Employment Agreement - The Boeing Co. and Harry C. Stonecipher
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
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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").
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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.
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(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.
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(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.
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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:
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(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-
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deductible amount shall be deferred and be paid to Executive as early as
possible in the next year in which the deductibility of his compensation is not
subject to or would not exceed the limitations of Section 162(m).
7. Covenant Not to Compete. Without the consent of the Company,
Executive shall not directly or indirectly at any time during the period
provided for in Section 9 undertake employment as an owner, director, partner,
officer, employee, affiliate or consultant with any business entity directly
engaged in the manufacture and/or sale of products competitive with any
material product or product line of the Company or any of its subsidiaries;
provided, however, that Executive shall not be deemed to have breached this
undertaking if his sole relation with such entity consists of his holding,
directly or indirectly, an equity interest in such entity not greater than two
percent (2%) of such entity's outstanding equity interest so long as such
holding does not exceed 10% of the liquid net worth of Executive. For purposes
hereof, the term "material product or product line of the Company or any of its
subsidiaries" shall mean any product or product line of the Company or any of
its subsidiaries, the gross sales of which during any calendar year during the
five (5) year period preceding Executive's undertaking such employment were at
least $50 million.
8. Disclosure of Confidential Information. Without the express
written consent of the Company, Executive shall not at any time (either during
or after the termination of this Agreement for any reason) disclose to any
other business entity proprietary or confidential information concerning the
Company or any of its subsidiaries or the Company's or any of its subsidiaries'
trade secrets of which Executive has gained knowledge during his employment
with the Company or McDonnell Douglas Corporation.
9. Effect of Breach of Sections 7 or 8. So long as any restricted
stock, stock equivalent or stock option provided for in Section 3(b) herein
shall not be vested or shall not have been exercised, the vesting of such
restricted shares or stock equivalents and the exercise of such stock options
shall each be subject to Executive's full compliance with the terms and condi-
tions of Section 7 (which shall continue to apply for this purpose) and Section
8 herein; provided, however, that any such breach will not have any effect on
restricted stock or stock equivalents vested or stock options exercised prior
to the date of such breach. Executive further agrees that a breach of Sections
7 or 8 cannot adequately be compensated by money damages and, therefore, the
Company shall be entitled, in addition to any other right or remedy available
to it (including, but not limited to, an action for damages), to an injunction
restraining such breach or a threatened breach and to specific performance of
either such provision, and Executive hereby consents to the issuance of such
injunction and to the ordering of specific performance.
10. Legal Expenses. The Company shall pay to Executive all out-of-
pocket expenses, including reasonable attorneys' fees, incurred by Executive in
connection with any claim or legal action or proceeding brought under or
involving this Agreement, whether brought by Executive or by or on behalf of
the Company or by another party; provided, however, the Company shall not be
obligated to pay to Executive out-of-pocket expense, including attorneys' fees,
incurred by Executive in any claim or legal action or proceeding involving
Sections 6, 7, 8 or 9 of this Agreement if the Company prevails in such liti-
gation or arbitration. The Company agrees to reimburse Executive for
reasonable attorneys' fees and out-of-pocket expenses in an amount not to
exceed $15,000, which are incurred by him in the negotiation and preparation of
this Agreement.
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11. Retirement Plans. Notwithstanding anything stated herein to
the contrary, the benefits and obligations payable to Executive under the
Employee Retirement Income Plan of McDonnell Douglas Corporation - Salaried
Plan ("Pension Plan"), the Supplemental Employee Retirement Income Plan of
McDonnell Douglas Corporation ("Supplemental Pension Plan"), and any other
retirement plan provided by McDonnell Douglas Corporation and the Company shall
not be reduced, offset or otherwise limited by the Executive's coverage or
benefit entitlement pursuant to any retirement plan provided by any former
employer of the Executive, except as provided in this Section 11. For the
purposes of calculating the Executive's benefits under the retirement plans of
McDonnell Douglas Corporation and the Company, Executive will receive credit
for twice as many years of service as he actually works for McDonnell Douglas
Corporation and the Company (it being understood and agreed that, for purposes
hereof, during any period of time which Executive works for both McDonnell
Douglas Corporation and the Company, Executive will only be deemed to have
worked for one year for each year of actual service to both companies, but
will receive credit for retirement plan benefits calculation purposes on a two
year for one year basis) with the excess benefit above what the Pension Plan
provides to be paid through the Supplemental Pension Plan. In addition, the
Company agrees to provide a supplemental pension payment in an amount equal to
the difference between (i) what Executive would have received from Sundstrand
Corporation, had he stayed with Sundstrand Corporation through the end of the
Employment Period, or the earlier termination date of this Agreement if it is
terminated by the Company for Cause or as a result of Executive's death or
disability (the "Calculation Period"), and (ii) the pension payments he is
actually entitled to receive from Sundstrand Corporation and McDonnell Douglas
Corporation and the Company (determined without regard to this sentence). The
Calculation Period shall be increased by one year in the event this Agreement
expires on a scheduled expiration date, or if terminated by Executive for Good
Reason. In determining the amount of this supplemental pension payment, in
addition to amounts payable to Executive under the Pension Plan and
Supplemental Pension Plan, the actuarial equivalent of the value of the
Company's matching contributions for Executive's benefit under its Savings
Plan and Supplemental Savings Plan shall be included. For this purpose, the
actuarial assumptions set forth in the Pension Plan shall be used. In
determining amounts which would have been payable to Executive by Sundstrand
Corporation, it will be assumed that Executive's final average earnings under
Executive's Sundstrand Corporation's retirement plans (as reflected in
Executive's "Personal Statement of Benefits" from Sundstrand Corporation dated
April 14, 1994) increases at an annual rate of 4% from January 1, 1995 to the
end of the Calculation Period. Such additional pension amounts payable to
Executive shall be made under the Supplemental Pension Plan.
12. No Mitigation. The Executive shall not be required to mitigate
the amount of any payment provided for in this Agreement by seeking other
employment or otherwise and no such payment shall be offset or reduced by the
amount of any compensation or benefits provided to the Executive in any
subsequent employment.
13. Notices. All notices required or permitted under this
Agreement shall be in writing, may be made by personal delivery or facsimile
transmission, effective on the day of such delivery or receipt of such
transmission, or may be mailed by registered or certified mail, effective two
(2) days after the date of mailing, addressed as follows:
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to Company: The Boeing Company
7755 East Marginal Way South
Seattle, WA 98108
Attention: Theodore J. Collins, Esq.
Facsimile number: (206) 544-4900
or such other person or address as designated in writing to Executive.
to Executive: Harry C. Stonecipher
at his last known residence address or to such other addresses as designated by
him in writing to Company.
14. Successors. This Agreement may not be assigned by the Company
(other than by merger or operation of law) without the express written consent
of Executive, and the obligations of the Company provided for in this Agreement
shall be binding legal obligations of any successor to the Company or the
principal business of Company by purchase, merger, consolidation, or otherwise.
This Agreement may not be assigned by Executive during his life, and upon his
death will be binding upon and inure to the benefit of his heirs, legatees and
the legal representatives of his estate.
15. Waiver, Modification and Interpretation. No provisions of this
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in a writing signed by Executive and an
appropriate officer of the Company empowered to sign same by the Board. No
waiver by either party at any time of any breach by the party of, or compliance
with, any condition or provision of this Agreement to be performed by the other
party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same time or at any prior to subsequent time. The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of Washington; provided, however, that the
corporate law of the state of incorporation of the Company shall govern issues
related to the issuance of shares of the Company's common stock. Any action
brought to enforce or interpret this Agreement (other than an action arising
under Section 6 herein, for which the arbitration procedures provided for
therein shall govern) shall be maintained in the State courts of Washington or
the U.S. Federal District Court for the Western District of Washington located
in Seattle, Washington. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
16. Headings. The headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
any provision of this Agreement.
17. Entire Agreement. This Agreement (together with the Exhibits
hereto) constitutes the entire agreement between the parties, supersedes in all
respects any prior agreement (including the Prior Employment Agreement but
excluding the March 25, 1995 Letter) between the Company and Executive and may
not be changed except by a writing duly executed and delivered by the Company
and Executive in the same manner as this Agreement.
18. Counterparts. Company and Executive may execute this Agreement
in any number of counterparts, each of which shall be deemed to be an original
but all of which shall constitute but one instrument. In proving this
Agreement, it shall not be necessary to produce or account for more than one
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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