<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
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 Section Rule 14a-11(c) or
Rule 14a-12
MCDONNELL DOUGLAS CORPORATIOM
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(l)(ii), 14a-6(i)(l), or
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[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:
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<PAGE> Page 1
MCDONNELL DOUGLAS CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF MCDONNELL DOUGLAS CORPORATION
The Annual Meeting of Shareholders of McDonnell Douglas
Corporation (McDonnell Douglas or the Company) will be held at
nine o'clock on the morning of Friday, April 26, 1996, at the
Company's Engineering Campus Auditorium (Bldg. 33) at Lindbergh
Blvd. and McDonnell Blvd., in St. Louis County, Missouri. The
purpose of the meeting is to consider and vote upon:
1. The election of four directors (page 2).
2. A proposal to amend and restate the Company's Charter to
increase the number of authorized shares of common stock
from 200,000,000 to 400,000,000 shares in order to permit,
among other things, a 2-for-1 stock split (page 27).
3. If properly brought before the meeting, a shareholder
proposal regarding foreign military sales (page 29).
4. If properly brought before the meeting, a shareholder proposal
regarding the composition of the Nominating Committee (page 31).
5. Such other matters as may properly come before the meeting.
Shareholders of record at the close of business on March 1, 1996
will be entitled to receive notice of and to vote at the meeting
and any adjournments thereof. The Annual Report to Shareholders
for the year ended December 31, 1995 was mailed to such shareholders
on or about March 15, 1996.
Shareholders are cordially invited to attend the meeting. If
you are a shareholder of record and plan to attend, please mark
the appropriate box on the enclosed proxy card. If you are a
shareholder whose shares are registered with a bank, brokerage
firm, or other record holder and you plan to attend the meeting,
please request an admission card by writing to McDonnell Douglas
Corporation, Attn: Shareholder Services, Mail Code 1001240,
P.O. Box 516, St. Louis, MO 63166-0516. Evidence of your stock
ownership, which you can obtain from your bank, stockbroker, or
other record holder, must accompany your letter. To assure timely
processing, please mail your request so that McDonnell Douglas
receives it by April 19, 1996. An admittance card in your name
will be mailed to you promptly. Any shareholder who does not have
a ticket may still register at the door; however, those whose shares
are held in street accounts must also bring proof of stock ownership.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, THE BOARD OF
DIRECTORS URGES YOU TO SIGN, DATE, AND RETURN THE ENCLOSED PROXY
IN THE ENVELOPE PROVIDED AT YOUR EARLIEST CONVENIENCE.
By order of the Board of Directors,
STEVEN N. FRANK
Secretary
March 26, 1996
<PAGE> Page 2
MCDONNELL DOUGLAS CORPORATION
P.O. Box 516, St. Louis, Missouri 63166-0516
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
To be held Friday, April 26, 1996
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of McDonnell
Douglas for use at the Annual Meeting of Shareholders, as set
forth in the accompanying Notice of Annual Meeting of
Shareholders, and at all adjournments thereof. The approximate
mailing date of the form of proxy and Proxy Statement is
expected to be March 26, 1996. Each holder of record of
McDonnell Douglas common stock (MDC Stock) at the close of
business on March 1, 1996 will be entitled to one vote for each
share so held. There were 111,043,428 shares of MDC Stock
outstanding on that date.
The presence at the meeting in person or by proxy of holders of
a majority of the outstanding shares is necessary to constitute
a quorum for the conduct of business. Shares represented by
each duly signed proxy will be voted as directed by the
shareholder on the reverse side of the proxy and, if no
direction is given, such shares will be voted FOR proposals 1
and 2 and AGAINST proposals 3 and 4 described in this Proxy
Statement, and in accordance with the best judgment of the
persons named as proxies on any other matters coming before the
meeting. Unless otherwise indicated, proxies marked "abstain"
will be treated as present for purposes of determining a quorum
for the meeting, but will not be counted as voting in respect of
any matter as to which abstention is indicated. If a broker or
other nominee indicates on the proxy that it does not have
discretionary authority as to certain shares to vote on a
particular matter, such shares will be treated as present and
entitled to vote for purposes of determining the presence of a
quorum but as non-voted for purposes of determining the approval
of such matter.
1. ELECTION OF FOUR DIRECTORS
--------------------------
The Company's Bylaws provide that the number of directors shall
be thirteen and may be increased or decreased upon an
affirmative vote of not less than 80% of the entire Board but
shall never be less than three. After the election, the Board
will consist of thirteen members. The Company's Charter
provides for division of the directors into three classes, each
of which must consist, as nearly as possible, of one-third of
the total number of directors.
<PAGE>
Four directors are to be elected at the Annual Meeting. The
affirmative vote of a plurality of all the votes cast at a
meeting at which a quorum is present is required for the
election of each nominee. The nominees for directors are B. A.
(Dolph) Bridgewater, Jr., William E. Cornelius, William S.
Kanaga and George A. Schaefer, all of whom were previously
elected by the Company's shareholders. The Board recommends
that the nominees be elected for terms ending in 1999 and until
their respective successors have been elected and qualify. Under
the director retirement policy adopted by the Board, a director
must retire from the Board at the Annual Meeting of Shareholders
following his or her 71st birthday. Consequently, if elected,
Page 3
William S. Kanaga must retire from the Board at the
1997 Annual Meeting of Shareholders. Proxies may not be voted
for a greater number of persons than the number of nominees named.
The Board of Directors does not contemplate that any of the
nominees will be unable to stand for election, but should any
nominee become unavailable for election, all proxies (except
proxies marked to the contrary) will be voted for the election
of a substitute nominee nominated by the Board of Directors.
The principal occupations, directorships held and other
information as of January 31, 1996 with respect to the nominees
and all directors whose terms will continue after the Annual
Meeting are shown in the following table.
<TABLE>
<CAPTION>
To Be Elected for Terms Ending 1999
- ---------------------------------------------------------------------------
<S> <C>
(Photo B. A. (Dolph) Bridgewater, Jr. Director since 1985 Age 61
Omitted)
Chairman and Chief Executive Officer of Brown Group, Inc.
(footwear and specialty retailing) since 1985; President
1979-1987 and since January 1990. Director of Boatmen's
Bancshares, Inc., ENSERCH Corporation, Enserch
Exploration, Inc., and FMC Corporation.
- --------------------------------------------------------------------------
(Photo William E. Cornelius Director since 1986 Age 64
Omitted)
Chairman and Chief Executive Officer of Union Electric
Company (electric utility) for more than four years until
his retirement in December 1993. Director of Boatmen's
Bancshares, Inc., General American Life Insurance
Company, and Union Electric Company.
<PAGE>
- -------------------------------------------------------------------------
(Photo William S. Kanaga Director since 1987 Age 70
Omitted)
Chairman of the public accounting firm of Arthur Young &
Company for more than five years prior to his retirement
in 1985. Director of Value Line, Inc.
- --------------------------------------------------------------------------
(Photo George A. Schaefer Director since 1990 Age 67
Omitted)
Chairman and Chief Executive Officer of Caterpillar Inc.
(manufacturer of machinery) for more than five years
prior to his retirement in 1990. Director of Aon
Corporation, Caterpillar Inc., Helmerich & Payne, Inc.,
and Morton International, Inc.
Page 4
To Continue in Office Until 1998
- --------------------------------------------------------------------------
(Photo John H. Biggs Director since 1989 Age 59
Omitted)
Chairman and Chief Executive Officer of Teachers
Insurance and Annuity Association of America and of
College Retirement Equities Fund (TIAA/CREF) (national
teachers' pension fund) since January 1993; President and
Chief Operating Officer from January 1989 to January
1993. Trustee of TIAA/CREF. Director of Ralston Purina
Company.
- -------------------------------------------------------------------------
(Photo James S. McDonnell III (1) Director since 1975 Age 60
Omitted)
McDonnell Douglas Vice President for more than five years
prior to his retirement in January 1991. Director of
Boatmen's Trust Company.
- --------------------------------------------------------------------------
(Photo Harry C. Stonecipher Director since 1994 Age 59
Omitted)
McDonnell Douglas President and Chief Executive Officer
since September 1994. Chairman and Chief Executive
Officer of Sundstrand Corporation (manufacturer of
aerospace and electronic equipment) 1991-1994; President
1987-1991. Director of The Business Council, Cincinnati
Milacron Inc., Computer Management Sciences, Inc., and
Sentry Insurance.
<PAGE>
- --------------------------------------------------------------------------
(Photo P. Roy Vagelos, M.D. Director since 1995 Age 66
Omitted)
Chairman of Merck & Co., Inc. (manufacturer of health
products) for more than five years prior to his
retirement in 1994; Chief Executive Officer 1985-1994.
Chairman of the Board of Regeneron Pharmaceuticals, Inc.
Director of The Estee Lauder Companies Inc., PepsiCo,
Inc., and The Prudential Insurance Company of America.
- ---------------------------------------------------------------------------
Page 5
To Continue in Office Until 1997
- --------------------------------------------------------------------------
(Photo Beverly B. Byron Director since 1994 Age 63
Omitted)
Former Member of Congress, Maryland's Sixth District in
the House of Representatives 1978-1992. Member of the
1993 Defense Base Closure and Realignment Commission.
Director of Baltimore Gas and Electric Company, F&M
Bancorp, and UNC Incorporated.
- --------------------------------------------------------------------------
(Photo William H. Danforth, M.D. Director since 1976 Age 69
Omitted)
Chancellor of Washington University, St. Louis, for more
than five years prior to his retirement in June 1995.
Director of Ralston Purina Company and Ralcorp Holdings, Inc.
- -------------------------------------------------------------------------
(Photo Kenneth M. Duberstein Director since 1989 Age 51
Omitted)
Chairman and Chief Executive Officer of The Duberstein
Group, Inc. (consulting firm) since 1989. White House
Chief of Staff 1988-1989. Director of CINergy Corp.
- -------------------------------------------------------------------------
(Photo John F. McDonnell (1) Director since 1973 Age 57
Omitted)
McDonnell Douglas Chairman since 1988 and Chief Executive
Officer 1988-1994. Director of Ralston Purina Company.
Chairman of the Board of The Federal Reserve Bank of
St. Louis.
<PAGE>
- ---------------------------------------------------------------------------
(Photo Ronald L. Thompson Director since 1994 Age 46
Omitted)
President and Chairman of The GR Group, Incorporated
(manufacturer of assemblies) since 1980. Chairman and
Chief Executive Officer of Midwest Stamping, Inc.
(automotive parts supplier) since 1993. Director of
Illinova Corporation, Illinois Power Company, and
Teachers Insurance and Annuity Association of America.
- -----------------------------
(1) J. S. McDonnell III and J. F. McDonnell are brothers.
</TABLE>
Page 6
THE BOARD AND ITS COMMITTEES
The Board of Directors held six regularly scheduled meetings,
one special meeting and two telephonic meetings during 1995.
Each incumbent director attended over 87% of the aggregate of
all Board meetings and meetings of committees of the Board of
which the director was a member. The committees of the Board
are the Audit Committee, the Corporate Responsibility Committee,
the Executive Committee, the Finance Committee, the Management
Compensation and Succession Committee, and the Nominating Committee.
Audit Committee
- ---------------
The Audit Committee consists of W. S. Kanaga (Chairman), J. H.
Biggs, B. B. Byron and W. E. Cornelius. In accordance with the
Company's Bylaws, each of these committee members is independent
of management and free from any relationships that, in the
opinion of the Board, would interfere with the exercise of
independent judgment. This committee oversees the Company's
financial reporting on behalf of the Board of Directors;
recommends to the Board of Directors the independent auditors to
perform the annual audit; reviews with the independent auditors
the proposed scope of fees for, and the results of, the annual
audit; reviews with the independent auditors, the internal
auditors, and McDonnell Douglas management the financial
reporting process, the system of internal controls, and the
scope and results of independent and internal audits; considers
the audit and non-audit services provided by the independent
auditors, the proposed fees to be charged for each type of
service, and the effect of non-audit services on the
independence of the independent auditors; meets periodically
with the Company's head of Internal Auditing and the independent
auditors, without management present, to facilitate private
communication on any subjects desired; and performs such other
tasks as may be assigned to it from time to time by the Board.
The committee met four times in 1995.
<PAGE>
Corporate Responsibility Committee
- ----------------------------------
The Corporate Responsibility Committee consists of K. M.
Duberstein (Chairman), B. B. Byron, J. S. McDonnell III and
R. L. Thompson. This committee considers the Company's position on
issues of corporate responsibility. The committee monitors and
provides suggestions concerning the Company's programs for
defining and implementing its Standards of Ethics and Conduct,
ethics training programs and related documents, and monitors and
provides suggestions relative to human resources, environmental,
worker health and safety. The committee met three times in 1995.
Executive Committee
- --------------------
The Executive Committee consists of J. F. McDonnell (Chairman),
B. A. Bridgewater, Jr., W. E. Cornelius, W. H. Danforth and
H. C. Stonecipher. This committee has been delegated authority to
exercise all powers of the Board in the intervals between
meetings of the Board of Directors, except those powers
delegated to other Board committees, and those which by statute,
Charter or Bylaws are reserved to the full Board. The committee did
not meet in 1995.
Page 7
Finance Committee
- -----------------
The Finance Committee consists of J. H. Biggs (Chairman), B. A.
Bridgewater, Jr. and R. L. Thompson. This committee reviews
with management, and makes appropriate recommendations and
reports to the Board of Directors on the Company's financial
condition and requirements. Such reviews include:
capitalization and debt levels; dividend policy; investment
performance of pension and employee savings plans; financial
resources for new product development and product derivatives in
excess of amounts delegated by the Board to management; policy
limitations on contingent liabilities and guarantees of commercial
aircraft sales and financings; the financing alternatives for
acquisitions, dispositions and mergers larger than delegated by the
Board to management; and other matters which may have significant
financial impact on the financial condition or operations of
McDonnell Douglas. The committee met four times in 1995.
Management Compensation and Succession Committee
- ------------------------------------------------
The Management Compensation and Succession Committee consists of
B. A. Bridgewater, Jr. (Chairman), W. S. Kanaga, G. A. Schaefer
and P. R. Vagelos. This committee monitors executive evaluation
and development; recommends the staffing of senior positions;
recommends to the full Board Chief Executive Officer succession;
and has full power to administer the Company's executive
compensation plans. Members of the committee are ineligible to
participate in these plans. The committee is composed
exclusively of directors who are not employees or former employees
of McDonnell Douglas. The committee met nine times in 1995.
<PAGE>
Nominating Committee
- --------------------
The Nominating Committee consists of W. H. Danforth (Chairman),
K. M. Duberstein, G. A. Schaefer and P. R. Vagelos (effective
January 26, 1996). In accordance with the Company's Bylaws,
each of these committee members is independent of management and
free from any relationships that, in the opinion of the Board,
would interfere with the exercise of independent judgment. The
committee proposes to the Board nominees for directors of
McDonnell Douglas and members and chairmen of committees of the
Board. It also makes recommendations to the Board concerning
the structure, size, composition, and operation of the Board and
its committees, and the qualification, compensation, and
retirement policy of directors. The committee also recommends
nominees to the boards of directors of the Company's principal
wholly-owned subsidiaries. The committee met three times in 1995.
The Nominating Committee will consider director nominee
recommendations by shareholders who write to Steven N. Frank,
Secretary, providing the name and a detailed biography of each
prospective nominee. In January each year, the Nominating
Committee generally proposes to the Board nominees for directors
to be elected at the Company's next Annual Meeting of
Shareholders. Therefore, in order to be considered for nomination
by the Board of Directors and inclusion in the Company's Proxy
Statement, prospective nominee recommendations should be received
by the Secretary during the first week of January.
Page 8
Compensation Paid to Board Members
Compensation for Services Performed in the First Quarter of 1995
- ----------------------------------------------------------------
During the first quarter of 1995, non-employee directors were
each paid a Board retainer of $5,000, an attendance fee of
$2,000 plus expenses for each regular and special meeting of the
Board held during normal business hours, and $500 plus expenses
for each dinner meeting. In addition, the chairman of each
committee was paid a quarterly retainer of $750, other members
of each of the committees were paid a quarterly retainer of
$250, and committee chairmen and committee members were paid
$800 plus expenses for each committee meeting attended.
Employee directors received no remuneration for service as a
director or as a member or chairman of a committee.
Non-employee directors also participated in the McDonnell
Douglas Deferred Compensation Plan for Non-Employee Directors
(the Non-Employee Director Plan). Under the Non-Employee
Director Plan, directors who are not employed by McDonnell
Douglas elected to receive, as an addition to their annual
retainer, 450 restricted shares of MDC Stock or an equivalent
amount of cash. The stock and the cash are issued or paid
within 60 days after each Annual Meeting of Shareholders for
services performed during the twelve months preceding the Annual
Meeting and are subject to restrictions on transfer. Prior to
<PAGE>
the director compensation changes discussed below, neither the
stock nor the cash vested until the director became disabled,
resigned due to a conflict of interest not involving a
breach of fiduciary duty, died or retired from the Board in
accordance with requirements established by the Board. In
conjunction with the director compensation changes discussed
below, the vesting provisions of the Non-Employee Director Plan
were amended to provide that the shares and cash will vest on
the earlier of the factors listed above or ten years from the
date of grant if still serving as a director. In conjunction
with the director compensation changes discussed below, the 450
shares of restricted stock that would have been payable for
services rendered in the twelve months prior to the April 1995
Annual Meeting under the Non-Employee Director Plan were paid
instead as McDonnell Douglas stock equivalents.
Nonvested restricted shares, stock equivalents and cash awarded
under the Non-Employee Director Plan are held by the Treasurer
of McDonnell Douglas. Directors who elected to receive MDC
Stock under the Non-Employee Director Plan receive dividends on
and exercise voting rights with respect to the restricted
shares. Directors receive dividend equivalent payments in the
form of additional stock equivalents but do not exercise voting
rights with respect to the stock equivalents. Directors who
elected to receive cash under the Non-Employee Director Plan do
not receive interest.
Amendments to Director Compensation
- -----------------------------------
In order to more closely align the interests of the Company's
directors with its shareholders, during the first quarter of
1995 McDonnell Douglas redesigned its director compensation program
effective April 1, 1995. Effective April 1, 1995, the annual cash
Board retainer of $20,000 and payments in stock or cash (valued at
approximately $22,500 at the time the decision to redesign the program
was made) under the Non-Employee Director Plan for service
Page 9
years beginning after April 1995 were discontinued. In their place,
directors receive McDonnell Douglas stock equivalent units (Stock
Units). The value of one Stock Unit is equal to the fair market
value of one share of MDC Stock. The number of Stock Units paid
is fixed in January of each year, based on a dollar amount determined
by the Board and the fair market value of MDC Stock, with the number of
Stock Units paid in four equal quarterly installments. For 1995,
the Board retainer was one thousand Stock Units, payable in quarterly
installments of 250 Stock Units, based on the MDC Stock price of
approximately $50.00 per share at the time the Board retainer amount
of $50,000 was determined. Beginning in 1996, future fair market
valuations will use the average closing price of MDC Stock during
the ten business day period beginning on the third business day
following the Company's annual earnings release. For 1996, the
annual Board retainer will equal 570 Stock Units, paid in four equal
quarterly installments, based on a Board retainer amount of $50,000
and the fair market value calculation discussed above. In addition,
<PAGE>
directors annually elect whether to receive committee retainers and
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 Board for any reason. Directors
may make an advance election to receive this cash in a lump sum or
in post-termination installments.
To attract and retain qualified directors, it is not uncommon
for publicly traded companies to augment director compensation
with director retirement plans that continue to compensate
directors after their service to a company has ended. McDonnell
Douglas has chosen not to adopt such a plan. The new Board
compensation program has been designed to make overall
compensation of the Company's directors competitive, while at
the same time more closely aligned to shareholders' interests.
Other Director Compensation
- ---------------------------
In 1992, McDonnell Douglas entered into a consulting agreement
with K. M. Duberstein to provide certain services in regard to
an analysis of the disposition, by settlement or through
litigation, of a matter involving McDonnell Douglas. Under the
agreement, McDonnell Douglas agreed to pay Mr. Duberstein a
quarterly retainer of $20,000, plus reimbursement for expenses
incurred on behalf of McDonnell Douglas. Upon successful
completion of such services, the agreement was terminated
effective March 31, 1995.
Page 10
OWNERSHIP OF MDC STOCK
The following table shows the beneficial ownership of MDC Stock
and Stock Units as of January 31, 1996, unless otherwise
indicated in the footnotes below, by each director,
each nominee, the Chief Executive Officer, the four other most
highly compensated executive officers, all directors, nominees
and executive officers of McDonnell Douglas as a group, and each
person McDonnell Douglas believes holds more than 5% of the
outstanding MDC Stock. An asterisk in the column listing the
percentage of shares beneficially owned indicates the person
owns less than one 1/100th of one percent of MDC Stock as of
January 31, 1996.
<PAGE>
<TABLE>
<CAPTION>
Percent of
Number of Shares MDC Stock Number of
Name Beneficially Owned Outstanding Stock Units
(1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John H. Biggs 8,100 (2) (3) * 1,205 (4)
B. A. (Dolph) Bridgewater, Jr. 6,600 (3) (5) * 1,205 (4)
Beverly B. Byron 1,084 (2) (3) * 1,205 (4)
John P. Capellupo 45,357 (2) (6) .04% 0
William E. Cornelius 8,100 (2) (3) * 1,205 (4)
William H. Danforth, M.D. 5,910 (3) (7) * 1,331 (4)
Kenneth M. Duberstein 2,100 (2) (3) * 1,340 (4)
Robert H. Hood, Jr. 41,900 (2) (6) .04% 0
William S. Kanaga 5,600 (3) (5) * 1,377 (4)
Herbert J. Lanese 49,540 (2) (6) .05% 0
James S. McDonnell III 3,826,138 (2) (8) 3.44% 1,205 (4)
John F. McDonnell 2,495,532 (2) (6) (8) 2.24% 36,260 (9)
George A. Schaefer 3,600 (2) (3) * 1,205 (4)
Harry C. Stonecipher 60,490 (2) (6) .05% 181,300 (9)
Ronald L. Thompson 0 * 1,303 (4)
P. Roy Vagelos, M.D. 1,392 (10) * 865 (4)
All directors and executive officers
as a group (32 persons) 6,758,671 (6) (8) (11) 6.07% 231,005
The Chase Manhattan Bank, N.A. 19,490,142 (12) 17.52% 0
Oppenheimer Group, Inc. 12,561,993 (13) 11.29% 0
</TABLE>
- ----------------------------
(1) Rounded to nearest 1/100th of one percent; does not include
Stock Units.
(2) Shares as to which the director or executive officer has
sole voting and dispositive power.
(3) Includes stock issued under the McDonnell Douglas Deferred
Compensation Plan for Non-Employee Directors, subject to the
restrictions described on page 8, in the following amounts:
Messrs. Biggs, Bridgewater, Cornelius, Danforth, Duberstein,
Kanaga and Schaefer 600 shares, and Mrs. Byron 84 shares.
(4) Stock Units, payable only in cash, issued as Board compensation as
described on pages 8-9, and as dividend equivalent payments thereon.
Page 11
(5) The director has sole voting and dispositive power for 600
shares. The remaining shares are held as joint tenant for
which there is shared voting and dispositive power.
<PAGE>
(6) Includes shares issued under the Performance Accelerated
Restricted Stock Program through February 29, 1996, subject
to the restrictions described in the Management
Compensation and Succession Committee Report on Executive
Compensation on pages 12-16, in the following amounts:
Mr. Stonecipher 60,000 shares (all of which are subject to
forfeiture if certain performance targets are not met,
"Performance-Based Shares"); Mr. McDonnell 30,000 shares
(all of which are Performance-Based Shares); Mr. Capellupo
45,000 shares (37,500 of which are Performance-Based
Shares); Mr. Hood 29,000 shares (23,000 of which are
Performance-Based Shares); and Mr. Lanese 42,000 shares
(34,500 of which are Performance-Based Shares).
(7) The director has sole voting and dispositive power for
2,400 shares. The remaining shares are held as a co-trustee
for which there is shared voting and/or dispositive power.
(8) Excludes an additional 6,937,008 shares held by the James
S. McDonnell Foundation and 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, nominees and executive officers as a
group beneficially own 9.67%, 8.48%, and 12.31%,
respectively, of the outstanding MDC Stock.
(9) As discussed in the Management Compensation and Succession
Committee Report on Executive Compensation on pages 12-16,
payments to certain executives were deferred to the extent
such payments would have been nondeductible under Internal
Revenue Code Section 162(m). Indicated Stock Units, payable
only in cash, were acquired by Mr. John McDonnell as a result
of the deferral of his 1995 LTIP payout and 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.
(10) The director has shared voting and dispositive power as
the shares are held as joint tenant.
(11) Includes shares as to which a director or executive officer
has sole or shared voting and/or dispositive power and 5,000
shares which an executive officer has the right to acquire upon
the exercise of stock options.
(12) Shares held of record by The Chase Manhattan Bank, N.A.,
Chase Manhattan Center, Brooklyn, New York 11245 as
Trustee under the Employee Savings, Investment and Thrift
Plans and the Employee Payroll Stock Ownership Plan
(PAYSOP) of McDonnell Douglas. The Trustee has dispositive
power for these shares to the extent necessary to follow
<PAGE>
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 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 MDC 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.
(13) Based on Schedule 13G dated February 1, 1996, by
Oppenheimer Group, Inc. (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 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 MDC Stock. Oppenheimer Group, Inc. has shared
dispositive and voting power with respect to all such shares.
Page 12
COMPLIANCE WITH SECTION 16(a)
OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (Exchange
Act) requires the Company's directors, executive officers, and
persons who beneficially own more than ten percent of a
registered class of the Company's equity securities, to file
reports of ownership and changes in ownership on Forms 3, 4 and
5 with the Securities and Exchange Commission (SEC) and the New
York Stock Exchange. Directors, executive officers, and greater
than ten percent shareowners are required by SEC regulation to
furnish McDonnell Douglas with copies of all Forms 3, 4 and 5
they file.
Based solely on the Company's review of the copies of such forms
it has received, or written representations from certain
reporting persons that no Forms 5 were required for these
persons, McDonnell Douglas believes that all its directors,
executive officers, and greater than ten percent beneficial
owners complied with all filing requirements applicable to them
with respect to transactions during 1995.
<PAGE>
MANAGEMENT COMPENSATION AND SUCCESSION
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Philosophy
- -----------------------
Under the direction of the Committee, McDonnell Douglas has
developed and implemented compensation policies, plans and
programs designed to attract, motivate, reward and retain key
management, technical and professional employees who contribute
to the success of McDonnell Douglas, and closely link management
compensation and equity ownership opportunity to McDonnell
Douglas performance and enhancement of shareholder value.
In developing compensation plans and setting compensation
levels, the Committee has examined compensation and plans
offered by other Fortune 100 companies, including companies in
the S&P Aerospace Defense index (collectively, the Comparative
Companies), and has retained and considered the recommendations
of compensation consultants.
The balance of this report:
1. Describes the McDonnell Douglas Executive Compensation Program and
the basis for 1995 management base salaries, incentive awards, and
long-term incentives; and
2. Discusses the 1995 compensation of the Chief Executive Officer.
Executive Compensation Program
- ------------------------------
The 1995 compensation program consists of two parts: annual
target cash compensation (which consists of base salary and
annual incentives) and long-term incentives. Annual incentive
awards are made under the Company's Incentive Award Plan (IA
Plan), which was approved by McDonnell Douglas shareholders in
1986, or for certain senior executives, under the Company's
Senior Executive Performance Sharing Plan (Senior Executive
PSP), which was approved by McDonnell Douglas shareholders in
1995. Prior to 1994, long-term incentives were
Page 13
also made under the IA Plan. Long-term incentive awards are currently
made under the Company's 1994 Performance and Equity Incentive Plan
(PEIP), which was approved by McDonnell Douglas shareholders in 1994.
Internal Revenue Code Section 162(m) limits the deductibility of
certain compensation in excess of $1 million for the Company's
Chief Executive Officer and its four other highest paid
executives. Certain performance-based compensation, however, is
specifically exempt from the deduction limit if paid under a
shareholder approved plan. Although the Company's incentive
compensation programs historically have been designed to reward
executives for achievement of the Company's performance
objectives, the IA Plan does not meet certain technical
requirements of Section 162(m). Therefore, on the Committee's
<PAGE>
recommendation, McDonnell Douglas submitted the Senior Executive
PSP to its shareholders for approval at the 1995 Annual Meeting
of Shareholders to make possible the maximum allowable tax
deductibility of annual incentive compensation paid under this
program in 1995 and thereafter. For awards previously made
under the IA Plan, the Committee has deferred annual and
long-term incentive payments from the IA Plan to the extent such
payments would be nondeductible under Section 162(m). The
Committee will continue to endeavor to maximize deductibility of
compensation to the extent practicable while maintaining
competitive compensation.
Annual Compensation
- -------------------
Executives participate in one of two annual incentive plans.
Annual incentive compensation for most of the Company's
executive officers is determined under the Senior Executive PSP.
Annual incentive compensation for employees who became executive
officers after the first quarter of 1995 and approximately 900
other employees is determined under the Performance Sharing Plan
(PSP) pursuant to the IA Plan. For participants in both the PSP
and the Senior Executive PSP, during the first quarter of each
year, the Committee establishes base salary and the formula
which is applied to base salary for determining a participant's target
incentive award; Target Compensation is the sum of these two amounts.
Base salaries are established based on (i) the value of the job
determined with reference to salaries paid to executives of the
Comparative Companies who perform similar duties and (ii) a
subjective evaluation of the executive's performance in the job
determined with reference to the executive's achievement of
goals established as follows. Management in each business unit
prepares strategic, financial and operational goals together
with timelines for accomplishment. Strategic goals focus on
such factors as new product development and business
initiatives. Financial goals include criteria such as operating
earnings, return on net assets (RONA) and cash flow.
Operational goals include factors such as productivity, quality
management and management development. These goals cascade
within each organizational component, culminating in the
formation of individual performance goals specific to salaried
employees. Accomplishments against individual goals are
evaluated at year-end.
Consistent with prior practices, while target incentive awards were
determined during the first quarter of 1995, the amount of incentive
compensation actually earned by employees for 1995 performance was
determined by the Committee after year-end and paid in March 1996.
Page 14
The amount of earned incentive compensation was based upon (i) the
performance of each executive against his or her goals during the year;
(ii) the performance of McDonnell Douglas and the executive's business
unit in relation to the following three Performance Factors, which were
weighted equally: cash flow; RONA; and improvements in total quality
management as measured generally by the Malcolm Baldrige Award
<PAGE>
criteria, which relate primarily to internal and external
customer satisfaction and process management; and (iii) the
performance of McDonnell Douglas and the executive's business
unit in relation to one or both (depending on the executive's
business unit) of the following Swing Factors: additions to
backlog and product cost improvement as measured by return on
sales. Cash flow, RONA and return on sales are adjusted for unusual
accounting and operational items. The amount of earned incentive
compensation related to the Performance Factors was capped at two times the
target incentive award and was adjusted upward or downward by up
to 33% of target incentive compensation for Swing Factor performance.
Each of the Performance Factors and Swing Factors was measured
against an objective standard: RONA, cash flow, additions to
backlog and return on sales for McDonnell Douglas and the
executive's business unit were measured against the target
amounts based upon the Company's Annual Operating Plan, which
was approved by the Board of Directors; and improvements in
total quality management were measured by comparing target
scores established by the Committee early in the year with the
results of a total quality management assessment conducted by
internal and external examiners who followed criteria and
scoring procedures generally in accordance with those specified
by the Malcolm Baldrige Foundation.
Target Compensation for executive officers in 1995 increased an
average of 6.7% over 1994 to amounts that were still generally
below the median compensation of the Comparative Companies. As
was the case in 1994, the executive officers' base salaries,
which increased an average of 3.1% over 1994, are generally
below the median base salaries paid to comparable officers of
the Comparative Companies.
Because the Company's cash flow and RONA exceeded the 1995
Annual Operating Plan targets and improvements in total quality
management exceeded the targets established by the Committee,
the executive officers as a group earned an average of 201% of
their 1995 target incentive award, compared to 268% for 1994. Due
to higher percentage payments of target incentive compensation in
1994 as compared to 1995, base salary paid plus earned incentive
compensation paid to the executive officers decreased by 6.4% from
1994 levels. Performance in 1995 was driven by the Company's cash
flow being substantially in excess of the Annual Operating Plan, which
resulted in an increase in aerospace cash and cash equivalents
of $376 million, and the repurchase of 5.3 million shares of the
Company's common stock. RONA for 1995 was above the Annual
Operating Plan target for each business unit due to increased
operating income, reduced assets or both. All McDonnell Douglas
business units exceeded their respective goals for improvement
in total quality management. Each of these factors contributed to an
increase in the Company's stock price from $47.33 at the end of 1994
to $92.00 at the end of 1995, after adjusting prices to reflect a
<PAGE> Page 15
3-for-1 stock split paid in January 1995. All incentive compensation paid
in 1996 to the executive officers based on 1995 services was paid in cash.
Long-Term Incentive Compensation
- --------------------------------
In 1995, the Committee granted Performance Accelerated
Restricted Stock Awards (PARS Awards) to key executives under
the PEIP. PARS Awards are grants of restricted stock, up to
one-half of which, or in the case of members of the Office of the
Chief Executive (the Company's most senior management council),
all of which will be subject to forfeiture if McDonnell Douglas does not
achieve substantial return on net asset targets during the 1995-2000
fiscal years. PARS Awards were granted only to those management
employees who are expected to have a substantial impact on the
Company's ability to achieve its strategic, financial and operational
goals and objectives. As a result, the number of participants in this
program is much smaller than the combined number of participants in the
PSP and Senior Executive PSP annual incentive compensation programs.
The size of the PARS Awards was determined using a competitive grant
table developed by a management consulting firm.
During 1995, several of the Company's executive officers had
Long-Term Incentive Awards (LTI Awards) which were granted by
the Committee prior to 1994 under the IA Plan. LTI Awards are
earned only to the extent that MDC Stock yields a total return
superior to the average total return on the common stock of a
group of competitive aerospace companies designated by the
Committee during a three-year performance period. There are
currently four aerospace companies in the group, each of which
is included in the Comparative Companies. The Committee
believes that comparing stock price performance to this peer
group rather than the Comparative Companies produces a more
appropriate evaluation of performance. The LTI Awards were also
granted to a relatively small number of management employees who
were expected to have a substantial impact on the Company's
ability to achieve its goals and objectives.
The Committee compares the executive's Target Compensation and
currently outstanding long-term incentive awards to such total
compensation paid to officers performing similar services for
the Comparative Companies when it determines the size of
long-term incentive grants. In March 1995, the Committee granted
PARS Awards to each of the officers named in the Summary Compensation
Table of this Proxy Statement except John F. McDonnell.
Compensation was paid under LTI Awards expiring in 1995 because
the total return on MDC Stock during the performance period for
such awards was greater than the average annual total return on
the common stock of the peer companies.
Compensation of the Chief Executive Officer
- -------------------------------------------
On September 24, 1994, McDonnell Douglas entered into an
employment agreement with Harry C. Stonecipher to become
President and Chief Executive Officer of McDonnell Douglas. All
aspects of Mr. Stonecipher's 1995 compensation were governed by
this employment agreement.
<PAGE> Page 16
The Committee and the Board of Directors approved Mr. Stonecipher's
employment agreement after an extensive search had been conducted by
the Board with the assistance of an executive search firm. In
settling on the final compensation amounts, the Board focused on
the importance of hiring a President and Chief Executive Officer with
an outstanding business record who could provide the leadership
necessary to improve the Company's competitiveness and profitability.
The Board also recognized the need to consider Mr. Stonecipher's
compensation at his former employer as well as the value of benefits
under various plans of that employer that would be forfeited by
Mr. Stonecipher upon his resignation.
The terms of Mr. Stonecipher's employment agreement are
summarized in the section entitled "Employment and
Other Agreements" on pages 24-25. In order to reduce
the amount of Mr. Stonecipher's compensation that may be
nondeductible under Section 162(m), the Committee and
Mr. Stonecipher amended the employment agreement in the first
quarter of 1995 to convert a portion of Mr. Stonecipher's
restricted stock to stock equivalents, which would remain
subject to the vesting, performance and other terms and
conditions of the employment agreement and would not be payable
until his employment terminates.
In establishing Mr. Stonecipher's 1995 earned incentive
compensation, the Committee considered Mr. Stonecipher's
substantial attainment of individual goals during 1995, and the
Company's strong performance in relation to the three
Performance Factors. Mr. Stonecipher's earned incentive
compensation for 1995 was $1,042,400, bringing the total of his
base salary and earned incentive compensation for the year to
$1,867,400. Mr. Stonecipher's final 1995 incentive compensation
was 181.3% of his target incentive award.
MANAGEMENT COMPENSATION AND SUCCESSION COMMITTEE
B. A. Bridgewater, Jr., Chairman
W. S. Kanaga
G. A. Schaefer
P. R. Vagelos
<PAGE> Page 17
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total
shareholder return on MDC Stock against the cumulative total
return of the Standard & Poor's Composite-500 Index and the
Standard & Poor's Aerospace/Defense Index. The graph is
presented in accordance with SEC requirements. Shareholders are
cautioned against drawing any conclusions from the data
contained therein, as past results are not necessarily
indicative of future performance. The other indices are
included for comparative purposes only and do not necessarily
reflect management's opinion that such indices are an
appropriate measure of the relative performance of MDC Stock.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
Company/Index 1990 1991 1992 1993 1994 1995
-------------- ---- --- ---- ---- ---- ----
McDonnell Douglas $100 $193 $131 $297 $398 $782
S&P 500 Index 100 130 140 155 157 215
S&P Aerospace/Defense 100 120 126 164 177 293
- -----------------------
Source: S&P Compustat Services, Inc.
* Assumes that the value of the investment in MDC Stock and each index
was $100 on December 31, 1990 and that all dividends were reinvested.
<PAGE> Page 18
EXECUTIVE COMPENSATION
The table below provides information concerning the annual and
long-term compensation for services rendered to McDonnell Douglas
of those persons who at December 31, 1995 were (i) the
Chief Executive Officer and (ii) the other four most highly
compensated executive officers of McDonnell Douglas based on
salary and bonuses for 1995 (the Named Officers).
<TABLE>
<CAPTION> SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Awards Payout
------------------------------------------------------------------------
Other Annual Restricted Securities All Other
Compen- Stock Underlying LTIP Compen-
Name and Bonus sation Awards Options Payout sation
Principal Position Year Salary (1) (2) ($)(3) (#) ($) (4)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
H. C. Stonecipher 1995 $825,000 $1,042,400 $147,128 $2,700,000 (5) ---- ---- $146,846 (6)
President and Chief 1994 206,250 (7) 750,000 22,301 4,656,750 (5) 450,000 ---- 11,567 (6)
Executive Officer 1993 ---- ---- ---- ---- ---- ---- ----
J. F. McDonnell 1995 502,308 571,000 ---- ---- ---- $1,991,970 (9) 32,260 (10)
Chairman of 1994 610,385 1,000,000 (10) ---- ---- ---- ---- 36,629
the Board 1993 559,477 495,100 ---- ---- ---- ---- 33,569
J. P. Capellupo (11) 1995 392,308 524,100 ---- ---- ---- 829,988 (9) 33,878 (9)
President-McDonnell 1994 353,269 587,000 ---- 285,313 (12) ---- 691,688 (8) 4,155
Douglas Aerospace 1993 319,496 300,000 ---- ---- ---- ---- 17,670
H. J. Lanese 1995 382,116 500,000 ---- ---- ---- 829,988 (9) 33,265 (9)
Deputy President- 1994 365,193 578,000 ---- 285,313 (12) ---- 667,836 (8) 21,906
McDonnell Douglas 1993 339,150 277,300 ---- ---- ---- ---- 20,359
Aerospace
R. H. Hood, Jr. 1995 376,024 (13) 229,600 9,301 ---- ---- 995,985 (9) 31,722 (9)
President - Douglas 1994 366,471 (13) 415,200 7,883 228,250 (12) ---- 834,796 (8) 20,225
Aircraft Company 1993 352,942 (13) 261,600 2,523 ---- ---- ---- 9,116
</TABLE>
- ----------------------
(1) Mr. Stonecipher's bonus for 1994 was a one-time bonus paid
in accordance with the Employment Agreement discussed on
pages 24-25. All other bonuses are annual incentive
compensation granted pursuant to the Company's Senior
Executive Performance Sharing Plan for 1995 and under the
Company's Performance Sharing Plan for prior years. Annual
incentive compensation is paid during the first three
months of the year following the year to which such
compensation relates. For example, the 1995 bonuses
reflect earned incentive compensation awards paid in March
1996 for services rendered in 1995, all of which were paid
in the form of cash.
<PAGE>
(2) The Named Officers received certain perquisites, which did not exceed
an aggregate of $50,000 for any such officer, except Mr. Stonecipher
in 1995. The 1995 amount for Mr. Stonecipher represents
Page 19
reimbursement for taxes related to relocation expenses
totaling $92,356, the incremental cost of his personal use of
Company aircraft of $47,562 and other perquisites totaling $7,210.
The 1994 amount for Mr. Stonecipher represents reimbursement for
taxes related to relocation expenses. The amounts for Mr. Hood
represent reimbursement for taxes related to relocation expenses
and personal travel.
(3) Restricted stock awards shown on this table reflect only
those awards which are not subject to performance-based
conditions. At December 31, 1995, the total number (and
value) of all of the restricted stock holdings (including
performance-based shares) of the following executive
officers were: Mr. Stonecipher 30,000 shares ($2,760,000),
Mr. McDonnell 30,000 shares ($2,760,000), Mr. Capellupo
33,000 shares ($3,036,000), Mr. Lanese 30,000 shares
($2,760,000), and Mr. Hood 24,000 shares ($2,208,000). Upon
a change in control of McDonnell Douglas (as defined in
the plan), all restrictions and conditions applicable to these
restricted shares will be deemed to have been immediately satisfied.
(4) Except as otherwise indicated, amounts represent
contributions by McDonnell Douglas to the Employee Savings
Plan of McDonnell Douglas - Salaried Plan (Savings Plan) or
credited under the McDonnell Douglas Supplemental Employee
Savings Plan (SESP) on behalf of the Named Officers. The
SESP provides benefits which are not available to employees
under the Savings Plan because of Internal Revenue Code
limitations on contributions to the Savings Plan each year
and on annual compensation that may be considered for
determining those contributions.
(5) Pursuant to the Employment Agreement discussed on pages 24-25,
McDonnell Douglas granted Mr. Stonecipher 126,000 shares of
restricted stock granted in 1994 and 54,000 shares of
restricted stock in 1995. The 1994 grant is valued as of
September 24, 1994, Mr. Stonecipher's employment date. The
1995 grant is valued as of the date of grant, January 31,
1995. As discussed on page 24, these restricted shares
were converted to stock equivalents during the first
quarter of 1995. Dividend equivalent payments on the stock
equivalents are reinvested into additional stock equivalents.
(6) Includes reimbursement of Mr. Stonecipher's relocation
expenses of $108,776 in 1995 and $11,567 in 1994.
(7) Represents salary for employment from September 24, 1994
through December 31, 1994.
<PAGE>
(8) The 1994 LTIP payouts include long-term incentive awards
originally scheduled to end in 1994 and awards for which the
performance period was to have ended in 1995, but was shortened
from four years to three years to end in 1994 as part of the
Company's adoption in 1994 of a new long-term incentive plan.
The portions of 1994 LTIP payouts related to awards originally
scheduled to end in 1995 were as follows: Mr. Capellupo
$596,283, Mr. Lanese $596,283, and Mr. Hood $715,539.
Approximately one-half of the payout amount was made in cash
and one-half in shares of MDC Stock with the value of the
stock based on the closing price of MDC Stock on March 10, 1994,
the date the form of payout was determined.
(9) Long-term incentive awards for which the performance period
was originally scheduled to end in 1996 were also shortened
from four years to three years to end in 1995 as part of
the Company's adoption in 1994 of a new long-term incentive
plan. The Management Compensation and Succession Committee
has deferred long-term incentive payments to the extent
such payments would be nondeductible under Internal Revenue
Code Section 162(m). As a result, the entire amount of
long-term incentive payments indicated were deferred except
for Mr. Hood's payment, of which $145,985 was paid in cash
and $850,000 was deferred. In accordance with SEC Rules,
the All Other Compensation column includes the amount by
which interest paid on such deferred amounts exceeds 120
percent of the applicable federal long-term rate under the
Internal Revenue Code at the time of deferral. Such
amounts are as follows: Mr. Capellupo $10,350, Mr. Lanese
$10,350, and Mr. Hood $10,600.
Page 20
(10) The Management Compensation and Succession Committee has
deferred annual incentive payments to the extent such
payments would be nondeductible under Internal Revenue Code
Section 162(m). As a result, $560,000 of this bonus was
deferred. In accordance with SEC Rules, the All Other
Compensation column includes $2,128, the amount by which
interest paid on such deferral exceeds 120 percent of the
applicable federal long-term rate under the Internal
Revenue Code at the time of deferral.
(11) On February 26, 1996, McDonnell Douglas announced that
Mr. Capellupo will retire, effective March 31, 1996. Pursuant
to an agreement entered into between Mr. Capellupo and the
Company, which has been approved by the Management Compensation
and Succession Committee, in March 1997 McDonnell Doulgas will
pay Mr. Capellupo one-fourth of the annual incentive compensation
he would have earned under the terms and conditions of the Senior
Executive Performance Sharing Plan, based on the Company's
performance in 1996. In accordance with the Performance
Accelerated Restricted Stock (PARS) Program, Mr. Capellupo's
existing PARS awards will be reduced to reflect his retirement
prior to the end of the respective performance periods, but will
continue to vest or be forfeited in accordance with the Company's
performance and other terms and conditions of the PARS Program.
<PAGE>
In addition, payment of the cash that Mr. Capellupo earned as an
earned long-term incentive award for the 1993-1996 performance period
under terms and conditions of the Company's Long-Term Incentive
Program will be deferred. One-half of this deferral plus his
previously deferred earned long-term incentive awards will vest and
be paid on the last business day of March 1998, with the remainder
to vest and be paid on the last business day of March 1999. Each of
the unpaid amounts will be forfeited if Mr. Capellupo breaches
certain noncompete or confidentiality provisions of the agreement.
(12) The restricted stock is valued as of April 22, 1994, the
date the Company's shareholders approved the McDonnell
Douglas 1994 Performance and Equity Incentive Plan, and
represents shares awarded under the Performance Accelerated
Restricted Stock Program discussed on page 15, which are
not subject to forfeiture provided the executive officer
remains employed by McDonnell Douglas for a period of six
years following grant of such shares; all or part of the
shares may vest approximately three years following grant
if certain return on net assets goals are achieved. Upon a
change in control (as defined) of McDonnell Douglas, all
restrictions and conditions applicable to these restricted
shares will be deemed to have been immediately satisfied.
The restricted stock pays dividends and has voting rights.
(13) Salary includes area and mortgage differentials of $23,908,
$29,901 and $34,588 for the years 1995, 1994 and 1993, respectively.
Option Fiscal Year-End Value
- -----------------------------
None of the Named Officers were granted any stock options or
stock appreciation rights or exercised any stock options or
stock appreciation rights during 1995 and none of them hold any
stock appreciation rights. The following table provides
information with respect to the number and value of unexercised
options held by the Named Officers at December 31, 1995.
Page 21
<TABLE>
<CAPTION> FISCAL YEAR-END OPTION VALUES
Number of Securities Underlying Value of Unexercised
Unexercised In-the-Money
Options at Options at
December 31, 1995 December 31, 1995
------------------------- ----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
H. C. Stonecipher ---- 450,000 (1) ---- $24,768,750 (2)
J. F. McDonnell ---- ---- ---- ----
J. P. Capellupo ---- ---- ---- ----
H. J. Lanese ---- ---- ---- ----
R. H. Hood, Jr. ---- ---- ---- -----
- -----------------
</TABLE>
<PAGE>
(1) Represents options to purchase 450,000 shares of MDC Stock
at $36.958 per share, which vest and become exercisable in
increments of 20% on September 24 in each of 1996, 1997,
1998, 1999 and 2000.
(2) Represents the difference between the December 31, 1995 closing
price of MDC Stock and the exercise price of the options.
Long-Term Incentive Plan Awards
- --------------------------------
The following table provides information concerning awards made
during 1995 to the Named Officers under the Performance Accelerated
Restricted Stock (PARS) Program implemented under the McDonnell
Douglas Corporation 1994 Performance and Equity Incentive Plan.
<TABLE>
<CAPTION> LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
- ---------------------------------------------------------------------------------------------
Estimated Future Payouts Under
Non-Stock Price-Based Plans(1)
-----------------------------------------
Number of Performance Period Threshold Target
Shares Until Payout No. of Shares No. of Shares Maximum
Name (1) (2) (3) No. of Shares
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
H. C. Stonecipher 30,000 (4)(5) 1995-2001 1 15,000 30,000
J. F. McDonnell --- --- --- --- ---
J. P. Capellupo 18,000 (5) 1995-2001 1 9,000 18,000
H. J. Lanese 15,000 (5) 1995-2001 1 7,500 15,000
R. H. Hood, Jr. 12,000 (5) 1995-2001 1 6,000 12,000
- --------------------
</TABLE>
(1) The shares of restricted stock disclosed in this table are subject to
forfeiture if certain return on net assets (RONA) goals are not
obtained during the six calendar years following the grant of
Page 22
restricted shares (including the year of grant). Participants are
entitled to voting rights and dividends. Vesting of all or part of
the shares, however, may be accelerated to 1998 if McDonnell Douglas
achieves specified average RONA goals during the 1995-1997
fiscal years. Upon a change in control of McDonnell Douglas,
all restrictions and conditions applicable to these restricted
shares will be deemed to have been immediately satisfied.
(2) Represents the number of shares upon which restrictions will
lapse if a specified minimum level of performance that
triggers a payout is obtained.
(3) While the real target under the PARS Program is the maximum
payout, this column discloses the number of shares upon
which restrictions will lapse if the level of performance
obtained is at the midpoint between the minimum at which shares
may be earned and the level at which all shares will be earned.
<PAGE>
(4) Pursuant to the Employment Agreement discussed on pages 24-25,
McDonnell Douglas has agreed to grant Mr. Stonecipher
120,000 performance-based restricted shares of MDC Stock,
30,000 of which were granted in the first quarter of 1995,
with the remainder to be granted in installments of 30,000
shares during the first quarters of 1996, 1997 and 1998.
(5) Represents PARS shares which are subject to forfeiture if
certain RONA goals are not achieved.
Retirement Income Plans
- -----------------------
Substantially all employees of McDonnell Douglas and its
subsidiaries participate in one of the various retirement plans
maintained by McDonnell Douglas and its subsidiaries. All
executive officers participate in the Company's Retirement
Income Plan for Salaried Employees (Retirement Plan), which is a
qualified defined benefit pension plan.
The following table shows the annual benefit payable under the
Retirement Plan for the life of the retiree and with no payments
thereafter to a survivor, upon retirement at age 65, for
employees in the salary classifications and with the years of
service under the Retirement Plan as specified. The present
maximum annual Primary Insurance Amount (PIA) Social Security
benefit that was used in computing the offset included in the
benefits set forth in the table is $14,556. The benefits set
out in the table are payable from the Retirement Plan to the
limits permitted under the Internal Revenue Code of 1986, as
amended; thereafter, any additional benefit will be paid under
the Supplemental Employee Retirement Income Plan (SERIP).
Page 23
<TABLE>
<CAPTION> PENSION PLAN TABLE
Assumed Final
Five-Year Average
Annual Compensation Estimated Annual Retirement Benefits for Years of Service Indicated
- --------------------------------------------------------------------------------------------
15 Years 20 Years 25 Years 30 Years 35 Years 40 Years
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 300,000 $ 64,225 $ 85,633 $107,042 $128,450 $150,223 $172,723
450,000 97,975 130,633 163,292 195,950 228,973 262,723
600,000 131,725 175,633 219,542 263,450 307,723 352,723
750,000 165,475 220,633 275,792 330,950 386,473 442,723
900,000 199,225 265,633 332,042 398,450 465,223 532,723
1,050,000 232,975 310,633 388,292 465,950 543,973 622,723
1,200,000 266,725 355,633 444,542 533,450 622,723 712,723
1,500,000 334,225 445,633 557,042 668,450 780,223 892,723
</TABLE>
<PAGE>
Employer contributions to the Retirement Plan are on an
aggregate basis with no separate identity as to amounts paid or
set aside with respect to individuals. Generally, subject to
certain exceptions and technical definitions, the formula under
the Retirement Plan for computing monthly benefits payable at
normal retirement (age 65) for the life of the retiree and with
no payments thereafter to a survivor is: 1.5% (1.65% on and
after December 1, 1996) of an employee's highest average monthly
salary for five consecutive years of the employee's last ten
years of service multiplied by years of employment while covered
by the Retirement Plan, minus 1.5% of monthly PIA Social
Security benefits multiplied by up to a maximum of 33-1/3 years
of employment while covered by the Retirement Plan. Salary
covered by the Retirement Plan generally includes regular base
salary, certain commissions, and annual incentive awards made under
the Performance Sharing Plan and the Senior Executive Performance
Sharing Plan. Compensation reported in the table on page 18
includes compensation not covered by the Retirement Plan. As of
November 26, 1995 (end of Retirement Plan year), compensation
covered by the Retirement Plan and the SERIP for 1995 for the
Named Officers and parenthetically, the current five-year
average annual compensation and the current number of years
of salaried employment under the Retirement Plan for each
such individual, was as follows: H. C. Stonecipher - $825,000
($827,150; 1 year); J. F. McDonnell - $1,500,000 ($799,614; 34
years); J. P. Capellupo - $987,000 ($575,151; 34 years); H. J.
Lanese - $963,000 ($604,921; 6 years); and R. H. Hood, Jr. -
$770,200 ($514,372; 22 years). The estimated annual retirement
benefits shown in the table above will increase by approximately
10% when the increase in the pension formula referred to above
becomes effective December 1, 1996. Mr. Stonecipher will also
be entitled to receive the supplemental pension payment referred
to below in the section entitled "Employment and Other Agreements."
Page 24
EMPLOYMENT AND OTHER AGREEMENTS
On September 24, 1994, McDonnell Douglas entered into an
employment agreement (the Agreement) with Mr. Stonecipher
designed to assure the Company of his continued employment as
President and Chief Executive Officer. The original "Employment
Period" under the Agreement will expire on September 23, 1997.
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.
Under the Agreement, Mr. Stonecipher receives a base salary of
not less than $825,000 per year; target annual incentive
compensation for 1995 of $575,000, with earned annual incentive
compensation for 1995 and target and earned annual incentive
compensation thereafter to be determined pursuant to the same
terms and conditions as applied to the other members of the
Company's senior management. The Agreement also originally
provided for Mr. Stonecipher to receive: a one-time bonus in
<PAGE>
1994 of $750,000; 180,000 service-based restricted shares of MDC
Stock (42,000 shares of which were to vest on March 31 in each
of 1995, 1996 and 1997 and 54,000 shares of which were to vest
on March 31, 2002); 120,000 performance-based restricted shares
of MDC Stock, 30,000 of which were granted in the first quarter
of 1995 with the remainder to be granted in installments of
30,000 shares each during the first quarters of 1996, 1997 and
1998, with vesting, performance periods and other criteria to be
as set by the Management Compensation and Succession Committee
of the Board of Directors for other members of senior
management; options to purchase 450,000 shares of MDC Stock at
$36.958 per share (the market price on the date of grant), which
vest and become exercisable in increments of 20% on September 24
in each of 1996, 1997, 1998, 1999 and 2000; reimbursement of
moving and relocation expenses incurred to move his residence to
St. Louis, Missouri; and participation in the Company's other
employee benefit plans, policies, practices and arrangements.
As described in the Management Compensation and Succession Committee
Report on Executive Compensation, McDonnell Douglas and Mr. Stonecipher
amended the Agreement in the first quarter of 1995 to convert the 180,000
shares of Mr. Stonecipher's service-based restricted stock to stock
equivalents, which remain subject to the terms and conditions of the
Agreement and will not be payable until his employment terminates.
Mr. Stonecipher receives dividends and voting rights on his shares of
restricted stock; the stock equivalents do not have voting rights, and
dividend equivalent payments on the stock equivalents are
reinvested into additional stock equivalents.
For the purposes of calculating Mr. Stonecipher's benefits under
the Company's retirement plans, he will receive credit for twice
as many years of service as he actually works for McDonnell
Douglas. In addition, McDonnell Douglas has agreed to provide a
supplemental pension payment equal to the difference between (i)
what Mr. Stonecipher would have received from his prior employer had
he stayed with that employer through the end of the Employment
Period and (ii) the pension payments he is actually entitled to
receive from the other company and McDonnell Douglas.
Page 25
The Agreement provides that throughout the Employment Period,
McDonnell Douglas shall neither assign duties to Mr. Stonecipher
which are not appropriate for someone in the position of
President and Chief Executive Officer, nor substantially
diminish his responsibilities. The Agreement prohibits
Mr. Stonecipher from competing with McDonnell Douglas and from
disclosing confidential information concerning the Company so
long as any restricted stock or stock options granted under the
Agreement remain unvested or unexercised. In the event
McDonnell Douglas fails to perform any material covenant or
agreement set forth in the Agreement, Mr. Stonecipher will be
entitled to receive for the remainder of the Employment Period
the salary and benefits he would have received if his employment
had continued for such period. These benefits would not be
payable, however, in the event his employment is terminated by
<PAGE>
reason of a material breach of the Agreement or for acts
involving moral turpitude or a material breach of his duty of
loyalty to McDonnell Douglas. In the event of death or
disability, the Management Compensation and Succession Committee
would determine the reduction, if any, of the amount of
incentive compensation that would be payable or that would vest
or remain exercisable. The Agreement also provides for
reimbursement for legal expenses incurred by
Mr. Stonecipher in connection with certain claims or legal
proceedings brought under or involving the Agreement.
Under the 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 Internal Revenue Code of
1986, as amended, on any such payment made to him under the Agreement.
The Board of Directors authorized McDonnell Douglas to enter into
agreements with executives selected by the President and Chief Executive
Officer. These agreements are designed generally to encourage key
management personnel to remain with McDonnell Douglas and to continue
to devote full attention to the Company's business in the event that
any third party expresses its intention to complete a possible business
combination with McDonnell Douglas or to take any action which could
result in a change in control of McDonnell Douglas. The agreements are
operative only if an executive's employment terminates, for reasons
discussed below, following a change in control. The agreements are
intended to continue compensation and benefits comparable to those in
effect prior to any change in control. Two of the Named Officers,
Mr. Lanese and Mr. McDonnell, and six other executives have entered
into such agreements with the Company.
The agreements with the Named Officers who have entered into such
agreements 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 each such event is defined in
the agreements), or in the event the executive terminates employment for
"good reason" (as defined), the participant will continue to receive for
the remainder of a three-year period beginning on the date of the change
in control: (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
Page 26
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) employee benefits
that the executive would have received, payable in accordance with
past practice or in a lump-sum payment. Such payments will be
discontinued on the executive's normal retirement date or if the executive
provides services to a competitor of McDonnell Douglas or discloses any
of the Company's confidential information. In addition, all restrictions
and conditions applicable to awards of restricted stock, stock options
or other awards under the Company's 1994 Performance and Equity Incentive
Plan will be deemed to have been satisfied as of the date change in
<PAGE>
control occurs. If any payments (including payments under the agreement)
to the executive are determined to be "excess parachute payments" under
Section 4999 of the Internal Revenue 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. The
agreements provide that McDonnell Douglas would reimburse the executive
for legal and arbitration costs of enforcement. The agreements with
executives other than Named Officers include substantially the same
benefits described above, except that benefits for certain executives
are continued for only two years following the change in control.
CERTAIN TRANSACTIONS WITH MANAGEMENT
One executive officer of McDonnell Douglas was indebted to the
Company during 1995 in an amount in excess of $60,000.
McDonnell Douglas made a shared appreciation loan to R. H. Hood,
Jr. on April 29, 1989 in the principal amount of $665,000. The
loan was one of several made to assist key employees who
transferred to Douglas Aircraft Company in purchasing new homes
in California. Each such loan is secured by a Second Deed of
Trust on the employee's residence. No payments are due on the
loans until the earliest of: (i) the date the employee ceases
to use the new home as his principal residence, (ii) the date on
which he transfers part or all of his interest in the residence,
(iii) the date his employment with McDonnell Douglas terminates
other than by death, (iv) one year after his death, (v)
acceleration of the maturity date, or (vi) thirty years after
the loan was made. When the loan becomes due, the employee is
required to pay McDonnell Douglas its Proportionate Share (as
defined in the loan documents) of the fair market value of the
employee's residence. The Company's Proportionate Share is
approximately the ratio of the loan amount to the purchase price
of the residence.
On February 1, 1996, McDonnell Douglas purchased 37,500 shares
of MDC Stock from both the James S. McDonnell Charitable Trust
"A" and the James S. McDonnell Charitable Trust "B". This
transaction was part of the Company's ongoing share repurchase
program and a periodic sale program by the trusts for
diversification purposes. The Company's Chairman of the Board,
John F. McDonnell, and a director of McDonnell Douglas, James S.
McDonnell III, are trustees of both trusts. As determined by the
Company's Chief Financial Officer, James F. Palmer,
McDonnell Douglas paid $89.75 per share, the closing price of
MDC Stock on the New York Stock Exchange on that date.
Page 27
2. PROPOSAL TO INCREASE AUTHORIZED COMMON STOCK
By resolution dated January 26, 1996, the Board of Directors
adopted a resolution declaring it advisable to amend the
Company's Charter to increase the number of shares of stock that
McDonnell Douglas has the authority to issue to an aggregate of
410,000,000 shares, of which 400,000,000 shares would be common
stock, $1.00 par value per share, and 10,000,000 shares would
<PAGE>
continue to be preferred stock, $1.00 par value per share. The
proposed revised first sentence of Article SIXTH of the
Company's Charter is set forth as Exhibit A to this Proxy
Statement. The Board of Directors directed that the amendment
be submitted for consideration by the shareholders at the Annual Meeting.
By resolution dated January 26, 1996, the Board of Directors
also adopted a resolution authorizing and declaring, subject to
approval by the shareholders of the proposed charter amendment,
a 2-for-1 stock split to be effected by the payment on May 31,
1996, of a stock dividend of one share of common stock on each
share of common stock outstanding at the close of business on
May 10, 1996, the stock split record date.
The Company's Charter currently authorizes the issuance of up
to 210,000,000 shares, consisting of 200,000,000 shares of
common stock, $1.00 par value per share, and 10,000,000 shares
of preferred stock, $1.00 par value per share. As of March 1,
1996, McDonnell Douglas had 111,043,428 shares of common
stock and no shares of preferred stock outstanding. In
addition, as of the same date, approximately 17,937,000
shares of common stock were reserved for issuance as follows:
approximately 12,651,000 for issuance under the Company's
employee savings plans and other award plans; approximately
475,000 shares for issuance under the McDonnell Douglas
Incentive Award Plan; and approximately 4,810,000 shares for
issuance under the McDonnell Douglas 1994 Performance and
Equity Incentive Plan.
The Board of Directors believes that the proposed 2-for-1 split
of the issued common stock will result in a market price that
should be more attractive to a broader spectrum of investors and
therefore should benefit both McDonnell Douglas and its
shareholders. The issuance of shares resulting from the split
will be on a pro-rata basis and will not reduce the
shareholders' proportionate interests in the common stock. In
addition, as a result of the stock split, the number of shares
of common stock issuable under the benefit and compensation
plans referred to above will be adjusted accordingly. The
increase in authorized common shares will not affect the present
ratio of authorized but unissued common stock to issued common
stock, thus maintaining the same relative degree of flexibility
for McDonnell Douglas in meeting future stock needs.
The authorized shares of common stock in excess of those presently
outstanding will be available for issuance at such times and for
such purposes as the Board of Directors may deem advisable
without further action by the Company's shareholders, except as
may be required by applicable laws or regulations, including
stock exchange rules. These purposes may include additional
stock dividends, stock splits, retirement of indebtedness, employee
benefit programs, corporate business combinations, acquisitions of
property, funding of product programs or businesses, or other
corporate purposes. The Board does not intend to issue any stock except
<PAGE> Page 28
on terms or for reasons which the Board deems to be in the best interests
of McDonnell Douglas. Because the holders of the Company's common stock
do not have preemptive rights, the issuance of common stock (other
than on a pro-rata basis to all current shareholders) would
reduce the current shareholders' proportionate interests.
However, in any such event, shareholders wishing to maintain
their interests may be able to do so through normal market purchases.
Any future issuance of common stock will be subject to the rights
of holders of outstanding shares of any preferred stock rights
McDonnell Douglas may issue in the future.
If the proposed amendment is approved by the shareholders,
McDonnell Douglas will apply to the New York and Pacific Stock
Exchanges for the listing of the additional shares that would be
issued as a result of the split. Provided the listing
application is approved by these stock exchanges, the stock
split would be accomplished by mailing to each shareholder of
record as of the close of business on the stock split record
date a certificate representing one additional share of common stock
for each share of common stock held by the shareholder on that date.
PRESENT CERTIFICATES WILL CONTINUE TO REPRESENT THE NUMBER OF
SHARES EVIDENCED THEREBY. PRESENT CERTIFICATES WILL NOT BE
EXCHANGED FOR NEW CERTIFICATES AND CERTIFICATES SHOULD NOT BE
RETURNED TO MCDONNELL DOUGLAS OR ITS TRANSFER AGENT UNTIL THE
SHARES REPRESENTED BY THE CERTIFICATES ARE TRANSFERRED.
Under United States federal income tax laws, the receipt of
additional shares of common stock from the stock split will not
constitute taxable income to the shareholders; the cost or other
tax basis to a shareholder of each share held immediately prior to
the split will be divided equally between the corresponding two shares
held immediately after the split; and the holding period for each of
the two shares will include the period for which the
corresponding share was held before the stock split record date.
The laws of jurisdictions other than the United States may
impose income taxes on the receipt of a shareholder of additional
shares of common stock resulting from the split; shareholders
subject to such laws are urged to consult their tax advisors.
Assuming transactions of an equivalent dollar amount, brokerage
commissions on purchases and sales of the common stock after the
split and transfer taxes, if any, may be somewhat higher than before
the split, depending on the specific number of shares involved.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
PROPOSAL TO AMEND THE COMPANY'S CHARTER TO INCREASE THE NUMBER
OF SHARES OF COMMON STOCK THAT MCDONNELL DOUGLAS IS AUTHORIZED
TO ISSUE. Proxies will be so voted unless shareholders specify
otherwise in their proxies. The affirmative vote of holders of
a majority of the outstanding shares of common stock is required
for approval of this proposal. Consequently, any shares not
voted (whether by abstention, broker non-vote or otherwise) will
have the same effect as votes against the proposed amendment to
the Company's Charter. If this proposed amendment is approved
<PAGE>
by the shareholders, it will become effective upon the filing of
Articles of Amendment and Restatement for record with the State
Department of Assessments and Taxation of Maryland, which will
occur as soon as reasonably practicable after approval.
Page 29
3. A SHAREHOLDER PROPOSAL REGARDING FOREIGN MILITARY SALES
The following organizations, which own a total of 46,262 shares
of record, have advised McDonnell Douglas that they intend to
submit the proposal set forth below at the Annual Meeting:
Adorers of the Blood of Christ, 2 Pioneer Lane, Red Bud,
Illinois 62278-9749; Franciscan Sisters of Mary, 1100 Bellevue
Avenue, St. Louis, Missouri 63117-1883; Glenmary Home
Missioners, P.O. Box 465618, Cincinnati, Ohio 45246-5618; The
Maryland Province of the Society of Jesus, 5704 Roland Avenue,
Baltimore, Maryland 21210-1399; The Oregon Province of the
Society of Jesus, 2222 NW Hoyt Street, Portland, Oregon 97210;
Sisters of Loretto, 590 E. Lockwood, St. Louis, Missouri 63119-
3279; St. Mary's Institute, 204 North Main Street, O'Fallon,
Missouri 63366-2299; School Sisters of Notre Dame, 320 East Ripa
Avenue, St. Louis, Missouri 63125-2897; Sisters of Mercy of the
Americas, 2039 North Geyer Road, St. Louis, Missouri 63131-3399;
and Sisters of St. Joseph of Carondelet, 6400 Minnesota Avenue,
St. Louis, Missouri 63111-2899.
WHEREAS, in fiscal year 1994, the United States controlled
55-70% of the world's arms market, delivering $12 billion in
weapons. Since the fall of the Berlin Wall, the U.S. delivered
over $62 billion in weapons--almost half of total worldwide
exports. ("Arms Trade News," 7/95).
WHEREAS, the last three times the U.S. sent troops into combat
in significant numbers, in Panama, Iraq and Somalia, they faced
adversaries that received U.S. weapons or military technology in
the period before the conflict. U.S. weapons supplied to
anti-communist rebels in Angola and Afghanistan under the Reagan
Doctrine were used for devastating civil wars; in the Afghan
case, U.S.-supplied Stringer missiles turned up on the
international black market as prized items sought by rebel
groups and terrorist organizations. ("Sale of the Century,"
Commonweal, William D. Hartung, 5/20/94).
WHEREAS, "U.S. Weapons at War: United States Arms Deliveries to
Regions of Conflict," (World Policy Institute, 1995) shows the
U.S. was a major arms supplier in 1/3 of the 50 ethnic and
territorial conflicts currently raging; some 45 parties involved
in the conflicts purchased over $42 billion in U.S. arms in the
last ten years.
WHEREAS, in FY 1994 MDC ranked 1 among Department of Defense
contractors with awards in excess of $9.2 billion, and 1 among
corporations licensed to export military equipment, with sales
in excess of $1.7 billion.
<PAGE>
RESOLVED: shareholders request the Board of Directors to provide
a comprehensive report on MDC's foreign military sales. The
report, prepared at reasonable cost, should be available to all
shareholders by December, 1996, and may omit classified and
proprietary information.
SUPPORTING STATEMENT
Easy availability of virtually any military equipment--if the
price is right--makes the world a less secure place in which to live.
Page 30
We are disturbed at industry's claims and lobbying efforts
asserting the only way to keep jobs is to promote foreign
military sales. We believe such statements are inconsistent
with: co-production agreements; transfer of technology to
foreign companies; and direct and indirect offset arrangements
which give both military and commercial business to companies.
We believe that alternatives exist to dependence on foreign
military sales.
Therefore, we recommend the report include:
1. Criteria used to promote foreign military sales.
2. Procedures used to negotiate sales directly with foreign
governments or through the U.S. government. For example, what
determines which sales are made through the foreign military sales
program; which are made in the form of a direct commercial sale?
Of weapons sold, what percentage goes through the foreign
military sales program; what percentage is direct commercial sales?
3. Categories of military equipment exported for the past three
years, with as much statistical information as is permissible;
contracts for servicing/maintaining equipment; offset agreements;
and licensing and/or co-production with foreign governments.
4. Analysis of legislation establishing a code for U.S. arms
transfers, including, e.g., no sales to governments that violate
their citizens' human rights, engage in aggression against
neighbors, come to power through undemocratic means or ignore
international arms control arrangements.
MANAGEMENT'S OPPOSING STATEMENT
For the following reasons, the Board recommends a vote AGAINST
this proposal.
The current proposal is substantially the same as proposals
submitted in 1992 and 1993, which shareholders defeated by a
large majority. These proposals are simply variations on
proposals made by several of the same proponents in fifteen of
the past seventeen years regarding the Company's involvement in
military sales. At each meeting at least 86% of the shares
voted were cast against such proposals.
<PAGE>
McDonnell Douglas sells military equipment and services only in strict
compliance with United States regulations that control where
products may be sold overseas and what products may be exported.
The United States Government designates those countries whose
policies are determined to be hostile to United States interests
and prohibits military sales to those countries. In fact, many
foreign sales of McDonnell Douglas military products are made by selling
products to the United States Government, which then sells the
products directly to the foreign governments.
McDonnell Douglas believes that the determination of what
products, technology and research it is appropriate for the
United States Government or foreign governments to purchase is
more properly handled by government officials who ultimately
must answer to the nation's electorate and who are in the best
position to determine the public's interest.
Page 31
In addition, most of the requested information, such as contract
terms and sales procedures, is business-sensitive, and
disclosure of that information would disadvantage McDonnell
Douglas with its customers and competitors.
FOR THE ABOVE REASONS, THE BOARD OF DIRECTORS RECOMMENDS A VOTE
AGAINST THIS PROPOSAL. Proxies will be so voted unless
shareholders specify otherwise in their proxies. A majority of
the shares represented in person or by proxy which are entitled
to be voted at the Annual Meeting is required for the adoption
of this proposal.
4. A SHAREHOLDER PROPOSAL REGARDING COMPOSITION OF THE
NOMINATING COMMITTEE
The New York City Employees' Retirement System, c/o Alan G.
Hevesi, Comptroller of the City of New York, 1 Centre Street,
New York, New York 10007-2341, which owns 55,810 shares of MDC
Stock, has advised McDonnell Douglas that it intends to submit
the following proposal at the Annual Meeting.
WHEREAS, the board of directors is meant to be an independent
body elected by shareholders and charged by law and shareholders
with the duty, authority and responsibility to formulate and
direct corporate policies, and
WHEREAS, this company has provided that the board may designate
from among its members one or more committees, each of which, to
the extent allowed, shall have certain designated authority, and
WHEREAS, we believe that directors independent of management are
best qualified to act in the interest of shareholders and can
take steps necessary to seek, nominate and present new directors
to shareholders, and
WHEREAS, we believe the selection of new directors is an area in
which inside directors may have a conflict of interest with
shareholders, and
<PAGE>
WHEREAS, we believe that an increased role for the independent
directors would help our company improve its long-term financial
condition, stock performance and ability to compete,
NOW THEREFORE, BE IT RESOLVED THAT: the shareholder request the
company establish a Nominating Committee to recommend candidates
to stand for election to the board of directors. The Committee
shall be composed solely of independent directors. For these
purposes, an independent director is one who: (l) has not been
employed by the company or an affiliate in an executive capacity
within the last five years; (2) is not a member of a company
that is one of this company's paid advisors or consultants; (3)
is not employed by a significant customer or supplier; (4) is
not remunerated by the company for personal services (consisting
of legal, accounting, investment banking, and management consulting
services (whether or not as an employee) for a corporation,
division, or similar organization that actually provides the personal
services, nor an entity from which the company derives more
Page 32
than 50 percent of its gross revenues); (5) is not employed by a
tax-exempt organization that receives significant contributions from
the company; (6) is not a relative of the management of the company;
and (7) is not part of an interlocking directorate in which the CEO or
other executive officers of the corporation serves on the board of
another corporation that employs the director.
SUPPORTING STATEMENT
As long-term shareholders we are concerned about our company's
prospects for profitable growth. This proposal is intended to
strengthen the process by which nominees are selected. We
believe that this will strengthen the board of directors in its
role of advising, overseeing and evaluating management.
We urge you to vote FOR this proposal.
MANAGEMENT'S OPPOSING STATEMENT
For the following reasons, the Board recommends a vote AGAINST
this proposal.
This proposal is substantially the same as proposals submitted
by the same shareholder in 1993, 1994 and 1995, which the
shareholders defeated. The Company's Bylaws require that
members of its Nominating Committee "be independent of
management and free from any relationships that, in the opinion
of the Board, would interfere with the exercise of independent
judgment." This test of independence used by McDonnell Douglas
follows the New York Stock Exchange's rules for determining the
independence of Audit Committee members. In conformance with
the Company's Bylaws, the Nominating Committee is comprised of
four members all of whom are non-management directors. Thus,
this proposal is in large part moot.
<PAGE>
The proponent, however, has used a broader, more restrictive
definition of Nominating Committee member independence than that
which is generally used by public companies. The Board believes
that the proposal could result in automatically eliminating
qualified Board members from serving on the Nominating
Committee. The Board believes that it is not in the Company's
or the shareholders' best interests to tie the hands of the
Board unnecessarily by forcing them to use mechanical determinations
of committee composition rather than prudent business judgment.
Finally, in considering the Board's position, it should be noted
that in addition to the Nominating Committee which is comprised
of four non-management members, eleven of the Company's thirteen
directors are non-management directors; the Audit Committee is
comprised of four members, all of whom are non-management
directors; and the Management Compensation and Succession
Committee is comprised of four members, all of whom are
non-management directors; the Corporate Responsibility Committee is
comprised of four members, all of whom are non-management
directors; and the Finance Committee is comprised of three
members, all of whom are non-management directors.
The Board believes that the composition of the Nominating
Committee is independent of management.
Page 33
FOR THE ABOVE REASONS, THE BOARD OF DIRECTORS RECOMMENDS A VOTE
AGAINST THIS PROPOSAL. Proxies will be so voted unless
shareholders specify otherwise in their proxies. A majority of
the shares represented in person or by proxy which are entitled
to be voted at the Annual Meeting is required for the adoption
of this proposal.
5. OTHER MATTERS
McDonnell Douglas management does not know of any other matters
which may come before the meeting. However, if any other
matters do properly come before the meeting, the persons named
as proxies intend to vote upon them in accordance with their
best judgment.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
McDonnell Douglas has appointed Ernst & Young as the independent
certified public accountants for 1996. Ernst & Young and
predecessor firms have served as the Company's independent
certified public accountants since McDonnell Douglas was formed
in 1967. Representatives of Ernst & Young are expected to be
present at the 1996 Annual Meeting of Shareholders to respond to
appropriate questions and to make a statement if they so desire.
<PAGE>
SHAREHOLDER PROPOSALS
Shareholders may recommend that the Nominating Committee
consider prospective director nominees for inclusion in the
Company's Proxy Statement by following the procedures set forth
on page 7 in the section entitled "Nominating Committee." Only
nominees recommended by the Nominating Committee and approved by
the Board of Directors will be included in the Company's Proxy
Statement. Otherwise, under the Company's Bylaws, in order for
a shareholder to nominate a candidate for director at a meeting
of shareholders, timely notice must be received by McDonnell
Douglas in advance of the meeting. Ordinarily such notice must
be received not less than 60 nor more than 90 days before the
first anniversary of the preceding year's Annual Meeting.
However, if the date of the Annual Meeting is advanced by more
than 30 days or delayed by more than 60 days from such
anniversary date, notice must be received not earlier than the
90th day prior to the Annual Meeting and not later than the
later of (i) the 60th day prior to the date set for the Annual
Meeting or (ii) the tenth day following the date on which the
date set for the Annual Meeting is first announced publicly. In
certain cases, notice may be delivered later if the number of
directors to be elected to the Board is increased. Any
shareholder filing a notice of nomination must include certain
information about the nominee, as well as the name and address
of the shareholder and the number of shares of MDC Stock held by
the shareholder.
In order for a shareholder to bring other business before a
shareholder meeting, timely notice must be received by McDonnell
Douglas within the time limits described above. Such notice
must include a description of the proposed business, the reasons
therefor, and any interest the shareholder has in such business.
Page 34
In each case the notice described above must be given to Steven
N. Frank, Secretary, McDonnell Douglas Corporation, Mail Code
1001240, P.O. Box 516, St. Louis, Missouri 63166-0516. The fact
that McDonnell Douglas may not insist upon compliance with these
requirements should not be construed as a waiver by the Company
of its right to do so at any time in the future.
The foregoing requirements are separate from and in addition to
the SEC's requirements that a shareholder must meet to have a
proposal included in the Company's Proxy Statement. Proposals
of shareholders intended to be presented at the next Annual
Meeting of Shareholders must be received by McDonnell Douglas by
November 26, 1996 for inclusion in its Proxy Statement and form
of Proxy for such meeting. Any such proposals should be sent to
Steven N. Frank at the address set forth in the preceding
paragraph. Upon receipt of any proposal, McDonnell Douglas will
determine, in accordance with regulations governing the
solicitation of proxies, whether to include such proposal in the
Company's Proxy Statement.
<PAGE>
SOLICITATION OF PROXIES
The solicitation of this proxy is made by the Board of Directors
of McDonnell Douglas. Proxies for the Annual Meeting of
Shareholders will be solicited by mail and may also be solicited
by McDonnell Douglas directors, officers, and employees,
personally or by telephone or telegraph. Such persons will not
be specially compensated for such service. D. F. King & Co.,
Inc. has been retained for solicitation of proxies for a fee of
$10,000 plus reasonable out-of-pocket expenses. Brokerage
houses, custodians, nominees and fiduciaries have been requested
to forward proxy materials to the beneficial owners of shares
held of record by such persons and will be reimbursed for their
expenses. The entire cost of solicitations will be borne by
McDonnell Douglas. Any shareholder giving a proxy may revoke it
by (i) communicating such revocation in writing prior to the
meeting to Steven N. Frank, Secretary, McDonnell Douglas
Corporation, P.O. Box 516, St. Louis, Missouri 63166-0516, (ii)
duly executing and delivering a proxy bearing a later date or
(iii) attending the meeting and voting in person.
By order of the Board of Directors,
Steven N. Frank
Secretary
March 26, 1996
<PAGE> Page 35
Exhibit A
PROPOSED AMENDMENT TO FIRST SENTENCE
OF ARTICLE SIXTH OF THE COMPANY'S CHARTER
The first sentence of Article SIXTH of the Company's
Charter is hereby amended to read in its entirety as follows:
"SIXTH: The total number of shares of stock of all classes
which the Corporation has authority to issue is 410,000,000
shares, of which 400,000,000 shares shall be Common Stock having
a par value of $1.00 per share and 10,000,000 shares shall be
Preferred Stock having a par value of $1.00 per share, so that
the aggregate par value of all authorized shares of all classes
of stock is $410,000,000."
<PAGE>
PROXY
MCDONNELL DOUGLAS CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE ANNUAL MEETING ON APRIL 26, 1996
The undersigned appoints as proxies, with power of substitution,
John F. McDonnell, Harry C. Stonecipher and F. Mark Kuhlmann, and
each of them, to vote all shares of the undersigned at the Annual
Meeting of Shareholders of the Corporation to be held at the
McDonnell Douglas Corporation Engineering Campus Auditorium, Corner
of Lindbergh and McDonnell Blvd., St. Louis County, Missouri, on
Firday, April 26, 1996, at 9:00 a.m., or at any adjournment thereof,
on the matters shown and in the manner directed hereon and in
accordance with their best judgment on all other matters coming
before the Annual Meeting.
Election of Directors.
Nominees to be elected for terms ending in 1999:
B. A. (Dolph) Bridgewater, Jr.
William E. Cornelius
William S. Kanaga
George A. Schaefer
The persons named as proxies cannot vote your shares unless you sign
and return this card. You are encouraged to specify your vote by
marking the appropriate boxes on the reverse side of this card.
If you only sign and return this card, but provide no specific
voting direction to the proxies, your shares will be voted FOR
proposals 1 and 2 and AGAINST proposals 3 and 4.
SEE REVERSE SIDE
FOLD AND DETACH HERE
<PAGE>
Please mark your votes 5139
X as in this example.
This proxy when properly executed will be voted in the manner
directed herein. If no direction is made, this proxy will be voted
FOR proposals 1 and 2 and AGAINST proposals 3 and 4.
The Board of Directors recommends a vote FOR proposals 1 and 2
- ----------------------------------------------------------------------
FOR WITHHELD
1. Election of Directors (see reverse) ___ ___
FOR AGAINST ABSTAIN
If you wish to withhold your vote from a
particular nominee, mark the FOR box and
write the nominee's name in the
following space. ______________________________
2. Proposal to increase authorized
shares of common stock ___ ___ ___
- -----------------------------------------------------------------------
The Board of Directors recommends a vote AGAINST proposals 3 and 4.
- -----------------------------------------------------------------------
FOR AGAINST ABSTAIN
3. Proposal regarding foreign
military sales ___ ___ ___
4. Proposal regarding composition
of Nominating Committee ___ ___ ___
- -----------------------------------------------------------------------
Address change/comments noted ______
Mark this box to obtain an admittance ticket ______
SIGNATURE(S) __________________________________ DATE ______________
NOTE: Please sign exactly as name appears hereon. Joint owners should
each sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
The signer hereby revokes all proxies heretofore given by the signer
to vote at said meeting or any adjournment thereof.
FOLD AND DETACH HERE
<PAGE>
ANNOUNCING TOLL-FREE NUMBERS
For questions conerning your shareholder account, payment of dividends,
or transfer of stock, contact First Chicago Trust Company, by calling
800-446-2617.
The telephone response center is open Monday through Friday from 8:00 a.m.
to 6:00 p.m., Eastern time. Their Automated Voice Response System is
available for 24 hours, 7 days a week.
To hear a summary of McDonnell Douglas Corporation's Quarterly Financial
results shortly after earnings are released, call the Shareholder
Information Line at: 800-233-8193.
MCDONNELL DOUGLAS [LOGO]
<PAGE>
CONFIDENTIAL VOTING INSTRUCTIONS
MCDONNELL DOUGLAS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS - APRIL 26, 1996
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: THE CHASE MANHATTAN BANK, N.A., TRUSTEE UNDER THE EMPLOYEE SAVINGS,
INVESTMENT AND THRIFT PLANS OF MCDONNELL DOUGLAS CORPORATION AND
THE EMPLOYEE PAYROLL STOCK OWNERSHIP PLAN OF MCDONNELL DOUGLAS
CORPORATION
I HEREBY DIRECT THE TRUSTEE TO VOTE, IN PERSON OR BY PROXY, AT THE ANNUAL
MEETING OF SHAREHOLDERS OF MCDONNELL DOUGLAS CORPORATION (MCDONNELL
DOUGLAS) TO BE HELD ON APRIL 26, 1996, AND ANY ADJOURNMENTS THEREOF,
ALL FULL AND FRACTIONAL SHARES OF COMMON STOCK OF MCDONNELL DOUGLAS
CREDITED TO MY ACCOUNTS AT THE CLOSE OF BUSINESS ON MARCH 1, 1996, UNDER
THE EMPLOYEE SAVINGS, INVESTMENT AND THRIFT PLANS OF MCDONNELL DOUGLAS,
AND THE EMPLOYEE PAYROLL STOCK OWNERSHIP PLAN OF MCDONNELL DOUGLAS IN
ACCORDANCE WITH THE INSTRUCTIONS ON THE REVERSE HEREOF.
SHARES IN EACH PLAN ARE VOTED BY THE TRUSTEE, AND PARTICIPANTS MAY
NOT VOTE SUCH SHARES AT THE ANNUAL MEETING. HOWEVER, IF THESE
INSTRUCTIONS ARE SIGNED AND RETURNED, THE SHARES CREDITED TO YOUR
ACCOUNTS WILL BE VOTED BY THE TRUSTEE IN ACCORDANCE WITH YOUR
INSTRUCTIONS. THIS IS THE ONLY METHOD BY WHICH YOU MAY DIRECT
THE VOTING OF SHARES CREDITED TO YOUR ACCOUNTS. IF THESE INSTRUCTIONS
ARE SIGNED AND RETURNED WITHOUT DIRECTIONS, OR ARE RETURNED SO THAT
THEY ARE RECEIVED LATER THAN APRIL 23, 1996, OR ARE RETURNED WITHOUT
SIGNATURE, OR ARE NOT RETURNED, THE SHARES IN EACH PLAN WILL BE
VOTED IN THE SAME PROPORTION FOR, AGAINST OR IN ABSTENTION AS SHARES
IN EACH RESPECTIVE PLAN ARE VOTED FOR WHICH INSTRUCTIONS ARE
RECEIVED; HOWEVER, SUCH SHARES IN THE EMPLOYEE PAYROLL STOCK
OWNERSHIP PLAN OF MCDONNELL DOUGLAS WILL NOT BE VOTED.
(Continued on the other side)
<PAGE>
PLEASE MARK VOTES
X AS IN THIS EXAMPLE
The Board of Directors recommends a vote FOR proposals 1 and 2.
- ------------------------------------------------------------------------
For All
For Withheld Except
1. Election of Directors
for terms ending in 1999 ___ ___ ___
B. A. (Dolph) Bridgewater, William E. Cornelius, William S. Kanaga,
George A. Schaefer
If you wish to withhold your vote from a particular nominee, mark
the "For All Except" box and strike a line through the nominee's name
in the list above.
For Against Abstain
2. Proposal to increase authorized
shares of common stock ___ ___ ___
- ---------------------------------------------------------------------------
The Board of Directors recommends a vote AGAINST proposals 3 and 4.
For Against Abstain
3. Proposal regarding foreign
military sales ___ ___ ___
4. Proposal regarding composition
of Nominating Committee ___ ___ ___
- ----------------------------------------------------------------------------
Please be sure to sign and date this instruction.
________________________________________ Date: ______________________
Participant sign here
DETACH CARD
