, respectively, relating to certain tax matters.
The obligation of McDonnell Douglas to effect the Merger is also subject to
the fulfillment of certain additional conditions, including with respect to the
accuracy of the representations and warranties of Boeing and the performance in
all material respects of the obligations and covenants of Boeing under the
Merger Agreement.
The obligation of Boeing to effect the Merger is also subject to the
fulfillment of certain additional conditions, including with respect to the
accuracy of the representations and warranties of McDonnell Douglas and the
performance in all material respects of the obligations and covenants of
McDonnell Douglas under the Merger Agreement. See Section 9(g), "OTHER TERMS OF
THE MERGER AGREEMENT -- Conditions Precedent to the Merger."
Certain of the conditions precedent to the Merger (but not the conditions
described in (i) through (iv) above) may be waived by the party entitled to
assert the condition. The parties do not currently expect that it will be
necessary to waive any of the conditions precedent in order to consummate the
Merger and, accordingly, no determination has been made by either party whether
it would waive any waivable condition if required. According to press reports,
Karel Van Miert, the European Union Competition Commissioner, has stated his
view that Boeing will be required to make certain concessions in order to obtain
European antitrust clearance. Boeing and McDonnell Douglas do not believe that
Mr. Van Miert's public statements necessarily represent the official view of the
Commission of the European Community (the "European Commission"). The European
Commission's review of the Merger is expected to be completed by July 31, 1997.
See Section 5, "RISK FACTORS -- Necessity of Receiving Governmental Approvals
Prior to the Merger; Possible Divestitures and Operating Restrictions" and
Section 8(m), "THE MERGER -- Governmental and Regulatory Approvals." As of the
date of this Joint Proxy Statement/Prospectus, the companies do not currently
anticipate waiving condition (ii) above.
Percentage Ownership Interest of McDonnell Douglas Shareholders After the
Merger. Based on the number of shares of Boeing Common Stock outstanding on
June 9, 1997 and assuming the issuance of approximately 278,796,000 shares of
Boeing Common Stock constituting the Share Issuance, after giving effect to the
consummation of the Merger there will be approximately 1,000,400,000 shares of
Boeing Common Stock issued, of which the shareholders of McDonnell Douglas will
own approximately 28%.
Risk Factors. FOR A DESCRIPTION OF CERTAIN SIGNIFICANT CONSIDERATIONS IN
CONNECTION WITH THE MERGER AND RELATED MATTERS DESCRIBED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, SEE SECTION 5, "RISK FACTORS."
12
<PAGE> 16
(e) THE BOEING COMPANY
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data for Boeing for each of the five years in the period ended December 31, 1996
and for the three-month periods ended March 31, 1997 and 1996. Such data have
been derived from, and should be read in conjunction with, the audited
consolidated financial statements and other financial information contained in
Boeing's Annual Report on Form 10-K for the year ended December 31, 1996 and the
unaudited consolidated interim financial information contained in Boeing's
Quarterly Report on Form 10-Q for the three months ended March 31, 1997,
including the notes thereto, incorporated by reference herein. See Section 1,
"AVAILABLE INFORMATION" and Section 2, "INCORPORATION OF DOCUMENTS BY
REFERENCE."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- -------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Sales and other operating
revenues:
Commercial aircraft......... $ 5,336 $ 3,016 $16,904 $13,933 $16,851 $20,568 $24,133
Defense and space........... 1,982 1,277 5,777 5,582 5,073 4,870 6,051
------- ------- ------- ------- ------- ------- -------
Total................ $ 7,318 $ 4,293 $22,681 $19,515 $21,924 $25,438 $30,184
======= ======= ======= ======= ======= ======= =======
Net earnings.................. $ 377(1) $ 119 $ 1,095(2) $ 393(3) $ 856 $ 1,244 $ 552(4)
Per share................... 0.54(1) 0.17 1.59(2) 0.57(3) 1.26 1.83 0.81(4)
Percent of sales............ 5.2% 2.8% 4.8% 2.0% 3.9% 4.9% 1.8%
Cash dividends paid........... $ 101 $ 86 $ 379 $ 342 $ 340 $ 340 $ 340
Per share................... 0.14 0.12 0.55 0.50 0.50 0.50 0.50
Other income, principally
interest.................... 74 57 287 209 122 169 230
Research and development
expense..................... 343 293 1,200 1,267 1,704 1,661 1,846
Additions to plant and
equipment, net.............. 293 160 762 629 795 1,317 2,160
Depreciation of plant and
equipment................... 258 226 942 976 1,081 953 870
Salaries and wages............ $ 1,890 $ 1,393 $ 5,931 $ 5,341 $ 5,799 $ 6,087 $ 6,318
Average employment............ 143,000 104,000 112,000 109,400 119,400 134,400 148,600
FINANCIAL POSITION
(AT PERIOD END):
Total assets.................. $28,292 $22,674 $27,254 $22,098 $21,463 $20,450 $18,147
Cash and short-term
investments................. 5,514 4,532 5,258 3,730 2,643 3,108 3,614
Customer financing............ 759 1,208 798 1,865 3,321 3,177 2,295
Net plant and equipment....... 6,848 6,390 6,813 6,456 6,802 7,088 6,724
Total debt.................... 3,970 2,361 3,993 2,615 2,609 2,630 1,793
Shareholders' equity.......... 11,189 10,120 10,941 9,898 9,700 8,983 8,056
Per share................... 16.11 14.63 15.75 14.39 14.23 13.20 11.87
Common shares outstanding... 694.7 691.9 694.7 687.9 681.8 680.3 678.8
</TABLE>
- ---------------
(1) Includes after-tax income of $64 million, or $0.11 per share, for the change
in ShareValue Trust distributable appreciation and inclusion of shares held
by the Trust as outstanding.
(2) Includes an after-tax charge of $87 million, or $0.11 per share, for the
ShareValue Trust distributable appreciation and inclusion of shares held by
the Trust as outstanding.
(3) Includes an after-tax charge of $390 million, or $0.57 per share, associated
with a special retirement program.
(4) Includes an after-tax charge of $1,002 million, or $1.47 per share, related
to the cumulative effect of adopting Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions."
13
<PAGE> 17
(f) MCDONNELL DOUGLAS CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data for McDonnell Douglas for each of the five years in the period ended
December 31, 1996 and for the three-month periods ended March 31, 1997 and 1996.
Such data have been derived from, and should be read in conjunction with, the
audited consolidated financial statements and other financial information
contained in McDonnell Douglas' Annual Report on Form 10-K for the year ended
December 31, 1996 and the unaudited consolidated interim financial information
contained in McDonnell Douglas' Quarterly Report on Form 10-Q for the three
months ended March 31, 1997, including the notes thereto, incorporated by
reference herein. See Section 1, "AVAILABLE INFORMATION" and Section 2,
"INCORPORATION OF DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- -------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Operating revenue
Military aircraft.................. $ 1,946 $ 2,039 $ 7,952 $ 8,158 $ 7,804 $ 6,852 $ 7,238
Commercial aircraft................ 624 428 3,317 3,891 3,155 4,760 6,595
Missiles, space and electronic
systems.......................... 553 608 2,178 1,917 1,877 2,575 3,169
Financial services and other....... 101 87 367 334 326 287 352
------- ------- ------- ------- ------- ------- -------
Operating revenues................... $ 3,224 $ 3,162 $13,814 $14,300 $13,162 $14,474 $17,354
======= ======= ======= ======= ======= ======= =======
Net earnings (loss).................. $ 181 $ 198 $ 788 $ (416)(1) $ 598 $ 396 $ (781)(2)
Per share.......................... 0.86 0.89 3.64 (1.83)(1) 2.53 1.68 (3.35)(2)
Percent of sales................... 5.6% 6.3% 5.7% 4.5% 2.7%
Cash dividends declared.............. $ 25 $ 27 $ 104 $ 90 $ 65 $ 55 $ 55
Per share.......................... 0.12 0.12 0.48 0.40 0.28 0.23 0.23
Research and development expense..... 94 88 355 311 297 341 509
Additions to property, plant and
equipment.......................... 58 51 209 143 112 64 217
Depreciation and amortization........ 64 63 275 273 279 323 465
Salaries and wages................... $ 903 $ 810 $ 3,294 $ 3,347 $ 3,238 $ 3,464 $ 4,258
Employment at period end............. 63,639 63,194 63,873 63,612 65,760 70,016 87,377
FINANCIAL POSITION (AT PERIOD END):
Total assets......................... $11,606 $10,717 $11,631 $10,466 $12,216 $12,026 $13,781
Cash and short-term investments...... 706 563 1,094 797 421 86 82
Finance receivables and property on
lease.............................. 3,129 2,626 3,090 2,347 2,087 2,357 2,262
Net plant and equipment.............. 1,468 1,468 1,453 1,471 1,597 1,750 1,991
Notes payable and long-term debt:
Aerospace segments................. 1,417 1,234 1,438 1,251 1,272 1,625 2,767
Financial services and other
segment.......................... 1,956 1,755 1,995 1,469 1,297 1,513 1,474
Shareholders' equity................. 3,204 3,041 3,038 3,041 3,872 3,413 3,022
Per share.......................... 15.26 13.81 14.50 13.60 16.58 14.46 12.85
Common shares outstanding.......... 210.0 220.2 209.6 223.6 233.5 236.0 235.1
</TABLE>
- ---------------
(1) Includes an after-tax charge of $1.123 billion, or $4.95 per share, related
to the MD-11 commercial aircraft.
(2) Includes a net charge of $860 million, or $3.69 per share, related to the
initial adoption and subsequent curtailment gain associated with Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions."
14
<PAGE> 18
(g) THE BOEING COMPANY
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth selected unaudited pro forma combined
financial data for Boeing for each of the three years in the period ended
December 31, 1996, and for the three-month periods ended March 31, 1997 and
1996, which are presented to reflect the estimated impact on the historical
consolidated financial statements of Boeing of the Merger, which will be
accounted for as a pooling of interests, and the issuance of approximately 279
million shares of Boeing Common Stock constituting the Share Issuance. The
income statement data assume that the Merger had been consummated at the
beginning of the earliest period presented, and the balance sheet data assume
that the Merger had been consummated on January 1, 1994. The unaudited pro forma
combined financial data do not reflect any cost savings and other synergies nor
merger related expenses anticipated by Boeing management as a result of the
Merger and are not necessarily indicative of the results of operations or the
financial position which would have occurred had the Merger been consummated at
the beginning of the earliest period presented, nor are they necessarily
indicative of Boeing's future results of operations or financial position. The
unaudited pro forma combined data should be read in conjunction with the
historical consolidated financial statements of Boeing and McDonnell Douglas and
the Unaudited Pro Forma Combined Financial Information, including the notes
thereto, incorporated by reference or appearing elsewhere in this Joint Proxy
Statement/Prospectus. See Section 1, "AVAILABLE INFORMATION," Section 2,
"INCORPORATION OF DOCUMENTS BY REFERENCE" and Section 10, "UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- -------------------------------
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Sales and other operating revenues....... $10,359 $ 7,047 $35,453 $32,960 $34,969
Costs and expenses....................... 8,688 5,870 29,446 27,476 28,905
General and administrative expense....... 452 358 1,756 1,688 1,693
Research and development expense......... 479 400 1,633 1,674 2,076
MD-11 accounting charge.................. 1,838
Special retirement program expense....... 600
------- ------- ------- ------- -------
Earnings (loss) from operations........ 740 419 2,618 (316) 2,295
Other income, principally interest....... 103 79 388 280 194
Interest and debt expense................ (131) (102) (393) (376) (379)
ShareValue Trust appreciation............ 98 -- (133)
------- ------- ------- ------- -------
Earnings (loss) before income taxes.... 810 396 2,480 (412) 2,110
Income taxes (benefit)................... 270 134 662 (376) 627
------- ------- ------- ------- -------
Net earnings (loss)...................... $ 540 $ 262 $ 1,818 $ (36) $ 1,483
======= ======= ======= ======= =======
FINANCIAL POSITION (AT MARCH 31):
Total assets............................. $38,801
Total liabilities........................ 24,839
Long-term debt........................... 6,502
Shareholders' equity..................... 13,898
</TABLE>
See Section 10, Unaudited Pro Forma Combined Financial Information
15
<PAGE> 19
(h) COMPARATIVE PER SHARE DATA OF BOEING AND MCDONNELL DOUGLAS
The following table sets forth certain earnings, dividend and book value
per share data for Boeing and McDonnell Douglas on historical and pro forma
bases. The pro forma operating income data are derived from the Unaudited Pro
Forma Combined Statements of Operations appearing elsewhere herein, which give
effect to the Merger as a pooling of interests as if the Merger had been
consummated at the beginning of the earliest period presented. The pro forma
dividend data assume dividend payments consistent with Boeing's historical
payments. Book value data for all pro forma presentations is based upon the
number of outstanding shares of Boeing Common Stock, adjusted to include the
shares of Boeing Common Stock constituting the Share Issuance. All per share
data presented below does not take into account the issuance of additional
shares of McDonnell Douglas Common Stock described in Section 8(l) of this Joint
Proxy Statement/Prospectus. See "THE MERGER -- Issuance of Additional Shares of
McDonnell Douglas Common Stock." The information set forth below should be read
in conjunction with the historical consolidated financial statements of Boeing
and of McDonnell Douglas and the Unaudited Pro Forma Combined Financial
Information, including the notes thereto, incorporated by reference or appearing
elsewhere in this Joint Proxy Statement/Prospectus. See Section 1, "AVAILABLE
INFORMATION," Section 2, "INCORPORATION OF DOCUMENTS BY REFERENCE" and Section
10, "UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION."
The pro forma data do not reflect any cost savings and other synergies or
merger related expenses anticipated by Boeing management as a result of the
Merger.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- ------------------------------
1997 1996 1996 1995 1994
------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C>
BOEING HISTORICAL
Earnings per share........................ $ 0.54(1) $0.17 $ 1.59(2) $ 0.57(3) $1.26
Cash dividends paid per share............. 0.14 0.12 0.55 0.50 0.50
Book value per share...................... 16.11
MCDONNELL DOUGLAS HISTORICAL
Earnings (loss) per share................. $ 0.86 $0.89 $ 3.64 $(1.83)(4) $2.53
Cash dividends declared per share......... 0.12 0.12 0.48 0.40 0.28
Book value per share...................... 15.26
BOEING UNAUDITED PRO FORMA
Earnings (loss) per share from continuing
operations............................. $ 0.56(5) $0.27 $ 1.88(6) $(0.04)(7) $1.50
Cash dividends paid per share............. 0.14 0.12 0.55 0.50 0.50
Book value per share...................... 14.36
MCDONNELL DOUGLAS EQUIVALENT
Earnings (loss) per share................. $ 0.73 $0.35 $ 2.44 $(0.05) $1.95
Cash dividends paid per share............. 0.18 0.16 0.71 0.65 0.65
Book value per share...................... 18.67
</TABLE>
- ---------------
(1) Includes $0.11 per share after-tax income for the change in ShareValue Trust
distributable appreciation and inclusion of shares held by the Trust as
outstanding.
(2) Includes $0.11 per share after-tax charge for the ShareValue Trust
distributable appreciation and inclusion of shares held by the Trust as
outstanding.
(3) Includes $0.57 per share after-tax charge associated with a special
retirement plan.
(4) Includes $4.95 per share after-tax charge related to the MD-11 commercial
aircraft.
(5) Includes $0.08 per share after-tax income for the change in ShareValue Trust
distributable appreciation and inclusion of shares held by the Trust as
outstanding.
(6) Includes $0.07 per share after-tax charge for the ShareValue Trust
distributable appreciation and inclusion of shares held by the Trust as
outstanding.
(7) Includes $0.40 per share after-tax charge associated with a special
retirement plan, and $1.15 per share after-tax charge related to the MD-11
commercial aircraft.
16
<PAGE> 20
(i) MARKET PRICES AND DIVIDENDS
Boeing Common Stock is listed for trading on the NYSE under the symbol
"BA." McDonnell Douglas Common Stock is listed for trading on the NYSE and the
PSE under the symbol "MD." The following table sets forth, for the periods
indicated, the range of the high and low sale prices of Boeing Common Stock and
McDonnell Douglas Common Stock, as reported on the NYSE Composite Transactions
Tape, and the dividends paid per share of Boeing Common Stock and dividends
declared per share of McDonnell Douglas Common Stock. All information gives
effect to the Boeing Stock Split and a three-for-one split of McDonnell Douglas
Common Stock effected on January 3, 1995 and a two-for-one split of McDonnell
Douglas Common Stock effected on May 31, 1996.
<TABLE>
<CAPTION>
BOEING MCDONNELL DOUGLAS
COMMON STOCK COMMON STOCK
---------------------------- ----------------------------
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1994
First Quarter........................... $24.375 $21.063 $0.125 $20.438 $17.083 $ .058
Second Quarter.......................... 25.063 21.563 0.125 20.813 17.417 .058
Third Quarter........................... 24.125 21.250 0.125 20.021 18.333 .058
Fourth Quarter.......................... 24.188 21.313 0.125 24.292 19.083 .100
1995
First Quarter........................... $27.000 $22.188 $0.125 $29.000 $23.250 $ .100
Second Quarter.......................... 32.688 26.313 0.125 39.375 27.875 .100
Third Quarter........................... 36.188 30.188 0.125 43.063 37.813 .100
Fourth Quarter.......................... 40.000 31.000 0.125 46.063 38.250 .100
1996
First Quarter........................... $44.563 $37.688 $0.125 $48.594 $42.063 $ .120
Second Quarter.......................... 45.250 37.063 0.140 52.375 42.500 .120
Third Quarter........................... 48.000 39.938 0.140 53.250 42.500 .120
Fourth Quarter.......................... 53.750 45.125 0.140 66.500 49.000 .120
1997
First Quarter........................... $57.250 $49.313 $0.140 $71.750 $60.375 $ .120
Second Quarter (through June 19,
1997)................................ 58.000 47.000 0.140 71.375 56.000 .120
</TABLE>
Set forth below are the last reported sale prices of Boeing Common Stock
and McDonnell Douglas Common Stock on December 13, 1996, the last trading day
prior to the execution of the Merger Agreement, and on June 19, 1997, the last
trading day prior to the date of the Joint Proxy Statement/Prospectus, as well
as the equivalent pro forma sale prices of McDonnell Douglas Common Stock on
such dates, as determined by multiplying the applicable last reported sale price
of Boeing Common Stock by the Conversion Number.
<TABLE>
<CAPTION>
MCDONNELL MCDONNELL
BOEING DOUGLAS DOUGLAS
COMMON STOCK COMMON STOCK EQUIVALENT
------------ ------------ ---------
<S> <C> <C> <C>
December 13, 1996.................................... $ 48.375 $ 52.000 $62.888
June 19, 1997........................................ 56.500 69.750 73.450
</TABLE>
(j) THE BOEING STOCK SPLIT; EFFECT ON CONVERSION NUMBER
In February 1997, the Boeing Board declared the Boeing Stock Split,
contingent on approval by Boeing shareholders of an increase in the number of
authorized shares of Boeing stock. The Merger Agreement provides that as of the
Effective Time each issued and outstanding share of McDonnell Douglas Common
Stock will be converted into 0.65 of a share of Boeing Common Stock but that if
the Boeing Board declares a stock split on the outstanding shares of Boeing
Common Stock with a record date that is prior to the Effective Time, the
Conversion Number will be appropriately adjusted. At the Boeing Annual Meeting,
the shareholders of Boeing approved increasing the number of authorized shares
of Boeing stock from 610,000,000 to 1,220,000,000. The record date for
determining the Boeing shareholders entitled to receive the additional shares
was May 16, 1997. Consequently, the Conversion Number was adjusted from 0.65 of
a share of Boeing Common Stock for each share of McDonnell Douglas Common Stock
to 1.3 shares of Boeing Common Stock for each share of McDonnell Douglas Common
Stock.
17
<PAGE> 21
5. RISK FACTORS
In considering whether to approve the Share Issuance or to approve the
Merger, as the case may be, the shareholders of Boeing and of McDonnell Douglas
should consider, among other things, the following matters:
FIXED EXCHANGE RATIO DESPITE CHANGE IN RELATIVE STOCK PRICES. The
Conversion Number is expressed in the Merger Agreement as a fixed ratio.
Accordingly, the Conversion Number will not be adjusted in the event of any
increase or decrease in the price of either Boeing Common Stock or McDonnell
Douglas Common Stock. The price of Boeing Common Stock at the Effective Time
will vary from its price at the date of this Joint Proxy Statement/Prospectus
and at the date of the Special Meetings. Such variations may be the result of
changes in the business, operations or prospects of Boeing or McDonnell Douglas,
market assessments of the likelihood that the Merger will be consummated and the
timing thereof, regulatory considerations, general market and economic
conditions and other factors. Because the Effective Time will occur at a date
later than the Special Meetings, there can be no assurance that the price of
Boeing Common Stock on the date of the Special Meetings will be indicative of
its price at the Effective Time. The Effective Time will occur as soon as
practicable following the Special Meetings and the satisfaction or waiver of the
other conditions set forth in the Merger Agreement. Shareholders of Boeing and
McDonnell Douglas are urged to obtain current market quotations for Boeing
Common Stock and McDonnell Douglas Common Stock. See Section 9(g), "OTHER TERMS
OF THE MERGER AGREEMENT -- Conditions Precedent to the Merger."
NECESSITY OF RECEIVING GOVERNMENTAL APPROVALS PRIOR TO THE MERGER; POSSIBLE
DIVESTITURES AND OPERATING RESTRICTIONS. The consummation of the Merger is
conditioned upon the expiration or termination of the applicable waiting period
under the HSR Act. In addition, other filings with, notifications to and
authorizations and approvals of, various governmental agencies, both domestic
and foreign, with respect to the transactions contemplated by the Merger
Agreement, relating primarily to antitrust and securities law issues, must be
made and received prior to the consummation of the Merger. There can be no
assurance that an injunction will not be issued before or after receipt of
shareholder approval by a court of competent jurisdiction enjoining consummation
of the Merger. The combined enterprise may be required to divest one or more of
its product lines, or agree to various operating restrictions before or after
receipt of shareholder approval, in order to obtain the necessary authorizations
and approvals of the Merger or to assure that governmental authorities do not
seek to block the Merger. There can be no assurance that the consummation of any
such divestitures could be effected at a fair market price or that the
reinvestment of the proceeds therefrom would produce for the combined enterprise
operating profit at the same level as the divested product lines or a
commensurate rate of return on the amount of its investment. There also can be
no assurance that any operating restrictions imposed would not adversely affect
the value of the combined enterprise. No additional shareholder approval is
expected to be required or sought for any decision by Boeing or McDonnell
Douglas after the applicable Special Meeting to agree to any terms and
conditions necessary to resolve any regulatory objections to the Merger.
However, if Boeing and McDonnell Douglas decide to agree to any such terms and
conditions after the Special Meetings, Boeing and/or McDonnell Douglas will make
a new solicitation of proxies if shareholder approval is required for such
decision under applicable law. See Section 8(m), "THE MERGER -- Governmental and
Regulatory Approvals."
POSSIBLE DIVESTITURES AND OPERATING RESTRICTIONS REQUIRED BY THE EUROPEAN
COMMISSION; EFFECT OF INTERIM OPERATING COVENANTS DURING REGULATORY REVIEW
PERIOD. As described under "Necessity of Receiving Governmental Approvals Prior
to the Merger; Possible Divestitures and Operating Restrictions" above, certain
filings with, notifications to and authorizations and approvals of various
governmental agencies, both domestic and foreign, are required under the Merger
Agreement to be obtained prior to the consummation of the Merger. As described
in Section 8(m), "THE MERGER -- Governmental and Regulatory Approvals", on
February 18, 1997, Boeing notified the European Commission of the proposed
Merger. The European Commission has made a provisional decision requiring Boeing
not to consummate the Merger until its final decision in the case. On March 19,
1997, the European Commission notified Boeing of its intent to initiate
proceedings regarding the Merger. On May 21, 1997, the European Commission filed
its Statement of Objections to the Merger. Boeing and McDonnell Douglas filed
their respective responses to the Statement of Objections on June 6, 1997. On
June 12 and June 13, 1997, the European Commission held two days of
18
<PAGE> 22
hearings on the Statement of Objections and the companies' responses. The
principal concerns raised by the European Commission are (i) Boeing's alleged
dominant position within the market for large commercial jet aircraft -- and the
possibility that certain Boeing exclusive supply agreements with airline
customers and the Merger could lead to the creation or strengthening of such
position and (ii) McDonnell Douglas' alleged dominant position in the
international fighter aircraft market -- and the possibility that the Merger
could lead to the creation or strengthening of such position. Pursuant to
procedures and rules normally applicable, review of the Merger by the European
Commission must be completed on or before July 31, 1997.
According to press reports, Karel Van Miert, the European Union Competition
Commissioner, has stated his view that Boeing will be required to make certain
concessions in order to obtain European antitrust clearance. See "Necessity of
Receiving Governmental Approvals Prior to the Merger; Possible Divestitures and
Operating Restrictions" above for a description of the possible effects of any
divestitures or operating restrictions that may ultimately be required.
As described in Section 9(e), "OTHER TERMS OF THE MERGER
AGREEMENT -- Conduct of Business Pending the Merger", the Merger Agreement
imposes certain restrictions on the operation of the companies during the period
between the signing of the Merger Agreement and the Effective Time, which
restrictions would continue to be applicable during the pendency of any
regulatory approval process, including, if applicable, the review by the
European Commission, that has the effect of delaying the Effective Time. Boeing
and McDonnell Douglas do not believe that these operating restrictions will have
a material effect on their respective businesses, results of operations or
financial conditions. The Merger Agreement may be terminated by either party if
the Effective Time has not occurred on or prior to December 31, 1997.
UNCERTAINTIES IN INTEGRATING BUSINESS OPERATIONS AND ACHIEVING COST
SAVINGS. In determining that the Merger is in the best interests of Boeing or
McDonnell Douglas, as the case may be, each of the Boeing Board and the
McDonnell Douglas Board addressed the cost savings, operating efficiencies and
other synergies that may result from the consummation of the Merger. The
consolidation of functions, the integration of departments, systems and
procedures, and relocation of staff present significant management challenges.
There can be no assurance that such actions will be successfully accomplished as
rapidly as currently expected. Moreover, although the primary purpose of such
actions will be to realize direct cost savings and other operating efficiencies,
there can be no assurance of the extent to which such cost savings and
efficiencies will be achieved. In addition, on March 5, 1997, H.R. 925, the
Payoffs and Layoffs Corporate Welfare Elimination Act of 1997, was introduced in
the House of Representatives, which bill would, if enacted in its current form,
prohibit the Secretary of Defense from treating any restructuring costs arising
from the Merger as allowable costs (in accordance with Section 2324 of title 10,
United States Code, and the regulations prescribed under that section) under a
defense contract. There can be no assurance as to whether or not such bill will
be enacted, and, if enacted in its current form, whether the disallowance would
have a material effect on the results of operations of the combined enterprise.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION. In considering the
recommendation of the Merger by the McDonnell Douglas Board, the shareholders of
McDonnell Douglas should be aware that certain directors and executive officers
of McDonnell Douglas may be deemed to have conflicts of interest with respect to
the Merger. Such interests, together with other relevant factors, were
considered by the McDonnell Douglas Board in recommending the Merger to the
shareholders of McDonnell Douglas and approving the Merger Agreement. See
Section 8(i), "THE MERGER -- Interests of Certain Persons in the Transaction."
POTENTIAL DILUTION. Voting. The shares of Boeing Common Stock to be
issued to McDonnell Douglas shareholders at the Effective Time are expected to
represent approximately 28% of the number of shares of Boeing Common Stock
outstanding immediately after the Effective Time. In addition, pursuant to the
Merger Agreement, one-third of the total number of members of the Boeing Board
immediately after the Effective Time will be former members of the McDonnell
Douglas Board. Accordingly, the Merger will have the effect of reducing the
percentage voting interest in Boeing represented by a share of Boeing Common
Stock immediately prior to the Effective Time, and the percentage voting
interest in McDonnell Douglas represented by a share of McDonnell Douglas Common
Stock immediately prior to the Effective Time. However, as a
19
<PAGE> 23
result of the Merger, shareholders of Boeing and shareholders of McDonnell
Douglas will each own a voting interest in a significantly larger enterprise.
Earnings per Share and Book Value. See Section 4(h),
"SUMMARY -- Comparative Per Share Data of Boeing and McDonnell Douglas" for a
table setting forth certain earnings, dividend and book value per share data for
Boeing and McDonnell Douglas on historical and pro forma bases. For the holders
of Boeing Common Stock, on a pro forma basis the Merger would have had an
accretive effect on earnings per share for the fiscal year ended December 31,
1996 (from $1.59 per share to $1.88 per share) and for the three-month period
ended March 31, 1997 (from $0.54 per share to $0.56 per share), and a dilutive
effect on book value per share for the fiscal year ended December 31, 1996 (from
$15.75 per share to $13.96 per share) and for the three-month period ended March
31, 1997 (from $16.11 per share to $14.36 per share). For the holders of
McDonnell Douglas Common Stock, on a pro forma basis the Merger would have had a
dilutive effect on earnings per share for the fiscal year ended December 31,
1996 (from $3.64 per share to $2.44 per share) and for the three-month period
ended March 31, 1997 (from $0.86 per share to $0.73 per share), and an accretive
effect on book value per share for the fiscal year ended December 31, 1996 (from
$14.50 per share to $18.15 per share) and for the three-month period ended March
31, 1997 (from $15.26 per share to $18.67 per share). The pro forma data do not
reflect any cost savings or other synergies or merger related expenses
anticipated by Boeing management as a result of the Merger. Whether the Merger
will in fact be accretive or dilutive to Boeing shareholders with respect to
future earnings per share and book value will depend on the actual results
achieved by the combined company in the future as compared to the results that
could have been achieved by Boeing on a stand-alone basis over the same period,
given the number of shares of Boeing Common Stock to be issued in the Share
Issuance. No assurance can be given as to such future results, and, accordingly,
as to whether the Merger will be accretive or dilutive to Boeing shareholders
with respect to future earnings per share or book value. Holders of McDonnell
Douglas Common Stock, in considering the accretive or dilutive effect of the
Merger, should note that the comparability from a valuation perspective of
historical earnings per share for McDonnell Douglas Common Stock to pro forma
earnings per share for Boeing Common Stock would be affected by any difference
in the price-earnings multiples accorded to Boeing Common Stock and McDonnell
Douglas Common Stock. Holders of McDonnell Douglas Common Stock should also
review Section 8(f), "THE MERGER -- Opinion of McDonnell Douglas' Financial
Advisor" for an analysis of McDonnell Douglas' contribution on a pro forma basis
to the combined entity resulting from the Merger of, among other things, cash
flow and net income.
6. BOEING SPECIAL MEETING
(a) PURPOSE
At the Boeing Special Meeting, the shareholders of Boeing will consider and
vote on a proposal to approve the Share Issuance.
The Boeing Board has unanimously determined that the Merger and the Share
Issuance are in the best interests of Boeing and its shareholders and has
approved the Merger Agreement. THE BOEING BOARD UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF BOEING VOTE IN FAVOR OF THE SHARE ISSUANCE AT THE BOEING SPECIAL
MEETING. See Section 8(c), "THE MERGER -- Boeing's Reasons for the Merger,
Recommendation of the Boeing Board."
The Boeing By-Laws provide that only such business as is specified in the
notice of a special meeting may come before the meeting.
(b) RECORD DATE; VOTING RIGHTS
Only holders of record of Boeing Common Stock at the close of business on
the Boeing Record Date, June 13, 1997, are entitled to receive notice of and to
vote at the Boeing Special Meeting. At the close of business on June 9, 1997,
there were 695,264,978 shares of Boeing Common Stock outstanding and entitled to
vote. Each such share entitles the registered holder thereof to one vote.
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(c) QUORUM
The holders of one-third of the shares of Boeing Common Stock outstanding
and entitled to vote must be present in person or represented by proxy at the
Boeing Special Meeting in order for a quorum to be present. However, as
described under "-- Required Vote" below, approval of the Share Issuance will
require that the total number of votes cast represents more than 50% of the
outstanding shares of Boeing Common Stock entitled to vote thereon at the Boeing
Special Meeting.
Shares of Boeing Common Stock represented by proxies that are marked
"abstain" will be counted as shares present for purposes of determining the
presence of a quorum.
In the event that a quorum is not present at the Boeing Special Meeting, it
is expected that the meeting will be adjourned or postponed to solicit
additional proxies.
(d) PROXIES
All shares of Boeing Common Stock represented by properly executed proxies
that are received in time for the Boeing Special Meeting and have not been
revoked will be voted in accordance with the instructions indicated in such
proxies. If no instructions are indicated, such shares will be voted in favor of
the Share Issuance. In addition, the persons designated in such proxy will have
discretion to vote on matters incident to the conduct of the Boeing Special
Meeting. If Boeing proposes to adjourn the Boeing Special Meeting, the persons
named in the enclosed proxy card will vote all shares for which they have voting
authority (other than those that have been voted against the Share Issuance) in
favor of such adjournment. Any proxy in the enclosed form may be revoked by the
shareholder executing it at any time prior to its exercise by giving written
notice thereof to the Corporate Secretary of Boeing, by signing and returning a
later-dated proxy or by voting in person at the Boeing Special Meeting.
Attendance at the Boeing Special Meeting will not in and of itself constitute
the revocation of a proxy.
Many Boeing employees participate in The Boeing Company Voluntary
Investment Plan (the "VIP Plan"), which is a retirement plan established under
Section 401(k) of the Code. One of the funds into which employees may direct
their investments is Fund E, which invests in Boeing Common Stock. The shares of
stock held in that fund are registered in the name of The Chase Manhattan Bank,
which is the trustee of the VIP Plan. The participants do not acquire ownership
of the shares and therefore are not eligible to vote the shares directly or
attend the Boeing Special Meeting (unless they are also registered or beneficial
owners of Boeing Common Stock). However, Fund E participants are allocated units
in the fund and may instruct the trustee how to vote the shares represented by
their units.
The proxy card that is being sent with this Joint Proxy
Statement/Prospectus to registered shareholders of Boeing is also being sent to
Fund E participants. (Beneficial owners receive proxy cards from their brokers
or other agents; some brokers use Boeing's proxy card and some prepare their own
proxy cards.) The number of shares of Boeing Common Stock held is shown on the
back of the Boeing proxy card, above the boxes to be marked, with the notation
"COM." The number of Fund E shares, if any, is shown with the notation "VIP." If
one person has both shares of Boeing Common Stock and Fund E shares, both will
appear on the card and that person may vote both the shares of Boeing Common
Stock and Fund E shares by signing and returning the single card. Fund E shares
can be voted only by signing and returning the enclosed proxy card; they cannot
be voted at the Boeing Special Meeting and prior voting instructions cannot be
revoked at the Boeing Special Meeting.
Fund E shares will be voted by the trustee according to each participant's
instructions. The trustee has advised Boeing that if a card is signed and
returned but no voting instructions are given, it intends to vote such shares in
accordance with the recommendation of the Boeing Board.
Proxies will be received by Boeing's independent transfer agent, and the
vote will be certified by independent inspectors. Proxies and ballots that
identify the vote of a particular shareholder will be kept confidential other
than as necessary to meet legal requirements, in cases where such shareholder
has requested disclosure or written a comment to such effect on the returned
proxy card or in a contested matter involving an opposing proxy solicitation.
During the proxy solicitation period, Boeing will receive vote tallies from time
to
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time from its independent transfer agent, but such tallies will provide
aggregate data rather than the names of shareholders. Such agent may notify
Boeing if a shareholder has failed to vote so that such shareholder may be
requested to do so.
If the Boeing Special Meeting is postponed or adjourned for any reason, at
any subsequent reconvening of the Boeing Special Meeting, all proxies will be
voted in the same manner as such proxies would have been voted at the initial
convening of the Boeing Special Meeting (except for any proxies that theretofore
effectively have been revoked or withdrawn), notwithstanding that they may have
been effectively voted on the same or any other matter at a previous meeting.
(e) SOLICITATION OF PROXIES
Proxies are being solicited hereby on behalf of the Boeing Board. Pursuant
to the Merger Agreement, the entire cost of proxy solicitation for the Boeing
Special Meeting, including the reasonable expenses of brokers, fiduciaries and
other nominees in forwarding solicitation material to beneficial owners, will be
borne by Boeing, except that Boeing and McDonnell Douglas will share equally all
printing expenses and filing fees. In addition to solicitation by mail, officers
and regular employees of Boeing may solicit proxies personally or by telephone,
facsimile transmission or otherwise. Such officers and regular employees will
not be additionally compensated for such solicitation, but may be reimbursed for
out-of-pocket expenses incurred in connection therewith. If undertaken, the
expense of such solicitation would be nominal. Boeing has retained D.F. King &
Co., Inc., at an estimated cost of approximately $14,000, plus reimbursement of
out-of-pocket expenses, to assist in its solicitation of proxies. Arrangements
will be made with custodians, nominees and fiduciaries for the forwarding of
proxy solicitation materials to beneficial owners of shares of Boeing Common
Stock held of record by such custodians, nominees and fiduciaries, and Boeing
will reimburse such custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses incurred in connection therewith.
(f) REQUIRED VOTE
Approval of the Share Issuance will require the affirmative vote of a
majority of the votes cast on the Share Issuance; provided, however, that the
total number of votes cast on such proposal represents more than 50% of the
outstanding shares of Boeing Common Stock entitled to vote thereon at the Boeing
Special Meeting.
An abstention with respect to the Share Issuance will have the effect of a
vote cast against the Share Issuance. Brokers who hold shares of Boeing Common
Stock as nominees will not have discretionary authority to vote such shares on
the Share Issuance in the absence of instructions from the beneficial owners
thereof. Any votes that are not cast because the nominee-broker lacks such
discretionary authority will not be counted as votes cast on such proposal and
will have no effect on the vote.
(g) SHARE OWNERSHIP OF MANAGEMENT
At the close of business on June 9, 1997, directors and executive officers
of Boeing and their affiliates were the beneficial owners of an aggregate of
8,881,118 (approximately 1.28%) of the shares of Boeing Common Stock then
outstanding and eligible to vote. Philip M. Condit, the Chairman of the Board
and Chief Executive Officer of Boeing, and Frank Shrontz, the Chairman Emeritus
of Boeing, have indicated to Boeing that they intend to vote for the Share
Issuance. Boeing is not otherwise aware of the voting intentions of its
management.
7. MCDONNELL DOUGLAS SPECIAL MEETING
(a) PURPOSE
At the McDonnell Douglas Special Meeting, the shareholders of McDonnell
Douglas will be asked to consider and vote on a proposal to approve the Merger.
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The McDonnell Douglas Board has determined (by a twelve-to-one vote), that
the Merger is in the best interests of McDonnell Douglas and its shareholders
and has approved the Merger Agreement. THE MCDONNELL DOUGLAS BOARD RECOMMENDS
THAT THE SHAREHOLDERS OF MCDONNELL DOUGLAS VOTE IN FAVOR OF APPROVAL OF THE
MERGER AT THE MCDONNELL DOUGLAS SPECIAL MEETING. See Section 8(e), "THE
MERGER -- McDonnell Douglas' Reasons for the Merger; Recommendation of the
McDonnell Douglas Board." For a discussion of the interests that certain
directors and executive officers of McDonnell Douglas have with respect to the
Merger in addition to their interests as shareholders of McDonnell Douglas
generally, and information regarding the treatment of options to purchase shares
of McDonnell Douglas Common Stock and other equity-based awards and other rights
of certain members of the McDonnell Douglas Board, see Section 8(i), "THE
MERGER -- Interests of Certain Persons in the Transaction." Such interests,
together with other relevant factors, were considered by the McDonnell Douglas
Board in making its recommendation and approving the Merger Agreement.
The McDonnell Douglas By-Laws provide that no business except that referred
to in the accompanying Notice of McDonnell Douglas Special Meeting may be
transacted at the McDonnell Douglas Special Meeting.
(b) RECORD DATE; VOTING RIGHTS
Only holders of record of shares of McDonnell Douglas Common Stock at the
close of business on the McDonnell Douglas Record Date, June 13, 1997, are
entitled to receive notice of and to vote at the McDonnell Douglas Special
Meeting. At the close of business on June 6, 1997, there were 209,978,016 shares
of McDonnell Douglas Common Stock outstanding, each of which entitles the
registered holder thereof to one vote.
(c) QUORUM
The presence in person or by proxy of McDonnell Douglas shareholders
entitled to cast a majority of all the votes entitled to be cast at the
McDonnell Douglas Special Meeting will constitute a quorum for the transaction
of business.
Shares of McDonnell Douglas Common Stock represented by proxies that are
marked "abstain" will be counted as shares present for purposes of determining
the presence of a quorum on all matters.
In the event that a quorum is not present at the McDonnell Douglas Special
Meeting, it is expected that the meeting will be adjourned or postponed to
solicit additional proxies.
(d) PROXIES
All shares of McDonnell Douglas Common Stock represented by properly
executed proxies that are received in time for the McDonnell Douglas Special
Meeting and have not been revoked will be voted in accordance with the
instructions indicated in such proxies. If no instructions are indicated, such
shares will be voted in favor of the Merger. In addition, the persons designated
in such proxy will have discretion to vote on any matters incident to the
conduct of the McDonnell Douglas Special Meeting. If McDonnell Douglas proposes
to adjourn the McDonnell Douglas Special Meeting, the persons named in the
enclosed proxy card will vote all shares for which they have voting authority
(other than those that have been voted against approval of the Merger) in favor
of such adjournment. Holders of McDonnell Douglas Common Stock are requested to
complete, sign, date and return promptly the enclosed proxy card in the
postage-prepaid envelope provided for such purpose to ensure that their shares
are voted. Brokers who hold shares of McDonnell Douglas as nominees will not
have discretionary authority to vote such shares in the absence of instructions
from the beneficial owners thereof. Broker nonvotes will not be counted as votes
cast, but will have the same effect as votes cast against the Merger.
The Chase Manhattan Bank, as Trustee under the Employee Savings, Investment
and Thrift Plans and the Employee Payroll Stock Ownership Plan ("PAYSOP") of
McDonnell Douglas, has dispositive power for the shares so held to the extent
necessary to follow valid instructions from participants regarding withdrawals,
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transfers or loans from such plans. Participants in each of these plans may
direct the Trustee how to vote his or her proportionate share of these shares on
the Merger. Except for shares held in the PAYSOP, shares for which the Trustee
does not receive voting instructions on the proposed Merger will be voted for,
against or in abstention in the same proportions as McDonnell Douglas Common
Stock for which the Trustee receives voting instructions. Any shares held under
the PAYSOP for which the Trustee does not receive voting instructions will not
be voted. Any shares held under any of these plans including the PAYSOP can be
voted only by signing and returning the enclosed proxy card; they cannot be
voted at the McDonnell Douglas Special Meeting and prior voting instructions
cannot be revoked at the McDonnell Douglas Special Meeting.
Any proxy in the enclosed form may be revoked by the shareholder executing
it at any time prior to its exercise by giving written notice thereof to the
Secretary of McDonnell Douglas, by signing and returning a later-dated proxy or
by voting in person at the McDonnell Douglas Special Meeting. Attendance at the
McDonnell Douglas Special Meeting will not in and of itself constitute the
revocation of a proxy, and shareholders who attend the McDonnell Douglas Special
Meeting in person need not revoke their proxy (if previously furnished) and vote
in person.
If the McDonnell Douglas Special Meeting is postponed or adjourned for any
reason, at any subsequent reconvening of the McDonnell Douglas Special Meeting,
all proxies will be voted in the same manner as such proxies would have been
voted at the initial convening of the McDonnell Douglas Special Meeting (except
for any proxies that theretofore effectively have been revoked or withdrawn),
notwithstanding that they may have been voted on the same or any other matter at
a previous meeting.
(e) SOLICITATION OF PROXIES
Proxies are being solicited hereby on behalf of the McDonnell Douglas
Board. Pursuant to the Merger Agreement, the entire cost of proxy solicitation
for the McDonnell Douglas Special Meeting, including the reasonable expenses of
brokers, fiduciaries and other nominees in forwarding solicitation material to
beneficial owners, will be borne by McDonnell Douglas, except that Boeing and
McDonnell Douglas will share equally all printing expenses and filing fees. In
addition to solicitation by mail, directors, officers and employees of McDonnell
Douglas may solicit proxies personally or by telephone, facsimile transmission
or otherwise. Such directors, officers and employees will not be additionally
compensated for such solicitation but may be reimbursed for out-of-pocket
expenses incurred in connection therewith. If undertaken, the expense of such
solicitation would be nominal. McDonnell Douglas has retained D.F. King & Co.,
Inc., at an estimated cost of approximately $10,000, plus reimbursement of
out-of pocket expenses, to assist in its solicitation of proxies. Arrangements
will be made with custodians, nominees and fiduciaries for the forwarding of
proxy solicitation materials to beneficial owners of shares of McDonnell Douglas
Common Stock held of record by such custodians, nominees and fiduciaries, and
McDonnell Douglas will reimburse such custodians, nominees and fiduciaries for
their reasonable out-of-pocket expenses incurred in connection therewith.
IN CONNECTION WITH THE MEETING, HOLDERS OF MCDONNELL DOUGLAS COMMON STOCK SHOULD
NOT RETURN TO MCDONNELL DOUGLAS ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
(f) REQUIRED VOTE
Approval of the Merger will require the affirmative vote of holders of
two-thirds of the outstanding shares of McDonnell Douglas Common Stock.
An abstention will have the effect of a vote cast against the Merger.
Brokers who hold shares of McDonnell Douglas Common Stock as nominees will not
have discretionary authority to vote such shares in the absence of instructions
from the beneficial owners thereof. Broker nonvotes will have the same effect as
votes cast against the Merger.
(g) SHARE OWNERSHIP OF MANAGEMENT
At the close of business on June 6, 1997, directors and executive officers
of McDonnell Douglas and their affiliates were the beneficial owners of an
aggregate of approximately 26,599,085 (approximately 12.67%) of
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the shares of McDonnell Douglas Common Stock then outstanding. John F.
McDonnell, the Chairman of the Board of McDonnell Douglas, and Harry C.
Stonecipher, the President and Chief Executive Officer of McDonnell Douglas,
have indicated to McDonnell Douglas that they intend to vote for the approval of
the Merger. James S. McDonnell III, a director of McDonnell Douglas, has
indicated to McDonnell Douglas that he intends to vote against approval of the
Merger. McDonnell Douglas is not otherwise aware of the voting intentions of its
management. See Section 8(b), "THE MERGER -- Background of the Merger."
8. THE MERGER
The description of the Merger and the Merger Agreement contained in this
Joint Proxy Statement/ Prospectus describes the material terms of the Merger
Agreement but does not purport to be complete and is qualified in its entirety
by reference to the Merger Agreement, a copy of which is attached hereto as
Annex I and incorporated herein by reference.
(a) GENERAL
At the Effective Time of the Merger, Sub will be merged with and into
McDonnell Douglas, with McDonnell Douglas surviving as a wholly-owned subsidiary
of Boeing. As a result of the Merger, the separate corporate existence of Sub
will cease and McDonnell Douglas will succeed to all the rights and be
responsible for all the obligations of Sub in accordance with the MGCL. Subject
to the terms and conditions of the Merger Agreement, each share of McDonnell
Douglas Common Stock outstanding immediately prior to the Effective Time will be
converted into 1.3 shares of Boeing Common Stock. Cash will be paid in lieu of
any fractional share of Boeing Common Stock. See Section 9(a), "OTHER TERMS OF
THE MERGER AGREEMENT -- Conversion of Shares in the Merger."
The Merger will become effective upon the filing of Articles of Merger with
the State Department of Assessments and Taxation of Maryland unless the Articles
of Merger provide for a later date of effectiveness (not to exceed 30 days after
the date that the Articles of Merger are so filed). The filing of the Articles
of Merger will occur as soon as practicable following the satisfaction or waiver
of the conditions set forth in the Merger Agreement. See Section 9(g), "OTHER
TERMS OF THE MERGER AGREEMENT -- Conditions Precedent to the Merger."
(b) BACKGROUND OF THE MERGER
In response to significant reductions over the past decade in defense
spending for research, development and procurement and to competitive pressures
for greater operating efficiencies, the United States aerospace and defense
industry has been actively consolidating. In the last four years alone, major
consolidations in this sector have included, in 1993, the acquisition by Martin
Marietta Corporation of the aerospace business of the General Electric Company;
in 1994, the merger of Lockheed Corporation and Martin Marietta Corporation and
the acquisitions by Northrop Corporation of Grumman Corporation, by Martin
Marietta Corporation of the Space Systems Division of General Dynamics
Corporation, by Lockheed Corporation of the military aircraft business of
General Dynamics Corporation and by Loral Corporation of IBM Federal Systems; in
1995, the acquisition by Raytheon Company of E-Systems, Inc.; and in 1996, the
acquisitions by Lockheed Martin Corporation of Loral Corporation, by Northrop
Grumman Corporation of the defense electronics business of Westinghouse Electric
Corporation, and by Boeing of Rockwell International Corporation's aerospace and
defense business (the "Rockwell A&D Business"). Pending are acquisitions by
Raytheon Company of the defense operations of Texas Instruments Incorporated
("Texas Instruments") and of Hughes Electronics Corporation ("Hughes"), both
announced in January 1997. These transactions reflect the importance, under
prevailing market conditions, of scale in achieving critical efficiencies,
developing and applying new technologies, and attracting and retaining a skilled
workforce.
In addition to recognizing the need to achieve efficiencies of scale, both
Boeing and McDonnell Douglas have also historically sought to maintain a balance
between their defense businesses and their commercial businesses in order to
moderate the effect of the cyclical swings inherent in those businesses. Because
the defense business and the commercial aircraft business can be
countercyclical -- a downturn in the commercial cycle may correspond with an
upturn in the defense cycle -- a balance between the two businesses may tend
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to moderate the effects on the company of the separate business cycles.
Recently, Boeing has experienced growth in its commercial business that was
tending to limit the effectiveness of the cushion provided by its defense
business and the balance of McDonnell Douglas' business was shifting in the
other direction. The Boards of Directors and management of both Boeing and
McDonnell Douglas have each taken these factors into account in their strategic
plans, and have regularly reviewed opportunities for acquisitions, joint
ventures and business combinations with other aerospace businesses to augment
their internal investments in their respective businesses and create long-term
value for their respective shareholders.
From time to time in 1994 and 1995, Frank Shrontz, then Chairman of the
Board and Chief Executive Officer of Boeing, and John McDonnell, Chairman of the
Board (and Chief Executive Officer until September 24, 1994) of McDonnell
Douglas, discussed consolidation trends in the aerospace industry and explored
the possible advantages of some form of strategic alliance between Boeing and
McDonnell Douglas. Their initial discussions, in response in part to McDonnell
Douglas' invitations to several companies to consider purchasing the McDonnell
Douglas helicopter operation, focused on combining the Boeing and McDonnell
Douglas helicopter businesses. Subsequently, some Boeing managers met with
managers of the McDonnell Douglas helicopters operation, but no agreement was
reached. Other discussions between Mr. Shrontz and Mr. McDonnell encompassed
possible combinations of their respective defense businesses or a merger of the
two companies. In December 1994, Mr. Shrontz and Philip M. Condit, then
President of Boeing, and Mr. McDonnell and Harry C. Stonecipher, President and
Chief Executive Officer of McDonnell Douglas, along with other senior executives
of Boeing and McDonnell Douglas, met in Seattle to discuss a full merger of the
two companies and possible synergistic benefits. In 1995, the parties entered
into a confidentiality agreement and retained legal and financial advisors to
explore a possible transaction. During the latter half of 1995 representatives
of Boeing met with representatives of McDonnell Douglas regarding a possible
business combination and estimated possible synergies that could come from the
combination. During November and December of 1995, the two companies and their
advisors engaged in a business review including preliminary analysis of cost and
revenue benefits that could be achieved by a merger. However, the companies had
differences in expectations as to future business opportunities, which resulted
in differences in valuation. Although the negotiations with respect to valuation
did not proceed past a very preliminary stage, McDonnell Douglas' initial
position was that the exchange ratio should reflect an approximately 30% premium
to the unaffected trading price of McDonnell Douglas Common Stock, and Boeing's
initial position was that not more than a 10% premium was appropriate. Both
parties anticipated that the differences in valuation could be narrowed in the
course of further negotiations if it appeared that a transaction could be
accomplished. However, given the market conditions existing at the time and
uncertainties existing at the time with respect to the reactions of customers to
a proposed transaction, Boeing was unwilling to proceed with the transaction at
a valuation level that would have been acceptable to McDonnell Douglas. As a
result of these circumstances, the discussions were terminated in December 1995.
As described under Section 8(e), "-- McDonnell Douglas' Reasons for the Merger;
Recommendation of the McDonnell Douglas Board", DAC's competitive position in
the commercial aircraft market changed significantly during 1996, ultimately
facilitating the parties' reaching agreement on valuation.
In February 1996, Boeing commenced discussions with Rockwell International
Corporation ("Rockwell") regarding the acquisition of the Rockwell A&D Business.
On August 1, 1996, Boeing announced its agreement with Rockwell to acquire the
Rockwell A&D Business for approximately $3.1 billion.
In mid-September 1996, Mr. Stonecipher contacted Mr. Condit, who had been
appointed in early 1996 as the new Chief Executive Officer of Boeing, to
determine whether Boeing was still interested in a potential merger. On
September 25, 1996, the two executives met to review again the potential
synergies and overall business rationale for a combination of Boeing and
McDonnell Douglas. On October 4, 1996, Mr. Condit informed Mr. Stonecipher that
Boeing management was focused on completion of the acquisition of the Rockwell
A&D Business and, therefore, not interested in pursuing discussions with
McDonnell Douglas at that time. The acquisition of the Rockwell A&D Business was
consummated on December 6, 1996.
In late October 1996, McDonnell Douglas was contacted to see if it was
interested in participating in the auction of Texas Instruments' defense assets.
McDonnell Douglas management determined to consider the
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desirability of such a transaction and, with its outside advisors, commenced
investigation and consideration of a possible transaction.
On November 25, 1996, Boeing and McDonnell Douglas were separately
contacted to see if they were interested in participating in the auction of
Hughes' defense assets. McDonnell Douglas management determined to consider the
desirability of such a transaction and, with its outside advisors, commenced
investigation and consideration of a possible transaction. Boeing management
concluded it was not in Boeing's interest to bid on the Hughes assets because
the Hughes product line was not a good fit with the Boeing product line and an
acquisition of the Hughes assets would have been inconsistent with Boeing's
corporate strategy, but Boeing management expected that McDonnell Douglas would
be a prospective bidder.
During November 1996, officers of Boeing and McDonnell Douglas in charge of
the commercial airplane businesses of their respective companies began a limited
discussion of a possible strategic collaboration on future Boeing wide-body
commercial airplane programs that would allow Boeing to utilize McDonnell
Douglas employees to assist with engineering design and analysis on new versions
of Boeing wide-body aircraft. On December 3, 1996, Boeing and McDonnell Douglas
announced their intention to enter into such a strategic collaboration.
Boeing management understood that the bidding deadline for the Hughes
defense assets was December 13, 1996, and believed that McDonnell Douglas
intended to submit a bid. In view of the fact that Boeing would not want to
acquire McDonnell Douglas if McDonnell Douglas acquired the Hughes defense
assets (because the acquisition of McDonnell Douglas would then be more
expensive and would result in Boeing indirectly acquiring assets it did not wish
to acquire directly), Boeing management believed that Boeing had a very limited
window of opportunity within which to negotiate a transaction with McDonnell
Douglas, and that discussions with McDonnell Douglas should proceed immediately.
Consequently, on December 6, 1996, Mr. Condit called Mr. Stonecipher to indicate
Boeing's interest in discussing a possible transaction.
At a regularly scheduled meeting of the Boeing Board on December 9, 1996,
in which outside legal counsel and representatives of CSFB participated, Mr.
Condit and other executive officers reviewed Boeing's position in the
consolidating defense industry, the impact of the auction of the Hughes defense
assets and of Texas Instruments' defense business on Boeing's strategic
position, and the synergies that might be achievable in a merger with McDonnell
Douglas. Mr. Condit and other members of senior management of Boeing presented
an overview of consolidation within the aerospace industry, discussed the
reasons for the proposed Merger (outlined below under "Boeing's Reasons for the
Merger"), outlined the proposed combined corporate structure and organization,
identified potential synergies from the combination, and addressed Boeing's
ability to effect the Merger following the acquisition of the Rockwell A&D
Business, the challenges of combining the corporate cultures of Boeing and
McDonnell Douglas and the need for regulatory approvals. Representatives of CSFB
reviewed with the Boeing Board a preliminary financial analysis of a possible
stock-for-stock merger with McDonnell Douglas, and Theodore J. Collins, Vice
President and General Counsel of Boeing, and outside legal counsel reviewed
antitrust and other legal considerations related to such a merger. The Boeing
Board discussed these issues along with accounting issues, personnel issues, and
timing and pricing considerations related to a merger of Boeing and McDonnell
Douglas. They then authorized Mr. Condit to negotiate with McDonnell Douglas for
a stock-for-stock merger based on certain conditions specified by the Boeing
Board.
On December 9, 1996, the McDonnell Douglas Board held a special meeting
that had been called to discuss the two transactions under consideration by
management: the acquisition of the defense assets of Texas Instruments and the
acquisition of the defense assets of Hughes. Mr. Stonecipher used the
opportunity to brief the McDonnell Douglas Board on his December 6, 1996
discussion with Mr. Condit and reported the significant terms and conditions
discussed with Boeing in December 1995 at the time discussions terminated, and
possible terms, conditions and a timetable for discussions with Mr. Condit. The
discussions on each transaction included reports on strategic fit, proposed
acquisition structure, financial results and projections, results of preliminary
due diligence, potential synergies, and the timetable for the submission of a
bid. McDonnell Douglas engaged Salomon Brothers Inc ("Salomon Brothers") to
assist it in its review of the defense business of Texas Instruments. In regard
to the Hughes transaction, J.P. Morgan had begun to
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perform a preliminary analysis with respect to Hughes' defense business shortly
before the Merger Agreement was signed. In connection with McDonnell Douglas'
consideration of participating in the auction of the Hughes defense assets, J.P.
Morgan discussed with management of McDonnell Douglas various issues related to
the bid, including potential dilution, structural alternatives and uncertainty
of closure due to the fact that the Hughes defense assets were being sold in a
competitive auction. Had a decision been made to go forward with the Hughes
transaction, J.P. Morgan would have been formally engaged and asked to provide
an analysis to the McDonnell Douglas Board in connection with its consideration
and approval of a transaction involving Hughes. Neither Salomon Brothers nor
J.P. Morgan rendered fairness opinions on these potential transactions. Although
the deadline for submitting an initial indication of interest with respect to
the Hughes defense assets was December 14, 1997, McDonnell Douglas anticipated
that the submission of the initial indication of interest would be the first
stage in an extended, competitive auction process. As such, McDonnell Douglas'
ability and willingness to submit an indication of interest was not dependent
upon J.P. Morgan's final analysis. While Salomon Brothers had not produced a
fairness opinion on the Texas Instruments transaction before the meeting of the
McDonnell Douglas Board, it did assist management with the presentation
materials used by management in the presentation to the McDonnell Douglas Board.
The McDonnell Douglas Board discussed the pros and cons of all three
transactions, regulatory approval issues, and the effect that doing one or more
transactions would have on the other possible transactions.
While each of the alternative transactions was attractive to McDonnell
Douglas, the McDonnell Douglas Board determined that the merger with Boeing was
potentially the most attractive alternative to McDonnell Douglas and its
shareholders. Texas Instruments' defense electronics products were largely
complementary to McDonnell Douglas' products and would have added critical mass
in certain areas (e.g., missiles) and added technologies in other areas. The
acquisition of the defense assets of Texas Instruments, however, would have been
the smallest of the three transactions, would likely have been dilutive to
McDonnell Douglas shareholders on a near-term basis, and would not have
provided, by itself, critical mass, complementary businesses, and efficiencies
of scale. The acquisition of the defense assets of Hughes would have been a much
larger transaction than Texas Instruments but still smaller than the Boeing
transaction. The acquisition of the defense assets of Hughes also offered more
complementary defense electronics products and greater critical mass in several
areas than Texas Instruments, but at a price which would have been even more
dilutive to McDonnell Douglas shareholders than the Texas Instruments
transaction. While McDonnell Douglas was interested in concurrently pursuing the
Texas Instruments and Hughes transactions, McDonnell Douglas was concerned that
concurrent consummation of two complex transactions would have been difficult
and time-consuming and may have presented more complicated issues relating to
achieving regulatory approval. Most problematic with the Hughes transaction,
however, was the unorthodox and complex deal structure which Hughes was
demanding to accommodate its mandatory tax treatment of the transaction. While
McDonnell Douglas believed that alternative structures might be viable, they too
would have had disadvantages and in any event had not then been agreed to by
Hughes. In contrast, the Boeing transaction offered a straightforward
transaction structure priced at a 21% premium (at the closing prices of the
respective stocks on December 13, 1996) to McDonnell Douglas shareholders,
provided the best alternative for McDonnell Douglas' commercial aircraft
business, and provided balance to the commercial, defense and space businesses
of both companies. See Section 8(e), "-- McDonnell Douglas' Reasons for the
Merger; Recommendation of the McDonnell Douglas Board." The McDonnell Douglas
Board also recommended that the Texas Instruments and Hughes transactions be
pursued in the event McDonnell Douglas and Boeing did not reach an agreement
prior to the auction deadlines. The McDonnell Douglas Board authorized Mr.
Stonecipher to meet with Mr. Condit to attempt to reach agreement on the
principal terms and conditions of a merger consistent with those discussed at
the meeting. At the same time, the McDonnell Douglas Board authorized Mr.
Stonecipher to pursue the acquisition of the defense assets of Texas Instruments
and to submit an indication of interest to purchase the defense assets of
Hughes.
On December 10, 1996, Mr. Condit and Mr. Stonecipher met in Seattle and
reached preliminary agreement on the basic terms of a stock-for-stock merger,
subject to the negotiation and execution of definitive agreements and to
obtaining the approvals of their respective Boards of Directors. Thereafter,
Boeing and McDonnell Douglas and their respective legal counsel negotiated the
terms of the Merger
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Agreement and members of senior management of Boeing and McDonnell Douglas
engaged in a mutual exchange of information, updating the due diligence reviews
that had previously been performed.
On December 14, 1996, the Boeing Board held a special meeting to consider
the proposed merger. Mr. Condit updated the Boeing Board on the negotiations
with McDonnell Douglas, and members of senior management then briefed the Boeing
Board on the results of due diligence and certain other matters, including the
eligibility of the proposed transaction for pooling of interests accounting
treatment. The Boeing Board then reviewed with outside counsel the terms of the
Merger Agreement and related legal issues and received the financial
presentation of CSFB and its opinion described under Section 8(d), "-- Opinion
of Boeing's Financial Advisor." Following further discussions of the Boeing
Board and additional conversations between Mr. Condit and Mr. Stonecipher, the
Boeing Board voted to approve the Merger Agreement and the Merger.
On December 14, 1996, the McDonnell Douglas Board held a special meeting to
consider the proposed merger with Boeing. Mr. Stonecipher updated the McDonnell
Douglas Board on his discussions with Mr. Condit. F. Mark Kuhlmann, Senior Vice
President and General Counsel of McDonnell Douglas, summarized the terms and
conditions of the Merger Agreement and reviewed the regulatory approvals which
would be required. Members of senior management then briefed the McDonnell
Douglas Board on the results of due diligence and certain other matters,
including the eligibility of the proposed transaction for pooling of interests
accounting treatment. The McDonnell Douglas Board then reviewed with outside
counsel the terms of the Merger Agreement and related legal issues and received
a presentation from J.P. Morgan concerning financial aspects of the Merger
described under Section 8(f), "-- Opinion of McDonnell Douglas' Financial
Advisor." Following further discussion by the McDonnell Douglas Board and
additional conversations between Mr. Stonecipher and Mr. Condit, the McDonnell
Douglas Board voted to approve the Merger Agreement and the Merger. The vote of
the McDonnell Douglas Board was twelve directors in favor and one director
against, with James S. McDonnell III casting the sole vote in opposition. The
vote in opposition by James S. McDonnell III resulted from his desire to combine
the McDonnell Douglas name with the Boeing name to preserve and maintain the
benefits of the rich heritage and history of both companies and in tribute to
James S. McDonnell and Donald W. Douglas, the founders of McDonnell Douglas
Corporation. He also believed that Boeing's unwillingness to change its
corporate name to include the McDonnell Douglas name might have an adverse
impact on public and employee perception of the transaction as a takeover
instead of a merger. These factors and the position of James S. McDonnell III
were considered by the other members of the McDonnell Douglas Board who voted in
favor of the transaction. James S. McDonnell III has advised John F. McDonnell
that he intends to vote his shares of McDonnell Douglas Common Stock as to which
he has sole voting power against the approval of the Merger. James S. McDonnell
III has shared dispositive and voting power with respect to the shares of
McDonnell Douglas Common Stock owned by the James S. McDonnell Charitable Trusts
A and B with John F. McDonnell. James S. McDonnell III has not indicated his
intentions with respect to the voting of such shares. If James S. McDonnell III
and John F. McDonnell are unable to reach agreement with respect to the voting
of such shares, and such shares are not voted with respect to approval of the
Merger, then the effect will be the same as if such shares were voted against
approval of the Merger. In addition, James S. McDonnell III and John F.
McDonnell share dispositive and voting power with a third individual with
respect to shares of McDonnell Douglas Common Stock owned by the James S.
McDonnell Foundation. Such shares are voted at the direction of a majority of
the three directors of the foundation. McDonnell Douglas does not know the
voting intention of the third director. See Section 8(e), "-- McDonnell Douglas'
Reasons for the Merger; Recommendation of the McDonnell Douglas Board." For
information regarding the share ownership of the foregoing persons and entities,
see Section 15, "OWNERSHIP OF MCDONNELL DOUGLAS COMMON STOCK."
Following the meetings of their respective Boards of Directors, Boeing and
McDonnell Douglas executed the Merger Agreement on December 14, 1996 and
publicly announced the Merger on Sunday, December 15, 1996.
(c) BOEING'S REASONS FOR THE MERGER; RECOMMENDATION OF THE BOEING BOARD
THE BOEING BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER AND THE SHARE
ISSUANCE ARE IN THE BEST INTERESTS OF BOEING AND ITS SHAREHOLDERS
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AND HAS APPROVED THE MERGER AGREEMENT. THE BOEING BOARD UNANIMOUSLY RECOMMENDS
THAT THE SHAREHOLDERS OF BOEING VOTE IN FAVOR OF THE SHARE ISSUANCE AT THE
BOEING SPECIAL MEETING.
The Boeing Board believes that the Merger represents a unique opportunity
to create a stronger company with a broader base of defense and space product
programs and international business opportunities, and that in the current
environment of declining defense spending and industry consolidation, the Merger
is of critical strategic importance to Boeing's efforts to position itself as an
effective competitor in the coming years. The combined company would be the
largest aerospace company in the world, with strong capabilities in commercial
and military aircraft and in defense and space systems, and with a healthy
balance of established and new programs. In particular, the Boeing Board
believes that McDonnell Douglas' strong experience with fighter aircraft will
strengthen Boeing's competitive position in the Joint Strike Fighter
competition, that the Boeing and McDonnell Douglas space programs are
complementary and will together strengthen Boeing's position in future space
programs and in the commercial space business. The Boeing Board believes the
Merger will bring opportunities for cost savings, economies of scale and other
synergies, resulting in improved cash flow potential for the long-term growth of
Boeing and of shareholder value. In addition, the Merger would enable Boeing to
achieve its strategic goal of balancing its commercial aviation business (which
now represents almost three-fourths of its overall business) with a larger
defense and space business. Approximately three-fourth's of McDonnell Douglas'
business is defense and space, and the combined company would thus have a strong
and stabilizing balance of commercial, defense and space businesses. This
balance should enable Boeing to better moderate the effects of the cyclical
swings inherent in these businesses.
For the foregoing reasons, the Boeing Board believes that the terms and
conditions of the Merger Agreement are in the best interests of Boeing and its
shareholders. The following are the material factors considered by the Boeing
Board in reaching its conclusions, certain of which factors contained both
positive and negative elements:
(i) the judgment, advice and analyses of its management with respect
to the strategic, financial and operational benefits of the Merger, based
in part on the business, financial, accounting and legal due diligence
investigations performed with respect to McDonnell Douglas;
(ii) information concerning the financial condition, results of
operations, prospects, businesses and stock price performance of Boeing and
McDonnell Douglas;
(iii) current industry, economic and market conditions;
(iv) the synergies, cost reductions and operating efficiencies that
may become available to the combined enterprise as a result of the Merger,
as well as the management challenges associated with successfully
integrating the businesses, cultures and managements of two major
corporations, particularly in light of the competing demands for the
attention of the management of Boeing, including the integration of the
Rockwell A&D Business and the significant increase in production rates for
commercial jetliners;
(v) the strategic benefits of the Merger and the current and
anticipated environment in the aerospace and defense industry, the
strategic options available to Boeing and the effects on Boeing of further
consolidation of the industry;
(vi) the opportunities for constructive sharing of resources between
Boeing and McDonnell Douglas as evidenced by the agreement between Boeing
and McDonnell Douglas for the use of McDonnell Douglas' engineering
resources in connection with Boeing's development of plans for a potential
large commercial aircraft or other derivative programs of wide-body
aircraft;
(vii) the fact that the currently favorable conditions in the
aerospace industry would make the integration of the two companies easier
at this time than in a negative period of a cycle;
(viii) the express terms and conditions of the Merger Agreement, which
are viewed as providing an equitable basis for the Merger from the
standpoint of Boeing;
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(ix) the fact that the Merger would reduce the dependence of Boeing on
any single project or program and the associated risks of the cessation of
a project or program;
(x) the advice of, and financial analyses prepared by, CSFB (see
Section 8(d), "-- Opinion of Boeing's Financial Advisor");
(xi) historical market prices and trading information with respect to
Boeing Common Stock and McDonnell Douglas Common Stock;
(xii) the advice of its independent auditors with respect to the
ability to account for the Merger as a pooling of interests;
(xiii) the advice of counsel that the Merger should be treated as a
tax-free reorganization;
(xiv) the corporate governance aspects of the Merger, including that
Boeing directors would constitute two-thirds of the Boeing Board, Mr.
Condit would serve as Chairman and Chief Executive Officer of the combined
company and Mr. Stonecipher would serve as President and Chief Operating
Officer of the combined company;
(xv) the number of shares of Boeing Common Stock to be issued to
shareholders of McDonnell Douglas in the Merger, and the percentage
ownership of the combined company represented thereby; and
(xvi) the ability to obtain regulatory approvals for the Merger in the
current environment.
The foregoing discussion of the information and factors considered and
given weight by the Boeing Board is not intended to be exhaustive. In view of
the variety of factors considered in connection with its evaluation of the
Merger, the Boeing Board did not find it practicable to and did not quantify or
otherwise assign relative weights to the specific factors considered in reaching
its determination. In addition, individual members of the Boeing Board may have
given different weights to different factors.
THE BOEING BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF BOEING
VOTE IN FAVOR OF THE SHARE ISSUANCE AT THE BOEING SPECIAL MEETING.
(d) OPINION OF BOEING'S FINANCIAL ADVISOR
CSFB has acted as financial advisor to Boeing in connection with the
Merger. CSFB was selected by Boeing based on CSFB's experience, expertise and
familiarity with Boeing and its business. CSFB is an internationally recognized
investment banking firm and is regularly engaged in the valuation of businesses
and securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes.
In connection with CSFB's engagement, Boeing requested that CSFB evaluate
the fairness of the consideration to be paid by Boeing in the Merger from a
financial point of view. On December 14, 1996, the date on which the Merger
Agreement was executed, CSFB rendered to the Boeing Board a written opinion to
the effect that, as of such date and based upon and subject to certain matters
stated in such opinion, the Conversion Number was fair to Boeing from a
financial point of view.
THE FULL TEXT OF CSFB'S WRITTEN OPINION TO THE BOEING BOARD DATED DECEMBER
14, 1996, WHICH SETS FORTH THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH SUCH
OPINION, IS ATTACHED AS ANNEX II TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. CSFB HAS CONSENTED TO THE INCLUSION OF ITS
OPINION LETTER IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND REFERENCES THERETO
UNDER THIS SECTION. IN GIVING SUCH CONSENT, CSFB DOES NOT ADMIT THAT CSFB COMES
WITHIN THE CATEGORY OF PERSONS WHOSE CONSENT IS REQUIRED UNDER, AND CSFB DOES
NOT ADMIT THAT IT IS AN "EXPERT" WITH RESPECT TO ANY PART OF THIS JOINT PROXY
STATEMENT/PROSPECTUS FOR PURPOSES OF, THE SECURITIES ACT AND THE RULES AND
REGULATIONS THEREUNDER. SHAREHOLDERS OF BOEING ARE URGED TO READ CSFB'S OPINION
CAREFULLY IN ITS ENTIRETY. CSFB'S OPINION IS DIRECTED TO THE BOEING BOARD AND
RELATES ONLY TO THE FAIRNESS OF THE CONVERSION NUMBER FROM A FINANCIAL POINT OF
VIEW TO BOEING, DOES NOT ADDRESS ANY OTHER ASPECT OF THE PROPOSED MERGER AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW
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SUCH SHAREHOLDER SHOULD VOTE AT THE BOEING SPECIAL MEETING. THE SUMMARY OF THE
OPINION OF CSFB SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS DESCRIBES THE
MATERIAL ASPECTS OF SUCH OPINION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, CSFB reviewed the Merger Agreement and certain
publicly available business and financial information relating to Boeing and
McDonnell Douglas, including financial forecasts provided to or otherwise
discussed with CSFB by Boeing and McDonnell Douglas, and discussed the
businesses and prospects of Boeing and McDonnell Douglas with their respective
managements. CSFB also considered certain financial and stock market data of
Boeing and McDonnell Douglas and compared that data with similar data for other
publicly held companies engaged in businesses similar to those of Boeing and
McDonnell Douglas and considered, to the extent publicly available, the
financial terms of certain other business combinations and other transactions
recently effected. CSFB also considered such other information, financial
studies, analyses and investigations, and financial, economic and market
criteria which CSFB deemed relevant.
In connection with its review, CSFB assumed no responsibility for
independent verification of any of the information provided to or otherwise
reviewed by CSFB and relied on such information being complete and accurate in
all material respects. With respect to the financial forecasts, CSFB assumed
that such forecasts were prepared on bases reflecting reasonable estimates and
judgments as to the future financial performance of Boeing and McDonnell Douglas
and the cost savings and other potential synergies (including the amount, timing
and achievability thereof) anticipated to result from the Merger. In addition,
CSFB was not requested to, and did not, make an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of Boeing or
McDonnell Douglas, nor was CSFB furnished with any such evaluations or
appraisals. CSFB's opinion was necessarily based upon information available to
CSFB, and financial, economic, market and other conditions as they existed and
could be evaluated, on the date of its opinion. CSFB did not express any opinion
as to what the value of the Boeing Common Stock actually will be when issued
pursuant to the Merger or the prices at which the Boeing Common Stock will trade
subsequent to the Merger. Although CSFB evaluated the Conversion Number from a
financial point of view, CSFB was not requested to, and did not, recommend the
specific consideration payable in the Merger, which consideration was determined
through arms-length negotiation between Boeing and McDonnell Douglas. No
limitations were imposed by Boeing on CSFB with respect to the investigations
made or procedures followed by CSFB in rendering its opinion.
In preparing its opinion to the Boeing Board, CSFB performed a variety of
financial and comparative analyses, including those described below. The summary
of CSFB's analyses set forth below does not purport to be a complete description
of the analyses underlying CSFB's opinion. The preparation of a fairness opinion
is a complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. In arriving at its opinion, CSFB
made qualitative judgments as to the significance and relevance of each analysis
and factor considered by it. Accordingly, CSFB believes that its analyses must
be considered as a whole and that selecting portions of such analyses and
factors, without considering all analyses and factors, could create a misleading
or incomplete view of the processes underlying such analyses and its opinion. In
its analyses, CSFB made numerous assumptions with respect to Boeing, McDonnell
Douglas, industry performance, regulatory, general business, economic, market
and financial conditions and other matters, many of which are beyond the control
of Boeing and McDonnell Douglas. No company, transaction or business used in
such analyses as a comparison is identical to Boeing or McDonnell Douglas or the
proposed Merger, nor is an evaluation of the results of such analyses entirely
mathematical; rather, such analyses involve complex considerations and judgments
concerning financial and operating characteristics and other factors that could
affect the acquisition, public trading or other values of the companies,
business segments or transactions being analyzed. The estimates contained in
such analyses and the ranges of valuations resulting from any particular
analysis are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than those
suggested by such analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold. Accordingly,
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such analyses and estimates are inherently subject to substantial uncertainty.
CSFB's opinion and financial analyses were only one of many factors considered
by the Boeing Board in its evaluation of the proposed Merger and should not be
viewed as determinative of the views of the Boeing Board or management with
respect to the Conversion Number or the proposed Merger.
Described below is a summary of the material financial analyses that were
performed by CSFB in arriving at its written opinion dated December 14, 1996 and
that were discussed with the Boeing Board on December 9, 1996 and December 14,
1996. In connection with the December 14, 1996 Boeing Board meeting, CSFB
updated certain of the analyses which had been discussed at the December 9, 1996
Boeing Board meeting. The results set forth below, where applicable, reflect
such updated analyses. The following summary does not purport to be a complete
description of the analyses performed by CSFB in connection with rendering its
written opinion:
Discounted Cash Flow Analysis. CSFB estimated the present value of the
future streams of after-tax free cash flows that McDonnell Douglas could produce
on a stand-alone basis through fiscal year 2006, based on estimates of selected
investment banking firms which publicly provided detailed financial forecasts
for McDonnell Douglas through fiscal year 2000, and other publicly available
information, as adjusted for input from the management of Boeing and
extrapolated for subsequent fiscal years based on publicly available information
and discussions with the managements of Boeing and McDonnell Douglas. The range
of the estimated terminal values of McDonnell Douglas was calculated primarily
based upon McDonnell Douglas' financial and other characteristics by applying to
the projected 2006 operating cash flow ("OCF") of McDonnell Douglas multiples
ranging from 7.5x to 8.5x for the military aircraft and missiles, space and
electronics businesses of McDonnell Douglas and 5.0x to 6.0x for the commercial
aircraft business of McDonnell Douglas. The free cash flow streams and estimated
terminal values were then discounted to present values using discount rates
ranging from 10.25% to 10.75% in the case of the military aircraft and missiles,
space and electronics businesses of McDonnell Douglas and 11.25% to 11.75% in
the case of the commercial aircraft business of McDonnell Douglas. Finally, the
discounted free cash flow streams and the discounted terminal values were added
together. After adjustment for, among other things, the estimated value of
McDonnell Douglas' finance subsidiary and net debt, this analysis indicated an
implied equity reference range for McDonnell Douglas of approximately $50.66 to
$56.68 per fully diluted share (without taking into account the synergies
expected by the management of Boeing to result from the Merger).
Selected Companies Analysis. Using publicly available information, CSFB
compared selected financial, operating and stock market data for McDonnell
Douglas to corresponding data of selected companies in the military aircraft,
commercial aircraft, and missiles, space and electronics industries, consisting
of the following: (i) Military Aircraft: Lockheed Martin Corporation and
Northrop Grumman Corporation (collectively, the "Military Aircraft Companies");
(ii) Commercial Aircraft: Boeing, Lockheed Martin Corporation, and Northrop
Grumman Corporation (collectively, the "Commercial Aircraft Companies"); and
(iii) Missiles, Space and Electronics: Alliant Techsystems Inc., Hughes, Litton
Industries, Inc., Lockheed Martin Corporation, Raytheon Company, Thiokol
Corporation and Tracor, Inc. (collectively, the "Missiles, Space and Electronics
Companies" and, together with the Military Aircraft Companies and the Commercial
Aircraft Companies, the "Selected Companies"). All multiples for the Selected
Companies were based on closing stock prices as of December 11, 1996. This
analysis indicated, among other things, ranges of multiples for the Selected
Companies of estimated fiscal 1997 OCF of 7.0x to 8.0x in the case of the
Military Aircraft Companies and the Missiles, Space and Electronics Companies
and 6.0x to 7.0x in the case of the Commercial Aircraft Companies. Applying
these multiples to corresponding financial data of McDonnell Douglas (after
adjustment for, among other things, the estimated value of McDonnell Douglas'
finance subsidiary and net debt) resulted in an implied equity reference range
for McDonnell Douglas of approximately $49.18 to $57.30 per fully diluted share
(without taking into account the synergies expected by the management of Boeing
to result from the Merger).
Selected Transactions Analysis. CSFB analyzed the purchase prices and
implied transaction multiples paid in selected merger and acquisition
transactions involving companies in the military aircraft, commercial aircraft,
and missiles, space and electronics industries, consisting of the following
(acquiror/target): (i) Military Aircraft: Lockheed Corporation/General Dynamics
Military Aircraft, Martin Marietta Corpora-
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tion/Lockheed Corporation and Northrop Corporation/Grumman Corporation
(collectively, the "Military Aircraft Transactions"); (ii) Commercial Aircraft:
Deutsche Aerospace AG/Fokker NV and Rolls Royce plc/Allison Corporation
(collectively, the "Commercial Aircraft Transactions"); and (iii) Missiles,
Space and Electronics: Boeing/Rockwell A&D Business, Hughes Aircraft
Company/General Dynamics Corporation Missile System Business, Lockheed Martin
Corporation/Loral Corporation, Loral Corporation/LTV Aerospace and Defense
Company's Missile Business, Martin Marietta Corporation/General Dynamics
Corporation's Space Systems Division, Northrop Grumman Corporation/Westinghouse
Electric Corporation and Raytheon Company/E-Systems, Inc. (collectively, the
"Missiles, Space and Electronics Transactions" and, together with the Military
Aircraft Transactions and Commercial Aircraft Transactions, the "Selected
Transactions"). All multiples for the Selected Transactions were based on
information available at the time of announcement of the transaction. This
analysis indicated that the consideration paid in the Selected Transactions
represented multiples of the latest 12 months' OCF of 8.0x and 9.0x in the case
of the Military Aircraft Transactions and the Missiles, Space and Electronics
Transactions and 4.0x to 11.0x in the case of the Commercial Aircraft
Transactions. Applying these multiples (which would normally be expected to
reflect a portion of the anticipated synergies from the transaction) to
corresponding financial data of McDonnell Douglas (after adjustment for, among
other things, the estimated value of McDonnell Douglas' finance subsidiary and
net debt) resulted in an implied equity reference range for McDonnell Douglas of
approximately $53.93 to $65.13 per fully diluted share.
Synergies Analysis. CSFB estimated the present value of a range of future
streams of cash flows generated by the net cost savings and incremental earnings
that management of Boeing estimated could be generated as a result of the Merger
commencing with the second fiscal year following the closing of the Merger.
Utilizing, for purposes of such analysis, a discount rate of 10.5%, this
analysis resulted in a capitalized synergy value of approximately $15.50 to
$18.00 per share of McDonnell Douglas Common Stock, recognizing that none of
such synergy value could be generated except as a result of the Merger.
Contribution Analysis. CSFB analyzed the relative contributions of Boeing
and McDonnell Douglas to, among other things, the projected revenue, operating
income and net income of the pro forma combined company for fiscal 1997 based
upon, among other things, internal estimates of the management of Boeing, in the
case of Boeing, and estimates of selected investment banking firms, in the case
of McDonnell Douglas. This analysis indicated that, in fiscal 1997, Boeing would
contribute approximately 70%, 61%, 62% and 79% of the revenue, operating income,
net income and book equity, respectively, of the combined company, and McDonnell
Douglas would contribute approximately 30%, 39%, 38% and 21% of the revenue,
operating income, net income and book equity, respectively, of the combined
company. Based upon the Conversion Number, current holders of Boeing Common
Stock and McDonnell Douglas Common Stock would own approximately 72% and 28%,
respectively, of the combined company upon consummation of the Merger.
Pro Forma Merger Analysis. CSFB analyzed the potential pro forma effect of
the Merger on Boeing's earnings per share during the fiscal years 1997 through
2002, based upon estimates of Boeing's management and after giving effect to,
among other things, the net pretax cost savings and incremental earnings that
the management of Boeing estimated could be generated by the Merger. This
analysis indicated that the proposed Merger could be accretive to Boeing's
earnings per share on a fully diluted basis in each of the years analyzed. The
actual results achieved by the combined company may vary from projected results
and the variations may be material.
Certain Other Factors and Comparative Analyses. In rendering its opinion,
CSFB considered certain other factors and conducted certain other comparative
analyses, including, among other things, a review of the premiums to the
acquired company's stock price paid in certain comparable transactions, the
historical financial results, stock price performance, dividends paid and price
to earnings ratios of Boeing and McDonnell Douglas and of Boeing's credit
statistics both before and pro forma for the proposed Merger. The foregoing
factors were reviewed by CSFB as points of reference to provide additional
perspectives in its evaluation of the Conversion Number and were not considered
indicators of value or determinative of the fairness of the Conversion Number
from a financial point of view.
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Miscellaneous. For services rendered in connection with the Merger, Boeing
has agreed to pay CSFB an aggregate fee of $18,250,000, consisting of a
financial advisory fee of $250,000 which was payable upon CSFB's engagement, a
fee of $3.0 million which was payable upon announcement of the Merger, and a
success fee of $15.0 million which will be payable upon consummation of the
Merger. In addition, Boeing also has agreed to reimburse CSFB for out-of-pocket
expenses incurred by CSFB in performing its services, including the fees and
expenses of legal counsel and any other advisor retained by CSFB, and to
indemnify CSFB and certain related persons and entities against certain
liabilities, including liabilities under the federal securities laws, arising
out of CSFB's engagement.
CSFB has in the past performed certain investment banking services for
Boeing, including providing investment banking advice with respect to the
acquisition of the Rockwell A&D Business, for which services CSFB has received
customary compensation. In the ordinary course of its business, CSFB and its
affiliates may actively trade the debt and equity securities of both Boeing and
McDonnell Douglas for their own accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
(e) MCDONNELL DOUGLAS' REASONS FOR THE MERGER; RECOMMENDATION OF THE MCDONNELL
DOUGLAS BOARD
THE MCDONNELL DOUGLAS BOARD HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF MCDONNELL DOUGLAS AND ITS SHAREHOLDERS AND HAS APPROVED THE MERGER
AGREEMENT. THE MCDONNELL DOUGLAS BOARD RECOMMENDS THAT THE SHAREHOLDERS OF
MCDONNELL DOUGLAS VOTE IN FAVOR OF APPROVAL OF THE MERGER AT THE MCDONNELL
DOUGLAS SPECIAL MEETING.
The McDonnell Douglas Board believes the Merger offers McDonnell Douglas
and its shareholders an opportunity to participate in the creation of a leading
aerospace and defense company which can provide the critical mass and economies
of scale necessary to compete effectively in the current global business
environment. The McDonnell Douglas Board believes that the combined revenues of
McDonnell Douglas and Boeing, the potential for significant cost savings, the
complementary nature of their respective businesses, and the increased
geographic presence and expanded contribution to the U.S. industrial base and
exports that would result from the Merger are compelling reasons for the
combination of McDonnell Douglas and Boeing. This is particularly important in
the current environment of lower defense spending and increased competitiveness.
In addition, the defense industry has for several years been going through a
period of great consolidation. As the number of companies in the defense
industry has decreased, the size of the remaining entities has grown
significantly; in particular, within the past two years, two of McDonnell
Douglas' competitors have consummated or entered into agreements to consummate
transactions significantly increasing their size.
During 1996, it became increasingly apparent that DAC's competitive
position in the high growth commercial aircraft portion of the aerospace
industry was weakening. In 1996, McDonnell Douglas' share of new commercial
aircraft firm orders was only 4%, and McDonnell Douglas received no new orders
for its recently launched MD-95. Airline customer orders in which McDonnell
Douglas expected to participate were instead recorded by competitors. In
addition, a few significant customers previously supportive of McDonnell Douglas
expressed reduced confidence in McDonnell Douglas' existing product line or made
decisions to convert to aircraft of a competitor. Sales of McDonnell Douglas
commercial aircraft products have been adversely affected by (1) the lack of a
full family of aircraft, (2) customer and marketplace uncertainty as to the
future of DAC, and (3) investment in product development at levels significantly
below competition. Significant price competition for the sale of commercial
aircraft is expected to continue. At the same time, McDonnell Douglas'
production costs are affected by decreased economies of scale and older aircraft
designs, manufacturing technology and production processes as compared to its
competitors. As a result, it is difficult for McDonnell Douglas to sell
commercial aircraft profitably.
At various times during the last several years, McDonnell Douglas has
considered its strategic alternatives for DAC. These have included: strategic
alliances with non-United States partners bringing new markets and investment to
DAC; significant investment to permit DAC to offer a full family of commercial
aircraft; a niche strategy with DAC principally offering a smaller product line
and as a lesser player in
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commercial aircraft; sale of the commercial aircraft business; and an exit from
the commercial aircraft production business while retaining its spares business.
Earlier efforts over a several year period to find a strategic partner were not
successful. McDonnell Douglas also determined that it would require a
significant investment (up to approximately $15 billion) in infrastructure and
product development to compete effectively as a full-fledged participant in the
commercial aircraft segment and that the required investment was not prudent.
The proposed Merger, by combining its commercial aircraft operations with
Boeing, enables McDonnell Douglas to continue to fully utilize its skills and
investment in the commercial aircraft industry and will allow it to provide
better service and support to existing commercial aircraft customers.
The decision of the McDonnell Douglas Board to approve the Merger Agreement
and to recommend approval of the Merger by the holders of McDonnell Douglas
Common Stock was based upon a number of factors. The following are the material
factors considered by the McDonnell Douglas Board, certain of which factors
contained both positive and negative elements:
(i) the McDonnell Douglas Board's understanding of the present and
anticipated environment in the aerospace and defense industry, and the
continued consolidation within the industry;
(ii) the McDonnell Douglas Board's consideration of information
concerning the financial condition, results of operations, prospects and
businesses of McDonnell Douglas and Boeing, including the revenues of the
companies, their complementary businesses, increased geographic presence
and expanded contribution to U.S. industry, the consensus of research
analysts' 1997 earnings per share estimates for McDonnell Douglas and
Boeing, the recent stock market performance of McDonnell Douglas Common
Stock and Boeing Common Stock and the ratio of McDonnell Douglas' Common
Stock price to Boeing's Common Stock price over various periods;
(iii) current industry, economic and market conditions;
(iv) the McDonnell Douglas Board's belief that the Merger would enable
balancing of its defense business with a larger commercial aircraft
business, enabling better moderation of the effects of the cyclical swings
inherent in these businesses and continuing full utilization of its skills
and investment in the commercial aircraft industry;
(v) McDonnell Douglas' decision not to launch the MD-XX, which would
have competed in the long-range, wide-body market, the lack of new orders
for the MD-95 in 1996 and the declining sales of other aircraft models;
(vi) a review of possible other strategic options available to
McDonnell Douglas (including other potential transactions involving other
defense industry participants) and their relative advantages and
disadvantages vis-a-vis the Merger. See Section 8(b), "-- Background of the
Merger." In particular, Texas Instruments' defense electronics products
were largely complementary to McDonnell Douglas' products and would have
added critical mass in certain areas (e.g., missiles) and added
technologies in other areas. The acquisition of the defense assets of Texas
Instruments, however, would have been the smallest of the transactions
being actively considered, would likely have been dilutive to McDonnell
Douglas shareholders on a near-term basis, and would not have provided, by
itself, critical mass, complementary businesses and efficiencies of scale.
The acquisition of the defense assets of Hughes would have been a much
larger transaction than Texas Instruments but still smaller than the Boeing
transaction. The acquisition of the defense assets of Hughes also offered
more complementary defense electronics products and greater critical mass
in several areas than Texas Instruments, but at a price which would have
been even more dilutive to McDonnell Douglas shareholders than the Texas
Instruments transaction. Most problematic with the Hughes transaction,
however, was the unorthodox and complex deal structure which Hughes was
demanding to accommodate its mandatory tax treatment of the transaction.
While McDonnell Douglas believed that alternative structures might be
viable, they too would have had disadvantages and in any event had not then
been agreed to by Hughes. In contrast, the Boeing transaction offered a
straightforward transaction structure priced at a 21% premium (at the
closing prices of the respective stocks on December 13, 1996) to McDonnell
Douglas shareholders,
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provided the best alternative for McDonnell Douglas' commercial aircraft
business, and provided balance to the commercial, defense and space
businesses of both companies;
(vii) the financial and business prospects for the combined business,
including general information relating to possible synergies, cost
reductions, and operating efficiencies and consolidations;
(viii) the opportunity for the Merger to reduce dependence on any
single program and the associated risks of program cancellation;
(ix) financial information indicating that the proposed exchange ratio
of Boeing Common Stock for McDonnell Douglas Common Stock provided for each
share of McDonnell Douglas Common Stock $62.89 in the form of Boeing Common
Stock, based on its last reported sale price as reported on the NYSE
Composite Transactions Tape on Friday, December 13, 1996, the last trading
day prior to approval and execution of the Merger Agreement representing a
premium of 21% over the last reported sale price of McDonnell Douglas
Common Stock on such date and a premium of 18% over the trading price of
McDonnell Douglas Common Stock for the 30 trading days ending on such date;
(x) the opportunity for the shareholders of McDonnell Douglas to
benefit from ownership in a higher growth, higher price-to-earnings ratio
business;
(xi) the opinion of its outside legal counsel that the Merger could be
accomplished on a tax-free basis; and advice of its independent auditors
with regard to certain issues that the Merger should be able to be
accounted for as a pooling of interests transaction;
(xii) presentations from, and discussions with, senior executives of
McDonnell Douglas, representatives of its outside legal counsel and
representatives of J.P. Morgan regarding the business, financial,
accounting and legal due diligence with respect to Boeing and the terms and
conditions of the Merger Agreement, and discussions with its advisors of
the possible reactions of the Department of Defense, the European Economic
Community, NASA, the Federal Trade Commission and other governmental
entities to the proposed Merger. See Section 8(j), "-- Certain Federal
Income Tax Consequences; Section 8(k), "-- Anticipated Accounting
Treatment"; and Section 9, "OTHER TERMS OF THE MERGER AGREEMENT";
(xiii) the McDonnell Douglas Board's understanding of the
complications involved in the successful integration of the businesses and
managements of two companies with distinct business cultures, particularly
in light of Boeing's completion of its acquisition of the Rockwell A&D
Business on December 6, 1996, the fact that the employees of Boeing, the
Rockwell A&D Business and McDonnell Douglas have been competitors for many
years, and the significant increase in production rates for Boeing's
commercial aircraft;
(xiv) the corporate governance aspects of the Merger, including that
McDonnell Douglas directors (who had not yet then been determined) were to
join, and constitute one-third of, the Boeing Board and that Mr.
Stonecipher would serve as President and Chief Operating Officer of the
combined company. The McDonnell Douglas Board, while recognizing that these
arrangements presented certain potential conflicts of interests to the
persons involved, and considering these interests in connection with its
approval of the Merger Agreement, believed that this would be beneficial in
integrating the two companies and in achieving potential benefits of the
combination;
(xv) the preference of the McDonnell Douglas Board that Boeing change
its name on consummation of the Merger to include some combination of the
McDonnell Douglas name. It was noted by the McDonnell Douglas Board that in
several other major aerospace company mergers, the names of both companies
were retained to preserve and maintain the benefits of the rich heritage
and history of both companies. In addition, doing so would support the
intention of the companies that the transaction be perceived as a merger
and not a takeover, and would have a more favorable impact on McDonnell
Douglas employee morale. The Boeing name was recognized by the McDonnell
Douglas Board to be better known in worldwide commercial aircraft markets.
Boeing's view was that on consummation of the
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Merger the McDonnell name should be used in some form only in connection
with the defense businesses of the companies;
(xvi) the McDonnell Douglas Board's recognition that certain members
of the McDonnell Douglas Board and of McDonnell Douglas' management have
interests in the Merger that are in addition to and not necessarily aligned
with the interests in the Merger of holders of McDonnell Douglas Common
Stock, which interests were considered in connection with its approval of
the Merger Agreement. These interests included the severance and
termination benefits, accelerated vesting of restricted stock awards and
stock options and payment of stock equivalent units described in Section
8(i), "-- Interests of Certain Persons in the Transaction." The December
14, 1996 meeting of the McDonnell Douglas Board was attended by McDonnell
Douglas' Senior Vice President and General Counsel and its outside law
counsel who regularly advises McDonnell Douglas on Maryland corporation law
issues. Maryland is the state of McDonnell Douglas' incorporation. Before
making its decision, the McDonnell Douglas Board was advised by counsel of
the standards of conduct for directors of a Maryland corporation, including
a director's duty to act in good faith, i.e., with the absence of any
desire or reason to obtain a personal benefit, or a benefit for some person
other than the corporation, that is not available to other shareholders.
The directors were also given the opportunity and encouraged to discuss
with legal counsel any questions they might have on their duties. See
Section 8(i), "-- Interests of Certain Persons in the Transaction"; and
(xvii) the analysis of J.P. Morgan and the McDonnell Douglas Board's
receipt of an opinion from J.P. Morgan dated December 14, 1996 that, as of
such date and subject to the various considerations set forth therein, the
consideration to be paid to McDonnell Douglas shareholders in the Merger
was fair from a financial point of view to McDonnell Douglas shareholders
(a copy of the J.P. Morgan opinion, dated December 14, 1996, setting forth
the assumptions and qualifications made, facts considered and the scope of
the review undertaken is attached hereto as Annex III and is incorporated
by reference herein. Shareholders of McDonnell Douglas are encouraged to
read the opinion of J.P. Morgan carefully and in its entirety). See Section
8(b), "-- Background of the Merger" and Section 8(f), "-- Opinion of
McDonnell Douglas' Financial Advisor."
The foregoing discussion of the information and factors considered by the
McDonnell Douglas Board is not intended to be exhaustive. In view of the wide
variety of factors considered, the McDonnell Douglas Board did not assign
relative weights to the factors discussed above or determine that any factor was
of particular importance. Rather, the McDonnell Douglas Board viewed its
positions and recommendation as being based upon the totality of the information
presented.
THE MCDONNELL DOUGLAS BOARD RECOMMENDS THAT THE SHAREHOLDERS OF MCDONNELL
DOUGLAS VOTE IN FAVOR OF APPROVAL OF THE MERGER AT THE MCDONNELL DOUGLAS SPECIAL
MEETING.
(f) OPINION OF MCDONNELL DOUGLAS' FINANCIAL ADVISOR
Pursuant to an engagement letter dated September 18, 1995 and still in
effect, McDonnell Douglas retained J.P. Morgan as its financial advisor and to
deliver a fairness opinion in connection with the proposed Merger.
At the meeting of the McDonnell Douglas Board on December 14, 1996, J.P.
Morgan rendered its oral opinion to the McDonnell Douglas Board that, as of such
date, the consideration to be paid to McDonnell Douglas shareholders in the
proposed Merger was fair from a financial point of view to McDonnell Douglas
shareholders. J.P. Morgan has also delivered a written opinion to the McDonnell
Douglas Board, dated December 14, 1996, that, as of such date, the consideration
to be paid to McDonnell Douglas shareholders in the proposed Merger was fair
from a financial point of view to McDonnell Douglas shareholders. No limitations
were imposed by the McDonnell Douglas Board upon J.P. Morgan with respect to the
investigations made or procedures followed by it in rendering its opinions.
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THE FULL TEXT OF THE WRITTEN OPINION OF J.P. MORGAN DATED DECEMBER 14,
1996, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON
THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS ANNEX III AND IS INCORPORATED
HEREIN BY REFERENCE. J.P. MORGAN HAS CONSENTED TO THE INCLUSION OF ITS OPINION
LETTER IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND REFERENCES THERETO UNDER
THIS SECTION. IN GIVING SUCH CONSENT, J.P. MORGAN DOES NOT ADMIT THAT J.P.
MORGAN COMES WITHIN THE CATEGORY OF PERSONS WHOSE CONSENT IS REQUIRED UNDER, AND
J.P. MORGAN DOES NOT ADMIT THAT IT IS AN "EXPERT" WITH RESPECT TO ANY PART OF
THIS JOINT PROXY STATEMENT/PROSPECTUS FOR PURPOSES OF, THE SECURITIES ACT AND
THE RULES AND REGULATIONS THEREUNDER. MCDONNELL DOUGLAS SHAREHOLDERS ARE URGED
TO READ J.P. MORGAN'S OPINION IN ITS ENTIRETY. J.P. MORGAN'S WRITTEN OPINION IS
ADDRESSED TO THE MCDONNELL DOUGLAS BOARD, IS DIRECTED ONLY TO THE CONSIDERATION
TO BE PAID IN THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
MCDONNELL DOUGLAS SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE
MCDONNELL DOUGLAS SPECIAL MEETING. THE SUMMARY OF THE OPINION OF J.P. MORGAN SET
FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS DESCRIBES THE MATERIAL ASPECTS OF
SUCH OPINION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
SUCH OPINION.
In arriving at its opinions, J.P. Morgan reviewed, among other things, the
Merger Agreement; the audited financial statements of McDonnell Douglas and
Boeing for the fiscal year ended December 31, 1995 and the unaudited financial
statements of McDonnell Douglas and Boeing for the nine month period ended
September 30, 1996; current and historical market prices of McDonnell Douglas'
Common Stock; certain publicly available information concerning the business of
McDonnell Douglas and of certain other companies engaged in businesses
comparable to those of McDonnell Douglas, and the reported market prices for
certain other companies' securities deemed comparable; publicly available terms
of certain transactions involving companies comparable to McDonnell Douglas and
the consideration paid for such companies; the terms of other business
combinations deemed relevant by J.P. Morgan; certain internal financial analyses
and forecasts prepared by McDonnell Douglas and its management; and certain
agreements with respect to outstanding indebtedness or obligations of McDonnell
Douglas and Boeing. J.P. Morgan also held discussions with certain members of
the managements of McDonnell Douglas and Boeing with respect to certain aspects
of the Merger, and the past and current business operations of McDonnell Douglas
and Boeing, the financial condition and future prospects and operations of
McDonnell Douglas and Boeing, and certain other matters believed necessary or
appropriate to J.P. Morgan's inquiry. In addition, J.P. Morgan reviewed such
other financial studies and analyses and considered such other information as it
deemed appropriate for the purposes of its opinion.
J.P. Morgan relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or that
was furnished to it by McDonnell Douglas or otherwise reviewed by J.P. Morgan,
and J.P. Morgan has not assumed any responsibility or liability therefor. J.P.
Morgan has not conducted any valuation or appraisal of any assets or
liabilities, nor have any valuations or appraisals been provided to J.P. Morgan.
In relying on financial analyses and forecasts provided to J.P. Morgan, J.P.
Morgan has assumed that they have been reasonably prepared based on assumptions
reflecting the best currently available estimates and judgments by management as
to the expected future results of operations and financial condition of
McDonnell Douglas to which such analyses or forecasts relate. J.P. Morgan has
also assumed that the Merger will have the tax consequences described in this
Joint Proxy Statement/Prospectus, and in discussions with, and materials
furnished to J.P. Morgan by, representatives of McDonnell Douglas, and that the
other transactions contemplated by the Merger Agreement will be consummated as
described in the Merger Agreement and this Joint Proxy Statement/Prospectus.
The projections furnished to J.P. Morgan for McDonnell Douglas were
prepared by the management of McDonnell Douglas. McDonnell Douglas does not
publicly disclose internal management projections of the type provided to J.P.
Morgan in connection with J.P. Morgan's analysis of the Merger, and such
projections were not prepared with a view toward public disclosure. These
projections were based on numerous variables and assumptions that are inherently
uncertain and may be beyond the control of management, including, without
limitation, factors related to general economic conditions, general market
conditions for McDonnell Douglas' products, government defense spending, the
outcome of government competitive awards, potential sales of products to
commercial customers, successful execution of the internal operating plan and
prevailing interest rates. Accordingly, actual results could vary significantly
from those set forth in such projections.
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J.P. Morgan's opinions are based on economic, market and other conditions
as in effect on, and the information made available to J.P. Morgan as of, the
date of such opinions. Subsequent developments may affect the written opinion
dated December 14, 1996, and J.P. Morgan does not have any obligation to update,
revise, or reaffirm such opinion. J.P. Morgan expressed no opinion as to the
price at which Boeing Common Stock will trade at any future time.
In accordance with customary investment banking practice, J.P. Morgan
employed generally accepted valuation methods in reaching its opinion. The
following is a summary of the material financial analyses utilized by J.P.
Morgan in connection with providing its opinion.
Public Trading Multiples. Using publicly available information, J.P.
Morgan compared selected financial data of McDonnell Douglas with similar data
for selected publicly traded companies engaged in businesses which J.P. Morgan
judged to be analogous to McDonnell Douglas. The companies selected by J.P.
Morgan were Alliant Techsystems, General Dynamics Corporation, Litton Industries
Inc., Lockheed Martin Corporation, Northrop Grumman Corporation and Thiokol
Corporation. These companies were selected, among other reasons, because each
serves principally the market for aerospace and defense products. For each
comparable company, publicly available financial performance through the twelve
months ended September 30, 1996 (except for Litton Industries Inc., whose
financial performance was publicly available through October 31, 1996) was
measured. J.P. Morgan selected the mean value among such companies for each of
the following as a multiple of trading price: sales, earnings before interest
and taxes ("EBIT"), earnings before interest, taxes, depreciation and
amortization ("EBITDA") and consensus research analysts' 1997 earnings per share
estimates. These multiples were then applied to McDonnell Douglas' sales, EBIT,
EBITDA and consensus research analysts' 1997 earnings per share estimates,
yielding implied trading values for McDonnell Douglas Common Stock of
approximately $47 to $60 per share.
Selected Transaction Analysis. Using publicly available information, J.P.
Morgan examined selected transactions with respect to the defense/aerospace
industry during 1995 and 1996. Specifically, J.P. Morgan reviewed the following
transactions: Boeing's acquisition of the Rockwell A&D Business, GEC Marconi
Electronic Systems Corporation's acquisition of Hazeltine Corporation, Lockheed
Martin Corporation's acquisition of Loral Corporation, Northrop Grumman
Corporation's acquisition of Westinghouse Electronic Systems Group, Raytheon
Company's acquisition of E-Systems Inc., Tracor Inc.'s acquisition of AEL
Industries, Inc., Hughes' acquisition of Magnavox Electronic Systems Co., Loral
Corporation's acquisition of Unysis Corporation's Defense Operations, and Martin
Marietta Corporation's combination with Lockheed Corporation. J.P. Morgan
applied a range of multiples derived from these transactions to McDonnell
Douglas' sales, EBIT, and EBITDA and arrived at an estimated range of equity
values for McDonnell Douglas Common Stock of between $51 and $62 per share.
Discounted Cash Flow Analysis. J.P. Morgan calculated the unlevered free
cash flows that McDonnell Douglas is expected to generate during fiscal years
1997 through 2001 based upon financial projections prepared by the management of
McDonnell Douglas through the years ended 2001. J.P. Morgan also calculated a
range of terminal asset values of McDonnell Douglas at the end of the 5-year
period ending December 2001 by applying a perpetual growth rate ranging from 3%
to 4% of the unlevered free cash flow of McDonnell Douglas during the final year
of the 5-year period. The unlevered free cash flows and the range of terminal
asset values were then discounted to present values using a range of appropriate
discount rates, which were chosen by J.P. Morgan based upon an analysis of the
weighted average cost of capital of McDonnell Douglas. The present value of the
unlevered free cash flows and the range of terminal asset values were then
adjusted for McDonnell Douglas' estimated 1996 fiscal year-end excess cash and
total debt. Based on the management projections and a range of discount rates
from 8.5% to 9.5%, the discounted cash flow analysis indicated a range of equity
values between $43 and $64 per share of McDonnell Douglas Common Stock on a
stand-alone basis (i.e., without synergies).
Comparative Stock Price Performance. J.P. Morgan reviewed the recent stock
market performance of McDonnell Douglas and Boeing, reviewed the ratios of
McDonnell Douglas Common Stock prices to Boeing Common Stock prices over various
periods ending December 13, 1996, and computed the premium or discount of the
Conversion Number in relation to these ratios. The ratios of closing stock
prices of McDonnell
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Douglas to Boeing for the various periods ending December 13, 1996, were as
follows: 0.78 for the previous ten years; 0.84 for the previous five years; 1.06
for the previous three years; 1.14 for the previous two years; 1.12 for the
previous twelve months; 1.10 for the previous six months; 1.12 for the previous
thirty days; 1.08 for December 13, 1996; and with respect to the low and high
ratios for the previous year, 1.26 and 1.02, respectively.
J.P. Morgan observed that the Conversion Number represented a premium of
approximately 67%, 54%, 23%, 13%, 16%, 18%, 16%, 21%, 3%, and 29%, respectively,
over the aforementioned ratios of McDonnell Douglas stock prices to Boeing stock
prices.
Contribution Analysis. J.P. Morgan analyzed the pro forma contribution of
each of McDonnell Douglas and Boeing to the combined entity, if the Merger were
to be consummated, and reviewed certain historical and estimated future
operating and financial information including, among other things, the EBIT,
EBITDA, cash flow (defined as EBIT adjusted by each company's projected
effective tax rate plus depreciation and amortization minus capital
expenditures) and net income of McDonnell Douglas and Boeing, and the pro forma
EBIT, EBITDA, cash flow, and net income of the combined entity resulting from
the Merger based on (i) internal financial analyses and forecasts for McDonnell
Douglas prepared by management and (ii) financial analyses and forecasts for
Boeing published by Wall Street research analysts. Such analysis did not take
into account any potential synergies or cost savings that might be realized
after the Merger. Such analysis indicated that, based on management forecasts,
McDonnell Douglas would contribute on a pro forma basis to the combined entity
resulting from the Merger (i) 33.0% of 1997 EBIT and 31.6% of 1998 EBIT, (ii)
30.5% of 1997 EBITDA and 29.8% of 1998 EBITDA, (iii) 24.9% of 1997 cash flow and
25.6% of 1998 cash flow and (iv) 31.1% of 1997 net income and 29.6% of 1998 net
income.
J.P. Morgan noted that any evaluation of the contribution analysis must be
considered within the context of the common stock dividends paid by McDonnell
Douglas and Boeing and market perceptions regarding the growth prospects of
McDonnell Douglas and Boeing, as reflected by the valuation multiples, including
the price-earnings multiples. Specifically, J.P. Morgan noted that in 1996
McDonnell Douglas declared a dividend of $0.48 per common share and Boeing
declared a dividend of $0.55 per common share. In addition, J.P. Morgan observed
that based on consensus research analysts' 1997 earnings per share estimates for
McDonnell Douglas and Boeing, and based on McDonnell Douglas and Boeing stock
prices on December 13, 1996 of $52.00 and $48.375, respectively, McDonnell
Douglas' 1997 price-earnings ratio was approximately 12x and Boeing's 1997
price-earnings ratio was approximately 18x. J.P. Morgan observed that within the
context of Boeing's higher dividend and higher price-earnings multiple,
McDonnell Douglas' contribution on a pro forma basis to the combined entity
resulting from the Merger of EBIT, EBITDA, cash flow and net income compared
favorably with the approximately 27.8% of the pro forma fully diluted number of
shares for the combined entity to be owned by former McDonnell Douglas common
shareholders after the Merger.
The summary set forth above does not purport to be a complete description
of the analyses or data presented by J.P. Morgan. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. J.P. Morgan believes that the summary set forth
above and their analyses must be considered as a whole and that selecting
portions thereof, without considering all of its analyses, could create an
incomplete view of the processes underlying its analyses and opinion. J.P.
Morgan based its analyses on assumptions that it deemed reasonable, including
assumptions concerning general business and economic conditions and
industry-specific factors. The other principal assumptions upon which J.P.
Morgan based its analyses are set forth above under the description of each such
analysis. J.P. Morgan's analyses are not necessarily indicative of actual values
or actual future results that might be achieved, which values may be higher or
lower than those indicated. Moreover, J.P. Morgan's analyses are not and do not
purport to be appraisals or otherwise reflective of the prices at which
businesses actually could be bought or sold.
As a part of its investment banking business, J.P. Morgan and its
affiliates are continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, investments for passive
and control purposes, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements, and valuations for estate,
corporate and other purposes. J.P. Morgan was
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selected to advise McDonnell Douglas with respect to the Merger and to deliver
an opinion to McDonnell Douglas' Board with respect to the Merger on the basis
of such experience and its familiarity with McDonnell Douglas. Specifically,
J.P. Morgan advised McDonnell Douglas on the sale of several businesses,
including its Visual Simulations Systems operations and McDonnell Douglas
Information Systems International, both in 1993. In addition, J.P. Morgan has
advised McDonnell Douglas since 1991 on a number of other potential,
unconsummated transactions in both the defense and commercial aerospace
industries.
J.P. Morgan was not requested by McDonnell Douglas to analyze any potential
transactions concerning Texas Instruments. J.P. Morgan began to perform a
preliminary analysis with respect to Hughes' defense business shortly before the
Merger Agreement was signed. J.P. Morgan arrived at its fairness opinion in
connection with the proposed Merger as an independent matter without reference
to the other transactions.
For services rendered in connection with the Merger, McDonnell Douglas has
paid J.P. Morgan an engagement fee of $250,000, a retainer fee of $150,000, and
a fee upon announcement of the Merger of $2,000,000. In addition, McDonnell
Douglas has agreed to pay J.P. Morgan a fee of $15,850,000, payable upon
consummation of the Merger. Thus, the maximum aggregate fee payable to J.P.
Morgan, assuming the Merger is consummated, is $18,250,000. McDonnell Douglas
has also agreed to reimburse J.P. Morgan for its reasonable expenses incurred in
connection with its services, including the fees and disbursements of outside
counsel approved in advance by McDonnell Douglas, and will indemnify J.P. Morgan
against certain liabilities, including liabilities arising under the federal
securities laws.
J.P. Morgan and its affiliates maintain banking and other business
relationships with McDonnell Douglas and its affiliates, for which it receives
customary fees. In the ordinary course of their businesses, affiliates of J.P.
Morgan may actively trade the debt and equity securities of McDonnell Douglas or
Boeing for their own accounts or for the accounts of customers and, accordingly,
they may at any time hold long or short positions in such securities.
(g) COMPOSITION OF THE BOEING BOARD
The Merger Agreement provides that, immediately following the Effective
Time, the Boeing Board will fix the number of directors constituting the Boeing
Board at between 12 and 15 members, and the McDonnell Douglas Board will select
from among the current members of the McDonnell Douglas Board such number of
individuals acceptable to Boeing for nomination as directors of Boeing as will
constitute one-third of such total number of members of the Boeing Board,
allocated as equally as practicable among the different classes of directors.
The Boeing Board will consult with the McDonnell Douglas Board selection
committee described below prior to such selection so as to indicate to the
committee which individuals would be acceptable to Boeing. The Boeing selection
criteria for director nominees, which it would expect to apply in determining
whether the individuals selected by the McDonnell Douglas Board are acceptable
to Boeing, include the following:
In selecting director nominees, the focus should be on independence,
the ability to work with others, and background and experience which
strengthen the Board.... A person should not be nominated as a director
solely because he or she represents a particular constituency. Ordinarily,
the most important qualification will be experience in a senior position
with another business enterprise. Candidates from outside the business
community, such as former government officials or representatives of the
academic world, who would bring a different set of experiences and
perspectives to the Board, should also be considered. Nominees should be
selected based on their individual characteristics and their ability to
contribute to the overall performance of the Board. Although no particular
geographic distribution is preferred, an effort should be made to avoid a
predominance of directors from a single region. There should be no age
limit for new directors, but an effort should be made to select nominees
who could serve for at least five years before retirement age.
On January 31, 1997, the McDonnell Douglas Board held a meeting at which it
appointed Harry C. Stonecipher, John F. McDonnell, William H. Danforth, M.D. and
William S. Kanaga to serve as members of a selection committee for the purpose
of nominating the McDonnell Douglas directors to serve on the Boeing
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<PAGE> 46
Board. The selection committee has not yet selected the McDonnell Douglas
directors to be nominated. The Boeing selection criteria will also be taken into
consideration by the selection committee.
(h) EXECUTIVE OFFICERS OF BOEING
The Merger Agreement provides that, immediately following the Effective
Time, Philip M. Condit will remain Chairman of the Board and Chief Executive
Officer of Boeing and Harry C. Stonecipher, McDonnell Douglas' current President
and Chief Executive Officer, will be President and Chief Operating Officer of
Boeing.
(i) INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Severance and Equity Compensation Provisions of the Employment Agreement
with Mr. Stonecipher. On September 24, 1994, McDonnell Douglas entered into an
employment agreement (the "Employment Agreement") with Mr. Stonecipher. The
current "Employment Period" under the Agreement will expire on September 23,
1998. However, unless written notice is given to the contrary by McDonnell
Douglas at least one year prior to the expiration date, the Employment Period
annually will be extended for an additional year, but will not extend beyond May
16, 2001.
Pursuant to the Employment Agreement Mr. Stonecipher has received the
following equity-based awards: 360,000 stock equivalents (84,000 of which vested
March 31 in each of 1995, 1996 and 1997 and 108,000 of which will vest on March
31, 2002); 240,000 performance-based restricted shares of McDonnell Douglas
Common Stock, granted or to be granted in installments of 60,000 shares each
during the first quarters of 1995, 1996, 1997 and 1998, with vesting,
performance periods and other criteria to be as set by the Management
Compensation and Succession Committee of the McDonnell Douglas Board for other
members of senior management; and options to purchase 900,000 shares of
McDonnell Douglas Common Stock at $18.479 per share (the market price on the
date of grant), which vested and became exercisable or vest and become
exercisable in increments of 20% on September 24 in each of 1996, 1997, 1998,
1999 and 2000. The Merger will not affect the vesting provisions of any equity
based awards, except for the performance-based restricted shares granted in 1995
and 1996, which shall vest in full upon the approval by McDonnell Douglas
shareholders of the Merger. All other awards made, and the exercise prices of
all options granted, pursuant to the Employment Agreement will be converted
giving effect to the Conversion Number to similar awards with respect to Boeing
Common Stock. The aggregate value of all options held by Mr. Stonecipher, based
on the difference between the exercise price per share and the closing price of
McDonnell Douglas Common Stock on the NYSE Composite Transactions Tape on June
10, 1997 ($69.875), is $46,256,400.
In the event Mr. Stonecipher terminates his employment for "good reason"
(as defined in the Employment Agreement, which includes the breach of any of
McDonnell Douglas' obligations under the Employment Agreement including the
assignment of duties to Mr. Stonecipher which are not appropriate for someone in
the position of President and Chief Executive Officer of McDonnell Douglas, or
substantially diminishing his responsibilities, or removing him from the Board
of Directors, and the requirement that Mr. Stonecipher not be required to
relocate from the location of the headquarters of McDonnell Douglas), Mr.
Stonecipher will be entitled to receive for the remainder of the Employment
Period the salary, target incentive compensation and benefits he would have
received if his employment had continued for the remainder of the Employment
Period. Boeing and Mr. Stonecipher expect to enter into a written agreement to
confirm that Mr. Stonecipher's becoming President and Chief Operating Officer of
Boeing and relocating to Seattle will not constitute such a breach. In the event
of such a termination, all of Mr. Stonecipher's stock equivalent units would be
paid upon termination of employment, stock options would continue to vest for
the remainder of the Employment Period and for one year following termination of
the Employment Period and grants of performance-based restricted shares would be
ratably adjusted based on the ratio of the number of years Mr. Stonecipher would
have been employed had he remained employed for the remainder of the Employment
Period plus one, over the six-year performance period. The Employment Agreement
prohibits Mr. Stonecipher from competing with McDonnell Douglas and from
disclosing confidential information concerning McDonnell Douglas so long as any
restricted stock, stock equivalent units or stock options granted under the
Employment Agreement remain unvested or unexercised. If Mr. Stonecipher's
employment was
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<PAGE> 47
terminated upon the Merger under circumstances entitling him to severance
benefits under the Employment Agreement, the approximate total value of the
salary and incentive compensation continuation would be $2,070,300. In addition,
252,000 previously vested stock equivalent units would be paid in cash upon his
termination, with 108,000 additional stock equivalent units remaining subject to
the non-compete and non-disclosure provisions of the Employment Agreement until
March 31, 2002. The aggregate value of the previously vested stock equivalent
units and the additional stock equivalent units referenced in the preceding
sentence, based on the closing price of McDonnell Douglas Common Stock on the
NYSE Composite Transactions Tape on June 10, 1997 ($69.875), is $17,608,500 and
$7,546,500, respectively. As discussed below, vesting of 120,000 shares of Mr.
Stonecipher's performance-based restricted stock would be accelerated upon
shareholder approval of the Merger. If Mr. Stonecipher's employment were
terminated upon the Merger under circumstances entitling him to severance
benefits under the Employment Agreement, the remaining 120,000 shares of his
performance-based restricted stock would be reduced to 45,000 shares which would
then continue to vest or be forfeited in accordance with the performance
criteria set forth in the applicable award agreements. Finally, options to
acquire 180,000 shares of McDonnell Douglas Common Stock which would have vested
in 2000 would be canceled, with the remaining options vesting as scheduled under
the Employment Agreement and remaining exercisable for three years thereafter.
Under the Employment Agreement, McDonnell Douglas also is required to make
an additional "gross-up payment" to Mr. Stonecipher to offset fully the effect
of any excise tax imposed on change-in-control payments under Section 4999 of
the Code, on any such payment made to him under the Employment Agreement.
Termination Benefits Agreements. The McDonnell Douglas Board on October
27, 1995 authorized McDonnell Douglas to enter into severance agreements (the
"Termination Benefits Agreements") with executives selected by the President and
Chief Executive Officer. Thirty-two executives, including members of senior
management, have entered into such agreements with McDonnell Douglas.
Termination Benefits Agreements generally provide that in the event of
termination of the executive's employment with McDonnell Douglas for any reason
other than death, disability, retirement or for cause within two years after any
change in control of McDonnell Douglas (as defined in the agreements, which
definition includes the approval by McDonnell Douglas shareholders of the
Merger), or in the event the executive terminates employment for "good reason"
(as described below), the executive will continue to receive for the remainder
of a three-year period (for four of the executives) or a two-year period (for
twenty-eight of the executives) beginning on the date of the change in control
(any such period, the "Continuation Period"): (i) base salary at a rate equal to
the greater of the executive's rate at termination or immediately prior to the
change in control, (ii) annual incentive compensation calculated based on the
executive's annualized target incentive compensation multiplied by the average
percentage of the executive's earned incentive award to his or her target
incentive award for the three years prior to termination or the change in
control and (iii) welfare benefits that the executive would have received had
his employment not terminated. All of the agreements define termination for
"good reason" to include (i) the failure of any successor of McDonnell Douglas
to assume the obligation to perform under the agreement, (ii) an ongoing breach
of the agreement by McDonnell Douglas or its successor or (iii) a reduction in
the executive's base salary, bonus or certain other benefits within two years
after any change in control of McDonnell Douglas. Nine of the agreements also
include within the definition of termination for "good reason" certain changes
in title, duties or position with McDonnell Douglas, and/or geographic
relocation within such two-year period. In addition, all but one of the
Termination Benefits Agreements provide for a cash lump sum payment upon
termination of employment. The Termination Benefits Agreements also provide for
payment of prorated annual incentive compensation for the year of termination,
vesting of all retirement benefits and the continued accrual of benefits for the
Continuation Period (at the rate of salary and annual incentive compensation
paid during such period) under McDonnell Douglas' defined benefit pension plans
and the entitlement to matching contributions that the executive would have
received under McDonnell Douglas' defined contribution pension plans during the
Continuation Period. All payments and benefits will be discontinued on the
executive's normal retirement date or if the executive provides services to a
competitor, supplier or customer of McDonnell Douglas or discloses any of
McDonnell Douglas' confidential information. If any payments or benefits
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<PAGE> 48
(including payments and benefits under the Termination Benefits Agreement) to
the executive are determined to be "excess parachute payments" under Section
4999 of the Code, the executive would be entitled to receive an additional
payment (net of income and excise taxes) to compensate the executive for excise
tax imposed on such payments. If the employment of the named executive officers
(the three most highly compensated executive officers of McDonnell Douglas other
than Mr. Stonecipher, whose Employment Agreement is described above, and Edward
C. Bavaria, who is not a party to a Termination Benefits Agreement) were
terminated upon the Merger under circumstances entitling them to benefits under
the Termination Benefits Agreements, the approximate total amount of the salary
and incentive compensation continuation, short-year incentive payment, and cash
termination lump sum payment, for the named executive officers would be as
follows: Mr. Kuhlmann $2,966,269, and Mr. Palmer $3,235,693. In addition, while
Mr. McDonnell has a Termination Benefits Agreement, he has indicated to
McDonnell Douglas that he intends to retire as an employee upon consummation of
the Merger and as such does not intend to receive any benefits that otherwise
might be payable to him under his Termination Benefits Agreement as a result of
the Merger. The approximate aggregate total amount of the salary and incentive
compensation continuation, short-year incentive payment, and cash termination
lump sum payments for the other nineteen executive officers of McDonnell Douglas
who have Termination Benefits Agreements under such circumstances would be
$26,347,202. (Ten individuals who are not executive officers also have
Termination Benefits Agreements.) McDonnell Douglas, however, currently believes
that the number of executive officers whose employment will terminate under
circumstances entitling them to benefits under the Termination Benefits
Agreements will be limited. Accordingly, it is likely that the aggregate amounts
indicated above significantly exceed amounts that will actually be paid under
such agreements.
Company 1994 Performance and Equity Incentive Plan. Under the Merger
Agreement, all awards of stock options and restricted stock outstanding on the
date of the Merger under any equity based incentive award plans maintained by
McDonnell Douglas will be converted into similar awards with respect to stock of
Boeing. In accordance with the terms of the applicable award agreements, all
restrictions and conditions applicable to certain awards of restricted stock,
stock options or other awards granted under McDonnell Douglas' 1994 Performance
and Equity Incentive Plan (the "Plan") prior to December 14, 1996 will be deemed
to have been satisfied as of the date of the shareholder approval of the Merger
and all such awards shall become fully vested and, if applicable, exercisable,
as of such date. All awards of restricted stock, stock options or other awards
granted under the Plan on or after December 14, 1996 will be converted, giving
effect to the Conversion Number, to similar awards with respect to Boeing Common
Stock. The Merger will not affect the vesting of these awards.
Based upon awards outstanding as of June 10, 1997, the vesting of 523,700
restricted shares of McDonnell Douglas Common Stock granted prior to December
14, 1996, valued as of June 10, 1997 at $36,593,538 and held by executive
officers of McDonnell Douglas, would be accelerated upon shareholder approval of
the Merger. Each of the executive officers of McDonnell Douglas listed below
holds restricted stock awards which will become vested as a result of approval
by McDonnell Douglas shareholders of the Merger with respect to the following
number of shares of McDonnell Douglas Common Stock and corresponding aggregate
values:
<TABLE>
<CAPTION>
NAMED EXECUTIVE OFFICERS RESTRICTED STOCK AGGREGATE VALUE
------------------------------------------------------- ---------------- ---------------
<S> <C> <C>
Edward C. Bavaria...................................... 24,000 $ 1,677,000
F. Mark Kuhlmann....................................... 20,000 1,397,500
John F. McDonnell...................................... 0 0
James F. Palmer........................................ 22,000 1,537,250
Harry C. Stonecipher................................... 120,000 8,385,000
All executive officers as a group (36 persons)......... 523,700 36,593,538
</TABLE>
The aggregate value is based on the closing price of McDonnell Douglas
Common Stock on the NYSE Composite Transactions Tape on June 10, 1997 ($69.875).
Based upon awards outstanding as of June 10, 1997, the exercisability of
options to purchase 20,000 shares of McDonnell Douglas Common Stock, valued at
$908,750 and held by one executive officer of
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<PAGE> 49
McDonnell Douglas, would be accelerated upon shareholder approval of the Merger.
The value is based on the difference between the per share exercise price and
the closing price of McDonnell Douglas Common Stock on the NYSE Composite
Transactions Tape on June 10, 1997 ($69.875).
1995 Compensation Plan for Nonemployee Directors. Effective April 1, 1995,
nonemployee directors receive McDonnell Douglas stock equivalent units ("Stock
Units") in lieu of the previous annual cash retainer and annual restricted stock
grants. The value of one Stock Unit is equal to the fair market value of one
share of McDonnell Douglas Common Stock. The number of Stock Units paid is fixed
in January of each year, based on a dollar amount determined by the McDonnell
Douglas Board and the fair market value of McDonnell Douglas Common Stock, with
the number of Stock Units paid in four equal quarterly installments. In
addition, directors annually elect whether to receive committee retainers and
McDonnell Douglas Board and committee meeting attendance fees in cash (in the
same amounts discussed above), or to defer such amounts into Stock Units. The
value of a director's Stock Units will be paid to him or her in cash after the
director leaves the McDonnell Douglas Board for any reason. The aggregate value
of the Stock Units to be paid out to the directors upon the termination of their
service with the McDonnell Douglas Board upon the Merger (including those who
will be members of the Boeing Board) is approximately $3,500,300. The
approximate value of Stock Units which will be paid to each director is as
follows: John H. Biggs, $296,600; B. A. Bridgewater, $296,600; Beverly B. Byron,
$296,600; William E. Cornelius, $296,600; William H. Danforth, $360,400; Kenneth
M. Duberstein, $365,400; William S. Kanaga, $375,800; James S. McDonnell III,
$296,600; George A. Schaefer, $296,600; Ronald L. Thompson, $357,300; and P. Roy
Vagelos, $261,800.
Deferred Compensation Plan for Nonemployee Directors. Certain nonemployee
directors hold restricted shares of McDonnell Douglas Common Stock or an
equivalent amount of cash granted under the discontinued McDonnell Douglas
Deferred Compensation Plan for Nonemployee Directors. These shares of restricted
stock (or the cash) vest on the earlier of the director's disability,
resignation due to a conflict of interest not involving a breach of fiduciary
duty, death, retirement from the McDonnell Douglas Board in accordance with
requirements established by the McDonnell Douglas Board or the tenth anniversary
from the date of grant, if still serving as a director. Accordingly, upon the
directors' termination of service with the McDonnell Douglas Board upon the
Merger, the directors will forfeit all shares of restricted stock which are not
then otherwise vested.
Director Consulting Agreements. Boeing will enter into consulting
agreements with the members of the McDonnell Douglas Board who will not be
retiring as of the Effective Time or who do not become members of the Boeing
Board following the Effective Time. These agreements will become effective upon
termination of such directors' service with the McDonnell Douglas Board at the
Effective Time and will provide that for a term of two years such directors will
hold themselves available to consult with Boeing with respect to certain issues
relating to the combined entity and will agree not to undertake certain
activities in competition with the combined entity. During such consulting term,
each such director will receive an aggregate consulting fee of $90,000.
(j) CERTAIN FEDERAL INCOME TAX CONSEQUENCES
A McDonnell Douglas shareholder will not recognize gain or loss upon
receipt of shares of Boeing Common Stock pursuant to the Merger (other than with
respect to any cash paid in lieu of fractional shares). A McDonnell Douglas
shareholder who receives cash in lieu of a fractional share of Boeing Common
Stock will be treated as having received such fractional share and sold it for
cash. Accordingly, such shareholder will recognize gain or loss equal to the
difference, if any, between the amount of cash so received and the tax basis of
the McDonnell Douglas Common Stock allocable to such fractional share. Such gain
or loss will be capital gain or loss and will be long-term capital gain or loss
if the shareholder has held the McDonnell Douglas Common Stock as a capital
asset for over one year at the time of the Merger. A McDonnell Douglas
shareholder will have a tax basis in the shares of Boeing Common Stock received
in the Merger equal to the tax basis of the shareholder's McDonnell Douglas
Common Stock (less the tax basis allocable to any fractional share). The holding
period for such shares of Boeing Common Stock will include the holding period of
the shareholder's McDonnell Douglas Common Stock.
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It is a condition to the consummation of the Merger that McDonnell Douglas
receive an opinion from its tax counsel, Skadden, Arps, Slate, Meagher & Flom
LLP, and that Boeing receive an opinion from its tax counsel, Cravath, Swaine &
Moore, to the effect that, for federal income tax purposes, (i) the Merger will
constitute a "reorganization" within the meaning of Section 368(a) of the Code
and (ii) no gain or loss will be recognized by Boeing, Sub, McDonnell Douglas or
its shareholders as a result of the Merger (other than with respect to any cash
paid in lieu of fractional shares of Boeing Common Stock).
In rendering such opinions, Skadden, Arps, Slate, Meagher & Flom LLP and
Cravath, Swaine & Moore may receive and rely upon representations contained in
certificates of McDonnell Douglas, Boeing and others.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A DESCRIPTION OF THE MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A
COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL TAX EFFECTS OF THE MERGER. IN
ADDITION, THE DISCUSSION DOES NOT ADDRESS ALL OF THE TAX CONSEQUENCES THAT MAY
BE RELEVANT TO PARTICULAR TAXPAYERS IN LIGHT OF THEIR PERSONAL CIRCUMSTANCES OR
TO TAXPAYERS SUBJECT TO SPECIAL TREATMENT UNDER THE CODE (FOR EXAMPLE, INSURANCE
COMPANIES, FINANCIAL INSTITUTIONS, DEALERS IN SECURITIES, TAX-EXEMPT
ORGANIZATIONS, FOREIGN CORPORATIONS, FOREIGN PARTNERSHIPS OR OTHER FOREIGN
ENTITIES AND INDIVIDUALS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED
STATES).
NO INFORMATION IS PROVIDED HEREIN WITH RESPECT TO THE TAX CONSEQUENCES, IF
ANY, OF THE MERGER UNDER APPLICABLE FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
THE FOREGOING DISCUSSION IS BASED ON THE PROVISIONS OF THE CODE, APPLICABLE
TREASURY REGULATIONS THEREUNDER, INTERNAL REVENUE SERVICE RULINGS AND JUDICIAL
DECISIONS, IN EFFECT AS OF THE DATE HEREOF. THERE CAN BE NO ASSURANCE THAT
FUTURE LEGISLATIVE, ADMINISTRATIVE OR JUDICIAL CHANGES OR INTERPRETATIONS WILL
NOT AFFECT THE ACCURACY OF THE STATEMENTS OR CONCLUSIONS SET FORTH HEREIN. ANY
SUCH CHANGE OR INTERPRETATION COULD APPLY RETROACTIVELY AND COULD AFFECT THE
ACCURACY OF SUCH DISCUSSION. NO RULINGS HAVE BEEN OR WILL BE SOUGHT FROM THE
INTERNAL REVENUE SERVICE CONCERNING THE TAX CONSEQUENCES OF THE MERGER.
EACH SHAREHOLDER OF MCDONNELL DOUGLAS IS URGED TO CONSULT SUCH
SHAREHOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH
SHAREHOLDER OF THE MERGER, INCLUDING THE APPLICATION OF FOREIGN, STATE, LOCAL
AND OTHER TAX LAWS.
(k) ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a pooling of interests in
accordance with generally accepted accounting principles. Under this accounting
method, the historical financial information of Boeing and McDonnell Douglas
will be restated to reflect the combined financial position and operations of
both companies. The combined financial position and operations will be adjusted
to conform the accounting practices of the companies. It is a condition to the
consummation of the Merger that each of Boeing and McDonnell Douglas receive a
letter of its independent auditors, in form and substance reasonably
satisfactory to it, stating that they concur with management's conclusion that
the Merger will qualify as a transaction to be accounted for as a pooling of
interests. See Section 8(l), "-- Issuance of Additional Shares of McDonnell
Douglas Common Stock" and Section 9(g), "OTHER TERMS OF THE MERGER AGREEMENT --
Conditions Precedent to the Merger."
(l) ISSUANCE OF ADDITIONAL SHARES OF MCDONNELL DOUGLAS COMMON STOCK
Because of certain purchases by McDonnell Douglas of McDonnell Douglas
Common Stock, McDonnell Douglas intends to issue and sell up to 3,500,000
additional shares of McDonnell Douglas Common Stock prior to the Effective Time
in order to facilitate the treatment of the Merger as a pooling of interests.
The additional shares of McDonnell Douglas Common Stock will be issued shortly
prior to the Effective Time, and will be treated for all purposes as issued and
outstanding at the Effective Time.
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(m) GOVERNMENTAL AND REGULATORY APPROVALS
The consummation of the Merger is conditioned upon the expiration or
termination of the applicable waiting period under the HSR Act. In addition,
other filings with, notifications to and authorizations and approvals of,
various governmental agencies, both domestic and foreign, with respect to the
transactions contemplated by the Merger Agreement, relating primarily to
antitrust and securities law issues, must be made and received prior to the
consummation of the Merger unless the failure to obtain such approvals would not
have a material adverse effect on Boeing or McDonnell Douglas, as the case may
be. This includes a review under European competition law by the Merger Task
Force of the European Commission. The antitrust and competition agencies in the
United States and Europe assert jurisdiction to review the Merger for compliance
and, if they were to deem warranted, to challenge all or certain aspects of the
Merger by seeking to block the transaction or to impose conditions on the
Merger. Pursuant to the Merger Agreement, Boeing and McDonnell Douglas are
required to use reasonable efforts to take, or cause to be taken, all other
actions and do, or cause to be done, all other things necessary, proper or
advisable to consummate the Merger as contemplated by the Merger Agreement,
including without limitation, taking all such further action as reasonably may
be necessary to resolve such objections, if any, as the Federal Trade
Commission, the Antitrust Division of the Department of Justice, state antitrust
enforcement authorities or competition authorities of any other nation or other
jurisdiction or any other person may assert under relevant antitrust or
competition laws with respect to the Merger. There can be no assurance,
notwithstanding the efforts of Boeing and McDonnell Douglas described above,
that the requisite approvals will be obtained, that no injunction or other
order, regulation or ruling will be issued prohibiting the consummation of the
Merger substantially on the terms contemplated by the Merger Agreement, or that
any such approvals will not contain terms or conditions that cause such
approvals to fail to satisfy the condition to the consummation of the Merger
that all requisite approvals shall have been received unless the failure to
obtain such approvals would not have a material adverse effect on Boeing or
McDonnell Douglas, as the case may be. In fulfilling its obligation described
above to use reasonable efforts to resolve regulatory objections to the Merger,
Boeing and McDonnell Douglas may agree to terms and conditions not contemplated
on the date hereof. Any decision to accept any such terms and conditions would
be made by the applicable Board of Directors depending on the facts and
circumstances existing at the time. Such facts and circumstances may be
different from the facts and circumstances existing at the time the parties
entered into the Merger Agreement or at the time of the Boeing Special Meeting
or the McDonnell Douglas Special Meeting and could be more or less favorable to
Boeing, McDonnell Douglas or their respective shareholders than such earlier
facts and circumstances. No shareholder approval is expected to be required or
sought for any such decision. However, if Boeing and McDonnell Douglas decide to
agree to any such terms and conditions after the Special Meetings, Boeing and/or
McDonnell Douglas will make a new solicitation of proxies if shareholder
approval is required for such decision under applicable law.
United States. The Federal Trade Commission (the "FTC") is conducting an
antitrust review of the Merger in the United States pursuant to the HSR Act and
the regulations promulgated thereunder. Under the applicable law and
regulations, the Merger may not be consummated until notifications have been
given, certain information has been furnished to the FTC and the applicable
waiting period has expired or been terminated. On January 29, 1997, Boeing and
McDonnell Douglas filed notification and report forms under the HSR Act with the
FTC and the Antitrust Division of the Department of Justice. On February 28,
1997, each of Boeing and McDonnell Douglas received a request for additional
information (the "Second Requests") from the FTC. By June 11, 1997, Boeing and
McDonnell Douglas submitted to the FTC their certificates of substantial
compliance with the Second Requests, and accordingly, the waiting period with
respect to the Merger will expire, if not earlier terminated, on June 30, 1997
(unless it is determined that either Boeing or McDonnell Douglas had not
substantially complied with the Second Requests). Boeing and McDonnell Douglas
will be meeting and discussing with the FTC the status of its review during the
twenty-day waiting period in an attempt to bring the review to closure and in
connection therewith may discuss with the FTC the terms and conditions necessary
to resolve any regulatory objections to the Merger. Boeing and McDonnell Douglas
may voluntarily extend the twenty-day waiting period to allow the FTC additional
time to review the Merger. Prior to the expiration of such period (as extended
if applicable), if no agreement is reached, the FTC will decide whether or not
to challenge the Merger. If the FTC were to challenge the
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Merger, the parties then would determine whether to litigate against the FTC's
attempt to obtain a preliminary injunction to prevent the consummation of the
Merger.
At any time before or after the Effective Time, notwithstanding that the
waiting period under the HSR Act has expired, the FTC could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the consummation of the Merger or seeking
divestiture of substantial assets of Boeing or McDonnell Douglas. At any time
before or after the Effective Time, and notwithstanding that the waiting period
under the HSR Act has expired, any state could take such action under the
antitrust laws as it deems necessary or desirable in the public interest. Such
action could include seeking to enjoin the consummation of the Merger,
rescission of the Merger or seeking divestiture of substantial assets of Boeing
or McDonnell Douglas. Private persons may also seek to take legal action under
the antitrust laws under certain circumstances.
Europe. The Merger Regulation of the European Community requires that the
European Commission be notified of any concentration that has a "community
dimension", as determined under the Merger Regulation prior to the concentration
becoming effective. The concentration may not become effective for three weeks
following notification or, if the Commission so decides pursuant to Article 7(2)
of the Merger Regulation, until it makes a final decision at the conclusion of
its review. On February 18, 1997, Boeing notified the European Commission of the
proposed Merger. The obligations of Boeing and McDonnell Douglas to consummate
the Merger are subject to receiving, in terms satisfactory to them, confirmation
from the European Commission that the Merger and any matters arising from the
Merger are compatible with the common market.
The European Commission has made a provisional decision pursuant to Article
7(2) of the Merger Regulation requiring Boeing not to put the concentration into
effect until its final decision in the case. On March 19, 1997, the European
Commission notified Boeing of its intent to initiate proceedings regarding the
Merger. On May 21, 1997, the European Commission filed its Statement of
Objections to the Merger (the "Statement"). Boeing and McDonnell Douglas filed
their respective responses to the Statement on June 6, 1997. On June 12 and June
13, 1997, the European Commission held two days of hearings on the Statement and
the companies' responses. The principal concerns raised by the European
Commission are (i) Boeing's alleged dominant position within the market for
large commercial jet aircraft -- and the possibility that certain Boeing
exclusive supply agreements with airline customers and the Merger could lead to
the creation or strengthening of such position and (ii) McDonnell Douglas'
alleged dominant position in the international fighter aircraft market -- and
the possibility that the Merger could lead to the creation or strengthening of
such position. Pursuant to procedures and rules normally applicable, review of
the Merger by the European Commission must be completed on or before July 31,
1997.
At the conclusion of such proceedings, the European Commission may issue a
decision in accordance with Article 8.2 of the Merger Regulation declaring that
the Merger is compatible with the European common market, or that, subject to
certain conditions, it is compatible with the common market, or a decision in
accordance with Article 8.3 of the Merger Regulation declaring that the Merger
is incompatible with the common market and should not be allowed to proceed. If
the European Commission determines that the Merger is incompatible with the
common market pursuant to Article 8.3 or imposes conditions on the Merger
pursuant to Article 8.2, Boeing may, among other things, appeal the decision to
the European Court of First Instance. Appealing the decision to the European
Court of First Instance is a lengthy process and there can be no assurance that
any such appeal will be decided upon prior to December 31, 1997.
According to press reports, Karel Van Miert, the European Union Competition
Commissioner, has stated his view that Boeing will be required to make certain
concessions in order to obtain European antitrust clearance. Boeing and
McDonnell Douglas do not believe that Mr. Van Miert's public statements
necessarily represent the official view of the European Commission. See Section
5, "RISK FACTORS -- Necessity of Receiving Governmental Approvals Prior to the
Merger; Possible Divestitures and Operating Restrictions" for a description of
the possible effects of any divestitures or operating restrictions that may
ultimately be required.
Other Foreign Approvals. The Merger also may require antitrust and other
filings and approvals in certain foreign jurisdictions where Boeing or McDonnell
Douglas does business. Boeing and McDonnell
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Douglas expect to make all such required filings and to receive all necessary
approvals. If it appears that any foreign approval which Boeing and McDonnell
Douglas deemed to be material will not be obtained by the anticipated Effective
Time, the parties may, subject to the provisions of the Merger Agreement, delay
the Effective Time until such approvals are obtained.
(n) PERCENTAGE OWNERSHIP INTEREST OF MCDONNELL DOUGLAS SHAREHOLDERS AFTER THE
MERGER
Based on the number of shares of Boeing Common Stock outstanding on June 9,
1997 and assuming the issuance of approximately 278,796,000 shares of Boeing
Common Stock constituting the Share Issuance after giving effect to the
consummation of the Merger there will be approximately 1,000,400,000 shares of
Boeing Common Stock issued, of which the shareholders of McDonnell Douglas will
own approximately 28%.
(o) ABSENCE OF APPRAISAL RIGHTS
Under the DGCL, the shareholders of Boeing are not entitled to appraisal
rights with respect to the Share Issuance. Under the MGCL, the shareholders of
McDonnell Douglas are not entitled to dissenting shareholders' appraisal rights
with respect to the Merger.
(p) BOEING RIGHTS
In July 1987, Boeing adopted a stockholder rights plan (the "Boeing Rights
Plan") and declared a dividend distribution of one Boeing Right for each
outstanding share of Boeing Common Stock. The Boeing Rights do not have voting
or dividend rights. The Boeing Rights Plan expires on August 7, 1997, and the
Boeing Board has stated that it currently intends to permit the Boeing Rights
Plan to expire in accordance with its terms and not to replace it. If the Merger
is consummated prior to the expiration of the Boeing Rights Plan, subject to the
terms and conditions of the Merger Agreement, each share of Boeing Common Stock
issued in respect of McDonnell Douglas Common Stock outstanding immediately
prior to the Effective Time of the Merger will be issued with a corresponding
Boeing Right (which Boeing Right will expire on August 7, 1997).
(q) MCDONNELL DOUGLAS RIGHTS
The Merger Agreement requires McDonnell Douglas to amend the McDonnell
Douglas Rights Agreement, amended and restated as of May 31, 1996, between
McDonnell Douglas and First Chicago Trust Company of New York (the "McDonnell
Douglas Rights Plan") such that the "Final Expiration Date" (as defined in the
McDonnell Douglas Rights Plan) will occur immediately prior to the Effective
Time. The amendment to the McDonnell Douglas Rights Plan will result in the
expiration of the rights immediately prior to the Effective Time, thereby
preventing any registered holder of any Right Certificate (as defined therein)
from exercising the rights evidenced thereby after a Distribution Date (as
defined therein).
(r) STOCK EXCHANGE LISTING
It is a condition to the consummation of the Merger that the shares of
Boeing Common Stock constituting the Share Issuance be authorized for listing on
the NYSE, subject only to official notice of issuance.
(s) DELISTING AND DEREGISTRATION OF MCDONNELL DOUGLAS COMMON STOCK
If the Merger is consummated, the McDonnell Douglas Common Stock will be
delisted from the NYSE and the PSE and will be deregistered under the Exchange
Act.
(t) CONDUCT OF THE BUSINESS OF MCDONNELL DOUGLAS AND BOEING IF THE MERGER IS NOT
CONSUMMATED
If the Merger is not consummated, it is expected that the respective
businesses and operations of Boeing and McDonnell Douglas will continue to be
conducted substantially as they currently are being conducted and
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that there would be no change in the status of any joint projects currently
underway between Boeing and McDonnell Douglas.
(u) RESALES OF BOEING COMMON STOCK
All shares of Boeing Common Stock constituting the Share Issuance will be
freely transferable, except that shares received by any person who may be deemed
to be an "affiliate" (as used in paragraphs (c) and (d) of Rule 145 under the
Securities Act, including, without limitation, directors and certain executive
officers) of McDonnell Douglas for purposes of such Rule 145 may not be resold
except in transactions permitted by such Rule 145 or as otherwise permitted
under the Securities Act. See Section 9 (g), "OTHER TERMS OF THE MERGER
AGREEMENT -- Conditions Precedent to the Merger."
McDonnell Douglas has agreed to prepare and deliver to Boeing a list
identifying each person who, at the time of the McDonnell Douglas Special
Meeting, may be deemed to be an "affiliate" (as used in the preceding paragraph)
of McDonnell Douglas and to use its reasonable best efforts to cause each person
so identified to deliver to Boeing on or prior to the Effective Time a written
agreement providing that such person will not (i) sell, pledge, transfer or
otherwise dispose of, any McDonnell Douglas Common Stock or any shares of Boeing
Common Stock issued to such person in connection with the Merger, except
pursuant to an effective registration statement or in compliance with such Rule
145 or another exemption from the registration requirements of the Securities
Act or (ii) sell or in any other way reduce such person's risk relative to any
McDonnell Douglas Common Stock or any shares of Boeing Common Stock received in
the Merger during the period (the "Resale Period") commencing 30 days prior to
the Effective Time and ending at such time as the financial results covering at
least 30 days of post-Merger operations have been published by Boeing.
Boeing has agreed to prepare and deliver to McDonnell Douglas a list
identifying each person who, at the time of the Boeing Special Meeting, may be
deemed to be an "affiliate" (as used in the preceding two paragraphs) of Boeing
and to use its reasonable best efforts to cause each person so identified to
deliver to McDonnell Douglas on or prior to the Effective Time a written
agreement providing that such person will not sell, pledge, transfer or
otherwise dispose of, or in any other way reduce such person's risk relative to,
any shares of Boeing Common Stock or any McDonnell Douglas Common Stock during
the Resale Period.
(v) COORDINATION OF DIVIDENDS
McDonnell Douglas shareholders received regular dividend payments on
January 6, 1997 (based on a fourth quarter 1996 record date) and April 7, 1997
(based on a first quarter 1997 record date) and will receive an additional
regular quarterly dividend payment on July 7, 1997 (based on a second quarter
1997 record date). If the Effective Time occurs on or prior to August 15, 1997
(the anticipated record date for Boeing's third quarter 1997 dividend payment),
former McDonnell Douglas shareholders would receive the Boeing third quarter
dividend expected to be paid in September 1997 and the fourth quarter dividend
expected to be paid in December 1997. Consequently, in 1997 there would be four
record dates for McDonnell Douglas shareholders, but they would receive five
dividend payments. If the Effective Time occurs after August 15, 1997 and prior
to the record date (currently anticipated to be September 5, 1997), if any, for
McDonnell Douglas' fourth quarterly dividend payable in 1997, McDonnell Douglas
shareholders' initial dividend as Boeing shareholders would be the fourth
quarter dividend expected to be paid in December 1997. Consequently, in 1997
there would be three record dates for McDonnell Douglas shareholders, but they
would receive four dividend payments. If the Effective Time occurs after the
record date, if any, for McDonnell Douglas' fourth quarterly dividend payable in
1997, McDonnell Douglas shareholders will receive either four or five dividends
in 1997, depending on the date of the Effective Time and the record date for
Boeing's fourth quarter 1997 dividend payment. The Merger Agreement provides
that Boeing and McDonnell Douglas will coordinate the declaration of dividends
so as to avoid duplicate dividends. Boeing and McDonnell Douglas have agreed to
not alter the timing of 1997 regular quarterly dividend record dates and payment
dates.
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9. OTHER TERMS OF THE MERGER AGREEMENT
(a) CONVERSION OF SHARES IN THE MERGER
At the Effective Time, by virtue of the Merger and without any further
action on the part of McDonnell Douglas or Sub or holders of their securities:
(i) each issued and outstanding share of common stock of Sub will be
converted into one share of common stock of McDonnell Douglas;
(ii) each share of McDonnell Douglas Common Stock that is held
directly by McDonnell Douglas or Boeing, if any, will be canceled and
retired and will cease to exist, and no consideration will be delivered in
exchange therefor; and
(iii) each share of McDonnell Douglas Common Stock issued and
outstanding (other than any shares to be canceled as described in
subparagraph (ii) above, of which as of the date of this Joint Proxy
Statement/Prospectus there are none) will be converted into 1.3 shares of
Boeing Common Stock (the "Merger Consideration"); provided, however, that
cash will be paid in lieu of any fractional share of Boeing Common Stock.
See Section 9(c), "-- No Fractional Shares."
All shares of McDonnell Douglas Common Stock converted as provided in
subparagraph (iii) of the preceding paragraph will no longer be outstanding and
will automatically be canceled and retired and will cease to exist; and each
holder of a certificate representing, immediately prior to the Effective Time,
any such shares of McDonnell Douglas Common Stock (a "McDonnell Douglas
Certificate") will cease to have any rights with respect thereto, except the
right to receive, as hereinafter described: (i) a certificate representing the
number of whole shares of Boeing Common Stock into which such shares of
McDonnell Douglas Common Stock have been converted, (ii) certain dividends and
other distributions, and (iii) cash, without interest, in lieu of any fractional
shares of Boeing Common Stock. See Section 9(b), "-- Exchange Agent; Procedures
for Exchange of Certificates" and Section 9(c), "-- No Fractional Shares."
All references in this Joint Proxy Statement/Prospectus to shares of Boeing
Common Stock to be received pursuant to the Merger in accordance with the Merger
Agreement will be deemed, from and after the Effective Time, to include the
associated Boeing Rights if the Boeing Rights are still outstanding. See Section
8(p), "THE MERGER -- Boeing Rights".
(b) EXCHANGE AGENT; PROCEDURES FOR EXCHANGE OF CERTIFICATES
Boeing has authorized BankBoston, N.A. to act as Exchange Agent under the
Merger Agreement. As of the Effective Time, Boeing will deposit with the
Exchange Agent, for the benefit of the holders of McDonnell Douglas
Certificates, certificates ("Boeing Certificates") representing the number of
whole shares of Boeing Common Stock issuable pursuant to the Merger Agreement in
exchange for outstanding shares of McDonnell Douglas Common Stock. Such shares
of Boeing Common Stock, together with any dividends or distributions with
respect thereto with a record date after the Effective Time, any Excess Shares
(as hereinafter defined) and any cash (including cash proceeds from the sale of
the Excess Shares) payable in lieu of any fractional shares of Boeing Common
Stock are hereinafter referred to as the "Exchange Fund." The Exchange Agent
will deliver Boeing Certificates upon the surrender for exchange of McDonnell
Douglas Certificates.
As soon as reasonably practicable after the Effective Time, the Exchange
Agent will mail to each record holder of a McDonnell Douglas Certificate a
packet of information about exchanging McDonnell Douglas Certificates for the
property described below. The packet will include a form of letter of
transmittal for the record holder to use to transmit the McDonnell Douglas
Certificates to the Exchange Agent which letter of transmittal will specify that
delivery will be effected, and risk of loss and title to the McDonnell Douglas
Certificates will pass, only upon actual delivery thereof to the Exchange Agent
and will be in such form and have such other provisions as Boeing and McDonnell
Douglas reasonably specify. Upon surrender for cancelation to the Exchange Agent
of McDonnell Douglas Certificate(s) held by any record holder, together with
such letter of transmittal duly executed and such other documents as are
reasonably requested by the Exchange Agent, such holder will be entitled to
receive in exchange therefor: (i) a Boeing Certificate
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representing the number of whole shares of Boeing Common Stock into which the
shares of McDonnell Douglas Common Stock represented by the surrendered
McDonnell Douglas Certificate(s) have been converted at the Effective Time, (ii)
cash in lieu of any fractional share of Boeing Common Stock (see Section 9(c),
"-- No Fractional Shares"), and (iii) the dividends and other distributions
described in the next paragraph. All McDonnell Douglas Certificates so
surrendered will be canceled. All shares of Boeing Common Stock issued upon the
surrender for exchange of any McDonnell Douglas Certificate in accordance with
the terms of the Merger Agreement (including the cash paid in respect of any
such fractional share or of any such dividends or distributions) will be deemed
to have been issued (and paid) in full satisfaction of all rights pertaining to
the shares of McDonnell Douglas Common Stock represented by such surrendered
McDonnell Douglas Certificate; provided, however, that McDonnell Douglas is
obligated to pay any dividends or make any other distributions with a record
date prior to the Effective Time which may have been authorized or made by
McDonnell Douglas on such shares of McDonnell Douglas Common Stock which remain
unpaid at the Effective Time.
No dividends or other distributions with respect to Boeing Common Stock
with a record date after the Effective Time will be paid to the holder of any
unsurrendered McDonnell Douglas Certificate with respect to the shares of Boeing
Common Stock represented thereby, and no cash payment in lieu of fractional
shares will be paid to any such holder pursuant to the Merger Agreement, and all
such dividends, other distributions and cash in lieu of fractional shares of
Boeing Common Stock will be paid by Boeing to the Exchange Agent and will be
included in the Exchange Fund, in each case until the surrender of such
McDonnell Douglas Certificate in accordance with the exchange procedures set
forth in the Merger Agreement. Subject to the effect of applicable escheat or
similar laws, following surrender of any such McDonnell Douglas Certificate
there will be paid to the holder of the Boeing Certificate representing whole
shares of Boeing Common Stock issued in exchange therefor, without interest, (i)
at the time of such surrender, the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
such whole shares of Boeing Common Stock and the amount of any cash payable in
lieu of a fractional share of Boeing Common Stock to which such holder is
entitled pursuant to the Merger Agreement and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date after
the Effective Time but prior to such surrender and with a payment date
subsequent to such surrender payable with respect to such whole shares of Boeing
Common Stock. Boeing will make available to the Exchange Agent cash for these
purposes.
If, after the Effective Time, McDonnell Douglas Certificates are presented
to McDonnell Douglas or the Exchange Agent for any reason, they will be canceled
and exchanged as described in the three preceding paragraphs, except as
otherwise provided by law. There will be no further registration of transfers on
the stock transfer books of McDonnell Douglas of the shares of McDonnell Douglas
Common Stock which were outstanding immediately prior to the Effective Time.
Any portion of the Exchange Fund that remains undistributed to the holders
of McDonnell Douglas Certificates for six months after the Effective Time will
be delivered to Boeing, upon demand, and any holders of the McDonnell Douglas
Certificates who have not theretofore complied with the exchange provisions of
the Merger Agreement may thereafter look only to Boeing for payment of their
claim for Merger Consideration or shares, any cash in lieu of fractional shares
of Boeing Common Stock and any dividends or distributions with respect to Boeing
Common Stock.
None of Boeing, McDonnell Douglas, Sub or the Exchange Agent will be liable
to any person in respect of any shares of Boeing Common Stock (or dividends or
distributions with respect thereto) or cash from the Exchange Fund delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law. If any McDonnell Douglas Certificate has not been surrendered prior
to seven years after the Effective Time (or immediately prior to such earlier
date on which any Merger Consideration, any cash payable to the holder of such
McDonnell Douglas Certificate pursuant to the Merger Agreement or any dividends
or distributions payable to the holder of such McDonnell Douglas Certificate
would otherwise escheat to or become the property of any governmental body or
authority), any such Merger Consideration or cash, dividends or distributions in
respect of such McDonnell Douglas Certificate will, to the extent permitted by
applicable law, become the property of McDonnell Douglas, free and clear of all
claims or interest of any person previously entitled thereto.
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The Exchange Agent will invest any cash included in the Exchange Fund, as
directed by Boeing, on a daily basis. Any interest and other income resulting
from such investments will be paid to Boeing.
SHAREHOLDERS OF MCDONNELL DOUGLAS SHOULD NOT FORWARD THEIR MCDONNELL
DOUGLAS CERTIFICATES WITH THE ENCLOSED PROXY CARD, NOR SHOULD THEY FORWARD THEIR
MCDONNELL DOUGLAS CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED
THE PACKET OF INFORMATION DESCRIBED ABOVE, INCLUDING THEIR LETTER OF
TRANSMITTAL.
(c) NO FRACTIONAL SHARES
No certificates or scrip representing a fractional share of Boeing Common
Stock will be issued upon the surrender of McDonnell Douglas Certificates for
exchange; no Boeing dividend or other distribution will relate to any such
fractional share; and no such fractional share will entitle the owner thereof to
any voting or other rights of a shareholder of Boeing. In lieu of any such
fractional share, each holder of shares of McDonnell Douglas Common Stock who
would otherwise have been entitled thereto upon the surrender of McDonnell
Douglas Certificates for exchange will be paid cash (as described below).
As promptly as practicable following the Effective Time, the Exchange Agent
will determine the excess of (i) the number of whole shares of Boeing Common
Stock delivered to the Exchange Agent by Boeing pursuant to the Merger Agreement
over (ii) the aggregate number of whole shares of Boeing Common Stock to be
distributed to holders of McDonnell Douglas Common Stock pursuant to the Merger
Agreement (such excess being herein called the "Excess Shares"). Following the
Effective Time, the Exchange Agent will, on behalf of former shareholders of
McDonnell Douglas, sell the Excess Shares at then prevailing prices on the NYSE,
all in the manner provided for in the Merger Agreement (as described in the
paragraph immediately below).
The sale of the Excess Shares by the Exchange Agent will be executed on the
NYSE through one or more member firms of the NYSE and will be executed in round
lots to the extent practicable. The Exchange Agent will use reasonable efforts
to complete the sale of the Excess Shares as promptly following the Effective
Time as, in the Exchange Agent's sole judgment, is practicable consistent with
obtaining the best execution of such sales in light of prevailing market
conditions. Until the net proceeds of such sale or sales have been distributed
to the holders of McDonnell Douglas Common Stock, the Exchange Agent will hold
such proceeds in trust for the holders of McDonnell Douglas Common Stock (the
"Common Shares Trust"). McDonnell Douglas will pay all commissions, transfer
taxes and other out-of-pocket transaction costs, including the expenses and
compensation of the Exchange Agent incurred in connection with such sale of the
Excess Shares. The Exchange Agent will determine the portion of the Common
Shares Trust to which each holder of McDonnell Douglas Common Stock is entitled,
if any, by multiplying the amount of the aggregate net proceeds constituting the
Common Shares Trust by a fraction, the numerator of which will be the amount of
the fractional share interest to which such holder of McDonnell Douglas Common
Stock is entitled (after taking into account all shares of McDonnell Douglas
Common Stock held at the Effective Time by such holder) and the denominator of
which will be the aggregate amount of fractional share interests to which all
holders of McDonnell Douglas Common Stock are entitled.
Notwithstanding the provisions of the Merger Agreement described in the two
preceding paragraphs, McDonnell Douglas may elect at its option, exercised prior
to the Effective Time, in lieu of the issuance and sale of Excess Shares and the
making of the payments above contemplated, to pay each holder of McDonnell
Douglas Common Stock an amount in cash equal to the product obtained by
multiplying (i) the fractional share interest to which such holder (after taking
into account all shares of McDonnell Douglas Common Stock held at the Effective
Time by such holder) would otherwise be entitled by (ii) the closing price for a
share of Boeing Common Stock as reported on the NYSE Composite Transactions Tape
(as reported in The Wall Street Journal, or, if not reported thereby, any other
authoritative source) on the closing date of the Merger.
As soon as practicable after the determination of the amount of cash, if
any, to be paid to holders of McDonnell Douglas Common Stock with respect to any
fractional share interests, the Exchange Agent will make available such amounts
to such holders of McDonnell Douglas Common Stock, subject to and in accordance
with the Merger Agreement. See Section 9(b), "-- Exchange Agent; Procedures for
Exchange of Certificates."
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(d) REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Boeing, McDonnell Douglas and Sub relating, among other things, to the
following:
(i) their incorporation, existence, good standing, corporate power and
similar corporate matters;
(ii) their capitalization;
(iii) their authorization, execution, delivery and performance and the
enforceability of the Merger Agreement and related matters;
(iv) the absence of conflicts, violations and defaults under their
certificate or articles of incorporation and by-laws and certain other
agreements and documents;
(v) the documents and reports filed with the SEC and the accuracy and
completeness of the information contained therein;
(vi) the absence of undisclosed liabilities;
(vii) compliance with laws, ordinances and regulations;
(viii) environmental matters;
(ix) employee benefit matters;
(x) the absence of certain material changes or events since December
31, 1995;
(xi) pending or threatened investigations or litigation;
(xii) the Registration Statement and this Joint Proxy
Statement/Prospectus and the accuracy and completeness of the information
contained therein and herein;
(xiii) the inapplicability of their shareholder rights plans to the
Merger;
(xiv) the lack of ownership of each other's stock;
(xv) tax matters;
(xvi) the receipt of fairness opinions from financial advisors; and
(xvii) the availability of pooling of interests accounting treatment.
All representations and warranties of Boeing, McDonnell Douglas and Sub
expire at the Effective Time.
(e) CONDUCT OF BUSINESS PENDING THE MERGER
Each of Boeing and McDonnell Douglas has agreed that during the period from
the date of the Merger Agreement through the Effective Time or the date on which
the Merger Agreement terminates in accordance with its terms (the "Termination
Date"), except as otherwise agreed to by the other parties to, or permitted by,
the Merger Agreement, it will, and will cause each of its subsidiaries to,
conduct its business operations according to their ordinary and usual course of
business in substantially the same manner as conducted prior to the Merger
Agreement, use its reasonable best efforts to preserve intact its business
organization and goodwill in all material respects, keep available the services
of its officers and employees as a group, subject to changes in the ordinary
course, and maintain satisfactory relationships with customers, suppliers,
distributors and others having business dealings with it. Each of Boeing and
McDonnell Douglas has agreed promptly to notify the other of any change or event
which would have a Material Adverse Effect on Boeing or McDonnell Douglas, as
the case may be, and to confer, at such times as the other may reasonably
request, concerning its material operational matters and the general status of
its ongoing operations, with representatives of the other. As used in the Merger
Agreement and this Joint Proxy Statement/Prospectus, subsidiary means any
corporation or other form of legal entity of which more than 50% of the
outstanding voting securities are owned directly or indirectly by McDonnell
Douglas or Boeing, as the case may be, as of the date of the Merger Agreement.
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Without limiting the generality of the foregoing, and except as otherwise
agreed to by the parties to, or permitted by, the Merger Agreement, each of
Boeing and McDonnell Douglas has agreed that it will not:
(i) and will not (except in the ordinary course of business consistent
with past practice) permit any of its subsidiaries that is not wholly-owned
to, authorize or pay any dividends on or make any distribution with respect
to its outstanding shares of stock other than regular quarterly dividends
(of not to exceed $0.14 per share in the case of Boeing Common Stock or
$0.12 per share in the case of McDonnell Douglas Common Stock) made in the
ordinary course consistent with past practice, except, in the case of
Boeing as disclosed in writing to McDonnell Douglas prior to the signing of
the Merger Agreement;
(ii) propose or adopt any amendments to its corporate charter or
by-laws, except, in the case of Boeing, as disclosed in writing to
McDonnell Douglas prior to the signing of the Merger Agreement; and
(iii) and will not permit any of its Significant Subsidiaries (as
defined in Rule 405 under the Securities Act), to issue any shares of their
capital stock, except upon exercise of rights or options issued pursuant to
existing employee incentive or benefit plans, programs or arrangements and
non-employee director plans (including, without limitation, shares issued
in connection with stock grants or awards or the exercise of rights or
options granted in the ordinary course of business consistent with past
practice pursuant to such plans, programs or arrangements) or effect any
stock split not previously announced or otherwise change its capitalization
as it existed on November 30, 1996, in the case of Boeing, and December 6,
1996, in the case of McDonnell Douglas (except as contemplated in the
Merger Agreement and except, in the case of McDonnell Douglas, for the
contemplated issuance or sale of shares of McDonnell Douglas Common Stock
previously agreed to in writing by Boeing and except, in the case of
Boeing, as disclosed in writing to McDonnell Douglas prior to the signing
of the Merger Agreement).
Except as otherwise agreed to by the parties to, or permitted by, the
Merger Agreement, each of Boeing and McDonnell Douglas also has agreed that it
will not, and that it will not permit any of its subsidiaries to:
(i) authorize, propose or announce an intention to authorize or
propose, or enter into an agreement with respect to, any merger,
consolidation or business combination (other than the Merger and any
mergers, consolidations or business combinations with its subsidiaries
entered into in the ordinary course of business consistent with past
practice), any acquisition of a material amount of assets or securities,
any disposition of a material amount of assets or securities or any release
or relinquishment of any material contract rights not in the ordinary
course of business;
(ii) grant, confer or award any options, warrants, conversion rights
or other rights, not existing on the date hereof, to acquire any shares of
its capital stock, except pursuant to employee incentive or benefit plans,
programs or arrangements and non-employee director plans in existence on
the date of the Merger Agreement in the ordinary course of business and
consistent with past practice (including, but not limited to, in the case
of McDonnell Douglas, certain grants of Performance Accelerated Restricted
Stock under the McDonnell Douglas 1994 Performance and Equity Incentive
Plan) covering not in excess of 700,000 shares of McDonnell Douglas Common
Stock, in the case of McDonnell Douglas, and covering not in excess of
5,000,000 shares of Boeing Common Stock, in the case of Boeing;
(iii) take any actions which would, or would be reasonably likely to,
prevent Boeing from accounting for the Merger in accordance with the
pooling of interests method of accounting; and
(iv) agree, in writing or otherwise, to take any of the foregoing
actions or take any action which would make any of its representations or
warranties contained in the Merger Agreement untrue or incorrect.
In addition, except as otherwise agreed to by the parties to, or permitted
by, the Merger Agreement, McDonnell Douglas has agreed that it will not, and
that it will not permit any of its subsidiaries to:
(i) enter into or amend any employment, severance or similar
agreements or arrangements with any of their respective directors or
executive officers, except (A) in the ordinary course of business
consistent with past practice, (B) as otherwise provided in the Merger
Agreement, (C) as disclosed in writing to Boeing prior to the signing of
the Merger Agreement, or (D) for the Termination Benefit Agreements;
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(ii) purchase or redeem any shares of its stock, except in the
ordinary course of business in connection with employee incentive and
benefit plans, programs or arrangements in existence on the date of the
Merger Agreement;
(iii) amend in any significant respect the terms of their respective
employee benefit plans, programs or arrangements or any severance or
similar agreements or arrangements in existence on the date of the signing
of the Merger Agreement, or adopt any new employee benefit plans, programs
or arrangements or any severance or similar agreements or arrangements,
except as contemplated by Sections 6.1 and 6.5 of the Merger Agreement or
except as disclosed in writing to Boeing prior to the signing of the Merger
Agreement;
(iv) enter into any material loan agreement, other than in the
ordinary course of business consistent with past practice and other than
any loan or lease arrangement relating to the sale or lease of commercial
aircraft or commercial equipment; and
(v) make any material tax election or settle or compromise any
material tax liability, other than in connection with currently pending
proceedings or other than in the ordinary course of business.
Each of Boeing and McDonnell Douglas also has agreed that it will not, and
will not permit any of its subsidiaries, as applicable, to, agree, in writing or
otherwise, to take any of the foregoing actions pertaining to such party or take
any action which would make the representations or warranties of such party
contained in the Merger Agreement untrue.
Each of Boeing and McDonnell Douglas also has agreed that, subject to legal
restrictions applicable to it, it will afford, during normal business hours
during the period prior to the earlier of the Effective Time or the Termination
Date, to one another's accountants, counsel, employees, officers and other
authorized representatives full and complete access to its and its subsidiaries'
plants, properties, books, contracts, commitments and records (including, but
not limited to, tax returns) and any report, schedule or other document filed or
received by it pursuant to the requirements of federal or state securities laws,
and Boeing and McDonnell Douglas each will use its reasonable best efforts to
cause its representatives to furnish promptly to one another such additional
financial and operating data and other information as to its and its
subsidiaries' respective businesses and properties as the other or its duly
authorized representatives may from time to time reasonably request; provided,
however, that neither McDonnell Douglas nor Boeing nor any of their respective
subsidiaries will be required to disclose information to the other that would
cause significant competitive harm to such disclosing party or its affiliates if
the transactions contemplated in the Merger Agreement are not consummated. All
confidential information obtained by Boeing or McDonnell Douglas, as the case
may be, will be kept confidential pursuant to the Confidentiality Agreement (as
defined in the Merger Agreement).
Each of Boeing and McDonnell Douglas further has agreed that they will
together, or pursuant to an allocation of responsibility to be agreed upon
between them, (i) prepare and file with the SEC, as soon as is reasonably
practicable, this Joint Proxy Statement/Prospectus and the Registration
Statement; (ii) as soon as is reasonably practicable take all actions as may be
required under state blue sky or securities laws in connection with the
transactions contemplated by the Merger Agreement; (iii) promptly prepare and
file with the NYSE and such other stock exchanges as shall be agreed upon
listing applications covering the shares of Boeing Common Stock issuable in the
Merger or upon exercise of McDonnell Douglas stock options, warrants, conversion
rights or other rights or vesting or payment of other McDonnell Douglas
equity-based awards and use its reasonable best efforts to obtain, prior to the
Effective Time, approval for the listing of such Boeing Common Stock, subject
only to official notice of issuance; (iv) cooperate with one another in order to
lift any injunctions or remove any other impediment to the consummation of the
transactions contemplated herein; and (v) cooperate with one another in
obtaining opinions of Skadden, Arps, Slate, Meagher & Flom LLP, counsel to
McDonnell Douglas, and Cravath, Swaine & Moore, counsel to Boeing, concerning
certain tax matters.
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(f) NO SOLICITATION
McDonnell Douglas has agreed that, from and after the date of the Merger
Agreement, it will not, directly or indirectly, solicit, initiate or knowingly
encourage (including by way of furnishing information) any Takeover Proposal (as
hereinafter defined) from any person, or engage in or continue discussions or
negotiations relating to any Takeover Proposal and will use its reasonable best
efforts to not permit any of its directors, officers, employees, attorneys,
financial advisors, agents and other authorized representatives from, directly
or indirectly, taking any such action; provided, however, that McDonnell Douglas
may engage in discussions or negotiations with, and furnish information
concerning McDonnell Douglas and its subsidiaries, properties, assets and
business to, any third party that makes a Takeover Proposal if the McDonnell
Douglas Board concludes in good faith after consultation with its outside
counsel that the failure to take such action would present a reasonable
possibility of violating the obligations of the McDonnell Douglas Board to
McDonnell Douglas or McDonnell Douglas' shareholders under applicable law.
McDonnell Douglas must promptly (but in no case later than 24 hours) notify
Boeing of any Takeover Proposal, including the material terms and conditions
thereof and the identity of the person (or group) making such Takeover Proposal,
and must promptly (but in no case later than 24 hours) notify Boeing of any
determination by the McDonnell Douglas Board that a Superior Proposal (as
hereinafter defined) has been made.
As used in the Merger Agreement and this Joint Proxy Statement/Prospectus:
(i) "Takeover Proposal" means any proposal or offer for, or any expression of
interest by, any third party relating to McDonnell Douglas' willingness or
ability to receive or discuss a proposal or offer, in each case made prior to
the shareholder vote at the McDonnell Douglas Special Meeting (other than a
proposal or offer by Boeing or any of its subsidiaries) for a merger,
consolidation or other business combination involving, or any purchase of, all
or substantially all of the assets or more than 50% of the voting securities of,
McDonnell Douglas; and (ii) "Superior Proposal" means a bona fide Takeover
Proposal made by a third party on terms that a majority of the members of the
McDonnell Douglas Board determine in their good faith reasonable judgment (based
on the advice of an independent financial advisor) may be more favorable to
McDonnell Douglas and its shareholders than the transactions contemplated by the
Merger Agreement and for which any required financing is committed or which, in
the good faith reasonable judgment of a majority of such members (after
consultation with an independent financial advisor), is reasonably capable of
being financed by such third party.
(g) CONDITIONS PRECEDENT TO THE MERGER
The respective obligations of Boeing, McDonnell Douglas and Sub to effect
the Merger are subject, among other things, to the fulfillment of the following
conditions at or prior to the Effective Time: (i) approval of the Merger by the
requisite vote of the shareholders of McDonnell Douglas, and approval of the
Share Issuance by the requisite vote of the shareholders of Boeing; (ii) no
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or enforced by any court or other
tribunal or governmental body or authority which prohibits the consummation of
the Merger substantially on the terms contemplated by the Merger Agreement;
(iii) the listing on the NYSE, subject only to official notice of issuance, of
the shares of Boeing Common Stock constituting the Share Issuance; (iv)
expiration or termination of any waiting period applicable to the consummation
of the Merger under the HSR Act, and the obtaining of all other approvals
required to be obtained by McDonnell Douglas and Boeing, except where the
failure to obtain such approvals would not have a Material Adverse Effect on
Boeing or McDonnell Douglas, as the case may be; (v) the effectiveness of the
Registration Statement and the absence of a stop order suspending such
effectiveness; (vi) McDonnell Douglas and Boeing each having received a letter
of its independent auditors, in form and substance reasonably satisfactory to
it, stating that they concur with management's conclusion that the Merger will
qualify as a transaction to be accounted for as a pooling of interests (see
Section 8(k), "THE MERGER -- Anticipated Accounting Treatment"); and (vii)
McDonnell Douglas and Boeing having received an opinion of Skadden, Arps, Slate,
Meagher & Flom LLP and Cravath, Swaine & Moore, respectively, relating to
certain tax matters. See Section 8(j), "THE MERGER -- Certain Federal Income Tax
Consequences."
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<PAGE> 62
The obligation of McDonnell Douglas to effect the Merger is also subject to
the fulfillment of the following additional conditions: (i) the representations
and warranties of Boeing contained in the Merger Agreement being true and
correct in all respects (but without regard to any materiality qualifications or
references to Material Adverse Effect contained in any specific representation
or warranty) as of the Effective Time with the same effect as though made as of
the Effective Time except (A) for changes specifically permitted by the terms of
the Merger Agreement, (B) that the accuracy of representations and warranties
that by their terms speak as of the date of the Merger Agreement or some other
date will be determined as of such date, and (C) where any such failure of the
representations and warranties in the aggregate to be true and correct in all
respects would not have a Material Adverse Effect on Boeing and (ii) Boeing
having performed in all materials respects all obligations and having complied
with all covenants required by the Merger Agreement to be performed or complied
with by it prior to the Effective Time.
The obligation of Boeing to effect the Merger is also subject to the
fulfillment of the following additional conditions: (i) the representations and
warranties of McDonnell Douglas contained in the Merger Agreement being true and
correct in all respects (but without regard to any materiality qualifications or
references to Material Adverse Effect contained in any specific representation
or warranty) as of the Effective Time with the same effect as though made as of
the Effective Time except (A) for changes specifically permitted by the terms of
the Merger Agreement, (B) that the accuracy of representations and warranties
that by their terms speak as of the date of the Merger Agreement or some other
date will be determined as of such date, and (C) where any such failure of the
representations and warranties in the aggregate to be true and correct in all
respects would not have a Material Adverse Effect on McDonnell Douglas and (ii)
McDonnell Douglas having performed in all material respects all obligations and
having complied with all covenants required by the Merger Agreement to be
performed or complied with by it prior to the Effective Time.
(h) MCDONNELL DOUGLAS STOCK OPTIONS
Simultaneously with the Merger, (i) each outstanding option (and related
stock appreciation right ("McDonnell Douglas SAR"), if any) to purchase or
acquire a share of McDonnell Douglas Common Stock under employee incentive or
benefit plans, programs or arrangements and non-employee director plans
currently maintained by McDonnell Douglas ("McDonnell Douglas Option Plans")
will be converted into an option (together with a related stock appreciation
right of Boeing, if applicable) to purchase the number of shares of Boeing
Common Stock equal to the Conversion Number times the number of shares of
McDonnell Douglas Common Stock which could have been obtained prior to the
Effective Time upon the exercise of each such option, at an exercise price per
share equal to the exercise price for each such share of McDonnell Douglas
Common Stock subject to an option (and related McDonnell Douglas SAR, if any)
under the McDonnell Douglas Option Plans divided by the Conversion Number, and
(ii) Boeing will assume the obligations of McDonnell Douglas under the McDonnell
Douglas Option Plans. The other terms of each such option and McDonnell Douglas
SAR, and the plans under which they were issued, will continue to apply in
accordance with their terms, including any provisions providing for
acceleration. See Section 8(i), "THE MERGER -- Interests of Certain Persons in
the Transaction."
(i) EMPLOYEE BENEFITS AND RESTRICTED STOCK
Simultaneously with the Merger, each outstanding award (including
restricted stock, stock equivalents and stock units) ("McDonnell Douglas Award")
under any employee incentive or benefit plans, programs or arrangements and
non-employee director plans currently maintained by McDonnell Douglas which
provide for grants of equity-based awards will be amended or converted into a
similar instrument of Boeing, in each case with such adjustments to the terms of
such McDonnell Douglas Awards as are appropriate to preserve the value inherent
in such McDonnell Douglas Awards with no detrimental effects on the holders
thereof. The other terms of each McDonnell Douglas Award, and the plans or
agreements under which they were issued, will continue to apply in accordance
with their terms, including any provisions providing for acceleration. With
respect to any restricted stock awards as to which the restrictions shall have
lapsed on or prior to the Effective Time in accordance with the terms of the
applicable plans or award agreements, shares of such previously
59
<PAGE> 63
restricted stock shall be converted in accordance with the conversion provisions
of the Merger Agreement. See Section 9(a) "-- Conversion of Shares in the
Merger."
Simultaneously with the Merger, Boeing will assume each Termination Benefit
Agreement in effect and all of McDonnell Douglas' rights and obligations under
each such Termination Benefit Agreement. As used in the Merger Agreement and
this Joint Proxy Statement/Prospectus, "Termination Benefit Agreement" means a
termination benefit agreement which was in effect as of the date of the Merger
Agreement or which may be entered into after the date of the Merger Agreement in
accordance with McDonnell Douglas Board approval prior to the date of the Merger
Agreement.
McDonnell Douglas and Boeing agreed that each of their respective employee
incentive or benefit plans, programs and arrangements and non-employee director
plans will be amended, to the extent necessary and appropriate, to reflect the
transactions contemplated by the Merger Agreement, including, but not limited
to, the conversion of shares of McDonnell Douglas Common Stock held or to be
awarded or paid pursuant to such benefit plans, programs or arrangements into
shares of Boeing Common Stock on a basis consistent with the transactions
contemplated by the Merger Agreement.
Boeing will (i) reserve for issuance the number of shares of Boeing Common
Stock that will become subject to the benefit plans, programs and arrangements
referred to in the preceding three paragraphs and the McDonnell Douglas Option
Plans discussed in the preceding section and (ii) issue or cause to be issued
the appropriate number of shares of Boeing Common Stock pursuant to such plans,
programs and arrangements, upon the exercise or maturation of rights existing
thereunder on the Effective Time or thereafter granted or awarded.
(j) INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
Boeing and Sub have agreed that all rights to exculpation and
indemnification for acts or omissions occurring prior to the Effective Time now
existing in favor of the current or former directors or officers (the
"Indemnified Parties") of McDonnell Douglas as provided in its charter or
by-laws or in any agreement will survive the Merger and shall continue in full
force and effect in accordance with their terms. Boeing has agreed that, for six
years from the Effective Time, it will indemnify the Indemnified Parties to the
same extent as such Indemnified Parties are entitled to indemnification pursuant
to the preceding sentence.
Moreover, certain directors and officers of McDonnell Douglas have
indemnification agreements with McDonnell Douglas ("Indemnification Agreements")
which provide in substance that, subject to the provisions of the MGCL,
McDonnell Douglas will indemnify, and advance expenses to, such directors and
officers if, by reason of their status as a director or officer of McDonnell
Douglas, they are made a party to any threatened or pending proceeding. The
respective Indemnification Agreements and the obligations contained therein
shall continue in effect during each director's tenure as a member of the
McDonnell Douglas Board or officer's employment period and shall continue
thereafter so long as such director or officer shall be subject to such
proceedings.
Boeing has also agreed that, for six years from the Effective Time, it will
maintain in effect McDonnell Douglas' current directors' and officers' liability
insurance covering those persons who are currently covered by McDonnell Douglas'
directors' and officers' liability insurance policy; provided, however, that in
no event will Boeing be required to expend in any one year an amount in excess
of 200% of the annual premiums currently paid by McDonnell Douglas for such
insurance; and provided further, however, that if the annual premiums of such
insurance coverage exceed such amount, Boeing will be obligated to obtain a
policy with the greatest coverage available for a cost not exceeding such
amount.
(k) TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the shareholders of Boeing of the
Share Issuance or approval by the shareholders of McDonnell Douglas of the
Merger Agreement:
(i) by mutual written consent of Boeing and McDonnell Douglas;
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<PAGE> 64
(ii) by either Boeing or McDonnell Douglas if (A) the other materially
breaches any of its representations, warranties, covenants or agreements
contained in the Merger Agreement and does not cure such breach within 30
days after receipt of notice thereof, (B) the shareholders of McDonnell
Douglas fail to approve the Merger, or (C) the shareholders of Boeing fail
to approve the Share Issuance;
(iii) by either Boeing or McDonnell Douglas if (A) the Effective Time
has not occurred on or prior to December 31, 1997; provided, however, that
the right so to terminate will not be available to the party whose breach
in any material respect of its obligations under the Merger Agreement, in
any manner, proximately contributed to the failure to consummate the Merger
on or prior to such date, (B) a statute, rule, regulation or executive
order has been enacted, entered or promulgated prohibiting the consummation
of the Merger substantially on the terms contemplated in the Merger
Agreement, or (C) an order, decree, ruling or injunction has been entered
permanently restraining, enjoining or otherwise prohibiting the
consummation of the Merger substantially on the terms contemplated in the
Merger Agreement and such order, decree, ruling or injunction has become
final and nonappealable; provided, however, that the party seeking to
terminate the Merger Agreement must have used its reasonable best efforts
to remove such injunction, order or decree;
(iv) by either Boeing or McDonnell Douglas if the McDonnell Douglas
Board reasonably determines that a Takeover Proposal constitutes a Superior
Proposal (in which case, upon termination of the Merger Agreement by
McDonnell Douglas, the McDonnell Douglas Board will be entitled to withdraw
or modify its approval or recommendation of the Merger Agreement or the
Merger); provided, however, that McDonnell Douglas may not so terminate
unless and until (A) five business days have elapsed after delivery to
Boeing of a written notice of such determination by the McDonnell Douglas
Board and during such period McDonnell Douglas (1) informs Boeing of the
terms and conditions of the Takeover Proposal and the identity of the
person making the Takeover Proposal and (2) otherwise fully cooperates with
Boeing with respect thereto with the intent of enabling Boeing to agree to
a modification of the terms and conditions of the Merger Agreement so that
the transactions contemplated in the Merger Agreement may be effected;
provided, however, the McDonnell Douglas Board will not be required to take
any action under this clause (2) that it believes, after consultation with
outside legal counsel, would present a reasonable possibility of violating
its obligations to McDonnell Douglas or McDonnell Douglas' shareholders
under applicable law, (B) at the end of such five-business-day period the
McDonnell Douglas Board continues reasonably to believe that the Takeover
Proposal constitutes a Superior Proposal and simultaneously with such
termination McDonnell Douglas pays to Boeing the Termination Fee (as
hereinafter defined), and (C) simultaneously with such termination,
McDonnell Douglas enters into a definitive acquisition, merger or similar
agreement to effect the Superior Proposal; and
(v) by Boeing if a tender offer or exchange offer for 50% or more of
the outstanding shares of capital stock of McDonnell Douglas is commenced
prior to the McDonnell Douglas Special Meeting, and the McDonnell Douglas
Board fails to recommend against acceptance of such tender offer or
exchange offer within the time period presented by Rule 14e-2 under the
Exchange Act by its shareholders (including by taking no position with
respect to the acceptance of such tender offer or exchange offer by its
shareholders).
(l) FEES AND EXPENSES
Except for (i) printing expenses, filing fees in connection with any HSR
Act filing, which will be shared equally, and (ii) any applicable transfer
taxes, which McDonnell Douglas will pay, Boeing and McDonnell Douglas will each
pay its own costs and expenses in connection with the Merger Agreement and the
transactions contemplated thereby, whether or not the Merger is consummated.
(m) TERMINATION FEE
Notwithstanding any provision in the Merger Agreement to the contrary (but
subject to the paragraph immediately below), if (i) the Merger Agreement is
terminated by McDonnell Douglas or Boeing because the McDonnell Douglas Board
reasonably determines that a Takeover Proposal constitutes a Superior Proposal
or (ii) (A) prior to the termination of the Merger Agreement, a bona fide
Takeover Proposal is commenced, publicly proposed or publicly disclosed and not
withdrawn, (B) the Merger Agreement is terminated by McDonnell Douglas because
the Effective Time has not occurred on or before December 31, 1997 or by
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<PAGE> 65
Boeing or McDonnell Douglas due to the failure of the McDonnell Douglas
shareholders to approve the Merger, and (C) concurrently with or within twelve
months after such termination a Takeover Proposal is consummated, then, in each
case, McDonnell Douglas must pay to Boeing a fee of $200 million in cash.
Notwithstanding any provision in the Merger Agreement to the contrary, if
the Merger Agreement is terminated by either Boeing or McDonnell Douglas for any
reason, and if prior to such termination, the Boeing Board has breached its
covenants under the Merger Agreement by (i) failing to recommend to the Boeing
shareholders in the Joint Proxy Statement/Prospectus that they vote in favor of
the Share Issuance, (ii) having withdrawn a recommendation to the Boeing
shareholders that they vote in favor of the Share Issuance or (iii) having
modified any such recommendation that they vote in favor of the Share Issuance,
then Boeing must pay to McDonnell Douglas a fee of $200 million in cash.
None of the payments described in the preceding two paragraphs (each, a
"Termination Fee") will prejudice any other rights which the party receiving the
payment may have against the party making the payment.
(n) AMENDMENT
At any time before or after approval of the matters presented in connection
with the Merger by the respective shareholders of McDonnell Douglas and Boeing
and prior to the Effective Time, the Merger Agreement may be amended or
supplemented in writing by McDonnell Douglas and Boeing with respect to any of
the terms contained in the Merger Agreement, except that following approval by
the shareholders of McDonnell Douglas and Boeing there may be no amendment or
change to the provisions of the Merger Agreement with respect to the Conversion
Number, without further approval by the shareholders of McDonnell Douglas and
Boeing.
(o) WAIVER
The Merger Agreement permits McDonnell Douglas and Boeing at any time prior
to the Effective Time, to: (i) extend the time for the performance of any of the
obligations or other acts of the other party; (ii) waive any inaccuracies in the
representations and warranties of the other party contained therein or in any
document delivered pursuant thereto; and (iii) waive compliance with any of the
agreements or conditions of the other party contained therein, in each case
pursuant to a written instrument.
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10. UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined financial statements are based on the
historical consolidated financial statements of Boeing and McDonnell Douglas and
have been prepared as if the Merger occurred on January 1, 1994. The unaudited
pro forma adjustments described in the accompanying notes are based upon
preliminary estimates and certain assumptions that the managements of Boeing and
McDonnell Douglas believe are reasonable.
The unaudited pro forma financial statements are not necessarily indicative
of actual or future financial position or results of operations that would have
or will occur upon consummation of the Merger, and should be read in conjunction
with the audited historical consolidated financial statements, including the
notes thereto, of Boeing and McDonnell Douglas. The audited consolidated
financial statements of Boeing and McDonnell Douglas are incorporated by
reference in this Joint Proxy Statement/Prospectus.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
----------------------------------------------
MCDONNELL PRO FORMA
BOEING DOUGLAS ADJUSTMENTS COMBINED
------ --------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Sales and other operating revenues................ $7,318 $ 3,230 $(179)(1) $10,359
(29)(2)
19(3)
Costs and expenses................................ 6,232 2,607 (179)(1) 8,688
28(3)
General and administrative expense................ 302 171 (21)(3) 452
Research and development expense.................. 343 94 42(3) 479
------ ------ ----- -------
Earnings from operations........................ 441 358 (59) 740
Other income, principally interest................ 74 29(2) 103
Interest and debt expense......................... (61) (70) (131)
ShareValue Trust appreciation change.............. 98 98
------ ------ ----- -------
Earnings before income taxes.................... 552 288 (30) 810
Income taxes...................................... 175 107 (12)(3) 270
------ ------ ----- -------
Net earnings...................................... $ 377 $ 181 $ (18) $ 540
====== ====== ===== =======
Earnings per share................................ $ 0.54 $ 0.86 $ 0.56
====== ====== =======
</TABLE>
(see pro forma adjustments footnotes on page 67)
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<PAGE> 67
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
-----------------------------------------------
MCDONNELL PRO FORMA
BOEING DOUGLAS ADJUSTMENTS COMBINED
------- --------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Sales and other operating revenues............... $ 4,293 $ 3,171 $(126)(1) $ 7,047
(22)(2)
(269)(3)
Costs and expenses............................... 3,646 2,537 (126)(1) 5,870
(187)(3)
General and administrative expense............... 200 169 (11)(3) 358
Research and development expense................. 293 88 19(3) 400
------- ------ ----- ------
Earnings from operations....................... 154 377 (112) 419
Other income, principally interest............... 57 22(2) 79
Interest and debt expense........................ (41) (61) (102)
ShareValue Trust appreciation.................... -- --
------- ------ ----- ------
Earnings before income taxes................... 170 316 (90) 396
Income taxes..................................... 51 118 (35)(3) 134
------- ------ ----- ------
Net earnings..................................... $ 119 $ 198 $ (55) $ 262
======= ====== ===== ======
Earnings per share............................... $ 0.17 $ 0.89 $ 0.27
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------
MCDONNELL PRO FORMA
BOEING DOUGLAS ADJUSTMENTS COMBINED
------- --------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Sales and other operating revenues............... $22,681 $13,834 $(601)(1) $35,453
(101)(2)
(360)(3)
Costs and expenses............................... 19,053 11,282 (601)(1) 29,446
(288)(3)
General and administrative expense............... 1,074 726 (44)(3) 1,756
Research and development expense................. 1,200 355 78(3) 1,633
------- ------- ----- -------
Earnings from operations....................... 1,354 1,471 (207) 2,618
Other income, principally interest............... 287 101(2) 388
Interest and debt expense........................ (145) (248) (393)
ShareValue Trust appreciation.................... (133) (133)
------- ------- ----- -------
Earnings before income taxes................... 1,363 1,223 (106) 2,480
Income taxes..................................... 268 435 (41)(3) 662
------- ------- ----- -------
Net earnings..................................... $ 1,095 $ 788 $ (65) $ 1,818
======= ======= ===== =======
Earnings per share............................... $ 1.59 $ 3.64 $ 1.88
======= ======= =======
</TABLE>
(see pro forma adjustments footnotes on page 67)
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<PAGE> 68
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------
MCDONNELL PRO FORMA
BOEING DOUGLAS ADJUSTMENTS COMBINED
------- --------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Sales and other operating revenues............. $19,515 $14,332 $(546)(1) $32,960
(71)(2)
(270)(3)
Costs and expenses............................. 16,326 12,027 (546)(1) 27,476
(331)(3)
General and administrative expense............. 1,020 681 (13)(3) 1,688
Research and development expense............... 1,267 311 96(3) 1,674
MD-11 accounting charge........................ 1,838 1,838
Special retirement program expense............. 600 600
------- ------- ----- -------
Earnings (loss) from operations.............. 302 (525) (93) (316)
Other income, principally interest............. 209 71(2) 280
Interest and debt expense...................... (151) (225) (376)
------- ------- ----- -------
Earnings (loss) before income taxes.......... 360 (750) (22) (412)
Income taxes (benefit)......................... (33) (334) (9)(3) (376)
------- ------- ----- -------
Net earnings (loss)............................ $ 393 $ (416) $ (13) $ (36)
======= ======= ===== =======
Earnings (loss) per share...................... $ 0.57 $ (1.83) $ (0.04)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------------------------
MCDONNELL PRO FORMA
BOEING DOUGLAS ADJUSTMENTS COMBINED
------- --------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Sales and other operating revenues............. $21,924 $13,176 $(576)(1) $34,969
(72)(2)
517(3)
Costs and expenses............................. 17,943 11,026 (576)(1) 28,905
512(3)
General and administrative expense............. 1,126 684 (117)(3) 1,693
Research and development expense............... 1,704 297 75(3) 2,076
------- ------- ----- -------
Earnings from operations..................... 1,151 1,169 (25) 2,295
Other income, principally interest............. 122 72(2) 194
Interest and debt expense...................... (130) (249) (379)
------- ------- ----- -------
Earnings before income taxes................. 1,143 920 47 2,110
Income taxes................................... 287 322 18(3) 627
------- ------- ----- -------
Net earnings................................... $ 856 $ 598 $ 29 $ 1,483
======= ======= ===== =======
Earnings per share............................. $ 1.26 $ 2.53 $ 1.50
======= ======= =======
</TABLE>
(see pro forma adjustments footnotes on page 67)
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<PAGE> 69
UNAUDITED PRO FORMA COMBINED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------------------------------------
MCDONNELL PRO FORMA
BOEING DOUGLAS ADJUSTMENTS COMBINED
------- --------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents...................... $ 4,542 $ 706 $ -- $ 5,248
Short-term investments......................... 972 972
Accounts receivable............................ 2,219 1,064 3,283
Current portion of customer financing.......... 159 536(4) 695
Deferred income taxes.......................... 580 282(4) 1,178
316(3)
Inventories, net of advances and progress
billings..................................... 7,300 3,573 (1,390)(3) 9,585
102(4)
------- ------- ------- -------
Total current assets................. 15,772 5,343 (154) 20,961
Customer financing and properties on lease..... 600 3,129 (536)(4) 3,193
Property, plant and equipment, net............. 6,848 1,468 8,316
Deferred income taxes.......................... 458 (305)(4) 153
Goodwill....................................... 2,458 2,458
Prepaid pension expense........................ 1,987 1,345 3,332
Other assets................................... 169 321 (102)(4) 388
------- ------- ------- -------
Total assets......................... $28,292 $11,606 $(1,097) $38,801
======= ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and other liabilities......... $ 7,846 $ 2,292 $ -- $10,138
Advances in excess of related costs............ 1,074 808 1,882
Billings in excess of related costs............ 579 (579)(3)
Income taxes payable........................... 521 175 (23)(4) 673
Short-term debt and current portion of
long-term debt............................... 318 523(4) 841
------- ------- ------- -------
Total current liabilities............ 9,759 3,854 (79) 13,534
Accrued retiree health care.................... 3,692 1,111 4,803
Long-term debt................................. 3,652 3,373 (523)(4) 6,502
------- ------- ------- -------
Total liabilities.................... 17,103 8,338 (602) 24,839
Minority interest.............................. 64 64
Common stock less treasury shares.............. 3,621 242 3,863
Retained earnings.............................. 8,824 3,007 (495)(3) 11,336
Unearned compensation.......................... (45) (45)
ShareValue Trust............................... (1,256) (1,256)
------- ------- ------- -------
Shareholders' equity........................... 11,189 3,204 (495) 13,898
------- ------- ------- -------
Total liabilities and shareholders'
equity............................. $28,292 $11,606 $(1,097) $38,801
======= ======= ======= =======
</TABLE>
(see pro forma adjustments footnotes on page 67)
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PRO FORMA ADJUSTMENTS FOOTNOTES
(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.
- 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.
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11. BOEING STOCK SPLIT
In February 1997, the Boeing Board declared the Boeing Stock Split,
contingent on approval by Boeing shareholders of an increase in the number of
authorized shares of Boeing stock. The Merger Agreement provides that as of the
Effective Time each issued and outstanding share of McDonnell Douglas Common
Stock will be converted into 0.65 of a share of Boeing Common Stock but that if
the Boeing Board declares a stock split on the outstanding shares of Boeing
Common Stock with a record date that is prior to the Effective Time, the
Conversion Number will be appropriately adjusted. At the Boeing Annual Meeting,
the shareholders of Boeing approved increasing the number of authorized shares
of Boeing stock from 610,000,000 to 1,220,000,000. The record date for
determining the Boeing shareholders entitled to receive the additional shares
was May 16, 1997. Consequently, the Conversion Number was adjusted from 0.65 of
a share of Boeing Common Stock for each share of McDonnell Douglas Common Stock
to 1.3 shares of Boeing Common Stock for each share of McDonnell Douglas Common
Stock.
12. COMPARISON OF THE RIGHTS OF HOLDERS OF BOEING COMMON
STOCK AND MCDONNELL DOUGLAS COMMON STOCK
If the Merger is consummated, holders of McDonnell Douglas Common Stock
will become holders of Boeing Common Stock and the rights of the former
McDonnell Douglas shareholders will be governed by the laws of the State of
Delaware and by the Restated Certificate of Incorporation of Boeing ("Boeing
Restated Certificate"), the Boeing By-Laws and (if then in effect) the Boeing
Rights Plan. The rights of Boeing shareholders differ in certain respects from
the rights of McDonnell Douglas shareholders. The material differences are
summarized below. This summary does not purport to be complete and is qualified
in its entirety by reference to the detailed provisions of the DGCL, the MGCL,
the Boeing Restated Certificate, the Boeing By-Laws, the Boeing Rights Plan, the
McDonnell Douglas Articles of Incorporation, as amended or supplemented
("McDonnell Douglas Articles"), the McDonnell Douglas By-Laws and the McDonnell
Douglas Rights Plan. For information as to how such documents may be obtained,
see Section 1, "AVAILABLE INFORMATION."
(a) AUTHORIZED CAPITAL
The total number of authorized shares of capital stock of Boeing is
1,220,000,000, consisting of 1,200,000,000 shares of Boeing Common Stock, par
value $5.00 per share, and 20,000,000 shares of preferred stock, par value $1.00
per share. The total number of authorized shares of stock of McDonnell Douglas
is 410,000,000, consisting of 400,000,000 shares of McDonnell Douglas Common
Stock, par value $1.00 per share, and 10,000,000 shares of preferred stock, par
value $1.00 per share.
(b) NUMBER OF DIRECTORS; ELECTION OF DIRECTORS; REMOVAL; VACANCIES
The DGCL permits the certificate of incorporation or the by-laws of a
corporation to contain provisions governing the number and terms of directors.
However, if the certificate of incorporation contains provisions fixing the
number of directors, such number may not be changed without amending the
certificate of incorporation. The Boeing By-laws state that the number of
directors shall be thirteen, and can be increased or decreased (not to less than
three), from time to time, by resolution of the Boeing Board or by shareholder
amendment. There are currently ten directors serving on the Boeing Board.
The MGCL provides that any corporation with outstanding stock and three or
more shareholders shall have at least three directors at all times and that a
corporation shall have the number of directors provided in its charter until
such number is changed by the by-laws. The McDonnell Douglas Articles and
McDonnell Douglas By-Laws, collectively, provide that the number of directors of
McDonnell Douglas shall be thirteen and can be increased (not to more than 20)
or decreased (not to less than three) by not less than 80% of the entire
McDonnell Douglas Board. There are currently thirteen directors serving on the
McDonnell Douglas Board.
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The DGCL permits the certificate of incorporation or by-laws of a
corporation to provide that directors be divided into up to three classes, with
the term of office of each class of directors expiring in successive years. The
Boeing By-Laws provide for the Boeing Board to be divided into three classes,
each of which is to be composed as nearly as possible of one-third of the
directors. The Boeing By-Laws provide that at each election of directors, the
persons receiving the greatest number of votes shall be the directors of that
class.
The MGCL permits the charter or by-laws of a corporation to provide that
directors be divided into classes, provided that the term of office of a
director or class of directors may not be longer than five years and the term of
office of at least one class must expire each year. The McDonnell Douglas
Articles and McDonnell Douglas By-Laws provide for the McDonnell Douglas Board
to be divided into three classes, each of which is to be composed as nearly as
possible of one-third of the directors. The McDonnell Douglas By-Laws provide
that a plurality of all the votes cast at a meeting of shareholders duly called
and at which a quorum is present shall be sufficient to elect a director.
Under the DGCL, in the case of a classified board and unless a
corporation's certificate of incorporation provides otherwise, and under the
Boeing By-laws, any director may only be removed for cause by the holders of a
majority of the shares entitled to vote at an election of directors.
Under the MGCL, unless the corporation's charter provides otherwise, the
shareholders of a corporation may remove any director, with or without cause, by
the affirmative vote of a majority of all the votes entitled to be cast for the
election of directors. The McDonnell Douglas Articles provide that a director
may be removed by shareholders with or without cause only by the affirmative
vote of the holders of not less than 80% of all the outstanding shares of
McDonnell Douglas stock entitled to vote for removal.
Under the DGCL, vacancies and newly created directorships may be filled by
a majority of the directors then in office or by a sole remaining director (even
though less than a quorum) unless otherwise provided in the certificate of
incorporation or by-laws. However, the DGCL also provides that if the directors
then in office constitute less than a majority of the whole board, the Court of
Chancery may, upon application of any shareholder or shareholders holding at
least 10% of the total number of shares at the time outstanding entitled to vote
for directors, order an election of directors to be held. The Boeing By-Laws
provide that vacancies caused by removal shall be filled by the shareholders and
vacancies not caused by removal shall be filled by the shareholders or by the
vote of a majority of the Boeing Board (or by a majority of the Continuing
Directors if there is an Interested Shareholder (both terms as defined in the
Boeing Restated Certificate)).
Under the MGCL, shareholders may elect a successor to fill a vacancy on the
board of directors which results from the removal of a director. Further, unless
the charter or by-laws provide otherwise, a majority of the remaining directors
(even though less than a quorum) may fill a vacancy which results from any cause
except an increase in the number of directors, and a majority of the entire
board of directors may fill a vacancy which results from an increase in the
number of directors. There is no provision in the MGCL providing for the filling
of vacancies on the board of directors by the Maryland courts. A director
elected by the board of directors to fill a vacancy serves until the next annual
meeting of shareholders and until his successor is elected and qualified. A
director elected by the shareholders to fill a vacancy which results from the
removal of a director serves for the balance of the term of the removed
director. Under the McDonnell Douglas By-laws, vacancies may be filled by a
majority of the remaining directors (even though less than a quorum) but filling
a vacancy resulting from an increase in the number of directors requires a vote
of not less than 80% of the entire board.
(c) CHARTER AMENDMENTS
Under the DGCL, a proposed amendment to the certificate of incorporation
requires a resolution adopted by the board of directors and, unless otherwise
provided in the certificate of incorporation, the affirmative vote of the
holders of a majority of the outstanding stock entitled to vote thereon and (if
applicable) the affirmative vote of the holders of a majority of the outstanding
stock of each class entitled to vote thereon as a class. If any such amendment
would adversely affect the rights of any holders of shares of a class or series
of stock, the vote of the holders of a majority of all outstanding shares of the
class or series, voting as a class, is also necessary to authorize such
amendment. However, the Boeing Restated Certificate provides that the amendment
of any of
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the following provisions requires either (i) the recommendation of a majority of
the Continuing Directors together with the affirmative vote of the holders of at
least the majority of the voting stock of Boeing or (ii) the affirmative vote of
the holders of at least 75% of the voting stock of Boeing: (A) Section 3
(relating to the voting rights of preferred stock and changes in authorized
capitalization) and Section 5 (relating to the consideration for stock) of
Article FOURTH; (B) Article EIGHTH (relating to business combinations); (C)
Article NINTH (relating to shareholder action by written consent); (D) paragraph
c (relating to the number of directors), paragraph d (relating to the Boeing
Board's power to make or alter the Boeing By-Laws) and paragraph h (relating to
cumulative voting) of Article TENTH; and (e) Article ELEVENTH (relating to
amendment of the Boeing Restated Certificate).
Under the MGCL, the board of directors must adopt a resolution setting
forth the proposed amendment and declaring that it is advisable and direct that
the proposed amendment be submitted to the shareholders for their consideration
and the shareholders must approve any amendment by the affirmative vote of
two-thirds of all votes entitled to be cast on the matter in order to approve
any charter amendment. However, the MGCL provides that the required vote may be
increased or decreased (but not to less than a majority of all the votes
entitled to be cast on the matter) by a provision in a corporation's charter.
The McDonnell Douglas Articles provide that McDonnell Douglas may from time to
time make any amendments to the McDonnell Douglas Articles which are authorized
by the affirmative vote of a majority of the total number of shares outstanding
and entitled to vote on the amendment, except as otherwise provided in the
McDonnell Douglas Articles. Article FOURTH, relating to directors, provides that
the affirmative vote of at least 80% of the total number of shares entitled to
vote at a meeting of shareholders is required to alter, amend, repeal or adopt
any provision inconsistent with such article. Article EIGHTH, relating to
business combinations, provides that the affirmative vote of at least (i) 80% of
the votes entitled to be cast by all shares of voting stock and (ii) two-thirds
of the votes entitled to be cast by holders of voting stock other than voting
stock held by an Interested Stockholder (as defined in the MGCL, as in effect on
January 1, 1984) is required to amend or repeal such article.
(d) BY-LAW AMENDMENTS
Under the DGCL, the power to adopt, alter and repeal the by-laws is vested
in the shareholders, except to the extent that a corporation's certificate of
incorporation or by-laws vest it in the board of directors. However, the
conferral of the power to adopt, alter and repeal the by-laws upon the directors
does not divest the shareholders of their power to adopt, amend or repeal the
by-laws. The Boeing Restated Certificate grants the Boeing Board the power to
make and alter Boeing's By-Laws subject to certain restrictions and the
provisions of Boeing's By-Laws. With certain exceptions and subject to certain
notice requirements, the Boeing By-Laws may be altered, repealed or adopted (i)
by the affirmative vote of the holders of a majority of shares present and
entitled to vote at an annual meeting or special meeting or (ii) by either (A)
the affirmative vote of a majority of the whole Boeing Board or (B) the
affirmative vote of all directors present at any meeting at which a quorum, if
less than a majority, is present. However, the Boeing By-Laws provide that the
amendment of any of the following provisions requires either (i) the affirmative
vote of a majority of the Continuing Directors or (ii) the affirmative vote of
the holders of at least 75% of the voting stock of Boeing: (A) Section 1
(relating to annual meetings), Section 2 (relating to the calling of special
meetings) and Section 4 (relating to notice of annual and special meetings) of
Article I or (B) Section 1 (relating to the number and term of directors and
providing for a classified board of directors), Section 10 (relating to removal
of directors) and Section 11 (relating to the filling of vacancies not caused by
removal) of Article II. In addition, either (i) the recommendation of a majority
of the Continuing Directors together with the affirmative vote of the holders of
at least the majority of the voting stock of Boeing or (ii) the affirmative vote
of the holders of at least 75% of the voting stock of Boeing is required to
amend Article VIII, relating to amendment of the Boeing By-Laws.
Under the MGCL, the power to adopt, alter and repeal the by-laws is vested
in the shareholders, except to the extent a corporation's charter or by-laws
vest it in the board of directors. The McDonnell Douglas By-Laws provide that
the McDonnell Douglas Board has the power to make, alter and repeal the
McDonnell Douglas By-Laws. However, certain provisions in the McDonnell Douglas
By-Laws relating to filling of
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vacancies and removal of directors may not be amended without the approval of
not less than 80% of the entire McDonnell Douglas Board.
(e) ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Boeing By-Laws require nominations of persons for election to the
Boeing Board and submission of other business to be considered at a meeting of
shareholders to be either made or brought by or at the direction of the Boeing
Board or made or brought by a shareholder of record who complies with advance
notice procedures set forth in the Boeing By-laws.
The McDonnell Douglas By-Laws also require nominations of persons for
election to the McDonnell Douglas Board and the submission of other business to
be considered at a meeting of shareholders to be made only by or at the
direction of the McDonnell Douglas Board or by any shareholder of record who
complies with the notice procedures set forth in the McDonnell Douglas By-Laws.
(f) SPECIAL SHAREHOLDER MEETINGS
The DGCL provides that a special meeting of shareholders may be called by
the board of directors or by such person or persons as may be authorized by a
corporation's certificate of incorporation or by-laws. The Boeing By-Laws
provide that special meetings may be called by the Boeing Board or shareholders
holding together at least 25% of the outstanding shares of stock entitled to
vote.
The MGCL provides that a special meeting of shareholders may be called by
the president, the board of directors, or any other person specified in the
corporation's charter or by-laws. The MGCL further provides that the secretary
of a corporation shall call a special meeting of shareholders on the written
request of shareholders entitled to cast at least 25% of all the votes entitled
to be cast at the meeting; however, such 25% may be increased, to not greater
than a majority of all votes entitled to be cast at the meeting, or decreased
pursuant to a corporation's charter or by-laws. The McDonnell Douglas By-Laws
provide that a special meeting of shareholders may be called by the Chairman of
the Board, the Chief Executive Officer, the President, a majority of the Board
or a majority of the members of the Executive Committee and shall be called at
the request in writing of shareholders entitled to cast at least a majority of
all votes entitled to be cast at the meeting.
(g) CUMULATIVE VOTING
The DGCL permits cumulative voting for the election of directors if
provided by the certificate of incorporation, but the Boeing Restated
Certificate does not so provide.
The MGCL permits cumulative voting for the election of directors if
provided by the charter, but the McDonnell Douglas Articles do not so provide.
(h) SHAREHOLDER ACTION WITHOUT A MEETING
Under the DGCL, unless otherwise provided in the corporation's certificate
of incorporation, any action required or permitted to be taken at a meeting of
shareholders may be taken without a meeting, without prior notice and without a
vote, if a written consent or consents setting forth the action taken is signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote upon such action were present and voted and
such votes are delivered to the corporation. The Boeing Restated Certificate
provides that no action may be taken by written consent of shareholders unless
such action was submitted to the shareholders after approval by a majority of
the Continuing Directors. The Boeing By-laws, subject to certain procedural
requirements, permit shareholder action to be taken by written consent of the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote upon such action were present and voted and such
votes are delivered to Boeing.
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Under the MGCL, any action required or permitted to be taken at a meeting
of shareholders may be taken without a meeting only if a unanimous written
consent is signed by each shareholder entitled to vote on the matter and a
written waiver of any right to dissent is signed by each shareholder who would
have been entitled to notice of, but could not vote at, such shareholder
meeting.
(i) RIGHTS PLANS
Each share of Boeing Common Stock currently has a Boeing Right associated
with it. The Boeing Rights Plan expires on August 7, 1997, and the Boeing Board
has stated that it currently intends to permit the Boeing Rights Plan to expire
in accordance with its terms and not to replace it.
In July 1987, Boeing adopted the Boeing Rights Plan and declared a dividend
distribution of one Boeing Right for each outstanding share of Boeing Common
Stock. Under certain conditions, each Boeing Right may be exercised to purchase
one one-hundredth of a share of Series A Junior Participating Preferred Stock of
Boeing at a purchase price of $150, subject to adjustment. The Boeing Rights
will be exercisable only (i) if a person or group has acquired, or obtained the
right to acquire, 20% or more of the outstanding shares of Boeing Common Stock;
(ii) following the commencement of a tender or exchange offer for 30% or more of
such outstanding shares of Boeing Common Stock; or (iii) after the Boeing Board
declares any person, alone or together with affiliates and associates, to be an
"Adverse Person."
If the Board of Directors declares a person to be an Adverse Person, or a
person or group acquires more than 30% of the then outstanding shares of Boeing
Common Stock (except pursuant to an offer which the independent directors
determine to be fair to and otherwise in the best interests of Boeing and its
shareholders), each Boeing Right will entitle its holder to receive, upon
exercise, Boeing Common Stock (or, in certain circumstances, cash, property or
other securities of Boeing) having a value equal to two times the exercise price
of the Boeing Right. Boeing will be entitled to redeem the Boeing Rights at $.05
per Boeing Right at any time prior to the earlier of the expiration of the
Boeing Rights or ten days following the time that a person has acquired or
obtained the right to acquire a 20% position. Boeing may not redeem the Boeing
Rights if the Boeing Board has previously declared a person to be an Adverse
Person. The Boeing Rights do not have voting or dividend rights and, until they
become exercisable, have no dilutive effect on the earnings of Boeing.
Each share of McDonnell Douglas Common Stock has a McDonnell Douglas Right
associated with it. In August 1990, McDonnell Douglas adopted a Rights Plan and
declared a dividend distribution of one McDonnell Douglas Right for each
outstanding share of McDonnell Douglas Common Stock. In January 1995, McDonnell
Douglas amended its Rights Plan. In May 1996, McDonnell Douglas amended and
restated its Rights Plan. The description and terms of the McDonnell Douglas
Rights are set forth in the McDonnell Douglas Rights Plan. Under certain
conditions, each McDonnell Douglas Right may be exercised to purchase one
one-hundredth of a share of Series A Junior Participating Preferred Stock of
McDonnell Douglas at a purchase price of $125, subject to adjustment. The
McDonnell Douglas Rights will be exercisable only (i) following the date on
which a person or group, without the prior written approval of the McDonnell
Douglas Board, becomes the "Beneficial Owner" of 20% or more of the "Voting
Power" of McDonnell Douglas or (ii) following the commencement, without the
prior written approval of a majority of the McDonnell Douglas Board, of a tender
or exchange offer which would result in a person or group becoming the
Beneficial Owner of 20% or more of the "Voting Power" of McDonnell Douglas.
If a person or group becomes a Beneficial Owner of, tenders for or offers
in exchange for 20% or more of the Voting Power of McDonnell Douglas (except
with the prior written approval of the McDonnell Douglas Board or if McDonnell
Douglas has redeemed the McDonnell Douglas Rights pursuant to the McDonnell
Douglas Rights Plan), each McDonnell Douglas Right will entitle its holder to
receive, upon exercise, McDonnell Douglas Common Stock (or in certain
circumstances, cash, property or other securities of McDonnell Douglas or of the
"Principal Person" becoming the Beneficial Owner of, tendering for or offering
for 20% or more of the Voting Power of McDonnell Douglas) having a value equal
to two times the exercise price of the McDonnell Douglas Right. McDonnell
Douglas will be entitled to redeem the McDonnell Douglas Rights at $.01 per
McDonnell Douglas Right at any time prior to the earlier of the expiration of
the
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McDonnell Douglas Rights in December 2004 or ten days following the time that a
person or group has become the Beneficial Owner of 20% of the Voting Power of
McDonnell Douglas. The McDonnell Douglas Rights do not have voting or dividend
rights, and until they become exercisable, have no dilutive effect on the
earnings of McDonnell Douglas. On December 14, 1996, the McDonnell Douglas Board
provided its written approval for Sub, together with its "Affiliates" and
"Associates", to become the Beneficial Owner of 20% or more of the Voting Power
of McDonnell Douglas. Neither the execution of the Merger Agreement nor the
consummation of the Merger will result in the McDonnell Douglas Rights becoming
exercisable. See Section 8(q), "THE MERGER -- McDonnell Douglas Rights."
(j) BUSINESS COMBINATIONS
Under the DGCL, the approval by the affirmative vote of the holders of a
majority of the outstanding stock of a corporation entitled to vote on the
matter generally is required for a merger, consolidation or sale, lease or
exchange of all or substantially all the corporation's assets to be consummated.
The Boeing Restated Certificate provides certain restrictions on business
combinations with interested shareholders or their affiliates. Accordingly, the
Boeing Restated Certificate requires the affirmative vote of at least 75% of the
voting stock for the adoption or authorization of a Business Combination (as
defined in the Boeing Certificate) unless (i) such Business Combination is
approved by the affirmative vote of a majority of the Continuing Directors or
(ii) the Continuing Directors determine that certain price and procedural
requirements have been satisfied.
Under the MGCL, the affirmative vote of two-thirds of all the votes
entitled to be cast on the matter is required to approve a merger,
consolidation, share exchange or transfer of all or substantially all of the
corporation's assets, subject to certain exceptions. The McDonnell Douglas
Articles provide certain restrictions on Business Combinations (as defined in
the MGCL, as in effect on January 1, 1984). For a Business Combination to be
consummated, the McDonnell Douglas Articles require the approval of the
McDonnell Douglas Board and either (i) the affirmative vote of at least (A) 80%
of the votes entitled to be cast by all outstanding shares of voting stock,
voting together as a single group, and (B) two-thirds of the votes entitled to
be cast by holders of voting stock other than the voting stock held by an
Interested Stockholder (as defined in the MGCL, as in effect on January 1, 1984)
or (ii) the affirmative vote of at least two-thirds of the votes entitled to be
cast by all outstanding shares of voting stock and either (A) the recommendation
of the majority of Continuing Directors (as defined in the McDonnell Douglas
Articles) or (B) the satisfaction of certain price and procedural requirements.
(k) STATE TAKEOVER LEGISLATION
Delaware Business Combination Law. Section 203 of the DGCL generally
prohibits a Delaware corporation from engaging in a "Business Combination"
(defined as a variety of transactions, including mergers, asset sales, issuance
of stock and other transactions resulting in a financial benefit to the
Interested Stockholder) with an "Interested Stockholder" (defined generally as a
person that is the beneficial owner of 15% or more of a corporation's
outstanding voting stock) for a period of three years following the date that
such person became an Interested Stockholder unless:
(i) prior to the date such person became an Interested Stockholder,
the board of directors of the corporation approved either the Business
Combination or the transaction that resulted in the stockholder's becoming
an Interested Stockholder;
(ii) upon consummation of the transaction that resulted in the
stockholder becoming an Interested Stockholder, the Interested Stockholder
owned at least 85% of the voting stock of the corporation outstanding at
the time the transaction commenced, excluding stock held by directors who
are also officers of the corporation and employee stock ownership plans
that do not provide employees with the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
(iii) on or subsequent to the date such person became an Interested
Stockholder, the Business Combination is approved by the board of directors
of the corporation and authorized at a meeting of
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stockholders, and not by written consent, by the affirmative vote of the
holders of at least 66 2/3% of the outstanding voting stock of the
corporation not owned by the Interested Stockholder.
A corporation may adopt an amendment to its certificate of incorporation or
by-laws expressly electing not to be governed by Section 203 of the DGCL if, in
addition to any other vote required by law, such amendment is approved by the
affirmative vote of a majority of the shares entitled to vote. However, such
amendment generally will not be effective until 12 months after adoption of such
amendment and will not apply to a business combination with an Interested
Stockholder who was such on or prior to the adoption of the amendment. Boeing
has not adopted an amendment to its Restated Certificate or By-Laws by which
Boeing elects not to be governed by Section 203 of the DGCL.
Washington Business Combination Law. Chapter 23B.19 of the Washington
Business Corporation Act (the "WBCA") applies to corporations such as Boeing
which are incorporated elsewhere but have their principal executive offices in,
and have certain other significant contacts with, the State of Washington. The
Washington statute, in general prohibits such corporations from engaging in a
"significant business transaction" (defined as a variety of transactions,
including mergers, asset sales, issuance or redemption of stock and other
transactions) with an "acquiring person" (defined generally as a person that is
the beneficial owner of 10% or more of a corporation's outstanding voting stock)
for a period of five years following the time that such person became an
acquiring person unless, among other things, prior to the time such person
became an acquiring person, the board of directors of the corporation approved
either the significant business transaction or the transaction that resulted in
the shareholder becoming an acquiring person. In addition, following the five
year moratorium period, a corporation subject to Chapter 23B.19 may not engage
in any significant business transaction unless the consideration to be received
by the corporation's shareholders meets certain "fair price" tests, generally
related to the highest price per share of the corporation's stock paid by the
acquiring person within specified periods. A corporation may not elect not to be
governed by Chapter 23B.19 of the WBCA.
Maryland Business Combination Law. Under the MGCL, certain "business
combinations" (including a merger, a consolidation, a share exchange or, in
certain circumstances, an asset transfer or issuance or reclassification of
equity securities) between a Maryland corporation and any person who
beneficially owns 10% or more of the voting power of the corporation's shares or
an affiliate of the corporation who, at any time within the two-year period
prior to the date in question, was the beneficial owner of 10% or more of the
voting power of the then-outstanding voting stock of the corporation (an
"Interested Stockholder") or an affiliate of such an Interested Stockholder are
prohibited for five years after the most recent date on which the Interested
Stockholder becomes an Interested Stockholder. Thereafter, the MGCL provides
that any such business combination must be recommended by the board of directors
of such corporation and approved by the affirmative vote of at least (a) 80% of
the votes entitled to be cast by holders of outstanding voting shares of the
corporation and (b) two-thirds of the votes entitled to be cast by holders of
outstanding voting shares of the corporation other than shares held by the
Interested Stockholder with whom (or with whose affiliate) the business
combination is to be effected, unless, among other things, the corporation's
shareholders receive a minimum price (as defined in the MGCL) for their shares
and the consideration is received in cash or in the same form as previously paid
by the Interested Stockholder for its shares or the business combination is
approved or exempted by the board of directors of the corporation prior to the
time that the Interested Stockholder becomes an Interested Stockholder. The
board of directors of a Maryland corporation may adopt a resolution approving or
exempting specific business combinations, business combinations generally, or
generally by types, as to specifically identified or unidentified existing or
future stockholders or their affiliates from the business combination provisions
of the MGCL. The McDonnell Douglas Board has adopted a resolution exempting the
Merger from the business combination provision of the MGCL.
Furthermore, a Maryland corporation may elect not to be subject to the
foregoing requirements by amending its charter, but such amendment must be
approved by the affirmative vote of at least 80% of the votes entitled to be
cast by all holders of outstanding shares of voting stock and at least
two-thirds of the votes entitled to be cast by holders of outstanding shares of
voting stock who are not interested shareholders. Any such amendment is not
effective until 18 months after the vote of shareholders and does not apply to
any business combination of a corporation with a shareholder who was an
interested stockholder on the date of the shareholder vote. McDonnell Douglas
has not adopted an amendment to the McDonnell Douglas Articles by
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which McDonnell Douglas elects not to be governed by the default provisions of
the MGCL with respect to business combinations with interested stockholders.
Maryland Control Share Acquisition Statute. The MGCL provides that
"control shares" of a Maryland corporation acquired in a "control share
acquisition" have no voting rights except to the extent the acquisition is
exempt or is approved by a vote of two-thirds of the votes entitled to be cast
on the matter, excluding shares of stock owned by the acquiror or by officers or
directors who are employees of the corporation. "Control shares" are voting
shares of stock which, if aggregated with all other shares of voting stock
previously acquired by the acquiror, would entitle such acquiror to exercise
voting power in electing directors within one of the following ranges of voting
power: (i) 20% or more but less than 33 1/3%; (ii) 33 1/3% or more but less than
a majority; or (iii) a majority of all voting power. Control shares do not
include shares the acquiring person is then entitled to vote as a result of
having previously obtained shareholder approval. A "control share acquisition"
means, subject to certain exceptions, the direct or indirect acquisitions of,
ownership of, or the power to direct the exercise of voting power with respect
to, control shares.
The MGCL also requires Maryland corporations to hold a special meeting of
shareholders at the request of a person who has made or proposes to make a
control share acquisition within 50 days after such request is made, subject to
the satisfaction of certain conditions, to consider the voting rights of the
shares. In addition, unless the corporation's charter or by-laws provide
otherwise, if no request for a meeting is made, the corporation may itself
present the question at any stockholders' meeting. If voting rights are not
approved at the meeting or if the acquiring person does not deliver an acquiring
person statement as provided in the statute, then, subject to certain conditions
and limitations, the corporation may redeem any or all of the control shares
(except those for which voting rights have previously been approved) for fair
value determined without regard to voting rights as of the date of the last
control share acquisition or as of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. Moreover, unless
the corporation's charter or by-laws provide otherwise, if voting rights are
accorded to control shares at a special meeting of shareholders which results in
the acquiring person's having majority voting power, then minority shareholders
may exercise appraisal rights. The control share acquisition statute does not
apply to stock acquired in a merger, consolidation or share exchange if the
corporation is a party to the transaction. An acquisition of shares may be
exempted from the control share statute provided that a charter or by-law
provision is adopted for such purpose prior to the control share acquisition.
McDonnell Douglas has not adopted an amendment to the McDonnell Douglas Articles
or its By-laws electing not to be governed by the control share acquisitions
provisions of the MGCL.
The DGCL has no comparable control share acquisition provision.
(l) STANDARD OF CONDUCT FOR DIRECTORS
Under Delaware law, the standards of conduct for directors have developed
through written opinions of the Delaware courts in cases decided by them.
Generally, directors of Delaware corporations are subject to a duty of loyalty
and a duty of care. The duty of loyalty has been said to require directors to
refrain from self-dealing. According to the Delaware Supreme Court, the duty of
care requires "directors . . . in managing the corporate affairs . . . to use
that amount of care which ordinarily careful and prudent men would use in
similar circumstances." Later case law has established "gross negligence" as the
test for breach of the standard for the duty of care in the process of
decision-making by directors of Delaware corporations.
Under Maryland law, the standards of conduct for directors are governed by
statute. Section 2-405.1(a) of the MGCL requires that a director of a Maryland
corporation perform his or her duties in "good faith," with "a reasonable
belief" that his or her actions are "in the best interests of the corporation"
and with the care of an "ordinarily prudent person in a like position . . .
under similar circumstances."
(m) INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the DGCL, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact
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that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
The DGCL permits similar indemnification in the case of derivative actions,
except that no indemnification may be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability and in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Indemnification for settlement of a suit by or in the right of the corporation
is not permitted under the DGCL. A director, officer, employee or agent who is
successful, on the merits or otherwise, in defense of any proceeding subject to
the DGCL's indemnification provisions must be indemnified by the corporation for
reasonable expenses incurred in connection therewith, including attorneys' fees.
The Boeing By-Laws provide, in substance, that each person made a party or
threatened to be made a party to any type of proceeding, by reason of the fact
that he or she is or was a director or officer of Boeing or that, being or
having been such a director or officer or an employee of Boeing, he or she is or
was serving at the request of an executive officer of Boeing as a director,
officer, employee or agent of another corporation, will be indemnified and held
harmless by Boeing to the full extent permitted by the DGCL, against all
expense, liability and loss actually and reasonably incurred by such person in
connection therewith. In certain cases, the indemnified party will be entitled
to the advancement of certain expenses relating to indemnification.
The MGCL permits a corporation to indemnify its current and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any suit or proceeding to which they may be a party by reason of their service
in those or other capacities, unless it is established that: (a) the act or
omission was material to the matter giving rise to the proceeding and either was
committed in bad faith or was the result of active and deliberate dishonesty;
(b) the person actually received an improper personal benefit in money,
property, or services; or (c) in the case of any criminal proceeding, the person
had reasonable cause to believe that the act or omission was unlawful.
Indemnification for settlement of a suit by or in the right of the corporation
is permitted under the MGCL. Unless limited by a corporation's charter, a
corporation must indemnify a director or officer who has been successful, on the
merits or otherwise, in the defense of any proceeding subject to the MGCL's
indemnification provisions.
The McDonnell Douglas By-laws provide, in substance, that McDonnell
Douglas, to the fullest extent of the MGCL, will indemnify, and advance expenses
to, former and current directors, in connection with any threatened or pending
proceeding, except a proceeding by such person against McDonnell Douglas,
arising out of such person's service to McDonnell Douglas. The McDonnell Douglas
By-laws further provide, in substance, that McDonnell Douglas will provide
indemnification to officers and other persons who serve, or have served,
McDonnell Douglas as required by law or as authorized at any time by general or
specific action of the McDonnell Douglas Board.
(n) LIMITATION OF PERSONAL LIABILITY OF DIRECTORS AND OFFICERS
The DGCL provides that a corporation's certificate of incorporation may
include a provision limiting the personal liability of a director to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director. However, no such provision can limit the liability of a
director for (i) any breach of the director's duty of loyalty to the corporation
or its shareholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) violation of
certain provisions of the DGCL, (iv) any transaction from which the director
derived an improper personal benefit or (v) any act
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or omission prior to the adoption of such a provision in the certificate of
incorporation. The Boeing Restated Certificate provides that, to the full extent
of the DGCL, Boeing directors are not liable to Boeing or its shareholders for
monetary damages for conduct as a director. However, such provisions do not
limit the availability of equitable relief to Boeing or its shareholders.
Under the MGCL, a corporation's charter may, with certain exceptions,
include any provisions expanding or limiting the liability of its directors and
officers to the corporation or its shareholders for money damages, but may not
include any provision that restricts or limits the liability of its directors or
officers to the corporation or its shareholders to the extent that (i) it is
proved that the person actually received an improper benefit or profit in money,
property, or services (in which case recovery is limited to the actual amount of
the benefit or profit actually received) or (ii) a judgment or other final
adjudication adverse to the person is entered in a proceeding based on a finding
in the proceeding that the person's action, or failure to act, was the result of
active and deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding. The McDonnell Douglas Articles provide that, to
the full extent permitted by the MGCL, McDonnell Douglas directors and officers
are not liable to McDonnell Douglas or its shareholders for money damages.
However, such provisions do not limit the availability of equitable relief to
McDonnell Douglas or its shareholders.
(o) APPRAISAL RIGHTS
Under the DGCL, except as otherwise provided by the DGCL, shareholders have
the right to demand and receive payment in cash of the fair value of their stock
(as appraised pursuant to judicial proceedings) in the event of a merger or
consolidation in lieu of the consideration such shareholder would otherwise
receive in such transaction. However, except as otherwise provided by the DGCL,
shareholders do not have such appraisal rights if, among other things, the
consideration they receive for their shares consists of (i) shares of stock of
the corporation surviving or resulting from such merger or consolidation, (ii)
shares of stock of any other corporation which at the effective date of the
merger or consolidation will be either listed on a national securities exchange
or designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. ("NASD") or held
of record by more than 2,000 shareholders, (iii) cash in lieu of fractional
shares of the corporations described in clause (i) or (ii) of this sentence, or
(iv) any combination of shares of stock and cash in lieu of fractional shares
described in the foregoing clauses (i) , (ii) and (iii).
Under the MGCL, shareholders have the right, subject to certain exemptions,
to demand and receive payment of the fair value of their stock in the event of
certain mergers, consolidations, share exchanges or transfers of assets or if
the corporation amends its charter in a way that substantially adversely affects
the stockholder's rights unless the right to do so is reserved in the
corporation's charter. However, except as otherwise provided by the MGCL, a
shareholder does not have such appraisal rights if, among other things, (i) such
shareholder's stock is listed on a national securities exchange or is designated
as a national market system security on an interdealer quotation system by the
NASD, or (ii) such shareholder's stock is that of the surviving corporation in
the merger unless the merger alters the contract rights of the stock as
expressly set forth in the charter, and the charter does not reserve the right
to do so, or the stock is to be changed or converted in whole or in part in the
merger into something other than either stock in the successor or cash, scrip,
or other rights or interests, arising out of provisions for the treatment of
fractional shares of stock in the successor. See Section 8(o), "THE
MERGER -- Absence of Appraisal Rights."
(p) PREEMPTIVE RIGHTS
Under the DGCL, a shareholder does not have preemptive rights unless such
rights are specifically granted in the corporation's certificate of
incorporation. The Boeing Restated Certificate provides that no holder of stock
of any class of Boeing shall have, as such holder, any preemptive or
preferential right of subscription to any stock of any class of Boeing or to any
obligations convertible into stock of Boeing.
Under the MGCL, a shareholder does not have preemptive rights unless such
rights are specifically granted in the corporation's charter. The McDonnell
Douglas Articles provide that no holders of stock of
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McDonnell Douglas, of whatever class or series, have any preferential right of
subscription to any shares of any class or to any securities convertible into
shares of stock of McDonnell Douglas.
(q) DENIAL OF VOTING RIGHTS
The DGCL provides that holders of the outstanding shares of a class of
stock shall be entitled to vote as a class upon a proposed amendment to the
certificate of incorporation, whether or not entitled to vote thereon by the
certificate of incorporation, if the amendment would change the aggregate number
of authorized shares or the par value of the class or would adversely affect the
powers, preferences or special rights of the class. Under the MGCL, holders of
the outstanding shares of any class of stock are entitled only to the voting
rights granted to that class of stock under the charter.
(r) PAYMENT OF DIVIDENDS
Under the DGCL, a board of directors may authorize a corporation to make
distributions to its shareholders, subject to any restrictions in its
certificate of incorporation, either (i) out of surplus or (ii) if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Under the DGCL, no distribution out
of net profits is permitted, however, if, following the distribution, the
corporation's capital is less than the aggregate amount of capital represented
by the issued and outstanding stock of all classes having a preference upon the
distribution of assets. The Boeing Restated Certificate does not further
restrict the ability of the Boeing Board to declare dividends.
Under the MGCL, a corporation may not pay a dividend or other distribution
if, after giving effect to such distribution, (i) the corporation would not be
able to pay its indebtedness as such indebtedness becomes due in the usual
course of business or (ii) the corporation's total assets would be less than the
sum of the corporation's total liabilities plus, unless the charter provides
otherwise (which the McDonnell Douglas Articles do not), the amount that would
be needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights on dissolution are superior to those
receiving the distribution. The McDonnell Douglas Articles do not further
restrict the ability of the McDonnell Douglas Board to declare dividends.
(s) INSPECTION OF BOOKS AND RECORDS
Under the DGCL, any shareholder of a Delaware corporation may examine the
list of shareholders and any shareholder making a written demand may inspect any
other corporate books and records for any purpose reasonably related to the
shareholder's interest as a shareholder. The MGCL provides that persons who
together have been shareholders for more than six months and own at least 5% of
the outstanding stock of any class of a Maryland corporation may inspect and
copy the corporation's books of account and stock ledger, request and receive a
statement of the corporation's affairs and request and receive a list of its
shareholders. In addition, any shareholder of a Maryland corporation may (a)
inspect and copy the bylaws, minutes of the proceedings of shareholders and
annual statements of affairs and (b) request the corporation to provide a sworn
statement showing all stock and securities issued and all consideration received
by the corporation for such stock during the preceding twelve months.
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13. BUSINESS OF BOEING
Boeing, together with its subsidiaries, is one of the world's major
aerospace firms. Boeing operates in two principal industries: commercial
aircraft, and defense and space. Commercial aircraft operations -- conducted
through Boeing Commercial Airplane Group -- involve development, production and
marketing of commercial jet aircraft and providing related support services to
the commercial airline industry worldwide. Defense and space
operations -- conducted through Boeing Defense & Space Group -- involve
research, development, production, modification and support of military aircraft
and helicopters and related systems, space and missile systems, rocket engines,
and information services, primarily through U.S. Government contracts.
With respect to the commercial aircraft segment, Boeing is a leading
producer of commercial aircraft and offers a family of commercial jetliners
designed to meet a broad spectrum of passenger and cargo requirements of
domestic and foreign airlines. This family of jet transport aircraft currently
includes the 737 and 757 standard-body models and the 767, 747 and 777 wide-body
models.
The worldwide market for commercial jet aircraft is predominantly driven by
long-term trends in airline passenger traffic. The principal factors underlying
long-term traffic growth are sustained economic growth in developed and emerging
countries and political stability. Demand for Boeing's commercial aircraft is
further influenced by airline industry profitability, world trade policies,
government-to-government relations, environmental constraints imposed upon
airplane operations, technological changes, and price and other competitive
factors.
Commercial jet aircraft are normally sold on a firm fixed-price basis with
an indexed price escalation clause. Boeing's ability to deliver jet aircraft on
schedule is dependent on a variety of factors, including availability of raw
materials, performance of suppliers and subcontractors, and regulatory
certification. The introduction of new commercial aircraft programs and major
derivatives involves increased risks associated with meeting development,
production and certification schedules.
Boeing's commercial aircraft sales are subject to intense competition,
including foreign companies that are nationally owned or subsidized. To meet
competition, Boeing maintains a program directed toward continually enhancing
the performance and capability of its products and has a family of commercial
aircraft to meet varied and changing airline requirements. Since the 1970s,
Boeing has maintained approximately a 60% share of the available commercial jet
transport market.
Boeing continually evaluates opportunities to improve current models, and
conducts ongoing marketplace assessments to ensure that its family of jet
aircraft is well positioned to meet future requirements of the airline industry.
The fundamental strategy is to maintain a broad product line responsive to
changing market conditions by maximizing commonality among the Boeing family of
airplanes. Additionally, Boeing is committed to continue to lead the industry in
customer satisfaction by offering products that exhibit the highest standards of
quality, safety, technical excellence and economic performance, and by providing
excellent in-service support.
The major focus of development activities over the past three years has
been the 777 wide-body twinjet, which entered service in May 1995, and the
737-600/700/800 family. The new 777 model is designed to meet airline
requirements for an efficient, comfortable, high-capacity airplane to be used in
domestic and regional markets internationally. Deliveries of the extended-range
version 777-200 began in early 1997, to be followed in 1998 by the 777-300
version with 20% greater passenger-carrying capability.
Development of the 737-600/700/800 family of short-to-medium-range
jetliners began in 1993. These new 737s will provide greater range, increased
speed, and reduced noise and emissions while maintaining 737 family commonality.
The 737-700, the middle-sized member of the family, will be the first version to
be placed in service, with initial deliveries scheduled for late 1997. The
737-800, a larger version, is currently scheduled to be delivered in early 1998.
Initial delivery of the smallest version, the 737-600, is currently scheduled
for late 1998.
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In 1996 Boeing launched a new version of the 757 twinjet. The new 757-300,
with approximately 20% more seating, will have about 10% lower seat-mile
operating costs than the -200, which already has the lowest seat-mile operating
cost in its segment. First delivery is scheduled for 1999.
In January 1997, Boeing began offering for sale a new extended-range
version of the 767. The proposed 767-400ERX, which could enter commercial
service as early as the year 2000, will be capable of carrying over 300
passengers in a two-class configuration.
Boeing has been working with some of the world's largest airlines to
explore the development of aircraft capable of carrying 500 passengers over
longer ranges than the current 747 family. However, sufficient market demand has
not developed to justify committing the very substantial investment levels
required to develop either an all new aircraft or significantly larger versions
of the 747. The timing of a decision to proceed with a 747 derivative aircraft
and the development schedule will be dependent on customer demand and Boeing's
ability to achieve favorable long-term financial returns on the substantial
development costs that would be required.
In February 1997, the Boeing Board authorized the Boeing Commercial
Airplane Group to offer longer-range versions of the 777-200 and 777-300 to the
world's airlines. The target delivery dates for the two derivatives are late
2000 and early 2001, respectively.
Effective December 6, 1996, Boeing acquired the Rockwell A&D Business by
issuing 9.2 million shares of common stock valued at $875 million and assuming
debt valued at $2,180 million. The acquired business units are currently
operating under the name Boeing North American, Inc. and are expected to
strengthen the strategic position of Boeing's defense and space segment,
particularly with respect to information/battle management systems. This
transaction has been accounted for under the purchase method. The assets and
liabilities have been recorded at fair value, with excess purchase price
recorded as goodwill. Goodwill is amortized on a straight line basis over 30
years.
The major product groups of Boeing North American are rocket propulsion,
including the Space Shuttle main engine; Space Station electric power; Space
Shuttle integration, logistics and operations; Global Positioning System
satellites; ICBM systems; tactical missiles; sensors; B1-B bomber; commercial
aerostructures; aircraft and helicopter modifications; airborne laser and
electro-optics; space defense; and advanced programs. The Rockwell A&D units had
fiscal 1996 annual sales of $2.5 billion, excluding sales to Boeing, and
approximately 21,000 employees.
The Boeing defense and space segment is highly sensitive to changes in
national priorities and U.S. Government defense and space budgets. The principal
contributors to defense and space sales in 1996 consisted of the International
Space Station program (for which Boeing has the prime contractor role), F-22
fighter aircraft engineering and manufacturing development activities, E-3 AWACS
(Airborne Warning and Control System) updates, 767 AWACS development and
manufacturing for the Government of Japan, V-22 Osprey tiltrotor aircraft
development and test activities, production and remanufacturing of CH-47
helicopters, various facilities management and information services contracts,
B-2 bomber subcontractor work and RAH-66 Comanche helicopter development
activities. Boeing activities on the F-22, RAH-66 and V-22 programs are under
joint venture teaming arrangements with other companies.
Significant restructuring in the form of mergers, acquisitions and
strategic alliances is continuing by companies throughout the aerospace industry
to maintain or increase market share, to reduce costs or obtain economies of
scale, and to be competitive for new business opportunities. Joint venture
arrangements with other companies are expected to continue to be common for
major developmental programs and follow-on production activities. Currently,
Boeing's activities in the F-22, V-22, RAH-66, Sea Launch, and civil tiltrotor
developmental programs are under joint venture arrangements. Sea Launch program
team members include Kvaerner a.s. of Norway, RSC-Energia of Russia, and
Yuzhnoye of Ukraine. In general, business risk is greater when working with
joint venture partners located in foreign countries. Boeing is also a 50/50
partner with Lockheed Martin in United Space Alliance (USA) to update NASA
manned spaceflight activities.
Defense and space developmental programs are normally performed under
cost-reimbursement-type contracts, although certain past developmental programs
were under fixed-price arrangements. Developmental
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contracts often contain incentives related to cost performance and/or awards for
other contract milestone accomplishments. Production programs are generally
performed under firm fixed-price contracts or fixed-price contracts containing
incentive provisions related to costs. During 1995 and 1996, an increasing
percentage of the Boeing defense and space business was contracted under
cost-reimbursement-type contracts. The current major developmental programs,
principally the International Space Station, F-22 fighter, V-22 Osprey tiltrotor
aircraft and RAH-66 Comanche helicopter, primarily involve
cost-reimbursement-type contracts.
The U.S. Government defense market environment is one in which continued
intense competition among defense contractors can be expected, especially in
light of U.S. Government budget constraints. Boeing's ability to compete
successfully for and retain such business is highly dependent on its technical
excellence, demonstrated management proficiency, strategic alliances, and
cost-effective performance.
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14. BUSINESS OF MCDONNELL DOUGLAS
McDonnell Douglas was incorporated in Maryland in 1939 under the name
McDonnell Aircraft Corporation. On April 19, 1967, the shareholders approved the
merger with DAC and the name of the corporation was changed to McDonnell Douglas
Corporation.
McDonnell Douglas is principally engaged in the research, development and
manufacturing of aerospace, commercial and military avionics, and defense
electronics products. McDonnell Douglas, its divisions and its subsidiaries
operate principally in four industry segments: military aircraft; missiles,
space, and electronic systems; commercial aircraft; and financial services and
other. Operations in the first two industry segments are conducted primarily by
McDonnell Douglas Aerospace and by Military Transport Aircraft, unincorporated
operating divisions of McDonnell Douglas, which are engaged in design,
development, production, and support of the following major products: military
transport aircraft; attack and fighter aircraft and training systems; military
and commercial helicopters and ordnance; tactical missiles; satellite launching
vehicles, space station design and development and space station shuttle payload
integration and defense electronic components and systems. Operations in the
commercial aircraft segment are conducted by DAC, an unincorporated operating
division of McDonnell Douglas, which designs, develops, produces, modifies and
sells commercial transport aircraft and related spare parts and support
services.
Through its McDonnell Douglas Financial Services Corporation subsidiary
("MDFS"), McDonnell Douglas is engaged in aircraft financing and commercial
equipment leasing. McDonnell Douglas' subsidiary, McDonnell Douglas Realty
Company ("MDRC"), was established in 1972 to develop McDonnell Douglas' surplus
real estate. While continuing to serve that role, MDRC has become a full-service
developer and property manager in the commercial real estate market as well as
for McDonnell Douglas' aerospace business.
McDonnell Douglas is a major participant in both the defense and the
commercial aerospace industries. McDonnell Douglas has a wide range of programs
in production and development, and is the world's leading producer of military
aircraft. McDonnell Douglas is one of the largest U.S. defense contractors and
NASA prime contractors and is also a manufacturer of large commercial transport
aircraft. Programs and products constituting most of McDonnell Douglas' business
volume are of a highly technical nature, comparatively few in number, high in
unit cost, and have traditionally had relatively long production lives.
MILITARY AIRCRAFT
McDonnell Douglas' Aerospace Division ("MDAD") is currently producing the
F-15 Eagle, the F/A-18 Hornet, the AV-8B Harrier II Plus, and the T-45A Goshawk
and military training systems. McDonnell Douglas' Military Transport Aircraft
Division is currently producing the C-17 Globemaster III. Additionally,
McDonnell Douglas is developing the F/A-18 E/F Super Hornet (the "Super
Hornet"). The Super Hornet adds greater range and payload carrying ability,
improves the Hornet's benchmark reliability and maintainability, and allows for
the extensive integration of new systems and technologies. The F-15 Eagle is a
supersonic, tactical fighter that is currently operated by the U.S. Air Force,
Japan, Saudi Arabia and Israel. The F/A-18 Hornet is a multi-mission strike
fighter produced primarily for the U.S. Navy and Marine Corps. The F/A-18
Hornet's customers include: Canada, Australia, Spain, Kuwait, Finland,
Switzerland and Malaysia. McDonnell Douglas is the prime contractor for the U.S.
Air Force C-17 Globemaster III military transport. The C-17 is designed to carry
outsize cargo over intercontinental distances into austere airfields. The AV-8B
Harrier II is a vertical/short takeoff and landing attack aircraft which began
U.S. Marine Corps service in January 1984. The AV-8B Harrier II also is
currently operated by the United Kingdom, Spain and Italy. The T-45 training
system is the first totally integrated training system developed for and used by
the U.S. Navy. It includes the T-45A Goshawk aircraft, advanced flight
simulators, academics, computer-assisted instructional programs, a computerized
training-integration system, and a contractor logistics support package.
McDonnell Douglas Helicopter Company, which operationally is part of MDAD,
currently produces the AH-64A Apache, an advanced attack helicopter for the U.S.
Army, Israel, Egypt, Saudi Arabia, United Arab Emirates, Greece, the United
Kingdom and the Netherlands. Production also has begun of the AH-64D Apache
Longbow, a modernized, more capable version of the AH-64A Apache.
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MISSILES, SPACE AND ELECTRONIC SYSTEMS
McDonnell Douglas, through MDAD, is also engaged in a wide variety of
programs in tactical missiles and related systems. The division produces several
missile systems, including the Harpoon anti-ship missile and the Standoff Land
Attack Missile.
In addition, MDAD produces satellite launching vehicles and defense
electronic components and systems. MDAD also works on space station design and
development and provides space shuttle payload integration.
COMMERCIAL AIRCRAFT
McDonnell Douglas, through DAC, is producing MD-80 and MD-90 twin jets and
MD-11 trijet commercial aircraft, developing the MD-95 twin jet commercial
aircraft and supporting commercial aircraft, and providing spare parts and
related services.
FINANCIAL SERVICES
MDFS, headquartered in Long Beach, California, is the parent company of
McDonnell Douglas Finance Corporation, a subsidiary that is engaged in aircraft
financing and commercial equipment leasing.
As stated above, MDRC was established to develop McDonnell Douglas' surplus
real estate. MDRC has since become a full-service developer and property manager
in the commercial real estate market as well as for McDonnell Douglas' aerospace
business.
Additional information concerning McDonnell Douglas is included in the
McDonnell Douglas reports incorporated by reference in this Joint Proxy
Statement/Prospectus. See Section 2, "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" and Section 1, "AVAILABLE INFORMATION."
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15. OWNERSHIP OF MCDONNELL DOUGLAS COMMON STOCK
The following table shows the beneficial ownership of McDonnell Douglas
Common Stock and Stock Units as of January 31, 1997, unless otherwise indicated
in the footnotes below, by each director, the Chief Executive Officer, the four
other most highly compensated executive officers and former executive officers,
all directors and executive officers of McDonnell Douglas as a group, and each
person McDonnell Douglas believes holds more than 5% of the outstanding
McDonnell Douglas Common Stock. An asterisk in the column listing the percentage
of shares beneficially owned indicates the person owns less than one 1/100th of
1% of McDonnell Douglas Common Stock as of January 31, 1997.
<TABLE>
<CAPTION>
PERCENT OF
MCDONNELL DOUGLAS
NUMBER OF SHARES COMMON STOCK NUMBER OF
NAME BENEFICIALLY OWNED OUTSTANDING(1) STOCK UNITS
- ---------------------------------- ------------------ ----------------- -----------
<S> <C> <C> <C>
Edward C. Bavaria................. 24,000(2) .01% 0
John H. Biggs..................... 16,200(3)(4) * 3,791(5)
B.A. (Dolph) Bridgewater, Jr...... 13,200(4)(6) * 3,791(5)
Beverly B. Byron.................. 2,168(3)(4) * 3,791(5)
William E. Cornelius.............. 15,130(3)(4) * 3,791(5)
William H. Danforth, M.D.......... 11,820(4)(7) * 4,531(5)
Kenneth M. Duberstein............. 4,200(3)(4) * 4,562(5)
Robert H. Hood, Jr................ 49,660(3)(8) .02% 0
William S. Kanaga................. 9,200(4)(6) * 4,729(5)
F. Mark Kuhlmann.................. 61,378(8)(10) .03% 731(9)
Herbert J. Lanese................. 58,000(8) .03% 0
James S. McDonnell III............ 7,651,682(3)(11) 3.64% 3,791(5)
John F. McDonnell................. 4,988,688(3)(8)(11) 2.37% 157,675(12)
James F. Palmer................... 57,433(3)(8) .03% 462(9)
George A. Schaefer................ 7,200(3)(4) * 3,791(5)
Harry C. Stonecipher.............. 361,365(8)(13) .17% 367,814(12)
Ronald L. Thompson................ 0 * 4,480(5)
P. Roy Vagelos, M.D............... 2,784(14) * 3,104(5)
All directors and executive
officers as a group (49
persons)........................ 14,250,536(8)(11)(15) 6.78% 574,810(5)(9)(12)
The Chase Manhattan Bank.......... 39,101,996(16) 18.62% 0
Oppenheimer Group, Inc............ 23,802,266(17) 11.33% 0
</TABLE>
- ---------------
(1) Rounded to nearest 1/100th of 1%; does not include Stock Units.
(2) Shares as to which the director or executive officer has sole voting power
and no dispositive power.
(3) Shares as to which the director or executive officer has sole voting and/or
dispositive power.
(4) Includes stock issued under the McDonnell Douglas Deferred Compensation
Plan for Non-Employee Directors in the following amounts: Dr. Danforth and
Messrs. Biggs, Bridgewater, Cornelius, Duberstein, Kanaga and Schaefer
1,200 shares each, and Mrs. Byron 168 shares. Such shares do not vest until
the earlier of (i) director disability, resignation due to a conflict of
interest not involving a breach of fiduciary duty, death or retirement from
the McDonnell Douglas Board in accordance with requirements established by
the McDonnell Douglas Board or (ii) ten years from the date of grant if the
director is still serving as a director. The director has sole voting power
and no dispositive power for the shares.
(5) Stock Units, payable only in cash, issued as McDonnell Douglas Board
compensation (as described on page 10 of the McDonnell Douglas Proxy
Statement on Schedule 14A dated March 17, 1997 (the "McDonnell Douglas 1997
Proxy Statement")), and as dividend equivalent payments thereon.
(6) The director has sole voting power and no dispositive power for 1,200
shares. The remaining shares are held as joint tenant for which there is
shared voting and dispositive power.
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(7) The director has sole voting and/or dispositive power for 4,800 shares. The
remaining shares are held as a cotrustee for which there is shared voting
and/or dispositive power.
(8) Includes shares, subject to restrictions, under the Performance Accelerated
Restricted Stock Program described in the Management Compensation and
Succession Committee (the "Compensation Committee") Report on Executive
Compensation on pages 14-18 of the McDonnell Douglas 1997 Proxy Statement,
in the following amounts, including shares approved for issuance by the
Compensation Committee on January 30, 1997, but not issued by January 31,
1997: Mr. Stonecipher 180,000 shares (all of which are subject to
forfeiture if certain performance targets are not met, "Performance-Based
Shares"); Mr. John McDonnell 60,000 shares (all of which are
Performance-Based Shares); Mr. Hood 41,667 shares (29,667 of which are
Performance-Based Shares); Mr. Kuhlmann 37,000 shares (18,500 of which are
Performance-Based Shares); Mr. Lanese 58,000 shares (43,000 of which are
Performance-Based Shares); Mr. Palmer 40,000 shares (31,000 of which are
Performance-Based Shares); and all executive officers as a group 1,079,367
shares (700,017 of which are Performance-Based Shares). The preceding
totals include shares upon which restrictions lapsed subsequent to January
31, 1997 and have not been reduced to reflect shares withheld to satisfy
income tax withholding obligations related to such lapse of restrictions.
The executive officers have sole voting power and no dispositive power for
shares as to which restrictions have not lapsed.
(9) Stock Units, payable only in cash, credited under the McDonnell Douglas
Supplemental Employee Savings Plan.
(10) The executive has sole voting and/or dispositive power for 44,778 shares.
The remaining shares are held as co-trustee for which there is shared
voting and dispositive power.
(11) Excludes an additional 13,016,758 shares consisting of (i) 5,625,448 shares
held by the James S. McDonnell Foundation, (ii) 3,574,338 shares held by
the James S. McDonnell Charitable Trust A and (iii) 3,816,972 shares held
by the James S. McDonnell Charitable Trusts A and B, over which J. S.
McDonnell III, 7701 Forsyth Blvd., St. Louis, Missouri 63105 and J. F.
McDonnell, P.O. Box 516, St. Louis, Missouri 63166-0516 have shared voting
and dispositive power and each is deemed to be the beneficial owner of such
shares. Taking into account these shares, J. S. McDonnell, III, J. F.
McDonnell, and all directors and executive officers as a group beneficially
own 9.84%, 8.57%, and 12.98%, respectively, of the outstanding McDonnell
Douglas Common Stock.
(12) As discussed in the Compensation Committee Report on Executive Compensation
on pages 14-18 of the McDonnell Douglas 1997 Proxy Statement, payments to
certain executives were deferred to the extent such payments would have
been nondeductible under Internal Revenue Code Section 162(m). Includes
Stock Units, payable only in cash, 145,648 of which were acquired by Mr.
John McDonnell as a result of the deferral of his 1995 and 1996 Long Term
Incentive Plan payouts and 365,898 of which were acquired by Mr.
Stonecipher through the conversion of his service-based restricted stock,
plus additional Stock Units acquired by each as a result of dividend
equivalent payments on such units. Also includes Stock Units, payable only
in cash, credited under the McDonnell Douglas Supplemental Employee Savings
Plan for Mr. John McDonnell 12,028 Stock Units and for Mr. Stonecipher
1,916 Stock Units.
(13) Includes shares as to which the director has sole voting and/or dispositive
power and 180,000 shares which the director has the right to acquire upon
the exercise of stock options.
(14) The director has shared voting and dispositive power as the shares are held
as joint tenant.
(15) Includes shares as to which a director or executive officer has sole or
shared voting and/or dispositive power and 200,000 shares which executive
officers have the right to acquire upon the exercise of stock options.
(16) Shares held of record by The Chase Manhattan Bank, Chase Manhattan Center,
Brooklyn, New York 11245 as Trustee under the Employee Savings, Investment
and Thrift Plans and the PAYSOP of McDonnell Douglas. The Trustee has
dispositive power for these shares to the extent necessary to follow valid
instructions from participants regarding withdrawals, transfers or loans
from such plans. Participants in each of these plans may direct the Trustee
how to vote his or her proportionate share of these
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shares. Except for shares held in the PAYSOP, shares for which the Trustee
does not receive voting instructions on any issue or proposal will be voted
for, against or in abstention in the same proportions as McDonnell Douglas
Common Stock for which the Trustee receives voting instructions. Any shares
held under the PAYSOP for which the Trustee does not receive voting
instructions on any issue or proposal will not be voted with regard to that
issue or proposal.
(17) Based on Schedule 13G dated March 4, 1997, by Oppenheimer Group, Inc. (the
"Oppenheimer Group"), Oppenheimer Tower, World Financial Center, New York,
New York 10281 as a parent holding company on behalf of Oppenheimer LP and
certain of the Oppenheimer Group's subsidiaries and/or certain investment
advisory clients or discretionary accounts of such subsidiaries and
relating to their collective beneficial ownership of shares of McDonnell
Douglas Common Stock. The Oppenheimer Group has shared voting and
dispositive power with respect to all such shares.
16. SHAREHOLDER PROPOSALS FOR 1998
Boeing's next annual meeting will be held on April 27, 1998. An eligible
shareholder who wants to have a qualified proposal considered for inclusion in
the proxy statement for that meeting must notify the Secretary of Boeing. The
proposal must be received at Boeing's executive offices no later than November
18, 1997. A shareholder must have been a registered or beneficial owner of at
least 1% of Boeing's outstanding stock or stock with a market value of $1,000
for at least one year prior to submitting the proposal, and the shareholder must
continue to own such stock through the date on which the meeting is held. For
purposes of the one-year holding period in the preceding sentence, Boeing will
take into account the period of time a holder of McDonnell Douglas Common Stock
immediately prior to the Effective Time whose shares are converted into Boeing
Common Stock in the Merger held such shares of McDonnell Douglas Common Stock.
Boeing's By-Laws outline procedures, including minimum notice provisions,
for shareholder nomination of directors and submission of other shareholder
business to be brought before the annual meeting. A copy of the pertinent By-Law
provisions is available on request to Heather Howard, Corporate Secretary, The
Boeing Company, P.O. Box 3707, Mail Stop 10-13, Seattle, Washington 98124-2207.
The McDonnell Douglas Board will consider proposals of shareholders
intended to be presented for action at the McDonnell Douglas 1998 Annual Meeting
of Shareholders. A shareholder proposal must be submitted in writing to Steven
N. Frank, Secretary, McDonnell Douglas Corporation, Mail Code S1001240, P.O. Box
516, St. Louis, Missouri 63166-0516 and must be received no later than November
22, 1997, to be considered for inclusion in McDonnell Douglas' proxy statement
and form of proxy relating to the 1998 McDonnell Douglas Annual Meeting of
Shareholders. Submission of a shareholder proposal does not assure inclusion in
the proxy statement or form of proxy because proposals must meet certain SEC
requirements.
McDonnell Douglas' By-Laws outline procedures, including minimum notice
provisions, for shareholder nomination of directors and submission of other
shareholder business to be brought before an annual meeting.
17. EXPERTS
The financial statements and related financial statement schedule
incorporated in this Joint Proxy Statement/Prospectus by reference to The Boeing
Company Annual Report on Form 10-K for the year ended December 31, 1996 have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are also incorporated by reference herein and have been
incorporated by reference in the Registration Statement in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
The consolidated financial statements and schedule of McDonnell Douglas
incorporated by reference in McDonnell Douglas' Annual Report on Form 10-K for
the year ended December 31, 1996, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report incorporated by reference
therein and incorporated herein by reference. Such consolidated financial
statements are incorporated herein by
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reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
Representatives of Deloitte & Touche LLP and Ernst & Young LLP are expected
to be present at the Boeing Special Meeting and the McDonnell Douglas Special
Meeting, respectively, to respond to appropriate questions and to make a
statement if they so desire.
18. LEGAL OPINIONS
Certain legal matters relating to the validity of the shares of Boeing
Common Stock to be issued in the Merger will be passed upon by Theodore J.
Collins, Esq., Senior Vice President and General Counsel of Boeing. Mr. Collins
owns, has options to purchase and has other interests in Boeing Common Stock.
19. ANNUAL REPORT AND FORM 10-K
The 1996 Annual Report of Boeing was mailed to shareholders in connection
with the Boeing Annual Meeting. Upon request, Boeing will furnish without charge
a copy of Boeing's Annual Report on Form 10-K for the fiscal year ended December
31, 1996, including financial statements and schedules. The Form 10-K has been
filed with the SEC. It may be obtained by writing to the Data Shipping
Department, The Boeing Company, P.O. Box 3707, Mail Stop 3T-33, Seattle,
Washington 98124-2207, or calling (206) 393-4964. The 1996 Annual Report is also
available at Boeing's World Wide Web site, http://www.boeing.com.
The 1996 Annual Report of McDonnell Douglas was mailed to shareholders in
connection with the McDonnell Douglas 1997 Annual Meeting of Shareholders. Upon
request, McDonnell Douglas will furnish without charge a copy of McDonnell
Douglas' Annual Report on Form 10-K for the fiscal year ended December 31, 1996,
including financial statements and schedule. The Form 10-K has been filed with
the SEC. It may be obtained by writing to McDonnell Douglas Corporation, Attn:
Shareholder Services, Mail Code S1001240, P.O. Box 516, St. Louis, Missouri
63166-0516, or calling (800) 233-8193. The 1996 Annual Report is also available
at McDonnell Douglas' World Wide Web site, http://www.mdc.com.
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ANNEX I
================================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
THE BOEING COMPANY,
WEST ACQUISITION CORP.
AND
MCDONNELL DOUGLAS CORPORATION
DATED AS OF DECEMBER 14, 1996
================================================================================
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TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER
ARTICLE I
THE MERGER
<TABLE>
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1.1. The Merger...................................................................... 1
1.2. Closing......................................................................... 1
1.3. Effective Time.................................................................. 1
1.4. Effects of the Merger........................................................... 1
1.5. Charter and By-laws............................................................. 2
1.6. Directors....................................................................... 2
ARTICLE II
EFFECT OF THE MERGER ON THE
STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
2.1. Effect on Stock................................................................. 2
2.2. Exchange of Certificates........................................................ 2
ARTICLE III
STOCKHOLDER APPROVAL; BOARD
OF DIRECTORS OF BOEING
3.1. Stockholder Approval............................................................ 5
3.2. Board of Directors of Boeing.................................................... 5
3.3. Officers of Boeing.............................................................. 6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MDC
4.1. Organization, Qualification, Etc................................................ 6
4.2. Stock........................................................................... 6
4.3. Corporate Authority Relative to this Agreement; No Violation.................... 7
4.4. Reports and Financial Statements................................................ 7
4.5. No Undisclosed Liabilities...................................................... 8
4.6. No Violation of Law............................................................. 8
4.7. Environmental Laws and Regulations.............................................. 8
4.8. No Undisclosed Employee Benefit Plan Liabilities or Severance Arrangements...... 8
4.9. Absence of Certain Changes or Events............................................ 9
4.10. Investigations; Litigation...................................................... 9
4.11. Joint Proxy Statement; Registration Statement; Other Information................ 9
4.12. MDC Rights Plan................................................................. 9
4.13. Lack of Ownership of Boeing Common Stock........................................ 9
4.14. Tax Matters..................................................................... 9
4.15. Opinion of Financial Advisor.................................................... 10
4.16. Required Vote of MDC Stockholders............................................... 10
4.17. Pooling of Interests............................................................ 10
</TABLE>
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BOEING AND SUB
5.1. Organization, Qualification, Etc................................................ 11
5.2. Capital Stock................................................................... 11
5.3. Corporate Authority Relative to this Agreement; No Violation.................... 12
5.4. Reports and Financial Statements................................................ 12
5.5. No Undisclosed Liabilities...................................................... 13
5.6. No Violation of Law............................................................. 13
5.7. Environmental Laws and Regulations.............................................. 13
5.8. No Undisclosed Employee Benefit Plan Liabilities or Severance Arrangements...... 13
5.9. Absence of Certain Changes or Events............................................ 13
5.10. Investigation; Litigation....................................................... 13
5.11. Joint Proxy Statement; Registration Statement; Other Information................ 14
5.12. Lack of Ownership of MDC Common Stock........................................... 14
5.13. Boeing Rights Plan.............................................................. 14
5.14. Tax Matters..................................................................... 14
5.15. Opinion of Financial Advisor.................................................... 15
5.16. Required Vote of Boeing Stockholders............................................ 15
5.17. Pooling of Interests............................................................ 15
ARTICLE VI
COVENANTS AND AGREEMENTS
6.1. Conduct of Business by MDC or Boeing............................................ 15
6.2. Investigation................................................................... 18
6.3. Cooperation..................................................................... 18
6.4. Affiliate Agreements............................................................ 19
6.5. Employee Stock Options, Incentive and Benefit Plans............................. 19
6.6. Filings; Other Action........................................................... 20
6.7. Further Assurances.............................................................. 21
6.8. Takeover Statute................................................................ 21
6.9. No Solicitation................................................................. 21
6.10. Public Announcements............................................................ 21
6.11. Indemnification and Insurance................................................... 21
6.12. Accountants' "Comfort" Letters.................................................. 22
6.13. Additional Reports.............................................................. 22
6.14. Co-Ordination of Dividends...................................................... 22
ARTICLE VII
CONDITIONS TO THE MERGER
7.1. Conditions to Each Party's Obligation to Effect the Merger...................... 22
7.2. Conditions to Obligations of MDC to Effect in the Merger........................ 23
7.3. Conditions to Obligations of Boeing to Effect the Merger........................ 23
</TABLE>
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<TABLE>
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ARTICLE VIII
TERMINATION, WAIVER, AMENDMENT AND CLOSING
8.1. Termination of Abandonment...................................................... 23
8.2. Termination Fee................................................................. 25
8.3. Amendment or Supplement......................................................... 25
8.4. Extension of Time, Waiver, Etc.................................................. 25
ARTICLE IX
MISCELLANEOUS
9.1. No Survival of Representations and Warranties................................... 25
9.2. Expenses........................................................................ 26
9.3. Counterparts; Effectiveness..................................................... 26
9.4. Governing Law................................................................... 26
9.5. Notices......................................................................... 26
9.6. Assignment; Binding Effect...................................................... 26
9.7. Severability.................................................................... 27
9.8. Enforcement of Agreement........................................................ 27
9.9. Miscellaneous................................................................... 27
9.10. Headings........................................................................ 27
9.11. Subsidiaries; Significant Subsidiaries; Affiliates.............................. 27
9.12. Finders or Brokers.............................................................. 27
</TABLE>
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THIS AGREEMENT AND PLAN OF MERGER, dated as of December 14, 1996 (this
"Agreement"), is among THE BOEING COMPANY ("Boeing"), WEST ACQUISITION CORP.
("Sub") and MCDONNELL DOUGLAS CORPORATION ("MDC").
WHEREAS, MDC is a corporation duly organized and existing under the laws of
the State of Maryland, Boeing is a corporation duly organized and existing under
the laws of the State of Delaware and Sub is a corporation duly organized and
existing under the laws of the State of Maryland;
WHEREAS, the respective Boards of Directors of Boeing, Sub and MDC have
approved and have declared advisable the merger of Sub with and into MDC (the
"Merger"), upon the terms and subject to the conditions set forth herein,
whereby each issued and outstanding share of MDC Common Stock (as defined in
Section 4.2) not owned directly by MDC or Boeing will be converted into .65 of a
share of Boeing Common Stock (as defined in Section 5.2), and have determined
that the Merger and the other transactions contemplated hereby are consistent
with, and in furtherance of, their respective business strategies and goals;
WHEREAS, the parties desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for financial accounting purposes, it is intended that the Merger
will be accounted for as a pooling of interests transaction.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
THE MERGER
Section 1.1. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Maryland General Corporation
Law (the "MGCL"), Sub shall be merged with and into MDC at the Effective Time
(as defined in Section 1.3). Following the Effective Time, the separate
corporate existence of Sub shall cease and MDC shall be the surviving
corporation (the "Surviving Corporation") and shall succeed to and assume all
the rights and obligations of Sub in accordance with the MGCL.
Section 1.2. Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by the parties (the "Closing
Date"), which shall be no later than the second business day after satisfaction
or waiver of the conditions set forth in Article VII, unless another time or
date is agreed to by the parties hereto. The Closing will be held at such
location in the City of New York as is agreed to by the parties hereto.
Section 1.3. Effective Time. Subject to the provisions of this Agreement,
as soon as practicable on or after the Closing Date, the parties shall file
articles of merger or other appropriate documents (in any such case, the
"Articles of Merger") executed in accordance with the relevant provisions of the
MGCL and shall make all other filings or recordings required under the MGCL. The
Merger shall become effective at such time as the State Department of
Assessments and Taxation of Maryland accepts the Articles of Merger for record,
or at such subsequent date or time as Boeing and MDC shall agree and specify in
the Articles of Merger (the time the Merger becomes effective being hereinafter
referred to as the "Effective Time").
Section 1.4. Effects of the Merger. The Merger shall have the effects set
forth in Section 3-114 of the MGCL.
<PAGE> 96
Section 1.5. Charter and By-laws. A. The charter of MDC, as in effect
immediately prior to the execution of this Agreement, shall be the charter of
the Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law.
B. The by-laws of MDC, as in effect immediately prior to the execution of
this Agreement, shall be the by-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
Section 1.6. Directors. The directors of Sub at the Effective Time shall
be the directors of the Surviving Corporation until the next annual meeting of
stockholders of the Surviving Corporation (or their earlier resignation or
removal) and until their respective successors are duly elected and qualified,
as the case may be.
ARTICLE II
EFFECT OF THE MERGER ON THE STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
Section 2.1. Effect on Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of Sub, MDC or the holders of any
securities of MDC or Sub:
(a) Cancelation of MDC-Owned Stock and Boeing-Owned Stock. Each share
of MDC Common Stock that is owned directly by MDC or by Boeing shall
automatically be canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor.
(b) Conversion of MDC Common Stock. Subject to Section 2.2(e), each
issued and outstanding share of MDC Common Stock (other than shares to be
canceled in accordance with Section 2.1(a)) shall be converted into .65 of
a fully paid and nonassessable share of Boeing Common Stock, together with
the associated Boeing Right (as defined in Section 5.2; unless the context
otherwise requires, all references herein to Boeing Common Stock include
the associated Boeing Rights) (the "Merger Consideration"). As of the
Effective Time, all such shares of MDC Common Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
MDC Common Stock (the "Certificates") shall cease to have any rights with
respect thereto, except the right to receive (i) certificates representing
the number of whole shares of Boeing Common Stock into which such shares
have been converted ("Boeing Certificates"), (ii) certain dividends and
other distributions in accordance with Section 2.2(c) and (iii) cash in
lieu of fractional shares of Boeing Common Stock in accordance with Section
2.2(e), without interest.
(c) Conversion of Common Stock of Sub. Each issued and outstanding
share of common stock, par value $1.00 per share, of Sub shall be converted
into one validly issued, fully paid and nonassessable share of common stock
of the Surviving Corporation.
Section 2.2. Exchange of Certificates. (a) Exchange Agent. As of the
Effective Time, Boeing shall enter into an agreement with such bank or trust
company as may be designated by Boeing and as shall be reasonably satisfactory
to MDC (the "Exchange Agent"), which shall provide that Boeing shall deposit
with the Exchange Agent as of the Effective Time, for the benefit of the holders
of shares of MDC Common Stock, for exchange in accordance with this Article II,
through the Exchange Agent, Boeing Certificates representing the number of whole
shares of Boeing Common Stock (such shares of Boeing Common Stock, together with
any dividends or distributions with respect thereto with a record date after the
Effective Time, any Excess Shares (as defined in Section 2.2(e)) and any cash
(including cash proceeds from the sale of the Excess Shares) payable in lieu of
any fractional shares of Boeing Common Stock being hereinafter referred to as
the "Exchange Fund") issuable pursuant to Section 2.1 in exchange for
outstanding shares of MDC Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
Certificate whose shares were converted into the Merger
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Consideration, pursuant to Section 2.1, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as Boeing and MDC
may reasonably specify) and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for the Merger Consideration. Upon surrender of
a Certificate for cancelation to the Exchange Agent, together with such letter
of transmittal, duly executed, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate shall be entitled
to receive in exchange therefor a Boeing Certificate representing that number of
whole shares of Boeing Common Stock which such holder has the right to receive
pursuant to the provisions of this Article II, certain dividends or other
distributions in accordance with Section 2.2(c) and cash in lieu of any
fractional share in accordance with Section 2.2(e), and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of ownership
of MDC Common Stock which is not registered in the transfer records of MDC, a
Boeing Certificate representing the proper number of shares of Boeing Common
Stock may be issued to a person other than the person in whose name the
Certificate so surrendered is registered if such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person requesting
such issuance shall pay any transfer or other nonincome taxes required by reason
of the issuance of shares of Boeing Common Stock to a person other than the
registered holder of such Certificate or establish to the satisfaction of Boeing
that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.2, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender Boeing Certificates representing the number of whole shares of Boeing
Common Stock into which the shares of MDC Common Stock formerly represented by
such Certificate have been converted, certain dividends or other distributions
in accordance with Section 2.2(c) and cash in lieu of any fractional share in
accordance with Section 2.2(e). No interest will be paid or will accrue on any
cash payable to holders of Certificates pursuant to the provisions of this
Article II.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to Boeing Common Stock with a record date after
the Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the shares of Boeing Common Stock represented thereby, and no
cash payment in lieu of fractional shares shall be paid to any such holder
pursuant to Section 2.2(e), and all such dividends, other distributions and cash
in lieu of fractional shares of Boeing Common Stock shall be paid by Boeing to
the Exchange Agent and shall be included in the Exchange Fund, in each case
until the surrender of such Certificate in accordance with this Article II.
Subject to the effect of applicable escheat or similar laws, following surrender
of any such Certificate there shall be paid to the holder of the Boeing
Certificate representing whole shares of Boeing Common Stock issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Boeing Common Stock and
the amount of any cash payable in lieu of a fractional share of Boeing Common
Stock to which such holder is entitled pursuant to Section 2.2(e) and (ii) at
the appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to such surrender and with
a payment date subsequent to such surrender payable with respect to such whole
shares of Boeing Common Stock. Boeing shall make available to the Exchange Agent
cash for these purposes.
(d) No Further Ownership Rights in MDC Common Stock. All shares of Boeing
Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms of this Article II (including any cash paid pursuant
to this Article II) shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the shares of MDC Common Stock
theretofore represented by such Certificates, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other distributions
with a record date prior to the Effective Time which may have been authorized or
made by MDC on such shares of MDC Common Stock which remain unpaid at the
Effective Time, and there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of MDC Common
Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation or
the Exchange Agent for any reason, they shall be canceled and exchanged as
provided in this Article II, except as otherwise provided by law.
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(e) No Fractional Shares. (i) No Boeing Certificates or scrip representing
fractional shares of Boeing Common Stock shall be issued upon the surrender for
exchange of Certificates, no dividend or distribution of Boeing shall relate to
such fractional share interests and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of Boeing.
(ii) As promptly as practicable following the Effective Time, the Exchange
Agent will determine the excess of (A) the number of whole shares of Boeing
Common Stock delivered to the Exchange Agent by Boeing pursuant to Section
2.2(a) over (B) the aggregate number of whole shares of Boeing Common Stock to
be distributed to holders of MDC Common Stock pursuant to Section 2.2(b) (such
excess being herein called the "Excess Shares"). Following the Effective Time,
the Exchange Agent will, on behalf of former stockholders of MDC, sell the
Excess Shares at then-prevailing prices on the New York Stock Exchange, Inc.
(the "NYSE"), all in the manner provided in Section 2.2(e)(iii).
(iii) The sale of the Excess Shares by the Exchange Agent will be executed
on the NYSE through one or more member firms of the NYSE and will be executed in
round lots to the extent practicable. The Exchange Agent will use reasonable
efforts to complete the sale of the Excess Shares as promptly following the
Effective Time as, in the Exchange Agent's sole judgment, is practicable
consistent with obtaining the best execution of such sales in light of
prevailing market conditions. Until the net proceeds of such sale or sales have
been distributed to the holders of MDC Common Stock, the Exchange Agent will
hold such proceeds in trust for the holders of MDC Common Stock (the "Common
Shares Trust"). The Surviving Corporation will pay all commissions, transfer
taxes and other out-of-pocket transaction costs, including the expenses and
compensation of the Exchange Agent incurred in connection with such sale of the
Excess Shares. The Exchange Agent will determine the portion of the Common
Shares Trust to which each holder of MDC Common Stock is entitled, if any, by
multiplying the amount of the aggregate net proceeds comprising the Common
Shares Trust by a fraction, the numerator of which is the amount of the
fractional share interest to which such holder of MDC Common Stock is entitled
(after taking into account all shares of MDC Common Stock held at the Effective
Time by such holder) and the denominator of which is the aggregate amount of
fractional share interests to which all holders of MDC Common Stock are
entitled.
(iv) Notwithstanding the provisions of Section 2.2(e)(ii) and (iii), the
Surviving Corporation may elect at its option, exercised prior to the Effective
Time, in lieu of the issuance and sale of Excess Shares and the making of the
payments hereinabove contemplated, to pay each holder of MDC Common Stock an
amount in cash equal to the product obtained by multiplying (A) the fractional
share interest to which such holder (after taking into account all shares of MDC
Common Stock held at the Effective Time by such holder) would otherwise be
entitled by (B) the closing price for a share of Boeing Common Stock as reported
on the NYSE Composite Transaction Tape (as reported in The Wall Street Journal,
or, if not reported thereby, any other authoritative source) on the Closing
Date, and, in such case, all references herein to the cash proceeds of the sale
of the Excess Shares and similar references will be deemed to mean and refer to
the payments calculated as set forth in this Section 2.2(e)(iv).
(v) As soon as practicable after the determination of the amount of cash,
if any, to be paid to holders of MDC Common Stock with respect to any fractional
share interests, the Exchange Agent will make available such amounts to such
holders of MDC Common Stock subject to and in accordance with the terms of
Section 2.2(c).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time shall be delivered to Boeing, upon demand, and any holders of
the Certificates who have not theretofore complied with this Article II shall
thereafter look only to Boeing for payment of their claim for Merger
Consideration or shares, any cash in lieu of fractional shares of Boeing Common
Stock and any dividends or distributions with respect to Boeing Common Stock.
(g) No Liability. None of Boeing, MDC, Sub or the Exchange Agent shall be
liable to any person in respect of any shares of Boeing Common Stock (or
dividends or distributions with respect thereto) or cash from the Exchange Fund
in each case delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. If any Certificate shall not have been
surrendered prior to seven years after
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the Effective Time (or immediately prior to such earlier date on which any
Merger Consideration, any cash payable to the holder of such Certificate
pursuant to this Article II or any dividends or distributions payable to the
holder of such Certificate would otherwise escheat to or become the property of
any governmental body or authority) any such Merger Consideration or cash,
dividends or distributions in respect of such Certificate shall, to the extent
permitted by applicable law, become the property of the Surviving Corporation,
free and clear of all claims or interest of any person previously entitled
thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by Boeing, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
Boeing.
(i) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration and, if applicable, any cash in lieu of fractional shares, and
unpaid dividends and distributions on shares of Boeing Common Stock deliverable
in respect thereof, pursuant to this Agreement.
ARTICLE III
STOCKHOLDER APPROVAL; BOARD
OF DIRECTORS OF BOEING
Section 3.1. Stockholder Approval. Subject to the terms and conditions
contained herein, (i) this Agreement shall be submitted for approval to the
holders of shares of MDC Common Stock at a meeting to be duly held for this
purpose by MDC (the "MDC Meeting"), and (ii) the issuance of Boeing Common Stock
in connection with the Merger (the "Share Issuance"), shall be submitted for
approval to the holders of shares of Boeing Common Stock at a meeting to be duly
held for this purpose by Boeing (the "Boeing Meeting"). MDC and Boeing shall
coordinate and cooperate with respect to the timing of such meetings and shall
endeavor to hold such meetings on the same day and as soon as practicable after
the date hereof. MDC and Boeing shall recommend that their respective
stockholders approve such matters and such recommendation shall be contained in
the Joint Proxy Statement (as defined in Section 4.11), except, in the case of
MDC, to the extent that the Board of Directors of MDC shall have withdrawn or
modified its approval or recommendation of this Agreement or the Merger and
terminated this Agreement in accordance with Section 8.1(e). Nothing contained
in the preceding sentence shall prohibit MDC from taking and disclosing to its
stockholders a position contemplated by Rule 14e2(a) promulgated under the
Exchange Act (as defined in Section 4.3) or from making any disclosure to MDC or
MDC's stockholders if, in the good faith judgment of the Board of Directors of
MDC, after consultation with outside counsel, failure so to disclose would be
inconsistent with its duties to MDC or MDC's stockholders under applicable law;
provided, however, neither MDC nor its Board of Directors nor any committee
thereof shall, except as permitted by the preceding sentence, withdraw or
modify, or propose publicly to its position with respect to this Agreement or
the Merger or approve or recommend, or propose publicly to approve or recommend,
a Takeover Proposal (as defined in Section 6.9).
Section 3.2. Board of Directors of Boeing. The Board of Directors of
Boeing shall take all action necessary immediately following the Effective Time
to fix the number of directors constituting the Board of Directors at between 12
and 15 members. The Board of Directors of MDC shall select from among the
current members of the Board of Directors of MDC such number (rounded up to the
next whole number) of individuals acceptable to Boeing for nomination as
directors of Boeing as shall constitute one-third of the total number of members
of the Board of Directors of Boeing immediately following the Effective Time. If
an individual so selected consents to serve as a director, such individual shall
be elected as a director of Boeing (and shall be assigned to such class of
directors such that, after giving effect to the election of all the directors of
MDC to be elected to the Board of Directors of Boeing pursuant to the preceding
sentence and the assignment of each such director to a class, the directors of
MDC elected to the Board of Directors of Boeing
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shall be allocated as equally as practicable among the different classes of the
Board of Directors of Boeing), effective as of the Effective Time, for a term
expiring at Boeing's next annual meeting of stockholders following the Effective
Time at which the term of the class to which such director belongs expires,
subject to being renominated as a director at the discretion of Boeing's Board
of Directors.
Section 3.3. Officers of Boeing. Immediately following the Effective
Time, Philip Condit shall be the Chairman of the Board and the Chief Executive
Officer and Harry Stonecipher shall be the President and the Chief Operating
Officer of Boeing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MDC
MDC represents and warrants to Boeing and Sub that:
Section 4.1. Organization, Qualification, Etc. MDC is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland and has the corporate power and authority to own its properties and
assets and to carry on its business as it is now being conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the ownership of its properties or the conduct of its business requires such
qualification, except for jurisdictions in which such failure to be so qualified
or to be in good standing would not, individually or in the aggregate, have a
Material Adverse Effect (as hereinafter defined) on MDC. As used in this
Agreement, any reference to any state of facts, event, change or effect having a
"Material Adverse Effect" on or with respect to MDC or Boeing, as the case may
be, means such state of facts, event, change or effect that has had, or would
reasonably be expected to have, a material adverse effect on the business,
results of operations or financial condition of MDC and its Subsidiaries (as
defined in Section 9.11), taken as a whole, or Boeing and its Subsidiaries,
taken as a whole, as the case may be. The copies of MDC's charter and by-laws
which have been delivered to Boeing are complete and correct and in full force
and effect on the date hereof. Each of MDC's Significant Subsidiaries (as
defined in Section 9.11) is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation or
organization, has the power and authority to own its properties and to carry on
its business as it is now being conducted, and is duly qualified to do business
and is in good standing in each jurisdiction in which the ownership of its
property or the conduct of its business requires such qualification, except for
jurisdictions in which such failure to be so qualified or to be in good standing
would not, individually or in the aggregate, have a Material Adverse Effect on
MDC. All the outstanding shares of capital stock of, or other ownership
interests in, MDC's Significant Subsidiaries are validly issued, fully paid and
non-assessable and are owned by MDC, directly or indirectly, free and clear of
all liens, claims, charges or encumbrances, except for restrictions contained in
credit agreements and similar instruments to which MDC is a party under which no
event of default has occurred or arisen. There are no existing options, rights
of first refusal, preemptive rights, calls or commitments of any character
relating to the issued or unissued capital stock or other securities of, or
other ownership interests in, any Significant Subsidiary of MDC (other than
rights of first refusal, preemptive rights or similar rights held by MDC with
respect to certain of such Subsidiaries).
Section 4.2. Stock. The authorized stock of MDC consists of 400,000,000
shares of common stock, par value $1.00 per share ("MDC Common Stock"), and
10,000,000 shares of preferred stock, par value $1.00 per share ("MDC Preferred
Stock"), of which 1,000,000 shares have been designated as Series A Junior
Participating Preferred Stock ("MDC Series A Preferred Stock"). As of December
6, 1996, 209,731,625 shares of MDC Common Stock and no shares of MDC Preferred
Stock were issued and outstanding. All the outstanding shares of MDC Common
Stock have been validly issued and are fully paid and non-assessable. As of
December 6, 1996, there were no outstanding subscriptions, options, warrants,
rights or other arrangements or commitments obligating MDC to issue any shares
of its stock other than:
(a) rights to acquire shares of MDC Series A Preferred Stock pursuant
to the Rights Agreement, amended and restated as of May 31, 1996, between
MDC and First Chicago Trust Company of New York (the "MDC Rights Plan");
and
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(b) options and other rights to receive or acquire 1,050,479 shares of
MDC Common Stock granted on or prior to December 6, 1996, pursuant to
employee incentive or benefit plans, programs and arrangements and
non-employee director plans.
Except for the issuance of shares of MDC Common Stock pursuant to the
options and other rights referred to in clause 4.2(b) and except as provided for
in clause 6.1(a)(ix), since December 6, 1996, no shares of MDC Common Stock or
MDC Preferred Stock have been issued.
Section 4.3. Corporate Authority Relative to this Agreement; No
Violation. MDC has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by the Board of Directors of MDC and,
except for the approval of its stockholders, no other corporate proceedings on
the part of MDC are necessary to authorize this Agreement and the transactions
contemplated hereby. The Board of Directors of MDC has determined that the
transactions contemplated by this Agreement are in the best interest of MDC and
its stockholders and to recommend to such stockholders that they vote in favor
thereof. This Agreement has been duly and validly executed and delivered by MDC
and, assuming this Agreement constitutes a valid and binding Agreement of the
other parties hereto, this Agreement constitutes a valid and binding agreement
of MDC, enforceable against MDC in accordance with its terms (except insofar as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, or by principles governing the availability of equitable remedies).
MDC is not subject to or obligated under any charter, bylaw or contract
provision or any licenses, franchise or permit, or subject to any order or
decree, which would be breached or violated by its executing or, subject to the
approval of its stockholders, carrying out this Agreement, except as otherwise
previously disclosed in writing to Boeing and for any breaches or violations
which would not, individually or in the aggregate, have a Material Adverse
Effect on MDC. Other than in connection with or in compliance with the
provisions of the MGCL, the Securities Act of 1933, as amended (the "Securities
Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), Section 4043 of ERISA (as defined in Section 4.8), the Communications Act
of 1934, as amended (the "Communications Act"), any non-United States
competition, antitrust and investment laws and the securities or blue sky laws
of the various states and other than any necessary approvals of the United
States government or any agencies, departments or instrumentalities thereof
(collectively, the "MDC Required Approvals"), no authorization, consent or
approval of, or filing with, any governmental body or authority is necessary for
the consummation by MDC of the transactions contemplated by this Agreement,
except for such authorizations, consents, approvals or filings, the failure to
obtain or make which would not, individually or in the aggregate, have a
Material Adverse Effect on MDC or substantially impair or delay the consummation
of the transactions contemplated hereby; provided that MDC makes no
representation with respect to such of the foregoing as are required by reason
of the regulatory status of Boeing or any of its Subsidiaries or facts
specifically pertaining to any of them.
Section 4.4. Reports and Financial Statements. MDC has previously
furnished to Boeing true and complete copies of:
(a) MDC's Annual Reports on Form 10-K filed with the Securities and
Exchange Commission (the "SEC") for each of the years ended December 31,
1993 through 1995;
(b) MDC's Quarterly Reports on Form 10-Q filed with the SEC for the
quarters ended March 31, June 30 and September 30, 1996;
(c) each definitive proxy statement filed by MDC with the SEC since
December 31, 1993;
(d) each final prospectus filed by MDC with the SEC since December 31,
1993, except any final prospectus on Form S-8; and
(e) all Current Reports on Form 8-K filed by MDC with the SEC since
December 31, 1995.
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Except as previously disclosed in writing to Boeing, as of their respective
dates, such reports, proxy statements and prospectuses (collectively, the "MDC
SEC Reports") (i) complied as to form in all material respects with the
applicable requirements of the Securities Act, the Exchange Act and the rules
and regulations promulgated thereunder and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited consolidated interim financial
statements included in the MDC SEC Reports (including any related notes and
schedules) fairly present the financial position of MDC and its consolidated
Subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods or as of the dates then ended (subject, where appropriate,
to normal year-end adjustments), in each case in accordance with past practice
and generally accepted accounting principles in the United States ("GAAP")
consistently applied during the periods involved (except as otherwise disclosed
in the notes thereto). Since December 31, 1993, MDC has timely filed all
material reports, registration statements and other filings required to be filed
by it with the SEC under the rules and regulations of the SEC. Notwithstanding
anything to the contrary contained in this Section 4.4, no representation or
warranty is made with respect to matters relating to the consent decree dated
June 24, 1996, between MDC and the SEC, the complaint referred to therein and
the matters at issue or referred to in such complaint.
Section 4.5. No Undisclosed Liabilities. Neither MDC nor any of its
Subsidiaries has any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, except (a) liabilities or obligations
reflected in any of the MDC SEC Reports and (b) liabilities or obligations which
would not, individually or in the aggregate, have a Material Adverse Effect on
MDC.
Section 4.6. No Violation of Law. The businesses of MDC and its
Subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any governmental body or authority (provided that no
representation or warranty is made in this Section 4.6 with respect to
Environmental Laws (as hereinafter defined)) except (a) as described in any of
the MDC SEC Reports and (b) for violations or possible violations which would
not, individually or in the aggregate, have a Material Adverse Effect on MDC.
Section 4.7. Environmental Laws and Regulations. Except as described in
any of the MDC SEC Reports, (a) MDC and each of its Subsidiaries is in material
compliance with all applicable federal, state, local and foreign laws and
regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) (collectively, "Environmental Laws"),
except for non-compliance which would not, individually or in the aggregate,
have a Material Adverse Effect on MDC, which compliance includes, but is not
limited to, the possession by MDC and its Subsidiaries of material permits and
other governmental authorizations required under applicable Environmental Laws,
and compliance with the terms and conditions thereof; (b) neither MDC nor any of
its Subsidiaries has received written notice of, or, to the knowledge of MDC, is
the subject of, any actions, causes of action, claims, investigations, demands
or notices by any Person alleging liability under or non-compliance with any
Environmental Law ("Environmental Claims") which would, individually or in the
aggregate, have a Material Adverse Effect on MDC; and (c) to the knowledge of
MDC, there are no circumstances that are reasonably likely to prevent or
interfere with such material compliance in the future.
Section 4.8. No Undisclosed Employee Benefit Plan Liabilities or Severance
Arrangements. Except as described in any of the MDC SEC Reports, all "employee
benefit plans", as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), maintained or contributed to by MDC
or its Subsidiaries are in compliance with all applicable provisions of ERISA
and the Code, and MDC and its Subsidiaries do not have any liabilities or
obligations with respect to any such employee benefit plans, whether or not
accrued, contingent or otherwise, except (a) as described in any of the MDC SEC
Reports or previously disclosed in writing to Boeing and (b) for instances of
non-compliance or liabilities or obligations that would not, individually or in
the aggregate, have a Material Adverse Effect on MDC. Except with respect to (i)
awards granted under the MDC 1994 Performance and Equity Incentive Plan, (ii)
the termination benefit agreements (substantially in the form previously
provided to Boeing) which are in effect on the date hereof or which may be
entered into hereafter in accordance with the approval of the MDC Board prior to
the date hereof (the "Termination Benefit Agreements") and (iii) the Stonecipher
Agreement (as
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defined in Section 4.14), no employee of MDC will be entitled to any additional
benefits or any acceleration of the time of payment or vesting of any benefits
under any employee incentive or benefit plan, program or arrangement as a result
of the transactions contemplated by this Agreement.
Section 4.9. Absence of Certain Changes or Events. Other than as
disclosed in the MDC SEC Reports or previously disclosed in writing to Boeing,
since December 31, 1995 the businesses of MDC and its Subsidiaries have been
conducted in all material respects in the ordinary course and there has not been
any event, occurrence, development or state of circumstances or facts that has
had, or would have, a Material Adverse Effect on MDC.
Section 4.10. Investigations; Litigation. Except as described in any of
the MDC SEC Reports or previously disclosed in writing to Boeing:
(a) no investigation or review by any governmental body or authority
with respect to MDC or any of its Subsidiaries which would, individually or
in the aggregate, have a Material Adverse Effect on MDC is pending nor has
any governmental body or authority notified MDC of an intention to conduct
the same; and
(b) there are no actions, suits or proceedings pending (or, to MDC's
knowledge, threatened) against or affecting MDC or its Subsidiaries, or any
of their respective properties at law or in equity, or before any federal,
state, local or foreign governmental body or authority, which, individually
or in the aggregate, is reasonably likely to have a Material Adverse Effect
on MDC.
Section 4.11. Joint Proxy Statement; Registration Statement; Other
Information. None of the information with respect to MDC or its Subsidiaries to
be included in the Joint Proxy Statement or the Registration Statement (as
defined in Section 6.3(a)) will, in the case of the Joint Proxy Statement or any
amendments thereof or supplements thereto, at the time of the mailing of the
Joint Proxy Statement or any amendments or supplements thereto, and at the time
of the MDC Meeting and the Boeing Meeting, or, in the case of the Registration
Statement, at the time it becomes effective, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by MDC with respect to information supplied in writing by
Boeing or any affiliate of Boeing specifically for inclusion in the Joint Proxy
Statement. The Joint Proxy Statement will comply as to form in all material
respects with the provisions of the Exchange Act and the rules and regulations
promulgated thereunder. The letters to stockholders, notices of meeting, joint
proxy statement and forms of proxies to be distributed to stockholders in
connection with the Merger, the Share Issuance and any schedules required to be
filed with the SEC in connection therewith are collectively referred to herein
as the "Joint Proxy Statement".
Section 4.12. MDC Rights Plan. The Board of Directors of MDC has approved
in writing the acquisition by Boeing of beneficial ownership of voting
securities of MDC and, accordingly, the execution and delivery of this
Agreement, and the consummation of the Merger and the other transactions
contemplated hereby, will not cause (i) Boeing to constitute an "Acquiring
Person" (as such term is defined in the MDC Rights Plan), (ii) a "Distribution
Date" (as such term is defined in the MDC Rights Plan) to occur or (iii) the
rights issued pursuant to the MDC Rights Plan to become exercisable. MDC shall
cause the MDC Rights Plan to be amended such that the "Final Expiration Date"
(as defined in the MDC Rights Plan) shall occur immediately prior to the
Effective Time.
Section 4.13. Lack of Ownership of Boeing Common Stock. Neither MDC nor
any of its Subsidiaries owns any shares of Boeing Common Stock or other
securities convertible into shares of Boeing Common Stock (exclusive of any
shares owned by MDC's employee benefit plans).
Section 4.14. Tax Matters. (a) All federal, state, local and foreign Tax
Returns required to be filed by or on behalf of MDC, each of its Subsidiaries,
and each affiliated, combined, consolidated or unitary group of which MDC or any
of its Subsidiaries is (i) a member (a "Current MDC Group") or (ii) has been a
member within six years prior to the date hereof but is not currently a member,
but only insofar as any such Tax relates to a taxable period ending on a date
within the last six years (a "Past MDC Group", together with
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Current MDC Groups, an "MDC Affiliated Group") have been timely filed, and all
returns filed are complete and accurate except to the extent any failure to file
or any inaccuracies in filed returns would not, individually or in the
aggregate, have a Material Adverse Effect on MDC (it being understood that the
representations made in this Section, to the extent that they relate to Past MDC
Groups, are made to the knowledge of MDC). All Taxes due and owing by MDC, any
Subsidiary of MDC or any MDC Affiliated Group have been paid, or adequately
reserved for, except to the extent any failure to pay or reserve would not,
individually or in the aggregate, have a Material Adverse Effect on MDC. There
is no audit examination, deficiency, refund litigation, proposed adjustment or
matter in controversy with respect to any Taxes due and owing by MDC, any
Subsidiary of MDC or any MDC Affiliated Group which would, individually or in
the aggregate, have a Material Adverse Effect on MDC. All assessments for Taxes
due and owing by MDC, any Subsidiary of MDC or any MDC Affiliated Group with
respect to completed and settled examinations or concluded litigation have been
paid. As soon as practicable after the public announcement of the Merger
Agreement, MDC will provide Boeing with written schedules of (i) the taxable
years of MDC for which the statutes of limitations with respect to federal
income Taxes, have not expired, and (ii) with respect to federal income Taxes
those years for which examinations have been completed, those years for which
examinations are presently being conducted, and those years for which
examinations have not yet been initiated. MDC and each of its Subsidiaries has
complied in all material respects with all rules and regulations relating to the
withholding of Taxes, except to the extent any such failure to comply would not,
individually or in the aggregate, have a Material Adverse Effect on MDC.
(b) Neither MDC nor any of its Subsidiaries knows of any fact or has taken
any action that could reasonably be expected to prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the Code.
(c) Except with respect to awards granted under the MDC 1994 Performance
and Equity Incentive Plan, the Termination Benefit Agreements and the Employment
Agreement dated September 24, 1994 between MDC and Harry Stonecipher, as amended
(the "Stonecipher Agreement"), any amount or other entitlement that could be
received (whether in cash or property or the vesting of property) as a result of
any of the transactions contemplated by this Agreement by any employee, officer
or director of MDC or any of its affiliates who is a "disqualified individual"
(as such term is defined in proposed Treasury Regulation Section 1.280G-1) under
any employee benefit plan or other compensation arrangement currently in effect
would not be characterized as an "excess parachute payment" or a "parachute
payment" (as such terms are defined in Section 280G(b)(1) of the Code).
For purposes of this Agreement: (i) "Taxes" means any and all federal,
state, local, foreign or other taxes of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any taxing authority, including, without limitation,
taxes or other charges on or with respect to income, franchises, windfall or
other profits, gross receipts, property, sales, use, capital stock, payroll,
employment, social security, workers' compensation, unemployment compensation,
or net worth, and taxes or other charges in the nature of excise, withholding,
ad valorem or value added, and (ii) "Tax Return" means any return, report or
similar statement (including the attached schedules) required to be filed with
respect to any Tax, including, without limitation, any information return, claim
for refund, amended return or declaration of estimated Tax.
Section 4.15. Opinion of Financial Advisor. The Board of Directors of MDC
has received the opinion of J.P. Morgan Securities Inc., dated the date of this
Agreement, to the effect that, as of such date, the exchange ratio is fair to
MDC's stockholders from a financial point of view. A copy of the written opinion
of J.P. Morgan Securities Inc. will be delivered to Boeing as soon as
practicable after the date of this Agreement.
Section 4.16. Required Vote of MDC Stockholders. The affirmative vote of
the holders of two-thirds of the outstanding shares of MDC Common Stock is
required to approve the Merger. No other vote of the stockholders of MDC is
required by law, the charter or by-laws of MDC or otherwise in order for MDC to
consummate the Merger and the transactions contemplated hereby.
Section 4.17. Pooling of Interests. To the knowledge of MDC, neither it
nor any of its Subsidiaries has taken any action or failed to take any action
which action or failure (without giving effect to any actions or
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failures to act by Boeing or any of its Subsidiaries) would prevent the
treatment of the Merger as a pooling of interests for accounting purposes,
except as previously disclosed in writing to Boeing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BOEING AND SUB
Boeing and Sub represent and warrant to MDC that:
Section 5.1. Organization, Qualification, Etc. Each of Boeing and Sub is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization and has the corporate power and authority to
own its properties and assets and to carry on its business as it is now being
conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the ownership of its properties or the conduct of its
business requires such qualification, except for jurisdictions in which such
failure to be so qualified or to be in good standing would not, individually or
in the aggregate, have a Material Adverse Effect on Boeing. The copies of
Boeing's Restated Certificate of Incorporation and by-laws and Sub's articles of
incorporation and by-laws which have been delivered to MDC are complete and
correct and in full force and effect on the date hereof. Each of Boeing's
Significant Subsidiaries is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, has the power and
authority to own its properties and to carry on its business as it is now being
conducted, and is duly qualified to do business and is in good standing in each
jurisdiction in which the ownership of its property or the conduct of its
business requires such qualification, except for jurisdictions in which such
failure to be so qualified or to be in good standing would not, individually or
in the aggregate, have a Material Adverse Effect on Boeing. All the outstanding
shares of capital stock of, or other ownership interests in, Boeing's
Significant Subsidiaries and Sub are validly issued, fully paid and
non-assessable and are owned by Boeing, directly or indirectly, free and clear
of all liens, claims, charges or encumbrances, except for restrictions contained
in credit agreements and similar instruments to which Boeing is a party under
which no event of default has occurred or arisen. There are no existing options,
rights of first refusal, preemptive rights, calls or commitments of any
character relating to the issued or unissued capital stock or other securities
of, or other ownership interests in, any Significant Subsidiary of Boeing or Sub
(other than rights of first refusal, preemptive rights or similar rights held by
Boeing with respect to certain of such Subsidiaries).
Section 5.2. Capital Stock. Except as previously disclosed in writing to
MDC, the authorized capital stock of Boeing consists of 600,000,000 shares of
common stock, par value $5.00 per share ("Boeing Common Stock"), and 10,000,000
shares of preferred stock, par value $1.00 per share ("Boeing Preferred Stock"),
of which 6,000,000 shares were designated as Series A Junior Participating
Preferred Stock ("Boeing Series A Preferred Stock"). The shares of Boeing Common
Stock to be issued in the Merger or upon the exercise of MDC stock options,
warrants, conversion rights or other rights or vesting or payment of other MDC
equity-based awards thereafter will, when issued, be validly issued fully paid
and non-assessable. As of December 13, 1996, 349,384,515 shares of Boeing Common
Stock and no shares of Boeing Preferred Stock were issued and outstanding,
9,194,044 shares of Boeing Common Stock were reserved for issuance in connection
with the acquisition of the aerospace and defense businesses of Rockwell
International Corporation (the "Rockwell A&D Acquisition") and 4,689 shares of
Boeing Common Stock were held in Boeing's treasury. All the outstanding shares
of Boeing Common Stock have been validly issued and are fully paid and
non-assessable. Included in the number of shares of Boeing Common Stock that
were issued and outstanding are 11,326,943 shares held in the Boeing ShareValue
Trust, which shares are legally outstanding and entitled to receive dividends.
As of November 30, 1996, there were no outstanding subscriptions, options,
warrants, rights or other arrangements or commitments obligating Boeing to issue
any shares of its capital stock other than:
(a) rights ("Boeing Rights") to acquire shares of Boeing Series A
Preferred Stock pursuant to the Rights Agreement, dated as of July 27,
1987, between Boeing and The First National Bank of Boston (the "Boeing
Rights Plan"); and
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(b) options and other rights to receive or acquire 14,004,086 shares
of Boeing Common Stock granted on or prior to November 30, 1996, pursuant
to employee incentive or benefit plans, programs and arrangements and
non-employee director plans.
Except for the issuance of shares of Boeing Common Stock pursuant to the
options and other rights referred to in clause 5.2(b) and for the issuance of
shares of Boeing Common Stock pursuant to the Rockwell A&D Acquisition and
except as provided for in clause 6.1(b)(viii), since November 30, 1996, no
shares of Boeing Common Stock or Boeing Preferred Stock have been issued.
Section 5.3. Corporate Authority Relative to this Agreement; No
Violation. Each of Boeing and Sub has the corporate power and authority to
enter into this Agreement and to carry out its obligations hereunder. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Boards of Directors of Boeing and Sub and, except for the approval of the
stockholders of Boeing of the Share Issuance, no other corporate proceedings on
the part of Boeing or Sub are necessary to authorize this Agreement and the
transactions contemplated hereby. The Board of Directors of Boeing has
determined that the transactions contemplated by this Agreement are in the best
interest of Boeing and its stockholders and to recommend to such stockholders
that they vote in favor thereof. This Agreement has been duly and validly
executed and delivered by Boeing and Sub and, assuming this Agreement
constitutes a valid and binding Agreement of the other parties hereto, this
Agreement constitutes a valid and binding agreement of Boeing and Sub,
enforceable against each of them in accordance with its terms (except insofar as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, or by principles governing the availability of equitable remedies).
Neither Boeing nor Sub is subject to or obligated under any charter, by-law or
contract provision or any license, franchise or permit, or subject to any order
or decree, which would be breached or violated by its executing or, subject to
the approval by the stockholders of Boeing of the Share Issuance, carrying out
this Agreement, except for any breaches or violations which would not,
individually or in the aggregate, have a Material Adverse Effect on Boeing.
Other than in connection with or in compliance with the provisions of the MGCL,
the Delaware General Corporation Law, the Securities Act, the Exchange Act, the
HSR Act, Section 4043 of ERISA, the Communications Act, any non-United States
competition, antitrust and investments laws and the securities or blue sky laws
of the various states and other than any necessary approvals of the United
States government or any agencies, departments or instrumentalities thereof
(collectively, the "Boeing Required Approvals"), no authorization, consent or
approval of, or filing with, any governmental body or authority is necessary for
the consummation by Boeing of the transactions contemplated by this Agreement,
except for such authorizations, consents, approvals or filings, the failure to
obtain or make which would not, individually or in the aggregate, have a
Material Adverse Effect on Boeing or substantially impair or delay the
consummation of the transactions contemplated hereby; provided that Boeing makes
no representation with respect to such of the foregoing as are required by
reason of the regulatory status of MDC or any of its Subsidiaries or facts
specifically pertaining to any of them.
Section 5.4. Reports and Financial Statements. Boeing has previously
furnished to MDC true and complete copies of:
(a) Boeing's Annual Reports on Form 10-K filed with the SEC for each
of the years ended December 31, 1993 through 1995;
(b) Boeing's Quarterly Reports on Form 10-Q filed with the SEC for the
quarters ended March 31, June 30 and September 30, 1996;
(c) each definitive proxy statement filed by Boeing with the SEC since
December 31, 1993;
(d) each final prospectus filed by Boeing with the SEC since December
31, 1993, except any final prospectus on Form S-8; and
(e) all Current Reports on Form 8-K filed by Boeing with the SEC since
December 31, 1995.
As of their respective dates, such reports, proxy statements and
prospectuses (collectively, "Boeing SEC Reports") (i) complied as to form in all
material respect with the applicable requirements of the Securities
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Act, the Exchange Act, and the rules and regulations promulgated thereunder and
(ii) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited consolidated financial statements and unaudited
consolidated interim financial statements included in the Boeing SEC Reports
(including any related notes and schedules) fairly present the financial
position of Boeing and its consolidated Subsidiaries as of the dates thereof and
the results of their operations and their cash flows for the periods or as of
the dates then ended (subject, where appropriate, to normal year-end
adjustments), in each case in accordance with past practice and GAAP
consistently applied during the periods involved (except as otherwise disclosed
in the notes thereto). Since December 31, 1993, Boeing has timely filed all
material reports, registration statements and other filings required to be filed
by it with the SEC under the rules and regulations of the SEC.
Section 5.5. No Undisclosed Liabilities. Neither Boeing nor any of its
Subsidiaries has any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, except (a) liabilities or obligations
reflected in any of the Boeing SEC Reports and (b) liabilities or obligations
which would not, individually or in the aggregate, have a Material Adverse
Effect on Boeing.
Section 5.6. No Violation of Law. The businesses of Boeing and its
Subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any governmental body or authority (provided that no
representation or warranty is made in this Section 5.6 with respect to
Environmental Laws) except (a) as described in any of the Boeing SEC Reports and
(b) for violations or possible violations which would not, individually or in
the aggregate, have a Material Adverse Effect on Boeing.
Section 5.7. Environmental Laws and Regulations. Except as described in
any of the Boeing SEC Reports, (a) Boeing and each of its Subsidiaries is in
material compliance with all applicable Environmental Laws, except for
non-compliance which would not, individually or in the aggregate, have a
Material Adverse Effect on Boeing, which compliance includes, but is not limited
to, the possession by Boeing and its Subsidiaries of material permits and other
governmental authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof; (b) neither Boeing nor any of
its Subsidiaries has received written notice of, or, to the knowledge of Boeing,
is the subject of, any Environmental Claims which would, individually or in the
aggregate, have a Material Adverse Effect on Boeing; and (c) to the knowledge of
Boeing, there are no circumstances that are reasonably likely to prevent or
interfere with such material compliance in the future.
Section 5.8. No Undisclosed Employee Benefit Plan Liabilities or Severance
Arrangements. Except as described in any of the Boeing SEC Reports, all
"employee benefit plans", as defined in Section 3(3) of ERISA, maintained or
contributed to by Boeing or its Subsidiaries are in compliance with all
applicable provisions of ERISA and the Code, and Boeing and its Subsidiaries do
not have any liabilities or obligations with respect to any such employee
benefit plans, whether or not accrued, contingent or otherwise, except (a) as
described in any of the Boeing SEC Reports and (b) for instances of
non-compliance or liabilities or obligations that would not, individually or in
the aggregate, have a Material Adverse Effect on Boeing. No employee of Boeing
will be entitled to any additional benefits or any acceleration of the time of
payment or vesting of any benefits under any employee incentive or benefit plan,
program or arrangement as a result of the transactions contemplated by this
Agreement.
Section 5.9. Absence of Certain Changes or Events. Other than as
disclosed in the Boeing SEC Reports, since December 31, 1995 the businesses of
Boeing and its Subsidiaries have been conducted in all material respects in the
ordinary course and there has not been any event, occurrence, development or
state of circumstances or facts that has had, or would have, a Material Adverse
Effect on Boeing.
Section 5.10. Investigations; Litigation. Except as described in any of
the Boeing SEC Reports or previously disclosed in writing to MDC:
(a) no investigation or review by any governmental body or authority
with respect to Boeing or any of its Subsidiaries which would, individually
or in the aggregate, have a Material Adverse Effect on
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Boeing is pending nor has any governmental body or authority notified
Boeing of an intention to conduct the same; and
(b) there are no actions, suits or proceedings pending (or, to
Boeing's knowledge, threatened) against or affecting Boeing or its
Subsidiaries, or any of their respective properties at law or in equity, or
before any federal, state, local or foreign governmental body or authority
which, individually or in the aggregate, is reasonably likely to have a
Material Adverse Effect on Boeing.
Section 5.11. Joint Proxy Statement; Registration Statement; Other
Information. None of the information with respect to Boeing or its Subsidiaries
to be included in the Joint Proxy Statement or the Registration Statement will,
in the case of the Joint Proxy Statement or any amendments thereof or
supplements thereto, at the time of the mailing of the Joint Proxy Statement or
any amendments or supplements thereto, and at the time of the MDC Meeting and
the Boeing Meeting, or, in the case of the Registration Statement, at the time
it becomes effective, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, except that no representation is made by Boeing with
respect to information supplied in writing by MDC or any affiliate of MDC
specifically for inclusion in the Joint Proxy Statement. The Joint Proxy
Statement will comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations promulgated thereunder.
Section 5.12. Lack of Ownership of MDC Common Stock. Neither Boeing nor
any of its Subsidiaries owns any shares of MDC Common Stock or other securities
convertible into shares of MDC Common Stock (exclusive of any shares owned by
Boeing's employee benefit plans).
Section 5.13. Boeing Rights Plan. Under the terms of the Boeing Rights
Plan, the transactions contemplated by this Agreement will not cause a
Distribution Date (as such term is defined in the Boeing Rights Plan) to occur
or cause the rights issued pursuant to the Boeing Rights Plan to become
exercisable.
Section 5.14. Tax Matters. (a) All federal, state, local and foreign Tax
Returns required to be filed by or on behalf of Boeing, each of its
Subsidiaries, and each affiliated, combined, consolidated or unitary group of
which Boeing or any of its Subsidiaries is (i) a member (a "Current Boeing
Group") or (ii) has been a member within six years prior to the date hereof but
is not currently a member, but only insofar as any such Tax relates to a taxable
period ending on a date within the last six years (a "Past Boeing Group",
together with Current Boeing Groups, a "Boeing Affiliated Group") have been
timely filed, and all returns filed are complete and accurate except to the
extent any failure to file or any inaccuracies in filed returns would not,
individually or in the aggregate, have a Material Adverse Effect on Boeing (it
being understood that the representations made in this Section, to the extent
that they relate to Past Boeing Groups, are made to the knowledge of Boeing).
All Taxes due and owing by Boeing, any Subsidiary of Boeing or any Boeing
Affiliated Group have been paid, or adequately reserved for, except to the
extent any failure to pay or reserve would not, individually or in the
aggregate, have a Material Adverse Effect on Boeing. There is no audit
examination, deficiency, refund litigation, proposed adjustment or matter in
controversy with respect to any Taxes due and owing by Boeing, any Subsidiary of
Boeing or any Boeing Affiliated Group which would, individually or in the
aggregate, have a Material Adverse Effect on Boeing. All assessments for Taxes
due and owing by Boeing, any Subsidiary of Boeing or any Boeing consolidated
group with respect to completed and settled examinations or concluded litigation
have been paid. As soon as practicable after the public announcement of the
Merger Agreement, Boeing will provide MDC with written schedules of (i) the
taxable years of Boeing for which the statutes of limitations with respect to
federal income Taxes have not expired, and (ii) with respect to federal income
Taxes, those years for which examinations have been completed, those years for
which examinations are presently being conducted, and those years for which
examinations have not yet been initiated. Boeing and each of its Subsidiaries
has complied in all material respects with all rules and regulations relating to
the withholding of Taxes, except to the extent any such failure to comply would
not, individually or in the aggregate, have a Material Adverse Effect on Boeing.
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(b) Neither Boeing nor any of its Subsidiaries knows of any fact or has
taken any action that could reasonably be expected to prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the Code.
(c) Any amount or other entitlement that could be received (whether in cash
or property or the vesting of property) as a result of any of the transactions
contemplated by this Agreement by any employee, officer or director of Boeing or
any of its affiliates who is a "disqualified individual" (as such term is
defined in proposed Treasury Regulation Section 1.280G-1) under any employee
benefit plan or other compensation arrangement currently in effect would not be
characterized as an "excess parachute payment" or a "parachute payment" (as such
terms are defined in Section 280G(b)(1) of the Code).
Section 5.15. Opinion of Financial Advisor. The Board of Directors of
Boeing has received the opinion of CS First Boston Corporation, dated the date
of this Agreement to the effect that, as of such date, the exchange ratio is
fair to Boeing from a financial point of view. A copy of the written opinion of
CS First Boston Corporation will be delivered to MDC as soon as practicable
after the date of this Agreement.
Section 5.16. Required Vote of Boeing Stockholders. The affirmative vote
of the holders of a majority of the shares of Boeing Common Stock voted at the
Boeing Meeting is required to approve the Share Issuance; provided that holders
of a majority of the outstanding shares of Boeing Common Stock are present, in
person or by proxy, at the Boeing Meeting and vote upon the Share Issuance. No
other vote of the stockholders of Boeing is required by law, the charter or
by-laws of Boeing or otherwise in order for Boeing to consummate the Merger and
the transactions contemplated hereby.
Section 5.17. Pooling of Interests. To the knowledge of Boeing, neither
it nor any of its Subsidiaries has taken any action or failed to take any action
which action or failure (without giving effect to any actions or failures to act
by MDC or any of its Subsidiaries) would prevent the treatment of the Merger as
a pooling of interests for accounting purposes.
ARTICLE VI
COVENANTS AND AGREEMENTS
It is further agreed as follows:
Section 6.1. Conduct of Business by MDC or Boeing. Prior to the Effective
Time or the date, if any, on which this Agreement is earlier terminated pursuant
to Section 8.1 (the "Termination Date"), and except as may be agreed to by the
other parties hereto or as may be permitted pursuant to this Agreement:
(a) MDC:
(i) shall, and shall cause each of its Subsidiaries to, conduct its
operations according to their ordinary and usual course of business in
substantially the same manner as heretofore conducted;
(ii) shall use its reasonable best efforts, and cause each of its
Subsidiaries to use its reasonable best efforts, to preserve intact its
business organizations and goodwill in all material respects, keep
available the services of its officers and employees as a group, subject
to changes in the ordinary course, and maintain satisfactory
relationships with suppliers, distributors, customers and others having
business relationships with them;
(iii) shall confer at such times as Boeing may reasonably request
with one or more representatives of Boeing to report material
operational matters and the general status of ongoing operations (to the
extent Boeing reasonably requires such information);
(iv) shall notify Boeing of any emergency or other change in the
normal course of its or its Subsidiaries' respective businesses or in
the operation of its or its Subsidiaries' respective properties and of
any complaints, investigations or hearings (or communications indicating
that the same may be contemplated) of any governmental body or authority
if such emergency, change, complaint, investigation or hearing would
have a Material Adverse Effect on MDC;
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(v) shall not, and shall not (except in the ordinary course of
business consistent with past practice) permit any of its Subsidiaries
that is not wholly owned, to authorize or pay any dividends on or make
any distribution with respect to its outstanding shares of stock other
than regular quarterly dividends of $.12 per share on MDC Common Stock
made in the ordinary course consistent with past practice;
(vi) shall not, and shall not permit any of its Subsidiaries to,
except (i) in the ordinary course of business consistent with past
practice, (ii) as otherwise provided in this Agreement, (iii) as
previously disclosed in writing to Boeing or (iv) for the Termination
Benefit Agreements, enter into or amend any employment, severance or
similar agreements or arrangements with any of their respective
directors or executive officers;
(vii) shall not, and shall not permit any of its Subsidiaries to,
authorize, propose or announce an intention to authorize or propose, or
enter into an agreement with respect to, any merger, consolidation or
business combination (other than the Merger and any mergers,
consolidations or business combinations with MDC's Subsidiaries entered
into in the ordinary course of business consistent with past practice),
any acquisition of a material amount of assets or securities, any
disposition of a material amount of assets or securities or any release
or relinquishment of any material contract rights not in the ordinary
course of business;
(viii) shall not propose or adopt any amendments to its corporate
charter or by-laws;
(ix) shall not, and shall not permit any of its Significant
Subsidiaries to, issue any shares of their capital stock, except upon
exercise of rights or options issued pursuant to existing employee
incentive or benefit plans, programs or arrangements and non-employee
director plans (including, without limitation, shares issued in
connection with stock grants or awards or the exercise of rights or
options granted in the ordinary course of business consistent with past
practice pursuant to such plans, programs or arrangements) or effect any
stock split not previously announced or otherwise change its
capitalization as it existed on December 6, 1996, except as contemplated
herein and except for the contemplated issuance or sale of shares of MDC
Common Stock previously agreed to in writing by Boeing);
(x) shall not, and shall not permit any of its Subsidiaries to,
grant, confer or award any options, warrants, conversion rights or other
rights, not existing on the date hereof, to acquire any shares of its
capital stock, except pursuant to employee incentive or benefit plans,
programs or arrangements and non-employee director plans in existence on
the date hereof in the ordinary course of business and consistent with
past practice (including, but not limited to, certain grants of
Performance Accelerated Restricted Stock under the MDC 1994 Performance
and Equity Incentive Plan) covering not in excess of 700,000 shares of
MDC Common Stock;
(xi) shall not, and shall not permit any of its Subsidiaries to,
except in the ordinary course of business in connection with employee
incentive and benefit plans, programs or arrangements in existence on
the date hereof, purchase or redeem any shares of its stock;
(xii) shall not, and shall not permit any of its Subsidiaries to,
take any actions which would, or would be reasonably likely to, prevent
Boeing from accounting for the Merger in accordance with the pooling of
interests method of accounting under the requirements of Opinion No. 16
"Business Combinations" of the Accounting Principles Board of the
American Institute of Certified Public Accountants, as amended by
applicable pronouncements by the Financial Accounting Standards Board
("APB No. 16");
(xiii) shall not, and shall not permit any of its Subsidiaries to,
except as contemplated by this Section 6.1 or Section 6.5 or except as
previously disclosed in writing to Boeing, amend in any significant
respect the terms of their respective employee benefit plans, programs
or arrangements or any severance or similar agreements or arrangements
in existence on the date hereof, or adopt any new employee benefit
plans, programs or arrangements or any severance or similar agreements
or arrangements;
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(xiv) shall not, and shall not permit any of its Subsidiaries to,
enter into any material loan agreement, other than in the ordinary
course of business consistent with past practice and other than any loan
or lease arrangement relating to the sale or lease of commercial
aircraft or commercial equipment;
(xv) shall not, and shall not permit any of its Subsidiaries to
make any material Tax election or settle or compromise any material Tax
liability, other than in connection with currently pending proceedings
or other than in the ordinary course of business; and
(xvi) shall not, and shall not permit any of its Subsidiaries to,
agree, in writing or otherwise, to take any of the foregoing actions or
take any action which would make any representation or warranty in
Article IV hereof untrue or incorrect.
(b) Boeing:
(i) shall, and shall cause each of its Subsidiaries to, conduct its
operations according to their ordinary and usual course of business in
substantially the same manner as heretofore conducted;
(ii) shall use its reasonable best efforts, and cause each of its
Subsidiaries to use its reasonable best efforts, to preserve intact its
business organizations and goodwill in all material respects, keep
available the services of its officers and employees as a group, subject
to changes in the ordinary course, and maintain satisfactory
relationships with suppliers, distributors, customers and others having
business relationships with them;
(iii) shall confer at such times as MDC may reasonably request with
one or more representatives of MDC to report material operational
matters and the general status of ongoing operations (to the extent MDC
reasonably requires such information);
(iv) shall notify MDC of any emergency or other change in the
normal course of its or its Subsidiaries' respective businesses or in
the operation of its or its Subsidiaries' respective properties and of
any complaints, investigations or hearings (or communications indicating
that the same may be contemplated) of any governmental body or authority
if such emergency, change, complaint, investigation or hearing would
have a Material Adverse Effect on Boeing;
(v) except as previously disclosed in writing to MDC, shall not,
and shall not (except in the ordinary course of business consistent with
past practice) permit any of its Subsidiaries that is not wholly owned,
to declare or pay any dividends on or make any distribution with respect
to their outstanding shares of capital stock other than regular
quarterly dividends of $.28 per share on Boeing Common Stock made in the
ordinary course consistent with past practice;
(vi) shall not, and shall not permit any of its Subsidiaries to,
authorize, propose or announce an intention to authorize or propose, or
enter into an agreement with respect to, any merger, consolidation or
business combination (other than the Merger and any mergers,
consolidations or business combinations with Boeing's Subsidiaries
entered into in the ordinary course of business consistent with past
practice), any acquisition of a material amount of assets or securities,
or any release or relinquishment of any material contract rights not in
the ordinary course of business;
(vii) shall not propose or adopt any amendments to its corporate
charter (except as previously disclosed in writing to MDC) or by-laws;
(viii) shall not, and shall not permit any of its Significant
Subsidiaries to, issue any shares of their capital stock, except upon
exercise of rights or options issued pursuant to existing employee
incentive or benefit plans, programs or arrangements and non-employee
director plans (including, without limitation, shares issued in
connection with stock grants or awards or the exercise of rights or
options granted in the ordinary course of business consistent with past
practice pursuant to such plans, programs or arrangements) or effect any
stock split not previously announced or otherwise change its
capitalization as it existed on November 30, 1996 (except as
contemplated herein or as previously disclosed in writing to MDC);
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(ix) shall not, and shall not permit any of its Subsidiaries to,
grant, confer or award any options, warrants, conversion rights or other
rights, not existing on the date hereof, to acquire any shares of its
capital stock, except pursuant to employee incentive or benefit plans,
programs or arrangements and non-employee director plans in existence on
the date hereof in the ordinary course of business and consistent with
past practice covering not in excess of 5,000,000 shares of Boeing
Common Stock;
(x) shall not, and shall not permit any of its Subsidiaries to,
take any actions which would, or would be reasonably likely to, prevent
Boeing from accounting for the Merger in accordance with the pooling of
interests method of accounting under the requirements of APB No. 16; and
(xi) shall not, and shall not permit any of its Subsidiaries to,
agree, in writing or otherwise, to take any of the foregoing actions or
take any action which would make any representation or warranty in
Article V hereof untrue or incorrect.
Section 6.2. Investigation. Each of MDC and Boeing shall afford to one
another and to one another's officers, employees, accountants, counsel and other
authorized representatives full and complete access during normal business
hours, throughout the period prior to the earlier of the Effective Time or the
date of termination of this Agreement, to its and its Subsidiaries' plants,
properties, contracts, commitments, books, and records (including but not
limited to tax returns) and any report, schedule or other document filed or
received by it pursuant to the requirements of federal or state securities laws
and shall use their reasonable best efforts to cause their respective
representatives to furnish promptly to one another such additional financial and
operating data and other information as to its and its Subsidiaries' respective
businesses and properties as the other or its duly authorized representatives
may from time to time reasonably request; provided, that nothing herein shall
require either MDC or Boeing or any of their respective Subsidiaries to disclose
any information to the other that would cause significant competitive harm to
such disclosing party or its affiliates if the transactions contemplated by this
Agreement are not consummated. The parties hereby agree that each of them will
treat any such information in accordance with the Confidentiality Agreement,
dated as of October 17, 1995, between MDC and Boeing (the "Confidentiality
Agreement"). Notwithstanding any provision of this Agreement to the contrary, no
party shall be obligated to make any disclosure in violation of applicable laws
or regulations, including any such laws or regulations pertaining to the
treatment of classified information.
Section 6.3. Cooperation. (a) MDC and Boeing shall together, or pursuant
to an allocation of responsibility to be agreed upon between them:
(i) prepare and file with the SEC as soon as is reasonably practicable
the Joint Proxy Statement (which, if requested by Boeing, may also relate
to an amendment of the Restated Certificate of Incorporation of Boeing to
increase its authorized capitalization) and a registration statement on
Form S-4 under the Securities Act with respect to the Boeing Common Stock
issuable in the Merger (the "Registration Statement"), and shall use their
reasonable best efforts to have the Joint Proxy Statement cleared by the
SEC under the Exchange Act and the Registration Statement declared
effective by the SEC under the Securities Act;
(ii) as soon as is reasonably practicable take all such action as may
be required under state blue sky or securities laws in connection with the
transactions contemplated by this Agreement;
(iii) promptly prepare and file with the NYSE and such other stock
exchanges as shall be agreed upon listing applications covering the shares
of Boeing Common Stock issuable in the Merger or upon exercise of MDC stock
options, warrants, conversion rights or other rights or vesting or payment
of other MDC equity-based awards and use its reasonable best efforts to
obtain, prior to the Effective Time, approval for the listing of such
Common Stock, subject only to official notice of issuance;
(iv) cooperate with one another in order to lift any injunctions or
remove any other impediment to the consummation of the transactions
contemplated herein; and
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(v) cooperate with one another in obtaining opinions of Skadden, Arps,
Slate, Meagher & Flom LLP, counsel to MDC, and Cravath, Swaine & Moore,
counsel to Boeing, dated as of the Effective Time, to the effect that the
Merger qualifies as a reorganization under the provisions of Section 368(a)
of the Code. In connection therewith, each of MDC and Boeing shall deliver
to Skadden, Arps, Slate, Meagher & Flom LLP and Cravath, Swaine & Moore
representation letters substantially in the form attached hereto as
Exhibits 7.1(g)(1) and 7.1(g)(2), respectively, and MDC shall use its
reasonable best efforts to obtain the representation letter substantially
in the form attached hereto as Exhibit 7.1(g)(3) from appropriate
stockholders and shall deliver any such letters obtained to Skadden, Arps,
Slate, Meagher & Flom LLP and Cravath, Swaine & Moore.
(b) Subject to the limitations contained in Section 6.2, MDC and Boeing
shall each furnish to one another and to one another's counsel all such
information as may be required in order to effect the foregoing actions and each
represents and warrants to the other that no information furnished by it in
connection with such actions or otherwise in connection with the consummation of
the transactions contemplated by this Agreement will contain any untrue
statement of a material fact or omit to state a material fact required to be
stated in order to make any information so furnished, in light of the
circumstances under which it is so furnished, not misleading.
Section 6.4. Affiliate Agreements. (a) MDC shall, prior to the Effective
Time, deliver to Boeing a list (reasonably satisfactory to counsel for Boeing),
setting forth the names and addresses of all persons who are, at the time of the
MDC Meeting, in MDC's reasonable judgment, "affiliates" of MDC for purposes of
Rule 145 under the Securities Act or under applicable SEC accounting releases
with respect to pooling of interests accounting treatment. MDC shall furnish
such information and documents as Boeing may reasonably request for the purpose
of reviewing such list. MDC shall use its reasonable best efforts to cause each
person who is identified as an "affiliate" in the list furnished pursuant to
this Section 6.4 to execute a written agreement on or prior to the Effective
Time, in substantially the form of Exhibit 6.4(a) hereto.
(b) Boeing shall, prior to the Effective Time, deliver to MDC a list
(reasonably satisfactory to counsel for MDC) setting forth the names and
addresses of all persons who are, at the time of the Boeing Meeting, in Boeing's
reasonable judgment, affiliates of Boeing under applicable SEC accounting
releases with respect to pooling of interests accounting treatment. Boeing shall
furnish such information and documents as MDC may reasonably request for the
purpose of reviewing such list. Boeing shall use its reasonable best efforts to
cause each person who is identified as an affiliate in the list furnished
pursuant to this Section 6.4 to execute a written agreement on or prior to the
Effective Time, in substantially the form of Exhibit 6.4(b) hereto.
Section 6.5. Employee Stock Options, Incentive and Benefit
Plans. (a) Simultaneously with the Merger, (i) each outstanding option (and
related stock appreciation right ("MDC SAR"), if any) to purchase or acquire a
share of MDC Common Stock under employee incentive or benefit plans, programs or
arrangements and non-employee director plans presently maintained by MDC ("MDC
Option Plans") shall be converted into an option (together with a related stock
appreciation right of Boeing, if applicable) to purchase the number of shares of
Boeing Common Stock equal to .65 times the number of shares of MDC Common Stock
which could have been obtained prior to the Effective Time upon the exercise of
each such option, at an exercise price per share equal to the exercise price for
each such share of MDC Common Stock subject to an option (and related MDC SAR,
if any) under the MDC Option Plans divided by .65, and all references in each
such option (and related MDC SAR, if any) to MDC shall be deemed to refer to
Boeing, where appropriate, and (ii) Boeing shall assume the obligations of MDC
under the MDC Option Plans. The other terms of each such option and MDC SAR, and
the plans under which they were issued, shall continue to apply in accordance
with their terms, including any provisions providing for acceleration.
(b) Simultaneously with the Merger, each outstanding award (including
restricted stock, stock equivalents and stock units) ("MDC Award") under any
employee incentive or benefit plans, programs or arrangements and non-employee
director plans presently maintained by MDC which provide for grants of
equity-based awards shall be amended or converted into a similar instrument of
Boeing, in each case with such adjustments to the terms of such MDC Awards as
are appropriate to preserve the value inherent in such MDC Awards with no
detrimental effects on the holders thereof. The other terms of each MDC Award,
and the
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plans or agreements under which they were issued, shall continue to apply in
accordance with their terms, including any provisions providing for
acceleration. With respect to any restricted stock awards as to which the
restrictions shall have lapsed on or prior to the Effective Time in accordance
with the terms of the applicable plans or award agreements, shares of such
previously restricted stock shall be converted in accordance with the provisions
of Section 2.1(b).
(c) Simultaneously with the Merger, Boeing shall assume each Termination
Benefit Agreement then in effect and all of MDC's rights and obligations under
each such Termination Benefit Agreement.
(d) MDC and Boeing agree that each of their respective employee incentive
or benefit plans, programs and arrangements and non-employee director plans
shall be amended, to the extent necessary and appropriate, to reflect the
transactions contemplated by this Agreement, including, but not limited to the
conversion of shares of MDC Common Stock held or to be awarded or paid pursuant
to such benefit plans, programs or arrangements into shares of Boeing Common
Stock on a basis consistent with the transactions contemplated by this
Agreement. The actions to be taken by MDC and Boeing pursuant to Section 6.5(d)
shall include the submission by MDC or Boeing of the amendments to the plans,
programs or arrangements referred to herein to their respective stockholders at
the MDC Meeting or the Boeing Meeting, respectively, if such submission is
determined to be necessary or advisable by counsel to MDC or Boeing after
consultation with one another; provided, however, that such approval shall not
be a condition to the consummation of the Merger.
(e) Boeing shall (i) reserve for issuance the number of shares of Boeing
Common Stock that will become subject to the benefit plans, programs and
arrangements referred to in this Section 6.5 and (ii) issue or cause to be
issued the appropriate number of shares of Boeing Common Stock pursuant to such
plans, programs and arrangements, upon the exercise or maturation of rights
existing thereunder on the Effective Time or thereafter granted or awarded.
Section 6.6. Filings; Other Action. (a) Subject to the terms and
conditions herein provided, MDC and Boeing shall (a) promptly make their
respective filings and thereafter make any other required submissions under the
HSR Act, (b) use reasonable efforts to cooperate with one another in (i)
determining whether any filings are required to be made with, or consents,
permits, authorizations or approvals are required to be obtained from, any third
party, the United States government or any agencies, departments or
instrumentalities thereof or other governmental or regulatory bodies or
authorities of federal, state, local and foreign jurisdictions in connection
with the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and thereby and (ii) timely making all such
filings and timely seeking all such consents, permits, authorizations or
approvals, and (c) use reasonable efforts to take, or cause to be taken, all
other actions and do, or cause to be done, all other things necessary, proper or
advisable to consummate and make effective the transactions contemplated hereby,
including, without limitation, taking all such further action as reasonably may
be necessary to resolve such objections, if any, as the Federal Trade
Commission, the Antitrust Division of the Department of Justice, state antitrust
enforcement authorities or competition authorities of any other nation or other
jurisdiction or any other person may assert under relevant antitrust or
competition laws with respect to the transactions contemplated hereby and to
ensure that it is a "poolable entity" eligible to participate in a transaction
to be accounted for under the pooling of interests method of accounting.
(b) MDC and Boeing shall take all such action as reasonably may be
necessary to obtain the advance agreement of the U.S. Department of Defense
("DOD") to the effect that (i) the transactions contemplated by this Agreement
will not trigger any liability to DOD with respect to any surplus assets in a
pension plan, (ii) for cost accounting purposes, the pension plans of MDC,
Boeing and Boeing North American, Inc. will be a single pension plan and (iii)
any subsequent reorganization or restructuring of MDC, Boeing and Boeing North
American, Inc. or mergers and other transactions conducted between MDC, Boeing
and Boeing North American, Inc. or between any of their pension plans will not
trigger a segment closing adjustment under Cost Accounting Standard 413 after
the Effective Time unless MDC, Boeing and Boeing North American, Inc.
discontinue doing business with the U.S. government or Boeing curtails the
benefits of all the pension plans.
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Section 6.7. Further Assurances. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement, the proper officers of MDC and Boeing shall take all such
necessary action.
Section 6.8. Takeover Statute. If any "fair price", "moratorium",
"control share acquisition" or other form of antitakeover statute or regulation
shall become applicable to the transactions contemplated hereby, each of MDC and
Boeing and the members of their respective Boards of Directors shall grant such
approvals and take such actions as are reasonably necessary so that the
transactions contemplated hereby may be consummated as promptly as practicable
on the terms contemplated hereby and otherwise act to eliminate or minimize the
effects of such statute or regulation on the transactions contemplated hereby.
Section 6.9. No Solicitation. From and after the date hereof, MDC will
not, and shall use its reasonable best efforts not to permit, any of its
officers, directors, employees, attorneys, financial advisors, agents or other
representatives or those of any of its Subsidiaries to, directly or indirectly,
solicit, initiate or knowingly encourage (including by way of furnishing
information) any Takeover Proposal from any person, or engage in or continue
discussions or negotiations relating thereto; provided, however, that MDC may
engage in discussions or negotiations with, and furnish information concerning
MDC and its Subsidiaries, businesses, properties or assets to, any third party
which makes a Takeover Proposal if the Board of Directors of MDC concludes in
good faith after consultation with its outside counsel (who may be its regularly
engaged outside counsel) that the failure to take such action would present a
reasonable possibility of violating the obligations of such Board to MDC or to
MDC's stockholders under applicable law. MDC will promptly (but in no case later
than 24 hours) notify Boeing of the receipt of any Takeover Proposal, including
the material terms and conditions thereof and the identity of the person or
group making such Takeover Proposal, and will promptly (but in no case later
than 24 hours) notify Boeing of any determination by MDC's Board of Directors
that a Superior Proposal (as hereinafter defined) has been made. As used in this
Agreement, (i) "Takeover Proposal" shall mean any proposal or offer, or any
expression of interest by any third party relating to MDC's willingness or
ability to receive or discuss a proposal or offer, in each case made prior to
the stockholder vote at the MDC Meeting, other than a proposal or offer by
Boeing or any of its Subsidiaries, for a merger, consolidation or other business
combination involving, or any purchase of, all or substantially all of the
assets or more than 50% of the voting securities of, MDC, and (ii) "Superior
Proposal" shall mean a bona fide Takeover Proposal made by a third party on
terms that a majority of the members of the Board of Directors of MDC determines
in their good faith reasonable judgment (based on the advice of an independent
financial advisor) may be more favorable to MDC and to its stockholders than the
transactions contemplated hereby and for which any required financing is
committed or which, in the good faith reasonable judgment of a majority of such
members (after consultation with any independent financial advisor), is
reasonably capable of being financed by such third party.
Section 6.10. Public Announcements. MDC and Boeing will consult with each
other before issuing any press release relating to this Agreement or the
transactions contemplated herein and shall not issue any such press release
prior to such consultation except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange.
Section 6.11. Indemnification and Insurance. (a) Boeing and Sub agree
that all rights to exculpation and indemnification for acts or omissions
occurring prior to the Effective Time now existing in favor of the current or
former directors or officers (the "Indemnified Parties") of MDC as provided in
its charter or by-laws or in any agreement shall survive the Merger and shall
continue in full force and effect in accordance with their terms. For six years
from the Effective Time, Boeing shall indemnify the Indemnified Parties to the
same extent as such Indemnified Parties are entitled to indemnification pursuant
to the preceding sentence.
(b) For six years from the Effective Time, Boeing shall, maintain in effect
MDC's current directors' and officers' liability insurance covering those
persons who are currently covered by MDC's directors' and officers' liability
insurance policy (a copy of which has been heretofore delivered to Boeing);
provided, however, that in no event shall Boeing be required to expend in any
one year an amount in excess of 200% of the annual premiums currently paid by
MDC for such insurance, and, provided, further, that if the annual premiums of
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such insurance coverage exceed such amount, Boeing shall be obligated to obtain
a policy with the greatest coverage available for a cost not exceeding such
amount.
Section 6.12. Accountants' "Comfort" Letters. MDC and Boeing will each
use reasonable best efforts to cause to be delivered to each other letters from
their respective independent accountants, dated a date within two business days
before the date of the Registration Statement, in form reasonably satisfactory
to the recipient and customary in scope for comfort letters delivered by
independent accountants in connection with registration statements on Form S-4
under the Securities Act.
Section 6.13. Additional Reports. MDC and Boeing shall each furnish to
the other copies of any reports of the type referred to in Sections 4.4 and 5.4
which it files with the SEC on or after the date hereof, and MDC and Boeing, as
the case may be, represents and warrants that as of the respective dates
thereof, such reports will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statement therein, in light of the circumstances under which they were
made, not misleading. Any unaudited consolidated interim financial statements
included in such reports (including any related notes and schedules) will fairly
present the financial position of MDC and its consolidated Subsidiaries or
Boeing and its consolidated Subsidiaries, as the case may be, as of the dates
thereof and the results of operations and changes in financial position or other
information included therein for the periods or as of the date then ended
(subject, where appropriate, to normal year-end adjustments), in each case in
accordance with past practice and GAAP consistently applied during the periods
involved (except as otherwise disclosed in the notes thereto).
Section 6.14. Co-ordination of Dividends. MDC and Boeing shall coordinate
with the other the authorization or declaration of any dividends in respect of
MDC Common Stock and Boeing Common Stock and the record dates and payment dates
relating thereto, it being the intention of the parties that holders of MDC
Common Stock or Boeing Common Stock shall not receive two dividends, or fail to
receive one dividend, for any single calendar quarter with respect to their
shares of MDC Common Stock and/or Boeing Common Stock and any shares of Boeing
Common Stock any such holder receives in exchange for MDC Common Stock in the
Merger.
ARTICLE VII
CONDITIONS TO THE MERGER
Section 7.1. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) The holders of issued and outstanding shares of MDC Common Stock
shall have duly approved the Merger, and the holders of issued and
outstanding shares of Boeing Common Stock shall have approved the Share
Issuance, all in accordance with applicable law and the rules of the NYSE.
(b) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
court or other tribunal or governmental body or authority which prohibits
the consummation of the Merger substantially on the terms contemplated
hereby. In the event any order, decree or injunction shall have been
issued, each party shall use its reasonable efforts to remove any such
order, decree or injunction.
(c) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act and no stop order
suspending such effectiveness shall have been issued and remain in effect.
(d) The shares of Boeing Common Stock issuable in the Merger shall
have been approved for listing on the NYSE, subject only to official notice
of issuance.
(e) Any applicable waiting period under the HSR Act shall have expired
or been terminated and any other MDC Required Approvals and Boeing Required
Approvals shall have been obtained, except
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where the failure to obtain such other MDC Required Approvals and Boeing
Required Approvals would not have a Material Adverse Effect on MDC or
Boeing, as the case may be.
(f) At the Effective Time each of MDC and Boeing shall have received a
letter of its independent public accountants, in form and substance
reasonably satisfactory to it, stating that they concur with management's
conclusion that the Merger will qualify as a transaction to be accounted
for the parties hereto in accordance with the pooling of interests method
of accounting under the requirements of APB No. 16.
(g) Each of MDC and Boeing shall have received an opinion of its tax
counsel, Skadden, Arps, Slate, Meagher & Flom LLP and Cravath, Swaine &
Moore, respectively, in form and substance reasonably satisfactory to it,
and dated within five days of the date of the Joint Proxy Statement, to the
effect that the Merger will qualify for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and that
none of MDC, its stockholders, Boeing and Sub shall recognize gain or loss
for federal income tax purposes as a result of the Merger (other than, with
respect to any cash paid in lieu of fractional shares of Boeing Common
Stock). In rendering such opinions, Skadden, Arps, Slate, Meagher & Flom
LLP and Cravath, Swaine & Moore may rely upon representations of officers
of MDC and Boeing and stockholders of MDC substantially in the form of
Exhibits 7.1(g)(1), 7.1(g)(2) and 7.1(g)(3).
Section 7.2. Conditions to Obligations of MDC to Effect the Merger. The
obligation of MDC to effect the Merger is further subject to the conditions that
(a) the representations and warranties of Boeing contained herein shall be true
and correct in all respects (but without regard to any materiality
qualifications or references to Material Adverse Effect contained in any
specific representation or warranty) as of the Effective Time with the same
effect as though made as of the Effective Time except (i) for changes
specifically permitted by the terms of this Agreement, (ii) that the accuracy of
representations and warranties that by their terms speak as of the date of this
Agreement or some other date will be determined as of such date and (iii) where
any such failure of the representations and warranties in the aggregate to be
true and correct in all respects would not have a Material Adverse Effect on
Boeing, (b) Boeing shall have performed in all material respects all obligations
and complied with all covenants required by this Agreement to be performed or
complied with by it prior to the Effective Time and (c) Boeing shall have
delivered to MDC a certificate, dated the Effective Time and signed by its
Chairman of the Board and Chief Executive Officer or a Senior Vice President,
certifying to both such effects.
Section 7.3. Conditions to Obligations of Boeing to Effect the
Merger. The obligation of Boeing to effect the Merger is further subject to the
conditions that (a) the representations and warranties of MDC contained herein
shall be true and correct in all respects (but without regard to any materiality
qualifications or references to Material Adverse Effect contained in any
specific representation or warranty) as of the Effective Time with the same
effect as though made as of the Effective Time except (i) for changes
specifically permitted by the terms of this Agreement, (ii) that the accuracy of
representations and warranties that by their terms speak as of the date of this
Agreement or some other date will be determined as of such date and (iii) where
any such failure of the representations and warranties in the aggregate to be
true and correct in all respects would not have a Material Adverse Effect on
MDC, (b) MDC shall have performed in all material respects all obligations and
complied with all covenants required by this Agreement to be performed or
complied with by it prior to the Effective Time and (c) MDC shall have delivered
to Boeing a certificate, dated the Effective Time and signed by its Chairman of
the Board, Chief Executive Officer and President or a Senior Vice President,
certifying to both such effects.
ARTICLE VIII
TERMINATION, WAIVER, AMENDMENT AND CLOSING
Section 8.1. Termination or Abandonment. Notwithstanding anything
contained in this Agreement to the contrary, this Agreement may be terminated
and abandoned at any time prior to the Effective Time,
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whether before or after any approval of the matters presented in connection with
the Merger by the respective stockholders of MDC and Boeing:
(a) by the mutual written consent of MDC and Boeing;
(b) by either MDC or Boeing if the Effective Time shall not have
occurred on or before December 31, 1997; provided, that the party seeking
to terminate this Agreement pursuant to this clause 8.1(b) shall not have
breached in any material respect its obligations under this Agreement in
any manner that shall have proximately contributed to the failure to
consummate the Merger on or before such date;
(c) by either MDC or Boeing if (i) a statute, rule, regulation or
executive order shall have been enacted, entered or promulgated prohibiting
the consummation of the Merger substantially on the terms contemplated
hereby or (ii) an order, decree, ruling or injunction shall have been
entered permanently restraining, enjoining or otherwise prohibiting the
consummation of the Merger substantially on the terms contemplated hereby
and such order, decree, ruling or injunction shall have become final and
non-appealable; provided, that the party seeking to terminate this
Agreement pursuant to this clause 8.1(c)(ii) shall have used its reasonable
best efforts to remove such injunction, order or decree;
(d) by either MDC or Boeing if the approvals of the stockholders of
either MDC or Boeing contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a duly
held meeting of stockholders or of any adjournment thereof;
(e) by either Boeing or MDC if the Board of Directors of MDC
reasonably determines that a Takeover Proposal constitutes a Superior
Proposal; provided, however, that MDC may not terminate this Agreement
pursuant to this clause 8.1(e) unless and until five business days have
elapsed following delivery to Boeing of a written notice of such
determination by the Board of Directors of MDC and during such five
business day period MDC (i) informs Boeing of the terms and conditions of
the Takeover Proposal and the identity of the Person making the Takeover
Proposal and (ii) otherwise fully cooperates with Boeing with respect
thereto (subject, in the case of this clause (ii), to the condition that
the MDC Board of Directors shall not be required to take any action that it
believes, after consultation with outside legal counsel, would present a
reasonable possibility of violating its obligations to MDC or MDC's
stockholders under applicable law) with the intent of enabling Boeing to
agree to a modification of the terms and conditions of this Agreement so
that the transactions contemplated hereby may be effected; provided,
further, that MDC may not terminate this Agreement pursuant to this clause
8.1(e) unless at the end of such five business day period the Board of
Directors of MDC continues reasonably to believe that the Takeover Proposal
constitutes a Superior Proposal and simultaneously with such termination
MDC pays to Boeing the amount specified under Section 8.2; and provided,
further, that this Agreement shall not terminate pursuant to this clause
8.1(e) unless simultaneously with such termination MDC enters into a
definitive acquisition, merger or similar agreement to effect the Superior
Proposal;
(f) by Boeing if a tender offer or exchange offer for 50% or more of
the outstanding shares of capital stock of MDC is commenced prior to the
MDC Meeting, and the Board of Directors of MDC fails to recommend against
acceptance of such tender offer or exchange offer within the time period
presented by Rule 14e-2 by its stockholders (including by taking no
position with respect to the acceptance of such tender offer or exchange
offer by its stockholders); or
(g) by MDC or Boeing if there shall have been a material breach by the
other of any of its representations, warranties, covenants or agreements
contained in this Agreement and such breach shall not have been cured
within 30 days after notice thereof shall have been received by the party
alleged to be in breach.
In the event of termination of this Agreement pursuant to this Section 8.1,
this Agreement shall terminate (except for the confidentiality agreement
referred to in Section 6.2 and Sections 8.2 and 9.2), and there shall be no
other liability on the part of MDC or Boeing to the other except liability
arising out of a wilful breach of this Agreement or as provided for in the
Confidentiality Agreement.
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Section 8.2. Termination Fee. (a) Notwithstanding any provision in this
Agreement to the contrary (but subject to subsection (b) below), if (i) this
Agreement is terminated by MDC or Boeing pursuant to Section 8.1(e) or (ii) (x)
prior to the termination of this Agreement, a bona fide Takeover Proposal is
commenced, publicly proposed or publicly disclosed and not withdrawn, (y) this
Agreement is terminated by MDC pursuant to Section 8.1(b) or by Boeing or MDC
pursuant to Section 8.1(d) (but only due to the failure of the MDC stockholders
to approve the Merger) and (z) concurrently with or within twelve months after
such termination a Takeover Proposal shall have been consummated, then, in each
case, MDC shall (without prejudice to any other rights of Boeing against MDC)
pay to Boeing a fee (the "Termination Fee") of $200 million in cash, such
payment to be made simultaneously with such termination in the case of a
termination by MDC pursuant to Section 8.1(e) and promptly, but in no event
later than the second business day following a termination by Boeing pursuant to
Section 8.1(e) and, in the case of clause (ii), upon the consummation of such
Takeover Proposal.
(b) Notwithstanding anything to the contrary in this Agreement, if this
Agreement is terminated by either party hereto for any reason, and if prior to
such termination, the Board of Directors of Boeing shall have breached its
covenants hereunder by (i) failing to recommend to the Boeing stockholders in
the Joint Proxy Statement that they vote in favor of the Share Issuance, (ii)
having withdrawn a recommendation to the Boeing stockholders that they vote in
favor of the Share Issuance or (iii) having modified any such recommendation
that they vote in favor of the Share Issuance, then Boeing shall (without
prejudice to any other rights of MDC against Boeing) pay to MDC a fee in cash
equal to $200 million, such fee to be paid simultaneously with any termination
of this Agreement by Boeing and promptly after any termination of this Agreement
by MDC.
Section 8.3. Amendment or Supplement. At any time before or after
approval of the matters presented in connection with the Merger by the
respective stockholders of MDC and Boeing and prior to the Effective Time, this
Agreement may be amended or supplemented in writing by MDC and Boeing with
respect to any of the terms contained in this Agreement, except that following
approval by the stockholders of MDC and Boeing there shall be no amendment or
change to the provisions hereof with respect to the conversion ratio of shares
of MDC Common Stock into shares of Boeing Common Stock as provided herein nor
any amendment or change not permitted under applicable law, without further
approval by the stockholders of MDC and Boeing.
Section 8.4. Extension of Time, Waiver, Etc. At any time prior to the
Effective Time, MDC and Boeing may:
(a) extend the time for the performance of any of the obligations or
acts of the other party;
(b) waive any inaccuracies in the representations and warranties of
the other party contained herein or in any document delivered pursuant
hereto; or
(c) waive compliance with any of the agreements or conditions of the
other party contained herein.
Notwithstanding the foregoing no failure or delay by MDC or Boeing in
exercising any right hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right hereunder. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
Section 9.1. No Survival of Representations and Warranties. None of the
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Merger, except
for the agreements set forth in Article II and Article III, the agreements of
"affiliates" of MDC and Boeing to be delivered pursuant to Section 6.4, the
provisions of Sections 6.5, 6.7 and 6.11 and this Article IX.
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Section 9.2. Expenses. Whether or not the Merger is consummated, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby and thereby shall be paid by the party
incurring such expenses, except that (a)(i) the filing fee in connection with
any HSR Act filing, (ii) the commissions and other out-of-pocket transaction
costs, including the expenses and compensation of the Exchange Agent, incurred
in connection with the sale of Excess Shares and (iii) the expenses incurred in
connection with the printing and mailing of the Joint Proxy Statement, shall be
shared equally by MDC and Boeing and (b) all transfer taxes shall be paid by
MDC.
Section 9.3. Counterparts; Effectiveness. This Agreement may be executed
in two or more consecutive counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument, and shall become effective when one or more counterparts have been
signed by each of the parties and delivered (by telecopy or otherwise) to the
other parties.
Section 9.4. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, except that
Maryland law shall apply to the Merger, without regard to the principles of
conflicts of laws thereof.
Section 9.5. Notices. All notices and other communications hereunder
shall be in writing (including telecopy or similar writing) and shall be
effective (a) if given by telecopy, when such telecopy is transmitted to the
telecopy number specified in this Section 9.5 and the appropriate telecopy
confirmation is received or (b) if given by any other means, when delivered at
the address specified in this Section 9.5:
To MDC:
McDonnell Douglas Corporation
P.O. Box 516
St. Louis, Missouri 63166
Attention: F. Mark Kuhlmann, Esq.
Telecopy: (314) 234-3226
copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Attention: Franklin M. Gittes, Esq.
Lou R. Kling, Esq.
Telecopy: (212) 735-2000
To Boeing:
The Boeing Company
7755 East Marginal Way South
Seattle, WA 98108
Attention: Theodore J. Collins, Esq.
Telecopy: (206) 544-4900
copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, New York 10019
Attention: Allen Finkelson, Esq.
Telecopy: (212) 474-3700
Section 9.6. Assignment; Binding Effect. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise)
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without the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
Section 9.7. Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement in any other jurisdiction. If any provision of this Agreement is so
broad as to be unenforceable, such provision shall be interpreted to be only so
broad as is enforceable.
Section 9.8. Enforcement of Agreement. The parties hereto agree that
money damages or other remedy at law would not be sufficient or adequate remedy
for any breach or violation of, or a default under, this Agreement by them and
that in addition to all other remedies available to them, each of them shall be
entitled to the fullest extent permitted by law to an injunction restraining
such breach, violation or default or threatened breach, violation or default and
to any other equitable relief, including, without limitation, specific
performance, without bond or other security being required.
Section 9.9. Miscellaneous. This Agreement:
(a) along with the Confidentiality Agreement and the agreements
referred to in Section 6.1(a)(ix) and contained in the disclosure referred
to in Section 6.1(b)(viii) constitutes the entire agreement, and supersedes
all other prior agreements and understandings, both written and oral,
between the parties, or any of them, with respect to the subject matter
hereof and thereof; and
(b) except for the provision of Section 6.11 hereof, is not intended
to and shall not confer upon any Person other than the parties hereto any
rights or remedies hereunder.
Section 9.10. Headings. Headings of the Articles and Sections of this
Agreement are for convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
Section 9.11. Subsidiaries; Significant Subsidiaries;
Affiliates. References in this Agreement to "Subsidiaries" of MDC or Boeing
shall mean any corporation or other form of legal entity of which more than 50%
of the outstanding voting securities are on the date hereof directly or
indirectly owned by MDC or Boeing, as the case may be. References in this
Agreement to "Significant Subsidiaries" shall mean Subsidiaries (as defined
above) which constitute "significant subsidiaries" under Rule 405 promulgated by
the SEC under the Securities Act. References in this Agreement (except as
specifically otherwise defined) to "affiliates" shall mean, as to any person,
any other person which, directly or indirectly, controls, or is controlled by,
or is under common control with, such person. As used in this definition,
"control" (including, with its correlative meanings, "controlled by" and "under
common control with") shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of management or policies of a Person,
whether through the ownership of securities or partnership of other ownership
interests, by contract or otherwise. References in the Agreement to "person"
shall mean an individual, a corporation, a partnership, an association, a trust
or any other entity or organization, including, without limitation, a
governmental body or authority.
Section 9.12. Finders or Brokers. Except for J.P. Morgan Securities Inc.
with respect to MDC, a copy of whose engagement agreement has been or will be
provided to Boeing, and CS First Boston Corporation with respect to Boeing, a
copy of whose engagement agreement has been or will be provided to MDC, neither
MDC nor Boeing nor any of their respective Subsidiaries has employed any
investment banker, broker, finder or intermediary in connection with the
transactions contemplated hereby who might be entitled to any fee or any
commission in connection with or upon consummation of the Merger.
27
<PAGE> 122
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
MCDONNELL DOUGLAS CORPORATION
By: /s/ HARRY C. STONECIPHER
------------------------------------
Name: Harry C. Stonecipher
Title: President and Chief
Executive Officer
THE BOEING COMPANY
By: /s/ PHILIP M. CONDIT
------------------------------------
Name: Philip M. Condit
Title: President and Chief
Executive Officer
WEST ACQUISITION CORP.
By: /s/ PHILIP M. CONDIT
------------------------------------
Name: Philip M. Condit
Title: President
28
<PAGE> 123
EXHIBIT 6.4(a)
FORM OF AFFILIATE LETTER FOR AFFILIATES OF MDC
The Boeing Company
7755 East Marginal Way South
Seattle, WA 98108
Attention of [ ]
Gentlemen:
I have been advised that as of the date of this letter I may be deemed to
be an "affiliate" of McDonnell Douglas Corporation, a Maryland corporation
("MDC"), as the term "affiliate" is (i) defined for purposes of paragraphs (c)
and (d) of Rule 145 of the rules and regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), and/or (ii) used in and for
purposes of Accounting Series Releases 130 and 135, as amended, of the
Commission. Pursuant to the terms of the Agreement and Plan of Merger dated as
of December 14, 1996 (the "Merger Agreement") among The Boeing Company, a
Delaware corporation ("Boeing"), West Acquisition Corp, a Maryland corporation
("Sub"), and MDC, Sub will be merged with and into MDC, with MDC continuing as
the Surviving Corporation (the "Merger"). Capitalized terms used in this letter
without definition shall have the meanings assigned to them in the Merger
Agreement.
As a result of the Merger, I may receive shares of common stock, par value
$5.00 per share, of Boeing (the "Boeing Shares"). I would receive such Boeing
Shares in exchange for shares (or upon exercise of options for shares) owned by
me of common stock, par value $1.00 per share of MDC (the "MDC Shares").
1. I hereby represent, warrant and covenant to Boeing that in the event I
receive any Boeing Shares as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of the
Boeing Shares in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Merger Agreement and
discussed the requirements of such documents and other applicable
limitations upon my ability to sell, transfer or otherwise dispose of the
Boeing Shares, to the extent I felt necessary, with my counsel or counsel
for MDC.
C. I have been advised that the issuance of the Boeing Shares to me
pursuant to the Merger has been registered with the Commission under the
Act on a Registration Statement on Form S-4. However, I have also been
advised that, because at the time the Merger is submitted for a vote of the
stockholders of MDC, (a) I may be deemed to be an affiliate of MDC and (b)
the distribution by me of the Boeing Shares has not been registered under
the Act, I may not sell, transfer or otherwise dispose of the Boeing Shares
issued to me in the Merger unless (i) such sale, transfer or other
disposition is made in conformity with the volume and other limitations of
Rule 145 promulgated by the Commission under the Act, (ii) such sale,
transfer or other disposition has been registered under the Act or (iii) in
the opinion of counsel reasonably acceptable to Boeing, such sale, transfer
or other disposition is otherwise exempt from registration under the Act.
D. I understand that except as provided for in the Merger Agreement,
Boeing is under no obligation to register the sale, transfer or other
disposition of the Boeing Shares by me or on my behalf under the Act or,
except as provided in paragraph 2(A) below, to take any other action
necessary in order to make compliance with an exemption from such
registration available.
<PAGE> 124
E. I also understand that there will be placed on the certificates for
the Boeing Shares issued to me, or any substitutions therefor, a legend
stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED
[ ], 1997 BETWEEN THE REGISTERED HOLDER HEREOF AND BOEING, A
COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF BOEING."
F. I also understand that unless a sale or transfer is made in
conformity with the provisions of Rule 145, or pursuant to a registration
statement, Boeing reserves the right to put the following legend on the
certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A
PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145
PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE
BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN
CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933."
G. I further represent to, and covenant with, Boeing that I will not,
during the 30 days prior to the Effective Time (as defined in the Merger
Agreement), sell, transfer or otherwise dispose of or reduce my risk (as
contemplated by the SEC Accounting Series Release No. 135) with respect to
MDC Shares or shares of the capital stock of Boeing that I may hold and,
furthermore, that I will not sell, transfer or otherwise dispose of or
reduce my risk (as contemplated by SEC Accounting Series Release No. 135)
with respect to the Boeing Shares received by me in the Merger or any other
shares of the capital stock of Boeing until after such time as results
covering at least 30 days of combined operations of MDC and Boeing have
been published by Boeing, in the form of a quarterly earnings report, an
effective registration statement filed with the Commission, a report to the
Commission on Form 10-K, 10-Q or 8-K, or any other public filing or
announcement which includes the combined results of operations (the period
commencing 30 days prior to the Effective Time and ending on the date of
the publication of the post-Merger financial results is referred to herein
as the "Pooling Period"). Boeing shall notify the "affiliates" of the
publications of such results. Notwithstanding the foregoing, I understand
that during the aforementioned period, subject to providing written notice
to Boeing, I will not be prohibited from selling up to 10% of the Boeing
Shares (the "10% Shares") received by me or MDC Shares owned by me or
making charitable contributions or bona fide gifts of the Boeing Shares
received by me or MDC Shares owned by me, subject to the same restrictions.
The 10% Shares shall be calculated in accordance with SEC Accounting Series
Release 135 as amended by Staff Accounting Bulletin No. 76. I covenant with
Boeing that I will not sell, transfer or otherwise dispose of any 10%
Shares during the period commencing from the Effective Time and ending on
the last day of the Pooling Period except in compliance with Rule 145(d)(i)
under the Securities Act or pursuant to charitable contributions or bona
fide gifts.
H. Execution of this letter should not be considered an admission on
my part that I am an "affiliate" of MDC as described in the first paragraph
of this letter, nor as a waiver of any rights I may have to object to any
claim that I am such an affiliate on or after the date of this letter.
2. By Boeing's acceptance of this letter, Boeing hereby agrees with me as
follows:
A. For so long as and to the extent necessary to permit me to sell the
Boeing Shares pursuant to Rule 145 and, to the extent applicable, Rule 144
under the Act, Boeing shall (a) use its reasonable best efforts to (i)
file, on a timely basis, all reports and data required to be filed with the
Commission by it
<PAGE> 125
pursuant to Section 13 of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), and (ii) furnish to me upon request a written statement
as to whether Boeing has complied with such reporting requirements during
the 12 months preceding any proposed sale of the Boeing Shares by me under
Rule 145, and (b) otherwise use its reasonable efforts to permit such sales
pursuant to Rule 145 and Rule 144. Boeing has filed all reports required to
be filed with the Commission under Section 13 of the 1934 Act during the
preceding 12 months.
B. It is understood and agreed that certificates with the legends set
forth in paragraphs E and F above will be substituted by delivery of
certificates without such legend if (i) two years shall have elapsed from
the date the undersigned acquired the Boeing Shares received in the Merger
and the provisions of Rule 145(d)(2) are then available to the undersigned,
(ii) three years shall have elapsed from the date the undersigned acquired
the Boeing Shares received in the Merger and the provisions of Rule
145(d)(3) are then applicable to the undersigned, or (iii) Boeing has
received either an opinion of counsel, which opinion and counsel shall be
reasonably satisfactory to Boeing, or a "no-action" letter obtained by the
undersigned from the staff of the Commission, to the effect that the
restrictions imposed by Rule 144 and Rule 145 under the Act no longer apply
to the undersigned.
Very truly yours,
--------------------------------------
Name:
Agreed and accepted this day
of [ ], 1997, by
THE BOEING COMPANY,
By:
- --------------------------------------
Name:
Title:
<PAGE> 126
EXHIBIT 6.4(b)
FORM OF AFFILIATE LETTER FOR AFFILIATES OF BOEING
McDonnell Douglas Corporation
P.O. Box 516
St. Louis, MO 63166
Attention of [ ]
Gentlemen:
I have been advised that as of the date of this letter I may be deemed to
be an "affiliate" of The Boeing Company, a Delaware corporation ("Boeing"), as
the term "affiliate" is defined for purposes of Accounting Series Releases 130
and 135, as amended, of the Securities and Exchange Commission (the
"Commission"). Pursuant to the terms of the Agreement and Plan of Merger dated
as of December 14, 1996 (the "Merger Agreement") among Boeing, West Acquisition
Corp., a Maryland corporation ("Sub"), and McDonnell Douglas Corporation, a
Maryland corporation ("MDC"), Sub will be merged with and into MDC, with MDC
continuing as the Surviving Corporation (the "Merger").
I represent to, and covenant with, MDC that I will not, during the 30 days
prior to the Effective Time (as defined in the Merger Agreement) until after
such time as results covering at least 30 days of combined operations of MDC and
Boeing have been published by Boeing, in the form of a quarterly earnings
report, an effective registration statement filed with the Commission, a report
to the Commission on Form 10-K, 10-Q or 8-K, or any other public filing or
announcement which includes the combined results of operations, sell, transfer
or otherwise dispose of or reduce my risk (as contemplated by the SEC Accounting
Series Release No. 135) with respect to any shares of the capital stock of
Boeing ("Boeing Stock") or MDC that I may hold. I understand that Boeing shall
notify the "affiliates" of the publication of such results. Notwithstanding the
foregoing, I understand that subject to providing written notice to Boeing and
subject to SEC Accounting Series Release No. 135 as amended by Staff Accounting
Bulletin No. 76, during the aforementioned period I will not be prohibited from
selling up to 10% of the Boeing Stock that I hold or from making charitable
contributions or bona fide gifts of the Boeing Stock that I hold, subject to the
same restrictions.
Execution of this letter should not be considered an admission on my part
that I am an "affiliate" of Boeing as described in the first paragraph of this
letter, nor as a waiver of any rights I may have to object to any claim that I
am such an affiliate on or after the date of this letter.
Very truly yours,
--------------------------------------
Name:
Accepted this day of
[ ], 1997, by
MCDONNELL DOUGLAS CORPORATION,
By:
- --------------------------------------
Name:
Title:
<PAGE> 127
EXHIBIT 7.1(g)(1)
[LETTERHEAD OF]
MCDONNELL DOUGLAS CORPORATION
, 1997
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Dear Sirs:
In connection with the opinion to be delivered by you pursuant to the
Agreement and Plan of Merger (the "Merger Agreement") dated as of December 14,
1996, by and among The Boeing Company, a Delaware corporation ("Parent"),
McDonnell Douglas Corporation, a Maryland corporation (the "Company"), and West
Acquisition Corp., a Maryland corporation and a wholly owned subsidiary of
Parent ("Sub"), the undersigned certifies to the best of its knowledge and
belief, after due inquiry and investigation, as follows (any capitalized term
used but not defined herein shall have the meaning given to such term in the
Merger Agreement):
1. The facts relating to the contemplated merger (the "Merger") of Sub
with and into the Company pursuant to the Merger Agreement, as described in the
Merger Agreement, the documents described in Section 9.9(a) of the Merger
Agreement and the joint proxy statement/prospectus prepared by Parent and the
Company, are, insofar as such facts pertain to the Company, true, correct and
complete in all material respects.
2. Neither the Company nor any of its subsidiaries has acquired any shares
of Company Common Stock in contemplation of the Merger, or otherwise as part of
a plan of which the Merger is a part. For purposes of this representation,
Company Common Stock acquired in the ordinary course of business in connection
with employee incentive and benefit plans, programs or arrangements in existence
on the date hereof shall not be treated as an acquisition in contemplation of
the Merger or otherwise as part of a plan of which the Merger is a part.
3. There is no present plan or intention on the part of the stockholders
of the Company that own 5% or more of the common stock of the Company ("Company
Common Stock") (including [ ]), and the Company knows of no present
plan or intention on the part of the remaining holders of Company Common Stock,
to sell, exchange or otherwise dispose of, reduce the risk of loss (by short
sale or otherwise) of the holding of, enter into any contract or other
arrangement with respect to, the sale, exchange or other disposition of (each of
the foregoing, a "disposition"), any interest in the shares of Parent Common
Stock received in the Merger in exchange for such Company Common Stock that
would reduce the ownership of Parent Common Stock by former holders of Company
Common Stock to a number of shares having a value, as of immediately prior to
the Merger, of less than 50% of the value of all of the outstanding shares of
Company Common Stock as of such date. For purposes of this representation, any
"disposition" (as defined above) of Parent Common Stock will be treated as a
reduction in ownership thereof. In addition, for purposes of this
representation, shares of Company Common Stock exchanged by holders of Company
Common Stock for cash in lieu of fractional shares of Parent Common Stock will
be treated as outstanding Company Common Stock immediately prior to the Merger.
Moreover, for purposes of this representation, shares of Company Common Stock
and shares of Parent Common Stock received in the Merger and sold, redeemed or
disposed of prior to
<PAGE> 128
or subsequent to the Merger, in contemplation thereof or as part of a plan
therewith, will be considered in making this representation.
4. The Company and the stockholders of the Company will each pay their
respective expenses, if any, incurred in connection with the Merger, except in
the case of transfer taxes for which such stockholders are liable, which shall
be paid by the Company.
5. Following the Merger, the Company will hold at least 90 percent of the
fair market value of the net assets and at least 70 percent of the fair market
value of the gross assets the Company held immediately prior to the Merger. For
purposes of this representation, Company assets used to pay its reorganization
expenses and all redemptions and distributions (except for regular, normal
dividends) made by the Company immediately preceding, or in contemplation of,
the Merger will be included as assets of the Company prior to the Merger.
6. Except as provided in [list plans], immediately prior to the time of
the Merger, the Company will not have outstanding any warrants, options,
convertible securities or any other type of right pursuant to which any person
could acquire stock of the Company ("Company Stock").
7. In the Merger, shares of Company Stock representing at least 80% of the
total combined voting power of all classes of Company Stock outstanding on the
date of the Merger, and at least 80% of the total number of each other class of
Company Stock outstanding on the date of the Merger will be exchanged solely for
Parent Common Stock. For purposes of this representation, shares of Company
Stock exchanged for cash or other property originating with Parent will be
treated as outstanding stock of the Company on the date of the Merger.
8. The Company is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of 1986, as amended (the
"Code").
9. The Company will not take, and the Company is not aware of any plan or
intention of Company stockholders to take, any position on any Federal, state or
local income or franchise tax return, or take any other tax reporting position,
that is inconsistent with the treatment of the Merger as a reorganization within
the meaning of Section 368(a) of the Code, unless otherwise required by a
"determination" (as defined in Section 1313(a)(1) of the Code) or by applicable
state or local income or franchise tax law.
10. None of the compensation received by any stockholder-employee of the
Company in respect of periods at or prior to the Effective Time represents
separate consideration for, or is allocable to, any of their Company Common
Stock. None of the Parent Common Stock that will be received by Company
stockholder-employees in the Merger represents separately bargained-for
consideration which is allocable to any employment agreement or arrangement. The
compensation paid to any shareholder-employees will be for services actually
rendered and will be determined by bargaining at arm's-length.
11. There is no intercorporate indebtedness existing between Parent and
the Company or between Sub and the Company that was issued or acquired, or will
be settled, at a discount.
12. The Company is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
13. The Merger Agreement and the documents described in Section 9.9(a) of
the Merger Agreement represent the entire understanding of the Company, Parent
and Sub with respect to the Merger.
14. The Company Common Stock will be surrendered pursuant to the Merger in
an arms-length exchange, and the Parent Common Stock received in exchange
therefor represents the sole bargained-for consideration therefor.
MCDONNELL DOUGLAS CORPORATION
By:
------------------------------------
<PAGE> 129
EXHIBIT 7.1(g)(2)
[LETTERHEAD OF]
THE BOEING COMPANY
, 1997
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Dear Sirs:
In connection with the opinion to be delivered by you pursuant to the
Agreement and Plan of Merger (the "Merger Agreement") dated as of December 14,
1996, by and among The Boeing Company, a Delaware corporation ("Parent"),
McDonnell Douglas Corporation, a Maryland corporation (the "Company"), and West
Acquisition Corp., a Maryland corporation and a wholly owned subsidiary of
Parent ("Sub"), I certify that to the best of my knowledge and belief, after due
inquiry and investigation, as follows (any capitalized term used but not defined
herein shall have the meaning given to such term in the Merger Agreement):
1. The facts relating to the contemplated merger (the "Merger") of Sub
with and into the Company pursuant to the Merger Agreement, as described in the
Merger Agreement, the documents described in Section 9.9(a) of the Merger
Agreement and the joint proxy statement/prospectus prepared by Parent and the
Company, are, insofar as such facts pertain to Parent and Sub, true, correct and
complete in all material respects.
2. Except in the Merger, neither Parent nor Sub (nor any other subsidiary
of Parent) has acquired or prior to the Merger will acquire, or has owned in the
past five years, [any] shares of common stock of the Company ("Company Common
Stock").
3. Cash payments to be made to stockholders of the Company in lieu of
fractional shares of common stock of Parent ("Parent Common Stock") that would
otherwise be issued to such stockholders in the Merger will be made for the
purpose of saving Parent the expense and inconvenience of issuing and
transferring fractional shares of Parent Common Stock, and do not represent
separately bargained for consideration.
4. Prior to the Merger, Parent will own all the capital stock of Sub.
Parent has no plan or intention to cause the Company to issue additional shares
of its stock that would result in Parent owning less than all the capital stock
of the Company after the Merger.
5. Parent has no plan or intention, following the Merger, to reacquire any
of the Parent Common Stock issued in the Merger, other than through a stock
purchase program meeting the requirements of Section 4.05(1)(b) of Revenue
Procedure 96-30.
6. Parent has no plan or intention, following the Merger, to liquidate the
Company, to merge the Company with and into another corporation, to sell or
otherwise dispose of any of the stock of the Company, or to cause the Company to
sell or otherwise dispose of any of the assets held by the Company at the time
of the Merger, except for dispositions of such assets in the ordinary course of
business; provided, however, that Parent may transfer assets or stock of the
Company in a manner that is consistent with Section 368(a)(2)(C) of the Internal
Revenue Code of 1986, as amended (the "Code").
7. Parent and Sub will each pay their respective expenses, if any,
incurred in connection with the Merger.
<PAGE> 130
8. Following the Merger, Parent intends to cause the Company to continue
its historic business or use a significant portion of its historic business
assets in a business.
9. Neither Parent nor Sub is an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
10. Neither Parent nor Sub will take any position on any Federal, state or
local income or franchise tax return, or take any other tax reporting position,
that is inconsistent with the treatment of the Merger as a reorganization within
the meaning of Section 368(a) of the Code, unless otherwise required by a
"determination" (as defined in Section 1313(a)(1) of the Code) or by applicable
state or local income or franchise tax law.
11. None of the compensation received by any stockholder-employee of the
Company in respect of periods after the Effective Time represents separate
consideration for, or is allocable to, any of their Company Common Stock. None
of the Parent Common Stock that will be received by Company
stockholder-employees in the Merger represents separately bargained-for
consideration which is allocable to any employment agreement or arrangement. The
compensation paid to any shareholder-employees will be for services actually
rendered and will be determined by bargaining at arm's-length.
12. No stock of Sub will be issued in the Merger.
13. There is no intercorporate indebtedness existing between Parent and
the Company or between Sub and the Company that was issued or acquired, or will
be settled, at a discount.
14. The Merger Agreement and the documents described in Section 9.9(a) of
the Merger Agreement represent the entire understanding of the Company, Parent
and Sub with respect to the Merger.
15. Sub is a corporation newly formed for the purpose of participating in
the Merger and at no time prior to the Merger has had assets (other than nominal
assets contributed upon the formation of Sub, which assets will be held by the
Company following the Merger) or business operations. Sub will have no
liabilities assumed by the Company, and will not transfer to the Company any
assets subject to liabilities in the Merger.
16. The Company Common Stock will be surrendered pursuant to the Merger in
an arms-length exchange, and the Parent Common Stock received in exchange
therefor represents the sole bargained-for consideration therefor.
The Boeing Company,
By:
--------------------------------------
<PAGE> 131
EXHIBIT 7.1(g)(3)
[LETTERHEAD OF]
[MCDONNELL DOUGLAS CORPORATION STOCKHOLDER]
, 1997
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Dear Sirs:
In connection with the opinion to be delivered by you pursuant to the
Agreement and Plan of Merger (the "Merger Agreement") dated as of December 14,
1996, by and among The Boeing Company, a Delaware corporation ("Parent"),
McDonnell Douglas Corporation, a Maryland corporation (the "Company"), and West
Acquisition Corp., a Maryland corporation and a wholly owned subsidiary of
Parent ("Sub"), the undersigned certifies (to the best of its knowledge and
belief, where indicated), after due inquiry and investigation, as follows (any
capitalized term used but not defined herein shall have the meaning given to
such term in the Merger Agreement):
1. The undersigned has no present plan or intention to sell, exchange or
otherwise dispose of, reduce the risk of loss (by short sale or otherwise) of
the holding of, enter into any contract or other arrangement with respect to,
the sale, exchange or other disposition of (each of the foregoing, a
"disposition"), any interest in the shares of Parent common stock received in
the merger contemplated by the Merger Agreement (the "Merger"). For purposes of
this representation, shares of Company common stock and shares of Parent common
stock received in the Merger and sold, redeemed or disposed of prior to or
subsequent to the Merger, in contemplation thereof or as part of a plan
therewith, will be considered in making this representation.
2. The undersigned will not take any position on any Federal, state or
local income or franchise tax return, or take any other tax reporting position,
that is inconsistent with the treatment of the Merger as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), unless otherwise required by a "determination" (as defined in
Section 1313(a)(1) of the Code) or by applicable state or local income or
franchise tax law.
[McDONNELL DOUGLAS CORPORATION
STOCKHOLDER]
--------------------------------------
<PAGE> 132
ANNEX II
CS FIRST BOSTON LETTERHEAD
December 14, 1996
Board of Directors
The Boeing Company
7755 E. Marginal Way South
Seattle, WA 98108
Dear Members of the Board:
You have asked us to advise you with respect to the fairness to The Boeing
Company ("Boeing") from a financial point of view of the consideration to be
paid by Boeing pursuant to the terms of the Agreement and Plan of Merger, dated
as of December 14, 1996 (the "Merger Agreement"), among Boeing, West Acquisition
Corp., a wholly owned subsidiary of Boeing (the "Sub"), and McDonnell Douglas
Corporation ("McDonnell Douglas"). The Merger Agreement provides for, among
other things, the merger of Sub with and into McDonnell Douglas (the "Merger")
pursuant to which McDonnell Douglas will become a wholly owned subsidiary of
Boeing and each outstanding share of the common stock, par value $1.00 per
share, of McDonnell Douglas will be converted into the right to receive 0.65
(the "Exchange Ratio") of a share of the common stock, par value $5.00 per
share, of Boeing (the "Boeing Common Stock").
In arriving at our opinion, we have reviewed the Merger Agreement and certain
publicly available business and financial information relating to Boeing and
McDonnell Douglas. We have also reviewed certain other information relating to
Boeing and McDonnell Douglas, including financial forecasts provided to or
otherwise discussed with us by Boeing and McDonnell Douglas, and have discussed
the businesses and prospects of Boeing and McDonnell Douglas with their
respective managements.
We have also considered certain financial and stock market data of Boeing and
McDonnell Douglas, and we have compared that data with similar data for other
publicly held companies in businesses similar to those of Boeing and McDonnell
Douglas, and we have considered, to the extent publicly available, the financial
terms of certain other business combinations and other transactions which have
recently been effected. We also considered such other information, financial
studies, analyses and investigations and financial, economic and market criteria
which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that such forecasts have been prepared on
bases reflecting reasonable estimates and judgments as to the future financial
performance of Boeing and McDonnell Douglas and the cost savings and other
potential synergies (including the amount, timing and achievability thereof)
anticipated to result from the Merger. In addition, we have not been requested
to make and have not made an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of Boeing or McDonnell Douglas, nor
have we been furnished with any such evaluations or appraisals. Our opinion is
necessarily based upon information available to us, and financial, economic,
market and other conditions as they exist and can be evaluated, on the date
hereof. We are not expressing any opinion as to what the value of the Boeing
Common Stock actually will be when issued to McDonnell Douglas's stockholders
pursuant to the Merger or the prices at which the Boeing Common Stock will trade
subsequent to the Merger.
We have acted as financial advisor to Boeing in connection with the Merger and
will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Merger. In the past, we have performed
certain investment banking services for Boeing, for which services we have
received customary compensation.
<PAGE> 133
CS FIRST BOSTON LETTERHEAD
In the ordinary course of business, CS First Boston and its affiliates may
actively trade the debt and equity securities of both McDonnell Douglas and
Boeing for their own accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of Boeing in connection with its consideration of the Merger, does not
constitute a recommendation to any stockholder as to how such stockholder should
vote on the proposed issuance of Boeing Common Stock in connection with the
Merger, and is not to be quoted or referred to, in whole or in part, in any
registration statement, prospectus or proxy statement, or in any other document
used in connection with the offering or sale of securities, nor shall this
letter be used for any other purposes, without CS First Boston's prior written
consent.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Exchange Ratio is fair to Boeing from a financial point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION
<PAGE> 134
ANNEX III
JP MORGAN LETTERHEAD
December 14, 1996
The Board of Directors
McDonnell Douglas Corporation
P.O. Box 516
St. Louis, Missouri 63166-0516
Attention: John F. McDonnell, Chairman of the Board
Harry C. Stonecipher, President and Chief Executive Officer
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of McDonnell Douglas Corporation (the "Company") of
the consideration proposed to be paid to them in connection with the proposed
merger (the "Merger") of the Company with The Boeing Company (the "Buyer").
Pursuant to the Agreement and Plan of Merger, dated as of December 14, 1996 (the
"Agreement"), among the Company, the Buyer and West Acquisition Corp. (the
"Merger Subsidiary"), the Company will become a wholly-owned subsidiary of the
Buyer, and stockholders of the Company will receive for each share of common
stock of the Company held by them consideration equal to 0.65 shares of common
stock of the Buyer.
In arriving at our opinion, we have reviewed (i) the Agreement; (ii) certain
publicly available information concerning the business of the Company and of
certain other companies engaged in businesses comparable to those of the
Company, and the reported market prices for certain other companies' securities
deemed comparable; (iii) publicly available terms of certain transactions
involving companies comparable to the Company and the consideration received for
such companies; (iv) current and historical market prices of the common stock of
the Company and the Buyer; (v) the audited financial statements of the Company
and the Buyer for the fiscal year ended December 31, 1995, and the unaudited
financial statements of the Company and the Buyer for the period ended September
30, 1996; (vi) certain agreements with respect to outstanding indebtedness or
obligations of the Company and the Buyer; (vii) certain financial analyses and
forecasts prepared by the Company and its management; and (viii) the terms of
other business combinations that we deemed relevant.
In addition, we have held discussions with certain members of the management of
the Company and the Buyer with respect to certain aspects of the Merger, and the
past and current business operations of the Company and the Buyer, the financial
condition and future prospects and operations of the Company and the Buyer, the
effects of the Merger on the financial condition and future prospects of the
Company and the Buyer, and certain other matters we believed necessary or
appropriate to our inquiry. We have reviewed such other matters we believed
necessary or appropriate to our inquiry. We have reviewed such other financial
studies and analyses and considered such other information as we deemed
appropriate for the purposes of this opinion.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the Company or otherwise reviewed by us, and
we have not assumed any responsibility or liability therefor. We have not
conducted any valuation or appraisal of any assets or liabilities, nor have any
such valuations or appraisals been provided to us. In relying on financial
analyses and forecasts provided to us, we have assumed that they have been
reasonably prepared based on assumptions reflecting the best currently available
estimates and judgments by management as to the expected future results of
operations and financial condition of the Company to which such analyses or
forecasts relate. We have also assumed that the Merger will be tax free
<PAGE> 135
JP MORGAN LETTERHEAD
and that the other transactions contemplated by the Agreement will be
consummated as described in the Agreement. We have relied as to all legal
matters relevant to rendering our opinion upon the advice of counsel.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect this opinion and
that we do not have any obligation to update, revise, or reaffirm this opinion.
We are expressing no opinion herein as to the price at which the Buyer's common
stock will trade at any future time.
We have acted as financial advisor to the Company with respect to the proposed
Merger and will receive a fee from the Company for our services. We will also
receive an additional fee if the proposed Merger is consummated. In the ordinary
course of their businesses, our affiliates may actively trade the debt and
equity securities of the Company or the Buyer for their own account or for the
accounts of customers and, accordingly, they may at any time hold long or short
positions in such securities.
On the basis of and subject to the foregoing, it is our opinion as of the date
hereof that the consideration to be paid to the Company's stockholders in the
proposed Merger is fair, from a financial point of view, to such stockholders.
This letter is provided to the Board of Directors of the Company in connection
with and for the purposes of its evaluation of the Merger. This opinion does not
constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote with respect to the Merger. This opinion may not be
disclosed, referred to, or communicated (in whole or in part) to any third party
for any purpose whatsoever except with our prior written consent in each
instance. This opinion may be reproduced in full in any proxy or information
statement mailed to stockholders of the Company but may not otherwise be
disclosed publicly in any manner without our prior written approval and must be
treated as confidential.
Very truly yours,
J.P. MORGAN SECURITIES INC.
By: /s/ THOMAS L. JONES
--------------------------------------------------------
Name: Thomas L. Jones
Title: Managing Director
<PAGE> 136
SOLICITED BY THE BOARD OF DIRECTORS
THE BOEING COMPANY
SPECIAL MEETING OF SHAREHOLDERS
JULY 25, 1997
The undersigned hereby appoints Charles M. Pigott, Frank Shrontz, and
George H. Weyerhaeuser (the "Proxy Committee"), and each or any of them, with
power of substitution, proxies for the undersigned and authorizes them to
represent and vote all of the shares of stock of the Company which the
undersigned may be entitled to vote at the Special Meeting of Shareholders to be
held July 25, 1997 (the "Meeting"), and at any adjournment or postponement
thereof, as indicated on the reverse side of this card with respect to Proposal
1, and with discretionary authority as to any other matters that may properly
come before the Meeting, in accordance with and as described in the Notice and
Joint Proxy Statement for the Meeting.
If there are shares of stock allocated to the undersigned in Fund E of The
Boeing Company Voluntary Investment Plan, the undersigned hereby instructs the
Trustee to vote all of such shares at the Meeting and any adjournment or
postponement thereof, as indicated on the reverse side of this card with respect
to Proposal 1, and authorizes the Trustee to vote in its judgment or to empower
the Proxy Committee to vote in the Proxy Committee's judgment, on such other
business as may properly come before the Meeting and any adjournment thereof.
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSAL 1.
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<S> <C>
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SEE REVERSE
IMPORTANT: TO BE SIGNED AND DATED ON THE REVERSE SIDE
SIDE
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Please mark
votes as in
X this example.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
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FOR AGAINST ABSTAIN
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1. Approve the Share Issuance, as described in the
accompanying Joint Proxy Statement/Prospectus.
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MARK HERE FOR
ADDRESS MARK HERE FOR
CHANGE AND COMMENTS AND
NOTE AT LEFT NOTE AT LEFT
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BOEING
Please sign exactly as your name appears on your account.
If the shares are registered in the names of two or more
persons, each should sign. If acting as attorney,
executor, trustee or in another representative capacity,
sign name and title.
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<S> <C> <C> <C>
Signature: Date: Signature: Date:
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