The parties have reached a final settlement apparently valued at $39 million in an action filed against The Boeing Company, McDonnell Douglas Corporation, and Chase Manhattan Bank, N.A. on behalf of retired McDonnell Douglas Corporation employees, their surviving spouses, and widows and widowers of deceased McDonnell Douglas Corporation employees, who made or on whose behalf was made one or more contributions to the MDC Health Care Trust (also referred to as the VEBA Trust) from its inception through December 31, 1996. The action alleged that those contributions made through December 1996 were being held and not properly used, and sought a return of those funds to the contributors. Persons eligible to participate in this settlement should contact class counsel for more information.

The VEBA Trust History

In 1992, McDonnell Douglas established the VEBA Trust for the benefit of certain retirees and their families. Each retiree who elected to participate in the McDonnell Douglas Group Life, Disability and Health Benefits Plan (the "old plan") for some or all of the four-year period commencing January 1, 1993, and ending December 31, 1996, made a payment or had a payment made on their behalf into the VEBA Trust. Pursuant to the provisions of the old plan, funds from the VEBA Trust were used to pay medical expenses of the retirees and their family members that were incurred from January 1, 1993, through December 31, 1996. As of the end of that period, and after payment of medical and administrative expenses, over $43 million remained in the VEBA Trust.

At the end of the four-year coverage period contemplated by the old plan, McDonnell Douglas established the Retiree Health Care Program for McDonnell Douglas Retirees Plan (the "new plan") effective January 1, 1997. The new plan required retirees to pay premiums on an ongoing basis in order to receive medical benefits. These payments have been deposited into the VEBA Trust and used to provide the medical benefits and pay administrative expenses. The assets that had been left in the VEBA Trust at the end of the 1993-1996 period have not been used to pay for medical benefits after 1996.

At the time of the creation of the new plan in 1997, under which each participant or beneficiary is charged the cost of his or her health care premiums, no use was being made of the old plan’s money remaining in the VEBA Trust. The VEBA Trust’s governing legal document was then amended and the VEBA Trust began using the assets remaining from 1993-1996 to partially reimburse retirees and their spouses who
participated in the old plan and had attained age 65 for their Medicare Part B premiums in the amount of $15.50 per month. The VEBA Trust has continued to partially reimburse Medicare Part B premiums. Other than reimbursement of the $15.50, no other use is now being made of the funds in the VEBA Trust attributable to the contributions made between 1993 and 1996. Participants and beneficiaries who have not
reached age 65 have not been receiving any benefits from the VEBA Trust attributable to the contributions made into the VEBA Trust for the 1993-1996 coverage. As of July 31, 2003, the VEBA Trust had assets of $40 million attributable to the contributions made for the 1993-1996 coverage and earnings on those contributions.

The settlement

Under the proposed settlement, all of the assets in the VEBA Trust attributable to the contributions made by old plan participants from the beginning of the trust through December 31, 1996, will be distributed to them in lump sum payments proportionate to their contributions to the trust during the period January 1, 1993, through December 31, 1996.

After the settlement is resolved, the VEBA Trust will continue to serve as the mechanism for the new plan’s retiree-pay HMO and insurance coverage for members of the class who make contributions to the new plan.
All assets of the trust attributable to the class members’ 1993-1996 contributions will be transferred to an interest-bearing escrow account maintained by the settlement administrator, and subsequently distributed to class members. The net excess assets are to be distributed to class members who are alive as of December 31, 2001, or to their estates, in proportion to the amount that they paid or that was paid on their behalf. Class members who participated in the old plan did so for different lengths of time. Some participated for the entire four-year period, while others participated for only a portion of it. Those who participated for more time paid more money, and they would accordingly receive a greater share of the net excess assets.

The amount each class member alive as of December 31, 2001, will receive is calculated as follows: Each one who participated in the old plan for the entire period of January 1993 through December 1996, 48 months, will be credited with 48 "shares" --one share for each month. Each person who participated in the old plan for a period of less than 48 months will be credited with a pro rata number of shares. For example, a retiree who paid 47 out of 48 months will be credited with 47 shares, a retiree who paid 46 out of the 48 months will be credited with 46 shares, etc. The shares credited to all class members will be added together to determine the aggregate number of shares. The net excess assets will then be divided by the total aggregate number of shares to determine a per share value.

The amount of the net excess assets distributable to each retiree or surviving spouse will equal the product of the per share value and the number of shares credited to that retiree or surviving spouse. No shares will be credited and no distribution will be made to any estate or heirs of any class member who was not alive as of December 31, 2001. Under this formula, assuming approximately $39 million in net excess assets, if a retiree or surviving spouse were entitled to receive a full 48 shares, it is estimated that they would receive approximately $1,950 –this is believed to be a conservative figure because it has been calculated on the assumption that all eligible class members participated for the full 48 months.

Before any distribution is made, class members will receive a statement of settlement shares that will set forth the amount which was paid into the VEBA Trust by you or on your behalf and the number of shares on which your entitlement to a portion of the assets will be based. The statement of settlement shares also will describe the procedure that you must follow if you believe that you have not been credited with the proper number of shares. All disputes regarding the number of shares to which you are entitled will be resolved by binding arbitration by an arbitrator who has been agreed upon by the parties to the action. This means that you will not have the right to challenge the number of shares in a court.

Following November 21, 2003, the effective date of settlement, the VEBA Trust will no longer provide any reimbursements for Medicare Part B payments. This is because each retiree will receive a lump sum payment of their share of the remaining trust assets.

The distribution you receive may or may not be subject to income taxes, in whole or in part. You should consult with your own accountant or tax advisor about taxation. The following is provided for general informational purposes. In a Private Letter Ruling requested by MDC and based on certain assumptions contained in the request for that ruling, the Internal Revenue Service stated that a retiree, or his or her surviving spouse, who receives a distribution pursuant to the partial dissolution of the VEBA Trust will be required to include the distribution in gross income only to the extent that the retiree’s Federal income tax was reduced by deduction of the contributions to the VEBA Trust.

The settlement does not affect the current health care premiums paid by retirees or the insurance coverage provided under the health care plans.