<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
=== EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1996
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or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 1-3685
MCDONNELL DOUGLAS CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Maryland 43-0400674
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(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
Post Office Box 516, St. Louis, MO. 63166-0516
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(Address of Principal Executive Offices) (Zip Code)
314-232-0232
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, par value $1 per share New York & Pacific Stock Exchanges
Preferred Stock Purchase Rights New York & Pacific Stock Exchanges
8 5/8% Notes due April 1, 1997 New York Stock Exchange
8 1/4% Notes due July 1, 2000 New York Stock Exchange
9 1/4% Notes due April 1, 2002 New York Stock Exchange
9 3/4% Debentures due April 1, 2012 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. X
---
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the stock was sold or the
average bid and asked prices of such stock, as of a specified date within
60 days prior to the date of filing.
Aggregate market value of common stock held by non-affiliates of MDC at
March 7, 1997: $13.936 billion.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date:
Common shares outstanding at March 7, 1997: 209,963,660 shares
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the 1996 Annual Report to Shareholders are incorporated by
reference into Parts I, II and IV. Portions of the proxy statement for
the annual meeting to be held on April 25, 1997 are incorporated by
reference into Part III.
Exhibit Index on Page 14
(i)
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10-K Page 1
PART I
ITEM 1. BUSINESS
GENERAL
The Company was incorporated in Maryland in 1939 under the name McDonnell
Aircraft Corporation. On April 19, 1967, the shareholders approved the merger
with Douglas Aircraft Company and the name of the corporation was changed to
McDonnell Douglas Corporation (the Company or McDonnell Douglas).
On December 14, 1996, McDonnell Douglas and The Boeing Company (Boeing)
entered into a definitive agreement whereby a wholly-owned subsidiary of Boeing
will merge into McDonnell Douglas in a stock-for-stock transaction with
McDonnell Douglas surviving as a wholly-owned subsidiary of Boeing. The
transaction is subject to approval by the shareholders of both companies and
certain regulatory agencies; it is expected to close as early as mid-1997. The
following discussions do not consider the effects the merger will have on future
products or operating results since the exact timing of the consummation is
uncertain and the future effects of the merger have not been quantified.
The Company, its divisions and its subsidiaries operate principally in four
industry segments: military aircraft; missiles, space, and electronic systems;
commercial aircraft; and financial services and other. Operations in the first
two industry segments are conducted primarily by McDonnell Douglas Aerospace and
by Military Transport Aircraft, unincorporated operating divisions of the
Company, which are engaged in design, development, production, and support of
the following major products: military transport aircraft; attack and fighter
aircraft, military and commercial helicopters, ordnance, and training systems
and spare parts; tactical missiles; space launch vehicles and space station
systems; defense electronics components and systems, and command, control,
communications, computers, and intelligence systems. Operations in the
commercial aircraft segment are conducted by Douglas Aircraft Company (DAC), an
unincorporated operating division of the Company, which designs, develops,
produces, and sells commercial transport aircraft and related spare parts.
Through its McDonnell Douglas Financial Services Corporation (MDFS) subsidiary,
the Company is engaged in aircraft financing and commercial equipment leasing.
The Company's subsidiary, McDonnell Douglas Realty Company (MDRC), was
established in 1972 to develop the Company's surplus real estate. While
continuing to serve that role, MDRC has become a full-service developer and
property manager in the commercial real estate market as well as for the
Company's aerospace business.
The Company, beginning in 1988, divested its information systems business.
By the end of 1993 all of the business had been sold.
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10-K Page 2
The business segments in which the Company is engaged and discussion of
certain of their respective products appear under the captions: "Military
Aircraft; Missiles, Space, and Electronic Systems" and "Commercial Aircraft" in
the Pullout Section appearing after page 24, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 26 through
33 and "Selected Financial Data by Industry Segment" on page 34 of the Company's
1996 Annual Report to Shareholders, the text portions of which are incorporated
herein by this reference.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Financial information regarding the Company's industry segments is provided
under the caption "Selected Financial Data by Industry Segment" on page 34 of
the Company's 1996 Annual Report to Shareholders, which is incorporated herein
by this reference.
MARKETING AND MAJOR CUSTOMER - MCDONNELL DOUGLAS AEROSPACE
Discussion regarding the Company's most significant customer in the
military aircraft and missiles, space, and electronic systems segments is
included under the captions "Business and Market Considerations - Military
Aerospace Business" and "Government Business Audits, Reviews, and
Investigations" on pages 30 through 32 in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in the Company's 1996 Annual
Report to Shareholders, which are incorporated herein by this reference.
COMPETITION
Programs and products comprising most of the Company's business volume are
of a highly technical nature, comparatively few in number and high in unit cost;
they have traditionally had relatively long production lives. There is
significant price and product competition in the aerospace industry, both in
military and commercial programs.
The Company's military segments compete in an industry composed of a few
major competitors and a limited number of customers. The number of competitors
in these segments has decreased over the past few years due to consolidation
brought about by reduced defense spending. However, competition for military
programs remains significant.
The Company's commercial aircraft sales are subject to intense competition
from aircraft manufactured by other companies, both foreign and domestic,
including companies which are nationally owned or subsidized and have a larger
family of commercial aircraft to meet varied and changing airline requirements.
The Company's principal competitors in commercial aircraft are The Boeing
Company and Airbus Industrie. The Company's presence in this industry will be
focused on its
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10-K Page 3
existing product line, its current MD-95 twin jet development
program, and its commercial aircraft modification, support, spare parts and
related services. For additional information refer to the discussion in
"Business and Market Conditions - Commercial Aircraft Business" section on pages
31 through 32 in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the Company's 1996 Annual Report to Shareholders
which is incorporated herein by this reference.
MDFS is subject to competition from other financial institutions, including
commercial banks, finance companies, and leasing companies. Some full-service
leasing companies are larger than MDFS and have greater financial resources,
greater leverage ability, and lower effective borrowing costs.
SUBCONTRACTING, PROCUREMENT AND RAW MATERIALS
The most important raw materials required for the Company's aerospace
products are aluminum (sheet, plate, forgings, and extrusions), titanium (sheet,
plate, forgings, and extrusions) and composites (including carbon and boron).
All of these materials are purchased from outside sources and generally are
available at competitive prices. Additional sources and capacity exist for these
raw materials, but it would take a year or more before they could become
qualified alternate sources of supply.
The Company purchases many components, such as engines and accessories,
electrical power systems, radars, landing gears, fuel systems, refrigeration
systems, navigational equipment, and flight and engine instruments for use in
aircraft, and propulsion systems, guidance systems, telemetry and gyroscopic
devices in support of its space systems and missile programs. In addition,
fabricated subassemblies such as engine pods and pylons, fuselage sections,
wings and empennage surfaces, doors and flaps, are sometimes subcontracted to
outside suppliers. The U.S. Government and commercial customers also furnish
certain components for incorporation into aircraft and other products they
purchase from the Company.
The Company is dependent upon the ability of its large number of suppliers
and subcontractors to meet performance specifications, quality standards, and
delivery schedules at anticipated costs, and their failure to do so would
adversely affect production schedules and contract profitability, while
jeopardizing the ability of the Company to fulfill commitments to its customers.
The Company has encountered some difficulty from time to time in assuring
long-lead time supplies of essential parts, subassemblies, and materials. The
Company's success in forestalling shortages of critical commodities over the
long term is difficult to predict because many factors affecting such shortages
are outside its control.
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10-K Page 4
EMPLOYEES
At December 31, 1996, the total employment of the Company, including
subsidiaries, was 63,873.
PATENTS AND LICENSES
The Company holds many patents and has licenses under patents held by
others. The Company does not believe that the expiration of any patent or group
of patents, nor the termination of any patent license agreement, would
materially affect its business. The Company does not believe that any of its
patents or trademarks are materially important to the conduct of its business.
ENVIRONMENTAL REGULATIONS
See "Environmental Expenditures" on page 33 in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's 1996
Annual Report to Shareholders, which is incorporated herein by this reference.
RESEARCH AND DEVELOPMENT
A significant portion of the Company's business with the U.S. Government
consists of research, development, test, and evaluation work, which are
reflected as sales and costs in the Company's financial statements.
Customer-sponsored research and development work amounted to approximately $.993
billion in 1996, $1.227 billion in 1995, and $1.393 billion in 1994.
Company-sponsored research and development and bid and proposal work, related to
both commercial business and business with the U.S. Government, amounted to $355
million in 1996, $311 million in 1995, and $297 million in 1994.
U.S. GOVERNMENT AND EXPORT SALES
Although there are additional risks to the Company attendant to its
non-U.S. operations and transactions, such as currency fluctuations and
devaluations, the risk of war, changes in foreign governments and their
policies, differences in foreign laws, uncertainties as to enforcement of
contract rights, and difficulties in negotiating and litigating with foreign
sovereigns, the Company's operations and financial position have not been
materially adversely affected by these additional risks in its non-U.S.
operations and transactions.
Since most of the Company's foreign export sales involve technologically
advanced products, services and expertise, U.S. export control regulations limit
the types of products and services that may be offered and the countries and
governments to which sales may be made. The Department of State issues and
maintains the International Traffic in Arms Regulations
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10-K Page 5
pursuant to the Arms
Export Control Act. The Department of Commerce issues and maintains the Export
Administration Regulations pursuant to the Export Administration Act and the
Department of Treasury implements and maintains transaction controls, sanctions,
and trade embargoes pursuant to the Trading With the Enemy Act and the
International Emergency Economic Powers Act. Pursuant to these regulations,
certain products and services cannot be exported without obtaining a license.
Most of the military products that the Company sells abroad cannot be sold
without such a license. Consequently, the Company's international sales may be
adversely affected by changes in the United States Government's export policy,
the implementation of trade sanctions or embargoes, or the suspension or
revocation of the Company's foreign export control licenses.
Additional information required by this item is included in Note 18, "U.S.
Government and Export Sales" on page 52 of the Company's 1996 Annual Report to
Shareholders, which is incorporated herein by this reference.
BACKLOG
The Company's backlog of orders at December 31 follows:
1996 1995
Backlog % Backlog %
-------- ----- ------- -----
(Dollars in millions)
Firm backlog:
Military aircraft $12,934 54.6 $10,121 51.5
Commercial aircraft 7,000 29.6 7,175 36.5
Missiles, space, and
electronic systems 3,745 15.8 2,344 12.0
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Total Firm Backlog $23,679 100.0 $19,640 100.0
======= ===== ======= =====
Contingent backlog:
Military aircraft $18,977 91.8 $ 6,298 72.3
Commercial aircraft 1,252 6.0 1,669 19.1
Missiles, space, and
electronic systems 453 2.2 746 8.6
------- ----- ------- -----
Total Contingent Backlog $20,682 100.0 $ 8,713 100.0
======= ===== ======= =====
Backlog reported is that of the aerospace segments. Customer options and
products produced for short-term lease are excluded from backlog. For a
discussion of risks associated with backlog for commercial customers, see
"Backlog" on page 33 in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's 1996 Annual Report to
Shareholders, which is incorporated herein by this reference.
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10-K Page 6
Contingent backlog includes: (a) U.S. and other government orders not yet
funded; (b) U.S. and other government orders being negotiated as continuations
of authorized programs; and (c) unearned price escalation on firm commercial
aircraft orders. The backlog amounts include units scheduled for delivery over
extended future periods. Since substantially all work for the U.S. and other
governments is accounted for on the percentage of completion method of
accounting whereby sales are recorded as work is performed, such amounts
included in backlog cannot be segregated on the basis of scheduled deliveries.
However, with respect to commercial jetliners and related products included in
the commercial segment (which are accounted for on a delivery method), the firm
backlog related to deliveries scheduled after one year was $4.3 billion at
December 31, 1996, and $5.2 billion at December 31, 1995.
The Government may terminate its contracts for default, or for its
convenience whenever it believes that such termination would be in the best
interest of the Government. For a further discussion of termination for default,
termination for convenience, and other government contracting risks, see
"Business and Market Considerations - Military Aerospace Business" on page 31 in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's 1996 Annual Report to Shareholders, which is
incorporated herein by this reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company at February 28, 1997, were as
follows:
Edward C. Bavaria -64
DAC Deputy President since May 1995. Self-employed consultant 1993 - 1995
(subsequent to retirement from General Electric Company). Vice President
and General Manager - General Electric Company 1983 - 1993.
Donald V. Black -55
DAC Vice President/General Manager - Sales and Marketing since April 1996.
DAC Senior Vice President - Marketing and Airline Financing February to
April 1996. DAC Vice President/General Manager - Airline Financing Group
1994 - 1995. McDonnell Douglas Finance Corporation (MDFC) Executive Vice
President 1989 - 1994.
Dean C. Borgman -55
McDonnell Douglas Helicopter Systems (MDHS) Senior Vice President since
1995. McDonnell Douglas Helicopter Company (MDHC) President since 1992.
MDHS Senior Vice President/General Manager 1993 to 1995. MDHC Vice
President - Commercial Programs 1992. MDHC General Manager MDX Program
1990-1992.
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10-K Page 7
Robert L. Brand -59
McDonnell Douglas Aerospace (MDA) Vice President/General Manager - Business
Management since February 1997. McDonnell Douglas Corporation (MDC) Vice
President and Controller 1992 - 1997. McDonnell Douglas Missile Systems
Company (MDMSC) Vice President-Business Management and Chief Financial
Officer 1992. MDC Controller 1987-1992.
Laurie A. Broedling -51
MDC Senior Vice President - Human Resources and Quality since May 1995. MDC
Vice President - Human Resources 1995. Associate Administrator for
Continual Improvement of National Aeronautics and Space Administration
1992-1995. Deputy Under Secretary of Defense -Total Quality Management
1990-1992.
Michael J. Cave -36
DAC Vice President - Business Operations and Chief Financial Officer since
April 1996. DAC Vice President/General Manager - Business Operations and
Chief Financial Officer 1995 - 1996. Military Transport Aircraft (MTA) Vice
President/General Manager - Business Management - C-17 Program 1995. MDA
Vice President - Business Management 1994 - 1995. MDA General Manager -
Business Programs 1993 - 1994. MDA General Manager - Controls and Pricing
1991 - 1993.
Gerald E. Daniels - 51
MDA Vice President/General Manager U.S. Marine Corps and Navy Programs
since February 1997. MDA Vice President/General Manager F/A-18 1996 - 1997.
MDA Vice President/General Manager F/A-18E/F 1994-1996. MDA Vice
President/Deputy General Manager F/A-18E/F 1993 - 1994. MDA Vice
President/General Manager Harpoon/SLAM 1992 - 1993. MDMSC Vice
President/General Manager Harpoon/SLAM 1992 - 1993. MDMSC Senior Director
Harpoon/SLAM 1992. Missiles & Defense Electronics Division Senior Director
1991 - 1992.
Stanley Ebner -63
MDC Senior Vice President - Washington Operations since December 1994.
Self-employed attorney, consultant, and writer 1990-1994.
George G. Field -58
DAC Vice President/General Manager-Product Support since April 1996. DAC
Senior Vice President - Product Support February - April 1996. MDA Vice
President/General Manager - Integrated Product Definition and C-17 Deputy
Program Manager 1994 - 1996. MDA Vice President/General Manager - C-17
Engineering and Test 1993 - 1994. MDA Vice President/General Manager -
Government Programs - Product Development and Technology 1993 - 1994. DAC
Vice President MD-12 Design and Technology 1992 - 1993. DAC Vice President
- MD-11 1990 - 1992.
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10-K Page 8
Patrick J. Finneran Jr. -51
MDA Vice President/General Manager F/A-18 since February 1997. MDA Vice
President/General Manager - Market Development 1996 - 1997. MDA Vice
President/General Manager - Production Aircraft Programs 1995 - 1996. MDA
Vice President/General Manager AV-8B 1992-1994. McDonnell Aircraft Company
(MCAIR) General Manager AV-8B 1992. MCAIR Deputy General Manager AV-8B
1990-1992.
Steven N. Frank -48
MDC Vice President, Associate General Counsel and Secretary since April
1994. MDC Vice President, Associate General Counsel and Assistant Secretary
1992-1994. Partner of Peper, Martin, Jensen, Maichel & Hetlage 1988-1992.
Thomas M. Gunn -53
MDA Senior Vice President Business Development since February 1997. MDC
Senior Vice President - Business Development 1995 - 1997. MDC Vice
President/General Manager, Strategic Business and International Development
1994. MDC Vice President, Strategic Business Development 1993. MDC Vice
President, Special Projects 1992. MDHC President 1990-1992.
Frederick W. Hill -47
MDC Senior Vice President - Communications and Community Relations since
May 1995. Vice President - Public Affairs, Westinghouse Electric
Corporation 1993 - 1995. Executive Director - Government Affairs,
Westinghouse Electric Corporation 1990 - 1993.
Donald R. Kozlowski -59
MTA Senior Vice President since February 1997. MTA Senior Vice President -
C-17 1996 - 1997. MTA Senior Vice President - C-17 Program Manager 1993 -
1996. MDC Vice President/General Manager-High Speed Civil Transport
1992-1993. MCAIR Vice President/General Manager - F/A-18 1991-1992.
Roger A. Krone -40
MDC Vice President - Treasurer since September 1995. MDA Division Director
- Information Systems 1994 - 1995. MDC Director - Financial Planning 1992 -
1994. Program Manager - F-16 Israeli Programs, General Dynamics Corporation
1991 - 1992.
F. Mark Kuhlmann -48
MDC Senior Vice President and General Counsel since March 1996. MDC Senior
Vice President - Administration and General Counsel 1994 - 1996. MDC Senior
Vice President - Administration, General Counsel and Secretary 1992-1994.
MDC Vice President, General Counsel and Secretary 1991-1992.
Michael D. Marks -54
MDA Vice President/General Manager F-15 since August 1996. MDA Program
Manager 1995 - 1996. MDA Deputy General Manager 1992 - 1995. MCAIR Director
Program Engineering 1991 - 1992.
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10-K Page 9
John F. McDonnell -58
MDC Chairman of the Board since September 1994. MDC Chairman and Chief
Executive Officer 1988-1994.
Thomas J. Motherway -54
MDFC and MDRC President since January 1995. MDRC President 1991 - 1994.
William A. Norman - 57
MDA Vice President/General Manager Engineering since February 1997. MDA
Division Director Program Integrated Product Definition 1993 - 1997. MDA
Director Program Engineering 1989 - 1993.
Walter J. Orlowski -53
DAC President since February 1997. DAC Vice President/General Manager
Production Program Management 1996 - 1997. DAC Senior Vice President -
MD-11, MD-80 and MD-90 Programs 1996. DAC Vice President/General Manager -
Marketing and Business Development 1993 - 1996. DAC Vice President/General
Manager - Development Programs 1992 - 1993. DAC Vice President/General
Manager - MD-12 Program 1991 - 1992.
James F. Palmer -47
MDC Senior Vice President and Chief Financial Officer since July 1995. MDC
Vice President - Treasurer 1993-1995. MDA Vice President/General Manager -
Business Management 1992-1993. MCAIR Chief Financial Officer 1991-1992.
James B. Peterson -52
MDA Vice President/General Manager U.S. Air Force programs since February
1997. MDA Vice President/General Manager - Integrated Product Definition
1995 - 1997. MDA Vice President/General Manager - Missiles and Aerospace
Support 1995. MDA Vice President/General Manager - Cruise Missiles
1994-1995. MDA Vice President/General Manager - Tomahawk Program 1993-1994.
MDA Vice President and Deputy - New Aircraft & Missile Products 1992-1993.
MDMSC Vice President - Advanced Programs & Technology 1992. MDMSC Vice
President - Technology Division 1991-1992.
James R. Phillips - 53
DAC Vice President/General Manager MD-95 since February 1997. DAC Vice
President/Deputy General Manager MD-95 1996-1997. DAC Vice
President/General Manager MD-95 1996. DAC Vice President Program Manager
MD-95 Development 1994 - 1996. DAC Vice President/General Manager - Product
Support 1993 - 1994. DAC Vice President/General Manager - Commercial
Product Support 1991 - 1993.
James C. Restelli -55
MDA Vice President/General Manager - Missile Systems and Aerospace Support
since September 1995. MDA Senior Vice President - Operations 1995. MDA
Senior Vice President - Tactical Aircraft and Missile Systems 1992 - 1995.
MDA Executive Vice President 1991 - 1992.
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10-K Page 10
R. Gale Schluter - 56
MDA Vice President/General Manager - Space & Defense Systems since September
1996. MDA Vice President/General Manager Space Transportation 1996. MDA Vice
President/General Manager - Space Flight Programs 1996. MDA Vice
President/General Manager - Space Station 1993 - 1996. MDA Vice
President/Deputy General Manager - Space Station Division 1992 - 1993. MDA
Vice President/General Manager Surveillance & Electronic Systems 1991 -
1992.
Mark N. Schroeder - 40
MDC Vice President and Controller since February 1997. MDC Director -
Accounting 1992 - 1997. MDC Director - Auditing 1992. Senior Manager of
Ernst & Young LLP 1988 - 1992.
Michael M. Sears -49
MDA President since January 1997. DAC President 1996 - 1997. MDA Vice
President/General Manager - F/A-18 1994 - 1996. MDA Vice President/General
Manager - F/A-18E/F 1991-1994.
James M. Sinnett -57
MDC Vice President - Technology since October 1996. MDA Senior Vice
President - New Aircraft and Missile Products 1993 - 1996. MDA Vice
President/General Manager - New Aircraft Products Division 1991-1993.
E. David Spong - 58
MTA Vice President/General Manager C-17 Program since February 1997. MTA
Vice President/General Manager Integrated Product Definition 1996 - 1997.
MTA Vice President Engineering 1995 - 1996. MTA General Manager Engineering
1995. MTA Director - Engineering 1994 - 1995. MTA Director - Aircraft
Performance 1992 - 1994. MTA General Manager - Aircraft Performance 1991 -
1992.
John W. Steurer - 59
MDA Vice President/General Manager Quality since February 1997. MDA Vice
President/General Manager Joint Advanced Strike Technology 1995 - 1997. MDA
Vice President/General Manager Integrated Product Definition 1992 - 1995.
MDA Vice President Engineering 1991 - 1992.
Harry C. Stonecipher -60
MDC President and Chief Executive Officer since September 1994. Chairman of
the Board, President and Chief Executive Officer of Sundstrand Corporation
1991-1994.
William L. Stowers -49
MDA Vice President/General Manager - Supplier Management and Procurement
since October 1992. MDA Vice President - Procurement 1990 - 1992.
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10-K Page 11
David O. Swain - 54
MDA Vice President/General Manager Advanced Systems & Technology - Phantom
Works since September 1995. MDA Vice President/General Manager New Aircraft
& Missile Products 1994 - 1995. MTA Senior Vice President - Transport
Aircraft Division 1993 - 1994. MTA Executive Vice President - Government
1991 - 1993.
John D. Tyson - 54
MDA Vice President Business Development since February 1997. MDA Vice
President/General Manager AV8B/T-45 1996 - 1997. MDA Vice President
Business Development U.S. Government Programs 1994 - 1996. MDA Vice
President Defense Systems 1992 - 1994. MDA Director Business Development
1992. MCAIR Program Manager 1991 - 1992.
John J. Van Gels -53
MDA Vice President/General Manager Production Operations and General
Services since February 1997. DAC Senior Vice President/General Manager -
Manufacturing 1996 - 1997. DAC Senior Vice President - Operations 1996. DAC
Executive Vice President - Operations and Production Programs 1994 - 1996.
DAC Vice President/General Manager - Production Programs 1993 - 1994. DAC
Vice President/General Manager- MD-11 1992 - 1993. DAC Vice
President/General Manager - Production Center Operations 1990 - 1992.
All of the executive officers have been employees of the Company at least
five years except Edward C. Bavaria, Laurie A. Broedling, Stanley Ebner, Steven
N. Frank, Frederick W. Hill, Roger A. Krone, Mark N. Schroeder and Harry C.
Stonecipher. There are no arrangements or understandings between any of the
executive officers and any other person pursuant to which he was selected as an
officer, except for Harry C. Stonecipher and Edward C. Bavaria, who are parties
to employment agreements incorporated by reference herein as Exhibits 10(j) and
10(l).
ITEM 2. PROPERTIES
At December 31, 1996 the Company's manufacturing, laboratory, office, and
warehouse areas totaled 34.7 million square feet, of which 5.0 million square
feet were leased. The Company plants are well maintained and in good operating
condition. The Company has long-term arrangements with airport authorities
enabling it to share the use of runways, taxiways, and other airport facilities
at various locations, including St. Louis, Missouri; Long Beach, California; and
Mesa, Arizona. Reduced defense spending and reduced commercial aircraft orders
over the past several years has resulted in downsizing of personnel and facility
needs. As a result of the Company's downsizing, certain of the Company's
facilities are held for sale and certain other facilities are currently
underutilized.
The Company's principal locations are in five states and Canada. Those in
St. Louis, Missouri are chiefly devoted to the development, manufacture and
assembly of military aircraft,
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10-K Page 12
training systems, and missiles. Those in Mesa,
Arizona are primarily used for development, manufacture, and assembly of
helicopters. In the Los Angeles, California area, principal properties are
located in Huntington Beach and Long Beach. Huntington Beach, California
properties are utilized for development and manufacture of space launch
vehicles, space station components, and defense electronics. Long Beach,
California properties are devoted to the development, manufacture, and assembly
of commercial and military transport aircraft, and to the financial services and
other segment. Subassembly work for the commercial and military aircraft
business segments is performed at Macon, Georgia; Salt Lake City, Utah; and
Toronto, Canada for shipment to operations at Long Beach.
ITEM 3. LEGAL PROCEEDINGS
In 1991, McDonnell Douglas Corporation and General Dynamics filed a legal
action to contest the Navy's termination for default on the A-12 contract.
Additional information relative to this matter and the settlement of claims
filed with the Navy on the T-45 contract is included in Note 5, "Contracts in
Process and Inventories" on page 43 of the Company's 1996 Annual Report to
Shareholders, which is incorporated herein by this reference. See also Note 16,
"Commitments and Contingencies" on page 51 of the Company's 1996 Annual Report
to Shareholders and "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Government Business Audits, Reviews, and
Investigations," page 32, which are incorporated herein by this reference.
McDonnell Douglas is a party to a number of proceedings brought under the
Comprehensive Environmental Response, Compensation, and Liability Act, commonly
known as Superfund, or similar state statutes. For additional information, see
"Environmental Expenditures" on page 33 in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in the Company's 1996 Annual
Report to Shareholders, which is incorporated herein by this reference.
A number of legal proceedings and claims are pending or have been asserted
against the Company including legal proceedings and claims relating to alleged
injuries to persons associated with the disposal of hazardous waste. A
substantial portion of such legal proceedings and claims is covered by
insurance. The Company believes that the final outcome of such proceedings and
claims will not have a material adverse effect on the Company's earnings, cash
flow, or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
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10-K Page 13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Information required by this item is included on pages 54, 55, and 57 of
the Company's 1996 Annual Report to Shareholders, which is incorporated herein
by this reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data for the five years ended December 31, 1996,
consisting of the data under the captions "Summary of Operations" and "Balance
Sheet Information" are included at page 54 of the Company's 1996 Annual Report
to Shareholders, which is incorporated herein by this reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations is contained on pages 26 through 33 of the 1996 Annual Report to
Shareholders, which is incorporated herein by this reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item is included on pages 34 through 52,
53, and 55 of the 1996 Annual Report to Shareholders, which are incorporated
herein by this reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
This item is not applicable.
PART III
ITEMS 10, 11, 12 and 13
The information called for by Part III, Item 10 "Directors and Executive
Officers of the Registrant" (except for certain information concerning Executive
Officers which is provided in Part I above), Item 11 "Executive Compensation,"
Item 12 "Security Ownership of Certain Beneficial Owners and Management," and
Item 13 "Certain Relationships and Related Transactions" is included in the
Company's definitive Proxy Statement for 1997 pursuant to Regulation 14A, to be
filed with the Commission within 120 days after the close of the fiscal year
ended December 31, 1996, the text portion of which is incorporated herein by
this reference. The report of the Management
<PAGE>
10-K Page 14
Compensation and Succession
Committee and the performance graph contained in the Company's definitive Proxy
Statement for 1997, however, are not incorporated herein by reference and shall
not be deemed filed under the Securities Act of 1933 or under the Securities
Exchange Act of 1934.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)1. LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of McDonnell Douglas
Corporation and Subsidiaries included in the 1996 Annual Report to
Shareholders at the pages indicated, are incorporated herein by this
reference:
Report of Ernst & Young LLP, Independent Auditors, page 53.
Consolidated Statement of Operations, years ended December 31, 1996,
1995, and 1994, page 35.
Balance Sheet, December 31, 1996 and 1995, page 36.
Consolidated Statement of Shareholders' Equity, years ended December
31, 1996, 1995, and 1994, page 38.
Consolidated Statement of Cash Flows, years ended December 31, 1996,
1995, and 1994, page 39.
Notes to Consolidated Financial Statements, pages 40 through 52.
Selected Financial Data by Industry Segment, page 34.
Quarterly Results of Operations, page 55.
(a)2. LIST OF FINANCIAL STATEMENT SCHEDULES
See Index to Financial Statement Schedules on page 18.
All other schedules for which provision is made in the applicable
regulation of the Securities and Exchange Commission are omitted
either because they are not applicable or because the required
information is included in the financial statements or notes thereto.
(a)3. EXHIBITS
See Index to Exhibits on pages 21 through 25.
(b) Reports on Form 8-K filed during the fourth quarter of
1996:
<PAGE>
10-K Page 15
1. Form 8-K filed on November 1, 1996, in response to Item 5.
Also filed were Exhibit 12 Computations of Earnings to
Fixed Charges for Nine Months Ended September 30, 1996 and
1995, and Exhibit 99 Summary of McDonnell Douglas
Corporation's Third Quarter Financial Results.
2. Form 8-K filed on December 24, 1996, in response to Item
5 and Item 7.
<PAGE>
10-K Page 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MCDONNELL DOUGLAS CORPORATION
(Registrant)
Date: March 14, 1997 By: /s/ Mark N. Schroeder
--------------- ------------------------------
Mark N. Schroeder
Vice President and Controller
and Registrant's Authorized
Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the date indicated below.
Signature Title Date
--------- ----- ----
/s/ Harry C. Stonecipher March 14, 1997
- - ------------------------
Harry C. Stonecipher Director, President & Chief
Executive Officer
(Principal Executive Officer)
/s/ James F. Palmer March 14, 1997
- - -------------------------
James F. Palmer Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Mark N. Schroeder March 14, 1997
- - -------------------------
Mark N. Schroeder Vice President and Controller
(Principal Accounting Officer)
/s/ John F. McDonnell /s/ Kenneth M. Duberstein
- - --------------------------- -------------------------------
John F. McDonnell, Director Kenneth M. Duberstein, Director
/s/ John H. Biggs /s/ William S. Kanaga
- - --------------------------- -------------------------------
John H. Biggs, Director William S. Kanaga, Director
/s/ B. A. Bridgewater, Jr. /s/ James S. McDonnell III
- - -------------------------- ------------------------------
B.A. Bridgewater, Jr., Director James S. McDonnell III, Director
<PAGE>
10-K Page 17
/s/ Beverly B. Byron /s/ George A. Schaefer
- - -------------------------- ---------------------------------
Beverly B. Byron, Director George A. Schaefer, Director
/s/ William E. Cornelius /s/ Ronald L. Thompson
- - --------------------------- ---------------------------------
William E. Cornelius, Director Ronald L. Thompson, Director
/s/ William H. Danforth /s/ P. Roy Vagelos
- - -------------------------- ---------------------------------
William H. Danforth, Director P. Roy Vagelos, Director
Date: March 14, 1997
<PAGE>
10-K Page 18
MCDONNELL DOUGLAS CORPORATION
INDEX TO FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedules of McDonnell Douglas
Corporation and Subsidiaries for the year ended December 31, 1996, are included
herein:
Report of Independent Auditors
Schedule II Valuation and Qualifying Accounts
<PAGE>
10-K Page 19
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of McDonnell Douglas
Corporation and subsidiaries (MDC) as of December 31, 1996 and 1995, and for
each of the three years in the period ended December 31, 1996, and have issued
our report thereon dated January 22, 1997 (incorporated by reference elsewhere
in this Annual Report on Form 10-K). Our audits also included the financial
statement schedule listed in item 14(a) of this Annual Report on Form 10-K. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
St. Louis, Missouri /s/Ernst & Young LLP
January 22, 1997
<PAGE>
10-K Page 20
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
McDonnell Douglas Corporation
Years Ended December 31, 1996, 1995, 1994
(Dollars in Millions)
BALANCE BALANCE
AT CHARGED TO CHARGED TO AT
BEGINNING COSTS AND OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
--------- ---------- ---------- ---------- -------
Year Ended
December 31, 1996:
Allowance for
commercial
aircraft financing $12 $ 1 $ $ $13
Allowance for
uncollectible
accounts 50 17 12 55
--- --- --- --- ---
$62 $18 $ $12 $68
=== === === === ===
Year Ended
December 31, 1995:
Allowance for
commercial
aircraft financing $10 $ 3 $ $ 1 $12
Allowance for
uncollectible
accounts 50 13 13 50
--- --- --- --- ---
$60 $16 $ $14 $62
=== === === === ===
Year Ended
December 31, 1994:
Allowance for
commercial
aircraft financing $20 $ $ $10 $10
Allowance for
uncollectible
accounts 50 13 13 50
--- --- --- --- ---
$70 $13 $ $23 $60
=== === === === ===
NOTE: Deductions are principally the write off of uncollectible accounts.
<PAGE>
10-K Page 21
MCDONNELL DOUGLAS CORPORATION
INDEX TO EXHIBITS
EXHIBIT
2 Agreement and Plan of Merger among The Boeing Company, West Acquisition
Corp. and McDonnell Douglas Corporation, dated as of December 14, 1996.
.
3(a) Articles of Amendment and Restatement of the Company's Charter, as
filed May 8, 1996.
- Incorporated by reference to Exhibit 3(a) to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended September 30,
1996.
3(b) Bylaws of the Company, as amended October 25, 1996.
- Incorporated by reference to Exhibit 3(b) to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended September 30,
1996.
4(a) Indenture dated as of September 1, 1985 between the Company and The
Bank of New York as Successor Trustee to Citibank, N.A.
- Incorporated by reference to Exhibit 4(a) to the Company's
Registration Statement on Form S-3, Commission File No. 33-36180,
filed with the Commission on August 1, 1990.
4(b) First Supplemental Indenture dated as of July 1, 1986 between the
Company and The Bank of New York as Successor Trustee to Citibank, N.A.
- Incorporated by reference to Exhibit 4(b) to the Company's
Registration Statement on Form S-3, Commission File No. 33-36180,
filed with the Commission on August 1, 1990.
4(c) Second Supplemental Indenture dated as of April 2, 1992 between the
Company and The Bank of New York as Successor Trustee to Citibank, N.A.
- Incorporated by reference to Exhibit 4(c) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.
4(d) Agreement of Resignation, Appointment and Acceptance dated as of May
17, 1993 by and among the Company, Citibank, N.A., as Resigning
Trustee, and The Bank of New York, as Successor Trustee.
- Incorporated by reference to Exhibit 4(d) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
<PAGE>
10-K Page 22
4(e) Form of 8-5/8% Notes due April 1, 1997.
- Incorporated by reference to Exhibit 4(f) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.
4(f) Form of 9-1/4% Notes due April 1, 2002.
- Incorporated by reference to Exhibit 4(g) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.
4(g) Form of 9-3/4% Debentures due April 1, 2012.
- Incorporated by reference to Exhibit 4(h) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.
4(h) Form of 8-1/4% Notes due July 1, 2000.
- Incorporated by reference to Exhibit 4(h) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
4(i) Form of 6-7/8% Notes due November 1, 2006.
4(j) Amended and Restated Rights Agreement, dated as of May 31, 1996 between
McDonnell Douglas Corporation and First Chicago Trust Company of New
York which includes the form of Articles Supplementary for Series A
Junior Participating Preferred Stock as Exhibit A, the form of Right
Certificate as Exhibit B and the Summary of Preferred Stock Purchase
Rights as Exhibit C.
- Incorporated by reference to Exhibit 4 to the Company's Current
Report on Form 8-K, filed with the Commission on June 3, 1996.
10(a)* McDonnell Douglas Corporation Incentive Award Plan, as amended and
restated as of July 20, 1990.
- Incorporated by reference to Exhibit 10(b) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1990.
10(b)* Incentive Compensation Program, as amended and restated as of March 2,
1992 under the McDonnell Douglas Corporation Incentive Award Plan.
- Incorporated by reference to Exhibit 10(b) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991.
<PAGE>
10-K Page 23
10(c)* Long-Term Incentive Program, as amended and restated as of February 8,
1995 under the McDonnell Douglas Corporation Incentive Award Plan.
- Incorporated by reference to Exhibit 10(c) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
10(d)* McDonnell Douglas Corporation Senior Executive Performance Sharing
Plan.
- Incorporated by reference to Exhibit 10(d) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
10(e)* McDonnell Douglas Corporation Performance Sharing Plan, as amended and
restated as of 5 March 1996.
- Incorporated by reference to Exhibit 10(e) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
10(f)* McDonnell Douglas Corporation Executive Financial/Legal Services Plan.
10(g)* McDonnell Douglas Corporation Deferred Compensation Plan for
Nonemployee Directors, amended and restated as of March 6, 1995.
10(h)* McDonnell Douglas Corporation 1995 Compensation Plan for Nonemployee
Directors.
- Incorporated by reference to Exhibit 10(g) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
10(i)* McDonnell Douglas Corporation 1994 Performance and Equity Incentive
Plan.
- Incorporated by reference to Exhibit 4(a) to the Company's
Registration Statement on Form S-8, Commission File No. 33-56129,
filed with the Commission on October 21, 1994.
10(j)* Employment Agreement between Harry C. Stonecipher and McDonnell Douglas
Corporation, dated as of September 24, 1994, as amended as of March 25,
1995.
- Incorporated by reference to Exhibit 10(i) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
<PAGE>
10-K Page 24
10(k)* Stock Option Agreement between Harry C. Stonecipher and McDonnell
Douglas Corporation, dated as of September 24, 1994.
- Incorporated by reference to Exhibit 10(j) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
10(l)* Employment Agreement between Edward C. Bavaria and McDonnell Douglas
Corporation, dated as of May 5, 1995.
10(m)* Restricted Stock Award Agreement between Edward C. Bavaria and
McDonnell Douglas Corporation, dated as of May 5, 1995.
10(n)* Form of Termination Benefits Agreement between the Company and certain
officers of the Company.
10(o)* Settlement Agreement and General and Special Release between the
Company and Herbert J. Lanese, dated as of October 31, 1996.
10(p)* Settlement Agreement and General and Special Release between the
Company and Robert H. Hood, Jr., dated as of December 10, 1996.
10(q)* Form of 1995 and 1996 Performance Accelerated Restricted Stock Award
Agreement (Service-Based Vesting)
- Incorporated by reference to Exhibit 10(i) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
10(r)* Form of 1995 and 1996 Performance Accelerated Restricted Stock Award
Agreement (Performance-Based Vesting)
- Incorporated by reference to Exhibit 10(j) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
10(s)* Form of 1997 Performance Accelerated Restricted Stock Award Agreement
(Service-Based Vesting).
10(t)* Form of 1997 Performance Accelerated Restricted Stock Award Agreement
(Performance-Based Vesting).
11 Computation of Earnings per Share.
12 Computation of Ratio of Earnings to Fixed Charges.
<PAGE>
10-K Page 25
13 Sections of 1996 McDonnell Douglas Corporation Annual Report to
Shareholders appearing under the captions: "Military Aircraft;"
"Missiles, Space, and Electronic Systems," "Commercial Aircraft,"
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Selected Financial Data by Industry Segment,"
"Consolidated Statement of Operations," "Balance Sheet," "Consolidated
Statement of Shareholders' Equity," "Consolidated Statement of Cash
Flows," "Notes to Consolidated Financial Statements," "Report of Ernst
& Young LLP, Independent Auditors," "Five-Year Consolidated Financial
Summary," "Supplemental Information," and "Quarterly Results of
Operations (unaudited)".
21 Subsidiaries.
23 Consents of Independent Auditors regarding incorporation of their
report included in the 1996 Annual Report to Shareholders and Board of
Directors of McDonnell Douglas Corporation into Form 10-K and
incorporation of Form 10-K into Registration Statements on Form S-3 and
Form S-8.
27 Financial Data Schedule.
* Represents management contract or compensatory plan or arrangement required
to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
<PAGE>
<PAGE>
Exhibit (2)
Agreement and Plan of Merger, Dated as of December 14, 1996,
Among The Boeing Company, West Acquisition Corp., and
McDonnell Douglas Corporation.
<PAGE>
==============================================================================
AGREEMENT AND PLAN OF MERGER
among
THE BOEING COMPANY
WEST ACQUISITION CORP.
and
MCDONNELL DOUGLAS CORPORATION
Dated as of December 14, 1996
==============================================================================
TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER
page
----
ARTICLE I
The Merger
1.1. The Merger . . . . . . . . . . . . . . . . . . 2
1.2. Closing . . . . . . . . . . . . . . . . . . . 2
1.3. Effective Time . . . . . . . . . . . . . . . . 2
1.4. Effects of the Merger . . . . . . . . . . . . 2
1.5. Charter and By-laws . . . . . . . . . . . . . 2
1.6. Directors . . . . . . . . . . . . . . . . . . 3
ARTICLE II
EFFECT OF THE MERGER ON THE
STOCK OF THE CONSTITUENT COMPANIES;
EXCHANGE OF CERTIFICATES
2.1. Effect on Stock . . . . . . . . . . . . . . . 3
2.2. Exchange of Certificates . . . . . . . . . . . 4
ARTICLE III
STOCKHOLDER APPROVAL; BOARD
OF DIRECTORS OF Boeing
3.1. Stockholder Approval . . . . . . . . . . . . . 9
3.2. Board of Directors of Boeing . . . . . . . . . 10
3.3. Officers of Boeing . . . . . . . . . . . . . . 10
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MDC
4.1. Organization, Qualification, Etc. . . . . . . 11
4.2. Stock . . . . . . . . . . . . . . . . . . . . 12
4.3. Corporate Authority Relative to this
Agreement; No Violation . . . . . . . . . . . 12
4.4. Reports and Financial Statements . . . . . . . 14
4.5. No Undisclosed Liabilities . . . . . . . . . . 15
4.6. No Violation of Law . . . . . . . . . . . . . 15
4.7. Environmental Laws and Regulations . . . . . . 15
4.8. No Undisclosed Employee Benefit Plan
Liabilities or Severance Arrangements . . . . 16
4.9. Absence of Certain Changes or Events . . . . . 16
4.10. Investigations; Litigation . . . . . . . . . . 16
4.11. Joint Proxy Statement; Registration Statement;
Other information . . . . . . . . . . . . . . 17
4.12. MDC Rights Plan . . . . . . . . . . . . . . . 17
4.13. Lack of Ownership of Boeing Common Stock . . . 18
4.14. Tax Matters . . . . . . . . . . . . . . . . . 18
4.15. Opinion of Financial Advisor . . . . . . . . . 20
4.16. Required Vote of MDC Stockholders . . . . . . 20
4.17. Pooling of Interests . . . . . . . . . . . . . 20
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF Boeing and SUB
5.1. Organization, Qualification, Etc. . . . . . . 21
5.2. Capital Stock . . . . . . . . . . . . . . . . 21
5.3. Corporate Authority Relative to this
Agreement; No Violation . . . . . . . . . . 22
5.4. Reports and Financial Statements . . . . . . . 23
5.5. No Undisclosed Liabilities . . . . . . . . . . 24
5.6. No Violation of Law . . . . . . . . . . . . . 25
5.7. Environmental Laws and Regulations . . . . . . 25
5.8. No Undisclosed Employee Benefit Plan
Liabilities or Severance Arrangements . . . . 25
5.9. Absence of Certain Changes or Events . . . . . 26
5.10. Investigation; Litigation . . . . . . . . . . 26
5.11. Joint Proxy Statement; Registration
Statement; Other Information . . . . . . . . 26
5.12. Lack of Ownership of MDC Common Stock . . . . 27
5.13. Boeing Rights Plan . . . . . . . . . . . . . . 27
<PAGE>
5.14. Tax Matters . . . . . . . . . . . . . . . . . 27
5.15. Opinion of Financial Advisor . . . . . . . . . 28
5.16. Required Vote of Boeing Stockholders . . . . . 28
5.17. Pooling of Interests . . . . . . . . . . . . . 29
ARTICLE VI
COVENANTS AND AGREEMENTS
6.1. Conduct of Business by MDC or Boeing . . . . . 29
6.2. Investigation . . . . . . . . . . . . . . . . 34
6.3. Cooperation . . . . . . . . . . . . . . . . . 35
6.4. Affiliate Agreements . . . . . . . . . . . . . 36
6.5. Employee Stock Options; Incentive and
Benefit Plans . . . . . . . . . . . . . . . . 37
6.6. Filings; Other Action . . . . . . . . . . . . 38
6.7. Further Assurances . . . . . . . . . . . . . . 39
6.8. Takeover Statute . . . . . . . . . . . . . . . 39
6.9. No Solicitation . . . . . . . . . . . . . . . 40
6.10. Public Announcements . . . . . . . . . . . . . 41
6.11. Indemnification and Insurance . . . . . . . . 41
6.12. Accountants' "Comfort" Letters . . . . . . . . 41
6.13. Additional Reports . . . . . . . . . . . . . . 42
6.14. Co-Ordination of Dividends . . . . . . . . . . 42
ARTICLE VII
CONDITIONS TO THE MERGER
7.1. Conditions to Each Party's Obligation
to Effect the Merger . . . . . . . . . . . . 42
7.2. Conditions to Obligations of MDC
to Effect in the Merger . . . . . . . . . . . 44
7.3. Conditions to Obligations of Boeing
to Effect the Merger . . . . . . . . . . . . 45
<PAGE>
ARTICLE VIII
TERMINATION, WAIVER, AMENDMENT AND CLOSING
8.1. Termination of Abandonment . . . . . . . . . . 45
8.2. Termination Fee . . . . . . . . . . . . . . . 47
8.3. Amendment or Supplement . . . . . . . . . . . 48
8.4. Extension of Time, Waiver, Etc. . . . . . . . 48
ARTICLE IX
MISCELLANEOUS
9.1. No Survival of Representations
and Warranties . . . . . . . . . . . . . . . 49
9.2. Expenses . . . . . . . . . . . . . . . . . . . 49
9.3. Counterparts; Effectiveness . . . . . . . . . 49
9.4. Governing Law . . . . . . . . . . . . . . . . 49
9.5. Notices . . . . . . . . . . . . . . . . . . . 50
9.6. Assignment; Binding Effect . . . . . . . . . . 50
9.7. Severability . . . . . . . . . . . . . . . . . 51
9.8. Enforcement of Agreement . . . . . . . . . . . 51
9.9. Miscellaneous . . . . . . . . . . . . . . . . 51
9.10. Headings . . . . . . . . . . . . . . . . . . . 51
9.11. Subsidiaries; Significant
Subsidiaries; Affiliates . . . . . . . . . . 52
9.12. Finders or Brokers . . . . . . . . . . . . . . 52
<PAGE>
THIS AGREEMENT AND PLAN OF MERGER, dated as of December 14,
1996 (this "Agreement"), is among THE BOEING COMPANY ("Boeing"), WEST
ACQUISITION CORP. ("Sub") and MCDONNELL DOUGLAS CORPORATION ("MDC").
WHEREAS, MDC is a corporation duly organized and existing under
the laws of the State of Maryland, Boeing is a corporation duly organized and
existing under the laws of the State of Delaware and Sub is a corporation duly
organized and existing under the laws of the State of Maryland;
WHEREAS, the respective Boards of Directors of Boeing, Sub and
MDC have approved and have declared advisable the merger of Sub with and into
MDC (the "Merger"), upon the terms and subject to the conditions set forth
herein, whereby each issued and outstanding share of MDC Common Stock (as
defined in Section 4.2) not owned directly by MDC or Boeing will be converted
into .65 of a share of Boeing Common Stock (as defined in Section 5.2), and have
determined that the Merger and the other transactions contemplated hereby are
consistent with, and in furtherance of, their respective business strategies and
goals;
WHEREAS, the parties desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger;
WHEREAS, for federal income tax purposes, it is intended that
the Merger will qualify as a reorganization under the provisions of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for financial accounting purposes, it is intended that
the Merger will be accounted for as a pooling of interests transaction.
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained in this Agreement, the parties hereby agree
as follows:
<PAGE>
2
ARTICLE I
The Merger
Section 1.1. The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the Maryland
General Corporation Law (the "MGCL"), Sub shall be merged with and into MDC at
the Effective Time (as defined in Section 1.3). Following the Effective Time,
the separate corporate existence of Sub shall cease and MDC shall be the
surviving corporation (the "Surviving Corporation") and shall succeed to and
assume all the rights and obligations of Sub in accordance with the MGCL.
Section 1.2. Closing. The closing of the Merger (the "Closing")
will take place at 10:00 a.m. on a date to be specified by the parties (the
"Closing Date"), which shall be no later than the second business day after
satisfaction or waiver of the conditions set forth in Article VII, unless
another time or date is agreed to by the parties hereto. The Closing will be
held at such location in the City of New York as is agreed to by the parties
hereto.
Section 1.3. Effective Time. Subject to the provisions of this
Agreement, as soon as practicable on or after the Closing Date, the parties
shall file articles of merger or other appropriate documents (in any such case,
the "Articles of Merger") executed in accordance with the relevant provisions of
the MGCL and shall make all other filings or recordings required under the MGCL.
The Merger shall become effective at such time as the State Department of
Assessments and Taxation of Maryland accepts the Articles of Merger for record,
or at such subsequent date or time as Boeing and MDC shall agree and specify in
the Articles of Merger (the time the Merger becomes effective being hereinafter
referred to as the "Effective Time").
Section 1.4. Effects of the Merger. The Merger shall have the
effects set forth in Section 3-114 of the MGCL.
Section 1.5. Charter and By-laws. A. The charter of MDC, as
in effect immediately prior to the execution of this Agreement, shall be the
charter of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
<PAGE>
3
B. The by-laws of MDC, as in effect immediately prior to the
execution of this Agreement, shall be the by-laws of the Surviving Corporation
until thereafter changed or amended as provided therein or by applicable law.
Section 1.6. Directors. The directors of Sub at the Effective
Time shall be the directors of the Surviving Corporation until the next annual
meeting of stockholders of the Surviving Corporation (or their earlier
resignation or removal) and until their respective successors are duly elected
and qualified, as the case may be.
ARTICLE II
Effect of the Merger on the Stock of the
Constituent Corporations; Exchange of Certificates
Section 2.1. Effect on Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of Sub, MDC or the
holders of any securities of MDC or Sub:
(a) Cancelation of MDC-Owned Stock and Boeing-Owned Stock. Each
share of MDC Common Stock that is owned directly by MDC or by Boeing shall
automatically be canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor.
(b) Conversion of MDC Common Stock. Subject to Section 2.2(e),
each issued and outstanding share of MDC Common Stock (other than shares to be
canceled in accordance with Section 2.1(a)) shall be converted into .65 of a
fully paid and nonassessable share of Boeing Common Stock, together with the
associated Boeing Right (as defined in Section 5.2; unless the context otherwise
requires, all references herein to Boeing Common Stock include the associated
Boeing Rights) (the "Merger Consideration"). As of the Effective Time, all such
shares of MDC Common Stock shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of MDC Common Stock (the "Certificates") shall
cease to have any rights with respect thereto, except theright to receive (i)
certificates representing the number of whole shares of
Boeing Common Stock into which such shares have been converted ("Boeing
Certificates"), (ii) certain dividends
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4
and other distributions in accordance with Section 2.2(c) and (iii) cash in lieu
of fractional shares of Boeing Common Stock in accordance with Section 2.2(e),
without interest.
(c) Conversion of Common Stock of Sub. Each issued and
outstanding share of common stock, par value $1.00 per share, of Sub shall be
converted into one validly issued, fully paid and nonassessable share of common
stock of the Surviving Corporation.
Section 2.2. Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, Boeing shall
enter into an agreement with such bank or trust company as may be designated by
Boeing and as shall be reasonably satisfactory to MDC (the "Exchange Agent"),
which shall provide that Boeing shall deposit with the Exchange Agent as of the
Effective Time, for the benefit of the holders of shares of MDC Common Stock,
for exchange in accordance with this Article II, through the Exchange Agent,
Boeing Certificates representing the number of whole shares of Boeing Common
Stock (such shares of Boeing Common Stock, together with any dividends or
distributions with respect thereto with a record date after the Effective Time,
any Excess Shares (as defined in Section 2.2(e)) and any cash (including cash
proceeds from the sale of the Excess Shares) payable in lieu of any fractional
shares of Boeing Common Stock being hereinafter referred to as the "Exchange
Fund") issuable pursuant to Section 2.1 in exchange for outstanding shares of
MDC Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after
the Effective Time, the Exchange Agent shall mail to each holder of record of a
Certificate whose shares were converted into the Merger Consideration, pursuant
to Section 2.1, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Boeing and MDC may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancelation to the Exchange Agent, together with such letter of
transmittal, duly executed, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate shall be entitled
to receive in exchange therefor a Boeing Certificate representing that number of
whole shares of Boeing Common Stock
<PAGE>
5
which such holder has the right to receive pursuant to the provisions of this
Article II, certain dividends or other distributions in accordance with Section
2.2(c) and cash in lieu of any fractional share in accordance with Section
2.2(e), and the Certificate so surrendered shall forthwith be canceled. In the
event of a transfer of ownership of MDC Common Stock which is not registered in
the transfer records of MDC, a Boeing Certificate representing the proper number
of shares of Boeing Common Stock may be issued to a person other than the person
in whose name the Certificate so surrendered is registered if such Certificate
shall be properly endorsed or otherwise be in proper form for transfer and the
person requesting such issuance shall pay any transfer or other nonincome taxes
required by reason of the issuance of shares of Boeing Common Stock to a person
other than the registered holder of such Certificate or establish to the
satisfaction of Boeing that such tax has been paid or is not applicable. Until
surrendered as contemplated by thisSection 2.2, each Certificate shall be deemed
at any time after the Effective Time to represent only the right to receive upon
such surrender Boeing Certificates representing the number of whole shares of
Boeing Common Stock into which the shares of MDC Common Stock formerly
represented by such Certificate have been converted, certain dividends or other
distributions in accordance with Section 2.2(c) and cash in lieu of any
fractional share in accordance with Section 2.2(e). No interest will be paid or
will accrue on any cash payable to holders of Certificates pursuant to the
provisions of this Article II.
(c) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions with respect to Boeing Common Stock with a
record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Boeing Common Stock
represented thereby, and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to Section 2.2(e), and all such dividends,
other distributions and cash in lieu of fractional shares of Boeing Common Stock
shall be paid by Boeing to the Exchange Agent and shall be included in the
Exchange Fund, in each case until the surrender of such Certificate in
accordance with this Article II. Subject to the effect of applicable escheat or
similar laws, following surrender of any such Certificate there shall be paid to
the holder of the Boeing Certificate representing whole shares of Boeing Common
Stock issued in exchange therefor, without interest, (i) at the
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6
time of such surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such whole
shares of Boeing Common Stock and the amount of any cash payable in lieu of a
fractional share of Boeing Common Stock to which such holder is entitled
pursuant to Section 2.2(e) and (ii) at the appropriate payment date, the amount
of dividends or other distributions with a record date after the Effective Time
but prior to such surrender and with a payment date subsequent to such surrender
payable with respect to such whole shares of Boeing Common Stock. Boeing shall
make available to the Exchange Agent cash for these purposes.
(d) No Further Ownership Rights in MDC Common Stock. All shares
of Boeing Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms of this Article II (including any cash paid pursuant
to this Article II) shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the shares of MDC Common Stock
theretofore represented by such Certificates, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other distributions
with a record date prior to the Effective Time which may have been authorized or
made by MDC on such shares of MDC Common Stock which remain unpaid at the
Effective Time, and there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of MDC Common
Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation or
the Exchange Agent for any reason, they shall be canceled and exchanged as
provided in this Article II, except as otherwise provided by law.
(e) No Fractional Shares. (i) No Boeing Certificates or scrip
representing fractional shares of Boeing Common Stock shall be issued upon the
surrender for exchange of Certificates, no dividend or distribution of Boeing
shall relate to such fractional share interests and such fractional share
interests will not entitle the owner thereof to vote or to any rights of a
stockholder of Boeing.
(ii) As promptly as practicable following the Effective Time,
the Exchange Agent will determine the excess of (A) the number of whole shares
of Boeing Common Stock delivered to the Exchange Agent by Boeing pursuant to
Section 2.2(a) over (B) the aggregate number of whole shares
<PAGE>
7
of Boeing Common Stock to be distributed to holders of MDC Common Stock pursuant
to Section 2.2(b) (such excess being herein called the "Excess Shares").
Following the Effective Time, the Exchange Agent will, on behalf of former
stockholders of MDC, sell the Excess Shares at then-prevailing prices on the New
York Stock Exchange, Inc. (the "NYSE"), all in the manner provided in Section
2.2(e)(iii).
(iii) The sale of the Excess Shares by the Exchange Agent will
be executed on the NYSE through one or more member firms of the NYSE and will be
executed in round lots to the extent practicable. The Exchange Agent will use
reasonable efforts to complete the sale of the Excess Shares as promptly
following the Effective Time as, in the Exchange Agent's sole judgment, is
practicable consistent with obtaining the best execution of such sales in light
of prevailing market conditions. Until the net proceeds of such sale or sales
have been distributed to the holders of MDC Common Stock, the Exchange Agent
will hold such proceeds in trust for the holders of MDC Common Stock (the
"Common Shares Trust"). The Surviving Corporation will pay all commissions,
transfer taxes and other out-of-pocket transaction costs, including the expenses
and compensation of the Exchange Agent incurred in connection with such sale of
the Excess Shares. The Exchange Agent will determine the portion of the Common
Shares Trust to which each holder of MDC Common Stock is entitled, if any, by
multiplying the amount of the aggregate net proceeds comprising the Common
Shares Trust by a fraction, the numerator of which is the amount of the
fractional share interest to which such holder of MDC Common Stock is entitled
(after taking into account all shares of MDC Common Stock held at the Effective
Time by such holder) and the denominator of which is the aggregate amount of
fractional share interests to which all holders of MDC Common Stock are
entitled.
(iv) Notwithstanding the provisions of Section 2.2(e)(ii) and
(iii), the Surviving Corporation may elect at its option, exercised prior to the
Effective Time, in lieu of the issuance and sale of Excess Shares and the making
of the payments hereinabove contemplated, to pay each holder of MDC Common Stock
an amount in cash equal to the product obtained by multiplying (A) the
fractional share interest to which such holder (after taking into account all
shares of MDC Common Stock held at the Effective Time by such holder) would
otherwise be entitled by (B) the closing price for a share of Boeing Common
Stock as reported on the NYSE Composite Transaction Tape (as reported in The
Wall Street Journal,
<PAGE>
8
or, if not reported thereby, any other authoritative source) on the Closing
Date, and, in such case, all references herein to the cash proceeds of the sale
of the Excess Shares and similar references will be deemed to mean and refer to
the payments calculated as set forth in this Section 2.2(e)(iv).
(v) As soon as practicable after the determination of the amount
of cash, if any, to be paid to holders of MDC Common Stock with respect to any
fractional share interests, the Exchange Agent will make available such amounts
to such holders of MDC Common Stock subject to and in accordance with the terms
of Section 2.2(c).
(f) Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed to the holders of the Certificates for six
months after the Effective Time shall be delivered to Boeing, upon demand, and
any holders of the Certificates who have not theretofore complied with this
Article II shall thereafter look only to Boeing for payment of their claim for
Merger Consideration or shares, any cash in lieu of fractional shares of Boeing
Common Stock and any dividends or distributions with respect to Boeing Common
Stock.
(g) No Liability. None of Boeing, MDC, Sub or the Exchange Agent
shall be liable to any person in respect of any shares of Boeing Common Stock
(or dividends or distributions with respect thereto) or cash from the Exchange
Fund in each case delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any Certificate shall not have
been surrendered prior to seven years after the Effective Time (or immediately
prior to such earlier date on which any Merger Consideration, any cash payable
to the holder of such Certificate pursuant to this Article II or any dividends
or distributions payable to the holder of such Certificate would otherwise
escheat to or become the property of any governmental body or authority) any
such Merger Consideration or cash, dividends or distributions in respect of such
Certificate shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or interest
of any person previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall invest
any cash included in the Exchange Fund, as directed by Boeing, on a daily basis.
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9
Any interest and other income resulting from such investments shall be paid to
Boeing.
(i) Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration and, if applicable, any cash in lieu of
fractional shares, and unpaid dividends and distributions on shares of Boeing
Common Stock deliverable in respect thereof, pursuant to this Agreement.
ARTICLE III
Stockholder Approval; Board
of Directors of Boeing
Section 3.1. Stockholder Approval. Subject to the terms and
conditions contained herein, (i) this Agreement shall be submitted for approval
to the holders of shares of MDC Common Stock at a meeting to be duly held for
this purpose by MDC (the "MDC Meeting"), and (ii) the issuance of Boeing Common
Stock in connection with the Merger (the "Share Issuance"), shall be submitted
for approval to the holders of shares of Boeing Common Stock at a meeting to be
duly held for this purpose by Boeing (the "Boeing Meeting"). MDC and Boeing
shall coordinate and cooperate with respect to the timing of such meetings and
shall endeavor to hold such meetings on the same day and as soon as practicable
after the date hereof. MDC and Boeing shall recommend that their respective
stockholders approve such matters and such recommendation shall be contained in
the Joint Proxy Statement (as defined in Section 4.11), except, in the case of
MDC, to the extent that the Board of Directors of MDC shall have withdrawn or
modified its approval or recommendation of this Agreement or the Merger and
terminated this Agreement in accordance with Section 8.1(e). Nothing contained
in the preceding sentence shall prohibit MDC from taking and disclosing to its
stockholders a position contemplated by Rule 14e-2(a) promulgated under the
Exchange Act(as defined in Section 4.3)
<PAGE>
10
or from making any disclosure to MDC or MDC's stockholders if, in the good faith
judgment of the Board of Directors of MDC, after consultation with outside
counsel, failure so to disclose would be inconsistent with its duties to MDC or
MDC's stockholders under applicable law; provided, however, neither MDC nor its
Board of Directors nor any committee thereof shall, except as permitted by the
preceding sentence, withdraw or modify, or propose publicly to its position with
respect to this Agreement or the Merger or approve or recommend, or propose
publicly to approve or recommend, a Takeover Proposal (as defined in Section
6.9).
Section 3.2. Board of Directors of Boeing. The Board of
Directors of Boeing shall take all action necessary immediately following the
Effective Time to fix the number of directors constituting the Board of
Directors at between 12 and 15 members. The Board of Directors of MDC shall
select from among the current members of the Board of Directors of MDC such
number (rounded up to the next whole number) of individuals acceptable to Boeing
for nomination as directors of Boeing as shall constitute one-third of the total
number of members of the Board of Directors of Boeing immediately following the
Effective Time. If an individual so selected consents to serve as a director,
such individual shall be elected as a director of Boeing (and shall be assigned
to such class of directors such that, after giving effect to the election of all
the directors of MDC to be elected to the Board of Directors of Boeing pursuant
to the preceding sentence and the assignment of each such director to a class,
the directors of MDC elected to the Board of Directors of Boeing shall be
allocated as equally as practicable among the different classes of the Board of
Directors of Boeing), effective as of the Effective Time, for a term expiring at
Boeing's next annual meeting of stockholders following the Effective Time at
which the term of the class to which such director belongs expires, subject to
being renominated as a director at the discretion of Boeing's Board of
Directors.
Section 3.3. Officers of Boeing. Immediately following the
Effective Time, Philip Condit shall be the Chairman of the Board and the Chief
Executive Officer and Harry Stonecipher shall be the President and the Chief
Operating Officer of Boeing.
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11
ARTICLE IV
Representations and Warranties of MDC
MDC represents and warrants to Boeing and Sub that:
Section 4.1. Organization, Qualification, Etc. MDC is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Maryland and has the corporate power and authority to own its
properties and assets and to carry on its business as it is now being conducted
and is duly qualified to do business and is in good standing in each
jurisdiction in which the ownership of its properties or the conduct of its
business requires such qualification, except for jurisdictions in which such
failure to be so qualified or to be in good standing would not, individually or
in the aggregate, have a Material Adverse Effect (as hereinafter defined) on
MDC. As used in this Agreement, any reference to any state of facts, event,
change or effect having a "Material Adverse Effect" on or with respect to MDC or
Boeing, as the case may be, means such state of facts, event, change or effect
that has had, or would reasonably be expected to have, a material adverse effect
on the business, results of operations or financial condition of MDC and its
Subsidiaries (as defined in Section 9.11), taken as a whole, or Boeing and its
Subsidiaries, taken as a whole, as the case may be. The copies of MDC's charter
and by-laws which have been delivered to Boeing are complete and correct and in
full force and effect on the date hereof. Each of MDC's Significant Subsidiaries
(as defined in Section 9.11) is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation or
organization, has the power and authority to own its properties and to carry on
its business as it is now being conducted, and is duly qualified to do business
and is in good standing in each jurisdiction in which the ownership of its
property or the conduct of its business requires such qualification, except for
jurisdictions in which such failure to be so qualified or to be in good standing
would not, individually or in the aggregate, have a Material Adverse Effect on
MDC. All the outstanding shares of capital stock of, or other ownership
interests in, MDC's Significant Subsidiaries are validly issued, fully paid and
non-assessable and are owned by MDC, directly or indirectly, free and clear of
all liens, claims, charges or encumbrances, except for restrictions contained in
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12
credit agreements and similar instruments to which MDC is a party under which no
event of default has occurred or arisen. There are no existing options, rights
of first refusal, preemptive rights, calls or commitments of any character
relating to the issued or unissued capital stock or other securities of, or
other ownership interests in, any Significant Subsidiary of MDC (other than
rights of first refusal, preemptive rights or similar rights held by MDC with
respect to certain of such Subsidiaries).
Section 4.2. Stock. The authorized stock of MDC consists of
400,000,000 shares of common stock, par value $1.00 per share ("MDC Common
Stock"), and 10,000,000 shares of preferred stock, par value $1.00 per share
("MDC Preferred Stock"), of which 1,000,000 shares have been designated as
Series A Junior Participating Preferred Stock ("MDC Series A Preferred Stock").
As of December 6, 1996, 209,731,625 shares of MDC Common Stock and no shares of
MDC Preferred Stock were issued and outstanding. All the outstanding shares of
MDC Common Stock have been validly issued and are fully paid and non-assessable.
As of December 6, 1996, there were no outstanding subscriptions, options,
warrants, rights or other arrangements or commitments obligating MDC to issue
any shares of its stock other than:
(a) rights to acquire shares of MDC Series A Preferred Stock
pursuant to the Rights Agreement, amended and restated as of May 31, 1996,
between MDC and First Chicago Trust Company of New York (the "MDC Rights Plan");
and
(b) options and other rights to receive or acquire 1,050,479
shares of MDC Common Stock granted on or prior to December 6, 1996, pursuant to
employee incentive or benefit plans, programs and arrangements and non-employee
director plans.
Except for the issuance of shares of MDC Common Stock pursuant
to the options and other rights referred to in clause 4.2(b) and except as
provided for in clause 6.1(a)(ix), since December 6, 1996, no shares of MDC
Common Stock or MDC Preferred Stock have been issued.
Section 4.3. Corporate Authority Relative to this Agreement; No
Violation. MDC has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder. The execution and delivery
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13
of this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by the Board of Directors of MDC and,
except for the approval of its stockholders, no other corporate proceedings on
the part of MDC are necessary to authorize this Agreement and the transactions
contemplated hereby. The Board of Directors of MDC has determined that the
transactions contemplated by this Agreement are in the best interest of MDC and
its stockholders and to recommend to such stockholders that they vote in favor
thereof. This Agreement has been duly and validly executed and delivered by MDC
and, assuming this Agreement constitutes a valid and binding Agreement of the
other parties hereto, this Agreement constitutes a valid and binding agreement
of MDC, enforceable against MDC in accordance with its terms (except insofar as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, or by principles governing the availability of equitable remedies).
MDC is not subject to or obligated under any charter, bylaw or contract
provision or any licenses, franchise or permit, or subject to any order or
decree, which would be breached or violated by its executing or, subject to the
approval of its stockholders, carrying out this Agreement, except as otherwise
previously disclosed in writing to Boeing and for any breaches or violations
which would not, individually or in the aggregate, have a Material Adverse
Effect on MDC. Other than in connection with or in compliance with the
provisions of the MGCL, the Securities Act of 1933, as amended (the "Securities
Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), Section 4043 of ERISA (as defined in Section 4.8), the Communications Act
of 1934, as amended (the "Communications Act"), any non-United States
competition, antitrust and investment laws and the securities or blue sky laws
of the various states and other than any necessary approvals of the United
States government or any agencies, departments or instrumentalities thereof
(collectively, the "MDC Required Approvals"), no authorization, consent or
approval of, or filing with, any governmental body or authority is necessary for
the consummation by MDC of the transactions contemplated by this Agreement,
except for such authorizations,consents, approvals or filings, the failure to
obtain or make which would not, individually or in the aggregate, have a
Material Adverse Effect on MDC or substantially impair or delay the consummation
of the transactions contemplated hereby; provided that MDC makes no
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14
representation with respect to such of the foregoing as are required by reason
of the regulatory status of Boeing or any of its Subsidiaries or facts
specifically pertaining to any of them.
Section 4.4. Reports and Financial Statements. MDC has
previously furnished to Boeing true and complete copies of:
(a) MDC's Annual Reports on Form 10-K filed with the Securities
and Exchange Commission (the "SEC") for each of the years ended December 31,
1993 through 1995;
(b) MDC's Quarterly Reports on Form 10-Q filed with the SEC for
the quarters ended March 31, June 30 and September 30, 1996;
(c) each definitive proxy statement filed by MDC with the SEC
since December 31, 1993;
(d) each final prospectus filed by MDC with the SEC since
December 31, 1993, except any final prospectus on Form S-8; and
(e) all Current Reports on Form 8-K filed by MDC with the SEC
since December 31, 1995.
Except as previously disclosed in writing to Boeing, as of their
respective dates, such reports, proxy statements and prospectuses (collectively,
the "MDC SEC Reports") (i) complied as to form in all material respects with the
applicable requirements of the Securities Act, the Exchange Act and the rules
and regulations promulgated thereunder and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited consolidated interim financial
statements included in the MDC SEC Reports (including any related notes and
schedules) fairly present the financial position of MDC and its consolidated
Subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods or as of the dates then ended (subject, where appropriate,
to normal year-end adjustments), in each case in accordance with past practice
and generally accepted accounting principles in the United States ("GAAP")
consistently applied during the periods involved (except as otherwise disclosed
<PAGE>
15
in the notes thereto). Since December 31, 1993, MDC has timely filed all
material reports, registration statements and other filings required to be filed
by it with the SEC under the rules and regulations of the SEC. Notwithstanding
anything to the contrary contained in this Section 4.4, no representation or
warranty is made with respect to matters relating to the consent decree dated
June 24, 1996, between MDC and the SEC, the complaint referred to therein and
the matters at issue or referred to in such complaint.
Section 4.5. No Undisclosed Liabilities. Neither MDC nor any of
its Subsidiaries has any liabilities or obligations of any nature, whether or
not accrued, contingent or otherwise, except (a) liabilities or obligations
reflected in any of the MDC SEC Reports and (b) liabilities or obligations which
would not, individually or in the aggregate, have a Material Adverse Effect on
MDC.Section 4.6. No Violation of Law. The businesses of MDC and its Subsidiaries
are not being conducted in violation of any law, ordinance or regulation of any
governmental body or authority (provided that no representation or warranty is
made in this Section 4.6 with respect to Environmental Laws (as hereinafter
defined)) except (a) as described in any of the MDC SEC Reports and (b) for
violations or possible violations which would not, individually or in the
aggregate, have a Material Adverse Effect on MDC.
Section 4.7. Environmental Laws and Regulations. Except as
described in any of the MDC SEC Reports, (a) MDC and each of its Subsidiaries is
in material compliance with all applicable federal, state, local and foreign
laws and regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) (collectively, "Environmental Laws"),
except for non-compliance which would not, individually or in the aggregate,
have a Material Adverse Effect on MDC, which compliance includes, but is not
limited to, the possession by MDC and its Subsidiaries of material permits and
other governmental authorizations required under applicable Environmental Laws,
and compliance with the terms and conditions thereof; (b) neither MDC nor any of
its Subsidiaries has received written notice of, or, to the knowledge of MDC, is
the subject of, any actions, causes of action, claims, investigations, demands
or notices by any Person alleging liability under or non-compliance with any
<PAGE>
16
Environmental Law ("Environmental Claims") which would, individually or in the
aggregate, have a Material Adverse Effect on MDC; and (c) to the knowledge of
MDC, there are no circumstances that are reasonably likely to prevent or
interfere with such material compliance in the future.
Section 4.8. No Undisclosed Employee Benefit Plan Liabilities or
Severance Arrangements. Except as described in any of the MDC SEC Reports, all
"employee benefit plans", as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), maintained or contributed to
by MDC or its Subsidiaries are in compliance with all applicable provisions of
ERISA and the Code, and MDC and its Subsidiaries do not have any liabilities or
obligations with respect to any such employee benefit plans, whether or not
accrued, contingent or otherwise, except (a) as described in any of the MDC SEC
Reports or previously disclosed in writing to Boeing and (b) for instances of
non-compliance or liabilities or obligations that would not, individually or in
the aggregate, have a Material Adverse Effect on MDC. Except with respect to (i)
awards granted under the MDC 1994 Performance and Equity Incentive Plan, (ii)
the termination benefit agreements (substantially in the form previously
provided to Boeing) which are in effect on the date hereof or which may be
entered into hereafter in accordance with the approval of the MDC Board prior to
the date hereof (the "Termination Benefit Agreements") and (iii) the Stonecipher
Agreement (as defined in Section 4.14), no employee of MDC will be entitled to
any additional benefits or any acceleration of the time of payment or vesting of
any benefits under any employee incentive or benefit plan, program or
arrangement as a result of the transactions contemplated by this Agreement.
Section 4.9. Absence of Certain Changes or Events. Other than as
disclosed in the MDC SEC Reports or previously disclosed in writing to Boeing,
since December 31, 1995 the businesses of MDC and its Subsidiaries have been
conducted in all material respects in the ordinary course and there has not been
any event, occurrence, development or state of circumstances or facts that has
had, or would have, a Material Adverse Effect on MDC.
<PAGE>
17
Section 4.10. Investigations; Litigation. Except as described
in any of the MDC SEC Reports or previously disclosed in writing to Boeing:
(a) no investigation or review by any governmental body or
authority with respect to MDC or any of its Subsidiaries which would,
individually or in the aggregate, have a Material Adverse Effect on MDC is
pending nor has any governmental body or authority notified MDC of an intention
to conduct the same; and
(b) there are no actions, suits or proceedings pending (or, to
MDC's knowledge, threatened) against or affecting MDC or its Subsidiaries, or
any of their respective properties at law or in equity, or before any federal,
state, local or foreign governmental body or authority, which, individually or
in the aggregate, is reasonably likely to have a Material Adverse Effect on MDC.
Section 4.11. Joint Proxy Statement; Registration Statement;
Other Information. None of the information with respect to MDC or its
Subsidiaries to be included in the Joint Proxy Statement or the Registration
Statement (as defined in Section 6.3(a)) will, in the case of the Joint Proxy
Statement or any amendments thereof or supplements thereto, at the time of the
mailing of the Joint Proxy Statement or any amendments or supplements thereto,
and at the time of the MDC Meeting and the Boeing Meeting, or, in the case of
the Registration Statement, at the time it becomes effective, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except that no
representation is made by MDC with respect to information supplied in writing by
Boeing or any affiliate of Boeing specifically for inclusion in the Joint Proxy
Statement. The Joint Proxy Statement will comply as to form in all material
respects with the provisions of the Exchange Act and the rules and regulations
promulgated thereunder. The letters to stockholders, notices of meeting, joint
proxy statement and forms of proxies to be distributed to stockholders in
connection with the Merger, the Share Issuance and any schedules required to be
filed with the SEC in connection therewith are collectively referred to herein
as the "Joint Proxy Statement".
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18
Section 4.12. MDC Rights Plan. The Board of Directors of MDC has
approved in writing the acquisition by Boeing of beneficial ownership of voting
securities of MDC and, accordingly, the execution and delivery of this
Agreement, and the consummation of the Merger and the other transactions
contemplated hereby, will not cause (i) Boeing to constitute an "Acquiring
Person" (as such term is defined in the MDC Rights Plan), (ii) a "Distribution
Date" (as such term is defined in the MDC Rights Plan) to occur or (iii) the
rights issued pursuant to the MDC Rights Plan to become exercisable. MDC shall
cause the MDC Rights Plan to be amended such that the "Final Expiration Date"
(as defined in the MDC Rights Plan) shall occur immediately prior to the
Effective Time.
Section 4.13. Lack of Ownership of Boeing Common Stock. Neither
MDC nor any of its Subsidiaries owns any shares of Boeing Common Stock or other
securities convertible into shares of Boeing Common Stock (exclusive of any
shares owned by MDC's employee benefit plans).
Section 4.14. Tax Matters. (a) All federal, state, local and
foreign Tax Returns required to be filed by or on behalf of MDC, each of its
Subsidiaries, and each affiliated, combined, consolidated or unitary group of
which MDC or any of its Subsidiaries is (i) a member (a "Current MDC Group") or
(ii) has been a member within six years prior to the date hereof but is not
currently a member, but only insofar as any such Tax relates to a taxable period
ending on a date within the last six years (a "Past MDC Group", together with
Current MDC Groups, an "MDC Affiliated Group") have been timely filed, and all
returns filed are complete and accurate except to the extent any failure to file
or any inaccuracies in filed returns would not, individually or in the
aggregate, have a Material Adverse Effect on MDC (it being understood that the
representations made in this Section, to the extent that they relate to Past MDC
Groups, are made to the knowledge of MDC). All Taxes due and owing by MDC, any
Subsidiary of MDC or any MDC Affiliated Group have been paid, or adequately
reserved for, except to the extent any failure to pay or reserve would not,
individually or in the aggregate, have a Material Adverse Effect on MDC. There
is no audit examination, deficiency, refund litigation, proposed adjustment or
matter in controversy with respect to any Taxes due and owing by MDC, any
Subsidiary of MDC or any MDC Affiliated Group which would, individually or in
the aggregate, have a Material Adverse Effect on MDC. All assessments for Taxes
<PAGE>
19
due and owing by MDC, any Subsidiary of MDC or any MDC Affiliated Group with
respect to completed and settled examinations or concluded litigation have been
paid. As soon as practicable after the public announcement of the Merger
Agreement, MDC will provide Boeing with written schedules of (i) the taxable
years of MDC for which the statutes of limitations with respect to federal
income Taxes, have not expired, and (ii) with respect to federal income Taxes
those years for which examinations have been completed, those years for which
examinations are presently being conducted, and those years for which
examinations have not yet been initiated. MDC and each of its Subsidiaries has
complied in all material respects with all rules and regulations relating to the
withholding of Taxes, except to the extent any such failure to comply would not,
individually or in the aggregate, have a Material Adverse Effect on MDC.
(b) Neither MDC nor any of its Subsidiaries knows of any fact or
has taken any action that could reasonably be expected to prevent the Merger
from qualifying as a reorganization within the meaning of Section 368(a) of the
Code.
(c) Except with respect to awards granted under the MDC 1994
Performance and Equity Incentive Plan, the Termination Benefit Agreements and
the Employment Agreement dated September 24, 1994 between MDC and Harry
Stonecipher, as amended (the "Stonecipher Agreement"), any amount or other
entitlement that could be received (whether in cash or property or the vesting
of property) as a result of any of the transactions contemplated by this
Agreement by any employee, officer or director of MDC or any of its affiliates
who is a "disqualified individual" (as such term is defined in proposed Treasury
Regulation Section 1.280G-1) under any employee benefit plan or other
compensation arrangement currently in effect would not be characterized as an
"excess parachute payment" or a "parachute payment" (as such terms are defined
in Section 280G(b)(1) of the Code).
For purposes of this Agreement: (i) "Taxes" means any and all
federal, state, local, foreign or other taxes of any kind (together with any and
all interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any taxing authority, including, without limitation,
taxes or other charges on or with respect to income, franchises, windfall or
other profits, gross receipts, property, sales, use, capital stock, payroll,
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20
employment, social security, workers' compensation, unemployment compensation,
or net worth, and taxes or other charges in the nature of excise, withholding,
ad valorem or value added, and (ii) "Tax Return" means any return, report or
similar statement (including the attached schedules) required to be filed with
respect to any Tax, including, without limitation, any information return, claim
for refund, amended return or declaration of estimated Tax.
Section 4.15. Opinion of Financial Advisor. The Board of
Directors of MDC has received the opinion of J.P. Morgan Securities Inc., dated
the date of this Agreement, to the effect that, as of such date, the exchange
ratio is fair to MDC's stockholders from a financial point of view. A copy of
the written opinion of J.P. Morgan Securities Inc. will be delivered to Boeing
as soon as practicable after the date of this Agreement.
Section 4.16. Required Vote of MDC Stockholders. The affirmative
vote of the holders of two-thirds of the outstanding shares of MDC Common Stock
is required to approve the Merger. No other vote of the stockholders of MDC is
required by law, the charter or by-laws of MDC or otherwise in order for MDC to
consummate the Merger and the transactions contemplated hereby.
Section 4.17. Pooling of Interests. To the knowledge of MDC,
neither it nor any of its Subsidiaries has taken any action or failed to take
any action which action or failure (without giving effect to any actions or
failures to act by Boeing or any of its Subsidiaries) would prevent the
treatment of the Merger as a pooling of interests for accounting purposes,
except as previously disclosed in writing to Boeing.
ARTICLE V
Representations and Warranties of Boeing and Sub
Boeing and Sub represent and warrant to MDC that:
Section 5.1. Organization, Qualification, Etc. Each of Boeing
and Sub is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization and has the corporate power
and authority to own its properties and assets and to carry on its business as
<PAGE>
21
it is now being conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the ownership of its properties or the
conduct of its business requires such qualification, except for jurisdictions in
which such failure to be so qualified or to be in good standing would not,
individually or in the aggregate, have a Material Adverse Effect on Boeing. The
copies of Boeing's Restated Certificate of Incorporation and by-laws and Sub's
articles of incorporation and by-laws which have been delivered to MDC are
complete and correct and in full force and effect on the date hereof. Each of
Boeing's Significant Subsidiaries is duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization, has the power
and authority to own its properties and to carry on its business as it is now
being conducted, and is duly qualified to do business and is in good standing
in each jurisdiction in which the ownership of its property or the conduct of
its business requires such qualification, except for jurisdictions in which such
failure to be so qualified or to be in good standing would not, individually or
in the aggregate, have a Material Adverse Effect on Boeing. All the outstanding
shares of capital stock of, or other ownership interests in, Boeing's
Significant Subsidiaries and Sub are validly issued, fully paid and
non-assessable and are owned by Boeing, directly or indirectly, free and clear
of all liens, claims, charges or encumbrances, except for restrictions contained
in credit agreements and similar instruments to which Boeing is a party under
which no event of default has occurred or arisen. There are no existing options,
rights of first refusal, preemptive rights, calls or commitments of any
character relating to the issued or unissued capital stock or other securities
of, or other ownership interests in, any Significant Subsidiary of Boeing or Sub
(other than rights of first refusal, preemptive rights or similar rights held by
Boeing with respect to certain of such Subsidiaries).
Section 5.2. Capital Stock. Except as previously disclosed in
writing to MDC, the authorized capital stock of Boeing consists of 600,000,000
shares of common stock, par value $5.00 per share ("Boeing Common Stock"), and
10,000,000 shares of preferred stock, par value $1.00 per share ("Boeing
Preferred Stock"), of which 6,000,000 shares were designated as Series A Junior
Participating Preferred Stock ("Boeing Series A Preferred Stock"). The shares of
Boeing Common Stock to be issued in the Merger or upon the exercise of MDC stock
options, warrants, conversion rights or other rights or vesting or payment of
other MDC equity-based awards thereafter will, when issued, be validly issued
<PAGE>
22
fully paid and non-assessable. As of December 13, 1996, 349,384,515 shares of
Boeing Common Stock and no shares of Boeing Preferred Stock were issued and
outstanding, 9,194,044 shares of Boeing Common Stock were reserved for issuance
in connection with the acquisition of the aerospace and defense businesses of
Rockwell International Corporation (the "Rockwell A&D Acquisition") and 4,689
shares of Boeing Common Stock were held in Boeing's treasury. All the
outstanding shares of Boeing Common Stock have been validly issued and are fully
paid and non-assessable. Included in the number of shares of Boeing Common Stock
that were issued and outstanding are 11,326,943 shares held in the Boeing
ShareValue Trust, which shares are legally outstanding and entitled to receive
dividends. As of November 30, 1996, there were no outstanding subscriptions,
options, warrants, rights or other arrangements or commitments obligating Boeing
to issue any shares of its capital stock other than:
(a) rights ("Boeing Rights") to acquire shares of Boeing Series
A Preferred Stock pursuant to the Rights Agreement, dated as of July 27, 1987,
between Boeing and The First National Bank of Boston (the "Boeing Rights Plan");
and
(b) options and other rights to receive or acquire 14,004,086
shares of Boeing Common Stock granted on or prior to November 30, 1996, pursuant
to employee incentive or benefit plans, programs and arrangements and
non-employee director plans.
Except for the issuance of shares of Boeing Common Stock
pursuant to the options and other rights referred to in clause 5.2(b) and for
the issuance of shares of Boeing Common Stock pursuant to the Rockwell A&D
Acquisition and except as provided for in clause 6.1(b) (viii), since November
30, 1996, no shares of Boeing Common Stock or Boeing Preferred Stock have been
issued.
Section 5.3. Corporate Authority Relative to this Agreement; No
Violation. Each of Boeing and Sub has the corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder. The execution
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23
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Boards of
Directors of Boeing and Sub and, except for the approval of the stockholders of
Boeing of the Share Issuance, no other corporate proceedings on the part of
Boeing or Sub are necessary to authorize this Agreement and the transactions
contemplated hereby. The Board of Directors of Boeing has determined that the
transactions contemplated by this Agreement are in the best interest of Boeing
and its stockholders and to recommend to such stockholders that they vote in
favor thereof. This Agreement has been duly and validly executed and delivered
by Boeing and Sub and, assuming this Agreement constitutes a valid and binding
Agreement of the other parties hereto, this Agreement constitutes a valid and
binding agreement of Boeing and Sub, enforceable against each of them in
accordance with its terms (except insofar as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally, or by principles governing the
availability of equitable remedies). Neither Boeing nor Sub is subject to or
obligated under any charter, by-law or contract provision or any license,
franchise or permit, or subject to any order or decree, which would be breached
or violated by its executing or, subject to the approval by the stockholders of
Boeing of the Share Issuance, carrying out this Agreement, except for any
breaches or violations which would not, individually or in the aggregate, have a
Material Adverse Effect on Boeing. Other than in connection with or in
compliance with the provisions of the MGCL, the Delaware General Corporation
Law, the Securities Act, the Exchange Act, the HSR Act, Section 4043 of ERISA,
the Communications Act, any non-United States competition, antitrust and
investments laws and the securities or blue sky laws of the various states and
other than any necessary approvals of the United States government or any
agencies, departments or instrumentalities thereof (collectively, the "Boeing
Required Approvals"), no authorization, consent or approval of, or filing with,
any governmental body or authority is necessary for the consummation by Boeing
of the transactions contemplated by this Agreement, except for such
authorizations, consents, approvals or filings, the failure to obtain or make
which would not, individually or in the aggregate, have a Material Adverse
Effect on Boeing or substantially impair or delay the consummation of the
transactions contemplated hereby; provided that Boeing makes no representation
with respect to such of the foregoing as are required by reason of the
regulatory status of MDC or any of its Subsidiaries or facts specifically
pertaining to any of them.
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24
Section 5.4. Reports and Financial Statements. Boeing has
previously furnished to MDC true and complete copies of:
(a) Boeing's Annual Reports on Form 10-K filed with the SEC
for each of the years ended December 31, 1993 through 1995;
(b) Boeing's Quarterly Reports on Form 10-Q filed with the SEC
for the quarters ended March 31, June 30 and September 30, 1996;
(c) each definitive proxy statement filed by Boeing with
the SEC since December 31, 1993;
(d) each final prospectus filed by Boeing with the SEC
since December 31, 1993, except any final prospectus on Form S-8; and
(e) all Current Reports on Form 8-K filed by Boeing with
the SEC since December 31, 1995.
As of their respective dates, such reports, proxy statements and
prospectuses (collectively, "Boeing SEC Reports") (i) complied as to form in all
material respect with the applicable requirements of the Securities Act, the
Exchange Act, and the rules and regulations promulgated thereunder and (ii) did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited consolidated interim
financial statements included in the Boeing SEC Reports (including any related
notes and schedules) fairly present the financial position of Boeing and its
consolidated Subsidiaries as of the dates thereof and the results of their
operations and their cash flows for the periods or as of the dates then ended
(subject, where appropriate, to normal year-end adjustments), in each case in
accordance with past practice and GAAP consistently applied during the periods
involved (except as otherwise disclosed in the notes thereto). Since December
31, 1993, Boeing has timely filed all material reports, registration statements
and other filings required to be filed by it with the SEC under the rules and
regulations of the SEC.
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25
Section 5.5. No Undisclosed Liabilities. Neither Boeing nor any
of its Subsidiaries has any liabilities or obligations of any nature, whether or
not accrued, contingent or otherwise, except (a) liabilities or obligations
reflected in any of the Boeing SEC Reports and (b) liabilities or obligations
which would not, individually or in the aggregate, have a Material Adverse
Effect on Boeing.
Section 5.6. No Violation of Law. The businesses of Boeing and
its Subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any governmental body or authority (provided that no
representation or warranty is made in this Section 5.6 with respect to
Environmental Laws) except (a) as described in any of the Boeing SEC Reports and
(b) for violations or possible violations which would not, individually or in
the aggregate, have a Material Adverse Effect on Boeing.
Section 5.7. Environmental Laws and Regulations. Except as
described in any of the Boeing SEC Reports, (a) Boeing and each of its
Subsidiaries is in material compliance with all applicable Environmental Laws,
except for non-compliance which would not, individually or in the aggregate,
have a Material Adverse Effect on Boeing, which compliance includes, but is not
limited to, the possession by Boeing and its Subsidiaries of material permits
and other governmental authorizations required under applicable Environmental
Laws, and compliance with the terms and conditions thereof; (b) neither Boeing
nor any of its Subsidiaries has received written notice of, or, to the knowledge
of Boeing, is the subject of, any Environmental Claims which would, individually
or in the aggregate, have a Material Adverse Effect on Boeing; and (c) to the
knowledge of Boeing, there are no circumstances that are reasonably likely to
prevent or interfere with such material compliance in the future.
Section 5.8. No Undisclosed Employee Benefit Plan Liabilities or
Severance Arrangements. Except as described in any of the Boeing SEC Reports,
all "employee benefit plans", as defined in Section 3(3) of ERISA, maintained or
contributed to by Boeing or its Subsidiaries are in compliance with all
applicable provisions of ERISA and the Code, and Boeing and its Subsidiaries do
not have any liabilities or obligations with respect to any such employee
benefit plans, whether or not accrued, contingent or otherwise, except (a) as
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26
described in any of the Boeing SEC Reports and (b) for instances of
non-compliance or liabilities or obligations that would not, individually or in
the aggregate, have a Material Adverse Effect on Boeing. No employee of Boeing
will be entitled to any additional benefits or any acceleration of the time of
payment or vesting of any benefits under any employee incentive or benefit plan,
program or arrangement as a result of the transactions contemplated by this
Agreement.
Section 5.9. Absence of Certain Changes or Events. Other than as
disclosed in the Boeing SEC Reports, since December 31, 1995 the businesses of
Boeing and its Subsidiaries have been conducted in all material respects in the
ordinary course and there has not been any event, occurrence, development or
state of circumstances or facts that has had, or would have, a Material Adverse
Effect on Boeing.
Section 5.10. Investigations; Litigation. Except as described
in any of the Boeing SEC Reports or previously disclosed in writing to MDC:
(a) no investigation or review by any governmental body or
authority with respect to Boeing or any of its Subsidiaries which would,
individually or in the aggregate, have a Material Adverse Effect on Boeing is
pending nor has any governmental body or authority notified Boeing of an
intention to conduct the same; and
(b) there are no actions, suits or proceedings pending (or, to
Boeing's knowledge, threatened) against or affecting Boeing or its Subsidiaries,
or any of their respective properties at law or in equity, or before any
federal, state, local or foreign governmental body or authority which,
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on Boeing.
Section 5.11. Joint Proxy Statement; Registration Statement;
Other Information. None of the information with respect to Boeing or its
Subsidiaries to be included in the Joint Proxy Statement or the Registration
Statement will, in the case of the Joint Proxy Statement or any amendments
thereof or supplements thereto, at the time of the mailing of the Joint Proxy
Statement or any amendments or supplements thereto, and at the time of the MDC
Meeting and the Boeing Meeting, or, in the case of the Registration Statement,
at the time it becomes effective, contain any untrue statement of a material
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27
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that no representation is
made by Boeing with respect to information supplied in writing by MDC or any
affiliate of MDC specifically for inclusion in the Joint Proxy Statement. The
Joint Proxy Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations promulgated
thereunder.
Section 5.12. Lack of Ownership of MDC Common Stock. Neither
Boeing nor any of its Subsidiaries owns any shares of MDC Common Stock or other
securities convertible into shares of MDC Common Stock (exclusive of any shares
owned by Boeing's employee benefit plans).
Section 5.13. Boeing Rights Plan. Under the terms of the Boeing
Rights Plan, the transactions contemplated by this Agreement will not cause a
Distribution Date (as such term is defined in the Boeing Rights Plan) to occur
or cause the rights issued pursuant to the Boeing Rights Plan to become
exercisable.
Section 5.14. Tax Matters. (a) All federal, state, local and
foreign Tax Returns required to be filed by or on behalf of Boeing, each of its
Subsidiaries, and each affiliated, combined, consolidated or unitary group of
which Boeing or any of its Subsidiaries is (i) a member (a "Current Boeing
Group") or (ii) has been a member within six years prior to the date hereof but
is not currently a member, but only insofar as any such Tax relates to a taxable
period ending on a date within the last six years (a "Past Boeing Group",
together with Current Boeing Groups, a "Boeing Affiliated Group") have been
timely filed, and all returns filed are complete and accurate except to the
extent any failure to file or any inaccuracies in filed returns would not,
individually or in the aggregate, have a Material Adverse Effect on Boeing (it
being understood that the representations made in this Section, to the extent
that they relate to Past Boeing Groups, are made to the knowledge of Boeing).
All Taxes due and owing by Boeing, any Subsidiary of Boeing or any Boeing
Affiliated Group have been paid, or adequately reserved for, except to the
extent any failure to pay or reserve would not, individually or in the
aggregate, have a Material Adverse Effect on Boeing. There is no audit
examination, deficiency, refund litigation, proposed adjustment or matter in
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28
controversy with respect to any Taxes due and owing by Boeing, any Subsidiary of
Boeing or any Boeing Affiliated Group which would, individually or in the
aggregate, have a Material Adverse Effect on Boeing. All assessments for Taxes
due and owing by Boeing, any Subsidiary of Boeing or any Boeing consolidated
group with respect to completed and settled examinations or concluded litigation
have been paid. As soon as practicable after the public announcement of the
Merger Agreement, Boeing will provide MDC with written schedules of (i) the
taxable years of Boeing for which the statutes of limitations with respect to
federal income Taxes have not expired, and (ii) with respect to federal income
Taxes, those years for which examinations have been completed, those years for
which examinations are presently being conducted, and those years for which
examinations have not yet been initiated. Boeing and each of its Subsidiaries
has complied in all material respects with all rules and regulations relating to
the withholding of Taxes, except to the extent any such failure to comply would
not, individually or in the aggregate, have a Material Adverse Effect on Boeing.
(b) Neither Boeing nor any of its Subsidiaries knows of any fact
or has taken any action that could reasonably be expected to prevent the Merger
from qualifying as a reorganization within the meaning of Section 368(a) of the
Code.
(c) Any amount or other entitlement that could be received
(whether in cash or property or the vesting of property) as a result of any of
the transactions contemplated by this Agreement by any employee, officer or
director of Boeing or any of its affiliates who is a "disqualified individual"
(as such term is defined in proposed Treasury Regulation Section 1.280G-1) under
any employee benefit plan or other compensation arrangement currently in effect
would not be characterized as an "excess parachute payment" or a "parachute
payment" (as such terms are defined in Section 280G(b)(1) of the Code).
Section 5.15. Opinion of Financial Advisor. The Board of
Directors of Boeing has received the opinion of CS First Boston Corporation,
dated the date of this Agreement to the effect that, as of such date, the
exchange ratio is fair to Boeing from a financial point of view. A copy of the
written opinion of CS First Boston Corporation will be delivered to MDC as soon
as practicable after the date of this Agreement.
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29
Section 5.16. Required Vote of Boeing Stockholders. The
affirmative vote of the holders of a majority of the shares of Boeing Common
Stock voted at the Boeing Meeting is required to approve the Share Issuance;
provided that holders of a majority of the outstanding shares of Boeing Common
Stock are present, in person or by proxy, at the Boeing Meeting and vote upon
the Share Issuance. No other vote of the stockholders of Boeing is required by
law, the charter or by-laws of Boeing or otherwise in order for Boeing to
consummate the Merger and the transactions contemplated hereby.
Section 5.17. Pooling of Interests. To the knowledge of Boeing,
neither it nor any of its Subsidiaries has taken any action or failed to take
any action which action or failure (without giving effect to any actions or
failures to act by MDC or any of its Subsidiaries) would prevent the treatment
of the Merger as a pooling of interests for accounting purposes.
ARTICLE VI
Covenants and Agreements
It is further agreed as follows:
Section 6.1. Conduct of Business by MDC or Boeing. Prior to the
Effective Time or the date, if any, on which this Agreement is earlier
terminated pursuant to Section 8.1 (the "Termination Date"), and except as may
be agreed to by the other parties hereto or as may be permitted pursuant to this
Agreement:
(a) MDC:
(i) shall, and shall cause each of its Subsidiaries to, conduct
its operations according to their ordinary and usual course of business in
substantially the same manner as heretofore conducted;
(ii) shall use its reasonable best efforts, and cause each of
its Subsidiaries to use its reasonable best efforts, to preserve intact its
business organizations and goodwill in all material respects, keep available the
services of its officers and employees as a group, subject to changes in the
ordinary course, and maintain satisfactory relationships with suppliers,
distributors, customers and others having business relationships with them;
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30
(iii) shall confer at such times as Boeing may reasonably
request with one or more representatives of Boeing to report material
operational matters and the general status of ongoing operations (to the extent
Boeing reasonably requires such information);
(iv) shall notify Boeing of any emergency or other change in the
normal course of its or its Subsidiaries' respective businesses or in the
operation of its or its Subsidiaries' respective properties and of any
complaints, investigations or hearings (or communications indicating that the
same may be contemplated) of any governmental body or authority if such
emergency, change, complaint, investigation or hearing would have a Material
Adverse Effect on MDC;
(v) shall not, and shall not (except in the ordinary course of
business consistent with past practice) permit any of its Subsidiaries that is
not wholly owned, to authorize or pay any dividends on or make any distribution
with respect to its outstanding shares of stock other than regular quarterly
dividends of $.12 per share on MDC Common Stock made in the ordinary course
consistent with past practice;
(vi) shall not, and shall not permit any of its Subsidiaries to,
except (i) in the ordinary course of business consistent with past practice,
(ii) as otherwise provided in this Agreement, (iii) as previously disclosed in
writing to Boeing or (iv) for the Termination Benefit Agreements, enter into or
amend any employment, severance or similar agreements or arrangements with any
of their respective directors or executive officers;
(vii) shall not, and shall not permit any of its Subsidiaries
to, authorize, propose or announce an intention to authorize or propose, or
enter into an agreement with respect to, any merger, consolidation or business
combination (other than the Merger and any mergers, consolidations or business
combinations with MDC's Subsidiaries entered into in the ordinary course of
business consistent with past practice), any acquisition of a material amount of
assets or securities, any disposition of a material amount of assets or
securities or any release or relinquishment of any material contract rights not
in the ordinary course of business;
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31
(viii) shall not propose or adopt any amendments to its
corporate charter or by-laws;
(ix) shall not, and shall not permit any of its Significant
Subsidiaries to, issue any shares of their capital stock, except upon exercise
of rights or options issued pursuant to existing employee incentive or benefit
plans, programs or arrangements and non-employee director plans (including,
without limitation, shares issued in connection with stock grants or awards or
the exercise of rights or options granted in the ordinary course of business
consistent with past practice pursuant to such plans, programs or arrangements)
or effect any stock split not previously announced or otherwise change its
capitalization as it existed on December 6, 1996, except as contemplated herein
and except for the contemplated issuance or sale of shares of MDC Common Stock
previously agreed to in writing by Boeing);
(x) shall not, and shall not permit any of its Subsidiaries to,
grant, confer or award any options, warrants, conversion rights or other rights,
not existing on the date hereof, to acquire any shares of its capital stock,
except pursuant to employee incentive or benefit plans, programs or arrangements
and non-employee director plans in existence on the date hereof in the ordinary
course of business and consistent with past practice (including, but not limited
to, certain grants of Performance Accelerated Restricted Stock under the MDC
1994 Performance and Equity Incentive Plan) covering not in excess of 700,000
shares of MDC Common Stock;
(xi) shall not, and shall not permit any of its Subsidiaries to,
except in the ordinary course of business in connection with employee incentive
and benefit plans, programs or arrangements in existence on the date hereof,
purchase or redeem any shares of its stock;
(xii) shall not, and shall not permit any of its Subsidiaries
to, take any actions which would, or would be reasonably likely to, prevent
Boeing from accounting for the Merger in accordance with the pooling of
interests method of accounting under the requirements of Opinion No. 16
"Business Combinations" of the Accounting Principles Board of the American
Institute of Certified Public Accountants, as amended by applicable
pronouncements by the Financial Accounting Standards Board ("APB No. 16");
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(xiii) shall not, and shall not permit any of its Subsidiaries
to, except as contemplated by this Section 6.1 or Section 6.5 or except as
previously disclosed in writing to Boeing, amend in any significant respect the
terms of their respective employee benefit plans, programs or arrangements or
any severance or similar agreements or arrangements in existence on the date
hereof, or adopt any new employee benefit plans, programs or arrangements or any
severance or similar agreements or arrangements;
(xiv) shall not, and shall not permit any of its Subsidiaries
to, enter into any material loan agreement, other than in the ordinary course of
business consistent with past practice and other than any loan or lease
arrangement relating to the sale or lease of commercial aircraft or commercial
equipment;
(xv) shall not, and shall not permit any of its Subsidiaries to
make any material Tax election or settle or compromise any material Tax
liability, other than in connection with currently pending proceedings or other
than in the ordinary course of business; and
(xvi) shall not, and shall not permit any of its Subsidiaries
to, agree, in writing or otherwise, to take any of the foregoing actions or take
any action which would make any representation or warranty in Article IV hereof
untrue or incorrect.
(b) Boeing:
(i) shall, and shall cause each of its Subsidiaries to, conduct
its operations according to their ordinary and usual course of business in
substantially the same manner as heretofore conducted;
(ii) shall use its reasonable best efforts, and cause each of
its Subsidiaries to use its reasonable best efforts, to preserve intact its
business organizations and goodwill in all material respects, keep available the
services of its officers and employees as a group, subject to changes in the
ordinary course, and maintain satisfactory relationships with suppliers,
distributors, customers and others having business relationships with them;
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33
(iii) shall confer at such times as MDC may reasonably request
with one or more representatives of MDC to report material operational matters
and the general status of ongoing operations (to the extent MDC reasonably
requires such information);
(iv) shall notify MDC of any emergency or other change in the
normal course of its or its Subsidiaries' respective businesses or in the
operation of its or its Subsidiaries' respective properties and of any
complaints, investigations or hearings (or communications indicating that the
same may be contemplated) of any governmental body or authority if such
emergency, change, complaint, investigation or hearing would have a Material
Adverse Effect on Boeing;
(v) except as previously disclosed in writing to MDC, shall not,
and shall not (except in the ordinary course of business consistent with past
practice) permit any of its Subsidiaries that is not wholly owned, to declare or
pay any dividends on or make any distribution with respect to their outstanding
shares of capital stock other than regular quarterly dividends of $.28 per share
on Boeing Common Stock made in the ordinary course consistent with past
practice;
(vi) shall not, and shall not permit any of its Subsidiaries to,
authorize, propose or announce an intention to authorize or propose, or enter
into an agreement with respect to, any merger, consolidation or business
combination (other than the Merger and any mergers, consolidations or business
combinations with Boeing's Subsidiaries entered into in the ordinary course of
business consistent with past practice), any acquisition of a material amount of
assets or securities, or any release or relinquishment of any material contract
rights not in the ordinary course of business;
(vii) shall not propose or adopt any amendments to its
corporate charter (except as previously disclosed in writing to MDC) or
by-laws;
(viii) shall not, and shall not permit any of its Significant
Subsidiaries to, issue any shares of their capital stock, except upon exercise
of rights or options issued pursuant to existing employee incentive or benefit
plans, programs or arrangements and non-employee director plans (including,
without limitation, shares issued in connection with stock grants or awards or
the exercise of rights or options granted in the ordinary course of business
consistent with past practice pursuant to such plans, programs or arrangements)
or effect any stock split not previously announced or otherwise change its
capitalization as it existed on November 30, 1996 (except as contemplated herein
or as previously disclosed in writing to MDC);
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34
(ix) shall not, and shall not permit any of its Subsidiaries to,
grant, confer or award any options, warrants, conversion rights or other rights,
not existing on the date hereof, to acquire any shares of its capital stock,
except pursuant to employee incentive or benefit plans, programs or arrangements
and non-employee director plans in existence on the date hereof in the ordinary
course of business and consistent with past practice covering not in excess of
5,000,000 shares of Boeing Common Stock;
(x) shall not, and shall not permit any of its Subsidiaries to,
take any actions which would, or would be reasonably likely to, prevent Boeing
from accounting for the Merger in accordance with the pooling of interests
method of accounting under the requirements of APB No. 16; and
(xi) shall not, and shall not permit any of its Subsidiaries to,
agree, in writing or otherwise, to take any of the foregoing actions or take any
action which would make any representation or warranty in Article V hereof
untrue or incorrect.
Section 6.2. Investigation. Each of MDC and Boeing shall afford
to one another and to one another's officers, employees, accountants, counsel
and other authorized representatives full and complete access during normal
business hours, throughout the period prior to the earlier of the Effective Time
or the date of termination of this Agreement, to its and its Subsidiaries'
plants, properties, contracts, commitments, books, and records (including but
not limited to tax returns) and any report, schedule or other document filed or
received by it pursuant to the requirements of federal or state securities laws
and shall use their reasonable best efforts to cause their respective
representatives to furnish promptly to one another such additional financial and
operating data and other information as to its and its Subsidiaries' respective
businesses and properties as the other or its duly authorized representatives
may from time to time reasonably request; provided, that nothing herein shall
require either MDC or Boeing or any of their respective Subsidiaries to disclose
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35
any information to the other that would cause significant competitive harm to
such disclosing party or its affiliates if the transactions contemplated by this
Agreement are not consummated. The parties hereby agree that each of them will
treat any such information in accordance with the Confidentiality Agreement,
dated as of October 17, 1995, between MDC and Boeing (the "Confidentiality
Agreement"). Notwithstanding any provision of this Agreement to the contrary, no
party shall be obligated to make any disclosure in violation of applicable laws
or regulations, including any such laws or regulations pertaining to the
treatment of classified information.
Section 6.3. Cooperation. (a) MDC and Boeing shall together,
or pursuant to an allocation of responsibility to be agreed upon between them:
(i) prepare and file with the SEC as soon as is reasonably
practicable the Joint Proxy Statement (which, if requested by Boeing, may also
relate to an amendment of the Restated Certificate of Incorporation of Boeing to
increase its authorized capitalization) and a registration statement on Form S-4
under the Securities Act with respect to the Boeing Common Stock issuable in the
Merger (the "Registration Statement"), and shall use their reasonable best
efforts to have the Joint Proxy Statement cleared by the SEC under the Exchange
Act and the Registration Statement declared effective by the SEC under the
Securities Act;
(ii) as soon as is reasonably practicable take all such action
as may be required under state blue sky or securities laws in connection with
the transactions contemplated by this Agreement;
(iii) promptly prepare and file with the NYSE and such other
stock exchanges as shall be agreed upon listing applications covering the shares
of Boeing Common Stock issuable in the Merger or upon exercise of MDC stock
options, warrants, conversion rights or other rights or vesting or payment of
other MDC equity-based awards and use its reasonable best efforts to obtain,
prior to the Effective Time, approval for the listing of such Common Stock,
subject only to official notice of issuance;
(iv) cooperate with one another in order to lift any injunctions
or remove any other impediment to the consummation of the transactions
contemplated herein; and
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36
(v) cooperate with one another in obtaining opinions of Skadden,
Arps, Slate, Meagher & Flom LLP, counsel to MDC, and Cravath, Swaine & Moore,
counsel to Boeing, dated as of the Effective Time, to the effect that the Merger
qualifies as a reorganization under the provisions of Section 368(a) of the
Code. In connection therewith, each of MDC and Boeing shall deliver to Skadden,
Arps, Slate, Meagher & Flom LLP and Cravath, Swaine & Moore representation
letters substantially in the form attached hereto as Exhibits 7.1(g)(1) and
7.1(g)(2), respectively, and MDC shall use its reasonable best efforts to obtain
the representation letter substantially in the form attached hereto as Exhibit
7.1(g)(3) from appropriate stockholders and shall deliver any such letters
obtained to Skadden, Arps, Slate, Meagher & Flom LLP and Cravath, Swaine &
Moore.
(b) Subject to the limitations contained in Section 6.2, MDC and
Boeing shall each furnish to one another and to one another's counsel all such
information as may be required in order to effect the foregoing actions and each
represents and warrants to the other that no information furnished by it in
connection with such actions or otherwise in connection with the consummation of
the transactions contemplated by this Agreement will contain any untrue
statement of a material fact or omit to state a material fact required to be
stated in order to make any information so furnished, in light of the
circumstances under which it is so furnished, not misleading.
Section 6.4. Affiliate Agreements. (a) MDC shall, prior to the
Effective Time, deliver to Boeing a list (reasonably satisfactory to counsel for
Boeing), setting forth the names and addresses of all persons who are, at the
time of the MDC Meeting, in MDC's reasonable judgment, "affiliates" of MDC for
purposes of Rule 145 under the Securities Act or under applicable SEC accounting
releases with respect to pooling of interests accounting treatment. MDC shall
furnish such information and documents as Boeing may reasonably request for the
purpose of reviewing such list. MDC shall use its reasonable best efforts to
cause each person who is identified as an "affiliate" in the list furnished
pursuant to this Section 6.4 to execute a written agreement on or prior to the
Effective Time, in substantially the form of Exhibit 6.4(a) hereto.
(b) Boeing shall, prior to the Effective Time, deliver to MDC a
list (reasonably satisfactory to counsel for MDC) setting forth the names and
addresses of all persons who are, at the time of the Boeing Meeting, in Boeing's
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37
reasonable judgment, affiliates of Boeing under applicable SEC accounting
releases with respect to pooling of interests accounting treatment. Boeing shall
furnish such information and documents as MDC may reasonably request for the
purpose of reviewing such list. Boeing shall use its reasonable best efforts to
cause each person who is identified as an affiliate in the list furnished
pursuant to this Section 6.4 to execute a written agreement on or prior to the
Effective Time, in substantially the form of Exhibit 6.4(b) hereto.
Section 6.5. Employee Stock Options, Incentive and Benefit
Plans. (a) Simultaneously with the Merger, (i) each outstanding option (and
related stock appreciation right ("MDC SAR"), if any) to purchase or acquire a
share of MDC Common Stock under employee incentive or benefit plans, programs or
arrangements and non-employee director plans presently maintained by MDC ("MDC
Option Plans") shall be converted into an option (together with a related stock
appreciation right of Boeing, if applicable) to purchase the number of shares of
Boeing Common Stock equal to .65 times the number of shares of MDC Common Stock
which could have been obtained prior to the Effective Time upon the exercise of
each such option, at an exercise price per share equal to the exercise price for
each such share of MDC Common Stock subject to an option (and related MDC SAR,
if any) under the MDC Option Plans divided by .65, and all references in each
such option (and related MDC SAR, if any) to MDC shall be deemed to refer to
Boeing, where appropriate, and (ii) Boeing shall assume the obligations of MDC
under the MDC Option Plans. The other terms of each such option and MDC SAR, and
the plans under which they were issued, shall continue to apply in accordance
with their terms, including any provisions providing for acceleration.
(b) Simultaneously with the Merger, each outstanding award
(including restricted stock, stock equivalents and stock units) ("MDC Award")
under any employee incentive or benefit plans, programs or arrangements and
non-employee director plans presently maintained by MDC which provide for grants
of equity-based awards shall be amended or converted into a similar instrument
of Boeing, in each case with such adjustments to the terms of such MDC Awards as
are appropriate to preserve the value inherent in such MDC Awards with no
detrimental effects on the holders thereof. The other terms of each MDC Award,
<PAGE>
38
and the plans or agreements under which they were issued, shall continue to
apply in accordance with their terms, including any provisions providing for
acceleration. With respect to any restricted stock awards as to which the
restrictions shall have lapsed on or prior to the Effective Time in accordance
with the terms of the applicable plans or award agreements, shares of such
previously restricted stock shall be converted in accordance with the provisions
of Section 2.1(b).
(c) Simultaneously with the Merger, Boeing shall assume each
Termination Benefit Agreement then in effect and all of MDC's rights and
obligations under each such Termination Benefit Agreement.
(d) MDC and Boeing agree that each of their respective employee
incentive or benefit plans, programs and arrangements and non-employee director
plans shall be amended, to the extent necessary and appropriate, to reflect the
transactions contemplated by this Agreement, including, but not limited to the
conversion of shares of MDC Common Stock held or to be awarded or paid pursuant
to such benefit plans, programs or arrangements into shares of Boeing Common
Stock on a basis consistent with the transactions contemplated by this
Agreement. The actions to be taken by MDC and Boeing pursuant to Section 6.5(d)
shall include the submission by MDC or Boeing of the amendments to the plans,
programs or arrangements referred to herein to their respective stockholders at
the MDC Meeting or the Boeing Meeting, respectively, if such submission is
determined to be necessary or advisable by counsel to MDC or Boeing after
consultation with one another; provided, however, that such approval shall not
be a condition to the consummation of the Merger.
(e) Boeing shall (i) reserve for issuance the number of shares
of Boeing Common Stock that will become subject to the benefit plans, programs
and arrangements referred to in this Section 6.5 and (ii) issue or cause to be
issued the appropriate number of shares of Boeing Common Stock pursuant to such
plans, programs and arrangements, upon the exercise or maturation of rights
existing thereunder on the Effective Time or thereafter granted or awarded.
Section 6.6. Filings; Other Action. (a) Subject to the terms and
conditions herein provided, MDC and Boeing shall (a) promptly make their
respective filings and thereafter make any other required submissions under the
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39
HSR Act, (b) use reasonable efforts to cooperate with one another in (i)
determining whether any filings are required to be made with, or consents,
permits, authorizations or approvals are required to be obtained from, any third
party, the United States government or any agencies, departments or
instrumentalities thereof or other governmental or regulatory bodies or
authorities of federal, state, local and foreign jurisdictions in connection
with the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and thereby and (ii) timely making all such
filings and timely seeking all such consents, permits, authorizations or
approvals, and (c) use reasonable efforts to take, or cause to be taken, all
other actions and do, or cause to be done, all other things necessary, proper or
advisable to consummate and make effective the transactions contemplated hereby,
including, without limitation, taking all such further action as reasonably may
be necessary to resolve such objections, if any, as the Federal Trade
Commission, the Antitrust Division of the Department of Justice, state antitrust
enforcement authorities or competition authorities of any other nation or other
jurisdiction or any other person may assert under relevant antitrust or
competition laws with respect to the transactions contemplated hereby and to
ensure that it is a "poolable entity" eligible to participate in a transaction
to be accounted for under the pooling of interests method of accounting.
(b) MDC and Boeing shall take all such action as reasonably may
be necessary to obtain the advance agreement of the U.S. Department of Defense
("DOD") to the effect that (i) the transactions contemplated by this Agreement
will not trigger any liability to DOD with respect to any surplus assets in a
pension plan, (ii) for cost accounting purposes, the pension plans of MDC,
Boeing and Boeing North American, Inc. will be a single pension plan and (iii)
any subsequent reorganization or restructuring of MDC, Boeing and Boeing North
American, Inc. or mergers and other transactions conducted between MDC, Boeing
and Boeing North American, Inc. or between any of their pension plans will not
trigger a segment closing adjustment under Cost Accounting Standard 413 after
the Effective Time unless MDC, Boeing and Boeing North American, Inc.
discontinue doing business with the U.S. government or Boeing curtails the
benefits of all the pension plans.
Section 6.7. Further Assurances. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
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40
purposes of this Agreement, the proper officers of MDC and Boeing shall take all
such necessary action.
Section 6.8. Takeover Statute. If any "fair price",
"moratorium", "control share acquisition" or other form of antitakeover statute
or regulation shall become applicable to the transactions contemplated hereby,
each of MDC and Boeing and the members of their respective Boards of Directors
shall grant such approvals and take such actions as are reasonably necessary so
that the transactions contemplated hereby may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise act to eliminate or
minimize the effects of such statute or regulation on the transactions
contemplated hereby.
Section 6.9. No Solicitation. From and after the date hereof,
MDC will not, and shall use its reasonable best efforts not to permit, any of
its officers, directors, employees, attorneys, financial advisors, agents or
other representatives or those of any of its Subsidiaries to, directly or
indirectly, solicit, initiate or knowingly encourage (including by way of
furnishing information) any Takeover Proposal from any person, or engage in or
continue discussions or negotiations relating thereto; provided, however, that
MDC may engage in discussions or negotiations with, and furnish information
concerning MDC and its Subsidiaries, businesses, properties or assets to, any
third party which makes a Takeover Proposal if the Board of Directors of MDC
concludes in good faith after consultation with its outside counsel (who may be
its regularly engaged outside counsel) that the failure to take such action
would present a reasonable possibility of violating the obligations of such
Board to MDC or to MDC's stockholders under applicable law. MDC will promptly
(but in no case later than 24 hours) notify Boeing of the receipt of any
Takeover Proposal, including the material terms and conditions thereof and the
identity of the person or group making such Takeover Proposal, and will promptly
(but in no case later than 24 hours) notify Boeing of any determination by MDC's
Board of Directors that a Superior Proposal (as hereinafter defined) has been
made. As used in this Agreement, (i) "Takeover Proposal" shall mean any proposal
or offer, or any expression of interest by any third party relating to MDC's
willingness or ability to receive or discuss a proposal or offer, in each case
made prior to the stockholder vote at the MDC Meeting, other than a proposal or
offer by Boeing or any of its Subsidiaries, for a merger, consolidation or other
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41
business combination involving, or any purchase of, all or substantially all of
the assets or more than 50% of the voting securities of, MDC, and (ii) "Superior
Proposal" shall mean a bona fide Takeover Proposal made by a third party on
terms that a majority of the members of the Board of Directors of MDC determines
in their good faith reasonable judgment (based on the advice of an independent
financial advisor) may be more favorable to MDC and to its stockholders than the
transactions contemplated hereby and for which any required financing is
committed or which, in the good faith reasonable judgment of a majority of such
members (after consultation with any independent financial advisor), is
reasonably capable of being financed by such third party.
Section 6.10. Public Announcements. MDC and Boeing will consult
with each other before issuing any press release relating to this Agreement or
the transactions contemplated herein and shall not issue any such press release
prior to such consultation except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange.
Section 6.11. Indemnification and Insurance. (a) Boeing and Sub
agree that all rights to exculpation and indemnification for acts or omissions
occurring prior to the Effective Time now existing in favor of the current or
former directors or officers (the "Indemnified Parties") of MDC as provided in
its charter or by-laws or in any agreement shall survive the Merger and shall
continue in full force and effect in accordance with their terms. For six years
from the Effective Time, Boeing shall indemnify the Indemnified Parties to the
same extent as such Indemnified Parties are entitled to indemnification pursuant
to the preceding sentence.
(b) For six years from the Effective Time, Boeing shall,
maintain in effect MDC's current directors' and officers' liability insurance
covering those persons who are currently covered by MDC's directors' and
officers' liability insurance policy (a copy of which has been heretofore
delivered to Boeing); provided, however, that in no event shall Boeing be
required to expend in any one year an amount in excess of 200% of the annual
premiums currently paid by MDC for such insurance, and, provided, further, that
if the annual premiums of such insurance coverage exceed such amount, Boeing
shall be obligated to obtain a policy with the greatest coverage available for a
cost not exceeding such amount.
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Section 6.12. Accountants' "Comfort" Letters. MDC and Boeing
will each use reasonable best efforts to cause to be delivered to each other
letters from their respective independent accountants, dated a date within two
business days before the date of the Registration Statement, in form reasonably
satisfactory to the recipient and customary in scope for comfort letters
delivered by independent accountants in connection with registration statements
on Form S-4 under the Securities Act.
Section 6.13. Additional Reports. MDC and Boeing shall each
furnish to the other copies of any reports of the type referred to in Sections
4.4 and 5.4 which it files with the SEC on or after the date hereof, and MDC and
Boeing, as the case may be, represents and warrants that as of the respective
dates thereof, such reports will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statement therein, in light of the circumstances under which they
were made, not misleading. Any unaudited consolidated interim financial
statements included in such reports (including any related notes and schedules)
will fairly present the financial position of MDC and its consolidated
Subsidiaries or Boeing and its consolidated Subsidiaries, as the case may be, as
of the dates thereof and the results of operations and changes in financial
position or other information included therein for the periods or as of the date
then ended (subject, where appropriate, to normal year-end adjustments), in each
case in accordance with past practice and GAAP consistently applied during the
periods involved (except as otherwise disclosed in the notes thereto).
Section 6.14. Co-ordination of Dividends. MDC and Boeing shall
coordinate with the other the authorization or declaration of any dividends in
respect of MDC Common Stock and Boeing Common Stock and the record dates and
payment dates relating thereto, it being the intention of the parties that
holders of MDC Common Stock or Boeing Common Stock shall not receive two
dividends, or fail to receive one dividend, for any single calendar quarter with
respect to their shares of MDC Common Stock and/or Boeing Common Stock and any
shares of Boeing Common Stock any such holder receives in exchange for MDC
Common Stock in the Merger.
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ARTICLE VII
Conditions to the Merger
Section 7.1. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) The holders of issued and outstanding shares of MDC Common
Stock shall have duly approved the Merger, and the holders of issued and
outstanding shares of Boeing Common Stock shall have approved the Share
Issuance, all in accordance with applicable law and the rules of the NYSE.
(b) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or enforced
by any court or other tribunal or governmental body or authority which prohibits
the consummation of the Merger substantially on the terms contemplated hereby.
In the event any order, decree or injunction shall have been issued, each party
shall use its reasonable efforts to remove any such order, decree or injunction.
(c) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act and no stop order
suspending such effectiveness shall have been issued and remain in effect.
(d) The shares of Boeing Common Stock issuable in the Merger
shall have been approved for listing on the NYSE, subject only to official
notice of issuance.
(e) Any applicable waiting period under the HSR Act shall have
expired or been terminated and any other MDC Required Approvals and Boeing
Required Approvals shall have been obtained, except where the failure to obtain
such other MDC Required Approvals and Boeing Required Approvals would not have a
Material Adverse Effect on MDC or Boeing, as the case may be.
(f) At the Effective Time each of MDC and Boeing shall have
received a letter of its independent public accountants, in form and substance
reasonably satisfactory to it, stating that they concur with management's
conclusion that the Merger will qualify as a transaction to be accounted for the
parties hereto in accordance with the pooling of interests method of accounting
under the requirements of APB No. 16.
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(g) Each of MDC and Boeing shall have received an opinion of its
tax counsel, Skadden, Arps, Slate, Meagher & Flom LLP and Cravath, Swaine &
Moore, respectively, in form and substance reasonably satisfactory to it, and
dated within five days of the date of the Joint Proxy Statement, to the effect
that the Merger will qualify for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code and that none of MDC, its
stockholders, Boeing and Sub shall recognize gain or loss for federal income tax
purposes as a result of the Merger (other than, with respect to any cash paid in
lieu of fractional shares of Boeing Common Stock). In rendering such opinions,
Skadden, Arps, Slate, Meagher & Flom LLP and Cravath, Swaine & Moore may rely
upon representations of officers of MDC and Boeing and stockholders of MDC
substantially in the form of Exhibits 7.1(g)(1), 7.1(g)(2) and 7.1(g)(3).
Section 7.2. Conditions to Obligations of MDC to Effect the
Merger. The obligation of MDC to effect the Merger is further subject to the
conditions that (a) the representations and warranties of Boeing contained
herein shall be true and correct in all respects (but without regard to any
materiality qualifications or references to Material Adverse Effect contained in
any specific representation or warranty) as of the Effective Time with the same
effect as though made as of the Effective Time except (i) for changes
specifically permitted by the terms of this Agreement, (ii) that the accuracy of
representations and warranties that by their terms speak as of the date of this
Agreement or some other date will be determined as of such date and (iii) where
any such failure of the representations and warranties in the aggregate to be
true and correct in all respects would not have a Material Adverse Effect on
Boeing, (b) Boeing shall have performed in all material respects all obligations
and complied with all covenants required by this Agreement to be performed or
complied with by it prior to the Effective Time and (c) Boeing shall have
delivered to MDC a certificate, dated the Effective Time and signed by its
Chairman of the Board and Chief Executive Officer or a Senior Vice President,
certifying to both such effects.
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Section 7.3. Conditions to Obligations of Boeing to Effect the
Merger. The obligation of Boeing to effect the Merger is further subject to the
conditions that (a) the representations and warranties of MDC contained herein
shall be true and correct in all respects (but without regard to any materiality
qualifications or references to Material Adverse Effect contained in any
specific representation or warranty) as of the Effective Time with the same
effect as though made as of the Effective Time except (i) for changes
specifically permitted by the terms of this Agreement, (ii) that the accuracy of
representations and warranties that by their terms speak as of the date of this
Agreement or some other date will be determined as of such date and (iii) where
any such failure of the representations and warranties in the aggregate to be
true and correct in all respects would not have a Material Adverse Effect on
MDC, (b) MDC shall have performed in all material respects all obligations and
complied with all covenants required by this Agreement to be performed or
complied with by it prior to the Effective Time and (c) MDC shall have delivered
to Boeing a certificate, dated the Effective Time and signed by its Chairman of
the Board, Chief Executive Officer and President or a Senior Vice President,
certifying to both such effects.
ARTICLE VIII
Termination, Waiver, Amendment and Closing
Section 8.1. Termination or Abandonment. Notwithstanding
anything contained in this Agreement to the contrary, this Agreement may be
terminated and abandoned at any time prior to the Effective Time, whether before
or after any approval of the matters presented in connection with the Merger by
the respective stockholders of MDC and Boeing:
(a) by the mutual written consent of MDC and Boeing;
(b) by either MDC or Boeing if the Effective Time shall not have
occurred on or before December 31, 1997; provided, that the party seeking to
terminate this Agreement pursuant to this clause 8.1(b) shall not have breached
in any material respect its obligations under this Agreement in any manner that
shall have proximately contributed to the failure to consummate the Merger on or
before such date;
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(c) by either MDC or Boeing if (i) a statute, rule, regulation
or executive order shall have been enacted, entered or promulgated prohibiting
the consummation of the Merger substantially on the terms contemplated hereby or
(ii) an order, decree, ruling or injunction shall have been entered permanently
restraining, enjoining or otherwise prohibiting the consummation of the Merger
substantially on the terms contemplated hereby and such order, decree, ruling or
injunction shall have become final and non-appealable; provided, that the party
seeking to terminate this Agreement pursuant to this clause 8.1(c)(ii) shall
have used its reasonable best efforts to remove such injunction, order or
decree;
(d) by either MDC or Boeing if the approvals of the stockholders
of either MDC or Boeing contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a duly held
meeting of stockholders or of any adjournment thereof;
(e) by either Boeing or MDC if the Board of Directors of MDC
reasonably determines that a Takeover Proposal constitutes a Superior Proposal;
provided, however, that MDC may not terminate this Agreement pursuant to this
clause 8.1(e) unless and until five business days have elapsed following
delivery to Boeing of a written notice of such determination by the Board of
Directors of MDC and during such five business day period MDC (i) informs Boeing
of the terms and conditions of the Takeover Proposal and the identity of the
Person making the Takeover Proposal and (ii) otherwise fully cooperates with
Boeing with respect thereto (subject, in the case of this clause (ii), to the
condition that the MDC Board of Directors shall not be required to take any
action that it believes, after consultation with outside legal counsel, would
present a reasonable possibility of violating its obligations to MDC or MDC's
stockholders under applicable law) with the intent of enabling Boeing to agree
to a modification of the terms and conditions of this Agreement so that the
transactions contemplated hereby may be effected; provided, further, that MDC
may not terminate this Agreement pursuant to this clause 8.1(e) unless at the
end of such five business day period the Board of Directors of MDC continues
reasonably to believe that the Takeover Proposal constitutes a Superior Proposal
and simultaneously with such termination MDC pays to Boeing the amount specified
under Section 8.2; and provided, further, that this Agreement shall not
terminate pursuant to this clause 8.1(e) unless simultaneously with such
termination MDC enters into a definitive acquisition, merger or similar
agreement to effect the Superior Proposal;
<PAGE>
47
(f) by Boeing if a tender offer or exchange offer for 50% or
more of the outstanding shares of capital stock of MDC is commenced prior to the
MDC Meeting, and the Board of Directors of MDC fails to recommend against
acceptance of such tender offer or exchange offer within the time period
presented by Rule 14e-2 by its stockholders (including by taking no position
with respect to the acceptance of such tender offer or exchange offer by its
stockholders); or
(g) by MDC or Boeing if there shall have been a material breach
by the other of any of its representations, warranties, covenants or agreements
contained in this Agreement and such breach shall not have been cured within 30
days after notice thereof shall have been received by the party alleged to be in
breach.
In the event of termination of this Agreement pursuant to this
Section 8.1, this Agreement shall terminate (except for the confidentiality
agreement referred to in Section 6.2 and Sections 8.2 and 9.2), and there shall
be no other liability on the part of MDC or Boeing to the other except liability
arising out of a wilful breach of this Agreement or as provided for in the
Confidentiality Agreement.
Section 8.2. Termination Fee. (a) Notwith-standing any provision
in this Agreement to the contrary (but subject to subsection (b) below), if (i)
this Agreement is terminated by MDC or Boeing pursuant to Section 8.1(e) or (ii)
(x) prior to the termination of this Agreement, a bona fide Takeover Proposal is
commenced, publicly proposed or publicly disclosed and not withdrawn, (y) this
Agreement is terminated by MDC pursuant to Section 8.1(b) or by Boeing or MDC
pursuant to Section 8.1(d) (but only due to the failure of the MDC stockholders
to approve the Merger) and (z) concurrently with or within twelve months after
such termination a Takeover Proposal shall have been consummated, then, in each
case, MDC shall (without prejudice to any other rights of Boeing against MDC)
pay to Boeing a fee (the "Termination Fee") of $200 million in cash, such
payment to be made simultaneously with such termination in the case of a
termination by MDC pursuant to Section 8.1(e) and promptly, but in no event
later than the second business day following a termination by Boeing pursuant to
Section 8.1(e) and, in the case of clause (ii), upon the consummation of such
Takeover Proposal.
<PAGE>
48
(b) Notwithstanding anything to the contrary in this Agreement,
if this Agreement is terminated by either party hereto for any reason, and if
prior to such termination, the Board of Directors of Boeing shall have breached
its covenants hereunder by (i) failing to recommend to the Boeing stockholders
in the Joint Proxy Statement that they vote in favor of the Share Issuance, (ii)
having withdrawn a recommendation to the Boeing stockholders that they vote in
favor of the Share Issuance or (iii) having modified any such recommendation
that they vote in favor of the Share Issuance, then Boeing shall (without
prejudice to any other rights of MDC against Boeing) pay to MDC a fee in cash
equal to $200 million, such fee to be paid simultaneously with any termination
of this Agreement by Boeing and promptly after any termination of this Agreement
by MDC.
Section 8.3. Amendment or Supplement. At any time before or
after approval of the matters presented in connection with the Merger by the
respective stockholders of MDC and Boeing and prior to the Effective Time, this
Agreement may be amended or supplemented in writing by MDC and Boeing with
respect to any of the terms contained in this Agreement, except that following
approval by the stockholders of MDC and Boeing there shall be no amendment or
change to the provisions hereof with respect to the conversion ratio of shares
of MDC Common Stock into shares of Boeing Common Stock as provided herein nor
any amendment or change not permitted under applicable law, without further
approval by the stockholders of MDC and Boeing.
Section 8.4. Extension of Time, Waiver, Etc. At any time
prior to the Effective Time, MDC and Boeing may:
(a) extend the time for the performance of any of the
obligations or acts of the other party;
(b) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document delivered
pursuant hereto; or
(c) waive compliance with any of the agreements or
conditions of the other party contained herein.
<PAGE>
49
Notwithstanding the foregoing no failure or delay by MDC or
Boeing in exercising any right hereunder shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right hereunder. Any agreement on
the part of a party hereto to any such extension or waiver shall be valid only
if set forth in an instrument in writing signed on behalf of such party.
ARTICLE IX
Miscellaneous
Section 9.1. No Survival of Representations and Warranties. None
of the representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Merger, except
for the agreements set forth in Article II and Article III, the agreements of
"affiliates" of MDC and Boeing to be delivered pursuant to Section 6.4, the
provisions of Sections 6.5, 6.7 and 6.11 and this Article IX.
Section 9.2. Expenses. Whether or not the Merger is consummated,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby and thereby shall be paid by the party
incurring such expenses, except that (a)(i) the filing fee in connection with
any HSR Act filing, (ii) the commissions and other out-of-pocket transaction
costs, including the expenses and compensation of the Exchange Agent, incurred
in connection with the sale of Excess Shares and (iii) the expenses incurred in
connection with the printing and mailing of the Joint Proxy Statement, shall be
shared equally by MDC and Boeing and (b) all transfer taxes shall be paid by
MDC.
Section 9.3. Counterparts; Effectiveness. This Agreement may be
executed in two or more consecutive counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument, and shall become effective when one or more counterparts
have been signed by each of the parties and delivered (by telecopy or otherwise)
to the other parties.
Section 9.4. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, except that
Maryland law shall apply to the Merger, without regard to the principles of
conflicts of laws thereof.
<PAGE>
50
Section 9.5. Notices. All notices and other communications
hereunder shall be in writing (including telecopy or similar writing) and shall
be effective (a) if given by telecopy, when such telecopy is transmitted to the
telecopy number specified in this Section 9.5 and the appropriate telecopy
confirmation is received or (b) if given by any other means, when delivered at
the address specified in this Section 9.5:
To MDC:
McDonnell Douglas Corporation
P.O. Box 516
St. Louis, Missouri 63166
Attention: F. Mark Kuhlmann, Esq.
Telecopy: (314) 234-3226
copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Attention: Franklin M. Gittes, Esq.
Lou R. Kling, Esq.
Telecopy: (212) 735-2000
To Boeing:
The Boeing Company
7755 East Marginal Way South
Seattle, WA 98108
Attention: Theodore J. Collins, Esq.
Telecopy: (206) 544-4900
copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, New York 10019
Attention: Allen Finkelson, Esq.
Telecopy: (212) 474-3700
<PAGE>
51
Section 9.6. Assignment; Binding Effect. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns.
Section 9.7. Severability. Any term or provision of this
Agreement which is invalid or unenforceable in any jurisdiction shall, as to
that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
Section 9.8. Enforcement of Agreement. The parties hereto agree
that money damages or other remedy at law would not be sufficient or adequate
remedy for any breach or violation of, or a default under, this Agreement by
them and that in addition to all other remedies available to them, each of them
shall be entitled to the fullest extent permitted by law to an injunction
restraining such breach, violation or default or threatened breach, violation or
default and to any other equitable relief, including, without limitation,
specific performance, without bond or other security being required.
Section 9.9. Miscellaneous. This Agreement:
(a) along with the Confidentiality Agreement and the agreements
referred to in Section 6.1(a)(ix) and contained in the disclosure referred to in
Section 6.1(b)(viii) constitutes the entire agreement, and supersedes all other
prior agreements and understandings, both written and oral, between the parties,
or any of them, with respect to the subject matter hereof and thereof; and
(b) except for the provision of Section 6.11 hereof, is not
intended to and shall not confer upon any Person other than the parties hereto
any rights or remedies hereunder.
Section 9.10. Headings. Headings of the Articles and Sections
of this Agreement are for convenience of the parties only, and shall be given
no substantive or interpretive effect whatsoever.
<PAGE>
52
Section 9.11. Subsidiaries; Significant Subsidiaries;
Affiliates. References in this Agreement to "Subsidiaries" of MDC or Boeing
shall mean any corporation or other form of legal entity of which more than 50%
of the outstanding voting securities are on the date hereof directly or
indirectly owned by MDC or Boeing, as the case may be. References in this
Agreement to "Significant Subsidiaries" shall mean Subsidiaries (as defined
above) which constitute "significant subsidiaries" under Rule 405 promulgated by
the SEC under the Securities Act. References in this Agreement (except as
specifically otherwise defined) to "affiliates" shall mean, as to any person,
any other person which, directly or indirectly, controls, or is controlled by,
or is under common control with, such person. As used in this definition,
"control" (including, with its correlative meanings, "controlled by" and "under
common control with") shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of management or policies of a Person,
whether through the ownership of securities or partnership of other ownership
interests, by contract or otherwise. References in the Agreement to "person"
shall mean an individual, a corporation, a partnership, an association, a trust
or any other entity or organization, including, without limitation, a
governmental body or authority.
Section 9.12. Finders or Brokers. Except for J.P. Morgan
Securities Inc. with respect to MDC, a copy of whose engagement agreement has
been or will be provided to Boeing, and CS First Boston Corporation with respect
to Boeing, a copy of whose engagement agreement has been or will be provided to
MDC, neither MDC nor Boeing nor any of their respective Subsidiaries has
employed any investment banker, broker, finder or intermediary in connection
with the transactions contemplated hereby who might be entitled to any fee or
any commission in connection with or upon consummation of the Merger.
<PAGE>
53
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the date first above written.
MCDONNELL DOUGLAS CORPORATION
By: /s/ Harry C. Stonecipher
---------------------------
Name: Harry C. Stonecipher
Title: President and Chief
Executive Officer
THE BOEING COMPANY
By: /s/ Philip M. Condit
---------------------------
Name: Philip M. Condit
Title: President and Chief
Executive Officer
WEST ACQUISITION CORP.
By: /s/ Philip M. Condit
----------------------------
Name: Philip M. Condit
Title: President
<PAGE>
EXHIBIT 6.4(a)
FORM OF AFFILIATE LETTER FOR AFFILIATES OF MDC
The Boeing Company
7755 East Marginal Way South
Seattle, WA 98108
Attention of [ ]
Gentlemen:
I have been advised that as of the date of this letter I may be
deemed to be an "affiliate" of McDonnell Douglas Corporation, a Maryland
corporation ("MDC"), as the term "affiliate" is (i) defined for purposes of
paragraphs (c) and (d) of Rule 145 of the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"), and/or (ii) used in and for
purposes of Accounting Series Releases 130 and 135, as amended, of the
Commission. Pursuant to the terms of the Agreement and Plan of Merger dated as
of December 14, 1996 (the "Merger Agreement") among The Boeing Company, a
Delaware corporation ("Boeing"), West Acquisition Corp, a Maryland corporation
("Sub"), and MDC, Sub will be merged with and into MDC, with MDC continuing as
the Surviving Corporation (the "Merger"). Capitalized terms used in this letter
without definition shall have the meanings assigned to them in the Merger
Agreement.
As a result of the Merger, I may receive shares of common stock,
par value $5.00 per share, of Boeing (the "Boeing Shares"). I would receive such
Boeing Shares in exchange for shares (or upon exercise of options for shares)
owned by me of common stock, par value $1.00 per share of MDC (the "MDC
Shares").
1. I hereby represent, warrant and covenant to Boeing that in
the event I receive any Boeing Shares as a result of the Merger:
A. I shall not make any sale, transfer or other
disposition of the Boeing Shares in violation of the Act or the Rules and
Regulations.
B. I have carefully read this letter and the Merger
Agreement and discussed the requirements of such documents and other applicable
<PAGE>
2
limitations upon my ability to sell, transfer or otherwise dispose of the Boeing
Shares, to the extent I felt necessary, with my counsel or counsel for MDC.
C. I have been advised that the issuance of the Boeing
Shares to me pursuant to the Merger has been registered with the Commission
under the Act on a Registration Statement on Form S-4. However, I have also been
advised that, because at the time the Merger is submitted for a vote of the
stockholders of MDC, (a) I may be deemed to be an affiliate of MDC and (b) the
distribution by me of the Boeing Shares has not been registered under the Act, I
may not sell, transfer or otherwise dispose of the Boeing Shares issued to me in
the Merger unless (i) such sale, transfer or other disposition is made in
conformity with the volume and other limitations of Rule 145 promulgated by the
Commission under the Act, (ii) such sale, transfer or other disposition has been
registered under the Act or (iii) in the opinion of counsel reasonably
acceptable to Boeing, such sale, transfer or other disposition is otherwise
exempt from registration under the Act.
D. I understand that except as provided for in the
Merger Agreement, Boeing is under no obligation to register the sale, transfer
or other disposition of the Boeing Shares by me or on my behalf under the Act
or, except as provided in paragraph 2(A) below, to take any other action
necessary in order to make compliance with an exemption from such registration
available.
E. I also understand that there will be placed on the
certificates for the Boeing Shares issued to me, or any substitutions therefor,
a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED
IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE
SECURITIES ACT OF 1933 APPLIES. THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE TERMS
OF AN AGREEMENT DATED [ ], 1997 BETWEEN THE REGISTERED HOLDER
HEREOF AND BOEING, A COPY OF WHICH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICES OF BOEING."
<PAGE>
3
F. I also understand that unless a sale or
transfer is made in conformity with the provisions of Rule 145, or pursuant to a
registration statement, Boeing reserves the right to put the following legend on
the certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE
ACQUIRED FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933
APPLIES. THE SHARES HAVE BEEN ACQUIRED BY THE HOLDER NOT WITH A
VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION
THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND MAY
NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT OF 1933."
G. I further represent to, and covenant with, Boeing
that I will not, during the 30 days prior to the Effective Time (as defined in
the Merger Agreement), sell, transfer or otherwise dispose of or reduce my risk
(as contemplated by the SEC Accounting Series Release No. 135) with respect to
MDC Shares or shares of the capital stock of Boeing that I may hold and,
furthermore, that I will not sell, transfer or otherwise dispose of or reduce my
risk (as contemplated by SEC Accounting Series Release No. 135) with respect to
the Boeing Shares received by me in the Merger or any other shares of the
capital stock of Boeing until after such time as results covering at least 30
days of combined operations of MDC and Boeing have been published by Boeing, in
the form of a quarterly earnings report, an effective registration statement
filed with the Commission, a report to the Commission on Form 10-K 10-Q or 8-K,
or any other public filing or announcement which includes the combined results
of operations (the period commencing 30 days prior to the Effective Time and
ending on the date of the publication of the post-Merger financial results is
referred to herein as the "Pooling Period"). Boeing shall notify the
"affiliates" of the publications of such results. Notwithstanding the foregoing,
I understand that during the aforementioned period, subject to providing written
notice to Boeing, I will not be prohibited from selling up to 10% of the Boeing
<PAGE>
4
Shares (the "10% Shares") received by me or MDC Shares owned by me or making
charitable contributions or bona fide gifts of the Boeing Shares received by me
or MDC Shares owned by me, subject to the same restrictions. The 10% Shares
shall be calculated in accordance with SEC Accounting Series Release 135 as
amended by Staff Accounting Bulletin No. 76. I covenant with Boeing that I will
not sell, transfer or otherwise dispose of any 10% Shares during the period
commencing from the Effective Time and ending on the last day of the Pooling
Period except in compliance with Rule 145(d)(i) under the Securities Act or
pursuant to charitable contributions or bona fide gifts. H. Execution of this
letter should not be considered an admission on my part that I am an "affiliate"
of MDC as described in the first paragraph of this letter, nor as a waiver of
any rights I may have to object to any claim that I am such an affiliate on or
after the date of this letter.
2. By Boeing's acceptance of this letter, Boeing
hereby agrees with me as follows:
A. For so long as and to the extent necessary to
permit me to sell the Boeing Shares pursuant to Rule 145 and, to the extent
applicable, Rule 144 under the Act, Boeing shall (a) use its reasonable best
efforts to (i) file, on a timely basis, all reports and data required to be
filed with the Commission by it pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and (ii) furnish to me upon
request a written statement as to whether Boeing has complied with such
reporting requirements during the 12 months preceding any proposed sale of the
Boeing Shares by me under Rule 145, and (b) otherwise use its reasonable efforts
to permit such sales pursuant to Rule 145 and Rule 144. Boeing has filed all
reports required to be filed with the Commission under Section 13 of the 1934
Act during the preceding 12 months.
B. It is understood and agreed that certificates with
the legends set forth in paragraphs E and F above will be substituted by
delivery of certificates without such legend if (i) two years shall have elapsed
from the date the undersigned acquired the Boeing Shares received in the Merger
<PAGE>
5
and the provisions of Rule 145(d)(2) are then available to the undersigned, (ii)
three years shall have elapsed from the date the undersigned acquired the Boeing
Shares received in the Merger and the provisions of Rule 145(d)(3) are then
applicable to the undersigned, or (iii) Boeing has received either an opinion of
counsel, which opinion and counsel shall be reasonably satisfactory to Boeing,
or a "no-action" letter obtained by the undersigned from the staff of the
Commission, to the effect that the restrictions imposed by Rule 144 and Rule 145
under the Act no longer apply to the undersigned.
Very truly yours,
-----------------
Name:
Agreed and accepted this day
of [ ], 1997, by
THE BOEING COMPANY,
By:_________________________
Name:
Title:
<PAGE>
EXHIBIT 6.4(b)
FORM OF AFFILIATE LETTER FOR AFFILIATES OF BOEING
McDonnell Douglas Corporation
P.O. Box 516
St. Louis, MO 63166
Attention of [ ]
Gentlemen:
I have been advised that as of the date of this letter I may be
deemed to be an "affiliate" of The Boeing Company, a Delaware corporation
("Boeing"), as the term "affiliate" is defined for purposes of Accounting Series
Releases 130 and 135, as amended, of the Securities and Exchange Commission (the
"Commission"). Pursuant to the terms of the Agreement and Plan of Merger dated
as of December 14, 1996 (the "Merger Agreement") among Boeing, West Acquisition
Corp., a Maryland corporation ("Sub"), and McDonnell Douglas Corporation, a
Maryland corporation ("MDC"), Sub will be merged with and into MDC, with MDC
continuing as the Surviving Corporation (the "Merger").
I represent to, and covenant with, MDC that I will not, during
the 30 days prior to the Effective Time (as defined in the Merger Agreement)
until after such time as results covering at least 30 days of combined
operations of MDC and Boeing have been published by Boeing, in the form of a
quarterly earnings report, an effective registration statement filed with the
Commission, a report to the Commission on Form 10-K, 10-Q or 8-K, or any other
public filing or announcement which includes the combined results of operations,
sell, transfer or otherwise dispose of or reduce my risk (as contemplated by the
SEC Accounting Series Release No. 135) with respect to any shares of the capital
stock of Boeing ("Boeing Stock") or MDC that I may hold. I understand that
Boeing shall notify the "affiliates" of the publication of such results.
Notwithstanding the foregoing, I understand that subject to providing written
notice to Boeing and subject to SEC Accounting Series Release No. 135 as amended
by Staff Accounting Bulletin No. 76, during the aforementioned period I will not
be prohibited from selling up to 10% of the Boeing Stock that I hold or from
making charitable contributions or bona fide gifts of the Boeing Stock that I
hold, subject to the same restrictions.
<PAGE>
2
Execution of this letter should not be considered an admission
on my part that I am an "affiliate" of Boeing as described in the first
paragraph of this letter, nor as a waiver of any rights I may have to object to
any claim that I am such an affiliate on or after the date of this letter.
Very truly yours,
-------------------------
Name:
Accepted this day of
[ ], 1997 by
MCDONNELL DOUGLAS CORPORATION,
By: _________________________
Name:
Title:
<PAGE>
EXHIBIT 7.1(g)(1)
[Letterhead of]
McDONNELL DOUGLAS CORPORATION
___, 1997
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Dear Sirs:
In connection with the opinion to be delivered by you pursuant
to the Agreement and Plan of Merger (the "Merger Agreement") dated as of
December 14, 1996, by and among The Boeing Company, a Delaware corporation
("Parent"), McDonnell Douglas Corporation, a Maryland corporation (the
"Company"), and West Acquisition Corp., a Maryland corporation and a wholly
owned subsidiary of Parent ("Sub"), the undersigned certifies to the best of its
knowledge and belief, after due inquiry and investigation, as follows (any
capitalized term used but not defined herein shall have the meaning given to
such term in the Merger Agreement):
1. The facts relating to the contemplated merger (the "Merger")
of Sub with and into the Company pursuant to the Merger Agreement, as described
in the Merger Agreement, the documents described in Section 9.9(a) of the Merger
Agreement and the joint proxy statement/prospectus prepared by Parent and the
Company, are, insofar as such facts pertain to the Company, true, correct and
complete in all material respects.
<PAGE>
2
2. Neither the Company nor any of its subsidiaries has acquired
any shares of Company Common Stock in contemplation of the Merger, or otherwise
as part of a plan of which the Merger is a part. For purposes of this
representation, Company Common Stock acquired in the ordinary course of business
in connection with employee incentive and benefit plans, programs or
arrangements in existence on the date hereof shall not be treated as an
acquisition in contemplation of the Merger or otherwise as part of a plan of
which the Merger is a part.
3. There is no present plan or intention on the part of the
stockholders of the Company that own 5% or more of the common stock of the
Company ("Company Common Stock") (including [ ]), and the Company knows of no
present plan or intention on the part of the remaining holders of Company Common
Stock, to sell, exchange or otherwise dispose of, reduce the risk of loss (by
short sale or otherwise) of the holding of, enter into any contract or other
arrangement with respect to, the sale, exchange or other disposition of (each of
the foregoing, a "disposition"), any interest in the shares of Parent Common
Stock received in the Merger in exchange for such Company Common Stock that
would reduce the ownership of Parent Common Stock by former holders of Company
Common Stock to a number of shares having a value, as of immediately prior to
the Merger, of less than 50% of the value of all of the outstanding shares of
Company Common Stock as of such date. For purposes of this representation, any
"disposition" (as defined above) of Parent Common Stock will be treated as a
reduction in ownership thereof. In addition, for purposes of this
representation, shares of Company Common Stock exchanged by holders of Company
Common Stock for cash in lieu of fractional shares of Parent Common Stock will
be treated as outstanding Company Common Stock immediately prior to the Merger.
Moreover, for purposes of this representation, shares of Company Common Stock
and shares of Parent Common Stock received in the Merger and sold, redeemed or
disposed of prior to or subsequent to the Merger, in contemplation thereof or as
part of a plan therewith, will be considered in making this representation.
4. The Company and the stockholders of the Company will each pay
their respective expenses, if any, incurred in connection with the Merger,
except in the case of transfer taxes for which such stockholders are liable,
which shall be paid by the Company.
<PAGE>
3
5. Following the Merger, the Company will hold at least 90
percent of the fair market value of the net assets and at least 70 percent of
the fair market value of the gross assets the Company held immediately prior to
the Merger. For purposes of this representation, Company assets used to pay its
reorganization expenses and all redemptions and distributions (except for
regular, normal dividends) made by the Company immediately preceding, or in
contemplation of, the Merger will be included as assets of the Company prior to
the Merger.
6. Except as provided in [list plans], immediately prior to the
time of the Merger, the Company will not have outstanding any warrants, options,
convertible securities or any other type of right pursuant to which any person
could acquire stock of the Company ("Company Stock").
7. In the Merger, shares of Company Stock representing at least
80% of the total combined voting power of all classes of Company Stock
outstanding on the date of the Merger, and at least 80% of the total number of
each other class of Company Stock outstanding on the date of the Merger will be
exchanged solely for Parent Common Stock. For purposes of this representation,
shares of Company Stock exchanged for cash or other property originating with
Parent will be treated as outstanding stock of the Company on the date of the
Merger.
8. The Company is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of 1986, as
amended (the "Code").
9. The Company will not take, and the Company is not aware of
any plan or intention of Company stockholders to take, any position on any
Federal, state or local income or franchise tax return, or take any other tax
reporting position, that is inconsistent with the treatment of the Merger as a
reorganization within the meaning of Section 368(a) of the Code, unless
otherwise required by a "determination" (as defined in Section 1313(a)(1) of the
Code) or by applicable state or local income or franchise tax law.
10. None of the compensation received by any stockholder-
employee of the Company in respect of periods at or prior to the Effective Time
represents separate consideration for, or is allocable to, any of their Company
Common Stock. None of the Parent Common Stock that will be received by Company
stockholder-employees in the Merger represents separately bargained for
consideration which is allocable to any employment agreement or arrangement. The
compensation paid to any shareholder-employees will be for services actually
rendered and will be determined by bargaining at arm's-length.
<PAGE>
4
11. There is no intercorporate indebtedness existing between
Parent and the Company or between Sub and the Company that was issued or
acquired, or will be settled, at a discount.
12. The Company is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
13. The Merger Agreement and the documents described in Section
9.9(a) of the Merger Agreement represent the entire understanding of the
Company, Parent and Sub with respect to the Merger.
14. The Company Common Stock will be surrendered pursuant to the
Merger in an arms-length exchange, and the Parent Common Stock received in
exchange therefor represents the sole bargained-for consideration therefor.
MCDONNELL DOUGLAS CORPORATION
By: __________________________
<PAGE>
EXHIBIT 7.1(g)(2)
[Letterhead of]
THE BOEING COMPANY
___, 1997
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Dear Sirs:
In connection with the opinion to be delivered by you pursuant
to the Agreement and Plan of Merger (the "Merger Agreement") dated as of
December 14, 1996, by and among The Boeing Company, a Delaware corporation
("Parent"), McDonnell Douglas Corporation, a Maryland corporation (the
"Company"), and West Acquisition Corp., a Maryland corporation and a wholly
owned subsidiary of Parent ("Sub"), I certify that to the best of my knowledge
and belief, after due inquiry and investigation, as follows (any capitalized
term used but not defined herein shall have the meaning given to such term in
the Merger Agreement):
1. The facts relating to the contemplated merger (the "Merger")
of Sub with and into the Company pursuant to the Merger Agreement, as described
in the Merger Agreement, the documents described in Section 9.9(a) of the Merger
Agreement and the joint proxy statement/prospectus prepared by Parent and the
Company, are, insofar as such facts pertain to Parent and Sub, true, correct and
complete in all material respects.
2. Except in the Merger, neither Parent nor Sub (nor any other
subsidiary of Parent) has acquired or prior to the Merger will acquire, or has
owned in the past five years, [any] shares of common stock of the Company
("Company Common Stock").
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2
3. Cash payments to be made to stockholders of the Company in
lieu of fractional shares of common stock of Parent ("Parent Common Stock") that
would otherwise be issued to such stockholders in the Merger will be made for
the purpose of saving Parent the expense and inconvenience of issuing and
transferring fractional shares of Parent Common Stock, and do not represent
separately bargained for consideration.
4. Prior to the Merger, Parent will own all the capital stock of
Sub. Parent has no plan or intention to cause the Company to issue additional
shares of its stock that would result in Parent owning less than all the capital
stock of the Company after the Merger.
5. Parent has no plan or intention, following the Merger, to
reacquire any of the Parent Common Stock issued in the Merger, other than
through a stock purchase program meeting the requirements of Section 4.05(1)(b)
of Revenue Procedure 96-30.
6. Parent has no plan or intention, following the Merger, to
liquidate the Company, to merge the Company with and into another corporation,
to sell or otherwise dispose of any of the stock of the Company, or to cause the
Company to sell or otherwise dispose of any of the assets held by the Company at
the time of the Merger, except for dispositions of such assets in the ordinary
course of business; provided, however, that Parent may transfer assets or stock
of the Company in a manner that is consistent with Section 368(a)(2)(C) of the
Internal Revenue Code of 1986, as amended (the "Code").
7. Parent and Sub will each pay their respective expenses, if
any, incurred in connection with the Merger.
8. Following the Merger, Parent intends to cause the Company to
continue its historic business or use a significant portion of its historic
business assets in a business.
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9. Neither Parent nor Sub is an investment company as defined
in Section 368(a)(2)(F)(iii) and (iv) of the Code.
10. Neither Parent nor Sub will take any position on any
Federal, state or local income or franchise tax return, or take any other tax
reporting position, that is inconsistent with the treatment of the Merger as a
reorganization within the meaning of Section 368(a) of the Code, unless
otherwise required by a "determination" (as defined in Section 1313(a)(1) of the
Code) or by applicable state or local income or franchise tax law.
11. None of the compensation received by any stockholder-
employee of the Company in respect of periods after the Effective Time
represents separate consideration for, or is allocable to, any of their Company
Common Stock. None of the Parent Common Stock that will be received by Company
stockholder-employees in the Merger represents separately bargained for
consideration which is allocable to any employment agreement or arrangement. The
compensation paid to any shareholder-employees will be for services actually
rendered and will be determined by bargaining at arm's-length.
12. No stock of Sub will be issued in the Merger.
13. There is no intercorporate indebtedness existing between
Parent and the Company or between Sub and the Company that was issued or
acquired, or will be settled, at a discount.
14. The Merger Agreement and the documents described in Section
9.9(a) of the Merger Agreement represent the entire understanding of the
Company, Parent and Sub with respect to the Merger.
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4
15. Sub is a corporation newly formed for the purpose of
participating in the Merger and at no time prior to the Merger has had assets
(other than nominal assets contributed upon the formation of Sub, which assets
will be held by the Company following the Merger) or business operations. Sub
will have no liabilities assumed by the Company, and will not transfer to the
Company any assets subject to liabilities in the Merger.
16. The Company Common Stock will be surrendered pursuant to the
Merger in an arms-length exchange, and the Parent Common Stock received in
exchange therefor represents the sole bargained-for consideration therefor.
The Boeing Company,
By: ___________________________
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EXHIBIT 7.1(g)(3)
[Letterhead of]
[McDONNELL DOUGLAS CORPORATION STOCKHOLDER]
___, 1997
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Dear Sirs:
In connection with the opinion to be delivered by you pursuant
to the Agreement and Plan of Merger (the "Merger Agreement") dated as of
December 14, 1996, by and among The Boeing Company, a Delaware corporation
("Parent"), McDonnell Douglas Corporation, a Maryland corporation (the
"Company"), and West Acquisition Corp., a Maryland corporation and a wholly
owned subsidiary of Parent ("Sub"), the undersigned certifies (to the best of
its knowledge and belief, where indicated), after due inquiry and investigation,
as follows (any capitalized term used but not defined herein shall have the
meaning given to such term in the Merger Agreement):
1. The undersigned has no present plan or intention to sell,
exchange or otherwise dispose of, reduce the risk of loss (by short sale or
otherwise) of the holding of, enter into any contract or other arrangement with
respect to, the sale, exchange or other disposition of (each of the foregoing, a
"disposition"), any interest in the shares of Parent common stock received in
the merger contemplated by the Merger Agreement (the "Merger"). For purposes of
this representation, shares of Company common stock and shares of Parent common
stock received in the Merger and sold, redeemed or disposed of prior to or
subsequent to the Merger, in contemplation thereof or as part of a plan
therewith, will be considered in making this representation.
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2
2. The undersigned will not take any position on any Federal,
state or local income or franchise tax return, or take any other tax reporting
position, that is inconsistent with the treatment of the Merger as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), unless otherwise required by a "determination"
(as defined in Section 1313(a)(1) of the Code) or by applicable state or local
income or franchise tax law.
[McDONNELL DOUGLAS CORPORATION
STOCKHOLDER]
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1
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE THEREOF.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO A NOMINEE OF DTC OR BY DTC OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
TO MCDONNELL DOUGLAS CORPORATION OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.
OR IN SUCH OTHER NAME AS REQUESTED) BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED) BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
CUSIP NO. 580169 AP 5 $250,000,000
McDonnell Douglas Corporation
6 7/8% Note due November 1, 2006
McDonnell Douglas Corporation, a Maryland corporation (hereinafter
called the "Company", which term includes any successor corporation under the
Indenture herein referred to), for value received, hereby promises to pay to
CEDE & CO., or registered assigns, the principal sum of Two Hundred Fifty
Million Dollars ($250,000,000) on November 1, 2006 and to pay interest thereon
from November 5, 1996, or from the most recent date in respect of which interest
has been paid or duly provided for, semiannually on May 1 and November 1, in
each year (each an "Interest Payment Date"), commencing May 1, 1997 at the rate
of 6 7/8% per annum, until the principal hereof is paid or duly made available
for payment. The interest so payable and punctually paid or duly provided for on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Note (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the April 15 or October 15 (whether or not a Business
Day) next preceding such Interest Payment Date. Any such interest which is
payable, but is not punctually paid or duly provided for on any Interest Payment
Date, shall forthwith cease to be payable to the registered Holder on such
Regular Record Date, and may be paid to the Person in whose name this Note (or
one or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to the Holder of this Note not less
than 10 days prior to such Special Record Date, or may be paid at any time in
any other lawful manner, as more fully provided in such Indenture.
Payment of the principal of and the interest on this Note will be made
at the office or agency of the Company maintained for that purpose in the
Borough of Manhattan, The City of New York, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; provided, however, that payment of interest may be
made at the option of the Company by check mailed to the address of the Person
entitled thereto as such address shall appear in the Security Register.
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2
This Note is one of the series of 6 7/8% Notes due November 1, 2006
(the "Notes"). Reference is hereby made to the further provisions of this Note
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication herein has been executed by
The Bank of New York, the Trustee under the Indenture, or its successor
thereunder, by the manual signature of one of its authorized officers, this Note
shall not be entitled to any benefits under the Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Date:
CERTIFICATE OF AUTHENTICATION McDONNELL DOUGLAS CORPORATION
This is one of the Securities of
the series designated therein
referred to in the within-mentioned
Indenture
The Bank of New York, as Trustee By: __________________________
Treasurer
By:______________________________ Attest: _______________________
Authorized Officer Secretary
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3
McDonnell Douglas Corporation
6 7/8% Note due November 1, 2006
This Note is one of a duly authorized issue of Securities of the
Company, issued and to be issued under an Indenture, dated as of September 1,
1985, as amended (herein called the "Indenture"), between the Company and The
Bank of New York (as successor to Citibank, N.A.), Trustee (herein called the
"Trustee", which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights thereunder of the Company, the Trustee
and the Holders of the Securities, and the terms upon which the Securities are,
and are to be, authenticated and delivered.
The Notes are not subject to redemption by the Company prior to
maturity.
If an Event of Default (as defined in the Indenture) with respect to
the Notes shall occur and be continuing, the principal of all the Notes may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of 66 2/3% in aggregate principal amount of the
Securities at the time Outstanding, as defined in the Indenture, of each series
affected thereby. The Indenture also contains provisions permitting the Holders
of specified percentages in aggregate principal amount of the Securities of each
series at the time Outstanding, on behalf of the Holders of all Securities of
each series, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holders of this Note shall be conclusive and
binding upon such Holder and upon all future Holders of this Note and of any
Note issued upon the registration of transfer hereof or in exchange herefor or
in lieu hereof whether or not notation of such consent or waiver is made upon
this Note.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this Note,
at the time, place, and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations set
forth therein and on the face hereof, the transfer of this Note may be
registered on the Security Register of the Company, upon surrender of this Note
for registration of transfer at the office or agency of the Company in the
Borough of Manhattan, The City of New York, duly endorsed by, or accompanied by
a written instrument of transfer in form satisfactory to the Company duly
executed by, the Holder hereof or by his attorney duly authorized in writing,
and thereupon one or more new Notes, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
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4
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and integral multiples thereof. As provided in the
Indenture and subject to certain limitations set forth therein and on the face
hereof, the Notes are exchangeable for a like aggregate principal amount of
Notes in authorized denominations as requested by the Holder surrendering the
same. If (x) any Depository is at any time unwilling or unable to continue as
Depository and a successor depository is not appointed by the Company within 60
days, (y) the Company executes and delivers to the Trustee a Company Order to
the effect that this Note shall be exchangeable or (z) an Event of Default has
occurred and is continuing with respect to the Notes, this Note shall be
exchangeable for Notes in definitive form of like tenor and of an equal
aggregate principal amount, in denominations of $1,000 and integral multiples
thereof. Such definitive Notes shall be registered in such name or names as the
Depository shall instruct the Trustee. If definitive Notes are so delivered, the
Company may make such changes to the form of this Note as are necessary or
appropriate to allow for the issuance of such definitive Notes.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by Notice to the contrary.
No recourse shall be had for the payment of the principal of (and
premium if any) or the interest on this Note, or for any claim based hereon, or
otherwise in respect hereof, or based on or in respect of the Indenture or any
indenture supplemental thereto, against any incorporator, shareholder, officer
or director, as such, past, present or future, of the Company or of any
successor corporation, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the consideration for
the issue hereof, expressly waived and released.
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
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1
MDC SENIOR EXECUTIVE FINANCIAL / LEGAL SERVICES PLAN
(SEFLSP) DESCRIPTION
1. SERVICES ELIGIBLE FOR REIMBURSEMENT
o Estate Planning
o Investment Planning
o Retirement Planning
o Income Tax planning and return preparation
o Legal services as described in Attachment A
2. EFFECTIVE DATE
1 January 1995
3. PLAN YEAR
1 January through 31 December
4. COVERED COMPONENTS
All
5. DETERMINATION OF PARTICIPANTS
Program participation is limited to MDC's Elected and Executive
Officers while on the active payroll. SEFLSP benefits will be effective
immediately upon hire or promotion to an Elected or Executive Officer.
Such Officers shall not be entitled to benefits under MDC's Executive
Financial Counseling Program (EFCP).
6. REIMBURSEMENT LIMIT
Reimbursement will be made for the amount of fee incurred, but not to
exceed 4% of base salary during any Plan Year. If covered expenses
exceed the reimbursement limit in a Plan Year, the excess may be
carried back and applied to the unused reimbursement limit from the
participant's 1994 EFCP account and subsequent years' SEFLSP accounts,
or if needed, carried forward and reimbursed when and to the extent
there is an unused reimbursement limit in the succeeding five Plan
Years. No commissions of any type qualify for reimbursement.
7. REIMBURSEMENT PROCEDURE
Requests for reimbursement are to be submitted to the Director-Payroll
& Pension Administration and must include a copy of counselor's invoice
indicating type of service provided and the month(s) and year(s) in
which the services were rendered so that reimbursements can be charged
to the appropriate Plan Year. Reimbursement will be promptly combined
with the employee's weekly paycheck. If a question exists whether or
not a particular service is covered, advance determination should be
sought from the Plan Administrator.
8. TAX STATUS (U.S.)
The amount reimbursed is taxable income for Federal income tax purposes
and generally for state and local income tax purposes as well, and is
subject to payroll tax withholding.
9. ELIGIBLE FINANCIAL COUNSELORS
Professional practitioners must not be related to the employee or
spouse in order to receive reimbursement.
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2
10. PLAN ADMINISTRATOR
Michael W. Meyer Phone: (314) 234-1850
Director-Payroll & Pension Administration Fax: (314) 232-3224
P.O. Box 516
Mail Code 100-2120
St. Louis, MO 63166-0516
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ATTACHMENT A
The following legal services if incurred by the Participant, the Participant's
spouse or dependent child are covered under the SEFLSP:
o Estate planning, including development of a plan and any and all associated
documents, such as revocable trusts, irrevocable insurance trusts,
charitable remainder trusts, family partnerships, wills, etc.
o All matters pertaining to the purchase, refinancing or sale of a primary or
secondary residence, including review or preparation of deeds,
purchase/sale agreements, mortgages and title insurance and the providing
of tax advice (this would not include matters pertaining to property held
for a business)
o Landlord/tenant advice and counsel for those who are tenants (this would
not include suits against the landlord but would include eviction defense;
this also does not include matters pertaining to leased business property)
o General document preparation, such as powers of attorney
o Tax return preparation
o Uncontested adoptions
o Uncontested guardianships
o Name changes
o Civil litigation defense, including matters before a court of general
jurisdiction or an administrative agency in personal tax matters, general
civil litigation, suits by creditors and defense of tort litigation (not
covered by insurance) (some litigation defense would be excluded)
o General advice and counsel, including preliminary advice on excluded
matters
<PAGE>
The following legal services are not covered under the SEFLSP:
o All criminal matters, except for general advice and counsel re initial
actions to be taken and counsel recommendations
o Admiralty, patents, copyrights and trademarks
o Disputes or proceedings involving MDC or its officers, directors,
subsidiaries and partners
o Matters which the firm deems frivolous, without merit or unethical
o Services of a spouse or dependent where the executive is an adversary
o Employment related matters
o Bankruptcy proceedings (because they will invariably impact MDC)
o Tort litigation as a plaintiff
o Divorce proceedings (again, these will invariably involve MDC)
o Class actions, interventions and derivative actions and amicus curiae
filings
o Business, farm, commercial or rental property transactions, including but
not limited to legal services which would ordinarily be deductible for tax
purposes as an expense of doing business (whether capitalized or not)
o Legal disputes involving other MDC employees
<PAGE>
6 March 1995
MCDONNELL DOUGLAS CORPORATION
DEFERRED COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS
SECTION 1. PURPOSE
The purpose of the McDonnell Douglas Corporation Deferred
Compensation Plan for Nonemployee Directors (the "Plan") is to promote the
interests of the Company and its stockholders by providing nonemployee members
of the Board of Directors with an opportunity to acquire stock in the Company
and thereby reinforce the mutuality of interest between such directors and the
Company's stockholders.
SECTION 2. DEFINITIONS
When used herein, the following terms shall have the following
meanings:
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means the Nominating Committee of the Company.
(c) "Common Stock" means the common stock, $1.00 par value per share,
of the Company.
(d) "Company" means McDonnell Douglas Corporation.
(e) "Effective Date" means January 1, 1993.
(f) "Fair Market Value" means the per share value of Common Stock as
determined by using the mean between the high and low selling prices of
such Common Stock on the New York Stock Exchange as reported in The Wall
Street Journal (or other financial newspaper).
(g) "Participant" means any member of the Board who is not a full-time
employee of the Company.
(h) "Payment Date" means a date within 60 days after the end of each
Year.
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(i) "Restricted Common Stock" means Common Stock that is subject to
the Restrictions, and any new, additional or different securities a
Participant may become entitled to receive with respect to any such Common
Stock by virtue of a stock split or any other change in the corporate or
capital structure of the Company.
(j) "Restricted Period" means the period of time during which shares
of Common Stock and/or cash compensation provided under the Plan are
subject to Restrictions.
(k) "Restrictions" means the restrictions on transfer and the risk of
forfeiture set forth in Section 8 of the Plan.
(l) "Year" means the period of time beginning on the date of an annual
meeting of the stockholders of the Company and ending on the date of the
annual meeting of the stockholders in the following year; provided,
however, that the first Year of the Plan begins on the Effective Date and
ends on April 30, 1993.
SECTION 3. ADMINISTRATION
The Plan shall be administered by the Committee. A majority of the
members of the Committee shall constitute a quorum. The Committee may act at
a meeting, including a telephone meeting, by action of a majority of the
members present, or without a meeting by unanimous written consent.
Subject to the provisions of the Plan, the Committee shall have the
authority to:
(a) establish from time to time any guidelines deemed necessary or
appropriate for the administration or interpretation of the Plan, interpret
the Plan, and make all determinations and take all other actions considered
necessary or advisable for the administration of the Plan;
(b) cause records to be established relating to operation of the Plan;
and
(c) cause the giving of appropriate instructions to the Company
regarding payments to Participants.
Non-employee members of the Committee shall be entitled to
participate under the Plan. All decisions, actions or interpretations of the
Committee that are within the scope of this Section 3 shall be final,
conclusive and binding upon all parties.
<PAGE>
SECTION 4. PARTICIPATION
Participation in the Plan shall be limited to members of the Board
who are not full-time employees of the Company. Each individual who was a
nonemployee member of the Board on the Effective Date shall be a Participant
as of that date. Each individual who becomes a nonemployee member of the Board
thereafter and while this Plan is in effect shall become a Participant at the
time of election or appointment to the Board or at the time of their change in
status from full-time employment to a nonemployee member of the Board. For the
purpose of this Plan, the term "full-time employee" shall mean a person
employed by the Company on the basis of at least a 35 hour work week.
SECTION 5. DEFERRED COMPENSATION; ELECTIONS
(a) Subject to the terms and conditions hereof, as additional
consideration for their services as members of the Board, Participants shall
be entitled to receive, as part of their annual retainer fee and at the
election of each Participant, either--
(i) 450 shares of Restricted Common Stock; or
(ii) cash in an amount equal to the Fair Market Value of 450
shares of Restricted Common Stock on the last day of
the Year (or if such day is not a business day, on the
next preceding business day).
(b) The election to receive cash or Restricted Common Stock shall be
made by each Participant by filing with the Committee a written, election
pursuant to which the Participant shall notify the Committee of his election to
receive Restricted Common Stock or the equivalent cash compensation.
(c) The election contemplated by this Section 5 shall be irrevocable
unless and until the Plan is subject to the amended Rule 16b-3, promulgated by
the Securities and Exchange Commission on February 8, 1991. Thereafter,
elections may be made for each Year of the Plan, within 30 days before the end
of such Year and, once made, shall be irrevocable only with respect to that
Year. The Secretary of the Company shall notify the Committee when the Plan is
first subject to amended Rule 16b-3 and the Committee shall thereupon notify
each Participant.
(d) Neither the provisions of this Section 5 nor any action taken
under the Plan shall be construed as giving any Participant the right to be
reappointed or renominated as a director of the Company.
<PAGE>
SECTION 6. TERMS AND CONDITIONS
(a) To the extent a Participant elects to receive cash under Section
5(a)(ii), on the Payment Date the Committee shall so advise the Treasurer of
the Company who shall credit the amount of that cash compensation to the
account of the electing Participant. The Treasurer shall issue to each such
Participant a receipt evidencing the amount so credited for his account. Such
accounts shall be bookkeeping entries only; no special bank account shall be
created for any Participant in respect of the Plan and Participants shall be
general creditors of the Company to the extent of cash payable pursuant hereto.
A Participant shall be entitled to the delivery of cash only in accordance with
Sections 9 and 10 hereof.
(b) To the extent a Participant elects to receive Restricted Common
Stock under Section 5(a)(i), such Participant shall execute appropriate blank
stock powers with respect to that Restricted Common Stock. On the Payment Date,
stock certificates for such Restricted Common Stock registered in the name of
each such Participant shall be issued (with appropriate restrictive legends)
and deposited, together with the stock powers, with the Treasurer of the
Company. The Treasurer shall issue to each such Participant a receipt
evidencing any stock certificate registered in the Participant's name and held
by the Treasurer. A Participant shall be entitled to the delivery of such stock
certificates only in accordance with the provisions of Sections 9 and 10 of the
Plan. All Common Stock or other securities issued in substitution for Common
Stock held by the Treasurer from time to time, whether such Common Stock or
securities are issued by the Company or by another issuer, and all cash or
other property received by the Treasurer on account of a redemption of the
Restricted Common Stock or the liquidation of the Company, shall be treated as
Common Stock and shall be subject to all of the terms and conditions of the
Restricted Common Stock and shall be delivered to a Participant or to the
Company as if it were the portion of Common Stock regarding which they were
issued.
(c) The Committee may impose such restrictions on the resale of
Common Stock by Participants as the Committee deems necessary to comply with
the registration provisions of the Securities Act of 1933, as amended, and may
cause an appropriate restrictive legend to be placed on the certificates for
the Common Stock delivered to the Participants hereunder.
<PAGE>
SECTION 7. RIGHTS OF PARTICIPANTS
Except for the Restrictions under Section 8 below, each Participant
shall have all of the rights and privileges of a stockholder of the Company as
to his or her Restricted Common Stock, including the right to receive any cash
and stock dividends declared with respect to such Common Stock and to exercise
voting rights.
SECTION 8. RESTRICTIONS
The cash compensation and the Restricted Common Stock compensation
shall be subject to the following Restrictions, which shall apply from the
Payment Date and shall continue until such cash and Common Stock become vested
pursuant to the provisions of Section 9 or Section 10:
(a) Neither the Restricted Common Stock nor the cash may be
transferable other than pursuant to a revocable beneficiary designation or by
will or by the laws of descent and distribution, and no transfer pursuant to a
revocable beneficiary designation or by will or by the laws of descent and
distribution shall be effective to bind the Company unless the Committee shall
have been furnished with such evidence as the Committee may deem necessary to
establish the validity of the transfer.
(b) Each Participant's right to any cash or Restricted Common Stock
hereunder shall be forfeited if and when such Participant ceases to be a
Participant, except to the extent that the Participant's right to receive the
cash and Common Stock without Restrictions shall have vested under Section 9
or Section 10. If forfeited, all such cash and stock shall become the property
of the Company and all of the rights of such Participant to such cash and
Common Stock and as a stockholder (including the right to any accrued but
unpaid dividends) shall terminate without further obligation on the part of
the Company.
<PAGE>
SECTION 9. VESTING
The right of each Participant to removal of the Restrictions from
cash and Restricted Common Stock held for the account of such Participant
shall vest and the Restricted Period shall end upon the earlier of (i) ten
years from the date of grant, or (ii) the Participant's retirement from the
Board in accordance with MDC Bd. Res. 706, as it may be amended. At the end of
the Restricted Period, the Treasurer shall deliver all cash and stock
certificates evidencing all Common Stock held by the Treasurer for that
Participant (to the nearest full share) to the Participant, or the legal
representative of such Participant, free of the Restrictions set forth in
Section 8 above.
SECTION 10. DISABILITY, DEATH OR TERMINATION BY REASON OF CONFLICT
If any Participant's membership on the Board terminates because of (i)
inability by reason of illness or accident to perform the duties for which
such Participant was elected or appointed, (ii) such Participant's death, or
(iii) a conflict of interest which prohibits the Participant's continued
service as a director (provided the conflict did not arise as a result of a
breach of the Participant's fiduciary duty), the expiration date of the
Restricted Period for such Participant shall be advanced to the date of such
termination of membership on the Board and the full balance of cash and
Restricted Common Stock in such Participant's account shall be delivered as
provided in Section 6.
SECTION 11. SIX MONTH HOLDING PERIOD REQUIREMENT
The provisions of Sections 9 and 10 notwithstanding, all Restricted
Common Stock issued hereunder must be held for at least six months prior to
any disposition by a Participant (except pursuant to transfers permitted under
Section 8(a)). The six-month holding period as to any Restricted Common Stock
shall commence on the Payment Date for such stock.
SECTION 12. CHANGE OF CONTROL
The obligations of the Company under the Plan shall be binding upon
any successor corporation or organization resulting from the merger,
consolidation or other reorganization of the Company, or upon any successor
corporation or organization succeeding to substantially all of the assets and
business of the Company. The Company agrees that it will make appropriate
provisions for the preservation of all Participants' rights under the Plan in
any agreement or plan that it may enter into or adopt to effect any such
merger, consolidation, reorganization or transfer of assets.
SECTION 13. CERTAIN ADJUSTMENTS TO SHARES
In the event of any change in the Common Stock by reason of any
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination or exchange of shares, or any rights offering to purchase Common
Stock at a price substantially below Fair Market Value, or of any similar change
affecting the Stock, the number and kind of shares subject to Restrictions under
this Plan shall be appropriately adjusted by the Committee to prevent
substantial dilution of the rights of the Participants hereunder. Any adjustment
so made shall be firm and binding upon the Participant.
<PAGE>
SECTION 14. NONALIENATION OF BENEFITS
Except as provided in Section 8, a Participant shall not assign,
sell, encumber, transfer or otherwise dispose of any rights or interests
under the Plan and any attempted disposition shall be null and void.
SECTION 15. SECTION 83(b) ELECTIONS
If a Participant shall file an election with the Internal Revenue
Service to include cash or the Fair Market Value of any shares of Restricted
Common Stock in his or her gross income as of the Payment Date for such
compensation, the Participant shall promptly furnish the Company with a copy
of such election.
SECTION 16. PAYMENTS TO PERSONS OTHER THAN PARTICIPANTS
If the Committee shall find that any person to whom any amount is
payable under the Plan is unable to care for his or her affairs because of
illness or accident, or is a minor, or has died, then any payment due to such
person or such person's estate (unless a prior claim therefor has been made by
a duly appointed legal representative) may, if the Committee so directs, be
paid to such person's spouse, child, relative, an institution maintaining or
having custody of such person, or any other person deemed by the Committee to
be a proper recipient on behalf of such person. Any such payment shall be a
complete discharge of the liability of the Committee and the Company therefor.
SECTION 17. NO LIABILITY OF COMMITTEE MEMBERS
No member of the Committee shall be personally liable by reason of
any contract or other instrument executed by such member or on his behalf in
his capacity as a member of the Committee or for any mistake of judgment made
in good faith, and the Company shall indemnify and hold harmless each
employee, officer or director of the Company to whom any duty or power
relating to the administration or interpretation of the Plan may be allocated
or delegated against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim) arising out of any act or
omission to act in connection with the Plan unless arising out of such
person's own fraud or bad faith.
SECTION 18. AMENDMENT OR TERMINATION
The Board of Directors may, with prospective or retroactive effect,
suspend or terminate the Plan or any portion thereof at any time or amend the
Plan provided, however, that no amendment, suspension or termination of the
Plan shall deprive any Participant of any rights previously accrued under the
Plan without the Participant's written consent.
Subject to earlier termination pursuant to the provisions of this
Section, and unless the Board shall have approved an extension of the Plan
beyond such date, the Plan shall terminate upon the tenth anniversary of the
Effective Date. Compensation deferred and subject to Restrictions at the
termination or expiration of the Plan shall continue in full force and effect
and shall not be affected thereby.
SECTION 19. GOVERNING LAW
The Plan shall be governed by and construed in accordance with the
laws of Missouri, without reference to the principles of conflicts of law
thereof.
<PAGE>
1
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made this 5th day of May, 1995,
by and between McDonnell Douglas Corporation, a Maryland corporation ("MDC"),
and Edward C. Bavaria ("ECB"), currently a resident of Cincinnati, Ohio.
RECITALS
A. MDC is engaged in the aerospace business, which includes Douglas
Aircraft Company, an unincorporated business unit engaged principally in the
manufacturing, marketing, and sale of commercial aircraft ("DAC").
B. MDC desires to employ ECB as the Deputy President of DAC and ECB desires
to be so employed by MDC, all upon the terms and conditions set forth herein.
AGREEMENT
In consideration of the foregoing, the representations, warranties
and covenants herein contained, and other good and valuable consideration (the
receipt, adequacy and sufficiency of which are hereby acknowledged by the
parties by their execution hereof), the parties agree as follows:
1. Employment. MDC agrees to employ ECB as Deputy President of DAC, and ECB
agrees to be so employed during the term of this Agreement, upon the terms and
conditions hereinafter set forth.
2. Duties. During the term of this Agreement, ECB shall diligently and
faithfully carry out his duties as Deputy President of DAC, which duties shall
include: (a) primary responsibility for the marketing and sales of MD-80/90 and
MD-11 aircraft, and the successful launching of the MD-95 aircraft program; (b)
performance of additional duties as may be assigned by the DAC President, the
MDC Chief Executive Officer ("CEO") or the MDC Board of Directors ("Board"); (c)
devoting his full-time and best efforts to performing his duties hereunder to
the best of his abilities and in manner consistent with MDC standards and
policies; and (d) such other duties as are appropriate for an employee holding
the position of Deputy President of DAC.
3. Term of Employment. Employment of ECB pursuant to this Agreement by MDC
shall commence on May 15, 1995 and, unless terminated earlier as provided for
herein, shall terminate on August 14, 1997.
4. Place of Performance. In connection with ECB's employment hereunder, ECB
is to be based at the principal executive offices of DAC, currently located in
Long Beach, California, except for required travel on DAC business. DAC shall
furnish ECB with office space, stenographic and secretarial assistance and such
other facilities, equipment, and services as are suitable to ECB's position at
DAC and as are adequate for the performance of his duties hereunder.
5. Compensation. As full consideration for all services ECB renders to MDC
hereunder, MDC shall compensate ECB in the following manner:
<PAGE>
2
A. Annual Salary. MDC shall pay ECB an annual base salary
hereunder of $400,000, payable in equal weekly installments or at such
other intervals as may be agreed upon by MDC and ECB, plus targeted
annual incentive compensation determined in accordance with MDC's
Performance Sharing Plan ("PSP") formula. The actual amount of earned
incentive compensation shall be based on ECB's and DAC's achievement
of performance goals and performance factors set in accordance with
the PSP; provided, however, that (i) earned incentive compensation
shall not be less than $400,000 per annum; and (ii) base and incentive
compensation in each calendar year shall be prorated for the period of
employment during such year. A copy of the PSP is attached to this
Agreement as Exhibit A and is incorporated herein by this reference.
B. Long-Term Incentive Compensation. Years-of-Service-based
restricted stock ("Restricted Stock") to be granted effective as of
the commencement date of employment, with vesting as follows:
i. 6,000 shares on August 15, 1997, and an additional 6,000
shares on August 15, 1998.
ii. All Restricted Stock shall be granted and issued under
the terms of the MDC 1994 Performance and Equity Incentive Plan
("PEIP") (including agreements to be issued pursuant to the terms
thereof), and ECB's participation thereunder shall continue as
long as such plan remains in effect, with participation on the
same basis as other corporate officers in any future incentive
compensation or other bonus plan covering MDC's executive
employees. A copy of the PEIP is attached to this Agreement as
Exhibit B and is incorporated herein by this reference.
Notwithstanding the foregoing, the Long-Term Incentive
Compensation in this Section 5.B. is intended to be the total
long-term incentive compensation of ECB during his employment
with MDC. Additional long-term incentive awards to ECB, if any,
will be granted at the sole discretion of the MDC Management
Succession and Compensation Committee ("Compensation Committee").
iii. In the event ECB's employment by MDC terminates prior
to August 14, 1997, the number of shares of Restricted Stock to
be received by ECB shall be determined as follows:
(a) If ECB voluntarily terminates his employment, or
his employment is terminated by MDC for "cause" in
accordance with Section 6.A., all rights to receive
Restricted Stock will terminate.
(b) If ECB's employment is terminated as a result of
his death or incapacity (as determined in accordance with
Section 6.E.), the MDC Compensation Committee in its sole
discretion will determine the reduction, if any, to the
number of shares of Restricted Stock, but the number will
not be less than pro rata to the length of his employment to
the term of this Agreement, payable in equal installments on
each of the scheduled vesting date(s).
<PAGE>
3
(c) If ECB breaches the noncompete or confidentiality
provisions of Section 7 or 8 after termination of this
Agreement, any shares of Restricted Stock upon which
restrictions have not yet lapsed prior to such breach shall
terminate.
(d) If this Agreement is terminated by ECB for "cause"
in accordance with Section 6.B., the Restricted Stock shall
vest and be payable in equal installments on each of the
selected vesting dates.
C. Hiring Bonus: Within one week of the execution of this Agreement,
ECB shall receive from MDC a hiring bonus of $50,000.
D. Sales of Residences.
i. ECB may place his Cincinnati residence for sale. If not sold
by August 31, 1995, MDC shall provide third-party home sale
assistance. (See Exhibit C attached hereto, Third-Party Home Sale
Assistance Program, which is incorporated herein by this reference.)
ii. In the event ECB purchases a residence in Long Beach,
California during the term of this Agreement, upon termination of
ECB's employment by MDC for any reason other than for "cause" in
accordance with Section 6.A., ECB may place his Long Beach, California
residence for sale. If not sold within six (6) months of such
termination of employment, MDC shall provide third-party home sale
assistance of the same type and scope as provided for in Exhibit C.
D. Transfer and Travel Allowances. During the term of this Agreement:
i. MDC shall reimburse ECB for all reasonable out-of-pocket costs
incurred by him in moving his residence from Cincinnati, Ohio to Long
Beach, California.
ii. MDC shall reimburse ECB for all reasonable out-of-pocket
costs incurred by him in moving his residence from Long Beach,
California to Sarasota, Florida upon termination of ECB's employment
with MDC for any reason other than for "cause" in accordance with
Section 6.A.
iii. MDC shall reimburse ECB for all reasonable out-of-pocket air
travel to and from his home in Sarasota, Florida, as needed, with
reimbursed trips not to exceed six round trips per year.
E. Other Benefits. ECB shall be entitled during the term of this
Agreement to:
i. enjoy certain personal benefits provided by MDC, including
reimbursement in full of all first-class travel for business purposes;
reimbursement for all first-class business travel for ECB's wife, when
necessary or appropriate as determined by the DAC President or the
CEO; and reimbursement of reasonable out-of-pocket entertainment
expenses reasonably incurred by ECB in performance of his duties
hereunder;
<PAGE>
4
ii. receive such employee benefits customary for senior
executives and officers of MDC, on the same terms and conditions as
generally made available to such executives, including:
(a) health insurance (to include family coverage, if customary);
(b) life, accident, and disability insurance;
(c) coverage under directors and officers liability insurance;
(d) corporate indemnification as available for other senior
management and officers;
(e) business expense reimbursement;
(f) business and/or social club memberships (non-golf); and
(g) participation in pension and savings plans.
iii. three weeks of fully paid vacation during each calendar year
at a time or times selected by ECB, exclusive of the week off between
Christmas and New Year's; and
iv. those holidays designated by MDC during which MDC's normal
business operations are closed.
6. Termination. The employment of ECB hereunder by MDC may be terminated
under the circumstances set forth below.
A. Cause. MDC may terminate ECB's employment hereunder for cause as
determined in the sole discretion of the MDC CEO or the MDC Board. For
purposes hereof, "cause" is defined as gross neglect of duty, substantial
inability or failure by ECB to perform his duties and responsibilities,
failure to pass a drug-screening test, or material breach of this Agreement
by ECB. In the event of termination by MDC for cause, ECB will have no
further entitlements (other than those that may have previously vested
under any employee benefit programs).
B. Termination for Convenience. MDC may terminate this Agreement for
convenience at any time. In such event, ECB shall be entitled to one year
of compensation (base salary plus incentive compensation as determined in
accordance with Section 5.A.) and benefits, except if termination for
convenience occurs in the final year of this Agreement, such compensation
shall continue to be paid only to the end of the original term.
C. For Cause by ECB. ECB is entitled to terminate this Agreement for
cause in the event of a material breach of this Agreement by MDC. In such
event, ECB will be entitled to continuance of compensation, plus all other
benefits as if MDC had terminated him for its convenience.
D. For Convenience by ECB. ECB is entitled to terminate this Agreement
for convenience at any time. In such event, ECB will have no further
entitlements, except those that may have previously vested under any
employee benefit programs.
<PAGE>
5
E. Incapacity. "Incapacity" shall mean ECB's inability to perform the
essential functions of his duties hereunder for health reasons for three
months in any twelve-month period. In the event of ECB's incapacity, MDC
shall continue to make payments to him hereunder to the end of the month in
which incapacity shall be deemed by MDC to have occurred. ECB's
compensation during any period of incapacity prior to the effective date of
such termination is to be the amounts payable to him hereunder. ECB is not
entitled to any further compensation from MDC for any period subsequent to
the effective date of such termination.
F. Death. If ECB dies during the term of this Agreement, MDC shall pay
to ECB's estate the compensation that would otherwise be payable to ECB up
to the end of the month in which his death occurs. Such payment is in
addition to payments received from, and does not preclude ECB or his heirs
from participating in, MDC's accidental death, life insurance and similar
plans in accordance with the terms of such plans. MDC's obligations to pay
ECB additional compensation hereunder terminates at such time as MDC
complies with its obligations under this Section.
7. Noncompete.
A. ECB agrees that during the three (3) year period beginning on the
date of termination of his employment with MDC for any reason, ECB may not,
either individually or with or through an affiliate of ECB, undertake any
employment or perform any services for any other aircraft manufacturer
which competes substantially with MDC where ECB's responsibilities would be
similar to his responsibilities at MDC.
B. Because of the potential compensation to be paid to ECB and his
duties and responsibilities under this Agreement, ECB agrees that the
provisions of Section 7.A. are reasonable and necessary to protect MDC.
8. Confidential Information.
A. Immediately upon ECB's termination of employment, ECB is to deliver
to the DAC President or the CEO all materials and things relating to ECB's
employment by MDC, including any and all materials and things embodying any
of the confidential information described in Section 8.B. ECB may neither
retain any copies or reproductions thereof nor deliver any such materials
and things or copies or reproductions thereof to any third person.
B. ECB acknowledges that, in the course of his employment with MDC, he
will become acquainted with confidential and proprietary information of
MDC. ECB agrees that he will not, without the prior written consent of MDC,
disclose or make any use of such confidential or proprietary information
except in the ordinary course of his employment with MDC or except as may
be requested by MDC or otherwise be required by applicable law.
<PAGE>
6
C. During the term of his employment with MDC, and for a period of
five years thereafter, ECB will not disclose or otherwise provide
information or documents of a confidential or proprietary nature (other
than in the ordinary course of employment with MDC) to any person regarding
MDC (i) without the prior written consent of MDC (which consent may be
granted or withheld by MDC in MDC's sole discretion), (ii) except to
regulatory officials having jurisdiction over ECB, or (iii) except as
required by law or legal process or in connection with any legal proceeding
to which ECB is a party or is otherwise subject. In any event, ECB will
immediately notify the CEO of any and all requests or demands for such
information or documents. This Section applies to all information and
documents regarding MDC, whether or not the same is confidential.
D. ECB's right to receive payments to be made to him under Section 5
hereof shall immediately terminate on any breach by ECB of the terms and
conditions of Section 7 or 8 hereof.
9. Amendment and Modification. No amendment, modification, supplement,
termination, consent or waiver of any provision of this Agreement, nor consent
to any departure therefrom, will in any event be effective unless the same is in
writing and is signed by the party against whom enforcement of the same is
sought. Any waiver of any provision of this Agreement and any consent to any
departure from the terms of any provision of this Agreement is to be effective
only in the specific instance and for the specific purpose for which given.
10. Approvals and Consents. If any provision hereof requires the approval
or consent of any party to any act or omission, such approval or consent is not
to be unreasonably withheld or delayed except as set forth herein.
11. Assignments. No party may assign or transfer any of its rights or
obligations under this Agreement to any other person without the prior written
consent of the other parties.
12. Captions. Captions contained in this Agreement have been inserted
herein only as a matter of convenience and in no way define, limit, extend or
describe the scope of this Agreement or the intent of any provision hereof.
13. Counterpart Facsimile Execution. For purposes of executing this
Agreement, a document signed and transmitted by facsimile machine or telecopier
is to be treated as an original document. The signature of any party thereon,
for purposes hereof, is to be considered as an original signature, and the
document transmitted is to be considered to have the same binding effect as an
original signature or an original document. At the request of any party, any
facsimile or telecopy document is to be re-executed in original form by the
parties who executed the facsimile or telecopy document. No party may raise the
use of a facsimile machine or telecopier or the fact that any signature was
transmitted through the use of a facsimile or telecopier machine as a defense to
the enforcement of this Agreement or any amendment or other document executed in
compliance with this Section.
14. Counterparts. This Agreement may be executed by the parties on any
number of separate counterparts, and all such counterparts so executed
constitute one agreement binding on all the parties notwithstanding that all the
parties are not signatories to the same counterpart.
<PAGE>
7
15. Entire Agreement. This Agreement and all of the exhibits and schedules
attached to this Agreement constitute the entire agreement among the parties
pertaining to the subject matter hereof and supersedes all prior agreements,
letters of intent, understandings, negotiations and discussions of the parties,
whether oral or written.
16. Failure or Delay. No failure on the part of any party to exercise, and
no delay in exercising, any right, power or privilege hereunder operates as a
waiver thereof; nor does any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof, or the
exercise of any other right, power or privilege. No notice to or demand on any
party in any case entitles such party to any other or further notice or demand
in similar or other circumstances.
17. Further Assurances. The parties will execute and deliver such further
instruments and do such further acts and things as may be required to carry out
the intent and purpose of this Agreement.
18. Governing Law. This Agreement and the rights and obligations of the
parties hereunder are to be governed by and construed and interpreted in
accordance with the laws of the State of California applicable to contracts made
and to be performed wholly within California, without regard to choice or
conflict of laws rules.
19. Legal Fees. Except as otherwise provided herein, all legal and other
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby are to be paid by the party incurring such
costs and expenses. In the event any party brings suit to construe or enforce
the terms hereof, or raises this Agreement as a defense in a suit brought by
another party, the prevailing party is entitled to recover its attorneys' fees
and expenses.
20. Notices. All notices, consents, requests, demands and other
communications hereunder are to be in writing, and are deemed to have been duly
given or made: (a) when delivered in person, (b) three days after deposited in
the United States mail, first class postage prepaid, (c) in the case of
telegraph or overnight courier services, one business day after delivery to the
telegraph MDC or overnight courier service with payment provided for, or (d) in
the case of telex or telecopy or fax, when sent, verification received, in each
case addressed as follows:
<PAGE>
8
(i) if to MDC:
Harry C. Stonecipher, President & Chief Executive Officer
McDonnell Douglas Corporation
Mailcode: 100 1060
P.O. Box 516
St. Louis, MO 63166
Fax #: (314) 234-8296
with a copy to:
F. Mark Kuhlmann, Sr. Vice President-Administration
& General Counsel
McDonnell Douglas Corporation
Mailcode: 100 1240
McDonnell Douglas Corporation
P.O. Box 516
St. Louis, MO 63166
Fax #: (314) 233-7958
(ii) if to ECB:
Edward C. Bavaria (and) Edward C. Bavaria
4083 Shell Road 8625 Pipewell Lane
Sarasota, FL 34242 Cincinnati, OH 45243
Fax #: (813) 346-8402 Fax #: (513) 791-1415
with a copy to:
John W. Beatty, Esq.
Dinsmore & Shohl
1900 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202
Fax #: 513-977-8267
or to such other address as any party may designate by notice to the other party
in accordance with the terms of this Section.
21. Remedies Cumulative. Each and every right granted hereunder and the
remedies provided for under this Agreement are cumulative and are not exclusive
of any remedies or rights that may be available to any party at law, in equity,
or otherwise.
<PAGE>
9
22. Rules of Construction. Unless the context of this Agreement clearly
requires otherwise: (a) references to the plural include the singular and vice
versa; (b) references to any person include such person's successors and assigns
but, if applicable, only if such successors and assigns are permitted by this
Agreement; (c) references to one gender include all genders; (d) "including" is
not limiting; (e) "or" has the inclusive meaning represented by the phrase
"and/or"; (f) the words "hereof," "herein," "hereby," "hereunder" and similar
terms in this Agreement refer to this Agreement as a whole and not to any
particular provision of this Agreement; (g) article, section, subsection,
exhibit and schedule references are to this Agreement unless otherwise
specified; (h) reference to any agreement (including this Agreement), document
or instrument means such agreement, document or instrument as amended or
modified and in effect from time to time in accordance with the terms thereof
and, if applicable, the terms hereof; and (i) references to any applicable law
means such applicable law as amended, modified, codified or reenacted, in whole
or in part, and in effect from time to time, unless the effect thereof is to
reduce, limit or otherwise prejudicially affect any obligation or any right,
power or remedy hereunder, in which case such amendment, modification,
codification or reenactment will not, to the maximum extent permitted by
applicable law, form part of this Agreement and is to be disregarded for
purposes of the construction and interpretation hereof.
23. Severability. Any provision of this Agreement which is prohibited,
unenforceable or not authorized in any jurisdiction is, as to such jurisdiction,
ineffective to the extent of any such prohibition, unenforceability or
nonauthorization without invalidating the remaining provisions hereof, or
affecting the validity, enforceability or legality of such provision in any
other jurisdiction, unless the ineffectiveness of such provision would result in
such a material change as to cause completion of the transactions contemplated
hereby to be unreasonable.
24. Specific Performance and Injunctive Relief. ECB recognizes that, if he
fails to perform, observe or discharge any of its obligations under Sections 7
or 8 of this Agreement, no remedy at law will provide adequate relief to the
other parties. Therefore, MDC is hereby authorized to demand specific
performance of this Agreement, and is entitled to temporary and permanent
injunctive relief, in a court of competent jurisdiction at any time when ECB
fails to comply with any of such provisions of this Agreement. To the extent
permitted by applicable law, ECB hereby irrevocably waives any defense that it
might have based on the adequacy of a remedy at law which might be asserted as a
bar to such remedy of specific performance or injunctive relief.
<PAGE>
10
25. Resolution of Disputes.
A. Except as permitted by Section 24 hereof, any controversy, dispute
or claim arising out of: (1) the interpretation, performance or alleged
breach of this Agreement; (2) the employment relationship between MDC and
ECB, or the termination of such employment relationship; (3) any alleged
breach by MDC of any statute ("statute") affecting ECB's rights; or (4) any
other controversy, dispute or claim that ECB may have against MDC or any of
its agents or representatives, shall be resolved by final and binding
arbitration, at the request of either party, in accordance with the
Employment Dispute Resolution Rules of the American Arbitration Association
("Rules"). A copy of the Rules are attached as Exhibit D. An arbitrator who
decides any such dispute shall have the right to impose all remedies
provided by law, and shall enforce all statutes of limitations provided by
law. To the extent permitted by law, the prevailing party shall be entitled
to recover its attorneys' fees and legal costs in such arbitration
proceeding.
B. MDC and ECB agree to share equally the fees and costs of
arbitration; provided, however, the arbitrator shall have the discretion to
relieve ECB of such fees if the arbitrator determines that the payment of
ECB's share of the fees would impose an extreme financial burden on ECB.
C. For purposes of this Section, "statute" includes any federal, state
or other governmental regulation, or ordinance, which prohibits
discrimination on the basis of age, ancestry, color, gender, marital
status, mental or physical disability or medical condition, pregnancy,
national origin, race, religion, or sexual orientation. The term "statute"
also refers to any federal, state or other governmental statute, regulation
or ordinance which prohibits retaliation because of: (1) the taking of
leave for family care, medical care, jury duty, and military duty; or (2)
the assertion of rights under any statutes which prohibit discrimination or
govern insurance or retirement rights.
26. Successors and Assigns. All provisions of this Agreement are binding
upon, inure to the benefit of, and are enforceable by or against, the parties
and their respective heirs, executors, administrators or other legal
representatives and permitted successors and assigns.
27. Third-Party Beneficiary. This Agreement is solely for the benefit of
the parties and their respective successors and permitted assigns, and no other
person has any right, benefit, priority or interest under, or because of the
existence of, this Agreement.
28. Waiver of Jury Trial. Each party waives the right to a trial by jury.
<PAGE>
11
PLEASE READ THIS AGREEMENT CAREFULLY. BY SIGNING IT YOU ARE AGREEING TO
FINAL AND BINDING ARBITRATION OF ANY AND ALL DISPUTES BETWEEN YOU AND
MDC INCLUDING, WITHOUT LIMITATION, DISPUTES RELATING TO THIS
AGREE-MENT, YOUR EMPLOYMENT WITH MDC AND THE TERMINATION THEREOF, AND
CLAIMS OF DISCRIM-INATION AND HARASSMENT.
MCDONNELL DOUGLAS CORPORATION
By: /s/ Harry C. Stonecipher
----------------------------------
Harry C. Stonecipher
President & Chief Executive Officer
EMPLOYEE:
/s/ Edward C. Bavaria
-----------------------------------
Edward C. Bavaria
<PAGE>
INDEX TO EXHIBITS
Exhibit A McDonnell Douglas Corporation Performance Sharing Plan, as
amended and restated as of 5 March 1996.
- Incorporated by reference to Exhibit 10(e) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
Exhibit B McDonnell Douglas Corporation 1994 Performance and Equity
Incentive Plan.
- Incorporated by reference to Exhibit 4(a) to the Company's
Registration Statement on Form S-8, Commission File No. 33-56129,
filed with the Commission on October 21, 1994.
Exhibit C Third-Party Home Sale Assistance Program. This exhibit is omitted.
(The Company agrees to furnish supplementally a copy of this
exhibit to the Commission upon request.)
Exhibit D Employment Dispute Resolution Rules of the American Arbitration
Association. This exhibit is omitted. (The Company agrees to
furnish supplementally a copy of this exhibit to the Commission
upon request.)
<PAGE>
1
RESTRICTED STOCK AWARD AGREEMENT
Agreement made as of the ___ day of May, 1995, by and between McDonnell
Douglas Corporation (hereinafter called the "Company") and Edward C. Bavaria,
(hereinafter called the "Employee").
RECITALS
A. The Company has agreed to employ Employee and Employee has agreed to serve
as Deputy President of Douglas Aircraft Company, an unincorporated business
unit of the Company, pursuant to the terms and conditions of an Employment
Agreement by and between them, dated as of May __, 1995 (the "Employment
Agreement").
B. As a significant part of his total compensation, the Company has agreed to
provide and the Employee has agreed to accept equity ownership
opportunities to better match the interests of Employee with those of
shareholders.
C. Pursuant to the terms and conditions of the Employment Agreement, Company
has agreed to provide and Employee has agreed to accept incentive
compensation, the vesting of which will be contingent upon Employee's
continued service to the Company.
D. Accordingly, the Company has agreed to grant to Employee certain of its
common shares of the Company subject, however, to certain restrictions.
In consideration of the foregoing, and the mutual promises contained herein and
in the Employment Agreement and the McDonnell Douglas Corporation 1994
Performance and Equity Incentive Plan (the "Plan"), the Company and Employee
agree as follows:
1. Grant of Shares. Pursuant to Section 5.B. of the Employment Agreement, the
Company hereby grants to Employee 12,000 Shares (the "Restricted Shares")
subject to the restrictions and the other terms and conditions contained
herein, in the Employment Agreement, and in the Plan (collectively, the
"Conditions"). A copy of the Plan has been given to Employee and is
incorporated herein by this reference. Unless otherwise indicated,
capitalized terms in this Agreement shall have the same meaning ascribed to
such terms in the Plan.
<PAGE>
2
2. Issuance of Shares Subject to Conditions, Restrictions and Forfeiture.
Employee shall execute appropriate blank stock powers with respect to the
Restricted Shares and deliver such stock powers to the administrator of the
Plan (the "Plan Administrator"). The Company shall issue one or more stock
certificates for the Restricted Shares (with an appropriate legend
referring to the restrictions included in the Conditions) and deposit such
certificates, together with the stock powers, with the Plan Administrator.
The Plan Administrator shall issue to the Employee a receipt evidencing any
stock certificates representing the Restricted Shares registered in the
Employee's name and held by the Plan Administrator. The Employee shall be
entitled to delivery of such stock certificates upon satisfaction of the
Conditions and only in accordance with Section 6 hereof. Employee agrees
that the Conditions shall apply to the Restricted Shares and any shares or
other securities which Employee may receive or be entitled to receive as a
result of the ownership of the Restricted Shares whether the same are
issued as a result of a stock split, stock dividend, spin-off, split-up,
spin-out, recapitalization, merger, consolidation, reorganization,
combination or exchange of shares, or any other similar transaction, or as
a result of the merger or consolidation of the Company, or sale of assets
of the Company, or similar transaction.
3. Restrictions to Transfer. Employee hereby agrees that unless and until the
Conditions are satisfied or terminated as provided in Section 5 herein,
Employee will not sell, assign, transfer, pledge, encumber or otherwise
dispose of any of the Restricted Shares (each a "Transfer") without the
prior written consent of the Committee, and any such Transfer without such
consent shall be null and void from its inception.
4. Shareholder Rights. Except for the Conditions, the Employee shall have all
rights and privileges of a stockholder of the Company as to his Restricted
Shares, including the right to receive any dividends declared with respect
to such Restricted Shares and to exercise voting rights.
5. Lapse of Restrictions. Subject to Section 7 of this Agreement, the
restrictions set forth in Section 3 hereof shall be satisfied and lapse on
the Restricted Shares as follows: 6,000 shares on August 15, 1997 and 6,000
shares on August 15, 1998.
6. Delivery of Share Certificates. As soon as practicable after the
restrictions set forth in Section 3 hereof have lapsed in accordance with
Section 5 hereof, the Plan Administrator shall deliver one or more stock
certificates representing the number of shares for which restrictions have
lapsed (to the nearest full share and cash for fractional shares, if any),
less any shares withheld pursuant to Section 8 hereof, free of the
restrictions set forth in Section 3 herein.
7. Termination of Employment. In the event the Employment Agreement terminates
prior to August 14, 1997 for any reason, all Restricted Shares upon which
restrictions have not yet lapsed in accordance with Section 5 hereof shall
vest or be forfeited in accordance with the Employment Agreement, including
without limitation Sections 5.B. and 8.D. thereof.
<PAGE>
3
8. Withholding. At such time as Share certificates are to be delivered to
Employee in accordance with Section 6 of this Agreement, the Company shall
satisfy the federal, state and local withholding requirements with respect
to such distribution. Such withholding can be satisfied at the Company's
option either by (i) the Company's withholding of Shares or (ii) by
requiring Employee's payment in cash by providing a personal check in the
required amount prior to delivery of the Shares. Notwithstanding the
foregoing, in the event Employee is subject to Section 16 of the Exchange
Act at the time of such delivery, the Company shall withhold Shares in an
amount equal to Employee's estimated federal, state and local tax
obligations, plus any additional withholding requirements related to such
delivery; provided the total withholding hereunder shall not be less than
the statutory minimum withholding amount.
9. Investment Purpose. Employee represents that he intends to acquire the
Restricted Shares for investment and not with a view to resale or other
distribution; except that the Company, at its election, may waive or
release this condition in the event the shares are registered under the
Securities Act of 1933, or upon the happening of any other contingency
which the Company shall determine warrants the waiver or release of this
condition. Employee agrees that the certificates evidencing the shares
delivered to him pursuant to Section 6 hereof may bear a restrictive
legend, if appropriate, indicating that the shares have not been registered
under said Act and are subject to restrictions on the transfer thereof.
10. Designation of Beneficiary. Employee may by written notice in form
reasonably acceptable to the Committee designate a beneficiary in
accordance with the terms and conditions of the Plan who will receive
Shares if and when restrictions lapse in accordance with the terms of this
Agreement if Employee has died prior to the date such restrictions lapse.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and date set forth above.
MCDONNELL DOUGLAS CORPORATION
By: /s/ Laurie A. Broedling
--------------------------------
Laurie A. Broedling, Plan Administrator
/s/ Edward C. Bavaria
---------------------------------
Edward C. Bavaria
<PAGE>
1
TERMINATION BENEFITS AGREEMENT
THIS AGREEMENT, dated as of the ___ day of _____________, 1997, is by and
between McDonnell Douglas Corporation, a Maryland corporation (hereinafter
referred to as the "Company"), and ________________ (hereinafter the
"Executive").
RECITALS:
A. The Board of Directors of the Company (the "Board") considers it
essential to the best interests of the Company and its shareholders that its key
management personnel be encouraged to remain with the Company and its
subsidiaries and to continue to devote full attention to the Company's business
in the event that any third person expresses its intention to complete a
possible business combination with the Company, or in taking any other action
which could result in a change in control of the Company. In this connection,
the Board recognizes that the possibility of a change in control and the
uncertainty and questions which it may raise among management may result in the
departure or distraction of key management personnel to the detriment of the
Company and its shareholders. The Board has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of key members of the Company's management to their assigned duties
without distraction in the face of the potentially disturbing circumstances
arising from the possibility of a change in control of the Company.
B. The Executive currently serves as a key executive of the Company and his
or her services and knowledge are valuable to the Company in connection with the
management of one or more of the Company's principal operating facilities,
divisions, subsidiaries or functions.
C. The Board believes the Executive has made and is expected to continue to
make valuable contributions to the productivity and profitability of the Company
and its subsidiaries.
D. Should the Company receive any proposal from a third person concerning a
possible business combination or any other action which could result in a change
in control of the Company, the Board believes it imperative that the Company and
the Board be able to rely upon the Executive to continue in his or her position,
and that the Company and the Board be able to receive and rely upon his or her
advice, if so requested, as to the best interests of the Company and its
shareholders without concern that he or she might be distracted by the personal
uncertainties and risks created by such a proposal, and to encourage Executive's
full attention and dedication to the Company.
E. Should the Company receive any such proposal, in addition to the
Executive's regular duties, the Executive may be called upon to assist in the
assessment of such proposal, advise management and the Board as to whether such
proposal would be in the best interests of the Company and its shareholders, and
to take such other actions as the Board might determine to be necessary or
appropriate.
<PAGE>
2
TERMS AND CONDITIONS:
NOW, THEREFORE, to assure the Company and its subsidiaries that it will
have the continued, undivided attention, dedication and services of the
Executive and the availability of the Executive's advice and counsel
notwithstanding the possibility, threat or occurrence of a change in control of
the Company, and to induce the Executive to remain in the employ of the Company
and its subsidiaries, and for other good and valuable consideration, the
adequacy and sufficiency of which are hereby acknowledged, the Company and the
Executive agree as follows:
1. Change in Control
For purposes of this Agreement, a "Change in Control" of the Company shall
be deemed to have occurred upon (a) the acquisition at any time by a "person" or
"group" (as that term is used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (excluding, for this
purpose, the Company or any subsidiary or any employee benefit plan of the
Company or any subsidiary) of beneficial ownership (as defined in Rule 13d-3
under the Exchange Act) directly or indirectly, of securities representing 20%
or more of the combined voting power in the election of directors of the
then-outstanding securities of the Company or any successor of the Company; (b)
the termination of service as directors, for any reason other than death,
disability or retirement from the Board in accordance with Resolution 706 of the
Board, as it may be amended or superseded, during any period of two consecutive
years or less, of individuals who at the beginning of such period constituted a
majority of the Board, unless the election of or nomination for election of each
new director during such period was approved by a vote of at least two-thirds of
the directors still in office who were directors at the beginning of the period;
(c) approval by the shareholders of the Company of liquidation of the Company or
any sale or disposition, or series of related sales or dispositions, of 50% or
more of the assets or earning power of the Company; or (d) approval by the
shareholders of the Company and consummation of any merger or consolidation or
statutory share exchange to which the Company is a party as a result of which
the persons who were shareholders of the Company immediately prior to the
effective date of the merger or consolidation or statutory share exchange shall
have beneficial ownership of less than 50% of the combined voting power in the
election of directors of the surviving corporation following the effective date
of such merger or consolidation or statutory share exchange. A "Change in
Control" shall not include any reduction in ownership of an affiliate of the
Company so long as the entity continues to meet the definitions of those terms
as contained in this Section.
<PAGE>
3
2. Adjustment of Benefits upon Change in Control
The Company agrees that its Management Compensation and Succession
Committee or such other committee succeeding to such committee's
responsibilities with respect to executive compensation (collectively, the
"Compensation Committee") shall make such equitable adjustments to any
performance targets contained in any awards under the Company's Performance
Sharing Plan (the "PSP") or Senior Executive Performance Sharing Plan (the
"Senior Executive PSP") or any successor plan in which the Executive is a
participant, as may be required to eliminate any negative effects from any
transactions relating to a Change in Control (such as costs or expenses
associated with the transaction or any related transaction, including, without
limitation, any reorganizations, divestitures, recapitalizations or borrowings,
or changes in targets or measures to reflect the disruption of the business,
etc.), in order to preserve reward opportunities and performance objectives.
3. Termination Following Change in Control
(a) If any of the events described in Section 1 hereof constituting a
Change in Control of the Company shall have occurred, the Executive shall
be entitled to the benefits set forth herein upon any termination by the
Company of the Executive's employment with the Company and its subsidiaries
within two years following a Change in Control for any reason except any of
the following:
(i) Termination by reason of the Executive's death, provided the
Executive has not previously given a "Notice of Termination" pursuant
to Section 4;
(ii) Termination by reason of the Executive's "disability,"
provided the Executive has not previously given a "Notice of
Termination" pursuant to Section 4. For the purposes of this
Agreement, "disability" shall be defined as the Executive's inability
by reason of illness or other physical or mental disability to perform
the principal duties required by the position held by the Executive at
the inception of such illness or disability for any consecutive
180-day period. A determination of "disability" shall be subject to
the certification of a qualified medical doctor agreed to by the
Company and the Executive or, in the Executive's incapacity to
designate a doctor, the Executive's legal representative. If the
Company and the Executive cannot agree on the designation of a doctor,
each party shall nominate a qualified medical doctor and the two
doctors shall select a third doctor; the third doctor shall make the
determination as to "disability";
(iii) Termination by reason of retirement in accordance with and
under the Company's Employee Retirement Income Plan -- Salaried Plan,
or such of the Company's other salaried employee tax-qualified
retirement plans in which the Executive participates (or any plans in
substitution thereof) as in effect on the date of this Agreement
(collectively, the "Retirement Plan"), provided the Executive has not
previously given Notice of Termination pursuant to Section 4; or
<PAGE>
4
(iv) Termination by the Company for "Cause". For purposes of this
Agreement, "Cause" shall mean (A) any act or acts by the Executive
constituting a felony under applicable law; (B) any act or acts of
gross dishonesty or gross misconduct on the Executive's part which
result or are intended to result directly or indirectly in gain or
personal enrichment at the expense of the Company or its subsidiaries
to which the Executive is not legally entitled; or (C) any material
violation by the Executive of his or her obligations under this
Agreement (other than any violation resulting from the Executive's
incapacity due to physical or mental illness), which violation is
demonstrably willful and deliberate on the Executive's part and which
results in material damage to the business or reputation of the
Company or its subsidiaries. Notwithstanding the foregoing, the
employment of the Executive shall in no event be deemed to have been
terminated by the Company for "Cause" if termination of his or her
employment by the Company took place: (i) as the result of bad
judgment or negligence on the part of the Executive other than gross
negligence; (ii) because of an act or omission believed by the
Executive in good faith to have been in or not opposed to the
interests of the Company and its subsidiaries; (iii) for any act or
omission in respect of which a determination could properly be made
that the Executive met the applicable standard of conduct prescribed
for indemnification or reimbursement or payment of expenses under the
charter or bylaws of the Company or the laws of the state of
incorporation of the Company, in each case as in effect at the time of
such act or omission; (iv) as the result of an act or omission which
occurred more than twelve calendar months prior to the Executive's
having been given Notice of Termination (as defined below) for such
act or omission unless the commission of such act or omission could
not at the time of such commission or omission have been known to a
member of the Board (other than the Executive, if he or she is then a
member of the Board), in which case more than twelve calendar months
from the date that the commission of such act or such omission was or
could reasonably have been so known; or (v) as the result of a
continuing course of action which commenced and was or could
reasonably have been known to a member of the Board (other than the
Executive) more than twelve calendar months prior to the Executive
having been given Notice of Termination.
(b) Notwithstanding any other provision of this Agreement, if a Change
in Control occurs and if the Executive's employment with the Company and
its subsidiaries is terminated by the Company less than six months prior to
the date on which the Change in Control occurs, and if it is demonstrated
by the Executive that such termination of employment by the Company (i) was
at the request of a third party which has taken steps reasonably calculated
to result in or effect the Change in Control or (ii) otherwise arose in
connection with or in anticipation of the Change in Control, then for all
purposes of this Agreement, such termination of employment shall be deemed
to have occurred within two years following such Change in Control;
provided, that the obligations contained in Section 4 to deliver a Notice
of Termination shall not apply.
<PAGE>
5
(c) The Company shall also provide the Executive with the benefits set
forth herein upon any termination by the Executive of employment with the
Company and its subsidiaries for Good Reason within two years after a
Change in Control. Any failure by the Executive to give such notice to
receive such benefits shall not be deemed to constitute a waiver or
otherwise to affect adversely the rights of the Executive hereunder,
provided the Executive gives notice to receive such benefits prior to the
expiration of such two year period. For purposes of this Agreement, "Good
Reason" shall mean the occurrence of any one or more of the following
events: {Chief Executive Officer has discretion to narrow the list of
events which constitute "Good Reason"}
(i) The assignment to the Executive of any duties inconsistent in
any material adverse respect with his or her position, authority or
responsibilities with the Company and its subsidiaries immediately
prior to the Change in Control, or any other material adverse change
in such position, including titles, authority, or responsibilities, as
compared with the Executive's position immediately prior to the Change
in Control;
(ii) A reduction by the Company in the amount of the Executive's
base salary or annual or long term incentive compensation paid or
payable as compared to that which was paid or made available to
Executive immediately prior to the Change in Control; or the failure
of the Company to increase Executive's compensation each year by an
amount which is substantially the same, on a percentage basis, as the
average annual percentage increase in the base salaries of other
executives of comparable status with the Company;
(iii) The failure by the Company to continue to provide the
Executive with substantially similar perquisites or benefits the
Executive in the aggregate enjoyed under the Company's benefit
programs, such as any of the Company's pension, savings, vacation,
life insurance, medical, health and accident, or disability plans in
which he or she was participating at the time of the Change in Control
(or, alternatively, if such plans are amended, modified or
discontinued, substantially similar equivalent benefits thereto in the
aggregate); the taking of any action by the Company which would
directly or indirectly cause such benefits to be no longer
substantially equivalent in the aggregate to the benefits in effect at
the time of the Change in Control; provided, that any amendment,
modification or discontinuation of any plans or benefits referred to
in this Subsection (iii) that generally affect substantially all
domestic salaried employees of the Company shall not be deemed to
constitute Good Reason;
(iv) The Company's requiring the Executive to be based at any
office or location more than 35 miles from that location at which he
or she performed his or her services immediately prior to the Change
in Control, except for travel reasonably required in the performance
of the Executive's responsibilities to the extent substantially
consistent with the Executive's business travel obligations prior to
the Change in Control;
<PAGE>
6
(v) Any failure of the Company to obtain the assumption of the
obligation to perform this Agreement by any successor as contemplated
in Section 11 herein; or
(vi) Any breach by the Company of any of the provisions of this
Agreement or any failure by the Company to carry out any of its
obligations hereunder, in either case, for a period of five business
days after receipt of written notice from the Executive and the
failure by the Company to cure such breach or failure during such five
business day period.
4. Notice of Termination
Any termination of the Executive's employment by the Company as
contemplated by Subsection 3(a)(ii) or 3(a)(iv) or by the Executive as
contemplated by Subsection 3(c) shall be communicated by written "Notice of
Termination" to the other party hereto. Any "Notice of Termination" shall set
forth (a) the effective date of termination, which shall not be less than 15 or
more than 30 days after the date the Notice of Termination is delivered (the
"Termination Date"); (b) the specific provision in this Agreement relied upon;
and (c) in reasonable detail the facts and circumstances claimed to provide a
basis for such termination. Notwithstanding the foregoing, if within fifteen
(15) days after any Notice of Termination is given, the party receiving such
Notice of Termination notifies the other party that a good faith dispute exists
concerning the termination, the "Date of Termination" shall be the date on which
the dispute is finally determined in accordance with the provisions of Section
18 hereof. In the case of any good faith dispute as to the Executive's
entitlement to benefits under this Agreement resulting from any termination by
the Company for which the Company does not deliver a Notice of Termination, the
"Date of Termination" shall be the date on which the dispute is finally
determined in accordance with the provisions of Section 18 hereof.
Notwithstanding the pendency of any such dispute referred to in the two
preceding sentences, the Company shall continue to pay the Executive his or her
full compensation in effect when the notice giving rise to the dispute was given
and continue the Executive as a participant in all compensation, benefits and
perquisites in which he or she was participating when the notice giving rise to
the dispute was given, until the dispute is finally resolved, provided the
Executive is willing to continue to provide full time services to the Company
and its subsidiaries in substantially the same position, if so requested by the
Company. Amounts paid under this Section shall be in addition to all other
amounts due under this Agreement and shall not be offset against or reduce any
other amounts due under this Agreement. If a final determination by the Panel
(as defined in Section 18(c)(ii)) that Good Reason did not exist pursuant to
Section 18(c)(v) is made in the case of a Notice of Termination by the
Executive, the Executive shall have the sole right to nullify and void his or
her Notice of Termination by delivering written notice of same to the Company
within three (3) business days of the date of such final determination, unless
the basis for the claim by the Executive of Good Reason is found by the Panel to
have been manifestly unreasonable. If the parties do not dispute the Executive's
entitlement to benefits hereunder, the "Date of Termination" shall be the
Termination Date.
<PAGE>
7
5. Termination Benefits
(a) Base Salary and Annual Incentive Compensation. Subject to the
conditions set forth in Sections 3, 4, 8 and 10(c) hereof, the Company
shall continue to pay the Executive (subject to any applicable payroll or
other taxes required to be withheld) for a period (the "Continuation
Period") [commencing on the Date of Termination and] terminating on the
earlier of (x) [twenty-four (24)/thirty-six (36)] months following the date
of the [Change in Control/Date of Termination], (y) the date on which the
Executive reaches normal retirement age under the Retirement Plan, or (z)
such date on which any of the contingencies under Section 10(c) shall
occur, as follows:
(i) The base salary of the Executive at the greater of the
Executive's effective monthly base salary rate at the Termination Date
or the Executive's effective monthly base salary rate immediately
prior to the Change in Control, which amount shall be payable on a
monthly basis;
(ii) A monthly amount equal to (x) the greater of (1) the
Executive's annualized target incentive compensation award relating to
the monthly base salary in Section 5(a)(i) above or (2) the
Executive's annual target incentive compensation award for the year
prior to the Change in Control, multiplied by (y) the greater of the
average percentage of the Executive's earned incentive compensation
award to the Executive's annual target incentive compensation award
for the three complete years prior to either (1) the Change in Control
or (2) the Termination Date, in either case, under the Company's PSP
or Senior Executive PSP, or any successor plan, and divided by (z)
twelve (12), which amount shall be payable on a monthly basis; and
(b) "Short Year" Annual Incentive Compensation. Subject to the
conditions set forth in Sections 3, 4, 8 and 10(c) hereof, the Company
shall pay the Executive (subject to any applicable payroll or other taxes
required to be withheld) the product of (i) the amount determined in
accordance with Section 5(a)(ii)(x) above, multiplied by (ii) the amount
determined in accordance with Section 5(a)(ii)(y) above, multiplied by
(iii) the ratio of the number of days that elapsed in such year prior to
such Termination Date divided by 365; provided, that such "short year"
annual incentive compensation shall be paid in cash in a lump sum on the
Date of Termination.
(c) [One-Time Cash Termination Benefit. Subject to the conditions set
forth in Sections 3, 4, 8 and 10(c) hereof, the Company shall pay the
Executive (subject to any applicable payroll or other taxes required to be
withheld) the amount of $________ in cash in a lump sum on the Date of
Termination.]
<PAGE>
8
6. Other Benefits
Subject to the conditions set forth in Sections 3, 4, 8 and 10(c) hereof,
the following benefits (subject to any applicable payroll or other taxes
required to be withheld) shall be paid or provided to the Executive:
(a) Health/Welfare Benefits
(i) During the Continuation Period, the Company shall continue to
keep in full force and effect all programs of medical, dental, vision,
accident, disability, life insurance, including optional term life
insurance, and other similar health or welfare programs with respect
to the Executive and his or her dependents with the same level of
coverage, upon the same terms and otherwise to the same extent as such
programs shall have been in effect immediately prior to the
Termination Date (or, if more favorable to the Executive, immediately
prior to the Change in Control), and the Company and the Executive
shall share the costs of the continuation of such insurance coverage
in the same proportion as such costs were shared immediately prior to
the Termination Date (or, if more favorable to the Executive,
immediately prior to the Change in Control) or, if the terms of such
programs do not permit continued participation by the Executive (or if
the Company otherwise determines it advisable to amend, modify or
discontinue such programs for employees generally), the Company shall
otherwise provide benefits substantially similar to and no less
favorable to the Executive in terms of cost or benefits ("Equivalent
Benefits") than he or she was entitled to receive at the end of the
period of coverage, for the duration of the Continuation Period.
(ii) If, at or prior to the end of the Continuation Period, the
Executive has attained the earliest age for retirement under the
Retirement Plan, without regard to any minimum period of service (the
"Eligible Age"), he or she shall be entitled to be enrolled at that
time or any time thereafter in the Company's retiree health program
upon the same terms and conditions as if the Executive had remained
employed during the Continuation Period, or if the terms of such
program do not permit such enrollment, the Company shall provide
Equivalent Benefits which include such retiree coverage. If, at or
prior to the end of the Continuation Period, the Executive shall not
have attained the Eligible Age, he or she shall be entitled to the
foregoing benefits upon attainment of the Eligible Age. If, at the end
of the Continuation Period, the Executive shall not have attained the
Eligible Age, he or she will be given the same rights to health care
continuation as if the health care continuation coverage rights under
the Consolidated Omnibus Reconciliation Act of 1985, as amended or
replaced ("COBRA"), would apply as of the end of such Continuation
Period, such rights under COBRA to be determined as if the end of such
Continuation Period were an event causing the Executive to lose
coverage under the Company's health care plan on account of a
termination of employment.
(iii) All benefits which the Company is required by this Section
6(a) to provide, which will not be provided by the Company's programs
described herein, shall be provided through the purchase of insurance
unless the Executive is uninsurable. If the Executive is uninsurable,
the Company will provide the benefits out of its general assets.
<PAGE>
9
(b) Retirement Benefits
(i) Subject to Section 6(b)(v), the Executive shall be deemed to
be completely vested under the Company's Retirement Plan and any and
all supplemental non-qualified plans (or any successor plans), in
which Executive is a participant, which are in effect as of the date
of the Change in Control (collectively, the "Plans"), regardless of
the Executive's actual vesting service credit thereunder.
(ii) In addition, subject to Section 6(b)(v), he or she shall be
deemed to have earned an additional service credit for service and
benefit calculation purposes thereunder as if he or she had continued
in the employ of the Company for the duration of the Continuation
Period, and the rate of compensation which is used in the
determination of the payment to the Executive under Section 5 shall be
the rate of compensation used for benefit calculations with respect to
such additional period, with the effect that benefits based on Salary
Compensation and Average Monthly Salary (as such terms are defined in
the Retirement Plan and as may be amended or replaced), shall reflect
such additional years of service at such rates of compensation.
(iii) In addition, the Executive shall receive all other benefits
under the Plans that he or she would have received had he or she
continued in the employ of the Company for the duration of the
Continuation Period, including, without limitation, all ancillary
benefits, such as early retirement, survivor rights and all other
benefits at retirement.
(iv) If the Executive has attained the Eligible Age as of the
Termination Date, the Executive shall be entitled to elect retirement
in lieu of deferred vested status under the Retirement Plan. If the
Executive has not attained the Eligible Age as of the Termination
Date, the Executive shall be entitled to elect retirement in lieu of
deferred vested status under the Retirement Plan upon attainment of
the Eligible Age, and for purposes of determining the adjustment, if
any, to the Executive's accrued benefit under the eighty-five (85)
point rule (if otherwise eligible under such rule) under the
Retirement Plan, the Executive shall be credited with both age and
years of service until the date he or she reaches the Eligible Age.
(v) Any part of the foregoing retirement benefits which are
otherwise required to be paid by a tax-qualified Plan but which cannot
be paid through such Plan by reason of the laws and regulations
applicable to such Plan, shall be paid by one or more supplemental
non-qualified Plans or by the Company in accordance with such Plan or
Plans.
(vi) The payments calculated hereunder which are not actually
paid by the Retirement Plan shall be paid thirty (30) days following
the Date of Termination in a single lump sum cash payment (of
equivalent actuarial value to the payment calculated hereunder using
the same actuarial assumptions as are used in calculating benefits
under the Retirement Plan but using the discount rate that would be
used by the Company on the Date of Termination to determine the
actuarial present value of projected benefit obligations).
<PAGE>
10
(c) Savings Plan Benefits
(i) Subject to Section 6(c)(iii), the Executive shall be deemed
to be completely vested under the Company's Employee Savings Plan --
Salaried Plan and all excess or supplemental savings plans (or any
successor plans) in effect as of the date of the Change in Control
("the Savings Plans") regardless of his or her actual vesting service
credit on the Termination Date.
(ii) In addition, subject to Section 6(c)(iii), during the
Continuation Period, he or she shall be entitled to an amount equal to
the Company matching contributions (at the greater of the Company's
rates in effect at the Termination Date or the date of the Change in
Control) under the Savings Plans which would have accrued to the
benefit of the Executive had he or she continued his or her
participation in, and elected to continue to make the elective
deferral or contributions under such Savings Plans at the same rate at
which he or she was electing to make them at the time of the
Termination Date.
(iii) Any part of such Savings Plans benefits which are otherwise
required to be paid by a tax-qualified Savings Plan but which cannot
be paid through such Savings Plan by reason of the laws and
regulations applicable to the Plan shall be paid by an excess or
supplemental Savings Plan or by the Company in a lump sum cash payment
on the Date of Termination.
(d) Financial Planning
During the Continuation Period, the Company shall reimburse the
Executive for costs associated with financial planning to the same extent
as was customarily provided by the Company to senior executives prior to
the Change in Control.
(e) Executive Outplacement Counseling
During the Continuation Period, unless the Executive shall reach
normal retirement age during the Continuation Period, the Executive may
request in writing and the Company shall at its expense engage within a
reasonable time following such written request an outplacement counseling
service of national reputation to assist the Executive in obtaining
employment.
<PAGE>
11
7. Payment of Certain Costs
Except as otherwise provided in Section 18(c)(v), if a dispute arises
regarding a termination of the Executive or the interpretation or enforcement of
this Agreement, subsequent to a Change in Control, all of the reasonable legal
fees and expenses incurred by the Executive and all Arbitration Costs (as
hereafter defined) in contesting any such termination or obtaining or enforcing
all or part of any right or benefit provided for in this Agreement or in
otherwise pursuing all or part of his or her claim will be paid by the Company,
unless prohibited by law. The Company further agrees to pay pre-judgment
interest on any money judgment obtained by the Executive calculated at the prime
interest rate reported in The Wall Street Journal in effect from time to time
from the date that payment to him or her should have been made under this
Agreement.
8. Excise Tax Payments.
(a) Notwithstanding anything contained in this Agreement to the
contrary, in the event that any payment (within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended or replaced
(the "Code")), or distribution to or for the benefit of the Executive,
whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise in connection with, or arising out of,
his or her employment with the Company (a "Payment" or "Payments"), would
be subject to the excise tax imposed by Section 4999 of the Code or any
interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, interest and penalties collectively referred
to as the "Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Executive of all such taxes (including any interest or
penalties imposed with respect to such taxes), including any Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments;
provided, that the Executive shall not be entitled to receive any
additional payment relating to any interest or penalties attributable to
any action or omission by the Executive in bad faith.
(b) An initial determination shall be made by an accounting firm
mutually agreeable to the Company and the Executive and, if not agreed to
within three days after the Date of Termination, a national independent
accounting firm selected by the Executive (the "Accounting Firm"), as to
whether a Gross-Up Payment is required pursuant to this Section 8 and the
amount of such Gross-Up Payment. To permit the Accounting Firm to make the
initial determination, the Company shall furnish the Accounting Firm with
all information reasonably required for such firm to complete such
determination as soon as practicable after the Date of Termination, but in
no event more than fifteen (15) days thereafter. All fees, costs and
expenses (including, but not limited to, the cost of retaining experts) of
the Accounting Firm shall be borne by the Company and the Company shall pay
such fees, costs and expenses as they become due. The Accounting Firm shall
provide detailed supporting calculations, reasonably acceptable both to the
<PAGE>
12
Company and the Executive within thirty (30) days of the Date of
Termination, if applicable, or such other time as requested by the Company
or by the Executive (provided the Executive reasonably believes that any of
the Payments may be subject to the Excise Tax). The Gross-Up Payment, if
any, as determined pursuant to this Section 8(b) shall be paid by the
Company to the Executive within five (5) business days of the receipt of
the Accounting Firm's determination. If the Accounting Firm determines that
no Excise Tax is payable by the Executive with respect to a Payment or
Payments, it shall furnish the Executive with an opinion reasonably
satisfactory to the Executive that no Excise Tax will be imposed with
respect to any such Payment or Payments. Any such initial determination by
the Accounting Firm of the Gross-Up Payment shall be binding upon the
Company and the Executive subject to the application of Section 8(c).
(c) As a result of the uncertainty in the application of Sections 4999
and 280G of the Code, it is possible that a Gross-Up Payment (or a portion
thereof) will be paid which should not have been paid (an "Overpayment") or
a Gross-Up Payment (or a portion thereof) which should have been paid will
not have been paid (an "Underpayment"). An Underpayment shall be deemed to
have occurred upon a "Final Determination" (as hereinafter defined) that
the tax liability of the Executive (whether in respect of the then current
taxable year of the Executive or in respect of any prior taxable year of
the Executive) will be increased by reason of the imposition of the Excise
Tax on a Payment or Payments with respect to which the Company has failed
to make a sufficient Gross-Up Payment. An Overpayment shall be deemed to
have occurred upon a "Final Determination" (as hereinafter defined) that
the Excise Tax shall not be imposed (or shall be reduced) upon a Payment or
Payments with respect to which the Executive had previously received a
Gross-Up Payment. A Final Determination shall be deemed to have occurred
when (i) in the case of an Overpayment, the Executive has received from the
applicable governmental taxing authority a refund of taxes or other
reduction in his or her tax liability imposed as a result of a Payment or,
in the case of an Underpayment, the Executive receives notice from a
competent governmental authority that his or her tax liability imposed as a
result of a Payment will be increased, and (ii) in the case of an
Overpayment or an Underpayment, upon either (x) the date a determination is
made by, or an agreement is entered into with, the applicable governmental
taxing authority which finally and conclusively binds the Executive and
such taxing authority, or in the event that a claim is brought before a
court of competent jurisdiction, the date upon which a final determination
has been made by such court and either all appeals have been taken and
finally resolved or the time for all appeals has expired or (y) the statute
of limitations with respect to the Executive's applicable tax return has
expired. If an Underpayment occurs, the Executive shall promptly notify the
Company and the Company shall promptly pay to the Executive an additional
Gross-Up Payment equal to the amount of the Underpayment plus any interest
and penalties imposed on the Underpayment (other than interest and
penalties attributable to any action or omission by the Executive in bad
faith). If an Overpayment occurs, the amount of the Overpayment shall be
treated as a loan by the Company to the Executive and the Executive shall,
within ten (10) business days of the occurrence of such Overpayment, pay
the Company the amount of the Overpayment, without interest.
<PAGE>
13
(d) Notwithstanding anything contained in this Agreement to the
contrary, in the event it is determined that an Excise Tax will be imposed
on any Payment or Payments, the Company shall pay to the applicable
governmental taxing authorities as Excise Tax withholding, the amount of
the Excise Tax that the Company has actually withheld from the Payment or
Payments.
9. Mitigation
The Executive is not required to seek other employment or otherwise
mitigate the amount of any payments to be made by the Company pursuant to
this Agreement, and employment by the Executive will not reduce or
otherwise affect any amounts or benefits due the Executive pursuant to this
Agreement, except as otherwise provided in Section 10(c).
10. Continuing Obligations
(a) Acknowledgements by the Executive
The Executive hereby recognizes and acknowledges the following:
(i) The Company and its subsidiaries (collectively, for purposes
of this Section 10, the "Company") are engaged in, among other things,
the business of researching, designing, developing, manufacturing,
selling and distributing on a worldwide basis fighter and military
transport aircraft, commercial aircraft, helicopters, missiles,
satellite launch vehicles, and certain related and other businesses
(the "Business").
(ii) In connection with the Business, the Company has expended a
great deal of time, money and effort to develop and maintain the
secrecy and confidentiality of substantial proprietary trade secret
information and other confidential business information which, if
misused or disclosed, could be very harmful to the Business and could
cause the Company to lose its competitive edge in the marketplace.
(iii) The Executive desires to become entitled to receive the
benefits contemplated by this Agreement but which the Company would
not make available to the Executive but for the Executive's signing
and agreeing to abide by the terms of this Section 10.
(iv) The Executive's position with the Company provides the
Executive with access to certain of the Company's confidential and
proprietary trade secret information and other confidential business
information.
(v) The Company compensates its employees to, among other things,
develop and preserve goodwill with its customers on the Company's
behalf and business information for the Company's ownership and use.
<PAGE>
14
(vi) If the Executive were to leave the Company, the Company in
all fairness would need certain protection in order to ensure that the
Executive does not appropriate and misuse any confidential information
entrusted to the Executive during the course of the Executive's
employment with the Company, or take any other action which could
result in a loss of the Company's goodwill that was generated on the
Company's behalf and at its expense, and, more generally, to prevent
the Executive from having an unfair competitive advantage over the
Company.
(b) Confidential Information.
(i) The Executive agrees to keep secret and confidential, and not
to use or disclose to any third parties, except as directly required
for the Executive to perform the Executive's employment
responsibilities for the Company, any of the Company's confidential
and proprietary trade secret information or other confidential
business information concerning the Business acquired by the Executive
during the course of, or in connection with, the Executive's
employment with the Company (and which was not known by the Executive
prior to the Executive's being hired by the Company). The Company
considers and treats as confidential (among other things) its
engineering, design and technical data, computer software and
programs, component sourcing and supply information, pricing policies,
operational methods, strategic plans, internal financial information,
research and development plans and activities, and business
acquisition and expansion plans, and, except as provided herein, the
Executive agrees to treat such information as secret and confidential
so long as such information does not become generally known to the
public through no fault or wrongful act of the Executive.
(ii) The Executive acknowledges that any and all notes, records,
sketches, computer diskettes and other documents obtained by or
provided to the Executive, or otherwise made, produced or compiled
during the course of the Executive's employment with the Company,
which contain any such confidential Company information, regardless of
the type of medium in which it is preserved, are the sole and
exclusive property of the Company and shall be surrendered to the
Company upon the Executive's termination of employment and on demand
at any time by the Company.
(c) Post-Termination Restrictions.
The Executive agrees that, at any time during the Continuation Period,
the Company shall be entitled to discontinue any further payment,
allocation, accrual or provision of any amounts or benefits required by
Sections 5(a), 6(a)(i), 6(b)(ii), 6(d) and 6(e) (provided, that any such
amounts or benefits theretofore allocated or accrued with respect to the
portion of the Continuation Period preceding the occurrence of any of the
contingencies set forth below shall be preserved), if the Executive on the
Executive's own behalf or on behalf of any other person, firm, corporation
or entity in the world:
<PAGE>
15
(i) provides any services for any of the Company's significant
competitors, suppliers or customers or provides any general business,
technical or strategic consulting or planning with respect to the
Business for any such companies. The Executive recognizes that such
companies could benefit greatly if they were to obtain the Company's
confidential information. The Executive may request permission to
provide services to or consult with any company that may be included
in the category of the Company's significant competitors, suppliers or
customers. The written denial or grant of such a request by the
Company's President and CEO shall be conclusive and binding on the
parties hereto. The grant of such a request will not be unreasonably
withheld, and if this request is granted, the Executive will not be
held in violation of this Section 10(d) for providing services to or
consulting with such company in accordance with the terms of this
request.
(ii) knowingly solicits, entices, induces, hires, employs or
seeks to employ any salesperson, engineer, technician, manager or
executive-level employee of the Company, who was employed by the
Company during the Executive's last six (6) months of employment with
the Company, to provide any services with respect to the Business; or
(iii) materially breaches or violates Section 10(b) or any
Company policy regarding confidentiality.
(d) Acknowledgement Regarding Restrictions. The Executive recognizes
and agrees that the provisions of this Section 10 are reasonable and
enforceable because, among other things, (1) the Executive is receiving
compensation under this Agreement and (2) there are many other areas in
which, and companies for which, the Executive could work in view of the
Executive's background, and this Section 10 therefore does not impose any
undue hardship on the Executive. The Executive further recognizes and
agrees that the provisions of this Section 10 are reasonable and
enforceable in view of the Company's legitimate interests in protecting its
confidential information and customer goodwill and the limitations
contained therein on the duration and geographic scope of, and activities
covered by, such provisions.
(e) Breach. In the event of a breach of Section 10(b) or the
occurrence of any of the contingencies under Section 10(c), the Company's
sole remedy shall be the discontinuation of the payment, allocation,
accrual or provision of any amounts or benefits as provided in Section
10(c). The Executive recognizes and agrees, however, that it is the intent
of the parties that neither this Agreement nor any of its provisions shall
be construed to adversely affect any rights or remedies that Company would
have had, including, without limitation, the amount of any damages for
which it could have sought recovery, had this Agreement not been entered
into. Accordingly, the parties hereby agree that nothing stated in this
Section 10 shall limit or otherwise affect the Company's right to seek
legal or equitable remedies it may otherwise have, or the amount of damages
for which it may seek recovery, in connection with matters covered by this
Section 10 but which are not based on breach or violation of this Section
10 (including, without limitation, claims based on the breach of fiduciary
or other duties of the Executive or any obligations of the Executive
arising under any other contracts, agreements or understandings). Without
<PAGE>
16
limiting the generality of the foregoing, nothing in this Section 10 or any
other provision of this Agreement shall limit or otherwise affect the
Company's right to seek legal or equitable remedies it may otherwise have,
or the amount of damages for which it may seek recovery, resulting from or
arising out of statutory or common law or any Company policies relating to
fiduciary duties, confidential information or trade secrets. Further, the
Executive acknowledges and agrees that the fact that Subsection 10(c) is
limited to the Continuation Period, and that the sole remedy of the Company
hereunder is the discontinuation of benefits, shall not reduce or otherwise
alter any other contractual or other legal obligations of the Executive
during any period or circumstance, and shall not be construed as
establishing a maximum limit on damages for which the Company may seek
recovery.
11. Successors
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by
agreement to assume expressly and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. For purposes of this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, beneficiaries, devises and
legatees. If the Executive should die while any amounts are payable to him
or her hereunder, all such amounts, unless otherwise provided herein, shall
be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, beneficiary or other designee or, if there be no such
designee, to the Executive's estate.
12. Notices
For the purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given (i) on the date of delivery if delivered by hand, (ii) on the date of
transmission, if delivered by confirmed facsimile, (iii) on the first business
day following the date of deposit if delivered by guaranteed overnight delivery
service, or (iv) on the third business day following the date delivered or
mailed by United States registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
<PAGE>
17
If to the Executive:
[To Be Provided]
If to the Company: By Personal Delivery
By Mail or Facsimile
McDonnell Douglas Corporation McDonnell Douglas Corporation
P.O. Box 516 World Headquarters Building
St. Louis, Missouri 63166-0516 Airport Road & McDonnell Blvd.
Attention: Chief Executive Officer St. Louis, Missouri 63134
Attention: Chief Executive Officer
Facsimile: (314) 234-8296
with a copy to:
By Personal Delivery
By Mail or Facsimile
McDonnell Douglas Corporation McDonnell Douglas Corporation
P.O. Box 516 World Headquarters Building
St. Louis, Missouri 63166-0516 Airport Road & McDonnell Blvd.
Attention: General Counsel St. Louis, Missouri 63134
Attention: General Counsel
Facsimile: (314) 233-7958
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. Governing Law
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Missouri, without regard
to principles of conflicts of laws.
14. Miscellaneous
No provisions of this Agreement may be amended, modified, waived or
discharged unless such amendment, waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. Section headings contained herein are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
15. Counterparts
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which will constitute one and the
same instrument.
<PAGE>
18
16. Non-Assignability
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign, or transfer this Agreement or
any rights or obligations hereunder, except as provided in Section 11. Without
limiting the foregoing, the Executive's right to receive payments hereunder
shall not be assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than a transfer by his or her will or
trust or by the laws of descent or distribution, and in the event of any
attempted assignment or transfer contrary to this paragraph the Company shall
have no liability to pay any amount so attempted to be assigned or transferred.
17. Term of Agreement
This Agreement shall commence on the date hereof and shall continue in
effect through December 31 of 1998; provided, however, that commencing on
January 1 of 1998 and of each year thereafter, the term of this Agreement shall
automatically be extended for one additional year unless, not later than
September 30 of the preceding year, the Company or the Executive shall have
given notice to the other party that it does not wish to extend this Agreement;
provided further, if a Change in Control of the Company shall have occurred
during the original or any extended term of this Agreement, this Agreement shall
continue in effect for a period of thirty-six (36) months beyond the month in
which such Change in Control occurred; and, provided further, that if the
Company shall become obligated to make any payments or provide any benefits
pursuant to Section 5 or 6 hereof, this Agreement shall continue in effect
indefinitely.
18. Arbitration
(a) Scope; Initiation. Resolution of any and all disputes arising from
or in connection with this Agreement, whether based on contract, tort,
statute or otherwise, including disputes over arbitrability and disputes in
connection with claims by third persons ("Disputes") shall be exclusively
governed by and settled in accordance with the provisions of this Section
18. Either party to this Agreement (each a "Party" and together the
"Parties") may commence proceedings hereunder by delivery of written notice
providing a reasonable description of the Dispute to the other, including a
reference to this Section (the "Dispute Notice").
(b) Negotiations Between Parties. The Parties shall first attempt in
good faith to resolve promptly any Dispute by good faith negotiations. Not
later than three (3) business days after delivery of the Dispute Notice,
the Company shall appoint an executive to meet with the Executive or his or
her representative at a reasonably acceptable time and place, and
thereafter as such representatives deem reasonably necessary. The Parties
shall exchange relevant non-privileged information and endeavor to resolve
the Dispute. Prior to any such meeting, each Party or representative shall
advise the other as to any other individuals who will attend such meeting.
All negotiations pursuant to this Section 18(b) shall be confidential and
shall be treated as compromise negotiations for purposes of Rule 408 of the
Federal Rules of Evidence and similarly under other federal and state rules
of evidence.
<PAGE>
19
(c) Binding Arbitration. The Parties hereby agree to submit all
Disputes to arbitration under the following provisions, which arbitration
shall be final and binding upon the Parties, their successors and assigns,
and that the following provisions constitute a binding arbitration clause
under applicable law.
(i) Either Party may initiate arbitration of a Dispute by
delivery of a demand therefor (the "Arbitration Demand") to the other
Party not sooner than five (5) business days after the date of
delivery of the Dispute Notice but at any time thereafter.
(ii) The arbitration shall be conducted in the County of St.
Louis, Missouri, by three arbitrators (acting by majority vote, the
"Panel") selected by agreement of the Parties not later than 10 days
after delivery of the Arbitration Demand or, failing such agreement,
appointed pursuant to the Commercial Arbitration Rules of the American
Arbitration Association, as amended from time to time (the "AAA
Rules"). If an arbitrator becomes unable to serve, his or her
successor(s) shall be similarly selected or appointed.
(iii) The arbitration shall be conducted pursuant to the Federal
Arbitration Act and the Missouri Uniform Arbitration Act, such
procedures as the Parties may agree or, in the absence of or failing
such agreement, pursuant to the AAA Rules. Notwithstanding the
foregoing: (w) each party shall be allowed to conduct discovery
through written requests for information, document requests, requests
for stipulations of fact, and depositions; (x) the nature and extent
of such discovery shall be determined by the Panel, taking into
account the needs of the Parties and the desirability of making
discovery expeditious and cost-effective; (y) the Panel may issue
orders to protect the confidentiality of information, to be disclosed
in discovery; and (z) the Panel's discovery rulings may be enforced in
any court of competent jurisdiction.
(iv) All hearings shall be conducted on an expedited schedule,
and all proceedings shall be confidential. Either Party may at its
expense make a stenographic record thereof.
(v) The Panel shall complete all hearings not later than twenty
(20) days after selection or appointment, and shall make a final award
not later than ten (10) days thereafter. The award shall be in writing
and shall specify the factual and legal bases for the award, and shall
include a determination as to whether any claim by the Executive of
Good Reason was manifestly unreasonable for purposes of the
second-to-last sentence of Section 4. Notwithstanding anything
contained in Section 7, in circumstances where a Dispute has been
asserted by the Executive or defended against by the Executive on
grounds that the Panel deems manifestly unreasonable (whether related
to a claim of Good Reason or otherwise), the Panel may assess all or
part of the costs and expenses of the arbitration, including the
Panel's fees and expenses and fees and expenses of experts and legal
counsel ("Arbitration Costs"), against the Executive and may include
in the award the Executive's and the Company's attorney's fees and
expenses in connection with any and all proceedings under this Section
18. Notwithstanding the foregoing, in no event may the Panel award
multiple, punitive or exemplary damages to either party.
<PAGE>
20
(d) Confidentiality - Notice. Each Party shall notify the other
promptly, and in any event prior to disclosure to any third person, if it
receives any request for access to confidential information or proceedings
hereunder.
19. No Setoff
The Company shall have no right of setoff or counterclaim in respect of any
claim, debt or obligation against any payment provided for in this Agreement.
20. Non-Exclusivity of Rights
Nothing in this Agreement shall prevent or limit the Executive's continuing
or future participation in any benefit, bonus, incentive or other plan or
program provided by the Company or any of its subsidiaries or successors and for
which the Executive may qualify, nor shall anything herein limit or reduce such
rights as the Executive may have under any other agreements with the Company or
any of its subsidiaries or successors. Amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan or program
of the Company or any of its subsidiaries shall be payable in accordance with
such plan or program, except as explicitly modified by this Agreement.
21. No Guaranteed Employment
The Executive and the Company acknowledge that this Agreement shall not
confer upon the Executive any right to continued employment and shall not
interfere with the right of the Company to terminate the employment of the
Executive at any time.
22. Invalidity of Provisions
In the event that any provision of this Agreement is adjudicated to be
invalid or unenforceable under applicable law in any jurisdiction, the validity
or enforceability of the remaining provisions thereof shall be unaffected as to
such jurisdiction and such adjudication shall not affect the validity or
enforceability of such provision in any other jurisdiction. To the extent that
any provision of this Agreement, including, without limitation, Section 10
hereof, is adjudicated to be invalid or unenforceable because it is overbroad,
that provision shall not be void but rather shall be limited to the extent
required by applicable law and enforced as so limited. The parties expressly
acknowledge and agree that this Section 22 is reasonable in view of the parties'
respective interests.
23. Non-Waiver of Rights
The failure by the Company or the Executive to enforce at any time any of
the provisions of this Agreement or to require at any time performance by the
other party of any of the provisions hereof shall in no way be construed to be a
waiver of such provisions or to affect either the validity of this Agreement, or
any part hereof, or the right of the Company or the Executive thereafter to
enforce each and every provision in accordance with the terms of this Agreement.
<PAGE>
21
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the day and year first above set forth.
PLEASE NOTE: BY SIGNING THIS TERMINATION BENEFITS AGREEMENT, THE EXECUTIVE IS
HEREBY CERTIFYING THAT THE EXECUTIVE (A) HAS RECEIVED A COPY OF THIS AGREEMENT
FOR REVIEW AND STUDY BEFORE EXECUTING IT; (B) HAS READ THIS AGREEMENT CAREFULLY
BEFORE SIGNING IT; (C) HAS HAD SUFFICIENT OPPORTUNITY BEFORE SIGNING THE
AGREEMENT TO ASK ANY QUESTIONS THE EXECUTIVE HAS ABOUT THE AGREEMENT AND HAS
RECEIVED SATISFACTORY ANSWERS TO ALL SUCH QUESTIONS; AND (D) UNDERSTANDS THE
EXECUTIVE'S RIGHTS AND OBLIGATIONS UNDER THE AGREEMENT.
THIS AGREEMENT IN SECTION 18 CONTAINS A BINDING ARBITRATION PROVISION WHICH
MAY BE ENFORCED BY THE PARTIES.
MCDONNELL DOUGLAS CORPORATION
By:______________________________________
Harry C. Stonecipher, President & CEO
EXECUTIVE:
__________________________________________
<PAGE>
1
SETTLEMENT AGREEMENT AND
GENERAL AND SPECIAL RELEASE
1. PARTIES. The parties to this Settlement Agreement and General and Special
Release ("Agreement") are:
(a) Herbert J. Lanese (hereinafter "Lanese"), and
(b) McDonnell Douglas Corporation ("MDC").
2. RECITALS. This Agreement is entered into to effectuate Lanese's separation
from MDC, and the parties, through this Agreement, except as expressly
provided for herein agree to fully and finally settle all claims, known and
unknown, that either party may have against the other arising from Lanese's
relationship with MDC and MDC's relationship with Lanese, including, but
not limited to, claims relating to Lanese's employment, his separation and
the terms and scope of monetary payments made by, or required to be made
by, MDC to him under this and any other agreement by and between MDC and
Lanese.
3. CONTRACTUAL TERMS. In consideration of the terms and covenants of this
Agreement, MDC agrees to permit, perform, allow or facilitate certain acts
on Lanese's behalf and to pay certain monies, all as more fully set out
below:
(a) Lanese's termination of employment was effective as of October 27,
1996;
(b) Lanese will receive a payment under MDC's Senior Executive Performance
Sharing Plan ("PSP") equal to his Performance Adjusted Target
Incentive Compensation Award (PAT), determined during the first
quarter of 1997, subject to normal taxation and withholdings, which
payment shall be in complete satisfaction of any award under PSP for
the Plan Year 1996. Payment under this paragraph shall issue in
accordance with MDC's normal PSP cycle;
(c) Promptly following his termination on October 27, 1996, Lanese will
receive a lump-sum payment for all accrued and unused vacation days,
subject to normal taxation and withholding;
(d) The number of restricted shares of MDC stock granted under the two
Performance Accelerated Restricted Stock ("PARS") Agreements between
Lanese and MDC dated February 16, 1994, shall remain unchanged.
Subject to the provisions of paragraphs 4(c) and 5(c) herein, shares
shall vest or be forfeited in accordance with the terms of the PARS
Agreements as if Lanese was still employed by MDC through the
Performance Periods;
(e) The number of restricted shares of MDC stock granted under the
Performance Accelerated Restricted Stock ("PARS") Agreement between
Lanese and MDC dated March 20, 1995, shall be reduced from 30,000 to
20,000 shares. Subject to the provisions of paragraphs 4(c) and 5(c)
herein, such reduced number of shares shall vest or be forfeited in
accordance with the terms of the PARS Agreement as if Lanese was still
employed by MDC through the Performance Periods;
<PAGE>
2
(f) The number of restricted shares of MDC stock granted under the
Performance Accelerated Restricted Stock ("PARS") Agreement between
Lanese and MDC dated February 1, 1996, shall be reduced from 24,000
(A) to 8,000 shares if payment of shares vest and are to be paid in
their entirety pursuant to said PARS Agreement in 1999 and if Lanese
does not obligate MDC to pay for any outplacement services pursuant to
paragraph 3(g) below or (B) 4,000 shares either if any of the shares
vest and are to be paid in 2002 pursuant to said PARS Agreement or if
Lanese obligates MDC to pay for any outplacement services pursuant to
paragraph 3(g) below. Subject to the provisions of paragraphs 4(c) and
5(c) herein, such reduced number of shares shall vest or be forfeited
in accordance with the terms of the PARS Agreement as if Lanese was
still employed by MDC through the Performance Periods;
(g) At Lanese's election, MDC will pay up to $150,000 at no greater than
standard rates to an outplacement firm designated by Lanese for
outplacement services provided to him, prior to January 1, 1998.
(h) Any Long Term Incentive Plan (LTIP) or Performance Sharing Plan annual
incentive compensation amounts that previously would have been paid to
Lanese but were deferred because they would not have been deductible
due to the compensation cap of Internal Revenue Code Section 162(m)
(the "162(m) Deferral"), together with additional amounts otherwise
payable to him from such deferrals shall continue to be deferred (the
"Total Deferral"). The deferred amounts included in the Total Deferral
will continue to earn interest at 11% until December 31, 1996;
thereafter, the Total Deferral will earn 7% interest compounded
quarterly during the deferral period. Subject to the provisions of
paragraphs 4(c) and 5(c) herein, one-third of the Total Deferral and
interest shall be paid to Lanese by MDC on the first business day of
January, 1998; one-half of the remaining Total Deferral and interest
shall be paid to Lanese by MDC on the first business day of January,
1999; and the balance of the Total Deferral and interest shall be paid
to Lanese by MDC on the first business day of January, 2000;
(i) On each Friday commencing November 1, 1996, and ending on May 30,
1997, Lanese will receive a severance check equal to his weekly
base rate of pay as of October 27, 1996, subject to normal
taxation and withholding;
(j) Until December 31, 1996, MDC will continue to perform a security
check on Lanese's personal mail and will continue to reimburse
Lanese for the security system at his home, it being understood
and agreed that the upgrades to Lanese's security system remain
the property of MDC and will be returned to MDC no later than the
date when Lanese sells his home; and
(k) Lanese shall be entitled to receive other employee benefits in
accordance with MDC's established plans, including the Employee
Retirement Income Plan of MDC - Salaried Plan, the Supplemental
Employee Retirement Income Plan, the Employee Savings Plan of MDC
- Salaried Plan and the Supplemental Employee Savings Plan, all
in accordance with the terms of such plans.
<PAGE>
3
4. ADDITIONAL CONTRACTUAL TERMS & GENERAL AND SPECIAL RELEASE.
(a) In consideration of the terms and provisions of this Agreement,
Lanese, on behalf of himself and his successors, assigns, attorneys,
representatives, and any and all other related individuals and
entities, does hereby release and discharge MDC and its successors,
assigns, attorneys, affiliated components and corporations, and their
officers, directors, agents and employees from any and all claims,
liabilities, costs and expenses (including, but not limited to,
attorney's fees), damages, actions and causes of action, of whatever
kind or nature arising out of acts or omissions occurring before the
execution of this Agreement (collectively referred to as "claims"),
including, without limitation, any statutory, civil or administrative
claim, claims arising from rights under federal, state, and local laws
prohibiting discrimination on any basis (including age discrimination
and alleged violation of the Age Discrimination in Employment Act),
and common law claims of any kind, including, but not limited to,
contract, tort, and property rights claims including, but not limited
to, breach of contract, breach of the implied covenant of good faith
and fair dealing, tortious interference with contract or current or
prospective economic advantage, fraud, deceit, libel, slander,
misrepresentation, defamation, infliction of emotional distress, and
any other common law claim of any kind. Notwithstanding anything
herein to the contrary, except as provided below in this paragraph 4
herein the Indemnification Agreement dated June 21, 1991, by and
between MDC and Lanese (the "Indemnification Agreement") will survive
this Agreement.
(b) The monies and other considerations outlined in paragraphs 3(a)
through (k) herein, the sufficiencies of which are expressly
acknowledged by Lanese, are accepted by him in complete satisfaction
of all claims, known or unknown, disputed or otherwise.
(c) In consideration of the terms and provisions of this Agreement, MDC,
on behalf of itself and its successors, assigns, attorneys,
representatives and any and all other related individuals and entities
does hereby release and discharge Lanese, and his respective
successors, assigns and attorneys from any and all claims,
liabilities, costs and expenses (including but not limited to
attorneys' fees), damages, actions and causes of action, of whatever
kind or nature occurring before the execution of this Agreement
(collectively referred to as "Claims"), including, without limitation,
common law claims of any kind, including, but not limited to,
contract, tort, or property rights claims including, but not limited
to, breach of contract, breach of the implied covenant of good faith
and fair dealing, tortious interference with contract or current or
prospective economic advantage, fraud, deceit, libel, slander,
misrepresentation, defamation, infliction of emotional distress, and
any other common law claim of any kind. Notwithstanding the foregoing,
<PAGE>
4
neither this release and discharge nor the Indemnification Agreement
shall protect Lanese from, and Lanese agrees to indemnify and hold MDC
harmless from and against any and all liability incurred by MDC for
violations of paragraph 5(c) herein or of federal or state employment
discrimination laws by Lanese or by MDC as a result of the conduct or
activities of Lanese while an employee of MDC, or as a result of a
serious violation by him of MDC policy. Amounts payable to Lanese
under paragraphs 3(b), (d), (e), (f), (g), (h) and (i) hereunder may
be reduced and offset by MDC by an amount or amounts deemed reasonably
appropriate by MDC in its sole discretion to satisfy such obligations
of Lanese.
5. CONTINUING OBLIGATIONS.
(a) Acknowledgments by Lanese. Lanese hereby acknowledges the following:
(i) MDC is engaged in, among other things, the business of
researching, designing, developing, manufacturing, selling and
distributing on a worldwide basis fighter and military transport
aircraft, commercial aircraft, helicopters, missiles, satellite
launch vehicles, and certain related and other businesses (the
"Business").
(ii) In connection with the Business, MDC has expended a great deal of
time, money and effort to develop and maintain the secrecy and
confidentiality of substantial proprietary trade secret
information and other confidential business information which, if
misused or disclosed, could be very harmful to the Business and
could cause MDC to lose its competitive edge in the marketplace.
(iii)Lanese desires to become entitled to receive the benefits
contemplated by this Agreement but which MDC would not make
available to him but for his signing and agreeing to abide by the
terms of this Section 5.
(iv) Lanese recognizes and acknowledges that his position with MDC
provided him with access to certain of MDC's confidential and
proprietary trade secret information and other confidential
business information.
(v) MDC compensates its employees to, among other things, develop and
preserve goodwill with its customers on MDC's behalf and business
information for MDC's ownership and use.
(vi) Lanese recognizes and acknowledges that MDC in all fairness would
need certain protection in order to ensure that Lanese does not
appropriate and misuse any confidential information entrusted to
him during the course of his employment with MDC, or take any
other action which could result in a loss of MDC's goodwill that
was generated on MDC's behalf and at its expense, and, more
generally, to prevent Lanese from having an unfair competitive
advantage over MDC.
<PAGE>
5
(b) Confidential Information.
(i) Lanese agrees to keep secret and confidential, and not to use or
disclose to any third parties, any of MDC's confidential and
proprietary trade secret information or other confidential
business information concerning the Business acquired by Lanese
during the course of, or in connection with, his employment with
MDC. MDC considers and treats as confidential (among other
things) its engineering, design and technical data, computer
software and programs, component sourcing and supply information,
pricing policies, operational methods, strategic plans, internal
financial information, research and development plans and
activities, and business acquisition and expansion plans, and,
except as provided herein, Lanese agrees to treat such
information as secret and confidential so long as such
information does not become generally known to the public through
no fault or wrongful act of Lanese.
(ii) Lanese acknowledges that any and all notes, records, sketches,
computer diskettes and other documents obtained by or provided to
him, or otherwise made, produced or compiled during the course of
his employment with MDC, which contain any such confidential MDC
information, regardless of the type of medium in which it is
preserved, are the sole and exclusive property of MDC and shall
be surrendered to MDC upon his termination.
(c) Post-Termination Lanese Liabilities. In addition to the continuing
liability of Lanese provided for in paragraph 4(c) herein, Lanese
agrees that, at any time prior to the payment of PAT pursuant to
paragraph 3(b), the vesting or forfeiture of all restricted stock
under the PARS agreements pursuant to paragraphs 3(d), (e) or (f), the
payment for outplacement pursuant to paragraph 3(g) or the payment of
deferred compensation and severance pursuant to paragraphs 3(h) and
(i), Lanese shall forfeit all rights to (1) receiving any PAT pursuant
to paragraph 3(b), (2) vesting or otherwise receiving any restricted
stock under the PARS agreements pursuant to paragraphs 3(d), (e) and
(f), (3) payment for any outplacement services pursuant to paragraph
3(g), and (4) vesting and receipt of deferred compensation and
severance pursuant to paragraphs 3(h) and (i), if he, on his own
behalf or on behalf of any other person, firm, corporation or entity
in the world:
<PAGE>
6
(i) provides any services for any of MDC's significant competitors,
representatives, suppliers or customers or provides any general
business, technical or strategic consulting or planning with
respect to the Business for any such companies. Lanese recognizes
that such companies could benefit greatly if they were to obtain
MDC's confidential information. Lanese may request permission to
provide services to or consult with any company that may be
included in the category of MDC's significant competitors,
representatives, suppliers or customers. The written denial or
grant of such a request by MDC's President and Chief Executive
Officer shall be conclusive and binding on the parties hereto.
The grant of such a request will not be unreasonably withheld,
and if the request is granted, Lanese will not be held in
violation of this paragraph 5(c) for providing services to or
consulting with such company in accordance with the terms of the
request;
(ii) knowingly solicits, entices, induces, hires, employs or seeks to
employ any salesperson, engineer, technician, manager or
executive-level employee of MDC, who was employed by MDC on the
date hereof, to provide any services with respect to the
Business; or
(iii) breaches or violates paragraphs 5(b), (d) or (e) or any MDC
policy regarding confidentiality.
(d) Agreement to Refrain from Using Disparaging Comments. Lanese shall
indefinitely refrain, in writing and orally, from using examples or
narrative which are derogatory of MDC, its present or former
management, its policies or practices, or any other matter bearing on
the reputation or good name of MDC.
(e) Agreement re Cooperation. Lanese agrees to readily and fully cooperate
with MDC should it become necessary to develop factual bases to
protect or defend MDC's business interests.
(f) Acknowledgment Regarding Restrictions. Lanese recognizes and agrees
that the provisions of this Section 5 are reasonable and enforceable
because, among other things, (1) he is receiving compensation under
this Agreement and (2) there are many other areas in which, and
companies for which, he could work in view of his background, and this
paragraph 5 therefore does not impose any undue hardship on him. He
further recognizes and agrees that the provisions of this paragraph 5
are reasonable and enforceable in view of MDC's legitimate interests
in protecting its confidential information and customer goodwill and
the limitations contained therein on the duration and geographic scope
of, and activities covered by, such provisions.
6. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and
shall be binding upon the successors and assigns of the parties hereto, and
each of them. In the case of MDC, this Agreement is intended to release and
inure to the benefit of MDC's affiliated components and corporations, their
divisions and shareholders, officers, directors, agents, representatives,
employees, and any and all other related individuals and entities, if any,
individually as well as in the capacity indicated.
<PAGE>
7
7. INTEGRATION. This Agreement and the Indemnification Agreement (as modified
herein) constitute a single, integrated written contract expressing the
entire agreement of the parties to this Agreement concerning its subject
matters; all other agreements between Lanese and MDC, including, but not
limited to the Termination Benefits Agreement dated March 15, 1996, are
hereby terminated, and to the extent required by such other agreements,
this Agreement shall constitute a terminating amendment to such other
agreements. No covenants, agreements, or warranties of any kind, whether
express or implied in law or fact, have been made by any party to this
Agreement, except as specifically set forth in this Agreement. All prior
and contemporaneous discussions and negotiations have been and are merged
and integrated into, and are superseded by, this Agreement.
8. MODIFICATIONS. No modification, amendment or waiver of any of the
provisions contained in this Agreement, or any future representation,
promise, or condition in connection with the subject matter of this
Agreement, shall be binding upon any party hereto unless made in writing
and signed by such party or by a duly authorized officer or agent of such
party.
9. SEVERABILITY. In the event that any provision of this Agreement should be
held to be void, voidable, unlawful or for any reason unenforceable, the
remaining portions of this Agreement shall remain in full force and effect.
10. NON-ASSIGNMENT OF CLAIMS. Lanese and MDC each represent and warrant that he
and it has not assigned or transferred any portion of the claims released
herein to any other individual, firm, corporation, or other entity, and
that no other individual, firm, corporation or other entity has any lien,
claim or interest in any of such claims, including but not limited to, any
claim or interest arising out of, related to or connected with the matters
referenced herein. Lanese and MDC each covenant and agree not to bring,
induce, or assist, in any claim, action or proceeding of any kind or nature
against the other party, directly or indirectly, regarding, connected with,
arising out of, or relating to in any manner the matters released by this
Agreement and to indemnify the other party from and against all liability
of any kind relating in any way to the activities described in this
paragraph.
11. MISCELLANEOUS TERMS. Each of the parties to this Agreement further
represents, warrants, and agrees as follows:
<PAGE>
8
(a) Each of the parties has had the opportunity to review this Agreement
and seek advice on the advisability of making the settlement provided
for herein and executing this Agreement, including the opportunity to
consult with the legal counsel of the party's choice. Lanese
acknowledges that he has been given the opportunity to consider
settling the claims referenced herein, in accordance with the terms of
this Agreement, for twenty-one (21) days, and that he may take as much
of that time as he wants to consider the Agreement before signing it.
Lanese also acknowledges that he may revoke this agreement within
seven (7) days of the date he signs it, and that if he does not revoke
the Agreement within seven (7) days, the Agreement will be effective,
binding and enforceable;
(b) Each of the parties has read the Agreement carefully, knows and
understands the contents thereof, and has made such investigation of
the facts pertaining to the settlement and this Agreement and of all
matters pertaining hereto as it deems necessary or desirable;
(c) The terms of this Agreement are contractual and result from
discussions between the parties;
(d) Each party agrees that such party will not take any action which would
interfere with the performance of this Agreement by any of the parties
hereto or which would adversely affect the status of the rights
provided for, or the claims surrendered, herein; and
(e) In entering into this Agreement and the settlement provided for
herein, the parties, and each of them, acknowledge that this
Agreement, except as expressly provided for herein, is intended to be
final and binding between MDC and Lanese, and, except as expressly
provided for herein, is further intended to be effective as a full and
final accord and satisfaction between them. Each party relies on the
finality of this Agreement as a material factor inducing that party's
execution of this Agreement.
12. SETTLEMENT. The parties hereto acknowledge and covenant that this Agreement
represents a settlement of disputed rights and claims and that by entering
into this Agreement, no party hereto admits or acknowledges the existence
of any liability or wrongdoing, all such liability being expressly denied.
No provision of this Agreement, or of any related document, shall be
construed as an admission or concession of liability, of any wrongdoing or
of any preexisting liability.
<PAGE>
9
13. CONFIDENTIALITY. Lanese and MDC agree that the existence, fact, terms, or
provisions of or information concerning this Agreement shall remain
confidential and shall not be disclosed to the mass media or the press, or
to any person, firm, corporation, or other entity (collectively referred to
as "any person") with the sole and exclusive exceptions of: (a) as required
by any governmental agency or court, or otherwise required by law, so long
as the party being compelled to disclose provides the other party with
written notice of such requirement fifteen (15) days prior to the required
disclosure; (b) to Lanese's attorney or accountant as may be required for
the rendition of professional services, so long as any such attorney or
accountant is informed of this confidentiality agreement prior to the
disclosure of information protected by it and agrees to abide by its terms;
(c) to a limited number of MDC employees tasked with implementation of the
terms of the Agreement; (d) to a Court(s) of competent jurisdiction should
either party be required to enforce any provisions hereunder or to sue for
breach; and (e) to Lanese's prospective employers on a very limited basis.
In the unlikely event that Lanese is requested or required to share the
particulars of this Agreement with prospective employers, MDC shall be
notified prior to any proposed disclosure and shall narrowly tailor and
limit the scope of such communications.
14. GOVERNING LAW. This Agreement shall be construed in accordance with the
laws of the State of Missouri.
IN WITNESS WHEREOF, the parties hereto have approved and executed this
Agreement on the date(s) specified below.
/s/ Herbert J. Lanese
- - --------------------------- October 31, 1996
Herbert J. Lanese
/s/ Harry C. Stonecipher
- - ---------------------------- October 31, 1996
McDonnell Douglas Corporation
By: Harry C. Stonecipher
President & CEO
<PAGE>
1
SETTLEMENT AGREEMENT AND
GENERAL AND SPECIAL RELEASE
1. PARTIES. The parties to this Settlement Agreement and General and Special
Release ("Agreement") are:
(a) Robert H. Hood, Jr. and Dorothy P. Hood (collectively hereinafter
"Hood"), and
(b) McDonnell Douglas Corporation ("MDC").
2. RECITALS. This Agreement is entered into to effectuate Hood's
retirement from MDC, and the parties, through this Agreement, except as
expressly provided for herein agree to fully and finally settle all
claims, known and unknown, that either party may have against the other
arising from Hood's relationship with MDC and MDC's relationship with
Hood, including, but not limited to, claims relating to Hood's
employment, his retirement and the terms and scope of monetary payments
made by, or required to be made by, MDC to him under this and any other
agreement by and between MDC and Hood.
3. CONTRACTUAL TERMS. In consideration of the terms and covenants of this
Agreement, MDC agrees to permit, perform, allow or facilitate certain acts
on Hood's behalf and to pay certain monies, all as more fully set out
below:
(a) From the date of the execution of this Agreement until and including
December 31, 1996, Hood will continue in full-time employment at MDC;
(b) At the close of business on December 31, 1996, Hood will retire from
MDC;
(c) Hood will receive a payment under MDC's Senior Executive Performance
Sharing Plan ("PSP") equal to his Performance Adjusted Target
Incentive Compensation Award (PAT), determined during the first
quarter of 1997, subject to normal taxation and withholdings, which
payment shall be in complete satisfaction of any award under PSP for
the Plan Year 1996. Payment under this paragraph shall issue in
accordance with MDC's normal PSP cycle;
(d) Promptly following his retirement on December 31, 1996, Hood will
receive a lump-sum payment for all accrued and unused vacation days,
subject to normal taxation and withholding;
(e) The number of restricted shares of MDC stock granted under the two
Performance Accelerated Restricted Stock ("PARS") Agreements between
Hood and MDC dated February 18, 1994, shall remain unchanged. Subject
to the provisions of paragraphs 4(c) and 5(c) herein, shares shall
vest or be forfeited in accordance with the terms of the PARS
Agreements as if Hood was still employed by MDC through the
Performance Periods;
<PAGE>
2
(f) The number of restricted shares of MDC stock granted under the
Performance Accelerated Restricted Stock ("PARS") Agreement between
Hood and MDC dated March 20, 1995, shall be reduced from 24,000 to
16,000 shares. Subject to the provisions of paragraphs 4(c) and 5(c)
herein, such reduced number of shares shall vest or be forfeited in
accordance with the terms of the PARS Agreement as if Hood was still
employed by MDC through the Performance Periods;
(g) The number of restricted shares of MDC stock granted under the
Performance Accelerated Restricted Stock ("PARS") Agreement between
Hood and MDC dated February 1, 1996, shall be reduced from 10,000 to
1,667 shares. Subject to the provisions of paragraphs 4(c) and 5(c)
herein, such reduced number of shares shall vest or be forfeited in
accordance with the terms of the PARS Agreement as if Hood was still
employed by MDC through the Performance Periods;
(h) Any Long Term Incentive Plan (LTIP) or Performance Sharing Plan annual
incentive compensation amounts that previously would have been paid to
Hood but were deferred because they would not have been deductible due
to the compensation cap of Internal Revenue Code Section 162(m) (the
"162(m) Deferral"), together with additional amounts otherwise payable
to him from such deferrals shall continue to be deferred (the "Total
Deferral"). The deferred amounts included in the Total Deferral will
continue to earn interest at 11% until December 31, 1996; thereafter,
the Total Deferral will earn 7% interest compounded quarterly during
the deferral period. Subject to the provisions of paragraphs 4(c) and
5(c) herein, the Total Deferral and interest shall be paid to Hood by
MDC in the form of a ten (10) year annuity, payable in equal quarterly
installments of seventy-eight thousand two hundred eighty-two dollars
and forty cents ($78,282.40) beginning on April 1, 1997;
(i) Hood shall be entitled to receive other employee benefits in
accordance with MDC's established plans, including the Employee
Retirement Income Plan of MDC - Salaried Plan, the Supplemental
Employee Retirement Income Plan, the Employee Savings Plan of MDC
Salaried Plan and the Supplemental Employee Savings Plan, all in
accordance with the terms of such plans;
(j) Subject to the provisions of paragraphs 4(c) and 5(c) herein, Hood
shall be entitled to receive the relocation and retransportation
benefits set forth in paragraph 5 of the 2 May 1989 Memo Agreement
between MDC and Hood relating to his 1989 relocation from St. Louis to
Long Beach, CA (the "Relocation Benefits Agreement") together with
appropriate gross-up for income tax purposes (if Hood relocates to a
location other than St. Louis, Missouri, MDC shall only be responsible
for what such expenses would have been as if he relocated to St.
Louis);
<PAGE>
3
(k) For purposes of determining amounts due to Hood by MDC under the terms
and conditions of the Restated Shared Appreciation Note between Hood
and MDC dated January 18, 1991 in the face amount of $665,000 (the
"Note"), Hood and MDC agree to the calculations and values set forth
in Schedule A hereto regarding the amount (the "Balance") payable by
Hood to MDC. Payment of the Balance shall be satisfied from the
proceeds received by MDC from the sale and closing of the property
known and numbered as 3814 East Woodbine Road, Orange County, CA 92667
(the "Hood Residence"), which is subject to the April 29, 1989 Second
Deed of Trust in favor of MDC securing the Note. MDC will gross up
Hood's compensation for the tax consequence thereof in accordance with
the calculations in Schedule A; and
(l) From and after January 1, 1997, MDC shall assume responsibility for
dues and assessments and shall be entitled to all proceeds from the
sale of Hood's membership in the Virginia Country Club.
4. ADDITIONAL CONTRACTUAL TERMS & GENERAL AND SPECIAL RELEASE.
(a) In consideration of the terms and provisions of this Agreement, Hood,
on behalf of himself and herself and their successors, assigns,
attorneys, representatives, and any and all other related individuals
and entities, do hereby release and discharge MDC and its successors,
assigns, attorneys, affiliated components and corporations, and their
officers, directors, agents and employees from any and all claims,
liabilities, costs and expenses (including, but not limited to,
attorney's fees), damages, actions and causes of action, of whatever
kind or nature arising out of acts or omissions occurring before the
execution of this Agreement (collectively referred to as "claims"),
including, without limitation, any statutory, civil or administrative
claim, claims arising from rights under federal, state, and local laws
prohibiting discrimination on any basis (including age discrimination
and alleged violation of the Age Discrimination in Employment Act),
and common law claims of any kind, including, but not limited to,
contract, tort, and property rights claims including, but not limited
to, breach of contract, breach of the implied covenant of good faith
and fair dealing, tortious interference with contract or current or
prospective economic advantage, fraud, deceit, libel, slander,
misrepresentation, defamation, infliction of emotional distress, and
any other common law claim of any kind. Notwithstanding anything
herein to the contrary, except as provided below in this paragraph 4
herein the Indemnification Agreement dated June 21, 1991, by and
between MDC and Hood (the "Indemnification Agreement") will survive
this Agreement.
(b) The monies and other considerations outlined in paragraphs 3(a)
through (k) herein, the sufficiencies of which are expressly
acknowledged by Hood, are accepted by him in complete satisfaction of
all claims, known or unknown, disputed or otherwise.
<PAGE>
5
(c) In consideration of the terms and provisions of this Agreement, MDC,
on behalf of itself and its successors, assigns, attorneys,
representatives and any and all other related individuals and entities
does hereby release and discharge Hood, and their respective
successors, assigns and attorneys from any and all claims,
liabilities, costs and expenses (including but not limited to
attorneys' fees), damages, actions and causes of action, of whatever
kind or nature occurring before the execution of this Agreement
(collectively referred to as "Claims"), including, without limitation,
any statutory, civil or administrative claim, claims arising from
rights under federal, state and local laws prohibiting discrimination
on any basis (including age discrimination and alleged violations of
the Age Discrimination in Employment Act), and common law claims of
any kind, including, but not limited to, contract, tort, or property
rights claims including, but not limited to, breach of contract,
breach of the implied covenant of good faith and fair dealing,
tortious interference with contract or current or prospective economic
advantage, fraud, deceit, libel, slander, misrepresentation,
defamation, infliction of emotional distress, and any other common law
claim of any kind. Notwithstanding the foregoing, neither this release
and discharge nor the Indemnification Agreement shall protect Hood
from, and Hood agrees to indemnify and hold MDC harmless from and
against any and all liability incurred by MDC for violations of
paragraph 5(c) herein or of federal or state employment discrimination
laws by Hood or by MDC as a result of the conduct or activities of
Hood while an employee of MDC, or as a result of a serious violation
by him of MDC policy. Amounts payable to Hood under paragraphs 3(e),
(f), (g), (h) and (j) hereunder may be reduced and offset by MDC by an
amount or amounts deemed reasonably appropriate by MDC in its sole
discretion to satisfy such obligations of Hood.
5. CONTINUING OBLIGATIONS.
(a) Acknowledgments by Hood. Hood hereby acknowledges the following:
(i) MDC is engaged in, among other things, the business of
researching, designing, developing, manufacturing, selling and
distributing on a worldwide basis fighter and military transport
aircraft, commercial aircraft, helicopters, missiles, satellite
launch vehicles, and certain related and other businesses (the
"Business").
(ii) In connection with the Business, MDC has expended a great deal of
time, money and effort to develop and maintain the secrecy and
confidentiality of substantial proprietary trade secret
information and other confidential business information which, if
misused or disclosed, could be very harmful to the Business and
could cause MDC to lose its competitive edge in the marketplace.
<PAGE>
6
(iii) Hood desires to become entitled to receive the benefits
contemplated by this Agreement but which MDC would not make
available to him but for his signing and agreeing to abide by the
terms of this Section 5.
(iv) Hood recognizes and acknowledges that his position with MDC
provides him with access to certain of MDC's confidential and
proprietary trade secret information and other confidential
business information.
(v) MDC compensates its employees to, among other things, develop and
preserve goodwill with its customers on MDC's behalf and business
information for MDC's ownership and use.
(vi) Hood recognizes and acknowledges that MDC in all fairness would
need certain protection in order to ensure that Hood does not
appropriate and misuse any confidential information entrusted to
him during the course of his employment with MDC, or take any
other action which could result in a loss of MDC's goodwill that
was generated on MDC's behalf and at its expense, and, more
generally, to prevent Hood from having an unfair competitive
advantage over MDC.
(b) Confidential Information.
(i) Hood agrees to keep secret and confidential, and not to use or
disclose to any third parties, any of MDC's confidential and
proprietary trade secret information or other confidential
business information concerning the Business acquired by Hood
during the course of, or in connection with, his employment with
MDC. MDC considers and treats as confidential (among other
things) its engineering, design and technical data, computer
software and programs, component sourcing and supply information,
pricing policies, operational methods, strategic plans, internal
financial information, research and development plans and
activities, and business acquisition and expansion plans, and,
except as provided herein, Hood agrees to treat such information
as secret and confidential so long as such information does not
become generally known to the public through no fault or wrongful
act of Hood.
(ii) Hood acknowledges that any and all notes, records, sketches,
computer diskettes and other documents obtained by or provided to
him, or otherwise made, produced or compiled during the course of
his employment with MDC, which contain any such confidential MDC
information, regardless of the type of medium in which it is
preserved, are the sole and exclusive property of MDC and shall
be surrendered to MDC upon his retirement.
<PAGE>
7
(c) Post-Termination Hood Liabilities. In addition to the continuing
liability of Hood provided for in paragraph 4(c) herein, Hood
agrees that, at any time prior to the vesting or forfeiture of
all restricted stock under the PARS agreements pursuant to
paragraphs 3(e), (f) or (g), or the payment of deferred
compensation pursuant to paragraph 3(h), or the relocation and
retransportation benefits under paragraph 3(j), Hood shall
forfeit all rights to (1) vesting or otherwise receiving any
restricted stock under the PARS agreements pursuant to paragraphs
3(e), (f) and (g), and (2) vesting and receipt of deferred
compensation pursuant to paragraph 3(h), and (3) the payments
otherwise due to him under paragraph 3(j) if he, on his own
behalf or on behalf of any other person, firm, corporation or
entity in the world:
(i) provides any services for any of MDC's significant
competitors, representatives, suppliers or customers or
provides any general business, technical or strategic
consulting or planning with respect to the Business for any
such companies. Hood recognizes that such companies could
benefit greatly if they were to obtain MDC's confidential
information. Hood may request permission to provide services
to or consult with any company that may be included in the
category of MDC's significant competitors, representatives,
suppliers or customers. The written denial or grant of such
a request by MDC's President and Chief Executive Officer
shall be conclusive and binding on the parties hereto. The
grant of such a request will not be unreasonably withheld,
and if the request is granted, Hood will not be held in
violation of this paragraph 5(c) for providing services to
or consulting with such company in accordance with the terms
of the request;
(ii) knowingly solicits, entices, induces, hires, employs or
seeks to employ any salesperson, engineer, technician,
manager or executive-level employee of MDC, who was employed
by MDC on the date hereof, to provide any services with
respect to the Business; or
(iii)breaches or violates paragraphs 5(b), (d) or (e) or any MDC
policy regarding confidentiality.
(d) Agreement to Refrain from Using Disparaging Comments. Hood shall
indefinitely refrain, in writing and orally, from using examples or
narrative which are derogatory of MDC, its present or former
management, its policies or practices, or any other matter bearing on
the reputation or good name of MDC.
(e) Agreement re Cooperation. Hood agrees to readily and fully cooperate
with MDC should it become necessary to develop factual bases to
protect or defend MDC's business interests.
<PAGE>
8
(f) Acknowledgment Regarding Restrictions. Hood recognizes and agrees that
the provisions of this Section 5 are reasonable and enforceable
because, among other things, (1) he is receiving compensation under
this Agreement and (2) there are many other areas in which, and
companies for which, he could work in view of his background, and this
paragraph 5 therefore does not impose any undue hardship on him. He
further recognizes and agrees that the provisions of this paragraph 5
are reasonable and enforceable in view of MDC's legitimate interests
in protecting its confidential information and customer goodwill and
the limitations contained therein on the duration and geographic scope
of, and activities covered by, such provisions.
6. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and
shall be binding upon the successors and assigns of the parties hereto, and
each of them. In the case of MDC, this Agreement is intended to release and
inure to the benefit of MDC's affiliated components and corporations, their
divisions and shareholders, officers, directors, agents, representatives,
employees, and any and all other related individuals and entities, if any,
individually as well as in the capacity indicated.
7. INTEGRATION. This Agreement, the Indemnification Agreement (as modified
herein), paragraph 5 of the Relocation Benefits Agreement and Note
constitute a single, integrated written contract expressing the entire
agreement of the parties to this Agreement concerning its subject matters;
all other agreements between Hood and MDC are hereby terminated, and to the
extent required by such other agreements, this Agreement shall constitute a
terminating amendment to such other agreements. No covenants, agreements,
or warranties of any kind, whether express or implied in law or fact, have
been made by any party to this Agreement, except as specifically set forth
in this Agreement. All prior and contemporaneous discussions and
negotiations have been and are merged and integrated into, and are
superseded by, this Agreement.
8. MODIFICATIONS. No modification, amendment or waiver of any of the
provisions contained in this Agreement, or any future representation,
promise, or condition in connection with the subject matter of this
Agreement, shall be binding upon any party hereto unless made in writing
and signed by such party or by a duly authorized officer or agent of such
party.
9. SEVERABILITY. In the event that any provision of this Agreement should be
held to be void, voidable, unlawful or for any reason unenforceable, the
remaining portions of this Agreement shall remain in full force and effect.
<PAGE>
9
10. NON-ASSIGNMENT OF CLAIMS. Hood and MDC each represent and warrant that he
and it has not assigned or transferred any portion of the claims released
herein to any other individual, firm, corporation, or other entity, and
that no other individual, firm, corporation or other entity has any lien,
claim or interest in any of such claims, including but not limited to, any
claim or interest arising out of, related to or connected with the matters
referenced herein. Hood and MDC each covenant and agree not to bring,
induce, or assist, in any claim, action or proceeding of any kind or nature
against the other party, directly or indirectly, regarding, connected with,
arising out of, or relating to in any manner the matters released by this
Agreement and to indemnify the other party from and against all liability
of any kind relating in any way to the activities described in this
paragraph.
11. MISCELLANEOUS TERMS. Each of the parties to this Agreement further
represents, warrants, and agrees as follows:
(a) Each of the parties has had the opportunity to review this Agreement
and seek advice on the advisability of making the settlement provided
for herein and executing this Agreement, including the opportunity to
consult with the legal counsel of the party's choice. Hood
acknowledges that he has been given the opportunity to consider
settling the claims referenced herein, in accordance with the terms of
this Agreement, for twenty-one (21) days, and that he may take as much
of that time as he wants to consider the Agreement before signing it.
Hood also acknowledges that he may revoke this agreement within seven
(7) days of the date he signs it, and that if he does not revoke the
Agreement within seven (7) days, the Agreement will be effective,
binding and enforceable;
(b) Each of the parties has read the Agreement carefully, knows and
understands the contents thereof, and has made such investigation of
the facts pertaining to the settlement and this Agreement and of all
matters pertaining hereto as it deems necessary or desirable;
(c) The terms of this Agreement are contractual and result from
discussions between the parties;
(d) Each party agrees that such party will not take any action which would
interfere with the performance of this Agreement by any of the parties
hereto or which would adversely affect the status of the rights
provided for, or the claims surrendered, herein; and
(e) In entering into this Agreement and the settlement provided for
herein, the parties, and each of them, acknowledge that this Agreement
is, except as expressly provided for herein intended to be final and
binding between MDC and Hood, and, except as expressly provided for
herein, is further intended to be effective as a full and final accord
and satisfaction between them. Each party relies on the finality of
this Agreement as a material factor inducing that party's execution of
this Agreement.
<PAGE>
10
12. SETTLEMENT. The parties hereto acknowledge and covenant that this Agreement
represents a settlement of disputed rights and claims and that by entering
into this Agreement, no party hereto admits or acknowledges the existence
of any liability or wrongdoing, all such liability being expressly denied.
No provision of this Agreement, or of any related document, shall be
construed as an admission or concession of liability, of any wrongdoing or
of any preexisting liability.
13. CONFIDENTIALITY. Hood and MDC agree that the existence, fact, terms, or
provisions of or information concerning this Agreement shall remain
confidential and shall not be disclosed to the mass media or the press, or
to any person, firm, corporation, or other entity (collectively referred to
as "any person") with the sole and exclusive exceptions of: (a) as required
by any governmental agency or court, or otherwise required by law, so long
as the party being compelled to disclose provides the other party with
written notice of such requirement fifteen (15) days prior to the required
disclosure; (b) to Hood's attorney or accountant as may be required for the
rendition of professional services, so long as any such attorney or
accountant is informed of this confidentiality agreement prior to the
disclosure of information protected by it and agrees to abide by its terms;
(c) to a limited number of MDC employees tasked with implementation of the
terms of the Agreement; (d) to a Court(s) of competent jurisdiction should
either party be required to enforce any provisions hereunder or to sue for
breach; and (e) to Hood's prospective employers on a very limited basis. In
the unlikely event that Hood is requested or required to share the
particulars of this Agreement with prospective employers, MDC shall be
notified prior to any proposed disclosure and shall narrowly tailor and
limit the scope of such communications.
14. GOVERNING LAW. This Agreement shall be construed in accordance with the
laws of the State of Missouri.
IN WITNESS WHEREOF, the parties hereto have approved and executed this
Agreement on the date(s) specified below.
/s/ Robert H. Hood, Jr.
- - ------------------------------------- December 10, 1996
Robert H. Hood, Jr.
/s/ Dorothy P. Hood
- - ------------------------------------- December 10, 1996
Dorothy P. Hood
s/s Harry C. Stonecipher
- - ------------------------------------- December 9, 1996
McDonnell Douglas Corporation
By: Harry C. Stonecipher
President & CEO
<PAGE>
SCHEDULE A
TO
SETTLEMENT AGREEMENT AND
GENERAL AND SPECIAL RELEASE
Original cost basis of home (1/10/92) $1,330,000
Current Fair Market Value (12/96) $1,037,500
Hood Proportionate Share:
Amount payable to pay Senior Deed of Trust $365,000
Amount payable to Hood
o Down Payment $300,000
o Capital Improvements $8,942
---------
Total $673,942
MDC Proportionate Share $363,558
--------
Total $1,037,500
Tax Gross-Up for depreciation of home value $292,890
<PAGE>
1
1997-2002 Grant
PERFORMANCE ACCELERATED
RESTRICTED STOCK AWARD AGREEMENT
(Service-Based Vesting)
Agreement made as of the ____ day of _____________, by and between
McDonnell Douglas Corporation (hereinafter called the "Company") and
[Employee Name], (hereinafter called the "Employee").
RECITAL
The Employee is employed by the Company as [Employee Title]. The Company desires
to provide equity ownership opportunities and performance-based incentives to
better match the interests of officers and key employees with those of
shareholders. The Employee desires to receive incentive compensation, the
vesting of which will be contingent upon Employee's continued service to the
Company. Accordingly, the Company has agreed to grant certain of its common
shares of the Company to the Employee subject, however, to certain restrictions.
In consideration of the mutual promises herein contained, the Company and
Employee agree as follows:
1. Agreement Subject to Plan. The Restricted Shares have been granted under
the McDonnell Douglas Corporation 1994 Performance and Equity Incentive
Plan (the "Plan"), a copy of which has been given to Employee and is
incorporated herein by this reference. This Agreement including the grant
of Restricted Shares hereunder is subject to the terms, conditions and
provisions of the Plan. Unless otherwise indicated, capitalized terms in
this Agreement shall have the same meaning ascribed to such terms in the
Plan.
2. Grant of Shares Subject to Restriction and Forfeiture. The Company hereby
grants to Employee [____] Shares (the "Restricted Shares") subject to the
restrictions and conditions contained herein and in the Plan (collectively,
the "Conditions"). Notwithstanding any other provision of this Agreement,
if the Committee determines that at any time prior to the date the
restrictions lapse in accordance with Section 5 hereof, either before or
after termination of employment, Employee has acted in a manner contrary to
the best interests of Company or any Affiliate, Employee shall forfeit all
Restricted Shares for which such restrictions have not lapsed. As a
condition precedent to the effectiveness of this Agreement, Employee shall
execute appropriate blank stock powers with respect to the Restricted
Shares and deliver such stock powers to the administrator of the Plan (the
"Plan Administrator"). Within one month after the date the Plan
Administrator receives such stock powers, stock certificates for the
Restricted Shares shall be issued (with an appropriate legend referring to
the restrictions included in the Conditions) and deposited, together with
the stock powers with the Plan Administrator. The Plan Administrator shall
issue to the Employee a receipt evidencing any stock certificates
<PAGE>
2
representing the Restricted Shares registered in the Employee's name and
held by the Plan Administrator. The Employee shall be entitled to delivery
of such stock certificate(s) upon satisfaction of the Conditions and only
in accordance with Section 6 hereof. Employee agrees that the Conditions
shall apply to the Restricted Shares and any shares or other securities
which Employee may receive or be entitled to receive as a result of the
ownership of the Restricted Shares whether the same are issued as a result
of a stock split, stock dividend, spin-off, split-up, spin-out,
recapitalization, merger, consolidation, reorganization, combination or
exchange of shares, or any other similar transaction, or as a result of the
merger or consolidation of the Company, or sale of assets of the Company,
or similar transaction.
3. Restrictions to Transfer. Employee hereby agrees that unless and until the
Conditions are satisfied or terminated as provided in Section 5 herein,
Employee will not sell, assign, transfer, pledge, encumber or otherwise
dispose of any of the Restricted Shares (each a "Transfer") without the
prior written consent of the Committee, and any such Transfer without such
consent shall be null and void ab initio.
4. Shareholder Rights. Except for the Conditions, the Employee shall have all
rights and privileges of a stockholder of the Company as to his or her
Restricted Shares, including the right to receive any dividends declared
with respect to such Restricted Shares and to exercise voting rights.
5. Lapse of Restrictions and Forfeiture of Shares. The Conditions shall be
satisfied and lapse and the Restricted Shares shall be subject to
forfeiture during a six-year performance period (the "Performance Period")
as follows:
(a) Initial Performance Period. The Initial Performance Period shall be
the three Fiscal Year period beginning with the Fiscal Year in which
this Agreement is executed. Restrictions shall be satisfied and lapse
after the Initial Performance Period in accordance with the following
schedule:
RONA
(as defined in Section 5(c)) Percentage of Restricted Shares
during Initial Performance Period upon which restrictions lapse
----------------------------------- --------------------------------
25.00% or less 0.00%
26.00% 20.00%
27.00% 40.00%
28.00% 60.00%
29.00% 80.00%
30.00% or more 100.00%
(b) Second Performance Period. The Second Performance Period shall be the
three Fiscal Year period immediately following the Initial Performance
Period. At the end of the Second Performance Period, restrictions
shall lapse on the total number of Restricted Shares initially granted
hereunder less the number of Restricted Shares upon which restrictions
lapsed after the Initial Performance Period in accordance with Section
5(a) of this Agreement.
<PAGE>
3
(c) Calculations. Calculations for vesting and forfeiture of Restricted
Shares between specified percentages shall be determined by linear
interpolation. Each of the calculations referred to in this Section 5
shall be rounded to the one-hundredth of one percent (0.01%) or to the
nearest whole share, as appropriate. RONA shall be calculated by
dividing earnings before interest and taxes by average net assets, in
each such case adjusted for unusual accounting and operational items
(such as the adoption of a new accounting standard, changes in
accounting, deferred production credits, and unusual or extraordinary
settlements of program claims, specifications and issues).
6. Delivery of Share Certificates. As soon as practicable and in no event more
than three months after the end of the Initial Performance Period and the
Second Performance Period, the Committee shall calculate annualized RONA
and the number of Restricted Shares, if any, for which the restrictions
have lapsed in accordance with Section 5 hereof. The Committee shall
promptly thereafter instruct the Plan Administrator to deliver a stock
certificate(s) representing the number of shares for which restrictions
have lapsed (to the nearest full share and cash for fractional shares, if
any), net of any shares withheld pursuant to Section 10, free of the
restrictions set forth in Section 3.
7. Termination of Employment. In the event Employee's employment by the
Company terminates for any reason prior to the vesting or forfeiture of all
Restricted Shares granted hereunder, the total number of Restricted Shares
granted hereunder may be reduced, rescinded or left unchanged, at the sole
discretion of the Committee. The number of Restricted Shares as and to the
extent so adjusted shall then vest or be forfeited in accordance with the
provisions of Section 5 hereof, provided, however, if Employee dies prior
to the vesting or forfeiture of all Restricted Shares granted under this
Agreement, the Committee may, in its sole discretion, accelerate the
vesting of the Restricted Shares as and to the extent so adjusted. If such
termination occurs after the Initial Performance Period or the Second
Performance Period has ended but before Shares have been delivered in
accordance with Section 6, such event shall not affect calculations, and
Shares will be delivered as soon as practical thereafter. In no event,
however, shall this Section cause Employee to forfeit Restricted Shares
which vested prior to the date of Employee's termination.
8. Effect of Change of Control. In the event of a Change of Control, all
restrictions and conditions applicable to the Restricted Shares will be
deemed to have been satisfied as of the date the Change of Control occurs;
provided, however, that any transaction or proposed transaction pursuant to
the Agreement and Plan of Merger which has been entered into among The
Boeing Company, West Acquisition Corporation and the Company, dated as of
December 14, 1996 shall not be treated as a Change of Control for the
purposes of this Agreement.
9. Change of Duties. If in its sole discretion the Committee determines that,
subsequent to the date hereof, Employee's job responsibilities have been
significantly reduced, the Committee may reduce the number of Restricted
Shares granted hereunder.
<PAGE>
4
10. Withholding. At such time as Share certificates are to be delivered to
Employee in accordance with Section 6 of this Agreement, the Company shall
satisfy the federal, state and local withholding requirements with respect
to such distribution. Such withholding can be satisfied at the Company's
option either by (i) the Company's withholding of Shares, or (ii) by
requiring Employee's payment in cash in the required amount prior to
delivery of the Shares. Notwithstanding the foregoing, in the event
Employee is subject to Section 16 of the Exchange Act at the time of such
delivery, the Company shall withhold Shares in an amount equal to the
statutory minimum withholding amount.
11. Designation of Beneficiary. Employee may by written notice in form
reasonably acceptable to the Committee designate a beneficiary in
accordance with the terms and conditions of the Plan who will receive
Shares if and when Restrictions lapse if Employee has died prior to the
date(s) restrictions lapse.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and date set forth above.
MCDONNELL DOUGLAS CORPORATION
By: ______________________________________
Yvette S. Whitehead, Plan Administrator
______________________________________
[Employee Name]
<PAGE>
1
1997-2002 Grant
PERFORMANCE ACCELERATED
RESTRICTED STOCK AWARD AGREEMENT
(Performance-Based Vesting)
Agreement made as of the ___ day of ______________, by and between
McDonnell Douglas Corporation (hereinafter called the "Company") and [Employee
Name], (hereinafter called the "Employee").
RECITAL
The Employee is employed by the Company as [Employee Title] The Company desires
to provide equity ownership opportunities and performance-based incentives to
better match the interests of officers and key employees with those of
shareholders. The Employee desires to receive incentive compensation, the
vesting of which will be contingent upon the Company's achievement of certain
financial goals. Accordingly, the Company has agreed to grant certain of its
common shares of the Company to the Employee subject, however, to certain
restrictions.
In consideration of the mutual promises herein contained, the Company and
Employee agree as follows:
1. Agreement Subject to Plan. The Restricted Shares have been granted under
the McDonnell Douglas Corporation 1994 Performance and Equity Incentive
Plan (the "Plan"), a copy of which has been given to Employee and is
incorporated herein by this reference. This Agreement including the grant
of Restricted Shares hereunder is subject to the terms, conditions and
provisions of the Plan. Unless otherwise indicated, capitalized terms in
this Agreement shall have the same meaning ascribed to such terms in the
Plan.
2. Grant of Shares Subject to Restriction and Forfeiture. The Company hereby
grants to Employee [____] Shares (the "Restricted Shares") subject to the
restrictions and conditions contained herein and in the Plan (collectively,
the "Conditions"). Notwithstanding any other provision of this Agreement,
if the Committee determines that at any time prior to the date the
restrictions lapse in accordance with Section 5 hereof, either before or
after termination of employment, Employee has acted in a manner contrary to
the best interests of Company or any Affiliate, Employee shall forfeit all
Restricted Shares for which such restrictions have not lapsed. As a
condition precedent to the effectiveness of this Agreement, Employee shall
execute appropriate blank stock powers with respect to the Restricted
Shares and deliver such stock powers to the administrator of the Plan (the
"Plan Administrator"). Within one month after the date the Plan
Administrator receives such stock powers, stock certificates for the
Restricted Shares shall be issued (with an appropriate legend referring to
<PAGE>
2
the restrictions included in the Conditions) and deposited, together with
the stock powers with the Plan Administrator. The Plan Administrator shall
issue to the Employee a receipt evidencing any stock certificates
representing the Restricted Shares registered in the Employee's name and
held by the Plan Administrator. The Employee shall be entitled to delivery
of such stock certificate(s) upon satisfaction of the Conditions and only
in accordance with Section 6 hereof. Employee agrees that the Conditions
shall apply to the Restricted Shares and any shares or other securities
which Employee may receive or be entitled to receive as a result of the
ownership of the Restricted Shares whether the same are issued as a result
of a stock split, stock dividend, spin-off, split-up, spin-out,
recapitalization, merger, consolidation, reorganization, combination or
exchange of shares, or any other similar transaction, or as a result of the
merger or consolidation of the Company, or sale of assets of the Company,
or similar transaction.
3. Restrictions to Transfer. Employee hereby agrees that unless and until the
Conditions are satisfied or terminated as provided in Section 5 herein,
Employee will not sell, assign, transfer, pledge, encumber or otherwise
dispose of any of the Restricted Shares (each a "Transfer") without the
prior written consent of the Committee, and any such Transfer without such
consent shall be null and void ab initio.
4. Shareholder Rights. Except for the Conditions, the Employee shall have all
rights and privileges of a stockholder of the Company as to his or her
Restricted Shares, including the right to receive any dividends declared
with respect to such Restricted Shares and to exercise voting rights.
5. Lapse of Restrictions and Forfeiture of Shares. Restrictions shall be
satisfied and lapse and the Restricted Shares shall be subject to
forfeiture during a six-year performance period (the "Performance Period")
as follows:
(a) Initial Performance Period. The Initial Performance Period shall be
the three Fiscal Year period beginning with the Fiscal Year in which
this Agreement is executed. Restrictions shall be satisfied and lapse
after the Initial Performance Period in accordance with the following
schedule:
RONA
(as defined in Section 5(c)) Percentage of Restricted Shares
during Initial Performance Period upon which restrictions lapse
----------------------------------- --------------------------------
30.00% or less 0.00%
31.00% 20.00%
32.00% 40.00%
33.00% 60.00%
34.00% 80.00%
35.00% or more 100.00%
<PAGE>
3
(b) Second Performance Period. The Second Performance Period shall be the
three Fiscal Year period immediately following the Initial Performance
Period. Restricted Shares shall be forfeited after the Second
Performance Period in accordance with the following schedule:
RONA Forfeiture Percentage of
(as defined in Section 5(c)) Restricted Shares initially
during Second Performance Period granted hereunder
----------------------------------- -----------------------------
25.00% or less 100.00%
26.00% 90.00%
27.00% 80.00%
28.00% 70.00%
29.00% 60.00%
30.00% 50.00%
31.00% 40.00%
32.00% 30.00%
33.00% 20.00%
34.00% 10.00%
35.00% or more 0.00%
In no event, however, shall the number of Restricted Shares forfeited
after the Second Performance Period exceed the total number of
Restricted Shares initially granted hereunder less the number of
Restricted Shares upon which restrictions lapsed after the Initial
Performance Period in accordance with Section 5(a) of this Agreement.
Restrictions shall lapse on all Restricted Shares not so forfeited.
(c) Calculations. Calculations for vesting and forfeiture of Restricted
Shares between specified percentages shall be determined by linear
interpolation. Each of the calculations referred to in this Section 5
shall be rounded to the one-hundredth of one percent (0.01%) or to the
nearest whole share, as appropriate. RONA shall be calculated by
dividing earnings before interest and taxes by average net assets, in
each such case adjusted for unusual accounting and operational items
(such as the adoption of a new accounting standard, changes in
accounting, deferred production credits, and unusual or extraordinary
settlements of program claims, specifications and issues).
<PAGE>
4
(d) Performance-Based Restrictions. The award of the Restricted Shares is
intended to provide a performance-based incentive. Notwithstanding any
other provision of the Plan or this Agreement, the Committee does not
have the discretion to waive any of the performance-based restrictions
contained in this Agreement, and it may not accelerate the lapse of
restrictions other than in accordance with this Section or, in the
event Employee dies prior to the vesting or forfeiture of all
Restricted Shares granted hereunder, in accordance with Section 7 of
this Agreement; provided, however, that following any transaction
consummated pursuant to the Agreement and Plan of Merger which has
been entered into among The Boeing Company, West Acquisition
Corporation and the Company, dated as of December 14, 1996, the
Committee will have the discretion to adjust the performance criteria
to other performance or service-based factors if deemed necessary by
the Committee to more appropriately reflect the organizational
structure, characteristics, performance, and other attributes of the
merged company. In the event of a Change of Control, however, the
lapse of restrictions will be accelerated in accordance with Section 8
hereof.
6. Delivery of Share Certificates. As soon as practicable and in no event more
than three months after the end of the Initial Performance Period and the
Second Performance Period, the Committee shall calculate annualized RONA
and the number of Restricted Shares, if any, for which the restrictions
have lapsed or should be forfeited in accordance with Section 5 hereof. The
Committee shall promptly thereafter instruct the Plan Administrator to
deliver a stock certificate(s) representing the number of shares for which
restrictions have lapsed (to the nearest full share and cash for fractional
shares, if any), net of any shares withheld pursuant to Section 10, free of
the restrictions set forth in Section 3.
7. Termination of Employment. In the event Employee's employment by the
Company terminates for any reason prior to the vesting or forfeiture of all
Restricted Shares granted hereunder, the total number of Restricted Shares
granted hereunder may be reduced, rescinded or left unchanged, at the sole
discretion of the Committee. The number of Restricted Shares as and to the
extent so adjusted shall then vest or be forfeited in accordance with the
provisions of Section 5 hereof, provided, however, if Employee dies prior
to the vesting or forfeiture of all Restricted Shares granted under this
Agreement, the Committee may, in its sole discretion, accelerate the
vesting of the Restricted Shares as and to the extent so adjusted. If such
termination occurs after the Initial Performance Period or the Second
Performance Period has ended but before Shares have been delivered in
accordance with Section 6, such event shall not affect calculations, and
Shares will be delivered as soon as practical thereafter. In no event,
however, shall this Section cause Employee to forfeit Restricted Shares
which vested prior to the date of Employee's termination.
8. Effect of Change of Control. In the event of a Change of Control, all
restrictions and conditions applicable to the Restricted Shares will be
deemed to have been satisfied as of the date the Change of Control occurs;
provided, however, that any transaction or proposed transaction pursuant to
the Agreement and Plan of Merger which has been entered into among the
Boeing Company, West Acquisition Corporation and the Company, dated as of
December 14, 1996 shall not be treated as a Change of Control for the
purposes of this Agreement.
<PAGE>
5
9. Change of Duties. If in its sole discretion the Committee determines that,
subsequent to the date hereof, Employee's job responsibilities have been
significantly reduced, the Committee may reduce the number of Restricted
Shares granted hereunder.
10. Withholding. At such time as Share certificates are to be delivered to
Employee in accordance with Section 6 of this Agreement, the Company shall
satisfy the federal, state and local withholding requirements with respect
to such distribution. Such withholding can be satisfied at the Company's
option either by (i) the Company's withholding of Shares or (ii) by
requiring Employee's payment in cash in the required amount prior to
delivery of the Shares. Notwithstanding the foregoing, in the event
Employee is subject to Section 16 of the Exchange Act at the time of such
delivery, the Company shall withhold Shares in an amount equal to the
statutory minimum withholding amount.
11. Designation of Beneficiary. Employee may by written notice in form
reasonably acceptable to the Committee designate a beneficiary in
accordance with the terms and conditions of the Plan who will receive
Shares if and when Restrictions lapse if Employee has died prior to the
date(s) restrictions lapse.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and date set forth above.
MCDONNELL DOUGLAS CORPORATION
By:___________________________________________
Yvette S. Whitehead, Plan Administrator
___________________________________________
[Employee Name]
Exhibit 11
MCDONNELL DOUGLAS CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(Dollar amounts in millions, except share data)
Years Ended December 31 1996 1995 1994
------ ------ ------
PRIMARY
Weighted average shares
outstanding 216,444,186 227,058,476 236,602,704
============ ============ ============
Net earnings (loss) $788 ($416) $598
============ ============ =============
Earnings (loss) per share $3.64 ($1.83) $2.53
=========== ============ ============
Earnings per share computations are based upon the weighted average common
shares outstanding during the year. Common stock equivalents (options) are not
material.
The computation of fully diluted earnings per share is the same as the primary
computation.
Number of shares and per share amounts for 1995 and 1994 have been restated to
reflect a two-for-one stock split.
Exhibit 12
MCDONNELL DOUGLAS CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
Years Ended December 31
---------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ -----
EARNINGS
Earnings (loss) from
continuing operations
before income taxes
and cumulative effect
of accounting change $1,223 ($750) $ 920 $ 459 $1,086
ADD: Interest expense 248 225 249 215 468
Interest factor
in rents 53 32 35 39 57
Amortization of
capitalized
interest 1 1 1 1 2
------- ------- ------- ------- -------
$1,525 ($492) $1,205 $ 714 $1,613
======= ======= ======= ======= =======
FIXED CHARGES
Interest expense $248 $225 $249 $215 $468
Capitalized interest 2
Interest factor in rents 53 32 35 39 57
------- ------- ------- ------ -------
$301 $257 $284 $256 $525
======= ======= ======= ====== =======
Ratio of earnings to fixed
charges 5.1X (A) 4.2X 2.8X 3.1X
======= ======= ======= ====== =======
(A) For the year ended December 31, 1995, earnings were inadequate to
cover fixed charges. The amount of such deficiency for the period
was $749 million.
<PAGE>
[Company Pull-Out Section]
MILITARY AIRCRAFT; MISSILES, SPACE, AND ELECTRONIC SYSTEMS
McDonnell Douglas Aerospace and Military Transport Aircraft are the
defense-related operating units of McDonnell Douglas Corp.
MCDONNELL DOUGLAS AEROSPACE (Primary locations)
- - -----------------------------------------------
TACTICAL AIRCRAFT AND MISSILE SYSTEMS
- - -------------------------------------
ST. LOUIS, MISSOURI
EMPLOYEES: 23,700 worldwide (including 20,000 in St. Louis)
HISTORY: Founded as the McDonnell Aircraft Co. in 1939 by James S. McDonnell.
MARKETS SERVED: U.S. and other national and international armed forces.
PRODUCTS/SERVICES: F-15 Eagle dual-role fighter; multimission F/A-18 Hornet and
Super Hornet (in development) strike fighters; AV-8B Harrier II Plus
vertical/short takeoff and landing tactical aircraft; T-45 Training System;
Harpoon anti-ship missile; Standoff Land Attack Missile (SLAM) and SLAM Expanded
Response (in development); Joint Direct Attack Munition (in development); Joint
Air-to-Surface Standoff Missile (in development); T-38 avionics upgrade (in
development); ACES II ejection seat; training systems, technical support;
research and development in aerospace structures, avionics, and systems.
HELICOPTER SYSTEMS
- - ------------------
MESA, ARIZONA
EMPLOYEES: 3,200
HISTORY: In 1984, McDonnell Douglas purchased Hughes Helicopters, which was
founded in 1934 by Howard R. Hughes Jr.
MARKETS SERVED: U.S. and other national and international armed forces;
commercial light-helicopter operators; police forces and public-service
providers, including air ambulance services.
PRODUCTS/SERVICES: AH-64D Apache Longbow multirole combat helicopters; MD 500
and MD 600 series of light helicopters, most of which feature the NOTAR [TM](or
no-tail-rotor) system for anti-torque and directional control; MD Explorer
twin-turbine helicopter with the NOTAR system; and ordnance.
SPACE AND DEFENSE SYSTEMS
- - -------------------------
HUNTINGTON BEACH, CALIFORNIA
EMPLOYEES: 10,500 worldwide (including 6,800 in Huntington Beach)
HISTORY: Space and Defense Systems was formed from portions of the McDonnell and
Douglas aircraft companies, which were pioneers in U.S. space exploration.
MARKETS SERVED: U.S. National Aeronautics and Space Administration (NASA); U.S.
military services; other national governments and space agencies; U.S. and other
national and international commercial-satellite manufacturers.
PRODUCTS/SERVICES: Delta II medium-class launch vehicle; Delta III
intermediate-class rocket (in development); Delta IV family of small, medium,
and heavy launch vehicles (in development); International Space Station truss
structure and major systems; payload integration; Mast Mounted Sight, Thermal
Imaging Sensor System, and other electronic systems.
<PAGE>
[Company Pull-Out Section]
MILITARY TRANSPORT AIRCRAFT (Primary location)
- - ----------------------------------------------
LONG BEACH, CALIFORNIA
EMPLOYEES: 9,400 (including 8,300 in Long Beach)
HISTORY: Established in a 1996 reorganization, the Military Transport Aircraft
division manages several transport and tanker aircraft programs. Primarily, it
builds the C-17 Globemaster III transport airlifter, which began as a Douglas
Aircraft Co. program. Associated facilities operate in Macon, Georgia;
Charleston, South Carolina; and Tulsa, Oklahoma.
MARKETS SERVED: U.S. armed forces; other national and international armed
forces; and the commercial heavy-cargo transport industry.
PRODUCTS/SERVICES: C-17 Globemaster III; KC-10/KDC-10 tankers; MD-17 commercial
heavy freighter (in development); YC-15 technology demonstrator; C-9D Skytrain
III; and the Advanced Transport Aircraft Systems research unit.
C-17 GLOBEMASTER III [PICTURE OMITTED]
- - --------------------
The most versatile airlifter in aviation history, the C-17 can fly long
distances; land on short, unimproved runways close to the front lines; and
deliver heavy cargo. In 1996, the C-17 received Flight International's Aerospace
Industry Award for the manner in which the airlifter was introduced into
service. In its first two years of operational service (1995 and 1996), the
Globemaster III quickly established itself as the U.S. Air Force's primary
airlifter. It supported U.S. peacekeeping and humanitarian relief efforts in
Bosnia (pictured), Liberia, Kuwait, Saudi Arabia, Rwanda, and other countries.
In Bosnia, a squadron of C-17s flew 25 percent of the missions, carrying 60
percent of the cargo to small airfields. In 1996, the U.S. government signed a
seven-year $14.2 billion contract with McDonnell Douglas for 80 C-17s beyond the
40 for which it had previously committed. Meanwhile, the C-17 passed fatigue
testing equivalent to three design lifetimes (90,000 hours). McDonnell Douglas
began efforts to certify and market a commercial version--the MD-17-- which will
serve a niche market for the delivery of outsize cargo, such as large pieces of
oil exploration equipment, construction equipment, or aerospace components. The
company delivered six new C-17s in 1996 and refurbished three of the test
aircraft, raising the number of Globemaster IIIs in USAF service to 28. A number
of potential customers abroad have expressed interest in the aircraft.
PROPULSION: Four Pratt & Whitney F117-PW-100 series turbofans, each producing
40,440 lb. of thrust and equipped with directed-flow thrust reversers that
enable the C-17 to land on short runways and to back up while fully loaded.
DIMENSIONS: Length 174 ft. (53 m.); height 55 ft. (16.8 m.);
wingspan 170 ft. (51.8 m.).
MAXIMUM PAYLOAD: 169,000 lb. (76,658 kg.).
CREW MEMBERS: Two pilots, one loadmaster.
<PAGE>
[Company Pull-Out Section]
F/A-18 HORNET [PICTURE OMITTED]
- - -------------
The F/A-18 is a multimission aircraft known as a strike fighter. It is flown by
the U.S. Navy and Marine Corps and by the air forces of Canada, Australia,
Spain, Kuwait, Finland, and Switzerland. It is the first tactical aircraft
designed from its inception to carry out both air-to-air and air-to-ground
missions, to operate reliably, and to be easy to maintain even during long
periods when it is based on aircraft carriers in the corrosive environment at
sea. Production began in 1977. The upgraded Night Strike F/A-18C/D, introduced
in 1989, enables crews to fly at night and in adverse weather, with improved
survivability and the ability to use a greater range of precision-guided
weapons. In 1996, McDonnell Douglas delivered 26 F/A-18C/Ds, including the first
two of Switzerland's 34 Hornets. The company also delivered 18 F/A-18 kits to
Finland and Switzerland, which are conducting final assembly of most of their 64
and 34 Hornets, respectively. By the end of the year, Finland had taken delivery
of 11 Hornets. Delivery of Malaysia's eight Hornets will begin in March 1997.
Thailand's eight Hornets are to be delivered in 1999.
PROPULSION: In the F/A-18C/D, two General Electric F404-GE-402 engines,
delivering 35,400 lb. of combined thrust (17,700 lb. each).
MAXIMUM PAYLOAD: Up to 14,900 lb. (6,757 kg.) externally.
DIMENSIONS: Length 56 ft. (17.1 m.); height 15.3 ft. (4.7 m.);
wingspan 40.4 ft. (12.3 m.).
CREW MEMBERS: One in F/A-18A and C; two in F/A-18B and D.
F/A-18E/F SUPER HORNET [PICTURE OMITTED]
- - ----------------------
The F/A-18E/F Super Hornet will be the centerpiece of U.S. naval aviation as the
21st century unfolds. Now in development and testing, it is scheduled to enter
operational service with the U.S. Navy in 2001. The Super Hornet adds greater
range and payload-carrying ability, improves the Hornet's benchmark reliability
and maintainability, and allows for the extensive integration of new systems and
technologies. It also incorporates stealth and other features to improve crew
survivability significantly. The first flight was in November 1995. By late
1996, the Navy and McDonnell Douglas were flight-testing five developmental
aircraft. During its initial sea trials in January 1997, the Super Hornet made
its first arrested landings and catapulted launches aboard an aircraft carrier.
The Department of the Navy has indicated a potential purchase of 1,000 aircraft
- - -- at an estimated program cost of $80 billion -- through 2015. McDonnell
Douglas is the prime contractor and Northrop Grumman the principal subcontractor
for all versions of the F/A-18.
PROPULSION: Two General Electric F414 turbofan engines, producing 44,000 lb. of
combined thrust (22,000 lb. each).
MAXIMUM PAYLOAD: Up to 17,750 lb. (8,051 kg.) externally.
DIMENSIONS: Length 60.3 ft. (18.4 m.); height 16 ft. (4.9 m.);
wingspan 44.9 ft. (13.7 m.).
CREW MEMBERS: One in F/A-18E; two in F/A-18F.
<PAGE>
[Company Pull-Out Section]
F-15 EAGLE [PICTURE OMITTED]
- - ----------
The F-15 (A, B, C, and D versions) was originally designed for the U.S. Air
Force as the world's premier air-superiority fighter. The latest version, the
F-15E Strike Eagle, adds the capability for long-range, precision air-to-surface
interdiction, making the Eagle the USAF's most able fighter-bomber. The
versatile, dual-role aircraft carries a variety of air-to-air and air-to-ground
weapons. It can operate around the clock and in any weather. F-15 production has
been extended into 1999 by orders for 72 F-15S aircraft for Saudi Arabia and 25
F-15I aircraft for Israel. In 1996, ten F-15S Eagles were delivered, and
assembly began on the first F-15I. The U.S. Air Force procured six attrition
F-15Es in fiscal year 1996, and funding has been approved for six more aircraft
in fiscal year 1997.
PROPULSION: Two Pratt & Whitney F100-PW-100/220s (25,000 lb. thrust each) in
F-15C/D; two F100-PW-220/229s (29,000 lb. thrust each) in F-15E. The General
Electric F110-GE-129 (29,000 lb. thrust each) is also an option.
MAXIMUM PAYLOAD: Up to 23,000 lb. (10,433 kg.) in F-15C/D; up to 19,000 lb.
(8,618 kg.) in F-15E (with conformal fuel tanks).
DIMENSIONS: Length 63.8 ft. (19.5 m.); height 18.6 ft. (5.6 m.);
wingspan 42.8 ft. (13 m.).
CREW MEMBERS: One in F-15A and C; one or two in F-15B and D trainers;
two in tactical F-15E.
AV-8B HARRIER II PLUS [PICTURE OMITTED]
- - ---------------------
With its capability for vertical and short takeoffs and landings, the AV-8B
Harrier II can operate where other fixed-wing aircraft cannot. McDonnell Douglas
and British Aerospace jointly developed the Harrier II in the early 1980s for
the U.S. Marine Corps and the British Royal Air Force. It is designed to provide
fast and effective interdiction and support to forces on the ground. The new
radar-equipped configuration--called the Harrier II Plus (pictured)-- makes the
aircraft even more accurate and versatile. Assembly of the Harrier II Pluses by
Spain and Italy -- partners with the United States in the development of this
upgraded aircraft -- will continue through the decade. Through the Marines
Corps' remanufacturing program, 72 day-attack Harriers IIs now in the fleet are
being converted to Harrier II Plus aircraft. Remanufactured Harriers gain a new
service life at two-thirds the cost of all-new aircraft. Four remanufactured
Harrier II Pluses were delivered to the U.S. Marines in 1996.
PROPULSION: One Rolls-Royce F402-RR-408 turbofan engine, delivering 23,800 lb.
of thrust.
MAXIMUM PAYLOAD: 11,795 lb. (5,350 kg.) externally.
DIMENSIONS: Length 47.8 ft. (14.6 m.); height 11.6 ft. (3.5 m.);
wingspan 30.3 ft. (9.2 m.).
CREW MEMBERS: One (two in TAV-8B trainer).
<PAGE>
[Company Pull-Out Section]
T-45 TRAINING SYSTEM (T45TS) [PICTURE OMITTED]
- - ---------------------------
The T45TS is the first totally integrated training system developed for and used
by the U.S. Navy. It includes the T-45A Goshawk aircraft, advanced flight
simulators, academics, computer-assisted instructional programs, a computerized
training-integration system, and a contractor logistics support package.
McDonnell Douglas and British Aerospace share production of the T-45A, and
Hughes Training Inc. is the principal subcontractor for the simulators. Plans
call for a total of 187 T-45A Goshawks to be delivered to the Navy. Nine were
delivered in 1996. Fourteen more are scheduled for 1997. Training with the T45TS
began in January 1994. T-45 flying hours surpassed 100,000 in February 1997.
PROPULSION: One Rolls-Royce F405-RR-401 Adour turbofan engine, producing 5,845
lb. of thrust.
DIMENSIONS: Length 39.3 ft. (12 m.); height 13.5 ft. (4.1 m.);
wingspan 30.8 ft. (9.4 m.).
CREW MEMBERS: Two -- one instructor and one student pilot.
AH-64D APACHE LONGBOW [PICTURE OMITTED]
- - ---------------------
The AH-64D Apache Longbow is the modernized, more capable version of the
battle-proven AH-64A Apache. The AH-64D is the most lethal, survivable,
deployable, and maintainable multimission combat helicopter in the world. It is
available with or without the distinctive fire-control radar dome. The Apache
Longbow has a unique ability to let pilots see and share information on the
digital battlefield. That gives battlefield commanders the information they need
to make critical decisions rapidly. In 1996, McDonnell Douglas delivered 38
AH-64A Apaches. The U.S. Army plans to remanufacture more than 750 AH-64s into
Apache Longbow. Production of the AH-64Ds began in 1996; first delivery will be
in March 1997. Also awaiting delivery of AH-64Ds are the Netherlands, which has
ordered 30, and the United Kingdom, which has ordered 67.
PROPULSION: Two General Electric T700-GE-701C turbine engines.
MAXIMUM PAYLOAD: 10,570 lb. (4,795 kg.).
DIMENSIONS: Length 58.2 ft. (17.7 m.); 16.25 ft. (5 m.); main rotor diameter 48
ft. (14.6 m.).
CREW MEMBERS: One pilot and one co-pilot.
MD 500 [PICTURE OMITTED]
- - ------
MD 500 series helicopters--including the MD 500E, the MD 530F and the MD
520N--are among the fastest, lightest, and most advanced rotorcraft in service.
They are descended from the U.S. Army's OH-6A Cayuse. Although they are now
considered primarily civil helicopters, they are also available in military
configurations. The five-place MD 520N (pictured) features the revolutionary
NOTAR[TM] anti-torque system for increased safety and quiet performance.
Helicopters equipped with the NOTAR system have no tail rotors. McDonnell
Douglas delivered 14 MD 500 series helicopters in 1996.
<PAGE>
[Company Pull-Out Section]
PROPULSION: One Allison Model 250-C20R gas turbine engine.*
DIMENSIONS: Length 32.1 ft. (9.8 m.); height 9.7 ft. (2.9 m.);
main rotor diameter 27.4 ft. (8.3 m.).*
USEFUL LOAD: 1,513 lb. (686 kg.).*
*All specifications are for the MD 520N. Engines, dimensions, and useful load
vary from model to model.
MD 600N [PICTURE OMITTED]
- - -------
This soon-to-be certified eight-place helicopter is a spacious, versatile
performer, well suited for a variety of uses. It features outstanding speed and
hovering ability. It also has the agility and exceptional handling for which the
MD 500 series, from which it is descended, is known. With its advanced NOTAR
[TM] anti-torque system, the MD 600N is a member of an exclusive class of the
safest, quietest helicopters in the world. Other features include a six-bladed
main rotor and a powerful engine and drive system for performance on demand.
Deliveries will begin 1997.
PROPULSION: One Allison Model 250-C47M gas turbine engine.
USEFUL LOAD: 2,120 lb. (962 kg.).
DIMENSIONS: Length 36.9 ft. (11.2 m.); height 9.7 ft. (2.9 m.);
main rotor diameter 27.5 ft. (8.4 m.).
MD EXPLORER [PICTURE OMITTED]
- - -----------
The latest version of the eight-place, twin engine MD Explorer features
better-performing engines for increased speed, range, and payload capabilities.
This aircraft, which secured the European Joint Aviation Authorities' Type
Certification for 27 countries in 1996, is expected to earn Category A
certification in 1997. Category A approval will permit greater flexibility,
especially in areas with stringent single-engine operating rules. The aircraft
also features a variety of advanced technologies, including an all-composite
bearingless main rotor, flexbeam, and blade system. It is equipped with the
NOTAR[TM] anti-torque system for enhanced safety and quiet performance. Fifteen
MD Explorers were delivered in 1996 to customers in diverse worldwide markets.
The MD Explorer is especially popular with medical evacuation services.
PROPULSION: Two Pratt & Whitney 206E gas turboshaft engines.
USEFUL LOAD: 2,975 lb. (1,349 kg.).
DIMENSIONS: Length 38.8 ft. (11.8 m.); height 12 ft. (3.7 m.); main rotor
diameter 33.8 ft. (10.3 m.).
C4I SYSTEMS [PICTURE OMITTED]
- - -----------
McDonnell Douglas's command, control, communications, computers, and
intelligence (C4I) work encompasses information warfare, airborne surveillance
and detection, and maritime warfare systems. McDonnell Douglas's multisensored
Thermal Imaging Sensor System (TISS, pictured) provides U.S. Navy surface ships
with the capability to detect floating mines, speedboats, and swimmers in
near-zero visibility. The unit's Mast Mounted Sight, the precursor to TISS, is
in operation on nearly 500 helicopters and ships worldwide.
<PAGE>
[Company Pull-Out Section]
BUSHMASTER III [PICTURE OMITTED]
- - --------------
The 35 mm. Bushmaster III (pictured on a Bradley fighting vehicle) is a member
of the Chain Gun[TM] family of reliable automatic cannons. It incorporates all
the features of the 25 mm. M242 Bushmaster, which is in service on land and sea
vehicles around the world. The Bushmaster III, which fires NATO standard 35 mm.
ammunition, is a compact, cost-effective answer to future military threats.
McDonnell Douglas has delivered more than 10,000 M242 Bushmasters. It also
builds the 30 mm. M230 cannon for the apache attack helicopter and the 30 mm.
Bushmaster II for Norway. Several Chain Gun cannon variants are now in
production at McDonnell Douglas and elsewhere under license.
DELTA II [PICTURE OMITTED]
- - --------
The Delta II medium-class rocket is the world's most reliable expendable launch
vehicle. An updated version of the Delta rockets McDonnell Douglas has built and
launched since 1960, the Delta II serves a mix of military, commercial, and
civil customers. McDonnell Douglas has booked a full manifest for the rocket
through the year 2002, launching satellites from both Cape Canaveral, Florida,
and Vandenberg Air Force Base, California. The Delta II launched 10 payloads in
1996.
DIMENSIONS: Height 125 ft. (38.1 m.); diameter 8 ft. (2.4 m.).
PAYLOAD CAPACITY: 4,100 lb. (1,860 kg.) to geosynchronous transfer orbit.
DELTA III [PICTURE OMITTED]
- - ---------
The Delta III intermediate-class rocket, whose development was announced in
1995, is building on the successful Delta II heritage. Delta III will deliver
more than twice the lifting power of Delta II. Development of Delta III
continued in 1996. Hughes Space and Communications International Inc., the
initial customer, has scheduled its first launch, of the Galaxy X cable
television satellite, for 1998.
DIMENSIONS: Height 128.2 ft. (39.1 m.); upper-stage diameter 13.1 ft.
(4 m.); lower-stage diameter 7.8 ft. (2.4 m.).
PAYLOAD CAPACITY: 8,400 lb. (3,810 kg.) to geosynchronous transfer orbit.
DELTA IV/EELV [PICTURE OMITTED]
- - -------------
In December 1996, the U.S. Department of Defense selected McDonnell Douglas as
one of the two contractors to compete for development of the U.S. Air Force's
Evolved Expendable Launch Vehicle (EELV). Final selection is expected in 1998,
with the first flight in 2001. The value of the contract to the winner, over the
life of the development program, could reach $1.4 billion. The EELV program is
conceived as a family of rockets in the small, medium, and heavy launch
categories. McDonnell Douglas's design, the Delta IV, is an extension of the
highly reliable Delta II and the new Delta III launch systems.
<PAGE>
[Company Pull-Out Section]
DIMENSIONS: Small-height 182.3 ft. (55.6 m.); gross liftoff wt. 509,000 lb.
(230,882 kg.); payload to geosynchronous transfer orbit 4,800 lb. (2,177.3 kg.).
Medium-height 197.6 ft. (60.2 m.); gross liftoff wt. 533,000 lb. (241,769 kg.);
payload to geosynchronous transfer orbit 10,000 lb. (4536 kg.). Heavy-height
225.4 ft. (68.7 m.); gross liftoff wt. 1,538,000 lb. (697,637 kg.); payload to
geosynchronous transfer orbit 33,000 lb. (14,968.8 kg.).
INTERNATIONAL SPACE STATION [PICTURE OMITTED]
- - ---------------------------
As the major subcontractor on the International Space Station, McDonnell Douglas
is developing and building five integrated truss segments, along with major
subsystems. McDonnell Douglas also will provide other hardware and software
elements, including the mobile transporter used to support assembly and
operations on orbit, pressurized mating adapters used to dock the space shuttle
to the station, and outfitting for pressurized nodes that connect laboratory and
habitation modules. Space agencies in the United States (NASA), Europe, Canada,
Japan, and Russia are participating in the program. The first two launches of
hardware are planned for late 1997.
DIMENSIONS: Length 355.6 ft. (108.4m.); width 243.1 ft. (74.1m.); height 121.4
ft. (37m.).
TOTAL MASS AT COMPLETION: 900,000 LB. (408,240 KG.).
CREW MEMBERS: Six astronauts full-time.
HARPOON [PICTURE OMITTED]
- - -------
More than 25 years after its development began, the AGM 84A/C/D Harpoon is still
deployed as the U.S. Navy's primary anti-ship missile. It has been ordered by 24
customers around the world. It can be launched from aircraft, surface ships,
submarines, and land-based installations.
JOINT AIR-TO-SURFACE STANDOFF MISSILE (JASSM) [PICTURE OMITTED]
- - ---------------------------------------------
In June 1996, McDonnell Douglas was named one of two contractors to compete for
development of the Joint Air-to-Surface Standoff Missile. The JASSM is intended
to be launched from a variety of U.S. Air Force and U.S. Navy bombers and
fighter aircraft. It will allow them to attack high-priority targets from beyond
the range of enemy air defenses. The $130 million contract is for program
definition and risk reduction. In 1998, a single contractor will be selected to
complete the development program. Production of 2,400 missiles is expected to
start in the year 2000. The total program is valued at $3 billion.
JOINT DIRECT ATTACK MUNITION (JDAM) [PICTURE OMITTED]
- - -----------------------------------
In October 1995, McDonnell Douglas won a $63 million U.S. Department of Defense
competition to develop the Joint Direct Attack Munition. The DOD's fiscal year
1997 budget funds the purchase of 936 units. Orders could total about $4 billion
over the next two decades. JDAM is a guidance kit that allows purchasers to
convert existing 1,000-pound and 2,000-pound unguided, free-falling bombs into
precision-guided "smart" munitions that can autonomously strike targets in any
weather conditions. JDAM also minimizes collateral damage while leaving strike
aircraft crews less exposed to hostile fire. Its first free-flight tests
occurred in late 1996. JDAM is currently in flight testing on the F/A-18, the
B-52H, the B-1B, the B-2A, and the F-16.
<PAGE>
[Company Pull-Out Section]
STANDOFF LAND ATTACK MISSILES (SLAM AND SLAM ER) [PICTURE OMITTED]
- - ------------------------------------------------
A derivative of the Harpoon, the AGM 84E Standoff Land Attack Missile is the
U.S. Navy's only air-launched, precision-guided standoff missile system. In
March 1995, the Navy awarded McDonnell Douglas a $91.6 million contract to
develop the SLAM Expanded Response (SLAM ER, pictured). This retrofit kit lets
users upgrade existing SLAMs to achieve longer range, greater effectiveness,
more resistance to jamming, and easier mission planning. In December 1996, the
first operational test SLAM ER was delivered to the U.S. Navy. Low-rate initial
production of 60 missiles will begin in April 1997.
COMMERCIAL AIRCRAFT
- - -------------------
Douglas Aircraft Co. is the commercial aircraft component of the McDonnell
Douglas Corp.
DOUGLAS AIRCRAFT COMPANY (Primary location)
LONG BEACH, CALIFORNIA
EMPLOYEES: 14,200 worldwide (including 10,800 in Long Beach)
HISTORY: Since its founding in 1920 by Donald W. Douglas, the company has
delivered more than 46,000 commercial and military airplanes, including a long
line of Douglas Commercial (DC) and McDonnell Douglas (MD) models.
In 1996, Douglas Aircraft continued to serve the world's airlines by delivering
extended-range models of the MD-11 trijet and introducing an Advanced Common
Flightdeck for the MD-95. Douglas also launched a major modification program to
convert DC-10 trijets into MD-10s. The MD-10 conversion provides performance
upgrades and a new two-person cockpit that combines features of the MD-11 and
the Advanced Common Flightdeck.
Late in the year, Boeing and McDonnell Douglas announced a strategic agreement
to work together on Boeing's future wide-body commercial airplane programs.
MARKETS SERVED: Passenger airlines and freight-shipping services.
PRODUCTS/SERVICES: MD-11 wide-cabin trijet; MD-80 midsize twin jet; MD-90
advanced technology, midsize twin jet; MD-95 advanced technology twin jet (in
development); spare parts; modifications, including conversion of the DC-10
trijet into the advanced technology MD-10; and collaboration on future Boeing
wide-body commercial aircraft.
MD-80 [PICTURE OMITTED]
- - -----
Almost 1,150 MD-80 twin jets have been delivered since the airliner entered
service in 1980. The MD-80 features commercial aviation's first digital
flight-guidance system. It is available in five models -- the MD-81, the MD-82,
the MD-83, the MD-88, and the smaller MD-87.
<PAGE>
[Company Pull-Out Section]
PROPULSION: Two Pratt & Whitney JT8D-200 engines at 18,500 to 21,000 lb. of
thrust each.
DIMENSIONS: Length 147.8 ft. (45 m.); height 29.6 ft. (9 m.); wingspan 107.8 ft.
(32.9 m.). MD-87 length 130.4 ft. (39.7 m.).
CAPACITY: 155 (nominal). MD-87 capacity 130 (nominal--varies depending on
configuration).
RANGE: 1,800 to 2,880 statute mi. (2,897 to 4,635 km.), depending on model and
configuration.
MD-90 [PICTURE OMITTED]
- - -----
The MD-90 twin jet is an advanced midsize airliner that entered revenue service
in 1995. The MD-90 is the quietest large commercial jetliner in the skies. Its
engines are designed for fuel efficiency and reduced exhaust emissions.
PROPULSION: Two International Aero Engines V2500s, delivering 25,000 lb. of
thrust each.
DIMENSIONS: Length 152.6 ft. (46.5 m.); height 30.6 ft. (9.3 m.);
wingspan 107.8 ft. (32.9 m.).
CAPACITY: 153 (nominal--varies depending on configuration).
RANGE: 2,400 to 3,205 statute mi. (3,862 to 5,157 km.), depending on model and
configuration.
MD-95 [PICTURE OMITTED]
- - -----
The MD-95 twin jet airliner was launched in 1995 to serve the market for
aircraft that carry about 100 passengers. ValuJet Airlines is the launch
customer. Its first delivery is scheduled for 1999. The MD-95 is designed to
operate economically on high-frequency, short- to medium-range routes such as
those now flown by hundreds of DC-9s and similar aircraft. Like all McDonnell
Douglas twin jets, the MD-95 features popular five-across coach-class seating
and an all-new interior, with illuminated handrails and larger overhead baggage
racks. The two-person cockpit introduces the new McDonnell Douglas Advanced
Common Flightdeck, featuring the latest technology: liquid-crystal displays for
flight instruments and highly automated systems controllers that can reduce the
pilot's workload in all phases of operation. The MD-95 also continues the
environmental tradition of the MD-90 with reduced fuel consumption, reduced
exhaust emissions, and significantly lower sound levels compared to similar-size
aircraft now in service.
PROPULSION: Two BMW/Rolls-Royce BR715 engines, delivering 18,500 to 21,000 lb.
of thrust each.
DIMENSIONS: Length 124 ft. (37.8 m.); height 29.3 ft. (8.9 m.);
wingspan 93.3 ft. (28.4 m.).
CAPACITY: 106 (nominal--varies depending on configuration).
RANGE: 1,781 statute mi. (2,866 km.); 2,304 statute mi. (3,707 km.) for
extended-range model with optional auxiliary fuel tanks.
<PAGE>
[Company Pull-Out Section]
MD-11 [PICTURE OMITTED]
- - -----
More than 160 MD-11 wide-cabin trijets have been delivered to customers around
the world. Delivery began in 1990. The MD-11 is the only aircraft of its type
available in four models -- passenger, all freighter, convertible freighter
(which can be quickly reconfigured to carry passengers or freight), and "combi"
(which carries passengers and freight on the main deck and additional freight
below). Although outwardly similar to the DC-10, the MD-11 is larger and
features advanced aerodynamics, propulsion, aircraft systems, cockpit systems,
operating economy. Delivery of an extended-range version -- the MD-11ER for
routes up to 8,300 statute miles (13,355 km.) -- began in 1996.
PROPULSION: Three engines, with three available options -- General Electric
CF6-80C2 at 61,500 lb. thrust each; Pratt & Whitney 4460 at 60,000 lb. thrust
each; or Pratt & Whitney 4462 at 62,000 lb. thrust each.
DIMENSIONS: Length 200.8 ft. (61.2 m.); height 57.8 ft. (17.6 m.);
wingspan 169.5 ft. (51.7 m.).
CAPACITY: Passenger version -- 233 to 410, depending on seating
configuration (300 nominal); freighter version -- 20,886 cubic feet of cargo.
RANGE: 4,550 to 8,300 statute miles (7,160 to 13,355 km.), depending on model
and total gross takeoff weight.
<PAGE>
[Annual Report Page 26]
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto beginning on page 35, which are
incorporated herein by this reference.
Forward-Looking Information Is Subject to Risk and Uncertainty
Certain statements in Management's Discussion and Analysis of Financial
Condition and Results of Operations contain "forward-looking" information (as
defined in the Private Securities Litigation Reform Act of 1995) that involves
risk and uncertainty, including projections for the timing of the consummation
of the proposed Boeing merger, future sales, earnings, production levels and
costs, aircraft deliveries, research and development, environmental and other
expenditures, and various business environment trends. Actual results and trends
in the future may differ materially depending on a variety of factors including,
but not limited to, changing priorities or reductions in the U.S. and worldwide
defense and space budgets; global trade policies; worldwide political stability
and economic growth; termination of government contracts due to unilateral
government action or the Company's failure to perform; governmental export and
import policies; the Company's successful execution of internal operating plans;
performance issues with key suppliers and subcontractors; factors that result in
significant and prolonged disruption to air travel worldwide; aircraft delivery
delays or defaults by customers; collective bargaining labor disputes; other
regulatory uncertainties; and legal proceedings. For further discussion of
certain risks and uncertainties that may affect the actual results of any
forward-looking information contained herein, refer to the Form 8-K filed by the
Company with the Securities and Exchange Commission (SEC) on April 17, 1996.
Results of Operations
McDonnell Douglas reported record earnings in 1996 of $788 million, led by
the military aircraft operations. Earnings in this segment were at a record
level for 1996, surpassing the previous record year, 1995, by more than 9
percent. The C-17 and Apache Longbow programs led the earnings improvement in
the military aircraft segment. Operating earnings in each of the segments in
1996 exceeded 1995 results, except for the missiles, space, and electronics
systems segment, where operating earnings were down $4 million. Excluding the
effect of an accounting charge related to the MD-11 trijet, McDonnell Douglas
had 1995 earnings of $707 million, an 18 percent improvement over the 1994
earnings of $598 million. Military aircraft operating earnings in 1995 were 28
percent higher than in 1994.
Revenues for 1996 were $13.834 billion, a 3 percent decline compared with
$14.332 billion in 1995. Revenues in 1995 were 9 percent greater than 1994
revenues of $13.176 billion. The revenue fluctuation over the three-year period
was largely attributed to the number and mix of aircraft deliveries in the
commercial aircraft segment, where revenue was down $574 million in 1996 after
increasing $736 million in 1995. Military aircraft segment revenues were also
higher in 1995 as compared with 1996 and 1994.
<PAGE>
McDonnell Douglas and The Boeing Company (Boeing) entered into a definitive
agreement on December 14, 1996, whereby a wholly owned subsidiary of Boeing will
merge into McDonnell Douglas in a stock-for-stock transaction, as a result of
which McDonnell Douglas will become a wholly owned subsidiary of Boeing. Under
the terms of the transaction, McDonnell Douglas shareholders will receive 0.65
share of Boeing common stock for each share of McDonnell Douglas common stock.
The transaction is subject to approval by the shareholders of both companies and
certain regulatory agencies; and it is expected to close as early as mid-1997.
Approval of shareholders is expected to be considered at separate meetings of
both companies' shareholders in July 1997. The following discussions do not
consider the effects the merger will have on future products or operating
results since the exact timing of the consummation is uncertain and the future
effects of the merger have not been quantified.
Military Aircraft
Operating revenues in the military aircraft segment in 1996 were 3 percent
lower than in 1995, following a 5 percent increase in 1995 compared with 1994.
Revenue in the F/A-18E/F program, which is transitioning from development to
low-rate initial production, decreased in 1996 as compared with 1995. A 99-day
strike at the St. Louis, Missouri, facilities, which ended in mid-September
1996, also reduced revenue in 1996. Higher volume in the F/A-18C/D program from
production-rate increases and more activity on the F-15 program contributed to
revenue growth in 1995.
[Annual Report Page 27]
The military aircraft segment reported record operating earnings of $990
million in 1996, compared with $905 million in 1995 and $708 million in 1994.
Operating margins in the segment exceeded 12 percent in 1996, compared with
margins in excess of 11 percent in 1995 and 9 percent in 1994. Increased volume
and improved margins on the C-17 and Apache Longbow programs led the improvement
in 1996. Award fees on the F/A-18E/F program, partially offset by a charge
associated with the settlement of claims on the T-45 program, also contributed
to the 1996 increase. Improved earnings in the C-17 and F-15 programs led the
increase in 1995 over 1994. Almost all of the C-17 activity in 1995 was
associated with ongoing production lots, as relatively minor activity remained
on the development and initial-production lots. Award fees on the C-17 and
F/A-18 programs also contributed to the 1995 improvement. The F-15 earnings
improvement was principally a result of volume increases. The 1994 C-17
operating earnings were lower than in 1995 and included cost growth in the
development and initial-production lots, reduced cost estimates associated with
a 1993 omnibus settlement, and comparatively lower earnings on ongoing
production lots.
<PAGE>
Commercial Aircraft
Operating revenues in the commercial aircraft segment decreased 15 percent in
1996, after a 23 percent increase in 1995. Fewer deliveries of MD-11 trijets,
along with the inclusion of two trijet and three twin jet deliveries recorded as
operating leases with minimal revenue recorded at the time of delivery,
accounted for the majority of the decrease. McDonnell Douglas delivered 24 MD-90
and 12 MD-80 twin jets (including three under lease arrangements) in 1996,
compared with 14 MD-90 and 18 MD-80 twin jets in 1995 and 22 MD-80 twin jets in
1994. McDonnell Douglas delivered 15 trijets (including two under lease
arrangements)in 1996, compared with 18 in 1995 and 17 in 1994. Current
commercial aircraft production plans for 1997 anticipate MD-80/90 twin jet
deliveries to be slightly higher than 1996 deliveries, with approximately twice
as many deliveries of MD-90s as MD-80s. MD-11 trijet deliveries in 1997 are
expected to be slightly lower than in 1996.
The commercial aircraft segment had operating earnings of $101 million in
1996. Excluding the effect of a 1995 charge related to the MD-11 trijet,
operating earnings were $39 million in 1995 and were $47 million in 1994.
Earnings from the sale of spare parts and related services continued their
significant contribution to segment earnings in each of the three years.
Operating earnings on aircraft production programs, although improved in 1996 as
compared with 1995 and 1994, were near break-even. Development costs, largely
related to the MD-95 program, increased in 1996 over the 1995 and 1994 levels.
Insurance recoveries recorded in 1996 partially offset the higher development
costs. Development costs in 1996 on the MD-95 were also reduced by participation
payments received from MD-95 subcontractors. Loss provisions on several MD-90
twin jets and a write-off of MD-80 inventory amounts contributed to lower 1995
earnings.
Prior to October 1, 1995, MD-11 production and tooling costs were charged to
cost of sales based on the estimated average unit cost for the program. The
estimated average unit costs were based on cost estimates of a 301-aircraft
program. The costs incurred per unit in excess of the estimated average unit
cost were deferred, to be recovered by production and sale of lower-than-average
cost units. In applying the program-average method, the Company estimated (1)
the number of units to be produced and sold in the program, (2) the rate at
which the units were expected to be produced and sold, and thus the period of
time to accomplish that, and (3) selling prices, production costs, and the gross
profit margin for the total program. The gross profit margin for the MD-11 was
unchanged from 1993 through September 30, 1995. After deducting period costs,
the MD-11 program operated at a loss during this period.
Effective October 1, 1995, McDonnell Douglas changed its accounting for cost
of sales on the MD-11 aircraft program from the program-average cost basis to
the specific-unit cost basis. At the same time, McDonnell Douglas revalued MD-11
program support costs previously valued in inventories consistent with the
program-average cost concept. MD-11 program support costs are now allocated to
current production. This change to the specific-unit costing method for the
MD-11 program was made in recognition of production rates, existing order base,
and length of time required to achieve program deliveries, and thus, the
resultant increased difficulty - which became apparent in the fourth quarter of
1995 - in making the estimates necessary under the program-average method of
accounting. Because the effect of this change in accounting principle was
inseparable from the effect of the change in accounting estimate, the change was
accounted for as a change in estimate. As a result, McDonnell Douglas recorded a
noncash charge to operations of $1.838 billion in the fourth quarter of 1995.
<PAGE>
[Annual Report Page 28]
Missiles, Space, and Electronic Systems
Operating revenues in the missiles, space, and electronic systems segment
were $2.178 billion in 1996, $1.917 billion in 1995, and $1.877 billion in 1994.
Higher revenue in the Delta II and Space Station programs, partially offset by
lower revenue in the missiles programs, contributed to the increases in 1996 and
1995.
Operating earnings in the missiles, space, and electronic systems segment
were $194 million in 1996, slightly lower than $198 million in 1995, and down
from $262 million in 1994. Earnings increases in 1996 as compared with 1995 in
the Delta II program were largely offset by increased research and development
expenditures on the Delta III, a launch vehicle under development. Increased
spending on the Delta III and increased costs related to the closing of a
Florida missile facility contributed to lower earnings for 1995 as compared with
1994.
Financial Services and Other
Operating revenues in the financial services and other segment increased to
$367 million in 1996, compared with $334 million in 1995 and $326 million in
1994. Operating earnings of this segment were $74 million in 1996, compared with
$61 million in 1995 and $50 million in 1994. The 1996 operating earnings were at
their highest level since 1990. Operating earnings in this segment have grown in
each of the last three years as a result of increased volume in selective
markets. Operating earnings of the financial services and other segment are
reduced by interest expense, an operating expense of that segment.
Interest Expense
Interest expense related to aerospace segments was $121 million in 1996, $139
million in 1995, and $141 million in 1994, after excluding from 1995 and 1994
the reversal of interest associated with the resolution of tax issues. The
interest expense decline in 1996 reflects lower interest on income tax
obligations and reduced aerospace debt for most of the year. Interest expense
was reduced by $23 million in 1995 and $10 million in 1994, associated with
resolving tax issues. See Note 9, "Income Taxes," page 45.
Interest expense in the financial services and other segment was $127 million
in 1996, up from $109 million in 1995. An increase in debt, associated with a
growth in the asset portfolio, caused the 1996 increase. Interest expense in
1995 was $9 million lower than in 1994 as a result of the refinancing of high
coupon debt to lower rates.
The Company settled certain state tax issues in 1995, resulting in net
earnings of $35 million, of which $14 million ($23 million pretax) related to
reductions in accrued interest. The Company settled certain accounting method
and tax credit issues with the Internal Revenue Service (IRS) in 1994 in
connection with the an IRS audit of the years 1986 through 1989. Issues resolved
in 1994 resulted in net earnings of $21 million, of which $6 million ($10
million pretax) related to reductions in accrued interest. See Note 9, "Income
Taxes," page 45.
<PAGE>
Liquidity
DEBT AND CREDIT ARRANGEMENTS. MDC Aerospace, which represents the
consolidation of McDonnell Douglas Corporation and all of its subsidiaries other
than McDonnell Douglas Financial Services Corporation (MDFS) and McDonnell
Douglas Realty Company (MDRC), has in place a number of credit facilities with
banks and other institutions. MDC Aerospace debt at December 31, 1996, was $1.4
billion, up from $1.2 billion at December 31, 1995. The increase in debt relates
largely to the issuance of $250 million of 10-year notes in late 1996 for
general corporate purposes; the notes may be used to fund $250 million of
securities maturing in April 1997. Financial Services debt at December 31, 1996,
was $2.0 billion, up from approximately $1.5 billion at December 31, 1995. The
increase in debt is consistent with the increased portfolio of McDonnell Douglas
Finance Corporation (MDFC), a subsidiary of MDFS.
MDC Aerospace has a revolving credit agreement (RCA), amended and restated in
January 1997, under which MDC Aerospace may borrow up to $1.75 billion through
January 2002. MDC Aerospace has the option under the RCA to increase that limit
by 20 percent. There were no amounts outstanding under the RCA at December 31,
1996.
During 1996, MDC Aerospace filed a shelf registration statement with the SEC
relating to debt securities. The filing increased a prior offering, commenced in
1992 for up to $550 million of notes, by an aggregate principal amount of $1
billion. As of December 31, 1996, MDC Aerospace had $948 million of unissued
debt securities registered with the SEC.
The Company also has an agreement with a financial institution to sell a
participation interest in a designated pool of government and commercial
receivables, with limited recourse, in amounts up to $300 million. As of
December 31, 1996, no receivable interests were sold. See Note 3, "Accounts
Receivable," page 42.
[Annual Report Page 29]
During 1996, MDFS and MDFC amended their joint RCA to provide, among other
things, for increased borrowing capacity and to extend the maturity date to
August 2001. Under the amended agreement, MDFC may borrow a maximum of $240
million, reduced by MDFS borrowings under this same agreement, which are limited
to $16 million. There were no outstanding borrowings under this agreement at
December 31, 1996. At December 31, 1996, $96 million of commercial paper issued
by MDFC was outstanding. The joint RCA could therefore be used to support the
full amount of commercial paper outstanding.
During 1995, MDFC filed a shelf registration statement with the SEC relating
to up to $750 million aggregate principal amount of debt securities. MDFC
established a $500 million medium-term note program under this registration
statement, and as of December 31, 1996, had issued $490 million of such notes.
During 1995, MDFS initiated a medium-term note program under a private
placement of up to $100 million principal amount. This note program was
increased to $200 million in April 1996. As of December 31, 1996, MDFS had
issued $135 million of securities under this program.
<PAGE>
Amounts available under the RCAs, note programs, and the receivables program
discussed above may be used to meet cash requirements. McDonnell Douglas
believes that it has sufficient sources of capital to meet anticipated needs.
During 1996, rating agencies raised their ratings of MDC Aerospace and MDFC
debt. Moody's Investors Service Inc. raised its ratings of MDC Aerospace senior
debt to Baa1 from Baa2. Standard & Poor's raised its ratings of MDC Aerospace
and MDFC senior debt to A- from BBB. The rating agency also upgraded its rating
on MDFC subordinated debt to BBB+ from BBB-. Duff & Phelps Credit Rating Company
raised its rating of MDC Aerospace and MDFC senior debt to A- from BBB+. MDFC's
subordinated debt was also raised to BBB+ from BBB.
SHAREHOLDER INITIATIVES. On October 28, 1994, the Company's Board of
Directors approved a stock repurchase plan that authorized McDonnell Douglas to
purchase up to 36 million shares, or about 15 percent of its then-outstanding
common stock. Through mid-December 1996, the Company had acquired 29 million
shares, or about 81 percent of its authorized repurchase amount, at a cost of
$1.1 billion. The Company suspended common stock acquisitions associated with
the repurchase program as a result of the proposed merger with Boeing. See Note
2 on page 42 for a further discussion of the proposed merger.
In January 1996, the McDonnell Douglas Board of Directors authorized a
two-for-one split of the common stock and a 20 percent increase in the quarterly
dividend. In April 1996, McDonnell Douglas shareholders approved an amendment to
the Company's charter increasing the number of the Company's authorized shares;
the stock split was effected in the form of a stock dividend in May 1996.
Shareholders' equity has been restated to give retroactive recognition to the
stock split for all periods presented by reclassifying, from additional capital
or retained earnings to common stock, the par value of the additional shares
arising from the split. In addition, all references to number of shares, per
share amounts, and market prices of common stock have been restated to reflect
the stock split.
AEROSPACE CASH AND CASH EQUIVALENTS. MDC Aerospace cash and cash
equivalentswere $1.1 billion at December 31, 1996. Included in this amount
are proceeds received from the 1996 fourth-quarter issuance of $250 million of
10-year notes. These notes were issued for general corporate purposes and
may be used to fund $250 million of securities that mature in April 1997. Cash
provided by aerospace operations was $824 million for 1996, prior to reductions
of $718 million used by McDonnell Douglas to purchase its common stock.
<PAGE>
DEVELOPMENT PROGRAMS. In October 1995, McDonnell Douglas launched the MD-95,
a 100-seat medium-range airliner. Initial deliveries of the MD-95 to ValuJet
Airlines Inc. (ValuJet), the launch customer for the MD-95, are scheduled for
1999. ValuJet's operations were suspended for more than three months following
an airliner crash in May 1996. The carrier resumed scaled-back operations in
September 1996 and affirmed its order for 50 MD-95s in December 1996. No
additional orders for the MD-95 from other customers were received during 1996.
McDonnell Douglas is currently developing the Delta III, an expendable launch
vehicle. Launch of the first Delta III is scheduled for 1998.
The MD-95 twin jet and the Delta III launch vehicle will require cash
expenditures in development, inventory, and tooling during the next several
years, which the Company intends to fund from its cash flow or from resources
available under its existing credit agreements.
[Annual Report Page 30]
COMMERCIAL AIRCRAFT FINANCING. Airlines may decline deliveries of aircraft,
request changes in delivery schedules, or default on contracts for firm orders.
Aircraft delivery delays or defaults by commercial aircraft customers not
anticipated by the Company could have a negative short-term impact on cash flow.
During recent years, several airlines filed for protection under the Federal
Bankruptcy Code or became delinquent on their obligations for commercial
aircraft. As indicated in Note 16, "Commitments and Contingencies," page 51, the
Company also has outstanding guarantees of $868 million related to the marketing
of commercial aircraft. The Company does not believe that the existence of such
guarantees, after considering residual values, or delays or defaults by
commercial aircraft customers, will have a material adverse effect upon its
earnings, cash flow, or financial position.
McDonnell Douglas has made lease, loan principal, and interest payments
totaling $97 million and has agreed to make certain additional loan principal
payments through January 1998 on behalf of Viacao Aerea Rio-Grandense S.A.
(VARIG). In addition, Trans World Airlines Inc. (TWA), the Company's largest
aircraft-leasing customer, continues to operate under a reorganization plan,
confirmed by the U.S. Bankruptcy Court in 1995, that restructured its
indebtedness and leasehold obligations to its creditors. TWA also continues to
face financial and operational challenges due in part to an airliner crash in
July 1996 and turnover of key management, which occurred during 1996. Neither
payments on behalf of VARIG nor the effects of TWA's reorganization plan and
current financial condition are expected to have a material adverse effect on
earnings, cash flow, or financial position of the Company. See Note 16,
"Commitments and Contingencies," page 51, for a further discussion of VARIG and
TWA.
The Company, including MDFC, has also made offers totaling $2.087 billion to
arrange or provide financing for ordered but undelivered aircraft. The Company
does not anticipate that the existence of such financing offers will have a
material adverse effect on its earnings, cash flow, or financial position. See
Note 16, "Commitments and Contingencies," page 51.
<PAGE>
CAPITAL EXPENDITURES. The Company's capital expenditures were $209 million in
1996, $143 million in 1995, and $112 million in 1994. The 1996 level of capital
expenditures reflects a planned increase in such activity, after a few years of
reduced expenditures. At December 31, 1996, the Company was not committed to the
purchase of a significant amount of property, plant, and equipment. Capital
expenditures are expected to approximate $300 million in 1997.
INFORMATION SYSTEMS. The Company has several information system improvement
initiatives underway that will require increased expenditures during the next
several years. These initiatives, which began in prior years, include the
conversion of certain Company computer systems to be Year 2000 compliant.
The Year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. As the century date
change occurs, date-sensitive systems will recognize the year 2000 as 1900, or
not at all. This inability to recognize or properly treat the year 2000 may
cause systems to process critical financial and operational information
incorrectly. McDonnell Douglas, like many other companies, is expected to incur
expenditures over the next few years to address this issue.
McDonnell Douglas has assessed and continues to assess the impact of the Year
2000 issue on its operations, including the development of cost estimates for,
and the extent of programming changes required to address, this issue. Although
final cost estimates have yet to be determined, it is anticipated that these
Year 2000 costs will result in an increase to Company expenses during 1997 and
1998. The Company expects to complete its Year 2000 cost estimates by mid-1997.
<PAGE>
Business and Market Considerations
General
McDonnell Douglas is one of the largest U.S. defense contractors and NASA
prime contractors. McDonnell Douglas has a wide range of programs in production
and development, and is the world's leading producer of military aircraft.
McDonnell Douglas is also a manufacturer of large commercial transport aircraft.
[Annual Report Page 31]
Military Aerospace Business
The Company's most significant customer in the military aircraft and in the
missiles, space, and electronic systems segments is the U.S. Government. Certain
foreign governments also purchase a significant share of the Company's aerospace
products directly or through contracts for foreign military sales with U.S.
Government agencies. Companies engaged in supplying military and space equipment
to the U.S. Government are subject to risks in addition to those found in
commercial business. These additional risks include dependence on Congressional
appropriations and annual administrative allotment of funds, general reductions
in the U.S. and worldwide defense budgets, and changes in Government policies,
including weapons export policies. In addition, at times McDonnell Douglas
invests in competitive programs still in the predevelopment stage, some of
which may never result in production. Moreover, the costs of maintaining
adequate research and development as well as manufacturing capabilities are
substantial.
The U.S. Government may terminate its contracts (1) for its convenience
whenever it believes that such termination would be in the best interest of the
Government or (2) for default. Under contracts terminated for the convenience of
the Government, a contractor is generally entitled to receive payments for its
contract cost and the proportionate share of its fee or earnings for the work
done, subject to the availability of funding. The U.S. Government may terminate
a contract for default if the contractor materially breaches the contract.
U.S. Government defense spending, which has declined in recent years, is
expected to remain at about the same level in 1997 as it was in 1996, based upon
the fiscal year 1997 defense budget. In an era of shrinking or static defense
budgets, military customers are more constrained in their ability to support new
development programs. Declines in new development programs can have a negative
impact on defense contractors. Additionally, the loss of a major program or a
major reduction or stretch-out in one or more programs could have a material
adverse impact on the Company's future revenues, earnings, and cash flow.
However, any such impact could be mitigated by foreign sales and by programs to
upgrade existing products. Certain foreign sales may require some portion of the
production to be performed or completed in the purchasing country. In late 1996,
the Company was eliminated in the downselect for the Joint Strike Fighter (JSF)
competition, a significant new DOD development program. In early 1997, the
<PAGE>
Company agreed to work with Boeing on its JSF program. While the JSF is not
expected to have a major impact on revenues or earnings for at least a decade,
its impact on the longer-term future is potentially great. The Company does,
however, believe it is well positioned in this defense era; the DOD has
indicated its commitment to several of the Company's relatively new programs
and/or to pursuing significant modifications that will extend the duration of
existing production lines. Because McDonnell Douglas is the largest producer of
military aircraft, the extension of existing programs could have favorable
competitive results. In light of the uncertainty regarding the changes in
defense spending, reported financial information may not be indicative of the
Company's future operating results. Production contracts awarded under the
fiscal year 1997 budget will generally continue through 1999.
In January 1997, a Delta II rocket carrying a Global Positioning System
satellite exploded shortly after launch. An investigation to determine the cause
of the mishap is underway. As is standard in the industry, other 1997 Delta II
launches have been delayed pending determination of the cause of the explosion.
The extent or the impact of the mishap and of such delays cannot be determined
at this time.
Commercial Aircraft Business
McDonnell Douglas is producing the MD-80 and MD-90 twin jets and MD-11 trijet
commercial aircraft, developing the MD-95 twin jet commercial aircraft, and
supporting commercial aircraft, spare parts, and related services. The
commercial aircraft business requires large investments to develop new aircraft
or derivatives of existing aircraft.
During 1996, McDonnell Douglas received orders for 17 MD-80 twin jets, 12
MD-90 twin jets, and 9 MD-11 trijets. This amounted to 4 percent of the total
narrow-body and wide-body orders received in the commercial aircraft industry.
Three of the nine trijet orders received were for the freighter configuration.
Not included in these orders are five MD-11 freighters requested by Lufthansa
Cargo; this contract was finalized early in 1997. McDonnell Douglas expected to
receive a higher level of orders in 1996. As the year progressed, it became
apparent that the Company's share of commercial aircraft orders would be
minimal. Airline customer orders in which the Company expected to participate
were instead recorded by its competitors. In addition, a few significant
customers previously supportive of
[Annual Report Page 32]
McDonnell Douglas have either expressed
reduced confidence in the Company's existing product line or have made decisions
to convert to aircraft of a competitor. During this same period, McDonnell
Douglas studied the feasibility of developing a new high-capacity long-range
three-engine jetliner, designated the MD-XX. In October 1996, subsequent to a
disappointing first nine months of new orders, McDonnell Douglas decided not to
proceed with this proposed aircraft. Several factors influenced the decision.
Key among those were a high level of risk, marketplace price expectations, and
the amount of product and internal infrastructure investment (estimated at $15
billion) required to bring the Company to the level of the other major players
in the commercial aerospace industry.
<PAGE>
In early December, McDonnell Douglas and Boeing agreed on a plan to
collaborate on future jetliner design and production. In connection with this
agreement, finalized in January 1997, several hundred engineers of the Company
began work on jetliner design and production for Boeing.
McDonnell Douglas's presence in the commercial aerospace industry will be
focused on its existing product line of MD-80 and MD-90 twin jets and MD-11
trijet commercial aircraft, its MD-95 twin jet in development, and its
commercial aircraft modification, support, spare parts, and related services.
The impact of the decision not to proceed with the MD-XX on existing orders and
options and on future orders of its existing product line is uncertain. However,
as mentioned above, reduced confidence expressed by a few significant existing
customers and customer movement is likely to have negative ramifications. The
Company has emphasized cost-reduction efforts during recent years, and those
efforts will continue. Significant price competition also currently exists in
the marketplace, and the Company's competitors offer broader product lines.
These factors continue to cause downward pressure on profit margins.
Estimated costs for development and initial production of new aircraft, such
as the MD-95, include assumptions, analyses, and forecasts that are subject to
continuous reassessment during the development and initial production period.
Technological risks, as well as risks with suppliers and customers, are inherent
in development programs.
Estimated development and initial production costs on new aircraft and
production costs on existing aircraft may fluctuate from current estimates.
Fluctuations on development programs generally diminish as the project
approaches initial deliveries.
See also "Backlog," page 33, for a discussion of certain risks related to
commercial aircraft customers and "Commercial Aircraft," page 27, for a
discussion of the status of commercial aircraft orders.
Government Business Audits, Reviews, and Investigations
McDonnell Douglas, as a large defense contractor, is subject to many audits,
reviews, and investigations by the U.S. Government of the Company's negotiation
and performance of, accounting for, and general practices relating to Government
contracts. An indictment of a contractor may result in suspension from
eligibility for award of any new Government contract, and a guilty plea or
conviction may result in debarment from eligibility for awards. The Government
may, in certain cases, also terminate existing contracts, recover damages, and
impose other sanctions and penalties. Based on presently known facts, the
Company believes that it has not engaged in any criminal misconduct with respect
to any of the matters currently known to be under investigation and that the
ultimate resolution of these investigations will not have a material adverse
effect on the Company's earnings, cash flow, or financial position.
<PAGE>
In March 1991, the SEC issued a Formal Order of Private Investigation (the
1991 SEC Investigation) looking into whether the Company violated the Securities
Act of 1933 and the Securities Exchange Act of 1934 in connection with
disclosures about and accounting for the A-12 program. In February 1993, the SEC
issued subpoenas requesting additional information, and broadened its inquiry to
include the C-17 program. In June 1996, McDonnell Douglas resolved the
investigation commenced in 1993 relating to the Company's disclosure about and
accounting for the C-17 program. Without admitting or denying any of the
allegations in the complaint for purposes of this SEC proceeding only, and
solely for the purposes of settlement of the SEC's complaint, the Company
simultaneously agreed to the entry of an injunction enjoining it from violating
Section 13(a) of the Securities Exchange Act of 1934, and Rules 13a-1 and 12b-20
thereunder, in the future, and to the payment of a civil penalty of $500,000.
This settlement concluded the investigation. Further, the 1991 SEC Investigation
was concluded without any action.
In 1991, McDonnell Douglas and General Dynamics Corporation filed a legal
action to contest the U.S. Navy's termination for default on the A-12 contract.
See Note 5, "Contracts in Process and Inventories," page 43 for a discussion of
the status of this action.
In 1984, the Company entered into a full-scale development letter contract
for the T-45 Training System. The final negotiated firm fixed-price contract was
agreed to in 1986. As a result of flight testing in late 1988, the Navy required
that changes be made to the T-45 aircraft. See Note 5, "Contracts in Process and
Inventories," page 43, for a discussion of the resolution of this matter.
[Annual Report Page 33]
Environmental Expenditures
The Company believes that expenditures that may be required to comply with
federal, state, and local provisions regulating the discharge of materials into
the environment or otherwise relating to the environment will not be material in
relation to its earnings, cash flow, or financial position. Compliance with such
regulations has not had a material effect on the Company's earnings, cash flow,
or financial position.
McDonnell Douglas is a party to a number of proceedings brought under the
Comprehensive Environmental Response, Compensation and Liability Act, commonly
known as Superfund, and under similar state statutes. The Company has been
identified as a potentially responsible party (PRP) at 37 sites. Of these,
McDonnell Douglas believes that it has de minimis liability at 23 sites,
including 14 sites at which it believes that it has no future liability. At five
of the sites where the Company's liability is not considered to be de minimis,
the Company lacks sufficient information to determine its probable share or
amount of liability. At the remaining nine sites at which the Company's
liability is not considered to be de minimis, either final or interim
cost-sharing agreements have been effected between the cooperating PRPs,
although such agreements do not fix the amount of cleanup costs that the parties
will bear. In addition, the Company is remediating, or has begun environmental
engineering studies to determine cleanup requirements for, certain of its
current operating sites or former sites of industrial activity.
<PAGE>
McDonnell Douglas estimates include reasonably possible costs of
approximately $63 million for study and remediation expenditures at Superfund
sites and for the Company's current and former operating sites, of which $44
million was accrued at December 31, 1996. Because of uncertainty inherent in the
estimation process, it is possible that actual costs will differ from estimates.
Ongoing operating and maintenance costs at current operating sites and
remediation expenditures on property held for sale are not included in the
amounts. Claims for recovery are recorded as receivables and therefore have not
been netted against the environmental liabilities. A receivable has been
recorded from one insurance carrier for agreed reimbursement of environmental
costs and totals $8 million at December 31, 1996. The Company believes that any
amounts paid in excess of the accrued liability will not have a material effect
on its earnings, cash flow, or financial position.
Backlog
The Company's commercial backlog decreased during 1996, while backlog for its
two major competitors increased substantially. The Company's ability to generate
additional orders is subject to its ability to operate successfully as a niche
player. See "Business and Market Considerations - Commercial Aircraft Business,"
page 31, for a further discussion of this risk. Approximately 39 percent of the
firm backlog for commercial aircraft is scheduled for delivery during 1997 and
an additional 20 percent during 1998. As an additional risk, if difficulties
recur in the commercial airline industry, airlines may decline deliveries of
aircraft, request changes in delivery schedules, or default on contracts for
firm orders. Purchase options and announced orders for which definitive
contracts have not been executed are excluded from firm backlog. See also the
"Firm Backlog" column in the table on page 34.
Inflation
The effects of inflation have not been significant to McDonnell Douglas
because inflation rates have been relatively low. Contracts for both government
and commercial products generally either include estimates of inflation or
adjust for inflation's effect.
<PAGE>
[Annual Report Page 34]
SELECTED FINANCIAL DATA BY INDUSTRY SEGMENT
The Company has three aerospace segments: military aircraft; commercial
aircraft; and missiles, space, and electronic systems. The military aircraft
segment produces attack and fighter aircraft, military and commercial
helicopters, military transport aircraft, training systems, and spare parts. It
also provides related services. The attack and fighter aircraft are capable of a
full spectrum of missions (air superiority, all-weather and day/night attack,
close air support, reconnaissance, etc.). This segment offers land-based,
aircraft carrier-based, and vertical/short takeoff and landing aircraft. The
commercial aircraft segment produces commercial aircraft and spare parts, and it
provides related services. The missiles, space, and electronic systems segment
produces tactical missiles, satellite launching vehicles, and defense electronic
components and systems. It also works on space station design and development
and provides space shuttle payload integration.
The financial services and other segment is engaged in a wide range of
financial services including the financing of commercial and private aircraft,
commercial equipment, and real estate. The segment also acquires and develops
properties for other McDonnell Douglas segments and commercial customers. The
financial services and other segment includes McDonnell Douglas Financial
Services Corporation and McDonnell Douglas Realty Company. Operating earnings of
the segment have been reduced by interest expense, an operating expense of that
segment. The financial services and other segment includes interest earned on
advances or loans to other industry segments in its operating revenues and
earnings. Other intersegment revenues and earnings were immaterial and have been
eliminated. Assets of individual segments have been stated net of applicable
progress payments.
(Millions of dollars) Revenues
December 31 or Years Then Ended 1996 1995 1994
--------- --------- ---------
Military aircraft $ 7,952 $ 8,158 $ 7,804
Commercial aircraft 3,317 3,891 3,155
Missiles, space, and electronic
systems 2,178 1,917 1,877
Financial services and other 367 334 326
--------- --------- ---------
Operating revenues 13,814 14,300 13,162
Nonoperating - net 20 32 14
--------- --------- ---------
$13,834 $14,332 $13,176
========= ========= =========
<PAGE>
(Millions of dollars) Earnings (Loss)
December 31 or Years Then Ended 1996 1995 1994
--------- --------- ---------
Military aircraft $ 990 $ 905 $ 708
Commercial aircraft 101 (1,799) 47
Missiles, space, and electronic
systems 194 198 262
Financial services and other 74 61 50
--------- --------- ---------
Operating earnings (loss) 1,359 (635) 1,067
Nonoperating - net 16 19 (3)
General corporate expenses (31) (18) (13)
Interest expense (121) (116) (131)
Income tax benefit (expense) (435) 334 (322)
--------- --------- ---------
$ 788 $ (416) $ 598
========= ========= =========
(Millions of dollars) Firm Backlog (Unaudited)*
December 31 or Years Then Ended 1996 1995 1994
--------- --------- ---------
Military aircraft $12,934 $10,121 $ 8,340
Commercial aircraft 7,000 7,175 7,544
Missiles, space, and electronic
systems 3,745 2,344 1,619
--------- --------- ---------
$23,679 $19,640 $17,503
========= ========= =========
* Amounts as of December 31
(Millions of dollars) Assets*
December 31 or Years Then Ended 1996 1995 1994
--------- --------- ---------
Military aircraft $ 3,657 $ 3,678 $ 3,860
Commercial aircraft 2,643 2,480 4,559
Missiles, space, and electronic
systems 1,169 1,081 1,175
Financial services and other 3,025 2,358 2,160
--------- --------- ---------
10,494 9,597 11,754
Corporate 1,137 869 462
-------- -------- --------
$11,631 $10,466 $12,216
========= ========= =========
*Amounts as of December 31
<PAGE>
Property, Plant, and
(Millions of dollars) Equipment Acquired
December 31 or Years Then Ended 1996 1995 1994
--------- --------- ---------
Military aircraft $ 122 $ 76 $ 88
Commercial aircraft 16 16 17
Missiles, space, and electronic
systems 47 40 4
Financial services and other 1 1 2
--------- --------- ---------
186 133 111
Corporate 23 10 1
--------- --------- ---------
$ 209 $ 143 $ 112
========= ========= =========
(Millions of dollars) Depreciation and Amortization
December 31 or Years Then Ended 1996 1995 1994
------- ------- --------
Military aircraft $ 120 $ 120 $ 123
Commercial aircraft 47 46 53
Missiles, space, and electronic
systems 35 43 43
Financial services and other 68 59 55
--------- --------- ---------
270 268 274
Corporate 5 5 5
--------- --------- ---------
$ 275 $ 273 $ 279
========= ========= =========
<PAGE>
[Annual Report Page 35]
CONSOLIDATED STATEMENT OF OPERATIONS
(Millions of dollars, except share data)
Years Ended December 31 1996 1995 1994
-------- -------- --------
Revenues $13,834 $14,332 $13,176
Costs and expenses
Cost of products, services, and rentals 11,282 12,027 11,026
MD-11 accounting charge 1,838
General and administrative expenses 726 681 684
Research and development 355 311 297
Interest expense
Aerospace segments 121 116 131
Financial services and other segment 127 109 118
-------- -------- --------
Total costs and expenses 12,611 15,082 12,256
-------- -------- --------
Earnings (Loss) before Income Taxes 1,223 (750) 920
Income taxes (benefit) 435 (334) 322
-------- -------- --------
Net Earnings (Loss) $ 788 $ (416) $ 598
======== ======== ========
Earnings (Loss) per Share $ 3.64 $ (1.83) $ 2.53
======== ======== ========
Dividends Declared per Share $ .48 $ .40 $ .28
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
[Annual Report Page 36]
BALANCE SHEET
(Millions of dollars and shares)
McDonnell Douglas Corporation
and Consolidated Subsidiaries
----------------------------
December 31 1996 1995
--------- ---------
Assets
Cash and cash equivalents $ 1,094 $ 797
Accounts receivable 882 821
Finance receivables and property on lease 3,090 2,347
Contracts in process and inventories 3,486 3,421
Prepaid income taxes
Property, plant, and equipment 1,453 1,471
Investment in Financial Services
Other assets 1,626 1,609
--------- ---------
Total Assets $ 11,631 $ 10,466
========= =========
Liabilities And Shareholders' Equity
Liabilities
Accounts payable and accrued expenses $ 2,595 $ 2,284
Accrued retiree benefits 1,109 1,205
Income taxes 83 3
Advances and billings in excess of related
costs 1,310 1,147
Notes payable and long-term debt
Aerospace segments 1,438 1,251
Financial services and other segment 1,995 1,469
--------- ---------
8,530 7,359
Minority interest 63 66
Shareholders' equity
Preferred stock - none issued
Common stock - issued and outstanding
1996, 209.6 shares; 1995, 223.6 shares 210 224
Additional capital
Retained earnings 2,850 2,835
Unearned compensation (22) (18)
--------- ---------
3,038 3,041
--------- ---------
Total Liabilities and Shareholders' Equity $ 11,631 $ 10,466
========= =========
The accompanying notes are an integral part of the financial statements.
<PAGE>
[Annual Report Page 37]
MDC Aerospace Financial Services
---------------------- ----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
$ 1,077 $ 784 $ 17 $ 13
964 934 2
254 165 2,836 2,182
3,486 3,421
278 315
1,391 1,358 62 113
383 331
1,535 1,527 91 82
--------- --------- --------- ---------
$ 9,368 $ 8,835 $ 3,006 $ 2,392
========= ========= ========= =========
$ 2,470 $ 2,183 $ 207 $ 216
1,109 1,205
361 318
1,265 1,111 45 36
1,423 1,229 15 22
1,995 1,469
--------- --------- --------- ---------
6,267 5,728 2,623 2,061
63 66
210 224
238 238
2,850 2,835 145 93
(22) (18)
--------- --------- --------- ---------
3,038 3,041 383 331
--------- --------- --------- ---------
$ 9,368 $ 8,835 $ 3,006 $ 2,392
========= ========= ========= =========
As used on this page, "MDC Aerospace" means the basis of consolidation as
described in Note 1 to the consolidated financial statements; "Financial
Services" means McDonnell Douglas Financial Services Corporation and all of its
affiliates and associated companies and McDonnell Douglas Realty Company.
Transactions between MDC Aerospace and Financial Services have been eliminated
from the "McDonnell Douglas Corporation and Consolidated Subsidiaries" columns.
<PAGE>
[Annual Report Page 38]
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Millions of dollars)
Years Ended December 31 1996 1995 1994
-------- -------- --------
Common Stock
Beginning balance $ 224 $ 234 $ 236
Shares purchased (15) (10) (4)
Employee stock awards and options 1 2
-------- -------- --------
210 224 234
Additional Capital
Beginning balance 74 137
Shares purchased (28) (92) (88)
Employee stock awards and options 28 18 25
-------- -------- --------
74
Retained Earnings
Beginning balance 2,835 3,576 3,043
Net earnings (loss) 788 (416) 598
Shares purchased (669) (235)
Dividends declared (104) (90) (65)
-------- -------- --------
2,850 2,835 3,576
Unearned Compensation
Beginning balance (18) (12)
Unamortized restricted stock compensation (20) (17) (17)
Compensation amortized 16 11 5
-------- -------- --------
(22) (18) (12)
-------- -------- --------
Shareholders' Equity $ 3,038 $ 3,041 $ 3,872
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
[Annual Report Page 39]
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions of dollars)
Years Ended December 31 1996 1995 1994
-------- -------- -------
Operating Activities
Net earnings (loss) $ 788 $ (416) $ 598
Adjustments to reconcile net earnings (loss)
to net cash provided by operating
activities
Depreciation of property, plant, and
equipment 190 196 213
Depreciation of rental equipment 67 58 51
Amortization of intangible and other
assets 18 19 15
Gain on sale of assets (26)
Pension income (130) (165) (132)
Change in operating assets and
liabilities
Accounts receivable (61) (49) (217)
Contracts in process and inventories (65) 547 (32)
MD-11 accounting charge 1,838
Accounts payable and accrued expenses 338 (186) 285
Income taxes 80 (720) 149
Advances and billings in excess of
related costs 163 (53) (51)
------- ------- -------
Net Cash Provided by
Operating Activities 1,388 1,069 853
Investing Activities
Property, plant, and equipment acquired (209) (143) (112)
Finance receivables and property on lease (792) (304) 217
Other 15 31 83
------- ------- -------
Net Cash Provided (Used) by
Investing Activities (986) (416) 188
<PAGE>
Years Ended December 31 1996 1995 1994
(Continued) -------- -------- --------
Financing Activities
Net change in borrowings (maturities
90 days or less) 131 (103) 50
Debt having maturities more than 90 days
New borrowings 920 695 450
Repayments (338) (441) (1,069)
Proceeds of stock options exercised 1 1 3
Common shares purchased (718) (337) (85)
Dividends paid (101) (92) (55)
-------- -------- --------
Net Cash Used by Financing
Activities (105) (277) (706)
-------- -------- --------
Increase in Cash and
Cash Equivalents 297 376 335
Cash and cash equivalents at
beginning of year 797 421 86
-------- -------- --------
Cash and cash equivalents at end
of year $ 1,094 $ 797 $ 421
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
[Annual Report Page 40]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Millions of dollars, except share data)
1. Accounting Policies
Basis of Presentation
The consolidated financial statements comprise the accounts of McDonnell Douglas
Corporation and its subsidiaries, including McDonnell Douglas Financial Services
Corporation (MDFS), which is the parent company of McDonnell Douglas Finance
Corporation (MDFC). In consolidation, all significant intercompany balances and
transactions are eliminated.
The consolidating balance sheet represents the sum of all affiliates - companies
that McDonnell Douglas Corporation directly or indirectly controls through
majority ownership or otherwise. Financial data and related measurements are
presented in the following categories:
MDC AEROSPACE. This represents the consolidation of McDonnell
Douglas Corporation including all of its subsidiaries other than
MDFS and McDonnell Douglas Realty Company (MDRC). Those two are
presented on a one-line basis as Investment in Financial Services.
FINANCIAL SERVICES. This represents the consolidation of MDFS (and
its subsidiaries) and MDRC, both wholly owned subsidiaries of
McDonnell Douglas.
MCDONNELL DOUGLAS CORPORATION AND CONSOLIDATED SUBSIDIARIES. This
represents the consolidation of McDonnell Douglas Corporation and
all its subsidiaries (the Company).
Stock Split
In January 1996 the McDonnell Douglas Board of Directors authorized a
two-for-one split of the common stock. The stock split was completed in May 1996
after receipt of shareholder approval in April 1996 of an increase in the
Company's authorized common stock to 400 million shares. Shareholders' equity
has been restated to give retroactive recognition to the stock split for all
periods presented by reclassifying, from additional capital or retained earnings
to common stock, the par value of the additional shares arising from the split.
In addition, all references to number of shares, per share amounts, stock option
data, and market prices of common stock have been restated to reflect the stock
split.
<PAGE>
Nature of Operations
McDonnell Douglas is one of the largest defense contractors and NASA prime
contractors. It has a wide range of programs in production and development, and
it is the world's leading producer of military aircraft. McDonnell Douglas is
also a manufacturer of large commercial transport aircraft. The programs and
products that account for most of McDonnell Douglas's business volume are of a
highly technical nature, comparatively few in number, and high in unit cost;
they have traditionally had relatively long production lives.
McDonnell Douglas's aerospace segments compete in an industry composed of a few
major competitors and a limited number of customers. The most significant
customer of the Company's military aircraft segment and of its missiles, space,
and electronic systems segment is the U.S. Government. Certain foreign
governments also purchase a significant share of the Company's aerospace
products either directly or through contracts for foreign military sales with
U.S. Government agencies. The commercial aircraft business is market-sensitive,
which causes disruptions in production and procurement and attendant costs. It
also requires large investments to develop new aircraft or derivatives of
existing aircraft.
Through MDFS, McDonnell Douglas is engaged in aircraft financing and commercial
equipment leasing. MDRC is a full-service developer and property manager. It
serves the commercial real estate market as well as McDonnell Douglas's
aerospace business.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions. These estimates and assumptions affect the reported amounts in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
Revenue Recognition
Revenues and earnings on cost-reimbursement and fixed-price government contracts
are generally recognized on the percentage-of-completion method of accounting as
costs are incurred (cost-to-cost basis) in accordance with Statement of Position
81-1, "Accounting for Performance of Construction Type and Certain Production
Type Contracts" (SOP 81-1). Revenues include costs incurred plus a portion of
estimated fees or profits based on the relationship of costs incurred to total
estimated costs. Some contracts contain incentive provisions that provide
increased or decreased earnings based upon performance in relation to
established targets. Incentives based upon cost performance are generally
recorded currently, and other incentives are recorded when such amounts can
reasonably be determined. Revenues relating to contracts or contract changes
that have not been completely priced, negotiated, documented, or funded are not
recognized unless realization is considered probable.
<PAGE>
Major contracts for complex military systems are performed over extended periods
and are subject to changes in scope of work and delivery schedules. Pricing
[Annual Report Page 41]
negotiations on changes and settlement of claims often extend over prolonged
periods. Any anticipated losses on contracts (estimated final contract costs,
excluding period costs, in excess of estimated final contract revenues) are
charged to current operations as soon as they are evident. Estimates of final
contract revenues on certain fixed-price development contracts include future
revenue from expected recovery on claims. Such revenues are generally included
when it is probable that the claim will result in additional contract revenue
and when the amount can be reasonably estimated.
Revenues from commercial aircraft programs are based on sales prices and are
recognized as aircraft are delivered. Cost of sales of the MD-80, MD-90, and
MD-11 aircraft programs are determined on a specific-unit cost method. As
described in Note 5, "Contracts in Process and Inventories," effective October
1, 1995, McDonnell Douglas changed its accounting for the MD-11 aircraft program
to the specific-unit cost method. Prior to October 1, 1995, cost of sales of the
MD-11 aircraft program was determined on a program-average cost method, and it
was computed as a percentage of the sales price of the aircraft. Under the
program-average cost method, the percentage was calculated as the total of
estimated production and tooling costs for the entire program divided by the
estimated sales prices of all aircraft in the program. A constant gross margin
was achieved by deferring or accelerating a portion of the average unit cost on
each unit delivered.
Revenues, costs, and earnings on government contracts and commercial aircraft
programs are based, in part, on estimates and as a result, actual earnings may
differ from estimates. Under the prior MD-11 program-average cost method of
accounting, such adjustments were made prospectively. Such adjustments on
government contracts are made on a cumulative basis; the effect of such changes
is recognized currently. Losses anticipated on government contracts or
commercial programs, excluding period costs, are charged to operations as soon
as they are evident.
Revenues and costs from the manufacturing aspects of sales-type leases are
generally recognized at the inception of such leases. Revenues from the
financing aspects of sales-type and direct-financing leases are recognized by
the interest method. The interest method results in a constant rate of return on
the unrecovered investment.
<PAGE>
Contracts in Process and Inventories
Government contracts in process represent incurred costs plus estimated earnings
(unbilled revenues), less amounts billed to customers when items are completed
and delivered. Incurred costs include production costs and related overhead.
Commercial products in process are stated at the lower of cost (principally
specific unit) or market. Material and spare parts are stated at the lower of
cost (principally moving average) or market.
General and administrative expenses and research and development expenses are
considered period costs and, accordingly, are charged to operations on a current
basis.
The U.S. Government has title to, or a security interest in, certain inventories
by reason of progress payments.
Cash and Cash Equivalents
Cash equivalents consist of short-term highly liquid investments purchased with
a maturity of three months or less. Cash equivalents are stated at cost that
approximates market.
Finance Receivables and Property on Lease
Rental equipment subject to operating leases is stated at cost; it is generally
depreciated by the straight-line method.
Property, Plant, and Equipment
Property, plant, and equipment is carried at cost and depreciated over the
useful lives of the various classes of properties, primarily by accelerated
methods.
During 1996 McDonnell Douglas adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." The adoption thereof had no
material effect on the Company's financial position or operating results.
Intangible Assets
Intangible assets consist principally of computer software, deferred debt
expense, and deferred leasing costs. Intangibles are being amortized over 3 to
10 years.
<PAGE>
Income Taxes
U.S. and foreign income taxes are computed at current tax rates, less tax
credits. Taxes are adjusted both for items that do not have tax consequences and
for the cumulative effect of any changes in tax rates from those previously used
to determine deferred tax assets or liabilities. Tax provisions include amounts
that are currently payable, plus changes in deferred tax assets and liabilities
that arise because of temporary differences between the time when items of
income and expense are recognized for financial reporting and income tax
purposes.
The undistributed earnings of foreign subsidiaries are considered permanently
invested for continuing operations; accordingly, no provisions are made for
taxes that would become payable upon the distribution of such earnings as a
dividend to the Company. The Company files a consolidated return for federal and
certain state
[Annual Report Page 42]
income taxes, and dividends from domestic subsidiaries included
therein are not subject to federal or to most state income taxes.
Minority Interest
Minority interest represents the limited partner's equity interest in a real
estate venture. McDonnell Douglas is the general partner in its real estate
partnership. It contributed land, buildings, and improvements to the
partnership. At December 31, 1996, McDonnell Douglas's participation in the
partnership was approximately 50 percent.
Research and Development
Research and development costs include the costs of independent research and
development, bid and proposal efforts, and costs incurred in excess of amounts
estimated to be recoverable under cost-sharing research and development
agreements. All such costs are expensed as incurred.
Research and development expense was reduced by $29 million in 1996, $5 million
in 1995, and $32 million in 1994 for risk-sharing funds received from vendors
and subcontractors participating in the development of commercial aircraft. Some
amounts may be repayable under certain circumstances.
Environmental
Environmental expenditures that relate to current operations are expensed or
capitalized, as appropriate. Expenditures that extend the life, increase the
capacity, or mitigate or prevent environmental contamination are capitalized.
Expenditures that relate to an existing condition caused by past operations and
that do not contribute to current or future revenue generation are expensed.
Liabilities are recorded when environmental assessments and/or remedial efforts
are probable, and the costs can be reasonably estimated. Estimated liabilities
are not discounted to present value. See also Note 16, "Commitments and
Contingencies."
<PAGE>
Earnings per Share
Earnings per share computations are based upon the weighted average of common
shares outstanding during the year. Common stock equivalents (options) are not
material.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but does
not require, companies to record compensation cost for stock-based employee
compensation plans at fair value. McDonnell Douglas has chosen to continue to
account for stock-based compensation plans in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations. The Company has adopted the disclosure-only option
under SFAS No. 123 as of December 31, 1996. See also Note 13.
Reclassification
In 1996, McDonnell Douglas reclassified cash flows related to certain finance
receivables and property on lease from operating activities to investing
activities. The prior years have been restated to conform with the 1996
presentation.
2. Proposed Merger with The Boeing Company
On December 14, 1996, McDonnell Douglas and The Boeing Company (Boeing) entered
into a definitive agreement whereby a wholly owned subsidiary of Boeing will
merge into McDonnell Douglas in a stock-for-stock transaction, as a result of
which McDonnell Douglas will become a wholly owned subsidiary of Boeing. Under
the terms of the transaction, McDonnell Douglas shareholders will receive 0.65
share of Boeing common stock for each share of McDonnell Douglas common stock.
The transaction is subject to approval by the shareholders of both companies and
certain regulatory agencies; it is expected to close as early as mid-1997.
3. Accounts Receivable
Accounts receivable consisted of the following:
December 31 1996 1995
------ ------
MDC Aerospace
U.S. Government - primarily from
long-term contracts
Billed $ 361 $ 361
Unbilled 283 322
------ ------
644 683
Commercial and other governments 238 136
Financial Services 2
------ ------
$ 882 $ 821
====== ======
MDC Aerospace also had net receivables from Financial Services of $82 million
and $115 million at December 31, 1996 and 1995, respectively.
<PAGE>
Unbilled receivables at December 31, 1996, include unbillable amounts of $131
million. Unbillable amounts include the estimated sales value of items delivered
or other work performed that lacks contractual documentation to permit billing.
Approximately $52 million of the 1996 unbilled amount is not expected to be
collected within one year.
[Annual Report Page 43]
McDonnell Douglas has an agreement with a financial institution to sell a
participation interest in a designated pool of government and commercial
receivables, with limited recourse, in amounts up to $300 million. Under the
agreement, participation interests in new receivables are sold as previously
sold amounts are collected. The participation interests are sold at a discount,
which is included in general and administrative expenses in the consolidated
statement of operations. The Company acts as an agent for the purchaser by
performing record-keeping and collection functions. No receivable interests were
sold as of December 31, 1996 and 1995.
4. Finance Receivables and Property on Lease
Finance and lease receivables and property on lease consisted of the following:
December 31 1996 1995
-------- --------
Financial Services
Investment in finance leases
Minimum lease payments $ 2,354 $ 1,800
Residual values 437 322
Unearned income (1,092) (801)
-------- --------
1,699 1,321
Notes receivable 322 271
Allowances for doubtful receivables (50) (42)
Investment in operating leases, net of
accumulated depreciation of $185 in
1996, $172 in 1995 819 568
Property held for sale or lease 46 64
-------- --------
2,836 2,182
MDC Aerospace 254 165
-------- --------
$ 3,090 $ 2,347
======== ========
The aggregate amount of the scheduled principal payments and installments to be
received on notes and lease receivables and the minimum rentals to be received
under noncancelable operating leases for Financial Services consisted of the
following at December 31, 1996:
Principal Payments
and Installments Minimum Rentals
------------------ ---------------
1997 $ 590 $124
1998 254 105
1999 281 90
2000 227 69
2001 220 61
After 2001 1,104 395
<PAGE>
Concentration of Credit Risk
Financial Services' financing and leasing portfolio (excluding $150 million at
December 31, 1996, and $135 million at December 31, 1995, of MDRC) consisted of
the following:
December 31 1996 1995
--------------- ---------------
Commercial aircraft financing
McDonnell Douglas aircraft
financing $1,659 61.8% $1,286 62.8%
Other commercial aircraft
financing 207 7.7% 194 9.5%
------ ------ ------ ------
1,866 69.5% 1,480 72.3%
Commercial equipment leasing 820 30.5% 567 27.7%
------ ------ ------ ------
Total portfolio $2,686 100.0% $2,047 100.0%
====== ====== ====== ======
The single largest commercial aircraft financing customer accounted for $375
million (14.0 percent of total portfolio) in 1996 and $282 million (13.8 percent
of total portfolio) in 1995. The five largest accounted for $1.231 billion (45.8
percent) and $921 million (45.0 percent) in 1996 and 1995, respectively.
There were no significant concentrations by customer in Financial Services'
portfolio for commercial equipment leasing.
Financial Services generally holds title to all leased equipment. It generally
has a perfected security interest in the assets financed through note and loan
arrangements.
<PAGE>
5. Contracts in Process and Inventories
Contracts in process and inventories consisted of the following:
December 31 1996 1995
-------- --------
Government contracts in process $ 5,177 $ 5,451
Commercial products in process 2,211 1,936
Material and spare parts 713 634
Progress payments to subcontractors 843 1,185
Progress payments received (5,458) (5,785)
-------- --------
$ 3,486 $ 3,421
======== ========
Substantially all government contracts in process (less applicable progress
payments received) represent unbilled revenue and revenue that is currently not
billable.
The U.S. Navy on January 7, 1991, notified McDonnell Douglas and General
Dynamics Corporation (the Team) that it was terminating for default the Team's
contract for development and initial production of the A-12 aircraft, and
demanded repayment of the amounts paid to the Team under such contracts. The
Team filed a legal action to contest the Navy's default termination, to assert
its rights to convert the termination to one for "the convenience of the
Government," and to obtain payment for work done and costs incurred on the A-12
contract but
[Annual Report Page 44]
not paid to date. At December 31, 1996, Contracts in Process and
Inventories included approximately $574 million of recorded costs on the A-12
contract, against which the Company has established a loss provision of $350
million. The amount of the provision, which was established in 1990, was based
on the Company's belief that the termination for default would be converted to a
termination for convenience, that the Team would establish a minimum of $250
million in claims adjustments, that there was a range of reasonably possible
results on termination for convenience, and that it was prudent to provide for
what the Company then believed was the upper range of possible loss on
termination for convenience, namely $350 million.
On December 19, 1995, the U.S. Court of Federal Claims ordered that the
Government's termination of the A-12 contract for default be converted to a
termination for convenience of the Government. On December 13, 1996, the Court
issued an opinion confirming its prior no-loss adjustment and no-profit recovery
order. In an early 1997 stipulation, the parties agreed that, based on the prior
orders and findings of the court, plaintiffs were entitled to recover $1.071
billion. Furthermore, on January 22, 1997, the court issued an opinion in that
it ruled that plaintiffs are entitled to recover interest on that amount. A
judgment is expected to be issued in the near future.
Although the Government is expected to appeal the judgment, McDonnell Douglas
believes that it will be sustained. Final resolution of the A-12 litigation will
depend on such appeals and possible further litigation, or negotiations, with
the Government. If sustained, however, the expected damages judgment, including
interest, ultimately could result in pretax income ranging up to an amount which
could more than offset the loss provision established in 1990.
<PAGE>
In 1984, the Company entered into a full-scale development letter contract for
the T-45 Training System. The final negotiated firm fixed-price contract was
agreed to in 1986. As a result of flight testing in late 1988, the Navy required
that changes be made to the T-45 aircraft. The Company made the improvements;
and the cost of these changes increased the cost at completion for the
development and low-rate initial-production contracts beyond the fixed price of
such contracts.
The Company submitted to the Navy claims for an equitable adjustment in contract
price, and schedule and other appropriate relief for such improvements; the
Company recorded an expected $225 million recovery on such claims.
In August 1996, the Company and the Navy agreed to settle the T-45 claims; and
in September 1996, the Navy paid McDonnell Douglas $209 million. The agreement
also provided for the resolution of several contract issues and the conclusion
of certain business arrangements. McDonnell Douglas recorded a $14 million
charge to pretax earnings in the third quarter of 1996 in connection with the
settlement and the resolution of such contract issues.
Prior to October 1, 1995, MD-11 production and tooling costs were charged to
cost of sales based on the estimated average unit cost for the program. The
estimated average unit costs were based on cost estimates of a 301-aircraft
program. The costs incurred per unit in excess of the estimated average unit
cost were deferred, to be recovered by production and sale of lower-than-average
cost units. In applying the program-average method, the Company estimated (1)
the number of units to be produced and sold in the program, (2) the rate at
which the units were expected to be produced and sold, and thus the period of
time to accomplish that, and (3) selling prices, production costs, and the gross
profit margin for the total program.
Effective October 1, 1995, McDonnell Douglas changed its accounting for cost of
sales on the MD-11 aircraft program from the program-average cost basis to the
specific-unit cost basis. At the same time, McDonnell Douglas revalued MD-11
program support costs previously valued in inventories consistent with the
program-average cost concept. MD-11 program support costs are now allocated to
current production. This change to the specific-unit costing method for the
MD-11 program was made in recognition of production rates, existing order base,
and length of time required to achieve program deliveries, and thus, the
resultant increased difficulty - which became apparent in the fourth quarter of
1995 - in making the estimates necessary under the program-average method of
accounting. Because the effect of this change in accounting principle was
inseparable from the effect of the change in accounting estimate, the change was
accounted for as a change in estimate. As a result, McDonnell Douglas recorded a
noncash charge to operations of $1.838 billion in the fourth quarter of 1995.
The effect of the charge was to decrease 1995 net earnings by $1.123 billion, or
$4.95 per share.
<PAGE>
6. Property, Plant, and Equipment
The major categories of properties consisted of the following:
December 31 1996 1995
-------- --------
MDC Aerospace
Land $ 98 $ 91
Buildings and fixtures 1,690 1,647
Machinery and equipment 2,201 2,161
Accumulated depreciation (2,598) (2,541)
-------- --------
1,391 1,358
Financial Services - net 62 113
-------- --------
$ 1,453 $ 1,471
======== ========
[Annual Report Page 45]
7. Other Assets
Other assets consisted of the following:
December 31 1996 1995
-------- --------
MDC Aerospace
Prepaid pension asset $ 1,306 $ 1,267
Prepaid expenses 71 69
Intangible assets 63 55
Other 95 136
-------- --------
1,535 1,527
Financial Services 91 82
-------- --------
$ 1,626 $ 1,609
======== ========
8. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
December 31 1996 1995
-------- --------
MDC Aerospace
Accounts and drafts payable $ 1,233 $ 1,065
Accrued expenses 834 783
Employee compensation 403 335
-------- --------
2,470 2,183
Financial Services 125 101
-------- --------
$ 2,595 $ 2,284
======== ========
Financial Services also had net accounts payable to MDC Aerospace of $82 million
and $115 million as of December 31, 1996 and 1995, respectively.
<PAGE>
9. Income Taxes
Income taxes consisted of the following:
December 31 1996 1995
------ ------
Financial Services
Current tax assets $ (23) $ (6)
Deferred tax liabilities 384 324
------ ------
Net tax liability 361 318
MDC Aerospace
Current tax liabilities 148 62
Deferred tax assets (426) (377)
------ ------
Net tax asset (278) (315)
------- ------
$ 83 $ 3
======= ======
Tax effects of temporary differences that gave rise to the deferred tax
liability (asset) consisted of the following:
December 31 1996 1995
------ ------
Financial Services
Deferred tax assets
Bad debts $ (18) $ (42)
Other (6) (14)
Deferred tax liabilities
Leased assets 403 371
Other 5 9
------- -------
Net deferred tax liabilities 384 324
MDC Aerospace
Deferred tax assets
Retiree medical (420) (453)
Long-term contracts and related
liabilities (369) (422)
Other (263) (147)
Deferred tax liabilities
Pension plan 486 478
Other 140 167
------- -------
Net deferred tax assets (426) (377)
------- -------
Net deferred tax asset $ (42) $ (53)
======= =======
<PAGE>
The Company's income tax provision (benefit) consisted of the following:
Years Ended December 31 1996 1995 1994
------ ------ ------
U.S. federal
Current $ 350 $ 289 $ 115
Deferred 26 (546) 151
------ ------ -------
376 (257) 266
State
Current 61 33 20
Deferred (6) (112) 33
------ ------ -------
55 (79) 53
Foreign 4 2 3
------ ------ ------
Income tax provision (benefit) $ 435 $(334) $ 322
====== ====== =======
The following is a reconciliation of the pro forma income tax provision
(benefit) computed by applying the U.S. federal statutory rate of 35 percent to
the recorded income tax provision:
Years Ended December 31 1996 1995 1994
------ ------ ------
Pro forma income tax provision (benefit)
computed at the statutory U.S.
federal income tax rate $ 428 $(262) $ 322
State income tax provision (benefit)
net of effect on pro forma
U.S. federal tax 35 (31) 34
Increase (decrease) in taxes
resulting from:
Export tax-exempt income (20) (10) (8)
Executive life insurance (7) (16) (12)
Settlement of tax issues (21) (15)
Other - net (1) 6 1
------ ------ ------
Income tax provision (benefit) $ 435 $(334) $ 322
====== ====== ======
<PAGE>
Pretax earnings from foreign subsidiaries included in continuing operations, but
excluding the operations of McDonnell Douglas Foreign Sales Corporation, were
$10 million in 1996, $4 million in 1995, and $2 million
[Annual Report Page 46]
in 1994. Provisions for foreign income taxes are computed at applicable foreign
rates. Undistributed earnings of foreign subsidiaries are considered to be
permanently invested. Accordingly, no provision has been made for U.S. federal
income taxes on $128 million of undistributed earnings of foreign subsidiaries.
The Company settled certain state tax issues in 1995, which resulted in net
earnings of $35 million, of which $14 million was related to reductions in
accrued interest and $21 million was related to tax reductions. In 1994, the
Company settled certain accounting method and tax credit issues with the
Internal Revenue Service (IRS) in connection with an IRS audit of the years 1986
through 1989. The resolution of these issues resulted in net earnings of $21
million, of which $6 million was related to reductions in accrued interest.
McDonnell Douglas has filed with the IRS refund claims dating back to 1986. The
Company is seeking to recover additional research and development tax credits it
believes it is due in relation to several of its government fixed-price
development programs. McDonnell Douglas has not recorded these credits as the
claims are under review by the IRS. Should the Company prevail, the credits
earned will increase income.
10. Debt and Credit Arrangements
Consolidated debt consisted of the following classifications:
Current
December 31 Interest Rate 1996 1995
------------- -------- --------
Short-term debt
Financial Services 5.9% - 6.8% $ 141 $ 10
Long-term debt
MDC Aerospace
Senior debt securities,
due through 2012 6.9% - 9.8% 1,395 1,145
Senior medium-term notes,
due in 1997 6.0% - 8.1% 20 75
Other debt, due through 2005 5.8% - 11.5% 8 9
-------- --------
Total MDC Aerospace long-term debt 1,423 1,229
Financial Services
Senior debt securities,
due through 2008 3.9% - 9.4% 159 217
Senior medium-term notes,
due through 2017 5.5% - 13.6% 1,104 867
Subordinated medium-term notes,
due through 2004 5.5% - 8.3% 95 120
Other notes, due through 2017 6.5% - 10.4% 20 7
Other debt, due through 2003 8.7% 15 22
Capital lease obligations,
due through 2008 476 248
-------- --------
Total Financial Services long-term debt 1,869 1,481
-------- --------
Total long-term debt 3,292 2,710
-------- --------
Total debt $ 3,433 $ 2,720
======== ========
<PAGE>
The aggregate amount of long-term debt at December 31, 1996, maturing by
calendar year for 1997 to 2001, was as follows:
MDC Aerospace Financial Services
------------- ------------------
1997 $ 271 $ 212
1998 1 286
1999 1 288
2000 201 222
2001 1 189
The weighted average interest rates on short-term borrowings outstanding at
December 31, 1996 and 1995, were 6.3 percent and 6.1 percent, respectively.
MDC Aerospace Credit Agreements
MDC Aerospace has a revolving credit agreement (RCA), amended and restated in
January 1997, under which MDC Aerospace may borrow up to $1.75 billion through
January 2002. MDC Aerospace has the option to increase that limit by 20 percent.
Under the RCA, the interest rate, at the option of MDC Aerospace, is a floating
rate generally based on (1) a defined prime rate, (2) a fixed rate related to
the London interbank offered rate (LIBOR), or (3) as quoted under a competitive
bid. A fee is charged on the amount of the commitment. The RCA contains
restrictive covenants including, but not limited to, indebtedness, subsidiary
indebtedness, customer financing, and liens. There were no RCA amounts
outstanding at December 31, 1996.
During 1996, MDC Aerospace filed a shelf registration statement with the
Securities and Exchange Commission (SEC) relating to debt securities. The filing
increased a prior offering, commenced in 1992 for up to $550 million of notes,
by an aggregate principal amount of $1 billion. In the fourth quarter of 1996,
the Company issued $250 million of 6 7/8 percent notes due in 2006 under this
shelf registration. As of December 31, 1996, MDC Aerospace had $948 million of
unissued debt securities registered with the SEC. The interest rate applicable
to each note and certain other variable terms are established at the date of
issue.
Financial Services Credit Agreements
During 1996, MDFS and MDFC amended their joint RCA to provide, among other
things, for increased borrowing capacity and to extend the maturity date to
August 2001. Under the amended agreement, MDFC may borrow a maximum of $240
million, reduced by MDFS borrowings under this same agreement, which are limited
to $16 million. The interest rate, at the option of MDFC or MDFS, is either a
floating rate, generally based on a defined prime rate or fixed rate related to
LIBOR. There were no outstanding borrowings under this agreement at December 31,
1996. Commercial
[Annual Report Page 47]
paper issued by MDFC in the amount of $96 million was outstanding at December
31, 1996. The joint RCA could therefore be used to support the full amount of
commercial paper outstanding.
<PAGE>
Various credit and debt agreements require MDFC to maintain a minimum net worth,
to restrict indebtedness, and to limit MDFC's cash dividends and other
distributions.
During the second quarter of 1995, MDFC filed a shelf registration statement
with the SEC relating to up to $750 million aggregate principal amount of debt
securities. MDFC established a $500 million medium-term note program under this
registration statement. As of December 31, 1996, MDFC had issued $490 million of
such notes.
During July 1995, MDFS initiated a medium-term note program under a private
placement of up to $100 million principal amount. This note program was
increased to $200 million in April 1996. As of December 31, 1996, MDFS had
issued $135 million of securities under this program.
MDFC's senior debt at December 31, 1996, included $55 million secured by
equipment that had a carrying value of $72 million. MDRC's debt of $35 million
at December 31, 1996, was secured by indentures of mortgage and deeds of trust
on its interest in real estate developments that had a carrying value of $50
million.
11. Financial Instruments
McDonnell Douglas uses derivative financial instruments to manage well-defined
foreign exchange subcontract price risks and foreign currency denominated debt
risks, and on a selective basis to reduce the impact of interest rate
fluctuations on certain debt instruments. McDonnell Douglas does not trade in
derivatives for speculative purposes.
At December 31, 1996, the notional amount of forward exchange contracts
denominated in currencies of major industrial countries was $333 million. The
terms of the currency derivatives vary, but the longest is three years. At
December 31, 1996, unrealized gains, net of losses, on foreign exchange
contracts were $23 million.
At December 31, 1996, MDFC had interest rate swap
agreements outstanding as follows:
Contract Notional Receive Pay
Maturity Amount Rate Rate
Capital lease
obligations 2006 - 2008 $400 Floating 6.7% - 7.6%
Medium-term notes 1997 $ 20 Floating 6.7%
Medium-term notes 2000 - 2001 $ 50 6.8% - 8.6% Floating
<PAGE>
The floating rates are based on LIBOR or on Federal Funds.
Because of the off-balance-sheet nature of derivative instruments, counterparty
failure would result in recognition of unrealized gains and losses. The Company
does not anticipate nonperformance by any of its counterparties.
The following methods and assumptions were used in estimating the fair value
disclosure amounts of financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
NOTES RECEIVABLE: Fair values for variable rate notes that reprice
frequently with no significant change in credit risk are based on
carrying values. The fair values of fixed rate notes are estimated in
discounted cash flow analyses, with the use of interest rates currently
offered on loans with similar terms to borrowers of similar credit
quality.
SHORT- AND LONG-TERM DEBT: Carrying amounts of borrowings under the
short-term revolving credit agreements approximate their fair value. The
fair values of long-term debt, excluding capital lease obligations, are
estimated according to public quotations or discounted cash flow
analyses, which are based on current incremental borrowing rates for
similar types of borrowing arrangements.
The carrying amounts and fair values of financial instruments were as follows:
MDC Aerospace Financial Services
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- -------
December 31, 1996
-----------------
Cash and cash
equivalents $1,077 $1,077 $ 17 $ 17
Notes receivable 101 100 315 324
Short-term notes
payable 141 141
Long-term debt 1,423 1,562 1,393 1,432
December 31, 1995
-----------------
Cash and cash
equivalents $ 784 $ 784 $ 13 $ 13
Notes receivable 67 67 265 273
Short-term notes
payable 10 10
Long-term debt 1,229 1,404 1,233 1,302
<PAGE>
[Annual Report Page 48]
12. Common and Preferred Shares
The authorized common stock of McDonnell Douglas is 400 million shares, each of
$1.00 par value. The following table summarizes changes in shares outstanding
for the periods presented:
Common Shares
Outstanding
-------------
Balance January 1, 1995 233,472,582
Shares repurchased (10,430,200)
Employee stock awards and options 605,096
-------------
Balance December 31, 1995 223,647,478
Shares repurchased (14,657,071)
Employee stock awards and options 604,198
-------------
Balance December 31, 1996 209,594,605
=============
In January 1996, the McDonnell Douglas Board of Directors authorized a
two-for-one split of the common stock. Shareholders' equity has been restated to
give retroactive recognition to the stock split for all periods presented by
reclassifying, from additional capital or retained earnings to common stock, the
par value of the additional shares arising from the split. In addition, all
references to number of shares, per share amounts, and market prices of common
stock have been restated to reflect the stock split.
In October 1994, the Company's Board of Directors approved a stock repurchase
plan that authorized McDonnell Douglas to purchase up to 36 million shares, or
about 15 percent of its then-outstanding common stock. Repurchased common shares
are treated as authorized but unissued shares, and they remain available for use
to meet the Company's current and future common stock requirements for its
benefit plans and for other corporate purposes. Through mid-December 1996, the
Company had acquired 29 million shares, or about 81 percent of the authorized
repurchase amount, at a cost of $1.1 billion. The Company suspended common stock
acquisitions associated with the repurchase program as a result of the proposed
merger with Boeing. See Note 2 for a further discussion of the proposed merger.
<PAGE>
At December 31, 1996, a total of 11.9 million shares of authorized and unissued
common stock was reserved for issuance of stock awards and options granted or
authorized to be granted. Also, 23.8 million shares were reserved for
contributions to the Company's savings plans. At December 31, 1996, there were
10 million shares, $1.00 par value, preferred stock authorized for issuance;
however, none had been issued.
During 1990, the Board of Directors declared a dividend distribution of one
preferred stock purchase right (Right) for each outstanding share of common
stock. Among other provisions, each Right may be exercised to purchase from the
Company one one-hundredth of a share of a new series of preferred stock. The
Rights are exercisable only after (1) a person or group has acquired or obtained
the right to acquire 20 percent or more of the Company's common stock or (2) the
commencement of a tender offer or exchange offer, for 20 percent or more of the
voting power of the Company. In conjunction with the 1996 stock split, the Board
of Directors authorized the adjustment of the exercise price to $125. The Rights
expire December 31, 2004. They may be redeemed by the Company at a price of 1
cent per Right at any time until 10 business days after the acquisition of 20
percent of the Company's common stock. The Board of Directors of the Company
retains the authority to amend or supplement the Rights.
If any person or group acquires 20 percent of the Company's common stock, each
holder of a Right will have the right to receive upon exercise the number of
shares of common stock having a market value equal to two times the exercise
price of the Right. If the Company is acquired, each Right may be exercised to
purchase the number of shares of common stock of the surviving or purchasing
company that at the time of such transaction would have a market value equal to
two times the purchase price.
In December 1996, the Board of Directors approved the proposed merger, with
Boeing becoming the owner of 20 percent or more of the voting power of the
Company. The Board also resolved that Boeing would not be considered an
acquiring person or group as such term is defined in the Rights Agreement.
13. Stock-Option and Incentive Plans
In April 1994, the Company's shareholders approved the 1994 Performance and
Equity Incentive Plan (PEIP). Under the PEIP, 11.4 million shares were
authorized for issuance or sale in connection with stock options, stock
appreciation rights, restricted stock, performance shares, and other stock-based
awards. Options may be granted to officers and employees at an exercise price of
no less than the fair market value of the shares on the date of grant. As of
December 31, 1996, a total of 1.7 million restricted shares of McDonnell Douglas
common stock had been granted. Compensation related to these restricted shares
is being amortized to expense over periods of three to five years, depending on
the award. Unearned compensation is reflected as a component of shareholders'
equity.
Certain awards granted prior to approval of the PEIP remain outstanding. These
include awards made under the Incentive Award Plan (IA Plan), approved by
shareholders in 1986, in the form of stock, nonqualified stock options, and
incentive stock options.
<PAGE>
[Annual Report Page 49]
Options to purchase the McDonnell Douglas common stock have been granted under
the Company's compensation plans. In 1996, the Company adopted the
disclosure-only alternative under SFAS No. 123, "Accounting for Stock-Based
Compensation." If the accounting provisions of the new statement had been
adopted as of the beginning of 1996, the effect on 1996 net earnings would have
been immaterial.
The following is a summary of options for McDonnell Douglas common stock:
Years Ended December 31 1996 1995
-------- --------
Granted under the PEIP
Number of shares 40,000
Price per share $24
Exercised under the IA Plan
Number of shares 84,100 136,610
Price per share $6-$10 $6-$10
December 31 1996 1995
-------- --------
Outstanding
Number of shares 1,030,686 1,114,786
Price per share $9-$24 $6-$24
Exercisable
Number of shares 290,686 184,786
Price per share $9-$24 $6-$24
The following table summarizes additional information about stock options
outstanding at December 31, 1996:
Weighted
Exercise Outstanding Average Exercisable
Price Shares Life* Shares
- - ----------- ----------- ------- ---------
$10 43,457 0.3 43,457
$ 9 47,229 1.3 47,229
$24 40,000 8.1 20,000
$18 900,000 11.8 180,000
---------- --------
Total 1,030,686 10.6 290,686
========== ========
*Weighted average contractual life remaining, in years.
At December 31, 1996, the weighted average exercise price of options outstanding
and exercisable was $18 and $16, respectively.
Under the terms of certain of these, and other cash award plans, consummation of
the proposed merger with Boeing would result in accelerating the payment of
certain benefits that would otherwise have been payable over time, early vesting
of certain benefits, and the use of modified formulas for calculating the
amounts of such benefits. The effect of the above has not been included in the
1996 McDonnell Douglas financial statements, but is expected to be included in
the estimated costs and expenses to be incurred in connection with consummating
the proposed merger. In addition, upon consummation, the proposed merger would
result in outstanding stock option, stock appreciation right, restricted stock,
performance shares, and other stock-based awards' being converted into similar
instruments of Boeing.
<PAGE>
14. Retirement Plans
Most employees of the Company are participants in defined benefit pension plans,
including several multiemployer and foreign plans. In addition, the Company has
a supplementary unfunded pension plan to provide those benefits that are
otherwise due employees under the defined benefit pension plans' benefit
formulas, but that are in excess of the benefits the Internal Revenue Code
permits companies to offer under the defined benefit pension plans. Benefits for
salaried plans are based primarily on salary and years of service, whereas
benefits for hourly plans are generally based on a fixed dollar amount per year
of service.
The Company measures pension cost and makes contributions to its pension plans
according to independent actuarial valuations. It uses the projected unit credit
actuarial cost method to determine pension cost for financial accounting
purposes and, beginning in 1996, to determine funding levels and pension cost
allocable to government contracts consistent with the provisions of SFAS No. 87,
"Employers' Accounting for Pensions." Funding levels and pension cost
allocable to government contracts were determined by the entry-age normal
actuarial cost method prior to 1996.
The assets of the plans consist principally of marketable fixed income and
equity securities. At December 31, 1996, the plans held $35 million of the
Company's senior debt securities with varying interest rates and maturity dates,
as well as 144,000 shares of McDonnell Douglas common stock.
The following assumptions were used to determine net periodic pension expense
(income) and the actuarial present value of benefit obligations for the
significant domestic plans:
Years Ended December 31 1996 1995 1994
-------- -------- --------
Discount rate
January 1 7.5% 8.25% 7.5%
December 31 7.75% 7.5% 8.25%
Average rates of increase in
compensation based upon age -
salaried plans
January 1 4.5% 5.0% 5.0%
December 31 5.0% 4.5% 5.0%
Expected return on plan assets 9.3% 9.3% 9.3%
<PAGE>
[Annual Report Page 50]
Periodic pension expense (income) for the significant domestic pension plans
included the following components:
Years Ended December 31 1996 1995 1994
-------- ------ ------
Service cost for the year $ 110 $ 91 $ 119
Interest cost on pension
benefit obligations 339 305 278
Return on plan assets
Actual (1,058) (1,285) (64)
Deferred gain (loss) 520 791 (403)
Net amortization (41) (67) (62)
-------- ------- ------
Domestic plans $ (130) $ (165) $(132)
======== ======= ======
Foreign and other plans $ 3 $ 4 $ 6
======== ======= ======
An analysis of the funded status of the significant pension plans follows:
December 31 1996 1995
-------- --------
Actuarial present value of accumulated
benefit obligations
Vested $ 4,401 $ 4,002
Nonvested 282 276
-------- --------
Accumulated benefit obligation 4,683 4,278
Additional amounts related to projected
future salary increases 406 355
-------- --------
Projected benefit obligation 5,089 4,633
Plan assets, at fair value 6,976 6,140
-------- --------
Excess of plan assets 1,887 1,507
Items not yet recognized in earnings
Unrecognized net transition asset (345) (418)
Unrecognized prior service cost 718 657
Deferred net gain (970) (490)
-------- --------
Domestic plans 1,290 1,256
Foreign plans 16 11
-------- --------
Prepaid pension asset $ 1,306 $ 1,267
======== ========
During 1995, the Company amended its significant domestic pension plans to
increase pension benefits for current and future nonunion retirees. The
increases became effective December 1, 1996.
<PAGE>
Effective January 1, 1993, the Company amended its significant domestic pension
plans to provide a supplemental pension benefit to nonunion retirees who elect
to participate in the new health care plan funded entirely by participant
contributions. The effect of this amendment was to increase unrecognized prior
service cost as of December 31, 1992, by $385 million. The Company recorded this
liability in connection with the adoption of and subsequent accounting for SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," during 1992.
The Company has no intention of terminating any of its pension plans. However,
if a qualified defined benefit pension plan is terminated and all accrued
liabilities to employees and their beneficiaries are satisfied, all remaining
assets in the plan's trust revert to the employer (except in certain limited
circumstances where a change in control has occurred within the five-year period
preceding the termination). In such a case, the following consequences would
ensue: First, a nondeductible 20 percent to 50 percent excise tax on the gross
amount of the reversion would be imposed. Second, under a regulation issued by
the U.S. Department of Defense and other Government contracting agencies, the
Government could assert a claim to an equitable share (to the extent that the
Government participated in pension costs through its contracts with the
Company). Third, any amount that the employer then retained would be treated as
taxable income.
In addition to the defined benefit pension plans, the Company gives eligible
employees the opportunity to participate in savings plans that permit both
pretax and after-tax contributions. Most domestic employees with at least 30
days of continuous service are eligible to participate in a plan. Under these
plans, the employee may contribute to various savings alternatives, including
the Company's common stock. In most cases, the Company matches a portion of the
employee's contribution with contributions to the McDonnell Douglas Common Stock
Fund in the plans. Generally, the Company's contributions are vested after the
employee completes five years of service. The Company's contributions to the
savings plans during 1996, 1995, and 1994 totaled $94 million, $78 million, and
$73 million, respectively.
<PAGE>
In addition to the above plans, the Company and certain of its domestic
subsidiaries provide health care benefits for retirees who are covered by
collective bargaining agreements. Generally, such employees become eligible for
retiree health care upon retirement from active service at or after age 55 with
10 or more years of service. Qualifying dependents are also eligible for medical
coverage. The Company's policy is to fund the cost of medical benefits as the
claims are received. The retiree health care plan has provisions for participant
contributions, deductibles, co-insurance percentages, out-of-pocket limits,
schedules of reasonable fees, maintenance of benefits with other plans, the
Medicare carve-out, and a maximum lifetime benefit per covered individual.
An analysis of the accrued retiree benefits follows:
December 31 1996 1995
-------- --------
Accumulated postretirement benefit
obligation
Retirees $ 608 $ 753
Active participants fully eligible
to retire 123 126
Other active participants 89 122
-------- --------
Accumulated postretirement benefit
obligation 820 1,001
Items not yet recognized in earnings
Unrecognized prior service gain 226 200
Deferred net gain (loss) 63 (92)
-------- --------
Accrued retiree health care liability 1,109 1,109
Liability for pension supplement 96
-------- --------
Accrued retiree benefits $ 1,109 $ 1,205
======== ========
<PAGE>
[Annual Report Page 51]
Periodic postretirement benefit expense included the following components:
Years Ended December 31 1996 1995 1994
------ ------ ------
Service cost for the year $ 8 $ 7 $ 9
Interest cost on accumulated
postretirement benefit obligations 67 78 77
Net amortization (20) (17) (10)
------ ------ ------
$ 55 $ 68 $ 76
====== ====== ======
The following assumptions were used to determine periodic postretirement benefit
costs and the actuarial present value of benefit obligations:
Years Ended December 31 1996 1995 1994
------ ------ ------
Discount rate
January 1 7.5% 8.25% 7.5%
December 31 7.75% 7.5% 8.25%
Health care cost trend rate
Preferred provider non-Medicare* 8.8% 10.3% 10.2%
Point of service non-Medicare* 6.8% 8.0%
Medicare* 7.7% 8.9% 8.5%
HMO premiums 5.0% 5.0% 6.0%
* Decreasing to 5.0% - 5.4% after 2003
Increasing the health care cost trend rates by one percentage point would result
in a 9 percent increase in the sum of the service and interest cost components
of periodic postretirement benefit cost and an 8.3 percent increase in the
accumulated postretirement benefit obligation at December 31, 1996.
15. Leased Properties
Rental expense for leased properties was $73 million in 1996, $61 million in
1995, and $79 million in 1994. These expenses, substantially all minimum
rentals, are net of sublease income. The Company has negotiated noncancelable
sublease agreements on certain of its facilities and equipment totaling $40
million during the next several years. Minimum rental payments under operating
leases with initial or remaining terms of one year or more aggregated $291
million at December 31, 1996. Payments, net of sublease amounts, due during the
next several years are as follows: 1997, $42 million; 1998, $34 million; 1999,
$27 million; 2000, $26 million; and 2001, $27 million.
In 1996, the Company purchased $378 million in data processing services from an
unaffiliated company pursuant to an outsourcing of its information-technology
operations in 1992. During the remaining six-year term of the outsourcing
agreement, data processing service payments are expected to aggregate
approximately $2 billion.
<PAGE>
The Company has entered into sale/leaseback arrangements (as seller/lessee) as
financing methods for certain of its commercial aircraft sales. In a typical
arrangement, the Company sells the aircraft to a financial institution and
immediately agrees to lease such equipment for a specified time. The Company
subleases the aircraft to the aircraft operator. Profit on the transaction is
deferred and amortized to income over the leaseback term on a straight-line
basis. At the end of the leaseback term, the Company must either repurchase the
aircraft at an agreed value or pay a defined amount upon sale of the aircraft by
the financial institution. The following information, at December 31, 1996, is
provided for existing sale/leasebacks.
Minimum Lease Payments Sublease rentals
---------------------- ----------------
1997 $ 42 $ 47
1998 42 46
1999 43 46
2000 44 46
2001 46 29
Remainder 55 168
---- ----
Total $272 $382
==== ====
16. Commitments and Contingencies
A number of legal proceedings and claims are pending or have been asserted
against the Company, including legal proceedings and claims relating to alleged
injuries to persons associated with the disposal of hazardous substances. A
substantial number of such legal proceedings and claims are covered by insurance
or settlements with insurance companies. The Company believes that the final
outcome of such proceedings and claims will not have a material adverse effect
on its earnings, cash flow, or financial position.
The marketing of commercial aircraft sometimes results in agreements to provide
or to guarantee long-term financing of some portion of the delivery price of
aircraft, to lease aircraft, or to guarantee customer lease payments or aircraft
values. At December 31, 1996, the Company had made offers of this nature to
customers totaling $2.087 billion related to aircraft on order or under option
scheduled for delivery through the year 2017. The Company had made guarantees
and other commitments totaling $868 million on delivered aircraft. At December
31, 1996, MDFS also had commitments to provide leasing and other financing in
the aggregate amount of $77 million. The Company does not expect these offers or
commitments to have a material adverse effect on its earnings, cash flow, or
financial position.
<PAGE>
The Company's outstanding guarantees include amounts related to MD-11s operated
by Viacao Aerea Rio-Grandense S.A. (VARIG). During 1994, VARIG notified its
aircraft lenders and lessors that it was temporarily suspending payments,
pending the restructuring of its financial obligations. In connection with that
restructur-
[Annual Report Page 52]
ing, the Company made lease, loan, and interest payments totaling $70 million on
behalf of VARIG in 1994 and 1995. At December 31, 1996, VARIG had made
repayments totaling $20 million to the Company. During January 1996, VARIG
requested deferral of additional obligations covering the January 1996 through
January 1998 period. VARIG and the Company agreed to defer up to $60 million in
certain payments owed to the Company, with repayment by VARIG to begin in 1998.
At December 31, 1996, the Company had made payments related to this additional
deferral in the amount of $27 million on behalf of VARIG. These restructurings
and payments have not had and, if the restructuring steps are successful, are
not expected to have a material adverse effect on the Company's earnings, cash
flow, or financial position.
Trans World Airlines Inc. (TWA), the Company's largest aircraft-leasing
customer, continues to operate under a reorganization plan, confirmed by the
U.S. Bankruptcy Court in 1995, that restructured its indebtedness and leasehold
obligations to its creditors. In addition, TWA continues to face financial and
operational challenges due in part to an airliner crash in July 1996 and
turnover of key management, which occurred during 1996. The reorganization plan
and TWA's current financial condition have not had and, assuming TWA's financial
condition does not further deteriorate, are not expected to have a material
adverse effect on the Company's earnings, cash flow, or financial position.
The Company is a party to a number of proceedings brought under the
Comprehensive Environmental Response, Compensation, and Liability Act, commonly
known as Superfund, and under similar state statutes. The Company has been
identified as a potentially responsible party (PRP) at 37 sites. Of these, the
Company believes that it has de minimis liability at 23 sites, including 14
sites at which it believes that it has no future liability. At five of the sites
where the Company's liability is not considered to be de minimis, the Company
lacks sufficient information to determine its probable share or amount of
liability. At the remaining nine sites at which the Company's liability is not
considered to be de minimis, either final or interim cost-sharing agreements
have been effected between the cooperating PRPs, although such agreements do not
fix the amount of cleanup costs that parties will bear. In addition, the
Company is remediating, or has begun environmental engineering studies to
determine cleanup requirements for, certain of its current operating sites or
former sites of industrial activity.
At December 31, 1996, the accrued liability for study and remediation
expenditures at Superfund sites and at the Company's current and former
operating sites was $44 million. Because of the inherent uncertainty of the
estimation process, it is possible that actual costs will differ from estimates.
Ongoing operating and maintenance costs at current operating sites and
remediation expenditures on property held for sale are not included in this
amount. The Company believes that any amounts paid in excess of the accrued
liability will not have a material effect on its earnings, cash flow, or
financial position. Claims for recovery are recorded as receivables and
therefore they have not been netted against the environmental liabilities. At
December 31, 1996, a receivable had been recorded from one insurance carrier for
agreed reimbursement of environmental costs for $8 million.
<PAGE>
17. Operations of MDFS
The condensed financial data presented below have been summarized from the MDFS
audited consolidated financial statements:
Years Ended December 31 1996 1995 1994
------ ------ ------
Earned income $ 229 $ 194 $ 190
Costs and expenses 156 136 154
Net earnings 48 37 25
Dividends 26 25
18. U.S. Government and Export Sales
Consolidated sales to U.S. Government agencies (including sales to foreign
governments through foreign military sales contracts with U.S. Government
agencies) amounted to $9.507 billion in 1996, $9.621 billion in 1995, and $9.229
billion in 1994. No other single customer accounted for 10 percent or more of
consolidated revenues in 1996, 1995, or 1994.
Foreign sales, some of which were made through foreign military sales contracts
with the U.S. Government, are shown by geographical area in the table below:
Years Ended December 31 1996 1995 1994
------- ------- -------
North America $ 42 $ 35 $ 58
Central and South America 347 224 25
Western Europe 1,993 2,186 2,161
Eastern Europe and Asia 1,018 1,531 1,032
Africa and the Middle East 1,289 1,098 703
South Pacific 353 173 256
------- ------- -------
$ 5,042 $ 5,247 $ 4,235
======= ======= =======
19. Supplementary Payment Information
Years Ended December 31 1996 1995 1994
------- ------- -------
Interest paid $ 151 $ 265 $ 313
Income taxes paid 342 354 162
20. Business Segment Reporting
Selected financial data by industry segment is presented on page 34.
<PAGE>
[Annual Report Page 53]
REPORT OF MANAGEMENT RESPONSIBITIES
The financial statements of McDonnell Douglas Corporation and its consolidated
subsidiaries have been prepared under the direction of management in conformity
with generally accepted accounting principles and, particularly with respect to
long-term contracts and programs, include amounts based upon estimates and
judgments. The integrity and reliability of the data in these financial
statements are the responsibility of management. In the opinion of management,
the financial statements set forth a fair presentation of the consolidated
financial condition of McDonnell Douglas at December 31, 1996 and 1995, and the
consolidated results of its operations for the years ended December 31, 1996,
1995, and 1994.
There are inherent limitations in the effectiveness of any system of internal
control, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even an effective internal control system
can provide only reasonable assurance with respect to financial statement
preparation. Furthermore, the effectiveness of an internal control system can
change with circumstances.
McDonnell Douglas and its consolidated subsidiaries maintain accounting systems
and related internal controls that, in the opinion of management, provide
reasonable assurances that transactions are executed in accordance with
management's authorization, that financial statements are prepared in accordance
with generally accepted accounting principles, and that assets are properly
accounted for and safeguarded.
Ethical decision making is fundamental to the Company's management philosophy.
Management recognizes its responsibility for fostering a strong ethical climate.
Written codes of ethics and standards of business conduct are distributed to
every employee, and each employee has been trained or will be trained in ethical
decision making. The Board of Directors' Corporate Responsibility Committee
oversees standards of business conduct.
The Board of Directors has appointed four of its nonemployee members to an Audit
Committee. This committee meets periodically with management and with the
internal and independent auditors. Both internal and independent auditors have
unrestricted access to the Audit Committee to discuss the results of their
examinations and the adequacy of internal controls. In addition, the Audit
Committee recommends independent auditors to the Board.
/s/ Harry C. Stonecipher
Harry C. Stonecipher
President and Chief Executive Officer
/s/ James F. Palmer
James F. Palmer
Senior Vice President and Chief Financial Officer
January 22, 1997
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
McDonnell Douglas Corporation
We have audited the accompanying balance sheet (including the consolidating data
for MDC Aerospace and Financial Services) of McDonnell Douglas Corporation and
consolidated subsidiaries (MDC) as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of MDC's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of McDonnell Douglas Corporation
and consolidated subsidiaries at December 31, 1996 and 1995, and the
consolidated results of MDC's operations and MDC's cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in Notes 1 and 5 to the consolidated financial statements, in 1995
MDC changed its method of accounting for the MD-11 commercial aircraft program.
/s/ Ernst & Young LLP
Ernst & Young LLP
St. Louis, Missouri
January 22, 1997
<PAGE>
[Annual Report Page 54]
Five-Year Consolidated Financial Summary
- - --------------------------------------------------------------------------------
(Dollar amounts in millions, except per share data)
- - --------------------------------------------------------------------------------
December 31 or Years Then Ended 1996 1995 1994 1993 1992
- - --------------------------------------------------------------------------------
Summary of Operations
Revenues by industry segment
Military aircraft $ 7,952 $ 8,158 $ 7,804 $ 6,852 $ 7,238
Commercial aircraft 3,317 3,891 3,155 4,760 6,595
Missiles, space, and
electronic systems 2,178 1,917 1,877 2,575 3,169
Financial services and other 367 334 326 287 352
--------------------------------------------------
Operating revenues 13,814 14,300 13,162 14,474 17,354
Earnings (loss) from
continuing operations 788 (416)(a) 598 359 698(b)
Per share 3.64 (1.83)(a) 2.53 1.53 3.00(b)
Net earnings (loss) 788 (416)(a) 598 396 (781)(c)
Per share 3.64 (1.83)(a) 2.53 1.68 (3.35)(c)
As a percentage of revenues 5.7% 4.5% 2.7%
As a percentage of beginning
equity 25.9% 17.5% 13.1%
Research and development 355 311 297 341 509
Interest expense
Aerospace segments 121 116 131 89 309
Financial services and
other segment 127 109 118 126 159
Income taxes (benefit) 435 (334) 322 100 388
Cash dividends declared 104 90 65 55 55
Per share .48 .40 .28 .23 .23
<PAGE>
- - --------------------------------------------------------------------------------
(Dollar amounts in millions, except per share data)
- - --------------------------------------------------------------------------------
December 31 or Years Then Ended 1996 1995 1994 1993 1992
- - --------------------------------------------------------------------------------
Balance Sheet Information
Cash and cash equivalents $ 1,094 $ 797 $ 421 $ 86 $ 82
Receivables and property
on lease 3,972 3,168 2,859 2,912 2,866
Contracts in process and
inventories 3,486 3,421 5,806 5,774 7,230
Property, plant, and equipment 1,453 1,471 1,597 1,750 1,991
Total assets 11,631 10,466 12,216 12,026 13,781
Notes payable and
long-term debt
Aerospace segments 1,438 1,251 1,272 1,625 2,767
Financial services and other
segment 1,995 1,469 1,297 1,513 1,474
Shareholders' equity 3,038 3,041 3,872 3,413 3,022
Per share 14.50 13.60 16.58 14.46 12.85
Debt-to-equity ratios
Aerospace segments .54 .46 .36 .52 1.01
Financial services and other
segment 5.21 4.44 4.14 5.22 5.42
- - --------------------------------------------------------------------------------
General Information
Shares outstanding
(in millions) 209.6 223.6 233.5 236.0 235.1
Shareholders of record 23,565 23,582 24,479 28,513 34,124
Personnel 63,873 63,612 65,760 70,016 87,377
Salaries and wages $ 3,294 $ 3,347 $ 3,238 $ 3,464 $ 4,258
Firm backlog $23,679 19,640 $17,503 $19,379 $24,052
Total backlog $44,361 $28,353 $29,232 $35,698 $41,806
(a Includes a charge of $1.123 billion ($4.95 per share) related to the MD-11
commercial aircraft.
(b)Includes a gain of $676 million ($2.90 per share) from a postretirement
benefit curtailment relating to SFAS No. 106.
(c)Includes a net charge of $860 million ($3.69 per share) related to the
initial adoption and subsequent curtailment gain associated with SFAS No.106.
Total backlog includes firm backlog plus (i) U.S. and other government orders
not yet funded, (ii) U.S. and other government orders being negotiated as
continuations of authorized programs and, (iii) unearned price escalation on
firm commercial aircraft orders. Backlog is that of the aerospace segments only
and includes all but a minor portion of the work to be performed under long-term
contracts. Customer options and products produced for lease are excluded from
backlog.
<PAGE>
[Annual Report Page 57]
Supplemental Information
Quarterly Common Stock Prices and Dividends
Cash dividends of $.12 and $.10 a share were declared for each quarter in 1996
and 1995, respectively. The number of holders of McDonnell Douglas Common Stock
at January 31, 1997, was 23,573.
Stock Exchanges
McDonnell Douglas Corporation's Common Stock is listed on the New York and
Pacific stock exchanges (ticker symbol MD) and is traded on these and other
exchanges. It is commonly abbreviated in market reports as "McDnD."
Shareholder Information
Both the McDonnell Douglas Corporation and the McDonnell Douglas Finance
Corporation file Forms 10-K and 10-Q with the Securities and Exchange
Commission. Shareholders may obtain copies of these reports, and of McDonnell
Douglas's Annual Report to Shareholders, on the Internet at www.mdc.com or by
writing or calling:
Shareholder Services
Mail Code S100-1240
McDonnell Douglas Corporation
P.O. Box 516
St. Louis, MO 63166-0516
(800) 233-8193
A recorded summary of quarterly financial results is also available through the
toll-free number shortly after release of the results.
Transfer Agent and Registrar
Correspondence and questions concerning shareholder accounts, payment of
dividends, or transfer of stock should be addressed to:
First Chicago Trust Company of New York
Attn: Shareholder Relations Department
P.O. Box 2500
Jersey City, NJ 07303-2500
(800) 446-2617
(201) 222-4955 (for the hearing impaired)
World Wide Web: www.fctc.com
Electronic mail: [email protected]
<PAGE>
Investor Relations
Securities analysts should contact:
Investor Relations
Mail Code S100-1320
McDonnell Douglas Corporation
P.O. Box 516
St. Louis, MO 63166-0516
(314) 232-6358
Code of Ethics
McDonnell Douglas is committed to maintaining the highest standards of integrity
and ethical behavior in every aspect of its business. The corporation lives by
the credo "Always take the high road" - do what is right rather than what is
expedient. If you have any questions about the corporation's code of ethics or
standards of business conduct, contact:
Harold S. Coyle, Vice President, Corporate Ethics
Mail Code S100-1470
McDonnell Douglas Corporation
P.O. Box 516
St. Louis, MO 63166-0516
(314) 232-7257
Corporate Public Relations
Members of the news media should contact:
Corporate Communications
Mail Code S100-1195
McDonnell Douglas Corporation
P.O. Box 516
St. Louis, MO 63166-0516
(314) 233-8957
McDonnell Douglas issues its news releases through PR Newswire. Faxed copies of
news releases are available at no charge. To get them, call Company News On-Call
at 1-800-758-5804. This electronic system requests a six-digit code(543287) and
allows callers to choose from a menu of McDonnell Douglas news releases. The
requested release will be faxed within minutes of the inquiry. This service is
available 24 hours a day, 7 days a week. News releases are also posted on the
World Wide Web sites of both McDonnell Douglas (www.mdc.com) and On-Call
(www.prnewswire.com).
Web Address
www.mdc.com
<PAGE>
Other Reports
McDonnell Douglas employees, retirees, and family members volunteered thousands
of hours of their personal time to community programs and projects across the
nation during 1996. In addition, the Employees' Community Funds in the United
States and Canada contributed more than $4.7 million to charitable organizations
and programs. The McDonnell Douglas Foundation contributed more than $12 million
to support philanthropic endeavors that included science and math education;
civic and cultural programs; health and social services (including disaster
relief, hunger alleviation, and shelters for the homeless); youth issues; and
the environment.
The 1996 community relations report summarizes the charitable and philanthropic
activities of McDonnell Douglas and its employees. A copy may be requested from:
Community Relations [Picture Omitted]
Mail Code S100-1510
McDonnell Douglas Corporation
P.O. Box 516
St. Louis, MO 63166-0516
(314) 233-4123
McDonnell Douglas's 1996 safety, health, and environmental affairs report
summarizes the corporation's progress in pollution prevention, waste recycling,
and employee health and safety protection. To obtain a copy, contact:
Safety, Health, and Environmental Affairs [Picture Omitted]
Mail Code S100-1210
McDonnell Douglas Corporation
P.O. Box 516
St. Louis, MO 63166-0516
(314) 233-9469
<PAGE>
[Annual Report Page 55]
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(Dollars in millions, except per share data)
- - --------------------------------------------------------------------------------
For Year Ended December 31,
---------------------------------------------
1996
---------------------------------------------
Quarter 1st 2nd 3rd 4th
- - ----------------------------------------------------------------
Revenues $3,171 $3,264 $3,308 $4,091
Gross Margin 604 592 610 619
Net earnings 198 188 195 207
Earnings
per share (b) .89 .87 .90 .98
Market Price
High $48 5/8 $52 3/8 $53 1/4 $66 1/2
Low 42 1/8 42 1/2 42 1/2 49
For Year Ended December 31,
---------------------------------------------
1995
---------------------------------------------
Quarter 1st 2nd 3rd 4th
- - ----------------------------------------------------------------
Revenues $3,333 $3,922 $3,346 $3,731
Gross Margin 512 558 536 (1,248)
Net earnings
(loss) 159 169 192 (936)
Earnings (loss)
per share (b) .69 .74 .85 (4.18)
Market Price
High $29 $39 3/8 $43 1/8 $46 1/8
Low 23 1/4 27 7/8 37 7/8 38 1/4
(a) Includes MD-11 accounting charge of $1.838 billion ($1.123 billion
after-tax) or $5.02 (b) per share.
(b) 1995 data restated to reflect a two-for-one stock split.
The table above presents unaudited quarterly financial information for the
years ended December 31, 1996 and 1995. Gross margin is net of interest expense
of the financial services and other segment.
The sum of the 1995 quarterly earnings per share does not equal the 1995
annual earnings per share. This is because of a combination of two factors.
First, the number of shares outstanding decreased each quarter, and second, the
MD-11 accounting charge had a significant impact on fourth-quarter earnings.
The range of market prices for a share of McDonnell Douglas Common Stock is
shown above, by quarters for 1996 and 1995. Prices are as reported in the
consolidated transaction reporting system.
Exhibit 21
MCDONNELL DOUGLAS CORPORATION
SUBSIDIARIES (1)
State or Other
Jurisdiction of
Company Incorporation Business Name
------- --------------- -------------
McDonnell Douglas Canada McDonnell Douglas
Canada LTD (2) Canada LTD or MDCAN
McDonnell Douglas Delaware McDonnell Douglas
Commercial Delta, Commercial Delta, Inc.
Inc. (2) or MDCD
McDonnell Douglas Delaware McDonnell Douglas
Helicopter Company (2) Helicopter Company
or MDHC and McDonnell
Douglas Helicopter
Systems or MDHS
McDonnell Douglas Finance Delaware McDonnell Douglas
Corporation (3) Finance Corporation
or MDFC
McDonnell Douglas California McDonnell Douglas
Realty Company (2) Realty Company
or MDRC
MDFC Equipment Delaware MDFC Equipment
Leasing Corporation (4) Leasing Corporation
or MDFCELC
MDFC-Lakewood Company (3) Delaware MDFC-Lakewood
Company or MDFCLKC
(1) All other subsidiaries have been omitted from this listing, as considered
in the aggregate as a single subsidiary, they would not constitute a
significant subsidiary.
(2) A consolidated subsidiary meeting the test as a significant subsidiary.
(3) A consolidated subsidiary of McDonnell Douglas Financial Services
Corporation (not a significant subsidiary) meeting the test as a
significant subsidiary.
(4) A consolidated subsidiary of McDonnell Douglas Finance Corporation meeting
the test as a significant subsidiary.
<PAGE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference of our report dated January 22,
1997 on the consolidated financial statements and schedule of McDonnell Douglas
Corporation and subsidiaries incorporated by reference in the Annual Report
(Form 10-K) of McDonnell Douglas Corporation and subsidiaries for the year ended
December 31, 1996 in the following filings:
Registration Statement File Number 333-10913 (filed August 27, 1996) on
Form S-3, McDonnell Douglas Corporation Senior Debt Securities.
Registration Statement File Number 33-56129 (filed October 21, 1994) on
Form S-8, McDonnell Douglas Corporation 1994 Performance and Equity
Incentive Plan.
Registration Statement File Number 33-50063 (filed August 23, 1993) on
Form S-8, Employee Savings Plan of McDonnell Douglas Corporation -
Salaried Plan.
Post Effective Amendment Number 7 to Registration Statement File Number
2-76396 on Form S-8, Employee Savings Plan of McDonnell Douglas
Corporation - Component Plan, filed April 4, 1988.
Registration Statement File Number 33-50059 (filed August 23, 1993) on
Form S-8, Employee Thrift Plan of McDonnell Douglas Corporation -
Subsidiary Plan.
Post Effective Amendment Number 1 to Registration Statement File Number
33-11144 on Form S-8, Employee Thrift Plan of McDonnell Douglas
Corporation - Hourly Plan, filed April 29, 1988.
Post Effective Amendment Number 2 to Registration Statement File Number
33-13342 on Form S-8 (which pursuant to Rule 429, also constitutes Post
Effective Amendment Number 10 to S-8 Registration Statement File Number
2-64039), Incentive Award Plan, Incentive Compensation Plan and
Non-Qualified Stock Option Plan, filed April 28, 1989.
Registration Statement File Number 33-50057 (filed August 23, 1993) on
Form S-8, Employee Investment Plan of McDonnell Douglas Corporation -
Hourly West Plan.
Registration Statement File Number 33-50055 (filed August 23, 1993) on
Form S-8, Employee Investment Plan of McDonnell Douglas Corporation -
Hourly East Plan.
Registration Statement File Number 33-50061 (filed August 23, 1993) on
Form S-8, McDonnell Douglas Helicopter Company Savings Plan for Hourly
Employees.
/s/Ernst & Young LLP
St. Louis, Missouri
March 14, 1997
<PAGE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of McDonnell Douglas Corporation and subsidiaries of our report dated January
22, 1997, included in the 1996 Annual Report to Shareholders of McDonnell
Douglas Corporation and subsidiaries.
/s/ Ernst & Young LLP
St. Louis, Missouri
March 14, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
McDonnell Douglas Corporation
Financial Data Schedule (FDS)
</LEGEND>
<CIK> 0000063917
<NAME> MCDONNELL DOUGLAS
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
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<INVENTORY> 3,486
<CURRENT-ASSETS> 0
<PP&E> 4,074
<DEPRECIATION> (2,621)
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<BONDS> 3,433 <F1>
0
0
<COMMON> 210
<OTHER-SE> 2,828
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<SALES> 13,375
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<INTEREST-EXPENSE> 121
<INCOME-PRETAX> 1,223
<INCOME-TAX> 435
<INCOME-CONTINUING> 788
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<EPS-DILUTED> 3.64
<FN>
<F1> (1) Mortgages and similar debt.
</FN>
</TABLE>
