Employment Agreement with Harry C. Stonecipher Dated August 1, 1997 AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the Closing Date (as hereinafter defined) by and between The Boeing Company, a Delaware corporation (the "Company"), and Harry C. Stonecipher ("Executive"). RECITALS -------- WHEREAS, the Company, West Acquisition Corp., a wholly owned subsidiary of the Company, and McDonnell Douglas Corporation have entered into an Agreement and Plan of Merger (the "Merger Agreement"), dated as of December 14, 1996, pursuant to which West Acquisition Corp. will be merged with and into McDonnell Douglas Corporation, with McDonnell Douglas Corporation continuing as the surviving corporation; WHEREAS, the Executive is currently serving as Chief Executive Officer of McDonnell Douglas Corporation, and the Company desires to secure the continued employment of the Executive in accordance herewith; WHEREAS, McDonnell Douglas Corporation has entered into an employment agreement with the Executive (the "Prior Employment Agreement") as of the 24th day of September, 1994 (the "Prior Commencement Date"); WHEREAS, Executive has agreed to become President and Chief Operating Officer of the Company and a member of the Board of Directors of the Company pursuant to the terms and conditions of this Agreement (it being understood and agreed that Executive will not receive any additional compensation for serving as a member of the Board of Directors of the Company or as a member of the board of directors of any other company at the Company's request); and WHEREAS, the parties desire to enter into this Agreement, as of the effective date of the consummation of the transactions contemplated by the Merger Agreement (the "Closing Date"), setting forth the terms and conditions for the employment relationship of the Executive with the Company during the Employment Period (as hereinafter defined). NOW THEREFORE, in consideration of the foregoing, and the representations, warranties and covenants hereinafter, the parties hereto agree as follows: 1. Employment. At all times during the Employment Period (as hereinafter defined), the Company shall employ Executive in the capacity of President and Chief Operating Officer. In such capacity, Executive shall devote his full time and professional efforts to such position, shall be assigned and undertake only such duties and tasks as are appropriate for a person in the position of President and Chief Operating Officer, and shall exercise such authority as is customarily exercised by a President and Chief Operating Officer, subject to the overall supervision of the Chief Executive Officer of the Company and the Board of Directors of the Company (the "Board"). 25 <PAGE> 26 2. Employment Period. The term of this Agreement shall commence as of the Closing Date and shall expire, subject to earlier termination of employment as hereinafter provided, on September 24, 1998 (the "Employment Period"); provided, however, that on September 24, 1997 and each anniversary of such date, the Employment Period shall automatically be extended for an additional one year period unless prior thereto either party has given written notice to the other that such party does not wish to extend the term of this Agreement; and further provided that if the Merger Agreement is terminated, then, at the time of such termination, this Agreement shall be deemed canceled and of no force or effect. Notwithstanding any other provision of this Section 2, in no event shall the Employment Period extend beyond May 16, 2001. 3. Compensation. Except as otherwise provided for herein, throughout the Employment Period the Company shall pay or provide Executive with the following, and Executive shall accept the same, as compensation for the performance of his undertakings and the services to be rendered by him throughout the Employment Period under this Agreement: (a) Annual Compensation. (i) Base Salary: $900,000 per year, to be reviewed annually by the Compensation Committee ("Compensation Committee") of the Board, but Base Salary may not be reduced by the Compensation Committee to a rate that is less than the highest rate Executive has attained on an annualized basis unless such reduction is part of a general salary reduction applied to members of the Company's senior management as a group. (ii) Annual Incentive Compensation: $635,000 target incentive compensation for 1997 pursuant to the terms and conditions of the McDonnell Douglas Corporation Senior Executive Performance Sharing Plan or any successor plan (collectively "PSP"); this amount will be payable in 1998 first quarter. Thereafter, the amount determined in accordance with the terms and conditions of the Company Incentive Compensation Plan as applied for other members of senior management of the Company. (b) Long Term Incentive Compensation. (i) Stock equivalent units relating to 360,000 shares of McDonnell Douglas Corporation common stock will be converted, in accordance with the applicable provisions of the Merger Agreement, into stock equivalent units with respect to Company common stock, with vesting as follows: (a) 252,000 McDonnell Douglas Corporation stock equivalent units have vested prior to the Closing Date. (b) the remaining 108,000 McDonnell Douglas Corporation stock equivalent units no later than the end of the first quarter of 2002. The stock equivalent units shall remain subject to the terms and conditions set forth in the letter from Steven N. Frank to the Executive dated March 25, 1995 (the "March 25, 1995 Letter") a copy of which is attached as Exhibit B hereto. 26 <PAGE> 27 (ii) Performance Based Restricted Stock: 60,000 shares of performance based restricted stock of McDonnell Douglas Corporation previously granted to the Executive will be converted, in accordance with the applicable provisions of the Merger Agreement, into performance based restricted stock of the Company. Unless otherwise agreed to by the Company and the Executive, the Company will grant to the Executive 78,000 performance based restricted shares of the Company, no later than the end of the first quarter of 1998. Vesting, performance periods and other criteria to be the same as (or equivalent to) those set for the Executive's award of performance based restricted stock in 1997 (unless otherwise agreed to by the Company and the Executive). (iii) Stock Options: Options to purchase 900,000 shares of McDonnell Douglas Corporation common stock will be converted, in accordance with the applicable provisions of the Merger Agreement, into options to purchase Company common stock, vesting and exercisable as follows: 180,000 shares of McDonnell Douglas Corporation common stock per year beginning on the second anniversary of the Prior Commencement Date, exercisable over a ten-year period, continuing after Executive's retirement. (c) All restricted stock and stock options shall be granted and issued under the terms and conditions of the McDonnell Douglas Corporation 1994 Performance and Equity Incentive Plan ("PEIP") (including agreements to be issued pursuant to the terms thereof), or any successor thereto, and Executive's participation thereunder shall continue as long as such plan remains in effect, with participation on the same basis as other corporate officers in any future incentive compensation or other bonus plan covering the Company's executive employees. Stock equivalents granted hereunder are granted outside the PEIP; however, Sections 3.3 ("Adjustments"), 19.2 ("Unfunded Status of the Plan"), 19.3 ("Designation of Beneficiary") and 19.4 ("Nontransferability") of the PEIP are incorporated herein and will govern the stock equivalents as if they were issued under the PEIP. Capitalized terms in such sections shall have the meanings ascribed to such terms in the PEIP. Notwithstanding the foregoing, the Long Term Incentive Compensation in Section 3(b) herein is intended to be the total long term incentive compensation of Executive during his employment with Company. Additional long term incentive awards to Executive, if any, will be granted at the sole discretion of the Com- pensation Committee. Executive shall also participate in the Company's other employee benefit plans, policies, practices and arrangements in which senior Company executives are presently eligible to participate, or plans and arrangements substituted therefor or in addition thereto, including without limitation any defined benefit retirement plan, excess or supplementary plan, profit sharing plan, savings plan, health and dental plan, disability plan, survivor income and life insurance plan, executive financial planning program, or other arrangement (PEIP and such other benefit plans collectively hereinafter referred to as the "Benefit Plans"). (d) Paid vacation of no less than four (4) weeks per year in accordance with the Company's vacation policy as in effect from time to time, and all paid holidays given by the Company to its executive officers. (e) All fringe benefits and perquisites including without limitation the payment by the Company of initiation fees and dues for one country club in accordance with the policies of McDonnell Douglas Corporation as in effect immediately prior to the Closing Date. 27 <PAGE> 28 (f) Moving and relocation expenses incurred by Executive to move his residence to Seattle, including third party relocation service for disposal of Executive's current residence. Any pay-back provision contained in the Company's moving and relocation policy shall not apply to Executive unless he is terminated for "Cause" as hereinafter defined. Executive shall receive a lump sum payment in an amount sufficient to reimburse him for income taxes payable by him as a result of such moving and relocation expenses and the payment received under this paragraph. (g) The Executive's entitlement to any other compensation or benefits shall be determined in accordance with the terms and conditions of this Agreement and the Benefit Plans and other applicable programs, practices and arrangements then in effect, to the extent that such plans, programs, practices and arrangements do not conflict with the terms of this Agreement. (h) If all or any portion of the payments and benefits provided to Executive under this Agreement constitute "excess parachute payments" within the meaning of Section 280G of the Code that are subject to the tax imposed by Section 4999 of the Code (or similar tax and/or assessment), the Company (or its successor) shall make a single lump sum payment to Executive in an amount equal to the amount necessary to place Executive in the same after-tax position as he would have been in (taking into account any taxes which would be payable on such amount including, but not limited to, income taxes) had no such tax been imposed on such payments and benefits. The determination of the amount payable to Executive hereunder shall initially be made, at the Company's expense, by the independent accounting firm employed by the Company immediately prior to the occurrence of any change of control of the Company which will result in the imposition of such tax. If, after such lump sum payment has been made to Executive, it is determined (pursuant to final regulations or published rulings of the Internal Revenue Service, final judgment of a court of competent jurisdiction or otherwise) that the amount of tax payable by Executive pursuant to Section 4999 of the Code is greater than the amount of such tax as calculated by the Company's independent accounting firm and reflected in the lump sum payment made to Executive as aforesaid, then the Company (or its successor) shall pay Executive an amount equal to the sum of (i) the difference between the amount of such tax as initially determined by such independent accounting firm hereunder and the amount of such tax which is determined to be payable by Executive, (ii) any interest, fines and penalties imposed on Executive by any taxing authority due to any underpayment of such taxes by Executive, plus (iii) the amount necessary to reimburse Executive for any income, excise or other taxes which are payable by Executive with respect to the amounts specified in (i) and (ii) above, and the reimbursement provided for by this clause (iii). 4. Expenses. During the Employment Period, the Company shall promptly pay or reimburse Executive for all reasonable out-of-pocket expenses incurred by Executive in the performance of duties hereunder in accordance with the Company's policies and procedures then in effect. 28 <PAGE> 29 5. Conditions of Employment. Throughout the Employment Period, (a) the Company shall not require or assign duties to Executive that would require him to have the location of his principal business office or his principal place of residence other than in the Seattle, Washington metropolitan area, (b) the Company shall not require or assign duties to Executive that would require him to spend more than ninety (90) normal working days away from his office during any consecutive twelve-month period, (c) the Company shall provide an office to Executive, the location and furnishings of which shall be equivalent to the offices provided to other senior executives of the Company on the date of this Agreement; and (d) the Company shall provide secretarial services and other administrative services to Executive that shall be equivalent to the secretarial services and other administrative services provided to other senior executives of the Company on the date of this Agreement. 6. Termination. In addition to the termination rights in Section 2 of this Agreement, this Agreement shall terminate upon the following circumstances: (a) At any time at the election of Company for Cause. "Cause" for this purpose shall mean (i) Executive committing a material breach of this Agreement or acts involving moral turpitude, including fraud, dishonesty, disclosure of confidential information or the commission of a felony, or direct and deliberate acts constituting a material breach of his duty of loyalty to Company; (ii) Executive willfully or continuously refusing to perform the material duties reasonably assigned to him by the Chief Executive Officer of the Company or the Board that are consistent with the provisions of this Agreement; or (iii) the inability of Executive to obtain and maintain appropriate United States security clearances. (b) At any time at the election of Executive for Good Reason. "Good Reason" for this purpose shall mean (i) a material breach of this Agreement by the Company; (ii) the failure of the Executive to continue to serve as a member of the Company's Board of Directors (except such failure which results from voluntary resignation by the Executive), or removal from his position as President and Chief Operating Officer, other than for Cause; (iii) the assignment to Executive of duties that are reasonably deemed by Executive not to be appropriate for someone in the position of President and Chief Operating Officer; (iv) the Executive's responsibilities hereunder are reasonably deemed by Executive to be substantially diminished, or any other person (other than the Chief Executive Officer of the Company) shall be ap- pointed by the Board or the shareholders of Company to a position equal to or superior to the Executive's position; or (v) the Company providing written notice to the Executive pursuant to Section 2 hereof that it does not wish to extend the term of this Agreement. (c) Executive's death or his being unable to render the services required to be rendered by him during the Employment Period for a period of one hundred eighty (180) days during any twelve-month period ("Disability"). (d) In the event the Company or Executive intend to terminate this Agreement for Cause or Good Reason, respectively, such termination may only be accomplished upon compliance with the following procedures: 29 <PAGE> 30 (i) The party seeking to terminate the Agreement (the "Notifying Party") shall provide the other (the "Defaulting Party") with written notice of its or his belief that Cause or Good Reason, as the case may be, exists. The parties shall for a period of 30 days from the date of such notice attempt to resolve to their mutual satisfaction whether or not Cause or Good Reason exists, and, if so, the rights and obligations of the parties. (ii) In the event the parties are unable to reach a mutually acceptable resolution during such 30-day period, the Notifying Party shall afford the Defaulting Party an additional thirty (30) days or such longer period as the Notifying Party may determine to cure the alleged breach. (iii) In the event the Defaulting Party does not cure the breach during such 30-day period, the Notifying Party shall be required to institute an arbitration proceeding to determine whether Cause or Good Reason, as the case may be, existed and has not been cured. The arbitration will be conducted in Seattle, Washington and shall be conducted in accordance with the then governing rules of the American Arbitration Association. (iv) This Agreement shall be terminated as of the date when the Notifying Party institutes an arbitration proceeding in accordance with subsection (iii) preceding; provided, however, that in the event Good Reason exists as a result of the application of Section 6(b)(v), no further employment services will be required or expected of Executive and Executive and Company will coordinate the timing and press releases of his departure. The sole decision of the arbitrator in such proceeding shall be to determine whether Cause (if initiated by Company) or Good Reason (if initiated by Executive) exists. Thereafter, the obligations of the parties to each other shall be determined by applying the decision of the arbitrator(s) in accordance with Exhibit A hereto. In the event the Company does not prevail in any such proceeding initiated by it for Cause, Executive's termination shall be deemed to have occurred for Good Reason. In the event Executive does not prevail in any such proceeding initiated by him for Good Reason, Executive shall be considered as having voluntarily terminated employment other than for Good Reason, and his rights under this Agreement shall be determined as if he had been terminated by Company for Cause. (e) Upon expiration or termination of this Agreement under Section 2 or Section 6 herein, Executive shall be entitled to receive compensation and other benefits provided for herein in accordance with Exhibit A hereto. The parties agree that, in the event of termination by Executive for Good Reason under Section 6, such payments and benefits shall be deemed to constitute liquidated damages for the breach of this Agreement by Company. (f) In the event it is determined by the arbitrator that Executive has terminated this Agreement for Good Reason, Executive shall be entitled to receive within 30 days of such determination the net present value of annual Base Salary and targeted Annual Incentive Compensation for the remainder of the Employment Period, with targeted Annual Incentive Compensation being determined for this purpose based upon the targeted Annual Incentive Compensation for the year of termination and with net present value calculated by using an interest rate discount factor of 6.5%. Notwithstanding the fore- going, in the event the acceleration of any amount payable in accordance with the preceding sentence would result in such amount not being deductible by the Company under Section 162(m) of the Code, as currently in effect or as may be hereafter amended, or under any regulations promulgated thereunder, the non- 30 <PAGE> 31 deductible amount shall be deferred and be paid to Executive as early as possible in the next year in which the deductibility of his compensation is not subject to or would not exceed the limitations of Section 162(m). 7. Covenant Not to Compete. Without the consent of the Company, Executive shall not directly or indirectly at any time during the period provided for in Section 9 undertake employment as an owner, director, partner, officer, employee, affiliate or consultant with any business entity directly engaged in the manufacture and/or sale of products competitive with any material product or product line of the Company or any of its subsidiaries; provided, however, that Executive shall not be deemed to have breached this undertaking if his sole relation with such entity consists of his holding, directly or indirectly, an equity interest in such entity not greater than two percent (2%) of such entity's outstanding equity interest so long as such holding does not exceed 10% of the liquid net worth of Executive. For purposes hereof, the term "material product or product line of the Company or any of its subsidiaries" shall mean any product or product line of the Company or any of its subsidiaries, the gross sales of which during any calendar year during the five (5) year period preceding Executive's undertaking such employment were at least $50 million. 8. Disclosure of Confidential Information. Without the express written consent of the Company, Executive shall not at any time (either during or after the termination of this Agreement for any reason) disclose to any other business entity proprietary or confidential information concerning the Company or any of its subsidiaries or the Company's or any of its subsidiaries' trade secrets of which Executive has gained knowledge during his employment with the Company or McDonnell Douglas Corporation. 9. Effect of Breach of Sections 7 or 8. So long as any restricted stock, stock equivalent or stock option provided for in Section 3(b) herein shall not be vested or shall not have been exercised, the vesting of such restricted shares or stock equivalents and the exercise of such stock options shall each be subject to Executive's full compliance with the terms and condi- tions of Section 7 (which shall continue to apply for this purpose) and Section 8 herein; provided, however, that any such breach will not have any effect on restricted stock or stock equivalents vested or stock options exercised prior to the date of such breach. Executive further agrees that a breach of Sections 7 or 8 cannot adequately be compensated by money damages and, therefore, the Company shall be entitled, in addition to any other right or remedy available to it (including, but not limited to, an action for damages), to an injunction restraining such breach or a threatened breach and to specific performance of either such provision, and Executive hereby consents to the issuance of such injunction and to the ordering of specific performance. 10. Legal Expenses. The Company shall pay to Executive all out-of- pocket expenses, including reasonable attorneys' fees, incurred by Executive in connection with any claim or legal action or proceeding brought under or involving this Agreement, whether brought by Executive or by or on behalf of the Company or by another party; provided, however, the Company shall not be obligated to pay to Executive out-of-pocket expense, including attorneys' fees, incurred by Executive in any claim or legal action or proceeding involving Sections 6, 7, 8 or 9 of this Agreement if the Company prevails in such liti- gation or arbitration. The Company agrees to reimburse Executive for reasonable attorneys' fees and out-of-pocket expenses in an amount not to exceed $15,000, which are incurred by him in the negotiation and preparation of this Agreement. 31 <PAGE> 32 11. Retirement Plans. Notwithstanding anything stated herein to the contrary, the benefits and obligations payable to Executive under the Employee Retirement Income Plan of McDonnell Douglas Corporation - Salaried Plan ("Pension Plan"), the Supplemental Employee Retirement Income Plan of McDonnell Douglas Corporation ("Supplemental Pension Plan"), and any other retirement plan provided by McDonnell Douglas Corporation and the Company shall not be reduced, offset or otherwise limited by the Executive's coverage or benefit entitlement pursuant to any retirement plan provided by any former employer of the Executive, except as provided in this Section 11. For the purposes of calculating the Executive's benefits under the retirement plans of McDonnell Douglas Corporation and the Company, Executive will receive credit for twice as many years of service as he actually works for McDonnell Douglas Corporation and the Company (it being understood and agreed that, for purposes hereof, during any period of time which Executive works for both McDonnell Douglas Corporation and the Company, Executive will only be deemed to have worked for one year for each year of actual service to both companies, but will receive credit for retirement plan benefits calculation purposes on a two year for one year basis) with the excess benefit above what the Pension Plan provides to be paid through the Supplemental Pension Plan. In addition, the Company agrees to provide a supplemental pension payment in an amount equal to the difference between (i) what Executive would have received from Sundstrand Corporation, had he stayed with Sundstrand Corporation through the end of the Employment Period, or the earlier termination date of this Agreement if it is terminated by the Company for Cause or as a result of Executive's death or disability (the "Calculation Period"), and (ii) the pension payments he is actually entitled to receive from Sundstrand Corporation and McDonnell Douglas Corporation and the Company (determined without regard to this sentence). The Calculation Period shall be increased by one year in the event this Agreement expires on a scheduled expiration date, or if terminated by Executive for Good Reason. In determining the amount of this supplemental pension payment, in addition to amounts payable to Executive under the Pension Plan and Supplemental Pension Plan, the actuarial equivalent of the value of the Company's matching contributions for Executive's benefit under its Savings Plan and Supplemental Savings Plan shall be included. For this purpose, the actuarial assumptions set forth in the Pension Plan shall be used. In determining amounts which would have been payable to Executive by Sundstrand Corporation, it will be assumed that Executive's final average earnings under Executive's Sundstrand Corporation's retirement plans (as reflected in Executive's "Personal Statement of Benefits" from Sundstrand Corporation dated April 14, 1994) increases at an annual rate of 4% from January 1, 1995 to the end of the Calculation Period. Such additional pension amounts payable to Executive shall be made under the Supplemental Pension Plan. 12. No Mitigation. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Executive in any subsequent employment. 13. Notices. All notices required or permitted under this Agreement shall be in writing, may be made by personal delivery or facsimile transmission, effective on the day of such delivery or receipt of such transmission, or may be mailed by registered or certified mail, effective two (2) days after the date of mailing, addressed as follows: 32 <PAGE> 33 to Company: The Boeing Company 7755 East Marginal Way South Seattle, WA 98108 Attention: Theodore J. Collins, Esq. Facsimile number: (206) 544-4900 or such other person or address as designated in writing to Executive. to Executive: Harry C. Stonecipher at his last known residence address or to such other addresses as designated by him in writing to Company. 14. Successors. This Agreement may not be assigned by the Company (other than by merger or operation of law) without the express written consent of Executive, and the obligations of the Company provided for in this Agreement shall be binding legal obligations of any successor to the Company or the principal business of Company by purchase, merger, consolidation, or otherwise. This Agreement may not be assigned by Executive during his life, and upon his death will be binding upon and inure to the benefit of his heirs, legatees and the legal representatives of his estate. 15. Waiver, Modification and Interpretation. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in a writing signed by Executive and an appropriate officer of the Company empowered to sign same by the Board. No waiver by either party at any time of any breach by the party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same time or at any prior to subsequent time. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Washington; provided, however, that the corporate law of the state of incorporation of the Company shall govern issues related to the issuance of shares of the Company's common stock. Any action brought to enforce or interpret this Agreement (other than an action arising under Section 6 herein, for which the arbitration procedures provided for therein shall govern) shall be maintained in the State courts of Washington or the U.S. Federal District Court for the Western District of Washington located in Seattle, Washington. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. 16. Headings. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of any provision of this Agreement. 17. Entire Agreement. This Agreement (together with the Exhibits hereto) constitutes the entire agreement between the parties, supersedes in all respects any prior agreement (including the Prior Employment Agreement but excluding the March 25, 1995 Letter) between the Company and Executive and may not be changed except by a writing duly executed and delivered by the Company and Executive in the same manner as this Agreement. 18. Counterparts. Company and Executive may execute this Agreement in any number of counterparts, each of which shall be deemed to be an original but all of which shall constitute but one instrument. In proving this Agreement, it shall not be necessary to produce or account for more than one 33 <PAGE> 34 such counterpart. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above. THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES. THE BOEING COMPANY By: /s/ Philip M. Condit --------------------------- Philip M. Condit Chief Executive Officer Executive: By: /s/ Harry C. Stonecipher --------------------------- Harry C. Stonecipher
Source: OneCLE Business Contracts.