<PAGE>
As filed with the Securities and Exchange Commission on February 28, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
Commission file number 1-12356
------------------------
DAIMLERCHRYSLER AG
(Exact name of Registrant as specified in its charter)
DAIMLERCHRYSLER AG
(Translation of Registrant's name into English)
FEDERAL REPUBLIC OF GERMANY
(Jurisdiction of incorporation or organization)
EPPLESTRASSE 225, 70567 STUTTGART, GERMANY
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- ---------------------
<S> <C>
Ordinary Shares, no par value Frankfurt Stock Exchange
New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Philadelphia Stock Exchange
American Depositary Notes representing 5 3/4% Subordinated New York Stock Exchange
Mandatory Convertible Notes Due June 14, 2002
Guarantee of the following securities of:
DaimlerChrysler North America Holding Corporation
7 3/8% Notes Due September 15, 2006 New York Stock Exchange
Chrysler Financial Company L.L.C.
6 5/8% Notes Due 2000 New York Stock Exchange
</TABLE>
--------------------------
Securities registered or to be registered pursuant to Section 12(g) of the Act.
NONE
(Title of Class)
------------------------
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
NONE
(Title of Class)
------------------------
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report:
Ordinary Shares, no par value . . . . . . . . . 1,003,261,403
(as of December 31, 1999)
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.
<TABLE>
<S> <C>
Yes /X/ No / /
</TABLE>
Indicate by check mark which financial statement item the registrant has elected
to follow.
<TABLE>
<S> <C>
Item 17 / / Item 18 /X/
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C> <C>
PART I
Item 1. Identity of Directors, Senior Management and Advisers....... 2
Item 2. Offer Statistics and Expected Timetable..................... 2
Item 3. Key Information............................................. 2
Selected Financial Data................................. 3
Risk Factors............................................ 5
Item 4. Information on the Company.................................. 6
Introduction............................................ 6
Description of Business Segments........................ 8
Mercedes-Benz Passenger Cars & smart................ 8
Chrysler Group...................................... 12
Commercial Vehicles................................. 16
Services............................................ 20
Aerospace........................................... 22
Other............................................... 28
Supplies and Raw Materials.............................. 29
Government Regulation and Environmental Matters......... 30
Introduction of the Euro................................ 33
Description of Property................................. 34
Item 5. Operating and Financial Review and Prospects................ 37
Accounting Principles................................... 37
Inflation............................................... 38
Year 2000............................................... 38
Operating Results....................................... 39
1999 Compared With 1998............................. 39
1998 Compared With 1997............................. 44
Liquidity and Capital Resources......................... 48
1999 Compared With 1998 and 1997.................... 48
Research and Development................................ 50
Outlook................................................. 51
Item 6. Directors, Senior Management and Employees.................. 53
Supervisory Board....................................... 53
Board of Management..................................... 57
Compensation............................................ 59
Employees and Labor Relations........................... 61
Share Ownership......................................... 62
Item 7. Major Shareholders and Related Party Transactions........... 63
Item 8. Financial Information....................................... 64
Consolidated Financial Statements....................... 64
Other Financial Information............................. 64
Export Sales........................................ 64
Legal Proceedings................................... 64
Dividend Policy..................................... 65
Significant Changes..................................... 65
Item 9. The Offer and Listing....................................... 65
Item 10. Additional Information...................................... 68
Options to Purchase Securities from Registrant or
Subsidiaries.......................................... 68
Memorandum and Articles of Association.................. 69
Material Contracts...................................... 73
Exchange Controls....................................... 73
Taxation................................................ 73
Documents on Display.................................... 77
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
--------
<S> <C> <C>
Item 11. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 78
Exchange Rate Risk...................................... 78
Interest Rate Risk and Equity Price Risk................ 81
Item 12. Description of Securities Other than Equity Securities...... 81
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies............. 82
Item 14. Material Modifications to the Rights of Security Holders and
Use of Proceeds........................................... 82
Item 15. [Reserved].................................................. 82
Item 16. [Reserved].................................................. 82
PART III
Item 17. Financial Statements........................................ 82
Item 18. Financial Statements........................................ 82
Item 19. Exhibits.................................................... 82
</TABLE>
ii
<PAGE>
International Disclosure Standards
On September 28, 1999, the United States Securities and Exchange Commission
adopted international disclosure standards for foreign private issuers that will
become mandatory for annual reports relating to fiscal years ending on or after
September 30, 2000. DaimlerChrysler has prepared this Annual Report in
accordance with the new standards on a voluntary basis.
U.S. GAAP
DaimlerChrysler has prepared the consolidated financial statements included
in this Annual Report (the "Consolidated Financial Statements") in accordance
with U.S. GAAP, United States generally accepted accounting principles, except
for the use of the proportionate method of consolidation for certain joint
ventures. Under U.S. GAAP, joint ventures would be accounted for using the
equity method of accounting. DaimlerChrysler AG has received permission from the
United States Securities and Exchange Commission to prepare its consolidated
financial statements with this departure from U.S. GAAP. See Note 3 to the
Consolidated Financial Statements.
Currency Translation
Effective January 1, 1999, Germany and ten other member states of the
European Union adopted the euro of the European Monetary Union as their common
currency. They also established fixed conversion rates between their existing
sovereign currencies and the euro. The official fixed conversion rate for marks
is [EURO]1 = DM 1.95583 (the "Official Fixed Conversion Rate"). DaimlerChrysler
has translated financial statements and other financial information for periods
prior to January 1, 1999 from marks into euros using the Official Fixed
Conversion Rate. In this Annual Report, references to "euros" or "[EURO]" are to
European Monetary Union euros and references to "marks" or "DM" are to German
marks.
For the reader's convenience, some financial information has been translated
from euros into United States dollars ("dollars" or "$") at an assumed rate of
[EURO]1 = $1.0070. This rate represents the noon buying rate for euros on
December 31, 1999 in New York City as certified by the Federal Reserve Bank of
New York. The convenience translations do not mean that the euro amounts
actually represent the corresponding dollar amounts stated or could be converted
into dollars at the assumed rate. The assumed rate also differs from the rates
used in the preparation of the consolidated financial statements as of and for
the year ended December 31, 1999. Further information about rates of exchange
between euros and dollars appears in "Item 3. Key Information."
Forward-Looking Information
This Annual Report contains certain forward-looking statements and
information relating to the DaimlerChrysler Group that are based on beliefs of
its management as well as assumptions made by and information currently
available to DaimlerChrysler AG. When used in this document, the words
"anticipate," "believe," "estimate," "expect," "intend," "plan" and "project"
and similar expressions, as they relate to the DaimlerChrysler Group or its
management, are intended to identify forward-looking statements. Such statements
reflect the current views of DaimlerChrysler AG with respect to future events
and are subject to certain risks, uncertainties and assumptions. Many factors
could cause the actual results, performance or achievements of the
DaimlerChrysler Group to be materially different from any future results,
performance or achievements that may be expressed or implied by such
forward-looking statements, including, among others, changes in general economic
and business conditions, changes in currency exchange rates and interest rates,
introduction of competing products by other companies, lack of acceptance of new
products or services by the Group's targeted customers, changes in business
strategy and various other factors, both referenced and not referenced in this
Annual Report. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
expected, intended, planned or projected. DaimlerChrysler AG does not intend or
assume any obligation to update these forward-looking statements.
References
In this Annual Report, "DaimlerChrysler," the "DaimlerChrysler Group" or the
"Group" refers to DaimlerChrysler AG and its consolidated subsidiaries.
<PAGE>
PART I
Item 1. Identity of Directors, Senior Management and Advisers.
Not applicable.
Item 2. Offer Statistics and Expected Timetable.
Not applicable.
Item 3. Key Information.
The selected consolidated financial data presented below as of December 31,
1999, 1998 and 1997, and for the years ended December 31, 1999, 1998, 1997 and
1996 have been taken or are derived from the audited consolidated financial
statements of DaimlerChrysler for the relevant periods. The selected
consolidated financial data as of December 31, 1996 and 1995, and for the year
ended December 31, 1995 are derived from the combined financial statements of
Daimler-Benz AG and Chrysler Corporation. The selected consolidated financial
data have been prepared in accordance with U.S. GAAP except for the use of the
proportionate method of consolidation for certain joint ventures. The business
combination of Chrysler and Daimler-Benz has been treated as a "pooling of
interests" for accounting purposes. Consequently, DaimlerChrysler has restated
the results of both companies as if they had been combined for all periods
presented. See Notes 1 and 3 to the Consolidated Financial Statements.
The financial information presented below is only a summary and should be
read together with the Consolidated Financial Statements.
2
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------
1999(1) 1999 1998(2) 1997(2) 1996(2) 1995(2)
--------- -------------- -------------- --------------- -------------- --------------
(in millions, except for ordinary share amounts)
<S> <C> <C> <C> <C> <C> <C>
Income Statement
Data:
Revenues............ $ 151,035 [EURO] 149,985 [EURO] 131,782 [EURO] 117,572 [EURO] 101,415 [EURO] 91,040
Income (loss) before
financial income,
income taxes and
extraordinary
items............. 9,389 9,324 7,330 5,512 5,285 (1,873)
Income (loss) before
extraordinary
items............. 5,141 5,106 4,949 6,547(3) 4,169 (1,406)
Basic earnings
(loss) per
ordinary
share........... 5.13 5.09 5.16 6.90(3) 4.24 (1.45)
Diluted earnings
(loss) per
ordinary
share........... 5.10 5.06 5.04 6.78(3) 4.20 (1.45)
Net income (loss)... 5,785 5,746 4,820 6,547(3) 4,022 (1,476)
Basic earnings
(loss) per
ordinary
share........... 5.77 5.73 5.03 6.90(3) 4.09 (1.52)
Diluted earnings
(loss) per
ordinary
share........... 5.73 5.69 4.91 6.78(3) 4.05 (1.52)
Balance Sheet Data
(end of period):
Total assets........ $ 175,889 [EURO] 174,667 [EURO] 136,149 [EURO] 124,831 [EURO] 101,294 [EURO] 91,597
Short-term financial
liabilities....... 36,979 36,721 20,475 17,341 12,855 10,226
Long-term financial
liabilities....... 27,961 27,767 19,955 17,034 11,788 11,658
Capital stock....... 2,583 2,565 2,561 2,391 2,444 2,525
Stockholders'
equity............ 36,313 36,060 30,367 27,960 22,355 19,488
Other Data:
Weighted average
number of shares
outstanding
Basic............. 1,002.9 1,002.9 959.3 949.3 981.6 982.2
Diluted........... 1,013.6 1,013.6 987.1 968.2 994.0 1,009.2
</TABLE>
- ------------------------------
(1) Amounts in this column are unaudited and have been converted from euros into
dollars solely for the convenience of the reader at an exchange rate of
[EURO]1 = $1.0070, the noon buying rate for euros on December 31, 1999.
(2) The consolidated financial statements as of December 31, 1998, 1997, 1996
and 1995 and for the years then ended have been prepared in marks and were
translated into euros at the Official Fixed Conversion Rate.
(3) Income before extraordinary items and net income for 1997 include
[EURO]2,490 million of special non-recurring tax benefits. These tax
benefits resulted partially from a special distribution which Daimler-Benz
AG, the predecessor of DaimlerChrysler AG, paid to holders of its ordinary
shares and American Depositary Shares on June 15, 1998, and partially from
the reversal of valuation allowances previously established on deferred tax
assets. The valuation allowances resulted primarily from net operating loss
carryforwards of the Daimler-Benz group's German companies that filed a
combined tax return (ORGANSCHAFT). The tax benefit resulting from the
special distribution was [EURO]1,487 million and the tax benefit resulting
from the reversal of the valuation allowances was [EURO]1,003 million.
Without these tax benefits, the basic earnings per ordinary share in 1997
were [EURO]4.28 and the diluted earnings per ordinary share were [EURO]4.21.
Dividends
The following table sets forth the dividend paid per DaimlerChrysler
ordinary share for the year 1998 and the annual dividends paid per Daimler-Benz
ordinary share for the years 1995, 1996, and 1997. The table also discloses the
dividend amount per DaimlerChrysler ordinary share for 1999 proposed by the
Supervisory Board and the Board of Management for approval at the annual general
meeting of stockholders to be held on April 19, 2000. The table shows the
dividend amounts in euro, together with the mark and dollar equivalents, for
each of the years indicated. The table does not reflect the related tax credits
available to German taxpayers who receive
3
<PAGE>
dividend payments. Owners of DaimlerChrysler ordinary shares who are United
States residents should be aware that they will be subject to German withholding
tax on dividends received. See "Taxation" in "Item 10. Additional Information."
<TABLE>
<CAPTION>
Year Ended Dividend Paid
December 31, Per Ordinary Share(1,2)
- ------------ ----------------------------
<C> <S> <C> <C> <C>
1995 .............................. [EURO] -- DM -- $ --
1996 .............................. 0.55 1.08 0.75
1997 .............................. 0.80 1.57 0.87
1998 .............................. 2.35 4.60 2.50
</TABLE>
------------------------------
<TABLE>
<C> <S> <C> <C> <C>
1999 .............................. [EURO] 2.35 DM 4.60 $2.31
</TABLE>
- ------------------------------
(1) The dividend amounts shown for the years 1995, 1996 and 1997 are the
dividend amounts paid by Daimler-Benz AG, adjusted for the special
distribution Daimler-Benz AG paid to holders of its ordinary shares and
American Depositary Shares on June 15, 1998. The special distribution amount
per Daimler-Benz ordinary share was [EURO]10.23. After taking into account
the approximately 20% discount to market value at which Daimler-Benz AG sold
ordinary shares in its rights offering following the special distribution,
the special distribution amount was [EURO]10.04.
(2) The mark dividend amounts shown for the years 1995, 1996 and 1997 were
translated into dollars at the noon buying rate for marks on the dividend
payment date and converted into euros at the Official Fixed Conversion Rate.
The mark dividend amount for 1998 was converted into euros at the Official
Fixed Conversion Rate and translated into dollars at the noon buying rate
for euros on the dividend payment date. The euro amount shown for 1999 was
converted into marks at the Official Fixed Conversion Rate and translated
into dollars at an exchange rate of [EURO]1 = $0.9850, the noon buying rate
for euros on February 18, 2000.
------------------------------
See also "Dividend Policy" in "Item 8. Financial Information."
Exchange Rate Information
After the introduction of the euro on January 1, 1999, the Federal Reserve
Bank of New York ceased to quote a noon buying rate for the mark. Accordingly,
the following table sets forth, for periods after January 1, 1999, the average,
high, low and period-end noon buying rates for the euro expressed as dollars per
[EURO]1. For 1995 through 1998 the table reflects the average, high, low and
period-end noon buying rates for the mark, shown after conversion into euros at
the Official Fixed Conversion Rate and expressed as dollars per [EURO]1.
<TABLE>
<CAPTION>
Year Average(1) High Low Period-End
- ------------------------------------------------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1995 ................................................ $ 1.3715 $ 1.4418 $ 1.2528 $ 1.3634
1996 ................................................ 1.2978 1.3626 1.2493 1.2711
1997 ................................................ 1.1244 1.2689 1.0398 1.0871
1998 ................................................ 1.1120 1.2178 1.0548 1.1733
1999 ................................................ 1.0588 1.1812 1.0016 1.0070
1999
July.......................................... 1.0719 1.0139 1.0694
August........................................ 1.0793 1.0441 1.0581
September..................................... 1.0643 1.0385 1.0643
October....................................... 1.0887 1.0518 1.0518
November...................................... 1.0506 1.0077 1.0077
December...................................... 1.0263 1.0016 1.0070
2000
January....................................... 1.0335 0.9757 0.9757
February (through February 18, 2000).......... 0.9914 0.9731 0.9850
</TABLE>
- ------------------------------
(1) The average of the noon buying rates on the last business day of each month
during the relevant period.
------------------------------
4
<PAGE>
On February 18, 2000, the noon buying rate for euros was [EURO]1 = $0.9850.
The prices of shares on German stock exchanges have been quoted in euros
since January 4, 1999. Fluctuations in the exchange rate between the euro and
the dollar will affect the dollar equivalent of the euro price of
DaimlerChrysler ordinary shares reported for trades on the German stock
exchanges. For this reason, exchange rate fluctuations are likely to affect the
market price of the ordinary shares on the New York Stock Exchange, as well as
the dollar amounts received upon conversion of cash dividends paid by
DaimlerChrysler AG in euros.
For a discussion of the effect exchange rate fluctuations have on the
business and operations of DaimlerChrysler as well as the hedging techniques
used to manage the Group's exposure to such fluctuations, see "Item 5. Operating
and Financial Review and Prospects" and "Item 11. Quantitative and Qualitative
Disclosure About Market Risk."
RISK FACTORS
DaimlerChrysler is subject to various changing competitive, economic,
political and social conditions, particularly in its principal markets, North
America and Europe. These conditions are described below:
- The worldwide automotive industry is highly competitive in terms of
vehicle quality, pricing, development and introduction time, reliability,
safety, fuel economy, customer service and financing terms. Overcapacity
within the industry is likely to intensify further competitive pricing
pressure in the event of an economic downturn. The price harmonization due
to the introduction of the euro and the development of alternative
distribution channels, including the internet, are expected to contribute
to further pricing pressure.
- Because DaimlerChrysler derives a substantial portion of its revenues from
sales in North America and Europe, a significant economic downturn in
either of those regions could adversely affect the Group's profitability.
Further economic or political instability in Asia and South America would
likely delay or increase DaimlerChrysler's cost of expanding sales in
those markets.
- Government regulation of the automobile industry is extensive. Laws in
various jurisdictions regulate the emission levels, fuel economy, noise,
and safety of vehicles, as well as the levels of pollutants generated by
the plants that produce them. The cost of complying with these regulations
can be significant, and DaimlerChrysler expects to incur significant
compliance costs in the future.
- Meeting consumer demand with new vehicles developed over increasingly
shorter product development cycle times is critical to DaimlerChrysler's
continued success. DaimlerChrysler's ability to strengthen its position
within its traditional segments while expanding into additional market
segments with innovative new products will play a key role in determining
its future success. The position of the smart model within the Group's
product line up is significant in this context. Potential delays in
bringing new vehicles to market, shifts in consumer preferences, or lack
of market acceptance of its models would adversely affect
DaimlerChrysler's financial results.
- On April 1, 1999, the European Commission began an investigation of
cross-border sales of Mercedes-Benz passenger cars. DaimlerChrysler denies
these charges and is defending itself vigorously in the Commission's
pending investigation. If the Commission rules that DaimlerChrysler
violated antitrust rules by impeding sales, it is reasonably possible that
the Commission may fine DaimlerChrysler in an amount that management
believes could have a significant effect on the Group's consolidated
operating results for a particular reporting period, but should not
materially affect its consolidated financial position.
- Financial services offered in connection with the sale of vehicles involve
risks relating to increased cost of capital, consumer and dealer
insolvencies, and low residual values of lease vehicles at the end of the
contracted leasing periods.
- The commercial aircraft industry is highly cyclical and aircraft orders
depend significantly on the profitability and fleet renewal cycles of
airlines worldwide. The success of Airbus Industrie and DaimlerChrysler
Aerospace Airbus will depend on their ability to compete successfully in
terms of price, product quality and innovation.
5
<PAGE>
- DaimlerChrysler's rail systems subsidiary Adtranz operates in an extremely
competitive environment characterized by industry overcapacity and pricing
pressure. Its return to profitability over the near term will depend, in
large part, on whether it can achieve significant cost reductions as part
of the comprehensive restructuring program initiated in 1999.
- DaimlerChrysler holds a variety of interest rate sensitive assets and
liabilities to manage the liquidity and cash needs of its day-to-day
operations. These interest rate sensitive assets and liabilities are
subject to interest rate risk which is, to some extent, reduced by the use
of derivative financial instruments. In addition, the Group is exposed to
equity price risk resulting from investments in various marketable equity
securities.
- DaimlerChrysler is subject to risks associated with cross-border
transactions, including foreign currency exchange rate risks and risks
relating to delayed payments from customers in certain countries or
difficulties in the collection of receivables generally. Changes in
regulatory requirements, tariffs and other trade barriers and price or
exchange controls could limit operations and make the repatriation of
profits difficult. In addition, the uncertainty of the legal environment
could limit DaimlerChrysler's ability to enforce effectively its rights in
certain markets.
See also "Government Regulation and Environmental Matters" and "Introduction
of the Euro" in "Item 4. Information on the Company", "Item 5. Operating and
Financial Review and Prospects," "Legal Proceedings" in "Item 8. Financial
Information" and "Item 11. Quantitative and Qualitative Disclosures About Market
Risk."
Item 4. Information on the Company.
INTRODUCTION
Organization
DaimlerChrysler AG is a stock corporation organized under the laws of the
Federal Republic of Germany. It was incorporated in Germany as Oppenheim
Aktiengesellschaft on May 6, 1998 and renamed DaimlerChrysler AG in the course
of the business combination of Daimler-Benz Aktiengesellschaft and Chrysler
Corporation. DaimlerChrysler AG's registered office is located at Epplestrasse
225, 70567 Stuttgart, Germany, telephone +49-711-17-0. Its agent for U.S.
federal securities law purposes is DaimlerChrysler North America Holding
Corporation, located at 1000 Chrysler Drive, Auburn Hills, MI 48326-2766.
History
On May 7, 1998, Daimler-Benz Aktiengesellschaft and Chrysler Corporation
entered into a business combination agreement, which their stockholders approved
on September 18, 1998. Chrysler became a wholly owned subsidiary of
DaimlerChrysler AG through a merger transaction completed on November 12, 1998
in which its shareholders received DaimlerChrysler ordinary shares. Following an
exchange offer in which more than 98% of Daimler-Benz stockholders exchanged
their Daimler-Benz ordinary shares for ordinary shares of DaimlerChrysler AG,
Daimler-Benz was merged into DaimlerChrysler AG on December 21, 1998.
Accordingly, DaimlerChrysler AG is the successor corporation to Daimler-Benz AG
and comprises the respective businesses, stockholder groups, managements and
other constituencies of Chrysler and Daimler-Benz.
Business Summary
DaimlerChrysler AG is the ultimate parent company of the DaimlerChrysler
Group. The Group provides a wide range of transportation products, including
passenger cars and commercial vehicles, commercial and military aircraft, rail
systems, and also financial and information technology services. The
DaimlerChrysler Group operates in six business segments:
6
<PAGE>
- Mercedes-Benz Passenger Cars & smart
- Chrysler Group
- Commercial Vehicles
- Services
- Aerospace
- Other
The DaimlerChrysler Group is active primarily in Europe and in the United
States, Canada and Mexico, commonly referred to as the NAFTA region. It is also
a leading commercial vehicle manufacturer in South America. In 1999,
approximately 52% of DaimlerChrysler's revenues was derived from sales in the
United States, 19% from sales in Germany and 14% from sales in other countries
of the European Union. See "Operating Results" in "Item 5. Operating and
Financial Review and Prospects."
DaimlerChrysler's aggregate capital expenditures for property, plant and
equipment were [EURO]9.5 billion in 1999, [EURO]8.2 billion in 1998, and
[EURO]8.1 billion in 1997. Germany accounted for 34% and the United States for
50% of DaimlerChrysler's capital expenditures in 1999. In addition, as a result
of the continuing growth of the leasing and sales financing business,
expenditures for equipment on operating leases in 1999 increased to
[EURO]19.3 billion (1998: [EURO]10.2 billion; 1997: [EURO]7.2 billion). See also
"Description of Business Segments" for capital expenditures by business segment.
For a description of principal acquisitions and dispositions of businesses
during the last three years see Notes 3 and 4 to the Consolidated Financial
Statements.
Net income of DaimlerChrysler increased from [EURO]4.8 billion to
[EURO]5.7 billion. This was principally the result of expanded business volume
and gains from the divestment of the Telecom Services business, partially offset
by lower financial income, one-time tax effects and other one-time charges.
Basic and diluted earnings per share (before extraordinary items) were
[EURO]5.09 and [EURO]5.06 in 1999 compared to [EURO]5.16 and [EURO]5.04 in 1998,
respectively. After extraordinary items, basic and diluted earnings per share
were [EURO]5.73 and [EURO]5.69 in 1999, significantly higher than in 1998 when
they reached [EURO]5.03 and [EURO]4.91, respectively. See "Item 3. Key
Information" and "Item 5. Operating and Financial Review and Prospects."
As of December 31, 1999, DaimlerChrysler AG had 1,003,261,403 shares
outstanding and approximately 1.9 million stockholders. Its ordinary shares are
traded on various stock exchanges throughout the world, including the Frankfurt
Stock Exchange and the New York Stock Exchange.
Significant Subsidiaries
The following table sets forth the significant subsidiaries owned, directly
or indirectly, by DaimlerChrysler AG:
<TABLE>
<CAPTION>
Percentage
Name of Company Owned
- ------------------------------------------------------------------------------------------------------ -----------
<S> <C>
DaimlerChrysler North America Holding Corporation, Auburn Hills, MI, a Delaware corporation........... 100.0
DaimlerChrysler Corporation, Auburn Hills, MI, a Delaware corporation............................. 100.0
Chrysler Financial Company L.L.C., Southfield, MI, a Michigan limited liability company....... 100.0
DaimlerChrysler Motors Corporation, Auburn Hills, MI, a Delaware corporation.................. 100.0
Mercedes-Benz Credit Corporation, Norwalk, CT, a Delaware corporation............................. 100.0
DaimlerChrysler Services (debis) AG, registered in Berlin, Germany.................................... 100.0
DaimlerChrysler Luft- und Raumfahrt Holding Aktiengesellschaft, registered in Munich, Germany......... 93.8
DaimlerChrysler Aerospace AG (Dasa), registered in Munich, Germany................................ 100.0
</TABLE>
DaimlerChrysler AG owns 100% of DaimlerChrysler North America Holding
Corporation and DaimlerChrysler Services (debis) AG, and 93.8% of
DaimlerChrysler Luft- und Raumfahrt Holding Aktiengesellschaft. DaimlerChrysler
North America Holding Corporation owns 100% of DaimlerChrysler Corporation and
Mercedes-Benz Credit Corporation. DaimlerChrysler Corporation owns 100% of
Chrysler Financial Company L.L.C. and DaimlerChrysler Motors Corporation.
DaimlerChrysler Luft- und Raumfahrt Holding Aktiengesellschaft owns 100% of
DaimlerChrysler Aerospace AG.
7
<PAGE>
DESCRIPTION OF BUSINESS SEGMENTS
Mercedes-Benz Passenger Cars & smart
Mercedes-Benz passenger cars are world renowned for their innovative
technology, highest levels of comfort, quality and safety, and pioneering
design. In 1998, DaimlerChrysler introduced the smart, a new micro compact
passenger car that offers a trend-setting response to the challenges of urban
mobility and optimum use of resources. The Mercedes-Benz Passenger Cars & smart
division contributed approximately 24% of the Group's revenues in 1999.
PRODUCTS
MERCEDES-BENZ. The Mercedes-Benz passenger car product range consists of
the following series:
THE S-CLASS. The S-Class is a line of full-size luxury sedans ranging from
the S 320 to the S 600. It has been the main contributor over the years to the
strength of the Mercedes-Benz brand and its reputation for innovative
high-quality luxury automobiles with an uncompromised emphasis on operator and
passenger safety and superior resale value. The new S-Class with a redesigned
body style and more than 30 technological innovations was introduced in Europe
in the fall of 1998 and in the United States in the spring of 1999. It has been
exceptionally well received in the market.
The CL, a new top-of-the-line coupe, represents a unique combination of
driving performance, comfort and state-of-the-art technology. The car celebrated
its world premiere at the Geneva Auto Show in March 1999. Customers can choose
among three models, the CL 500, the CL 600 and the CL 55 AMG.
The SL roadster has been a tradition for Mercedes-Benz since the
introduction of the famous 300 SL in 1954. The present line consists of four
models ranging from the SL 280 to the SL 600. Each model offers a removable
hardtop, an electrically operated hydraulic softtop and a roll bar which extends
automatically when required.
THE E-CLASS. The E-Class represents a line of luxury sedans and station
wagons. The E-Class sedans are available in six gasoline engine versions ranging
from the E 200 to the E 55 AMG and four diesel engine versions with common-rail
technology. In June 1999, DaimlerChrysler updated the E-Class significantly by
introducing a refined bodystyle and a variety of technological and handling
improvements.
THE C-CLASS. The C-Class is a line of compact luxury sedans and station
wagons. Six gasoline engine versions, ranging from the C 180 to the C 43 AMG,
and three diesel engine versions are available. The station wagon model is not
offered in the United States. DaimlerChrysler expects to introduce a new C-Class
sedan in Europe in May 2000 and in the United States in October 2000. The SLK, a
two-seat roadster, the CLK coupe and the CLK convertible complement the C-Class
product family.
THE A-CLASS. The A-Class is a four-door hatchback with front-wheel drive
that is available in three gasoline engine versions and two diesel engine
versions with common-rail technology. DaimlerChrysler manufactures the A-Class
in Rastatt, Germany, and, since February 1999, in Juiz de Fora, Brazil, for the
South American market. The current A-Class is not offered in the United States.
THE M-CLASS. The M-Class is a line of four-by-four sport-utility vehicles
ranging from the ML 230 to the ML 55 AMG. It combines off-road capabilities with
the comfort of a passenger car. M-Class production facilities are located in
Tuscaloosa, Alabama, and, since May 1999, in Graz, Austria.
THE G-CLASS. The G-Class is a four-wheel drive cross-country vehicle that
comes in a short and a long wheel-base version and also as a convertible. Three
gasoline and two diesel engine models are currently available. The G-Class is
not offered in the United States for private use.
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In 1998, DaimlerChrysler announced that it will develop a high-end luxury
limousine under the name "Mercedes-Benz Maybach." In 1999, DaimlerChrysler
entered into an agreement with McLaren Cars Ltd. for the design and production
of a new high-performance sports car, the SLR. The market launches of both the
Maybach and the SLR are scheduled for 2003.
SMART. In October 1998, DaimlerChrysler introduced a new micro compact car,
the smart City coupe, in Germany and other European markets. The two-seat smart
offers a trend-setting response to the challenges of urban mobility and optimum
use of resources. A diesel version of the smart, the smart cdi, was introduced
in December 1999. In New European Driving Cycle (NEDC) tests, this model
achieved a fuel efficiency performance of 3.4 liter per 100 km (approximately 69
miles per gallon). DaimlerChrysler expects to introduce a smart convertible in
March 2000. The smart is not offered in the United States.
In the high performance sports car segment, DaimlerChrysler strengthened its
position through the acquisitions of 51% of AMG GmbH in January 1999 and 40% of
TAG McLaren Holding Ltd. in January 2000.
MARKETS, SALES AND COMPETITION
In 1999, the most important markets for the Mercedes-Benz Passenger Cars &
smart segment were Germany (39% of unit sales), the remaining European Union
(28% of unit sales), the United States (18% of unit sales) and Japan (5% of unit
sales). New car registrations in Germany were 2% higher than in the previous
year, reaching 3.8 million units. In the European Union (excluding Germany) new
registrations of passenger cars increased 6% to 10.8 million units.
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The following table sets forth the distribution of revenues and unit sales
for the Mercedes-Benz Passenger Cars & smart division by geographic market since
1997:
Revenues and Unit Sales
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1999 % change 1998 % change 1997
--------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues(1)
European Union....................... 23,191 +15 20,218 +19 16,989
Germany.......................... 14,506 +14 12,670 +14 11,084
Other............................ 8,685 +15 7,548 +28 5,905
NAFTA region......................... 9,180 +28 7,199 +39 5,194
United States.................... 8,519 +27 6,730 +39 4,831
Canada and Mexico................ 661 +41 469 +29 363
Asia................................. 3,101 +14 2,724 -15 3,197
Japan............................ 1,951 +19 1,646 -3 1,691
Other............................ 1,150 +7 1,078 -28 1,506
Other markets........................ 2,628 +7 2,446 +13 2,174
--------- ------- -------
World............................ 38,100 +17 32,587 +18 27,554
========= ======= =======
Units
European Union....................... 715,700 +17 610,200 +34 455,700
Germany.......................... 416,800 +17 355,200 +28 276,500
Other............................ 298,900 +17 255,000 +42 179,200
NAFTA region......................... 212,100 +16 182,900 +40 130,800
United States.................... 197,200 +14 172,300 +40 123,400
Canada and Mexico................ 14,900 +41 10,600 +43 7,400
Asia................................. 74,900 +13 66,500 -14 77,600
Japan............................ 49,500 +23 40,200 +2 39,400
Other............................ 25,400 -3 26,300 -31 38,200
Other markets........................ 77,600 +23 63,200 +24 51,000
--------- ------- -------
World............................ 1,080,300 +17 922,800 +29 715,100
========= ======= =======
</TABLE>
- --------------------------
(1) [EURO] in millions.
In 1999, both unit sales and revenues of the Mercedes-Benz Passenger Cars &
smart division continued their upward trend. For the first time ever, the
division sold more than one million cars (1,080,300), an improvement of 17% over
the previous year. This increase in unit sales was primarily the result of the
exceptionally well-received S-Class, the ongoing success of the A-Class, the
continued popularity of the M-Class and the CLK, and the increasing market
acceptance of the smart. Unit sales in Germany reached 416,800, 17% more than in
1998. In the other member states of the European Union, unit sales rose 17% to
298,900, mainly due to more favorable market conditions in Italy and Spain. In
the United States, which is the most important non-European market for
Mercedes-Benz passenger cars, unit sales at 197,200 surpassed the previous
year's figure by 14%. This significant increase was the result of continued
strong market demand, particularly for the S-Class, and made Mercedes-Benz the
1999 top-selling luxury brand in the U.S. market. Despite difficult market
conditions, unit sales in Japan rose 23% to 49,500, making Mercedes-Benz the
leading import brand in 1999. For a discussion of changes in revenues see "Item
5. Operating and Financial Review and Prospects."
In Western Europe, the principal competitors of Mercedes-Benz passenger cars
are Audi and BMW and, depending on the market segment, Jaguar, Lexus, Porsche,
Rolls Royce, Rover, Volkswagen, Volvo and certain models of Ford, General
Motors, PSA (Peugeot/Citroen), Renault and Saab. In the United States, the
principal competitors include Acura, Audi, BMW, Ford, Infiniti, Jaguar, Lexus,
Lincoln, Porsche, Rolls Royce, Saab and Volvo
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and, depending on the market segment, Nissan, Toyota and certain models produced
by General Motors, Mazda and Mitsubishi Motors. Principal competitors of the
smart are Volkswagen, Fiat, Ford, Peugeot, Renault, Seat, Daewoo, Daihatsu and
Suzuki.
The following table sets forth, by vehicle line, the number of units sold
since 1997:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Units
S-Class (including CL and SL).......................... 98,300 58,300 62,900
E-Class................................................ 246,500 259,400 277,000
C-Class (including CLK and SLK)........................ 354,300 384,400 348,700
A-Class................................................ 206,900 136,100 6,700
M-Class................................................ 90,000 63,700 16,300
G-Class................................................ 4,400 3,800 3,500
smart.................................................. 79,900 17,100 --
--------- ------- -------
Total.............................................. 1,080,300 922,800 715,100
========= ======= =======
</TABLE>
DISTRIBUTION
DaimlerChrysler distributes Mercedes-Benz passenger cars through a worldwide
distribution system covering 173 countries and customs areas. Sales
organizations differ in the various sales regions according to local needs and
requirements. In Germany, the Group operates a wholesale and a retail network
for Mercedes-Benz passenger cars. In other major European markets and in the
United States, Canada and Japan, Mercedes-Benz passenger cars are sold through a
Group subsidiary to an independent dealer network. In other markets, including
South America and South East Asia, Mercedes-Benz passenger cars are sold through
independent general distributors. In 1999, DaimlerChrysler began merging the
back office functions of its smart wholesale distribution network with those of
Mercedes-Benz to reduce costs. It also increased the number of smart sales
locations by teaming up with the Mercedes-Benz retail network.
CAPITAL EXPENDITURES; RESEARCH AND DEVELOPMENT
The Mercedes-Benz Passenger Cars & smart division had [EURO]2.2 billion of
capital expenditures for fixed assets in 1999. Principal areas of investment
were the preparation for production of the upcoming successor models of the
C-Class, model year changes for the M-Class, the new technology center in
Sindelfingen, Germany, and new paint shop and stamping facilities.
Research and development projects of the division in 1999 included the
development of new models, primarily the upcoming successor models of the
C-Class, the SL, the Maybach and the SLR.
The capital expenditures for fixed assets and the research and development
expenditures of the Mercedes-Benz Passenger Cars & smart division during the
last three years are shown below:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
([EURO] in millions)
<S> <C> <C> <C>
Capital expenditures for fixed assets.................. 2,228 1,995 1,885
Research and development............................... 2,043 1,930 1,583
</TABLE>
11
<PAGE>
Chrysler Group
This segment consists of the automotive operations of DaimlerChrysler
Corporation, formerly Chrysler Corporation. DaimlerChrysler Corporation
manufactures, assembles and sells cars and trucks under the brand names
Chrysler, Jeep, Dodge and Plymouth primarily in the NAFTA region. The Plymouth
brand will be phased out through the end of the 2001 model year. The Chrysler
Group segment contributed approximately 42% of DaimlerChrysler's revenues in
1999.
PRODUCTS
The automotive design and development activities are organized into
cross-functional product development groups called "platform teams." The
platform team system seeks to improve communications and product quality, and
reduce the time required to design and develop new vehicles. The platform team
process has contributed significantly to the success of DaimlerChrysler
Corporation in recent years.
The passenger car and truck product ranges of the Chrysler, Jeep, Dodge and
Plymouth brands consist of the following vehicles:
PT CRUISER. PT Cruiser is a new vehicle concept sold under the Chrysler
brand that combines the attributes of a minivan and a sport utility vehicle at
the size and price of a small car. PT Cruiser is available with a front wheel
drive 2.4 liter four-cylinder engine and either a five speed manual or a four
speed automatic transmission. PT Cruiser is scheduled to be available in spring
2000.
NEON. Neon is a subcompact four-door front wheel drive sedan sold under the
Chrysler, Plymouth and Dodge brand names. Neon is available with a 2.0 liter
four-cylinder engine and a five speed manual or three speed automatic
transmission. In February 1999, a new redesigned Neon became available in the
NAFTA region and in Europe.
CIRRUS, STRATUS AND BREEZE. The Chrysler Cirrus, Dodge Stratus and Plymouth
Breeze are compact four-door sedans offering contemporary cab-forward styling.
Depending on the model, engine alternatives include a 2.0 liter and a 2.4 liter
four-cylinder, or a 2.5 liter V-6 engine. Cirrus, Stratus and Breeze models are
available in the NAFTA region, and the Stratus is also available in other
markets. Redesigned versions of the Cirrus and Stratus are scheduled to be
available in the summer of 2000.
INTREPID, CONCORDE, LHS AND 300M. Dodge Intrepid is a mid-size front-wheel
drive, four-door sedan offered with either a 2.7 or 3.2 liter aluminum V-6
engine. The Intrepid is available only in the NAFTA region. The Concorde is a
full-size front-wheel drive sedan available in two models and powered by either
a 2.7 liter or 3.2 liter aluminum V-6 engine. The LHS is a full-size front-wheel
drive luxury sedan powered by a 3.5 liter aluminum V-6 engine. The 300M is a
front-wheel drive sport sedan designed for international markets and powered by
a 2.7 or 3.5 liter aluminum V-6. Concorde, LHS and 300M models are available in
the NAFTA region and in other select markets.
OTHER CARS. Other cars include the Viper models, a two-seat sport roadster
and a sport coupe with a high performance V-10 powertrain; the Prowler, a sport
roadster with retro styling cues; and the Dodge Avenger and Chrysler Sebring,
two-door coupes produced by Mitsubishi Motor Manufacturing of America in its
Normal, Illinois assembly plant. Redesigned models of the Avenger and Sebring
two-door coupes are scheduled to be available in 2000. The Chrysler Sebring
Convertible is a front-wheel drive, four passenger, mid-sized convertible with a
power top and a 2.5 liter V-6 engine. Sebring is the best-selling convertible in
the NAFTA region and is also available in select international markets as the
Stratus Cabrio. A redesigned Sebring Convertible is expected to be available in
the fall of 2000.
MINIVANS. Minivans are marketed under the Chrysler, Dodge and Plymouth
brand names, and are offered in either long or short wheelbase versions.
Minivans come equipped with either front-wheel or all-wheel drive. Five
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gasoline engines ranging from a 2.0 liter four-cylinder to a 3.8 liter V-6, plus
a 2.5 liter turbodiesel are available. In 1999, the Chrysler, Dodge and Plymouth
minivans continued to lead the market as the best-selling minivans in the world.
Redesigned Chrysler and Dodge minivans are planned for introduction in fall of
2000.
RAM PICKUP. Ram pickup trucks range from the Standard Cab to the Club and
Quad Cabs. A chassis Cab variant is also offered in three wheelbases for various
work applications.
DAKOTA. The Dakota pickup truck is available in the Standard, the Club and
the recently introduced Quad Cab body styles. Dakota competes in the compact
pickup truck segment, and has consistently been the largest compact pickup truck
available.
DURANGO. The Dodge Durango, an eight-passenger sport-utility vehicle, was
derived from the Dakota platform and competes in the compact sport-utility
market. The Durango is available with a choice of two V-8 engines, all packaged
in the bold, Dodge Ram-inspired exterior.
RAM VAN AND WAGON. The Ram Van and Wagon are Dodge's entry in the full-size
van/wagon market and are available in a variety of wheelbases and body
configurations.
JEEP GRAND CHEROKEE. The Grand Cherokee exemplifies four-wheel drive
leadership and style with an exceptional balance of power, performance, on-road
handling, security and luxury. Grand Cherokee is available in a four-door
bodystyle in both two- and four-wheel drive configurations. In the NAFTA region
it is offered with a 4.0 liter I-6 or an all-new 4.7 liter V-8 engine, and the
optional new Quadra-Drive-Registered Trademark- four-wheel drive system.
Vehicles for the NAFTA region are produced in Detroit, Michigan, and vehicles
for sale outside of the NAFTA region are produced in Graz, Austria.
JEEP CHEROKEE. The Cherokee offers excellent performance, versatility and
off-road capability along with outstanding value as one of the lowest priced
sport-utilities in its class. The Cherokee is available in two- and four-wheel
drive configurations, two-door and four-door body styles, as a left hand and
right hand drive model, and with a choice of four- and six-cylinder gasoline
engines and a diesel engine.
JEEP WRANGLER. The Wrangler is the authentic four-wheel drive vehicle that
is the icon of the Jeep brand. Wrangler is offered with four-wheel drive,
removable soft and hard top systems, and a choice of four- and six-cylinder
gasoline engines.
MARKETS, SALES AND COMPETITION
In 1999, the most important markets for the Chrysler Group segment were the
United States (83% of unit sales), Canada (8% of unit sales) and Mexico (3% of
unit sales). Retail sales in the United States and Canada amounted to 2,903,000
vehicles in 1999, which compares to 2,779,000 in 1998. For 1999, this represents
a 15.3% share of the United States and Canada car and truck market, compared to
16.0% in 1998. Industry retail sales in the United States and Canada for 1999
reached 19.0 million units, an increase of 9% over 1998.
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<PAGE>
The following table sets forth the distribution of revenues and unit sales
for this segment by geographic market since 1997:
Revenues and Unit Sales
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1999 % change 1998 % change 1997
--------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues(1)
NAFTA region...................... 59,766 +14 52,339 +9 47,807
United States................. 54,052 +15 47,064 +11 42,582
Canada........................ 4,473 +9 4,113 -3 4,260
Mexico........................ 1,241 +7 1,162 +20 965
European Union.................... 2,620 +31 1,998 +10 1,816
Other markets..................... 1,699 -18 2,075 -14 2,403
--------- --------- ---------
World......................... 64,085 +14 56,412 +8 52,026
========= ========= =========
Units(2)
NAFTA region...................... 3,052,000 +5 2,905,500 +10 2,649,600
United States................. 2,693,200 +6 2,548,900 +10 2,312,400
Canada........................ 268,300 +2 261,800 -2 266,300
Mexico........................ 90,500 -5 94,800 +34 70,900
European Union.................... 93,500 +7 87,100 -7 93,400
Other markets..................... 83,800 -17 101,100 -30 144,000
--------- --------- ---------
World......................... 3,229,300 +4 3,093,700 +7 2,887,000
========= ========= =========
</TABLE>
- ------------------------
(1) [EURO] in millions.
(2) Unit sales represent vehicle shipments by DaimlerChrysler Corporation.
------------------------------
In 1999, revenues of Chrysler Group reached a new record high, and unit
sales were the second best ever. Total unit sales increased by 4.4% to
3,229,300, due primarily to the division's success in the United States. Unit
sales in the United States were up 6% in 1999 to 2,693,200 vehicles, mainly as a
result of the success of the Jeep Grand Cherokee, Dodge Durango and the
full-size Intrepid and LHS/300M sedans. For a discussion of changes in revenues
see "Item 5. Operating and Financial Review and Prospects."
In the NAFTA region, principal competitors of the Chrysler Group division
are General Motors, Ford, Toyota, Honda and Nissan. Competition in the NAFTA
region is very intense and is likely to remain so. Due to the economic
conditions in certain markets, particularly in Asia, competitors with excess
capacity may intensify their efforts to export vehicles to the NAFTA region.
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The following table sets forth, by vehicle line, the number of units sold
since 1997:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Units(1)
Cars
Neon............................................ 251,200 268,200 269,900
Cirrus, Stratus and Breeze...................... 215,400 250,500 255,300
Intrepid, Concorde and LHS/300M................. 338,300 300,100 198,500
Other........................................... 101,300 120,000 139,700
Minivans............................................ 681,500 685,000 682,800
Trucks
Ram Pickup...................................... 487,100 474,700 432,400
Dakota.......................................... 171,100 160,100 166,900
Durango......................................... 219,600 182,000 33,200
Ram Van and Wagon............................... 83,100 84,400 77,800
Jeep
Grand Cherokee.................................. 380,100 270,200 311,400
Cherokee........................................ 200,500 194,500 213,900
Wrangler........................................ 100,100 104,000 105,200
--------- --------- ---------
Total........................................... 3,229,300 3,093,700 2,887,000
========= ========= =========
</TABLE>
- ------------------------
(1) Unit sales represent vehicle shipments by DaimlerChrysler Corporation.
DISTRIBUTION
In the NAFTA region, new passenger cars and trucks are sold at retail by
dealers who have sales and service agreements with DaimlerChrysler Corporation.
The dealers purchase cars, trucks, parts and accessories from DaimlerChrysler
Corporation for sale to retail customers. In the United States, DaimlerChrysler
Corporation had 4,423 dealers at December 31, 1999, compared to 4,484 at
December 31, 1998. In Canada, the dealer network comprised 560 dealers at
December 31, 1999, compared to 578 dealers at December 31, 1998. In Mexico, the
dealer network comprised 117 dealers at December 31, 1999, compared to 114
dealers at December 31, 1998.
DaimlerChrysler Corporation also sells vehicles in various other countries
through wholly owned, affiliated and independent distributors and dealers.
CAPITAL EXPENDITURES; RESEARCH AND DEVELOPMENT
In 1999, the Chrysler Group segment invested [EURO]5.2 billion in fixed
assets. These investments were spent primarily on completion of the Neon launch,
Dakota Quad-cab launch and the major product launches due in 2000, including the
PT Cruiser, new Minivan and Stratus/Cirrus vehicles. Investments include
improving capacity, upgrading powertrain and component facilities and
maintaining all other existing facilities.
The research and development activities of the segment in 1999 related
primarily to new product development for the products mentioned above and the
all new Cherokee replacement due to be launched in 2001. Also included are
development costs for improvement of existing products and compliance costs
associated with regulations promulgated by various governmental agencies
worldwide.
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The capital expenditures for fixed assets and research and development
expenditures of the Chrysler Group segment during the last three years are shown
below:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
([EURO] in millions)
<S> <C> <C> <C>
Capital expenditures for fixed assets.................. 5,224 3,920 4,501
Research and development............................... 2,000 1,695 1,512
</TABLE>
INTERNATIONAL COOPERATIONS
In Austria, Jeep Grand Cherokees are assembled under an assembly contract
with Steyr-Daimler-Puch Fahrzeugtechnik AG & Co. The segment's automotive
operations in the Asia-Pacific region include the assembly of Jeep Cherokees for
distribution in China by Beijing Jeep Corporation, Ltd., a minority-owned joint
venture. In addition, DaimlerChrysler Corporation has an agreement for the
assembly of right-hand-drive Jeep vehicles in Thailand. Operations in South
America include manufacturing facilities in Venezuela, where Neons, Jeep
Cherokees and Grand Cherokees are assembled, Brazil, where Dakota pickup trucks
are manufactured, and Argentina, where Jeep Cherokees and Grand Cherokees are
assembled. In January 1997, DaimlerChrysler Corporation entered into a joint
venture agreement with Bayerische Motoren Werke AG to manufacture a small
gasoline engine in Brazil for use in both Chrysler and BMW vehicles.
DaimlerChrysler Corporation also has a minority interest in a company with
assembly facilities in Egypt.
Commercial Vehicles
DaimlerChrysler manufactures and sells commercial vehicles under the brand
names Mercedes-Benz, Freightliner, Sterling, Setra and Thomas Built Buses. With
facilities throughout the world, the Group has a very strong network for the
production and assembly of commercial vehicles and core components. It also has
a worldwide distribution and service network. Commercial Vehicles contributed
approximately 17% of the Group's revenues in 1999.
PRODUCTS
VANS. Worldwide, the product lines consist of three series of Mercedes-Benz
vans in categories of 2 metric tons (t) to 7.5t gross vehicle weight (GVW), the
Vito and V-Class, the Sprinter and the Vario. In spring 1999, DaimlerChrysler
restyled the Vito and the V-Class, which is a passenger minivan derived from the
Vito. A new Mercedes-Benz compact van, the Vaneo, is expected to enter the
market at year-end 2001. The Vaneo is designed for use as a family vehicle and
for commercial purposes. DaimlerChrysler manufactures its Mercedes-Benz vans in
Germany and Spain for the European market and in Argentina for the South
American market.
TRUCKS. The European Mercedes-Benz truck lines consist of the Actros in the
heavy weight category, the Atego in the light, medium and heavy weight category
and the Econic, a vehicle concept that can be adopted for a variety of special
applications. Complementing this line-up is the Unimog, a four-wheel drive
vehicle which is designed for special purpose applications such as street
maintenance, certain construction industry uses, fire-fighting, forestry and
agriculture. In January 1999, a jury of 18 European motor journalists voted the
Atego "Truck of the Year."
In the United States and Canada, the Group operates through its wholly owned
subsidiary Freightliner Corporation. Freightliner manufactures trucks in Classes
5 through 8 (from 16,000 lbs. GVW to 33,000 lbs. GVW and over). In 1998,
Freightliner acquired the heavy truck product line of Ford Motor Company, which
it offers under the brand name "Sterling." Through American La France,
Freightliner is active in the market for custom fire truck chassis. It also
manufactures chassis for trucks, buses and motorhomes in Classes 3 through 7
(from 10,000 lbs. GVW to 33,000 lbs. GVW). Mercedes-Benz Mexico manufactures
Mercedes-Benz trucks primarily for sale in the NAFTA region.
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<PAGE>
Mercedes-Benz do Brasil develops and produces Mercedes-Benz trucks for the
South American markets. The new generation of trucks is based on the cab-over
engine design of the Atego. The African, Asian and Australian continents are
supplied by European factories and manufacturing operations in Brazil, South
Africa, Nigeria, Indonesia, Iran and Australia.
BUSES. The bus product lines consist of complete buses for city, intercity
and touring purposes and bus chassis which are completed by local bus builders
in various countries. The division's operating companies develop their own bus
designs based on national requirements and adapt their models to the specific
market needs of each region. Moreover, numerous cooperation partners throughout
the world manufacture buses or bus chassis under license. In Europe, the
division markets buses under the Mercedes-Benz and Setra brand names. In 1998,
Freightliner acquired the U.S. school bus body manufacturer Thomas Built Buses.
In June 1999, Freightliner and the British company Mayflower Corporation plc
formed a joint venture company, Thomas Dennis Co. LLC, in which Freightliner's
subsidiary Thomas Built Buses holds 51% and Mayflower's U.S. subsidiary Walter
Alexander holds 49%. The new joint venture focuses primarily on the production
of low-floor buses for the NAFTA region.
POWERTRAIN. The Powertrain business unit of DaimlerChrysler designs and
manufactures a full line of powertrain components consisting of diesel engines,
transmissions, axles and steering systems. It sells these components to other
divisions and business units of DaimlerChrysler and to third party customers. It
began to supply truck diesel engines to Freightliner in 1999. The Powertrain
business unit also manufactures industrial diesel engines which are widely used
as propulsion units in off-highway applications.
In the United States, DaimlerChrysler cooperates with the U.S. engine
manufacturer Detroit Diesel Corporation in several joint development, production
and marketing projects involving commercial vehicle and industrial diesel
engines. To support this cooperation, a U.S. affiliate of DaimlerChrysler AG
holds a 20% common equity investment in Detroit Diesel. The cooperation also
extends to MTU Motoren- und Turbinen-Union Friedrichshafen GmbH which is
primarily engaged in joint projects with Detroit Diesel involving the design,
development and marketing of diesel engines of various displacements and power
ranges for off-highway applications.
MARKETS, SALES AND COMPETITION
The market for commercial vehicles depends significantly on general economic
conditions since they directly influence transportation needs and the
availability of funds for capital investment. In 1999, sales of commercial
vehicles continued to experience significant growth in Western Europe and
particularly the NAFTA region. Market growth in Western Europe was largely the
result of the high demand for heavy trucks of 16t GVW or more (+15%). Sales for
all manufacturers in the NAFTA region were up approximately 23% to 441,500
vehicles in the Class 6 through 8 categories that are particularly important for
Freightliner and Sterling. However, in various South American countries,
especially in Brazil, demand fell considerably as a result of the economic
crisis plaguing the region. Markets also performed poorly in some Asian
countries, Turkey and Eastern Europe.
In Germany, registrations of new commercial vehicles increased 10% to
324,300 units. DaimlerChrysler sold 21% of its commercial vehicles in the German
market in 1999. The remaining European Union market accounted for an additional
28% of the division's 1999 unit sales. Outside Europe, the NAFTA region and
South America are the most important markets for the division.
17
<PAGE>
The following table sets forth the distribution of revenues and unit sales
for the Commercial Vehicles division by geographic market since 1997:
Revenues and Unit Sales
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1999 % change 1998 % change 1997
-------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues(1)
European Union.......................... 12,754 +11 11,448 +14 10,082
Germany............................. 7,046 +11 6,355 +12 5,660
Other............................... 5,708 +12 5,093 +15 4,422
NAFTA region............................ 10,408 +50 6,937 +45 4,770
United States....................... 9,164 +53 5,989 +48 4,033
Canada.............................. 844 +40 604 +27 474
Mexico.............................. 400 +16 344 +31 263
South America........................... 1,346 -35 2,082 -2 2,131
Brazil.............................. 849 -37 1,353 -7 1,448
Other............................... 497 -32 729 +7 683
Other markets........................... 2,187 -19 2,695 -11 3,029
------- ------- -------
World............................. 26,695 +15 23,162 +16 20,012
======= ======= =======
Units
European Union.......................... 267,100 +8 247,100 +12 221,200
Germany............................. 114,500 +7 107,500 +11 96,600
Other............................... 152,600 +9 139,600 +12 124,600
NAFTA region............................ 193,000 +54 125,600 +46 86,300
United States....................... 171,800 +59 107,800 +49 72,500
Canada.............................. 12,800 +20 10,700 +37 7,800
Mexico.............................. 8,400 +18 7,100 +18 6,000
South America........................... 44,600 -23 57,700 +5 54,900
Brazil.............................. 30,100 -24 39,400 +5 37,500
Other............................... 14,500 -21 18,300 +5 17,400
Other markets........................... 50,200 -15 59,300 +8 55,000
------- ------- -------
World............................. 554,900 +13 489,700 +17 417,400
======= ======= =======
</TABLE>
- ------------------------------
(1) [EURO] in millions.
------------------------------
Worldwide unit sales of the division increased significantly from 489,700 in
1998 to 554,900 vehicles in 1999, setting a new record for the third consecutive
year. Sales of vans and trucks reached 226,400 (+3%) and 283,800 (+20%) units,
respectively. Sales of buses increased 37% to 44,700 units in 1999.
Unit sales in Germany increased 7% to 114,500. In the European Union
(excluding Germany) unit sales rose 9% from 139,600 in 1998 to 152,600 in 1999.
This increase resulted primarily from the success of Mercedes-Benz vans and
trucks, especially in France, Italy and Spain. Due to the continued success of
the Actros and Atego truck lines, DaimlerChrysler strengthened its position as
the European market leader in the category of trucks over 6t GVW with a European
Union market share of 24% (1998: 23%). DaimlerChrysler's European Union market
share for vans between 2t and 6t GVW increased to 19% (1998: 18%). The bus
brands Mercedes-Benz and Setra maintained their leading position in the European
Union with a combined market share of 25% in 1999 (1998: 26%).
18
<PAGE>
In the United States, retail sales in the Class 6/7 segment for all
manufacturers showed a strong 20% increase to 179,100 vehicles (1998: 149,200
units). In the Class 8 heavy duty segment unit sales for all manufacturers rose
25% to 262,400 (1998: 209,400). Through the addition of the Sterling truck lines
and the buses produced by Thomas Built Buses, DaimlerChrysler further increased
its market shares in the Class 6/7 segment from 19% in 1998 to 23% in 1999 and
in the Class 8 segment from 33% in 1998 to 37% in 1999.
As a result of the unfavorable economic conditions in South America, 1999
sales of trucks for all manufacturers fell in Brazil to 46,900 (1998: 51,200)
units and in Argentina to 10,600 (1998: 13,300) units. Nevertheless,
DaimlerChrysler was able to defend its dominant position in the market for
trucks above 6t GVW with a market share of approximately 36% in both Brazil and
Argentina.
For a discussion of changes in revenues see "Item 5. Operating and Financial
Review and Prospects."
The primary sales market for Mercedes-Benz vans is Western Europe. Principal
competitors in this market are Fiat (IVECO), Volkswagen, Ford, Renault and PSA
(Peugeot/Citroen).
In the truck market segment, competitors vary in each geographical region.
In the two most important truck markets for DaimlerChrysler, Western Europe and
the NAFTA region, its principal competitors are the following:
<TABLE>
<CAPTION>
Western Europe NAFTA Region
(over 6t GVW) (Classes 5 through 8)
- -------------- ---------------------
<S> <C>
Volvo/Scania Navistar
Fiat (IVECO) Paccar
MAN (Kenworth/Peterbilt)
Renault Ford
Paccar (DAF) Renault (Mack)
Volvo/Scania
General Motors
</TABLE>
Principal competitors in the bus sector (over 8t GVW) include Volvo/Scania,
Irisbus, a joint venture of Fiat and Renault, MAN, Dennis and Auwaerter
(Neoplan) in Western Europe and Volvo/Scania and Volkswagen in South America.
The following table sets forth, by vehicle category, the unit sales of the
division since 1997:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Units
Vans(1)............................................. 226,400 220,400 193,900
Trucks(2)........................................... 283,800 236,700 192,700
Buses............................................... 44,700 32,600 30,800
------- ------- -------
Total........................................... 554,900 489,700 417,400
======= ======= =======
</TABLE>
- ------------------------------
(1) The figures for 1999 and 1998 include sales of pickup trucks (L 200)
manufactured by Mercedes-Benz South Africa under an agreement with
Mitsubishi Motors Corporation.
(2) Including chassis manufactured by Freightliner for motorhomes and
walk-in-vans.
DISTRIBUTION
In Germany, DaimlerChrysler operates a wholesale and a retail network for
its commercial vehicles. In other major European markets, subsidiaries of
DaimlerChrysler AG provide the wholesale function to a network of independent
dealers. Outside Europe commercial vehicles are generally sold by the sales
organization of the respective production company or through independent general
distributors.
19
<PAGE>
CAPITAL EXPENDITURES; RESEARCH AND DEVELOPMENT
Capital expenditures of the Commercial Vehicles segment for fixed assets
amounted to [EURO]0.8 billion in 1999. Principal areas of investment were the
preparation for the production of the new compact van, the Vaneo, and the new
cab-over engine truck generation for the South American market.
Research and development projects focused on new products, especially the
Vaneo and a new Setra bus, and successor models of existing product lines,
primarily the Sprinter.
The table below shows the capital expenditures for fixed assets and the
research and development expenditures of the Commercial Vehicles segment during
the last three years:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
([EURO] in millions)
<S> <C> <C> <C>
Capital expenditures for fixed assets.................. 770 832 601
Research and development............................... 827 714 602
</TABLE>
Services
DaimlerChrysler conducts its services business through its wholly-owned
subsidiary DaimlerChrysler Services (debis) AG. The services business consists
of two business units: Financial Services and IT Services. Services contributed
approximately 7% of the Group's revenues in 1999.
In the first quarter of 1999, DaimlerChrysler combined the financial
services activities of debis and Chrysler Financial Company L.L.C. It also
reduced debis' equity stake in the telecommunications services company debitel
from 52.4% to 10% by selling 10% through an initial public offering in the first
quarter of 1999, and 32.4% to Swisscom in the third quarter of 1999. Following
the divestiture of the majority of debis' interest in debitel, the Services
segment no longer comprises a separate Telecom Services business unit.
The following table sets forth the revenues generated by Services since
1997:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
([EURO] in millions)
<S> <C> <C> <C>
Financial Services(1)................................... 10,015 7,745 6,390
IT Services............................................. 2,917 2,167 1,548
Other(2)................................................ -- 1,498 1,466
------ ------ -----
Total............................................... 12,932 11,410 9,404
====== ====== =====
</TABLE>
- ------------------------------
(1) Figures for 1998 and 1997 have been restated to reflect the combination of
the financial services activities of debis and Chrysler Financial
Company L.L.C.
(2) The 1998 and 1997 revenues in this category primarily represent the Group's
telecom services activities which were sold in 1999.
------------------------------
BUSINESS UNITS AND SERVICES
FINANCIAL SERVICES. The Financial Services business unit, which now
includes the operations of the former Chrysler Financial Services segment, is
one of the leading financial services providers in the world outside the banking
and insurance sector. It is divided into three areas of responsibility: NAFTA
region and World excluding NAFTA region for automotive financial services and
Capital Services for non-automotive financial services. Financial Services
offers customized financing and leasing packages, primarily in connection with
the sale of DaimlerChrysler automotive products. In addition to consumer and
dealer automotive financing, it also provides dealer facility development and
management and insurance-related activities. The insurance activities are
conducted by debis Assekuranz and Chrysler Insurance Company and include direct
insurance (mainly dealer
20
<PAGE>
property and casualty insurance), insurance and reinsurance brokerage and risk
consulting and risk management services to companies within the Group, to
DaimlerChrysler employees and to third party industrial customers worldwide.
In the area of Capital Services, the Financial Services business unit offers
customer-oriented financing concepts for various non-automotive products and
activities, such as the sale of aircraft, rail systems, marine vessels or
commercial real estate and infrastructure projects. Capital Services also
includes the trading and consulting activities previously conducted by debis
Trading.
In 1999, the Financial Services business unit continued to expand its
business volume and accounted for approximately 77% of Services' revenues. See
"Item 5. Operating and Financial Review and Prospects."
IT SERVICES. debis Systemhaus is one of Germany's leading independent
providers of comprehensive IT services. It provides a wide range of services
including consulting (PLAN), development of software solutions (BUILD) and
operation of applications, computer centers, networks and desktops (RUN). IT
Services concentrates on IT solutions for specific industries, such as
manufacturing, retail and distribution, transportation, telecommunications,
financial services and the public sector. In 1999, IT Services was able to
improve further its international market presence, especially through the
acquisitions of the French company Soleri and the Spanish company Eltec and
significant IT outsourcing orders received from customers in Italy, the
Netherlands, South Africa, Spain and Switzerland.
In 1999, IT Services accounted for 23% of the Services segment's revenues.
It generated approximately 75% of its revenues with customers outside the
DaimlerChrysler Group.
MARKETS, SALES AND COMPETITION
The following table sets forth the distribution of Services' revenues by
geographic market since 1997:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
([EURO] in millions)
<S> <C> <C> <C>
European Union....................................... 5,705 6,138 5,125
Germany.......................................... 4,196 4,553 3,900
Other............................................ 1,509 1,585 1,225
NAFTA region......................................... 6,356 4,696 3,947
United States.................................... 5,491 4,522 3,937
Canada and Mexico................................ 865 174 10
Other markets........................................ 871 576 332
------ ------ -----
World............................................ 12,932 11,410 9,404
====== ====== =====
</TABLE>
------------------------
Services generated approximately 32% of its total 1999 business volume in
Germany, 12% in other European Union countries, 49% in the NAFTA region and 7%
in other markets. The growth in revenues in 1999 was the result of increased
business activity in both Financial Services and IT Services.
In 1999, the Financial Services business unit processed approximately
1,993,000 new leasing and finance contracts with a total value of
[EURO]50.7 billion, an increase of approximately 44% in new contract value
compared to 1998 when it processed new contracts with a total value of
[EURO]35.2 billion. This increase was attributable to the continued growth of
DaimlerChrysler's automotive businesses and an improved and more extensive range
of services. The average monthly payment for new vehicle installment sale
contracts in 1999 was [EURO]524. The average new contract balance amounted to
[EURO]23,286 and the average original term was 49 months.
21
<PAGE>
The following table sets forth the number and total value of new contracts
and the total number and value of contracts outstanding at December 31, 1999 in
the Financial Services business unit:
<TABLE>
<CAPTION>
Value Value
New ([EURO] in Total ([EURO] in
Contracts millions) Contracts millions)
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
United States(1)........................ 1,275,661 33,492 3,595,078 70,513
Germany(1).............................. 239,131 6,093 435,798 9,328
Canada(1)............................... 178,638 3,439 427,869 6,855
United Kingdom(1)....................... 41,318 1,217 89,490 2,428
Italy................................... 40,600 813 70,159 1,200
France.................................. 24,563 654 51,782 1,070
Japan(1)................................ 22,945 784 58,321 1,541
Mexico.................................. 19,289 460 50,999 928
Switzerland............................. 13,261 413 20,998 533
Netherlands............................. 13,077 433 29,971 913
Other(1)................................ 124,515 2,892 161,600 3,914
--------- ------ --------- ------
Total............................... 1,992,998 50,690 4,992,065 99,223
========= ====== ========= ======
</TABLE>
- ------------------------------
(1) Includes portfolios of activity conducted by Financial Services which have
been included in several asset-backed receivables transactions by that
business unit in these countries.
------------------------------
Competitors in the leasing and financial services area include leasing and
finance subsidiaries of banks and financial institutions and of other automobile
manufacturers to the extent they do not limit their leasing and financial
services activities to their own automobile brands. In the field of IT services,
which are primarily provided by debis Systemhaus, principal competitors include
IBM, EDS, CSC, Sema and Atos. debis Assekuranz competes primarily with
AON/Jauch & Huebener and the Marsh Group. Chrysler Insurance Company's main
competitor in the U.S. dealer market is Universal Underwriters (Zuerich Group).
CAPITAL EXPENDITURES
Capital expenditures for fixed assets, largely data processing equipment,
increased 14% in 1999 to [EURO]324 million (1998: [EURO]285 million). Additions
to equipment on operating leases increased 124% to [EURO]16.1 billion (1998:
[EURO]7.2 billion).
Aerospace
Principal Aerospace activities include the development, production and sale
of commercial aircraft, helicopters, defense and civil systems, aero engines,
military aircraft, satellites, and space infrastructure. DaimlerChrysler's
subsidiary DaimlerChrysler Aerospace (Dasa) is the German partner (with a 37.9%
share) in the European Airbus consortium Airbus Industrie. Aerospace contributed
approximately 6% of the Group's revenues in 1999.
22
<PAGE>
The following table sets forth the revenues generated by the Aerospace
business units since 1997:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
([EURO] in millions)
<S> <C> <C> <C>
Commercial Aircraft/Helicopters........................... 3,937 3,508 2,966
Defense and Civil Systems................................. 1,655 1,687 1,409
Aero Engines.............................................. 1,740 1,655 1,513
Military Aircraft......................................... 848 765 659
Satellites................................................ 446 629 725
Space Infrastructure...................................... 552 526 544
Other(1).................................................. 13 -- --
----- ----- -----
Total................................................. 9,191 8,770 7,816
===== ===== =====
</TABLE>
- ------------------------------
(1) The 1999 revenues in this category primarily relate to research activities
conducted by DaimlerChrysler Aerospace's research department for third
parties.
------------------------------
Aerospace revenues for 1999 were [EURO]9.2 billion, an increase of 5% over
1998. This increase was primarily due to increased deliveries of Airbus aircraft
which had significant positive effects on the Commercial Aircraft business. See
"Item 5. Operating and Financial Review and Prospects."
In the fourth quarter of 1999, DaimlerChrysler agreed to combine the
business of DaimlerChrysler Aerospace AG, with the businesses of the French
aerospace company, Aerospatiale Matra S.A., and the Spanish aerospace company,
Construcciones Aeronauticas S.A. (CASA), in a new company called European
Aeronautic Defence and Space Company (EADS). Upon closing of the transaction,
EADS will be the largest aerospace company in Europe, based on 1998 estimated
pro forma sales of approximately [EURO]21 billion and a workforce of
approximately 96,000 employees. It will own 80% of Airbus Industrie.
DaimlerChrysler will retain its aircraft engine subsidiary, MTU Motoren- und
Turbinen-Union Muenchen GmbH. See also "Material Contracts" in "Item 10.
Additional Information."
In October 1999, DaimlerChrysler Aerospace AG, Aerospatiale Matra S.A. and
Marconi Electronic Systems Ltd., which subsequently merged with British
Aerospace plc to become BAe Systems plc, signed a formation agreement for a
trinational European space company to be named Astrium. Astrium is expected to
combine the space systems businesses of DaimlerChrysler Aerospace and Matra
Marconi Space, a joint venture of Aerospatiale Matra and BAe Systems, in the
first half of 2000. Following the EADS transaction, EADS will hold 75% and BAe
Systems will hold 25% of Astrium.
At December 31, 1999, DaimlerChrysler AG owned 93.8% of the capital stock of
DaimlerChrysler Luft- und Raumfahrt Holding Aktiengesellschaft, which is the
holding company of DaimlerChrysler Aerospace. The remaining outstanding shares
of capital stock are owned almost entirely by the State of Hamburg which,
subject to certain conditions and procedures, may require that DaimlerChrysler
AG purchase its shares.
BUSINESS UNITS AND PRODUCTS
COMMERCIAL AIRCRAFT/HELICOPTERS. The commercial aircraft/helicopter
business includes the activities of DaimlerChrysler Aerospace Airbus GmbH and
its subsidiaries and the production of helicopters for military and civil
applications by the Eurocopter group.
COMMERCIAL AIRCRAFT. DaimlerChrysler Aerospace Airbus conducts the German
activities within Airbus Industrie, a consortium of four European aerospace
companies. These activities include the final assembly of the Airbus A321 and
the A319 which is performed in Hamburg. DaimlerChrysler Aerospace Airbus also
manufactures a variety of fuselage sections and vertical stabilizers for all
Airbus models, installs interior furnishings and is responsible for the wing
integration of all widebody Airbus aircraft.
23
<PAGE>
Airbus Industrie is responsible for sales, marketing and product support of
all Airbus aircraft. DaimlerChrysler Aerospace Airbus and the French aerospace
company, Aerospatiale Matra, each have a 37.9% interest in the consortium; BAe
Systems plc of the United Kingdom owns 20%; and the Spanish company
Construcciones Aeronauticas S.A. (CASA), holds 4.2%. DaimlerChrysler Aerospace
Airbus contributes on average one-third to the value of the aircraft produced by
the European Airbus program.
The product line of Airbus Industrie includes the following models:
- A340. The A340 is a four engine, long range aircraft currently offered in
three sizes between 239 and 440 passenger seats with a range between 6,400
and 8,000 nautical miles. Airbus Industrie is developing two new versions
of the A340, the A340-500 and the A340-600. These versions will have up to
485 passenger seats and a range of up to 8,500 nautical miles. Deliveries
of these new models are expected to commence in the year 2002.
- A330. The A330 is one of the world's largest twin-engine medium/long haul
aircraft seating between 253 and 440 passengers with a range of 4,800 to
6,450 nautical miles.
- A320. The A320, a two-engine 150- to 180-seat aircraft with a range of up
to 3,000 nautical miles, is the most successful Airbus aircraft program to
date.
- A321. The A321 is a stretched version of the A320 that seats 185 to 220
passengers and is designed as a short/medium haul aircraft with a range of
up to 3,000 nautical miles. DaimlerChrysler Aerospace Airbus assembles the
A321 in Hamburg.
- A319. The A319 is a reduced-size version of the A320, seating between 124
and 145 passengers. It has a range from 1,800 to 3,700 nautical miles.
DaimlerChrysler Aerospace Airbus assembles the A319 in its Hamburg
facility. A new short-range version of the A 319, the A318, is currently
under development. It is designed to satisfy demand for aircraft in the
100- to 130-seat range. The first flight of the A318, for which sales
efforts started in late 1998, is scheduled for the end of 2001.
- A310. The A310 is a two-engine aircraft with a range of up to 5,200
nautical miles that seats between 220 and 280 passengers depending on its
layout.
- A300-600. This model is a medium-range two-engine aircraft accommodating
between 266 and 361 passengers. It has a range of up to 4,150 nautical
miles. A cargo version of this model, the A300-600F, completes the
line-up.
- A300-600ST BELUGA. The A300-600ST Beluga is a high-volume transporter that
was primarily developed for the transportation of Airbus components.
Airbus Industrie is engaged in the predevelopment of the A3XX, an all-new
high-capacity aircraft. Two versions are in the planning stage, one would be
capable of carrying 555 passengers, the other 655 passengers. Further decisions
relating to this project are expected to be taken in 2000 and will be based on
updated demand information received from airlines. DaimlerChrysler Aerospace
also participates in the development of a new military transport aircraft, the
A400M, through Airbus Military Company S.A.S. which was founded in 1999. Other
partners in this joint venture company are Airbus Industrie, Aerospatiale Matra,
BAe Systems, Casa, Finmeccanica, Flabel and Tusas.
HELICOPTERS. The helicopter business of Aerospace is conducted through the
French-German Eurocopter group. The Eurocopter group comprises the combined
helicopter business of DaimlerChrysler Aerospace and Aerospatiale Matra.
DaimlerChrysler Aerospace and Aerospatiale Matra hold 40% and 60%, respectively,
of the capital stock of Eurocopter Holding, S.A. which holds 75% of the
operating company Eurocopter S.A. The remaining 25% of the capital stock of
Eurocopter S.A. is owned by Aerospatiale Matra. The product line of the
Eurocopter group includes single-engine light helicopters, as well as
twin-engine light- and medium-weight helicopters. The Eurocopter group
participates in the development and production of the Tiger escort helicopter
24
<PAGE>
and has a 66% share of the program for the development of the NH90 tactical
transport and naval helicopter. The fourth prototype of the NH90 began in-flight
testing in May 1999. In June 1999, Eurocopter received an order to deliver 160
Tiger helicopters to France and Germany (80 each).
DEFENSE AND CIVIL SYSTEMS. This business unit is active in the areas of
defense and dynamics systems, radar and radio systems, command and information
systems and systems technology. Its principal activities include development and
manufacture of products in the categories of radar technology, radio
communications and electronic warfare; reconnaissance, command, control and
information systems, mission planning systems, digital map systems, telescopic
antenna tower systems, mobile field hospitals and simulation and training
systems; antitank and ground-to-air missiles, surface missile systems and
standoff weapons. Through Nortel Dasa Network Systems, a joint venture with
Northern Telecom, this business unit is also engaged in the development of
telecommunications network components, including systems for the integration of
mobile and landline telecommunications networks. Defense and Civil Systems
restructured its business through the acquisition of the German defense
electronics activities of Siemens AG in 1998, and, in 1999, the purchase of a
33% interest in the South African company Reutech Radar Systems and the sale of
Elekluft GmbH.
AERO ENGINES. The Aero Engines business unit consists of MTU Motoren- und
Turbinen-Union Muenchen GmbH and its subsidiaries. It is involved in the
development, production and product support of propulsion systems for aircraft.
In the area of engines for commercial and executive aircraft, MTU Muenchen
primarily works with the engine manufacturers Pratt & Whitney, a subsidiary of
United Technologies, Inc., and General Electric. Pratt & Whitney and MTU
Muenchen jointly develop and manufacture the PW4000 turbofan engine family, the
PW2000 jet engine series, the PW305 and PW306 jet engines and the PW500 turbofan
engine family. Since February 1999, the two companies are also developing a new
engine program, the PW6000 series. MTU Muenchen's cooperation with General
Electric relates primarily to the General Electric CF6 engine family for which
MTU Muenchen manufactures parts and components.
In other projects MTU Muenchen's cooperation partners include Rolls-Royce
plc, Snecma and Japanese aircraft engine manufacturers. In the V2500 jet engine
program MTU Muenchen cooperates with Pratt & Whitney, Rolls-Royce plc and
Japanese Aero Engines Corporation. In the military area MTU Muenchen is engaged
in the development of the EJ200 engine for the Eurofighter/Typhoon and the
MTR390 engine for the Tiger helicopter. MTU Muenchen is also one of the leading
providers of maintenance and repair services for jet engines. See also
"International Cooperations."
MILITARY AIRCRAFT. Because of the technical complexity and the high
development costs of the products, DaimlerChrysler Aerospace undertakes most
projects in this area on a joint venture basis with other European and United
States companies. Military Aircraft is focusing primarily on the
Eurofighter/Typhoon program. Production of the Eurofighter began in 1998 and
deliveries are expected to commence in 2002. Germany intends to acquire 180, the
United Kingdom 232, Italy 121 and Spain 87 aircraft. The Military Aircraft
business unit also continues to be involved in the Panavia program
(modernization and servicing of Tornado aircraft) and the manufacturing of
certain Airbus components.
DaimlerChrysler Aerospace is also involved in other aircraft programs,
including the Experimental Program Vector, a follow-up program of the X-31A, and
it is actively engaged in programs involving design, development and
implementation of capability upgrades and maintenance, technological and
logistical support relating to the F4 Phantom, the Breguet Atlantique, the NATO
Awacs E-3A, the Transall C160 and the MiG-29. Other programs involve
reconnaissance systems, training and flight simulation systems and maintenance
and overhaul of military aircraft.
SATELLITES. The Satellites business unit is focusing on several satellite
programs and projects commissioned by the European Space Agency (ESA):
Envisat-1, a successor program to the ERS-2 (European Remote Sensing Satellite);
the Horizon 2000 scientific satellite program consisting of the Cluster
satellites; the XMM (X-Ray Multi-Mirror Mission), the largest scientific x-ray
satellite to date; and Rosetta, a satellite program designed to explore
25
<PAGE>
the origin of the solar system. Other projects include the development and
production of three meteorological satellites as part of the Meteosat program,
and the participation in Globalstar, a worldwide mobile communications satellite
system consisting of 48 low earth orbit satellites which were positioned by the
end of 1999.
SPACE INFRASTRUCTURE. Space Infrastructure concentrates on the development
and production of orbital systems. These activities include programs involving
space stations and launcher systems and the development of new technologies.
Specific projects in which DaimlerChrysler Aerospace participates include the
space laboratory COF (Columbus Orbital Facility) for the International Space
Station (ISS), the space transporter ATV (Automated Transfer Vehicle), the ERA
(European Robotic Arm) program and the Ariane 4 and 5 launcher programs.
MARKETS, SALES AND COMPETITION
In 1999, market demand for commercial aircraft and commercial aircraft
engines was weaker than in the previous year. Orders for jet aircraft with more
than 100 seats declined to 867 units (1998: 1,222 units). However, due to a high
order backlog, deliveries in 1999 increased to 914 aircraft compared to 792
units in 1998. Demand for maintenance and repair services was stronger than in
1998.
In spite of continued budget constraints in Germany and other countries of
the Western hemisphere, public spending for defense products was higher than in
the previous year. Demand in the market for satellites and space infrastructure
systems for commercial applications showed a substantial increase in 1999 while
public spending in this area stagnated.
The following table sets forth the distribution of Aerospace revenues by
geographic market since 1997:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
([EURO] in millions)
<S> <C> <C> <C>
European Union......................................... 7,313 6,730 6,013
Germany............................................ 2,702 2,604 2,207
Other.............................................. 4,611 4,126 3,806
NAFTA region........................................... 1,457 1,496 1,239
United States...................................... 1,322 1,414 1,193
Canada and Mexico.................................. 135 82 46
Asia................................................... 267 244 208
Other markets.......................................... 154 300 356
----- ----- -----
World.............................................. 9,191 8,770 7,816
===== ===== =====
</TABLE>
------------------------------
The Airbus aircraft built by the partners of Airbus Industrie compete
primarily with aircraft produced by Boeing. In the international military
aircraft market, DaimlerChrysler Aerospace competes primarily as a member of the
Panavia and Eurofighter consortia. Competitors of these consortia are Boeing,
Lockheed Martin, Dassault and certain manufacturers in Russia and the Ukraine.
Major competitors of the Eurocopter group include Sikorsky, Boeing, Westland,
Agusta, Bell Textron and, with respect to some special applications, helicopter
manufacturers from Poland and Russia.
In the German defense systems market, the Defense and Civil Systems business
unit competes in some areas with Diehl and STN Atlas. Outside of Germany,
Defense and Civil Systems operates exclusively through international
cooperations. These cooperations, which are primarily active in the missile
area, compete with Thomson-CSF, Hughes, Raytheon, Lockheed Martin and Boeing.
Space Infrastructure competes in the area of communications satellites with
Alenia Spazio in Europe and Hughes Space and Lockheed Martin in the United
States. Competitors in the launcher area are Lockheed Martin and Boeing in the
United States and some manufacturers in Russia, the Ukraine, China and Japan.
26
<PAGE>
Through MTU Muenchen DaimlerChrysler Aerospace participates in several
international aircraft engine cooperations which compete in some areas with
Pratt & Whitney, General Electric, Snecma, Rolls-Royce plc, Volvo Aero and
FiatAvio SpA.
CAPITAL EXPENDITURES; RESEARCH AND DEVELOPMENT
Capital expenditures for fixed assets were [EURO]336 million in 1999
compared with [EURO]326 million in 1998. They related primarily to capacity
increases in the Commercial Aircraft/Helicopters business unit intended to
address the high order backlog for commercial aircraft.
Research and development expenditures decreased slightly in 1999 to
[EURO]2,005 million (1998: [EURO]2,047 million). Of this amount,
[EURO]458 million was attributable to projects funded by the Group
(1998: [EURO]367 million). In 1999, 77% of DaimlerChrysler Aerospace's total
research and development expenditures was customer-funded (1998: 82%). Research
and development projects of Commercial Aircraft/Helicopters included the Airbus
programs and new helicopter models. The primary research and development
projects of the Defense and Civil Systems business unit included missile
systems; radar systems; control, command and communications systems; and
civilian products. The Aero Engines business unit emphasized the EJ200 engine
program, additional development work on engines for regional aircraft and
research work directed at engine technologies leading to lower emissions,
reduced noise and lower fuel consumption. Military Aircraft continued to perform
development work on the Eurofighter/Typhoon, the Tornado upgrade program and on
Airbus components; the Satellites and Space Infrastructure business units
focused on the various ESA programs and the Ariane program.
The capital expenditures for fixed assets and the research and development
expenditures of Aerospace during the last three years are shown below:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
([EURO] in millions)
<S> <C> <C> <C>
Capital expenditures for fixed assets.................. 336 326 255
Research and development............................... 2,005 2,047 2,233
of which: Company funded projects................ 458 367 316
Third party projects................... 1,547 1,680 1,917
</TABLE>
INTERNATIONAL COOPERATIONS
In addition to the Airbus consortium, the comprehensive cooperation with
Pratt & Whitney and the participation in the Eurofighter consortium,
DaimlerChrysler Aerospace participates in a number of other cooperative efforts.
DaimlerChrysler Aerospace and Nortel Ltd. of the United Kingdom, a subsidiary of
the Canadian company Northern Telecom Ltd., cooperate in a joint venture which
provides products and services in the telecommunications field. The Group is
also involved in three joint ventures with Thomson-CSF S.A. in the areas of
weapons components, missile propulsion systems and gallium arsenide technology.
A joint venture with China Aerospace Corporation focuses on satellites for
communication and earth observation. In 1998, Matra BAe Dynamics acquired a 30%
equity interest in LFK-Lenkflugkoerpersysteme GmbH through which DaimlerChrysler
Aerospace conducts its guided missile activities. MTU Muenchen expanded its
aircraft engine repair and maintenance business by entering into joint ventures
with Canadian Airlines in 1998 and Honeywell (formerly Allied Signal) and Snecma
in 1999. The Defense and Civil Systems business unit established a strategic
partnership through the acquisition of a 33% interest in the South African
company Reutech Radar Systems in 1999.
27
<PAGE>
Other
This segment includes the operating businesses Rail Systems, Automotive
Electronics and MTU/Diesel Engines. In 1999, this segment contributed
approximately 4% of the DaimlerChrysler Group's total revenues. The following
table sets forth, by business unit, the revenues generated since 1997:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
([EURO] in millions)
<S> <C> <C> <C>
Rail Systems.............................................. 3,562 1,658 1,631
Automotive Electronics.................................... 890 754 557
MTU/Diesel Engines........................................ 959 921 878
Other Businesses(1)....................................... 441 193 955
----- ----- -----
Total................................................. 5,852 3,526 4,021
===== ===== =====
</TABLE>
- ------------------------------
(1) The 1997 revenues in this category represent primarily the Group's
semiconductor activities which were sold in 1998. The 1999 and 1998 revenues
principally derive from the management of real estate projects including
Potsdamer Platz.
------------------------------
The increase in 1999 revenues of the Rail Systems business unit is primarily
due to the full consolidation of Adtranz following DaimlerChrysler's acquisition
of ABB Asea Brown Boveri's 50% interest in Adtranz. The 1998 and 1997 revenue
figures represent the pro rata share in Adtranz' revenues reflecting
DaimlerChrysler's previous 50% ownership interest in the company. For a
discussion of revenues of this segment see "Item 5. Operating and Financial
Review and Prospects."
RAIL SYSTEMS. The Rail Systems activities of the Group are conducted by
Adtranz. In the first quarter of 1999, DaimlerChrysler acquired ABB's 50%
interest in Adtranz for $472 ([EURO]441) million. Adtranz is one of the leaders
in the global rail transportation market. Its products and services include
people movers, light rail vehicles, metros, diesel and electric regional and
intercity multiple units, electric and diesel locomotives, high speed trains,
signaling systems, fixed installations, and customer support.
In December 1999, Rail Systems began implementation of a comprehensive
restructuring program. The goal of this program is to achieve a turnaround in
operating results in 2000. The program primarily aims at concentration on key
areas of expertise and cost-cutting through the elimination of excess capacity
and efficiency improvements in production and organizational structure.
AUTOMOTIVE ELECTRONICS. The Automotive Electronics activities conducted
through TEMIC TELEFUNKEN microelectronic GmbH and its subsidiaries focus on
electronic systems for engines, safety systems and applications that enhance
driving comfort. Major product areas are powertrain and chassis, antilock
braking systems, occupant safety devices, sensor systems, vehicle body
electronics and automotive electric motors.
MTU/DIESEL ENGINES. The Group conducts its MTU/Diesel Engines business
through MTU Motoren- und Turbinen-Union Friedrichshafen GmbH, one of the world's
leading suppliers of high-grade propulsion systems for land, marine and
rail-bound vehicles as well as energy-supply applications based on diesel
engines, gas engines or gas turbines and the new technologies of
high-temperature fuel cells and electrolysis. MTU Friedrichshafen also produces
drive shafts for passenger cars and lightweight commercial vehicles. Its
subsidiary L'Orange manufactures injection systems for high-power diesel
engines.
28
<PAGE>
MARKETS, SALES AND COMPETITION
The following table sets forth the distribution of revenues of this segment
by geographic market since 1997:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
([EURO] in millions)
<S> <C> <C> <C>
European Union......................................... 4,080 2,295 2,637
Germany............................................ 2,497 1,395 1,533
Other.............................................. 1,583 900 1,104
NAFTA region........................................... 707 421 411
United States...................................... 658 390 390
Canada and Mexico.................................. 49 31 21
Asia................................................... 407 443 592
Other markets.......................................... 658 367 381
----- ----- -----
World.............................................. 5,852 3,526 4,021
===== ===== =====
</TABLE>
------------------------------
The increase in 1999 revenues is primarily due to the full consolidation of
Adtranz following DaimlerChrysler's acquisition of ABB's 50% interest in
Adtranz. The 1998 and 1997 revenue figures represent the pro rata share in
Adtranz' revenues reflecting DaimlerChrysler's previous 50% ownership interest
in the company. For a discussion of revenues of this segment see "Item 5.
Operating and Financial Review and Prospects."
Principal competitors of Adtranz are Siemens, Alstom and Bombardier. TEMIC
competes with Bosch, Siemens, TRW and Nippondenso. Principal competitors of
MTU/Diesel Engines in the diesel engines business include Caterpillar and
Cummins.
CAPITAL EXPENDITURES; RESEARCH AND DEVELOPMENT
In 1999, the Group spent [EURO]0.6 billion on fixed assets of the businesses
included in this segment (1998: [EURO]0.8 billion). At TEMIC, investments
consisted primarily of funding for increased production capacity. MTU/Diesel
Engines directed its capital expenditures at capacity expansion for the engine
series 2000/4000 and improvements and replacements of production facilities.
Adtranz invested primarily in the modernization of its production facilities.
During 1999, research and development activities at MTU/Diesel Engines
focused primarily on new application fields for the engine series 2000 and 4000
and the development of a new medium speed engine for the upper power-output
range. At Adranz, development activities concentrated on new vehicle
technologies and standardized product platforms to improve the ability to
respond to market requirements regarding product pricing, product quality and
delivery periods. Research and development work at TEMIC was primarily directed
at motor management systems and electronic systems designed to enhance vehicle
safety and comfort. The Group's research and development expenditures for these
activities in 1999 were [EURO]312 million (1998: [EURO]185 million).
SUPPLIES AND RAW MATERIALS
In 1999, the DaimlerChrysler Group purchased goods and services from
suppliers around the world with a total value of approximately
[EURO]94.9 billion (1998: [EURO]79.6 billion). Mercedes-Benz Passenger Cars &
smart accounted for 24% of this volume, Chrysler Group for 46%, Commercial
Vehicles for 19%, Services for 2%, Aerospace for 5%, and Other for 4%.
DaimlerChrysler enters into long-term supply agreements for the purchase of
various commodities used to manufacture vehicles. It also purchases commodities
on the spot market from time to time. In particular, DaimlerChrysler uses large
amounts of steel and aluminum. The price of steel was relatively stable in 1999,
while the price of aluminum increased significantly.
29
<PAGE>
Following the business combination, DaimlerChrysler integrated its worldwide
procurement and supply activities within a single Global Procurement and Supply
function. In addition, it combined the components of the Tandem program of
Daimler-Benz and the Extended Enterprise-Registered Trademark- program of
Chrysler to form an expanded Extended Enterprise-Registered Trademark- concept.
The new concept is an integrative approach designed to maximize the efficiency
of supply chains by involving not only the finished component supplier but also
sub-suppliers, raw material suppliers, and transportation carriers.
DaimlerChrysler also initiated a new cost management process on the basis of
total costs over the life-cycle of production components and tools.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
Government regulation of the automobile industry is extensive. Laws in
various jurisdictions regulate the emission levels, fuel economy, noise, and
safety of vehicles, as well as the levels of pollutants generated by the plants
that produce them. The cost of complying with these regulations can be
significant, and DaimlerChrysler expects to incur significant compliance costs
in the future. However, DaimlerChrysler management recognizes leadership in
environmental protection as an increasingly important competitive factor in the
marketplace.
Vehicle Emissions
U.S. STANDARDS. FEDERAL. The Clean Air Act directs the Environmental
Protection Agency (EPA) to establish and enforce national ambient air quality
standards. As part of that directive, the EPA has imposed tailpipe emission
control standards on passenger cars and light trucks, including minivans, sport
utility vehicles, and pickup trucks. The standards in effect for model year
1994-2003 passenger cars and light trucks are known as Tier 1 standards.
Manufacturers are obligated to recall vehicles that fail to meet those standards
for ten years or 100,000 miles, whichever occurs first. Separate standards are
in effect for heavy-duty commercial vehicles.
On December 21, 1999, the EPA adopted Tier 2 standards that establish for
the first time the same stringent tailpipe emission requirements for passenger
cars and light trucks. Tier 2 standards will be phased in over model years
2004-2009. The EPA also adopted regulations that require gasoline refiners to
produce cleaner burning fuels by reducing or eliminating pollutants such as
lead, sulfur and benzene, by adding oxygen and detergents, and by developing
alternative fuels such as alcohol, liquefied petroleum gas, and natural gas.
The Tier 2 standards present a significant technological challenge to the
automobile industry, particularly with respect to diesel engines. Manufacturers,
including DaimlerChrysler, will not be able to sell vehicles in the United
States that do not meet the standards. Complying with these news standards will
require further research and development achievements on the part of the
automotive industry.
CALIFORNIA STANDARDS. The State of California sets its own stringent
emission control standards for passenger cars and light trucks under the low
emission vehicle program run by the California Air Resources Board (CARB).
The standards in effect for model years 1994-2003 will be succeeded by more
restrictive standards to be phased in over model years 2004-2007. Meeting these
new standards will require significant progress in the development of engine,
exhaust system, and fuel technologies.
An important part of California's low emissions vehicle program is the
introduction of zero-emission vehicles. CARB initially issued regulations
mandating that a specified percentage of all model year 1998 and later vehicles
sold by each manufacturer in California be zero-emission vehicles. CARB later
modified that mandate as part of an agreement with seven vehicle manufacturers
that requires them to provide zero-emission vehicle demonstrations in California
through the 2002 model year and to continue investing in the research and
development of battery technology. Beginning with model year 2003, 10% of the
passenger cars and light trucks sold each year by a manufacturer in California
must be certified as zero-emission vehicles that produce no emissions of
regulated pollutants.
DaimlerChrysler participates in a consortium of vehicle manufacturers,
electric utilities and the U.S. Department of Energy, which was formed to
develop battery technology that would qualify electric vehicles as zero-emission
vehicles. Development of a commercially viable electric vehicle will require
further intensive
30
<PAGE>
research. Compared to conventional vehicles, electric vehicles today cost
significantly more, have a much more limited range between recharges, require a
long time to recharge, and lack a nationwide infrastructure of recharging
stations. Without new battery technology, manufacturers, including
DaimlerChrysler, may be forced to take costly actions such as reducing the
number of non-zero-emission vehicles they sell in California or selling electric
vehicles below cost.
OTHER STATES. Twelve northeastern states and the District of Columbia
formed the Ozone Transport Commission to coordinate their efforts to reduce
ground-level ozone. The commission initially recommended that its members adopt
California's low emission vehicle program. As an alternative, the U.S.
automotive industry proposed a national low emission vehicle program that
requires manufacturers to sell low emission vehicles within participating
jurisdictions beginning with the 1999 model year, and nationwide beginning with
the 2001 model year. All commission members participate in the national program
except Maine, Massachusetts, New York and Vermont, which adopted the California
program.
New York and Massachusetts also adopted the zero-emission vehicle mandate
for model years before 2003 that California initially adopted and later
rescinded. Federal courts invalidated the adoption of those mandates upon
challenge by the automotive industry. An appeal of the Massachusetts ruling is
pending before the U.S. Court of Appeals for the First Circuit.
EUROPEAN STANDARDS. Current vehicle emission control standards in the
European Union are generally no more restrictive than U.S. standards. However,
the EU Commission and the European Parliament have adopted a directive that
establishes increasingly stringent emission standards for passenger and light
commercial vehicles for model years 2000 (EURO 3) and 2005 and subsequent (EURO
4). Under the directive, manufacturers will be obligated to recall vehicles that
fail to meet those standards for five years or 80,000 kilometers, whichever
occurs first. Standards for heavy commercial vehicles have been adopted by the
EU Commission and the European Parliament for model years 2000 (EURO 3), 2005
(EURO 4, stage 1) and 2008 and subsequent (EURO 4, stage 2). DaimlerChrysler
believes that its passenger cars and commercial vehicles will comply with the
European standards.
CANADIAN AND MEXICAN STANDARDS. Canada and Mexico have also established
vehicle emission control standards. Canadian standards are comparable to U.S.
federal standards, while Mexican standards are generally less stringent.
However, Mexico has adopted standards beginning with model year 2001, that are
similar to those now applicable in the United States.
Compliance with new emission control standards will present significant
technological challenges to vehicle manufacturers and will likely require
significant expenditures. Examples of these challenges include the development
of improved battery, catalytic converter, and flexible or alternative fuel
technologies. Manufacturers who are unable to develop commercially viable
technologies within the time frames established by the new standards will be
limited in the number and types of vehicles and engines they are able to sell in
their principal markets.
Vehicle Fuel Economy
U.S. STANDARDS. Under the federal Motor Vehicle Information and Cost
Savings Act, a manufacturer is subject to significant penalties for each model
year its vehicles do not meet Corporate Average Fuel Economy standards, commonly
referred to as the CAFE standards. CAFE standards for passenger cars and
light-duty trucks are currently 27.5 miles per gallon and 20.7 miles per gallon,
respectively. A manufacturer earns credits by exceeding CAFE standards. Credits
earned for the three preceding model years and credits projected to be earned
for the next three model years can be used to meet CAFE standards in the current
model year, except that credits earned in respect of cars may not be used for
trucks.
DaimlerChrysler expects to meet current U.S. domestic fleet CAFE standards
for both passenger cars and light-duty trucks, although it will likely use
credits to meet the standard for light-duty trucks. However, increased demand
for larger light-duty trucks could jeopardize its ability to comply with that
standard and require it to take
31
<PAGE>
additional costly steps, including the sale of ethanol flexible fuel vehicles.
DaimlerChrysler did not meet the CAFE standards for the 1999 model year vehicle
fleet imported into the United States, and may be required to pay a penalty of
between $5-10 million.
More stringent CAFE standards may be adopted as a way of reducing "green
house gas" carbon dioxide emissions by increasing fuel economy. These emissions
are said to contribute to global warming, which has become a matter of
international concern. In 1997, the United States signed the Kyoto Protocol to
the United Nations Framework Convention on Climate Change. This protocol calls
for the United States to reduce its fossil energy use substantially during years
2008-2012. Although the protocol is non-binding unless ratified by the U.S.
Senate, the United States is considering ways to achieve the called-for
reductions, including more stringent CAFE standards, higher fuel costs and
restrictions on fuel usage. These actions would be costly to DaimlerChrysler and
could significantly restrict the products it is able to offer in the United
States.
In addition to conventional gasoline powered vehicles, DaimlerChrysler
manufactures vehicles that operate on compressed natural gas, liquid petroleum
gas, and electricity, and flexible fuel vehicles capable of operating on both
gasoline and ethanol blend fuels.
EUROPEAN STANDARDS. The European Union also signed the Kyoto Protocol and
agreed to reduce carbon dioxide emissions substantially during years 2008-2012.
In early 1999, the European Union entered into a voluntary agreement with the
European automotive manufacturers association which establishes an emission
target of 140 grams of carbon dioxide per kilometer for the average new car sold
in the European Union in 2008. That target represents an average reduction in
passenger vehicle fuel usage of 25 percent, measured from 1995 levels. The
European Union has reaffirmed its goal of reducing carbon dioxide emissions from
new passenger cars to an average of 120 grams per kilometer by 2010. Vehicle
manufacturers have agreed to reexamine in 2003 whether further reductions are
possible by 2010. Achievement of these reductions will require European vehicle
manufacturers, including DaimlerChrysler, to improve engine and overall
efficiency and reduce vehicle weight.
Vehicle Safety
The U.S. National Traffic and Motor Vehicle Safety Act of 1966 requires new
vehicles and equipment sold in the United States to meet various safety
standards established by the National Highway Traffic Safety Administration
(NHTSA). These standards include those relating to passenger restraint systems,
fuel systems and collision impact protection. The Safety Act also authorizes
NHTSA to investigate complaints relating to vehicle safety and to order
manufacturers to recall and repair vehicles found to have safety related
defects. The cost of such recalls can be substantial depending on the nature of
the repair and the number of vehicles affected.
Vehicle safety regulations in Canada are similar to those in the United
States. Vehicles sold in Europe are subject to comparable vehicle safety
regulations established by the European Union or by individual countries. In
1999, the EU Commission proposed to expand existing vehicle safety regulations
by a directive on pedestrian protection. Countries in South America and Asia
have also established vehicle safety regulations.
In response to an increase in air bag related fatalities in low speed
crashes, NHTSA issued a rule in 1997 that permits manufacturers to reduce the
speed at which air bags inflate in future model year vehicles. NHTSA proposed a
new air bag rule in 1998, which it supplemented in 1999. This proposal would
impose numerous and potentially costly testing requirements. DaimlerChrysler
offers "de-powered" passenger side air bags for most of its 1998 and later model
year vehicles. It also conducts a separate child-oriented educational air bag
safety campaign.
Stationary Source Regulation
DaimlerChrysler's assembly, manufacturing and other operations in the United
States must meet a substantial number of regulatory requirements under various
federal laws, including the Clean Air Act, the Clean Water Act, the Resource
Conservation and Recovery Act, the Pollution Prevention Act of 1990 and the
Toxic Substances Control Act. State laws parallel and, in some cases, impose
more stringent requirements than federal law.
32
<PAGE>
Together these laws impose severe restrictions on airborne and waterborne
emissions and discharges of pollutants, the handling of hazardous materials, and
the disposal of wastes. Similar requirements apply to its operations in Europe
and Canada. Increasing governmental regulation and environmental enforcement is
likely in Mexico.
In 1999, the EU Commission proposed a directive that would require
automobile manufacturers to take back end-of-life passenger cars (up to 9 seats)
and trucks (up to 3.5t total weight) free of charge beginning January 1, 2006.
The proposed directive would affect all end-of-life-vehicles in the European
Union. If adopted, the directive would impose additional costs on automobile
manufacturers which could be significant. In Germany, automobile manufacturers
are currently required to take back up to twelve year old passenger cars free of
charge. Older vehicles and batteries are also taken back for disposal or
recycling but manufacturers are allowed to charge their costs. In addition,
German manufacturing facilities are subject to enhanced noise restrictions.
Environmental Matters
In the United States, the EPA and various state agencies have notified
DaimlerChrysler Corporation that it may be a potentially responsible party for
the cost of cleaning up hazardous waste storage or disposal facilities pursuant
to the Comprehensive Environmental Response, Compensation and Liability Act and
other federal and state environmental laws. A number of lawsuits allege that
DaimlerChrysler Corporation violated environmental laws and seek to recover
costs associated with remedial action. It is only one of a number of potentially
responsible parties who may be found to be jointly and severally liable for
remediation costs at the 93 sites involved in the foregoing matters at
December 31, 1999. It may also incur remediation costs at an additional 46 of
its active or deactivated facilities.
Pollution remediation is also a potentially significant issue in Germany at
some older sites, including plants and the Group's own service outlets. These
remediation issues involve nine principal sites.
Estimates of future costs of such environmental matters are inevitably
imprecise due to numerous uncertainties, including the enactment of new laws and
regulations, the development and application of new technologies, the
identification of new sites for which DaimlerChrysler may have remediation
responsibility and the apportionment and collectibility of remediation costs
among responsible parties. DaimlerChrysler establishes reserves for these
environmental matters when the loss is probable and reasonably estimable. It is
possible that final resolution of some of these matters may require
DaimlerChrysler to make expenditures in excess of established reserves, over an
extended period of time and in a range of amounts that cannot be reasonably
estimated. Although final resolution of any such matters could have a material
effect on DaimlerChrysler's consolidated operating results for the particular
reporting period in which an adjustment of the estimated reserve is recorded,
DaimlerChrysler believes that any resulting adjustment should not materially
affect its consolidated financial position.
DaimlerChrysler is committed to reducing the environmental impact of its
operations and products beyond currently applicable regulatory requirements
where this is technically and financially feasible. DaimlerChrysler's policy is
environmental protection in pursuit of sustainable development. This policy is
laid down in the environmental guidelines and designed to further minimize the
environmental effects generally associated with the type of manufacturing
operations conducted by DaimlerChrysler. DaimlerChrysler has installed
environmental management systems in both its plant operations and its
development departments to consider environmental effects already at the
planning stage of a new manufacturing process or product. DaimlerChrysler
publishes environmental reports summarizing the use of resources and measures
undertaken to minimize further the environmental impact of the Group's products
and operations.
INTRODUCTION OF THE EURO
On January 1, 1999, eleven member states of the European Union -- Austria,
Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands,
Portugal and Spain -- introduced the euro as their common legal currency for
"paperless" transactions (euro zone). Since then, funds denominated in the
currency of one
33
<PAGE>
participating member state are converted into the currency of another
participating member state based on a fixed conversion rate. It is anticipated
that by February 28, 2002, the euro will be the official legal tender for the
participating member states and that the national currencies of those member
states will then be withdrawn from circulation.
DaimlerChrysler has adopted the euro as its corporate currency throughout
its operations as of January 1, 1999. The introduction of the euro necessitated
changes in information technology and other systems in order to accommodate the
use of the euro in financial reporting. DaimlerChrysler adapted all of its
internal processes and systems operating in the currencies of the participating
member states to the euro. It spent an aggregate amount of approximately
[EURO]100 million on this project, primarily in 1997 and 1998.
Recognizing its significant manufacturing and transactional activity within
Europe, DaimlerChrysler believes that it will realize significant long-term
benefits from the euro by capitalizing on the greater market transparency and
efficiency resulting from the introduction of a single European currency.
Productivity gains with respect to products manufactured and sold in the eleven
participating member states will no longer be offset by exchange rate
fluctuations. As sales and production costs will both be calculated in euro, it
will also be easier for DaimlerChrysler to monitor its price competitiveness in
the participating member states. In addition, the introduction of the euro
should over time produce the following effects:
BUSINESS AND COMPETITIVE IMPLICATIONS. It is expected that the euro will
result in greater market efficiency and will foster a more competitive economic
environment within and among the participating member states. The fact that the
pricing of products and services will be more transparent through the use of a
single common currency is likely to lead to increased price harmonization within
the participating member states. However, management believes there will also be
significant opportunities to take advantage of these potential developments by
enhancing its marketing strategies and reducing production costs. Costs of funds
may be relatively lower due to increased competition among financial
intermediaries resulting in downward pressure on fees and other transaction
costs due to the elimination of, for example, currency exchange and hedging
activities. There can be no assurance, however, whether and to what extent the
introduction of the euro will affect the business, financial condition and
results of operations of DaimlerChrysler, or whether it will be able to realize
any strategic or operational benefits from the introduction of the euro. See
also "Risk Factors" in "Item 3. Key Information."
CURRENCY AND FOREIGN EXCHANGE EXPOSURE. Transition to the euro with its
fixed exchange rates among national currencies of participating member states
has eliminated the need for exchange transactions in those currencies. For
DaimlerChrysler, this leads to savings in transaction and hedging costs of
approximately [EURO]50 million annually. See "Item 11. Quantitative and
Qualitative Disclosures About Market Risk."
DESCRIPTION OF PROPERTY
At December 31, 1999, the DaimlerChrysler Group had 187 manufacturing
facilities worldwide of which 51 are located in Germany and 42 in the United
States. Most of the remaining facilities are located in Argentina, Brazil,
Canada, Indonesia, Mexico, South Africa, Spain and Turkey. The Group also has
other properties, including office buildings, spare parts centers, research
laboratories, testing tracks and warehouses, mainly in Germany and in the United
States. The Group owns most of its manufacturing facilities and other
properties.
34
<PAGE>
The following table sets forth a list of all principal production and other
facilities of the DaimlerChrysler Group throughout the world:
PRODUCTION FACILITIES
<TABLE>
<S> <C>
Mercedes-Benz Passenger Cars & smart
GERMANY
- Berlin................................. Manufacturing plant for engines and
components
- Bremen................................. Bodywork and assembly plant
- Hamburg................................ Manufacturing plant for chassis parts
- Rastatt................................ Bodywork and assembly plant
- Sindelfingen........................... Bodywork and assembly plant
- Stuttgart-Untertuerkheim............... Manufacturing plant for engines, axles and
gearboxes
UNITED STATES
- Tuscaloosa, Alabama.................... Bodywork and assembly plant
BRAZIL
- Juiz de Fora........................... Bodywork and assembly plant
FRANCE
- Hambach................................ Bodywork and assembly plant
SOUTH AFRICA
- East London............................ Bodywork and assembly plant
Chrysler Group
UNITED STATES
- Belvidere, Illinois.................... Bodywork and assembly plant
- Dayton, Ohio........................... Manufacturing plant for thermal products
- Detroit, Michigan...................... Bodywork and assembly plants, manufacturing
plants for engines and glass
- Fenton, Missouri....................... Bodywork and assembly plants
- Huntsville, Alabama.................... Manufacturing plant for automotive
electronics
- Indianapolis, Indiana.................. Foundry for engine blocks
- Kenosha, Wisconsin..................... Manufacturing plant for engines
- Kokomo, Indiana........................ Transmission plants, aluminum die castings
plant
- New Castle, Indiana.................... Forging, machining and assembly plant for
components
- Newark, Delaware....................... Bodywork and assembly plant
- Sterling Heights, Michigan............. Bodywork and assembly plant, stamping and
subassembly plant
- Toledo, Ohio........................... Bodywork and assembly plant, machining plant
for components
- Trenton, Michigan...................... Manufacturing plant for engines
- Twinsburg, Ohio........................ Stamping and subassembly plant
- Warren, Michigan....................... Bodywork and assembly plant, stamping and
subassembly plant
AUSTRIA
- Graz................................... Bodywork and assembly plants
CANADA
- Bramalea............................... Bodywork and assembly plant
- Windsor................................ Assembly plants
</TABLE>
35
<PAGE>
<TABLE>
<S> <C>
MEXICO
- Mexico City............................ Bodywork and assembly plant
- Saltillo............................... Bodywork and assembly plant
- Toluca................................. Bodywork and assembly plant
Commercial Vehicles
GERMANY
- Duesseldorf............................ Bodywork and assembly plant, manufacturing
plant for steering systems
- Gaggenau............................... Bodywork and assembly plant, manufacturing
plant for axles and transmissions
- Kassel................................. Manufacturing plant for axles
- Ludwigsfelde........................... Bodywork and assembly plant
- Mannheim............................... Bodywork and assembly plant, manufacturing
plant for engines
- Ulm.................................... Bodywork and assembly plant
- Woerth................................. Bodywork and assembly plant
UNITED STATES
- Cleveland, North Carolina.............. Bodywork and assembly plant
- High Point, North Carolina............. Bodywork and assembly plant
- Mt. Holly, North Carolina.............. Bodywork and assembly plant
- Portland, Oregon....................... Bodywork and assembly plant
ARGENTINA
- Buenos Aires........................... Bodywork and assembly plant
BRAZIL
- Sao Bernardo do Campo.................. Bodywork and assembly plant
CANADA
- St. Thomas............................. Bodywork and assembly plant
MEXICO
- Santiago Tianguistenco................. Assembly plant
SPAIN
- Barcelona.............................. Manufacturing plant for engines,
transmissions and axles
- Vitoria................................ Bodywork and assembly plant
TURKEY
- Aksaray................................ Bodywork and assembly plant, manufacturing
plant for engines and axles
- Hosdere................................ Assembly plant
Aerospace
GERMANY
- Friedrichshafen........................ Manufacturing plant for space systems and
defense and civil systems
- Hamburg................................ Manufacturing plant for aircraft
- Manching............................... Manufacturing plant for military aircraft
- Muenchen............................... Manufacturing plant for aircraft engines
- Muenchen-Ottobrunn..................... Manufacturing plant for space systems
</TABLE>
36
<PAGE>
<TABLE>
<S> <C>
Other
GERMANY
- Friedrichshafen........................ Manufacturing plant for diesel engines
- Hennigsdorf............................ Manufacturing plant for rail systems
- Ingolstadt............................. Manufacturing plant for automotive
electronics
- Nuernberg.............................. Manufacturing plant for automotive
electronics
UNITED STATES
- Pittsburgh, Pennsylvania............... Manufacturing plant for rail systems
HUNGARY
- Budapest............................... Manufacturing plant for automotive
electronics
MEXICO
- Cuautla................................ Manufacturing plant for automotive
electronics
SWEDEN
- Vasteras............................... Manufacturing plant for rail systems
UNITED KINGDOM
- Derby.................................. Manufacturing plant for rail systems
OTHER FACILITIES
GERMANY
- Berlin................................. Potsdamer Platz real estate project,
including debis headquarters
- Stuttgart-Moehringen................... DaimlerChrysler headquarters
- Ulm.................................... Research center
UNITED STATES
- Auburn Hills, Michigan................. DaimlerChrysler headquarters and technology
center
</TABLE>
Some of the Group's principal facilities are subject to mortgages and other
security interests granted to secure indebtedness to financial institutions. As
of December 31, 1999, the total amount of indebtedness secured by these
facilities was [EURO]1.4 billion, which related almost exclusively to the
Potsdamer Platz real estate project.
DaimlerChrysler believes that the Group's principal manufacturing facilities
and other significant properties are in good condition and that they are
adequate to meet the needs of the DaimlerChrysler Group. As part of its
strategic planning process, in view of continuing overcapacity in the automobile
industry, DaimlerChrysler is reviewing worldwide capacity requirements,
especially in South America.
Item 5. Operating and Financial Review and Prospects.
ACCOUNTING PRINCIPLES
U.S. GAAP
The Consolidated Financial Statements have been prepared in accordance with
U.S. GAAP except for the use of the proportionate method of consolidation for
certain joint ventures. Under U.S. GAAP, joint ventures would be accounted for
using the equity method of accounting. DaimlerChrysler has received permission
from the United States Securities and Exchange Commission to prepare its
consolidated financial statements with this departure from U.S. GAAP. See
Note 3 to the Consolidated Financial Statements.
37
<PAGE>
Operating Profit
In 1997 the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 131 entitled "Disclosures about Segments of
an Enterprise and Related Information." In response, the Group adopted a
definition of "Operating Profit" as the measurement standard for performance of
its business segments. Segment Operating Profit is defined as income before
financial income, income taxes and extraordinary items included in the
consolidated statement of income, modified to exclude certain pension and
post-retirement benefit costs, to include certain financial income, net, and to
include or exclude certain miscellaneous items. See Note 30 to the Consolidated
Financial Statements.
The Euro
Beginning January 1, 1999 DaimlerChrysler adopted the euro as its corporate
currency. Accordingly, DaimlerChrysler has prepared its 1999 consolidated
financial statements in euros. The consolidated financial statements for prior
years have been prepared using marks as the reporting currency and have been
restated in euros for each period presented using the Official Fixed Conversion
Rate. Therefore, the consolidated financial statements for prior years depict
the same trends that would have been presented had they been presented in marks.
However, because they were originally prepared using marks, they are not
necessarily comparable to financial statements of a company which originally
prepared its financial statements in a European currency other than the mark and
restated them in euros. See Note 1 to the Consolidated Financial Statements,
"Introduction of the Euro" in "Item 4. Information on the Company," and "Risk
Factors" in "Item 3. Key Information."
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." This Standard
requires companies to record derivatives on the balance sheet as assets and
liabilities, measured at fair value. Gains and losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. With the issuance
of SFAS 137, "Accounting for Derivative Instruments and Hedging Activities --
Deferral of the Effective Date of FASB Statement No. 133, an Amendment of FASB
Statement No. 133," this Standard is effective for fiscal years beginning after
June 15, 2000. DaimlerChrysler plans to adopt SFAS 133 effective January 1,
2000. The new Standard will permit the Group to apply hedge accounting for
certain foreign currency derivative contracts on qualifying forecasted
transactions. Under the Group's current accounting policies such contracts are
marked to market with unrealized gains and losses impacting current earnings.
Accordingly, application of the new Standard in accounting for such foreign
currency derivative contracts may result in lower current period earnings
volatility relating to the Group's foreign currency risk management in periods
of significant changes in exchange rates.
INFLATION
The rates of inflation on an annual average basis in Germany during 1999,
1998 and 1997 were 0.6%, 1.0% and 1.9%, respectively. The inflation rates on an
annual average basis in the United States for those years were 2.2%, 1.6% and
2.3%, respectively. The effects of inflation on the Group's operations have not
been significant in recent years.
YEAR 2000
DaimlerChrysler has not experienced any significant Y2K related disruptions
to its operations. It successfully implemented a comprehensive Y2K compliance
program that included assessment, testing, remediation, and contingency planning
in the areas of critical business computer systems, critical plant floor
equipment, production and critical non-production suppliers, vehicle components,
end-user computing, and dealer systems.
The Group estimates its total Y2K compliance costs to be approximately
[EURO]240 million. DaimlerChrysler's total estimated costs do not include costs
relating to information technology projects accelerated as a result of the Y2K
issue.
38
<PAGE>
OPERATING RESULTS
The DaimlerChrysler Group is conducting its business activities through six
business segments: (1) Mercedes-Benz Passenger Cars & smart; (2) Chrysler Group;
(3) Commercial Vehicles; (4) Services; (5) Aerospace; and (6) Other. During the
year 1999, DaimlerChrysler combined the financial services activities of debis
and Chrysler Financial Company L.L.C. and reallocated some other activities
among the business segments. Prior period figures have been restated and the
discussion of prior period operating results has been adjusted to reflect these
changes. The information and discussion below regarding the six business
segments should be read in conjunction with Notes 2 and 30 to the Consolidated
Financial Statements included in Item 18. The following table sets forth
revenues and operating profit (loss) for each of the six business segments
during the last three fiscal years:
DaimlerChrysler Group
Business Segment Revenues And Operating Profit (Loss)(1)
([EURO] in millions)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- --------------------
Operating Operating Operating
Profit Profit Profit
Revenues (Loss) Revenues (Loss) Revenues (Loss)
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mercedes-Benz Passenger Cars &
smart............................... 38,100 2,703 32,587 1,993 27,554 1,716
Chrysler Group........................ 64,085 5,051 56,412 4,255 52,026 3,412
Commercial Vehicles................... 26,695 1,067 23,162 946 20,012 342
Services.............................. 12,932 2,039 11,410 985 9,404 777
Aerospace............................. 9,191 730 8,770 623 7,816 284
Other................................. 5,852 (399) 3,526 (130) 4,021 (214)
Eliminations.......................... (6,870) (179) (4,085) (79) (3,261) (87)
------- ------ ------- ------ ------- -----
Total............................. 149,985 11,012 131,782 8,593 117,572 6,230
======= ====== ======= ====== ======= =====
</TABLE>
- --------------------------
(1) For additional segment information see Note 30 to the Consolidated Financial
Statements.
1999 Compared With 1998
DAIMLERCHRYSLER GROUP
In 1999, Group revenues increased 14% from [EURO]131.8 billion to
[EURO]150.0 billion. The increase was primarily due to higher revenues in the
three automotive segments and to the full consolidation of Adtranz' 1999
financial results in DaimlerChrysler's consolidated financial statements
following its acquisition of the remaining outstanding shares of Adtranz from
ABB Asea Brown Boveri. Revenues of Mercedes-Benz Passenger Cars & smart rose 17%
to [EURO]38.1 billion and Chrysler Group revenues went up 14% to
[EURO]64.1 billion. Revenues of Commercial Vehicles reached [EURO]26.7 billion,
an improvement of 15% compared to 1998. The Rail Systems business unit
contributed [EURO]3.6 billion to Group revenues compared to [EURO]1.7 billion in
1998, when Adtranz was consolidated on a pro-rata basis reflecting
DaimlerChrysler's then 50% ownership interest.
In 1999, cost of sales reached [EURO]118.2 billion, an increase of 14%. Cost
of sales was higher in all segments and was commensurate with revenue
improvements achieved by the segments. Cost of sales as a percentage of revenues
was 79% in both 1999 and 1998.
Selling expenses were [EURO]11.7 billion in 1999 compared to
[EURO]10.1 billion in 1998, a 16% rise. General administrative expenses in 1999
were [EURO]5.1 billion, slightly less than in 1998 when they reached
[EURO]5.2 billion.
39
<PAGE>
Research and development funded by the Group amounted to [EURO]5.7 billion
in 1999 compared to [EURO]5.0 billion in the previous year. In addition, the
Group undertook research and development projects for third party customers
funded by these customers (mainly the German government and ESA) in the amount
of [EURO]1.8 billion in 1999 (1998: [EURO]1.7 billion).
In 1999, DaimlerChrysler achieved an operating profit of [EURO]11.0 billion
compared to [EURO]8.6 billion in 1998. This 28% increase in operating profit was
considerably higher than the 14% expansion in revenues. Contributions to Group
operating profit by business segment are shown in the table on page 39. The 1999
operating profit includes gains from the sale of most of DaimlerChrysler's
investment in the telecommunications company debitel of [EURO]1.1 billion,
partially offset by charges for restructuring measures in the Rail Systems
business unit and other one-time effects. After adjustment for one-time effects
included in operating profit in both 1999 and 1998, operating profit increased
by 20% to [EURO]10.3 billion. These one-time effects are described in more
detail in the discussion of the segment contributions below. The growth in
operating profit was largely attributable to higher business volume in all
segments, the market success of DaimlerChrysler's premium passenger cars and
light trucks, especially the Mercedes-Benz S-Class and the Jeep Grand Cherokee,
and more favorable exchange rates, primarily between the euro and the dollar.
The improvement in operating profit was also the result of synergies achieved in
the first year after the business combination, primarily due to cost savings in
procurement and supply, and the sales organization.
Group net income increased from [EURO]4.8 billion to [EURO]5.7 billion. This
was principally the result of expanded business volume and gains from the
divestment of the Telecom Services business, partially offset by lower financial
income, one-time tax effects and other one-time charges affecting operating
profit. Net income in 1998 was burdened by merger costs and a loss from the
early extinguishment of debt. Income before financial income, income taxes and
extraordinary items increased 27% to [EURO]9.3 billion. Financial results
decreased from [EURO]0.8 billion to [EURO]0.3 billion, mainly due to charges
from the mark-to-market valuation of derivative financial instruments which did
not qualify for hedge accounting, partially offset by higher gains on sales of
securities. Changes in German tax law that were adopted in 1999 reduced the
income tax rate applicable to corporations from previously 45% to 40%. While the
changes will result in future tax savings for DaimlerChrysler, they triggered a
current revaluation of the Group's deferred tax assets in 1999. This revaluation
combined with the effect of a broader tax base which included an additional tax
imposed on foreign dividend distributions resulted in a negative one-time effect
of [EURO]0.8 billion. Basic and diluted earnings per ordinary share (before
extraordinary items) were [EURO]5.09 and [EURO]5.06 in 1999, compared to
[EURO]5.16 and [EURO]5.04 in 1998, respectively. After extraordinary items,
basic and diluted earnings per ordinary share were [EURO]5.73 and [EURO]5.69 in
1999, significantly higher than in 1998 when they reached [EURO]5.03 and
[EURO]4.91, respectively.
MERCEDES-BENZ PASSENGER CARS & SMART
Revenues of the Passenger Cars Mercedes-Benz & smart division rose 17% to
[EURO]38.1 billion. The increase was mainly the result of the very strong
performance of the new S-Class, the A-Class and the M-Class. Total unit sales
increased 17% from 922,800 cars in 1998 to an all-time high of 1,080,300 in
1999. Unit sales of the E-class were somewhat lower than in 1998, but recovered
in the second half of 1999 after the introduction of the updated model. Lower
unit sales were reported for the C-class, principally due to the planned
introduction of a completely new model during the year 2000.
At [EURO]14.5 billion, revenues from sales in Germany were 14% higher than
in 1998. Germany remains the most important market for the Mercedes-Benz
Passenger Cars & smart division with unit sales of 416,800 in 1999, 17% more
than in the prior year. The German market accounts for 39% of the division's
worldwide passenger car unit sales (1998: 38%). In the other European Union
member states, revenues of the Mercedes-Benz Passenger Cars & smart division
were 15% higher than in 1998, reaching [EURO]8.7 billion, while unit sales
increased 17% to 298,900 units. These increases were primarily due to the market
success of the division's products in all major European markets. Market
conditions were especially favorable in Italy and Spain. In the United States,
revenues amounted to [EURO]8.5 billion, 27% more than in 1998, while unit sales
improved 14% to 197,200 units, setting a record for the fourth consecutive year
for the highest sales volume ever achieved by the division in this market. This
significant
40
<PAGE>
increase was the result of continued strong demand and the exceptional
performance of the new S-class. Despite difficult market conditions, revenues in
Japan were 19% higher reaching [EURO]2.0 billion, while unit sales increased by
9,300 to 49,500 vehicles.
Operating profit of the Mercedes-Benz Passenger Cars & smart division jumped
36% to [EURO]2.7 billion (1998: [EURO]2.0 billion). This increase was primarily
due to the record level of unit sales for the division coupled with the
favorable development of exchange rates, mainly between the euro and the dollar.
These beneficial effects were partially offset by higher expenses associated
with product adjustments and repositioning of the smart.
CHRYSLER GROUP
The Chrysler Group division achieved record revenues of [EURO]64.1 billion
compared with [EURO]56.4 billion for 1998. This increase in revenues reflects
increased unit sales, an improved product mix, higher vehicle pricing and more
favorable dollar to euro exchange rates, partially offset by higher sales
incentives.
In 1999, the Chrysler Group sold 3.2 million units, 4% more than the year
before. Worldwide unit sales increased as a result of the strong performance of
the new Jeep Grand Cherokee, the Dodge Durango and the full-size sedans
(Intrepid, LHS/300M), partially offset by lower unit sales of the mid-size
sedans (Breeze, Cirrus, Stratus) and Neons. In the NAFTA region, total sales
increased 5% to 3,052,000 units. Unit sales outside the NAFTA region dropped to
177,300 in 1999, a decrease of 10,900 units or 6%. This decline was primarily
caused by continuing economic difficulties in the South American markets.
The division's operating profit improved by 19%, climbing to
[EURO]5.1 billion in 1999 compared with [EURO]4.3 billion in 1998. This increase
resulted from increased unit sales, improvements in product mix, favorable
vehicle pricing, decreased warranty costs and favorable dollar to euro exchange
rates, partially offset by higher sales incentives, increased research and
development costs and higher depreciation due to an intensified capital
spending. Operating results were also burdened by a [EURO]139 million charge for
lump-sum retiree payments related to the 1999 UAW collective bargaining
agreement.
Revenues and operating profit of the Chrysler Group division derive
principally from the U.S. and Canadian automotive marketplaces. Retail industry
sales (including fleet sales) of new cars and trucks in the U.S. and Canada were
19.0 million units in 1999, compared with 17.4 million units in 1998, an
increase of 9%.
The U.S. and combined U.S. and Canada retail sales and market share data for
the Chrysler Group in 1999 and 1998 are set forth below:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
Increase/
1999 1998 (Decrease)
--------- --------- ----------
<S> <C> <C> <C>
U.S. Retail Market(1)
Car sales................................................... 745,275 739,217 6,058
Car market share............................................ 8.6% 9.1% (0.5%)
Truck sales (including minivans)............................ 1,893,286 1,770,794 122,492
Truck market share.......................................... 21.7% 22.6% (0.9%)
Combined car and truck sales................................ 2,638,561 2,510,011 128,550
Combined car and truck market share......................... 15.2% 15.7% (0.5%)
U.S. and Canada Retail Market(1)
Combined car and truck sales................................ 2,903,378 2,779,207 124,171
Combined car and truck market share......................... 15.3% 16.0% (0.7%)
</TABLE>
- ------------------------------
(1) All retail sales and market share data include fleet sales.
------------------------------
Retail sales of cars in the U.S. market for 1999 increased 1% over 1998,
however, market share decreased slightly due to increased competition and lower
U.S. sales of mid-size sedans and Neons, partially offset by higher
41
<PAGE>
sales of full-size sedans. Retail sales in the U.S. truck market for 1999
increased 7% over 1998, however, market share declined slightly in part as a
result of capacity constraints in the growing and highly-competitive lower
mid-utility and large pick-up market segments. Increased retail sales of the
Jeep Grand Cherokee and Dodge Durango were partially offset by decreased sales
of the Minivan and Dodge Dakota.
COMMERCIAL VEHICLES
Revenues of the Commercial Vehicles division rose 15% to [EURO]26.7 billion
and unit sales grew 13% to 554,900 vehicles in 1999. These increases were due to
strong demand for trucks and buses, particularly in the NAFTA region and to a
lesser degree in the European Union. Revenues from sales in Germany were 11%
higher than in 1998 at [EURO]7.0 billion, while unit sales in this market
increased 7% in 1999 to 114,500 vehicles. Revenues derived from other member
states of the European Union were up 12%, reaching [EURO]5.7 billion, while unit
sales rose 9% to 152,600 units. In the European Union (including Germany) the
division maintained market leadership in the category of vans between 2t and 6t
GVW with a market share of 19% (1998: 18%). In the category of trucks over 6t
GVW the Commercial Vehicles division also maintained its position as the market
leader in Germany with a market share of 45%. In the European Union (excluding
Germany), the division's market share for trucks above 6t GVW remained unchanged
at 15%.
Revenues of the Commercial Vehicles division in the NAFTA region increased
50% to [EURO]10.4 billion in 1999 while unit sales jumped 54% to 193,000 units.
This growth was primarily due to continued favorable market conditions in the
United States. The vehicles of the new truck brand, Sterling, and the school bus
manufacturer, Thomas Built Buses, contributed to revenues for the entire year
for the first time in 1999. Revenues in the South American market declined 35%
to [EURO]1.3 billion, while unit sales experienced a decrease of 23% to 44,600
vehicles due to difficult economic conditions in this market.
In 1999, the Commercial Vehicles division contributed an operating profit of
[EURO]1,067 million (1998: [EURO]946 million), mainly resulting from the
continuing expansion of the division's business volume in the NAFTA region and
the European Union and more favorable exchange rates. This 13% improvement over
1998 continues the favorable earnings trend which this division has experienced
over the past three years.
SERVICES
In 1999, the Services division recorded revenues of [EURO]12.9 billion, a
13% improvement over 1998 ([EURO]11.4 billion). Financial Services increased
revenues by 29% to [EURO]10.0 billion, representing 77% of total revenues
achieved by Services. Overall, Financial Services processed approximately
1,993,000 new leasing and finance contracts in 1999 with a total value of
[EURO]50.7 billion, an increase of 44% in new contract value compared to 1998.
In 1999, Financial Services managed a portfolio of finance receivables of
[EURO]99.2 billion, a 42% increase over 1998 ([EURO]69.9 billion). Revenues of
IT Services grew from [EURO]2.2 billion to [EURO]2.9 billion. IT Services'
revenues from goods and services provided to customers outside the Group
accounted for 75% of total revenues in 1999 (1998: 69%). In 1999,
DaimlerChrysler divested its Telecom Services business by selling most of its
investment in the telecommunications company debitel. Excluding the effects of
this sale, 1999 revenues represent a 29% improvement over comparable 1998
revenues.
In 1999, Services generated [EURO]4.2 billion or 32% of its total revenues
in Germany (1998: [EURO]4.6 billion or 40%). The decline is principally caused
by the withdrawal from Telecom Services. The division's leasing and sales
financing business continued to perform well in the NAFTA region, which
contributed revenues of [EURO]6.4 billion in 1999 (49% of total revenues), and
in the European Union (excluding Germany), which contributed [EURO]1.5 billion
or 12% of total revenues.
Services achieved an operating profit of [EURO]2,039 million in 1999
compared with [EURO]985 million in the previous year. The 1999 result includes
the gains of [EURO]1,140 million from the sale of debitel shares, partially
offset by lower gains on sales of receivables and charges of [EURO]127 million
relating to prior period securitization transactions.
42
<PAGE>
AEROSPACE
Aerospace revenues rose 5% to [EURO]9.2 billion in 1999 compared to
[EURO]8.8 billion in 1998. The increase was predominantly due to the ongoing
success of the Airbus program, which resulted in higher shipments from
DaimlerChrysler Aerospace Airbus to Airbus Industrie.
As in previous years, Commercial Aircraft/Helicopters was the largest
contributor to Aerospace revenues in 1999, with a share of 43% (1998: 40%). The
revenues of this business unit climbed from [EURO]3.5 billion in 1998 to
[EURO]3.9 billion in 1999 primarily as a result of increased deliveries of
Airbus aircraft and components. Aero Engines revenues increased from
[EURO]1,655 million in 1998 to [EURO]1,740 million in 1999, mainly because of
growing maintenance activities. Defense and Civil Systems revenues were flat at
[EURO]1.7 billion. Military Aircraft recorded revenues of [EURO]848 million in
1999 (1998: [EURO]765 million). This increase was primarily due to the
Eurofighter and Tornado programs.
The Aerospace division derived 29% ([EURO]2.7 billion) of its total revenues
in 1999 from the German market, compared to 30% in 1998.
In 1999, incoming orders at the Aerospace segment decreased to
[EURO]9.9 billion (1998: [EURO]13.9 billion). In contrast to 1998, the Military
Aircraft and Aero Engines businesses did not benefit substantially from orders
received in connection with the Eurofighter/Typhoon program. The Defense and
Civil Systems business unit suffered from continued budget constraints in
Germany in 1999. Incoming orders at Commercial Aircraft/ Helicopters were
positively affected by orders for the delivery of 80 Tiger helicopters each to
France and Germany. New orders for Airbus aircraft declined to 476 in 1999,
compared to 556 aircraft in 1998. There were 46 order cancellations in 1999
(1998: 27) and Airbus Industrie delivered 294 aircraft versus 229 in 1998. At
December 31, 1999, the Airbus Industrie firm order backlog(1) was 1,445
aircraft, 10% higher than at the end of 1998 (1,309 aircraft).
Research and development expenditures decreased 2% to [EURO]2,005 million in
1999. Of this amount, [EURO]458 million was attributable to projects funded by
the Group (1998: [EURO]367 million). In 1999, 77% of Aerospace's total research
and development expenditures was customer-funded (1998: 82%).
In 1999, the Aerospace division achieved an operating profit of
[EURO]730 million (1998: [EURO]623 million). The increase resulted primarily
from expanded business volume in most areas, further cost reductions and the
continued strength of the dollar in relation to the euro. Due to existing
currency-hedging, however, the division was not able to take full advantage of
the exchange rate improvement. The operating result in 1998 was burdened by an
expense of [EURO]229 million in connection with the repayment of DaimlerChrysler
Aerospace Airbus' obligations to the Federal Republic of Germany. This repayment
resulted in the complete discharge of all remaining obligations relating to the
acquisition of DaimlerChrysler Aerospace Airbus in 1989. In contrast, the
operating profit of 1998 included gains from the sales of businesses.
OTHER
Revenues of this segment increased to [EURO]5.9 billion in 1999 from
[EURO]3.5 billion in the previous year. The increase was primarily the result of
the full consolidation of Adtranz in this segment for the first time following
the acquisition of the remaining 50% interest previously held by ABB Asea Brown
Boveri. The business unit Rail Systems comprising Adtranz contributed revenues
of [EURO]3.6 billion in 1999 compared to [EURO]1.7 billion in 1998, when Adtranz
was consolidated on a pro-rata basis reflecting the 50% ownership interest
DaimlerChrysler previously held.
In 1999, the Other segment contributed an operating loss of
[EURO]399 million compared to a loss of [EURO]130 million in 1998. This loss was
caused by a substantial negative contribution of Rail Systems resulting from the
full consolidation of Adtranz. Operating improvements achieved at Adtranz were
partially offset by charges of
- ------------------------
(1) Purchase options, announced orders for which definitive contracts have not
been executed and orders from customers which have filed for bankruptcy are
excluded from firm order backlog.
43
<PAGE>
[EURO]178 million relating to restructuring measures initiated to improve
Adtranz' future competitive position. The remaining operating businesses of the
segment were able to increase their contribution to Group operating profit. The
1998 results were positively affected by gains from the sale of the Group's
semiconductor business and two real estate project companies.
1998 Compared With 1997
DAIMLERCHRYSLER GROUP
Group revenues in 1998 increased 12% from [EURO]117.6 billion to
[EURO]131.8 billion. The increase was primarily due to higher revenues in the
three vehicle segments. Mercedes-Benz Passenger Cars & smart and Chrysler Group
rose 18% and 8% to [EURO]32.6 billion and [EURO]56.4 billion, respectively.
Revenues of Commercial Vehicles went up 16% to [EURO]23.2 billion.
In 1998, cost of sales reached [EURO]103.7 billion, an increase of 12%. Cost
of sales was higher in all segments and was commensurate with revenue
improvements achieved by the segments. Cost of sales as a percentage of revenues
was 79% in both 1998 and 1997.
Selling expenses were [EURO]10.1 billion in 1998 compared to
[EURO]9.7 billion in 1997, a 5% rise. The increase was somewhat less than the
percentage change in Group revenues for 1998. General administrative expenses in
1998 rose 11% over 1997 to [EURO]5.2 billion.
Research and development funded by the Group amounted to [EURO]5.0 billion
in 1998 compared to [EURO]4.4 billion in 1997. In addition, the Group undertook
research and development projects for third party customers funded by such
parties (mainly the German government and ESA) in the amount of
[EURO]1.7 billion in 1998 (1997: [EURO]2.1 billion).
In 1998, the Group had a substantially enhanced operating profit of
[EURO]8.6 billion compared to [EURO]6.2 billion in the previous year. The
percentage increase from 1997 to 1998 was 38%. The business segment
contributions to the Group operating profit are shown in the table on page 39.
The increase in the operating profit of the Group was primarily attributable to
higher revenues in all segments and the absence of certain negative effects on
operating profit in 1997, including the 29-day strike at a Chrysler plant and
higher warranty costs at Chrysler related to several voluntary customer service
actions and recalls. Overall profitability benefited substantially from volume
increases in the three vehicle segments, particularly in Europe and the NAFTA
region. All three segments in the vehicle business benefited from the recent
renewal and expansion of model ranges and cost-reduction programs. Operating
profit in 1998 also reflected a [EURO]229 million expense relating to
DaimlerChrysler Aerospace Airbus' obligations to the Federal Republic of
Germany. This was the 1998 expense portion of DaimlerChrysler Aerospace Airbus'
[EURO]895 million payment to the Federal Republic of Germany in complete
discharge of all remaining obligations relating to the acquisition of
DaimlerChrysler Aerospace Airbus in 1989. In 1997, DaimlerChrysler Aerospace
Airbus paid the Federal Republic of Germany [EURO]716 million in complete
discharge of its obligations relating to the Airbus A320 program. Of this
amount, [EURO]369 million was expensed in 1997. 1998 operating profit was also
affected by a substantial loss arising from operations and charges taken at the
Rail Systems unit included in the Other segment.
Group net income before non-recurring items (principally merger costs and
tax benefits) increased from [EURO]4.1 billion in 1997 to [EURO]5.2 billion in
1998. Net income including the effects of non-recurring items
([EURO]0.4 billion of after-tax merger costs in 1998 and [EURO]2.5 billion of
special non-recurring German tax benefits in 1997) was [EURO]4.8 billion in 1998
and [EURO]6.5 billion in 1997. As indicated, the extremely favorable
year-over-year comparison resulting from improvements in operating profit was
obscured somewhat by the effect of the merger expenses in 1998 and the
transition from a year -- 1997 -- in which there were enormous reported tax
benefits resulting from the special distribution and from the reversal of
valuation allowances on deferred tax assets, to a year -- 1998 -- in which the
Group is reporting income tax expense more reflective of German and United
States statutory income tax rates. Net income benefited from [EURO]0.8 billion
of financial income in 1998 (1997: [EURO]0.6 billion). Financial income consists
mainly of interest income, results of unconsolidated subsidiaries and other
affiliates and gains
44
<PAGE>
and losses on securities and foreign exchange contracts. Excluding the effect of
merger costs, basic and diluted earnings per ordinary share in 1998 were
[EURO]5.58 and [EURO]5.45, respectively. Basic and diluted earnings per ordinary
share before extraordinary item as reported in 1998 were [EURO]5.16 and
[EURO]5.04.
MERCEDES-BENZ PASSENGER CARS & SMART
Revenues of the Mercedes-Benz Passenger Cars & smart division rose 18% to
[EURO]32.6 billion, resulting mainly from the very strong performance of the
M-Class, the A-Class and the C-Class in the division's largest markets. Total
unit sales rose 29% from 715,100 cars in 1997 to an all-time high of 922,800 in
1998. At [EURO]12.7 billion, revenues in Germany were 14% higher than in 1997.
Germany remains the most important market for the Mercedes-Benz Passenger
Cars & smart division with unit sales of 355,200 in 1998 representing 38% of
worldwide passenger car unit sales (1997: 39%).
In the other European Union member states, revenues of the Mercedes-Benz
Passenger Cars & smart division were 28% higher reaching [EURO]7.5 billion,
while unit sales jumped 42% to 255,000 units. These increases were primarily due
to significantly higher demand for passenger cars in all major markets. In the
United States, revenues increased sharply by [EURO]1.9 billion or 39% to
[EURO]6.7 billion, while unit sales were accelerating 40% to 172,300 units,
setting a record for the second consecutive year for the highest sales volume
ever achieved by the Group in this market. Despite difficult market conditions,
revenues in Japan were only 3% lower at [EURO]1.6 billion, with unit sales up
slightly (+2%) at 40,200. In Asia (excluding Japan) revenues fell 28% to
[EURO]1.1 billion reflecting a similar magnitude of unit sales decline to 26,300
units.
In 1998, the Mercedes-Benz Passenger Cars & smart division had an operating
profit of [EURO]2.0 billion (1997: [EURO]1.7 billion). The principal reason for
this increase was the record level of unit sales for the entire division with a
minor assist from positive currency fluctuations. These beneficial effects were
partially offset by increases in expenses largely related to the changeover to
the new S-Class and the market introduction of the smart.
CHRYSLER GROUP
The Chrysler Group division reported revenues of [EURO]56.4 billion compared
with [EURO]52.0 billion for 1997. The increase in revenues primarily reflects an
increase in unit sales. Average revenue per unit in 1998 was comparable to 1997,
with improvements in product mix and pricing offset by increased sales
incentives.
Worldwide unit sales in 1998 were 3.1 million units, an increase of 206,700
units or 7% compared with 1997. Worldwide unit sales increased as a result of
the strong performance of the Dodge Durango, the Dodge Ram pickup trucks and the
division's full-size sedans, partially offset by lower shipments of Jeep Grand
Cherokees. The increase in sales of full-size sedans was primarily due to the
introduction of the all-new Chrysler and Dodge full-size sedans in the third
quarter of 1997. Lower unit sales of Jeep Grand Cherokees resulted from a model
changeover to the all-new Jeep Grand Cherokee beginning in the second quarter of
1998 and substantially completed in the third quarter. Unit sales outside of the
NAFTA region dropped to 188,200 in 1998, a decline of 49,200 units or 21%. The
reduction in unit sales outside the NAFTA region was primarily caused by
economic difficulties in Asian and South American markets.
The division's operating profit improved by 25%, climbing to
[EURO]4.3 billion in 1998 versus [EURO]3.4 billion in 1997. This improvement
resulted from higher unit sales and lower warranty costs, partially offset by
increases in sales incentives and higher depreciation and amortization. The
reduction in warranty costs was primarily related to several voluntary customer
service actions and recalls that occurred in 1997. The higher sales incentives
were required in 1998 to respond to an even more intensely competitive U.S.
automotive environment. Operating profit for 1997 reflected the 29-day strike
which reduced profits by an estimated [EURO]0.5 billion after considering
partial recovery of production losses from the strike.
Revenues and operating profit of the Chrysler Group segment derive
principally from the U.S. and Canadian automotive marketplaces. Retail industry
sales (including fleet sales) of new cars and trucks in the U.S. and Canada were
17.4 million units in 1998, compared with 16.9 million units in 1997, an
increase of 3%.
45
<PAGE>
The U.S. and combined U.S. and Canada retail sales and market share data for
the Chrysler Group division in 1998 and 1997 are set forth below:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1998 1997 Increase
--------- --------- --------
<S> <C> <C> <C>
U.S. Retail Market(1)
Car sales................................................... 739,217 736,530 2,687
Car market share............................................ 9.1% 8.9% 0.2%
Truck sales (including minivans)............................ 1,770,794 1,567,258 203,536
Truck market share.......................................... 22.6% 21.7% 0.9%
Combined car and truck sales................................ 2,510,011 2,303,788 206,223
Combined car and truck market share......................... 15.7% 14.9% 0.8%
U.S. and Canada Retail Market(1)
Combined car and truck sales................................ 2,779,207 2,559,950 219,257
Combined car and truck market share......................... 16.0% 15.1% 0.9%
</TABLE>
- ------------------------------
(1) All retail sales and market share data include fleet sales.
------------------------------
The increase in the 1998 U.S. car market share was primarily the result of
higher retail sales of Chrysler and Dodge full-size sedans. The increase in the
1998 U.S. truck market share was primarily the result of increased retail sales
of Dodge Durangos and Dodge Ram pickup trucks, partially offset by lower sales
of the Jeep Grand Cherokee resulting from a model changeover to the all-new Jeep
Grand Cherokee.
COMMERCIAL VEHICLES
Revenues of the Commercial Vehicles division rose 16% to [EURO]23.2 billion
and unit sales grew 17% to 489,700 vehicles in 1998. Strong demand for vans and
trucks, particularly in Europe and the NAFTA region, was largely responsible for
this favorable development. Revenues in Germany were 12% higher at
[EURO]6.4 billion, while unit sales increased 11% in 1998 to 107,500 vehicles.
In the rest of the European Union market revenues were up 15% reaching
[EURO]5.1 billion while unit sales rose 12% to 139,600 units in 1998. In the
European Union (including Germany) the division maintained market leadership in
the category of vans between 2t and 6t GVW with a market share of 18% (1997:
18%). In the category of trucks over 6t GVW the Commercial Vehicles division
maintained its position as the market leader in Germany with a market share of
47% compared to 48% in the previous year. The division's market share for trucks
above 6t GVW in the European Union (excluding Germany) remained unchanged at
15%.
Revenues of the Commercial Vehicles division outside of the European Union
improved 18% to [EURO]11.7 billion in 1998 while unit sales rose by 24% to
242,600 units. The growth in revenues came primarily from the United States,
Canadian, Mexican and Argentinian markets. In the United States revenues were
48% higher than in 1997, and unit sales were up 49% to 107,800 units. This
significant improvement reflected continued strong demand for Freightliner's
high-end Century Class and its successful ramp-up of production and distribution
of the new Sterling brand in the United States.
In 1998, the Commercial Vehicles division contributed an operating profit of
[EURO]946 million (1997: [EURO]342 million). This was a major improvement over
1997 and a significant turnaround in operating performance following the loss
experienced in 1996. In the short term this recovery was primarily due to higher
sales of vans and trucks in Western Europe and the United States, a model mix
improvement and favorable currency exchange rates. Over the longer term it
resulted from the division's model renewal efforts and expansion programs and
its cost reduction efforts.
46
<PAGE>
SERVICES
In 1998, Services had revenues of [EURO]11.4 billion, a 21% improvement over
1997 ([EURO]9.4 billion). This increase was primarily generated by the Financial
Services business, mainly in the United States and Germany, as well as by IT
Services. Revenues of Financial Services went up 21% to [EURO]7.7 billion,
contributing 68% of Services' total revenues in 1998 (1997: 68%). Overall,
Financial Services processed new leasing and finance contracts in 1998 with a
total value of [EURO]35.2 billion, an increase of 23% in new contract value
compared to 1997. In 1998, Financial Services managed a portfolio of finance
receivables of [EURO]69.9 billion, a 13% increase over 1997
([EURO]61.9 billion). IT Services increased revenues by 40% to
[EURO]2.2 billion. Its revenues from goods and services provided to customers
outside the DaimlerChrysler Group accounted for 69% of total revenues in 1998
(1997: 64%).
In 1998, Services' revenues generated in Germany were [EURO]4.6 billion
(1997: [EURO]3.9 billion), or 40% of total revenues (1997: 41%). The NAFTA
region contributed [EURO]4.7 billion in 1998 (41% of total revenues), while
[EURO]1.6 billion or 14% of total revenues originated in the European Union
(excluding Germany).
Services enjoyed a [EURO]985 million operating profit in 1998, a 27%
increase from 1997 ([EURO]777 million). The primary sources of this significant
increase were Financial Services and IT Services. Both business units benefited
from a major expansion in business volume, especially Financial Services in the
United States.
AEROSPACE
Aerospace revenues rose 12% to [EURO]8.8 billion in 1998 compared to
[EURO]7.8 billion in 1997. Approximately half of the increase resulted from
higher DaimlerChrysler Aerospace Airbus shipments for Airbus and another
[EURO]200 million of the increase came with the acquisition of the German
defense electronics activities of Siemens AG.
Commercial Aircraft/Helicopters was again the largest contributor to 1998
Aerospace revenues, with a share of 40% (1997: 38%). The revenues of this
business unit climbed from [EURO]3.0 billion in 1997 to [EURO]3.5 billion in
1998 primarily as a result of healthy demand for Airbus aircraft. Aero Engines
revenues increased from [EURO]1.5 billion in 1997 to [EURO]1.7 billion in 1998,
mainly because of significantly greater commercial aircraft and aircraft engine
purchasing and maintenance activities.
The German market contributed 30% ([EURO]2.6 billion) of the Aerospace
division's total revenues in 1998 compared to a 28% contribution in 1997.
In 1998, incoming orders at the Aerospace segment rose 40% to
[EURO]13.9 billion (1997: [EURO]9.9 billion). A very substantial portion of this
improvement resulted from orders received in connection with the
Eurofighter/Typhoon program. The jump was also fueled by a further rise of
incoming orders at Airbus Industrie, which reflected even further improved
market conditions for commercial aircraft over 1997 conditions which were
already quite strong. New orders for Airbus aircraft climbed to 556 in 1998,
compared to 460 aircraft in 1997. There were 27 order cancellations in 1998
(1997: 22) and Airbus Industrie delivered 229 aircraft during 1998 versus 182 in
1997. As a consequence, at December 31, 1998, the Airbus Industrie firm order
backlog(1) was 1,309 aircraft, 30% higher than at the end of 1997 (1,009
aircraft). Incoming orders in Aero Engines rose 88% to [EURO]2.6 billion
compared to [EURO]1.4 billion in 1997.
Research and development expenditures decreased 8% to [EURO]2.0 billion in
1998 compared to [EURO]2.2 billion in 1997. Of this amount, [EURO]0.4 billion
was attributable to projects funded by the Group (1997: [EURO]0.3 billion). In
1998, 82% of Aerospace's total research and development expenditures was
customer-funded (1997: 86%).
In 1998, the Aerospace division achieved an operating profit of
[EURO]623 million (1997: [EURO]284 million). All business units of the Aerospace
segment were able to contribute to this considerable improvement, aided by
expanded business volume in almost all areas, further cost reductions and the
continued strength of the dollar in relation to the mark. The operating result
in 1998 was burdened by an expense of [EURO]229 million relating to
DaimlerChrysler Aerospace Airbus obligations to the Federal Republic of Germany.
This was the 1998 expense
- ------------------------
(1) Purchase options, announced orders for which definitive contracts have not
been executed and orders from customers which have filed for bankruptcy are
excluded from firm order backlog.
47
<PAGE>
portion of DaimlerChrysler Aerospace Airbus' [EURO]895 million payment to the
Federal Republic of Germany in complete discharge of all remaining obligations
relating to the acquisition of DaimlerChrysler Aerospace Airbus in 1989. In
1997, DaimlerChrysler Aerospace Airbus paid the Federal Republic of Germany
[EURO]716 million in complete discharge of its obligations relating to the
Airbus A320 program. Of this amount, [EURO]369 million was expensed in 1997.
OTHER
Revenues of the Other segment declined in 1998 to [EURO]3.5 billion from
[EURO]4.0 billion in the previous year. The decline was exclusively due to the
sale of the segment's semiconductor business in March 1998. This effect was
partially offset by an increase in Automotive Electronics revenues.
In 1998, the Other segment contributed an operating loss of
[EURO]130 million. This result was the product of a substantial negative
contribution at Rail Systems which was partially offset by the remaining
operating activities of the segment and the gains from the sale of the
semiconductor business of TEMIC and two real estate project companies.
LIQUIDITY AND CAPITAL RESOURCES
1999 Compared With 1998 and 1997
In 1999, 1998 and 1997, DaimlerChrysler utilized funds from operations and
borrowings to finance capital expenditures and the continuing expansion of its
financial services activities. The principal reason for the borrowings was the
growing lease and sales financing business which is typically financed with a
high proportion of debt.
The Group's cash and cash equivalents as of December 31, 1999, 1998 and 1997
amounted to [EURO]9.1 billion, [EURO]6.6 billion and [EURO]6.8 billion. Cash and
cash equivalents are primarily held in U.S. dollars (67%) and euros (31%). Cash
differs from the liquidity of the Group which also includes securities.
Liquidity was [EURO]18.2 billion at December 31, 1999 compared to
[EURO]19.1 billion at the end of 1998 and [EURO]17.3 billion at the end of 1997.
It is primarily held in U.S. dollars (52%) and euros (44%). As a percentage of
total assets, liquidity was 10.4% at December 31, 1999 compared to 14.0% at the
end of 1998. See Notes 16 through 18 to the Consolidated Financial Statements.
In the fourth quarter of 1999, DaimlerChrysler established the
"DaimlerChrysler Pension Trust" to provide for future pension benefit payments
in Germany. DaimlerChrysler transferred securities in the amount of
[EURO]4.1 billion to the pension trust, resulting in the reduction of accrued
pension liabilities. In January 2000, DaimlerChrysler contributed an additional
[EURO]1.3 billion of securities to the pension trust. See Note 22 to the
Consolidated Financial Statements.
Cash provided by operating activities rose to [EURO]18.0 billion in 1999
from [EURO]16.7 billion in 1998 and [EURO]12.3 billion in 1997, mainly
reflecting an increase in net income, partially offset by working capital
increases.
Another source of cash was provided by the Group's financing activities. Net
cash provided by DaimlerChrysler's financial liabilities, including commercial
paper borrowings, was [EURO]18.1 billion in 1999 compared to [EURO]7.9 billion
in 1998 and [EURO]6.2 billion in 1997. Group financial liabilities were
[EURO]64.5 billion at December 31, 1999 (1998: [EURO]40.4 billion), of which
[EURO]36.7 billion were due within one year (1998: [EURO]20.5 billion). The 1999
increase in financial liabilities primarily resulted from cash requirements of
the lease and sales financing business and changes in exchange rates, especially
the euro/dollar rate. DaimlerChrysler uses a variety of short- and long-term
financial instruments, principally notes/bonds (1999: [EURO]29.3 billion; 1998:
[EURO]17.8 billion), commercial paper (1999: [EURO]20.9 billion; 1998:
[EURO]11.0 billion) and borrowings from financial institutions (1999:
[EURO]11.3 billion; 1998: [EURO]9.3 billion). At year-end 1999, financial
liabilities were primarily denominated in U.S. dollars (65%), euros and euro
zone currencies (18%) and Canadian dollars (7%). In general, borrowings by
DaimlerChrysler subsidiaries are
48
<PAGE>
in the functional currency of those subsidiaries. The aggregate borrowing rate
of DaimlerChrysler's outstanding indebtedness was 5.7% for 1999. Approximately
32% of the Group's financial liabilities were at fixed rates. Total Group debt
was 36.9% of total stockholders' equity and liabilities in 1999 compared to
29.7% in 1998. See Note 23 for the amounts, maturities and interest rates of the
financial liabilities.
Financial liabilities of the Group's financial services entities on a
stand-alone basis were [EURO]60.1 billion in 1999 and [EURO]36.8 billion in
1998, which include financial liabilities to other members of the Group. These
intercompany amounts are eliminated upon consolidation into the Group financial
statements. Financial liabilities of the financial services entities closely
corresponded to the assets being financed (equipment on operating leases and
receivables from financial services) which aggregated [EURO]62.5 billion in 1999
and [EURO]38.2 billion in 1998. Sales of receivables are still a significant
source of funding for the Group, principally in the United States. Net proceeds
from the sales of automotive retail receivables were [EURO]51.8 billion in 1999
compared to [EURO]41.0 billion in 1998 and [EURO]44.3 billion in 1997.
Net cash used for investing activities in 1999 was [EURO]32.1 billion as
compared to [EURO]23.4 billion in 1998 (1997: [EURO]14.5 billion). The Group
used substantial amounts of cash for its growing lease and sales financing
activities, net of disposals and repayments, (1999: [EURO]21.1 billion; 1998:
[EURO]11.8 billion; 1997: [EURO]6.8 billion) and the purchase of fixed assets,
principally property, plant and equipment (1999: [EURO]9.5 billion; 1998:
[EURO]8.2 billion; 1997: [EURO]8.1 billion). Acquisitions of businesses net of
disposals amounted to [EURO](47) million in 1999, [EURO]172 million in 1998 and
[EURO](729) million in 1997. See also Notes 3 and 4 to the Consolidated
Financial Statements.
At December 31, 1999 and 1998, the Group had committed and uncommitted
credit lines (short- and long-term) available of [EURO]34.6 billion and
[EURO]27.6 billion. [EURO]23.9 billion and [EURO]18.9 billion of these credit
lines were unused as of such dates. In 1999, the weighted average interest rate
payable under DaimlerChrysler's lines of credit was 4.7%. In July 1999,
DaimlerChrysler consolidated its existing back-up credit facilities into a
$17 billion revolving credit facility with a syndicate of international banks.
The new credit agreement is divided into two tranches. The first tranche is a
multi-currency revolving credit facility which allows DaimlerChrysler AG and
several subsidiaries to borrow up to $5 billion with a maturity of 7 years at
interest rates based on LIBOR. The second tranche is a revolving credit facility
which allows DaimlerChrysler North America Holding Corporation, a wholly-owned
subsidiary of DaimlerChrysler AG, to borrow up to $12 billion ($6 billion with a
maturity of 5 years and $6 billion with a maturity of 1 year) at various
interest rates. The $12 billion revolving credit facility serves as a back-up
for certain commercial paper drawings.
The Group can also rely on commercial paper programs denominated in U.S.
dollars, Canadian dollars, Portuguese escudos and Australian dollars and a new
euro multi-currency commercial paper program established in 1999. In the United
States, DaimlerChrysler North America Holding Corporation has a $22.1 billion
debt securities shelf registration filed with the U.S. Securities and Exchange
Commission, of which $19.0 billion remained unused as of February 15, 2000.
High credit ratings support further access to debt markets. The euro
multi-currency commercial paper of DaimlerChrysler AG and the commercial paper
of DaimlerChrysler North America Holding Corporation are rated "A-1" by
Standard & Poor's Ratings Group and "Prime-1" by Moody's Investors Service. All
bonds and medium term notes issued by Group companies and guaranteed by
DaimlerChrysler AG are rated "A+" by Standard & Poor's Ratings Group and "A1" by
Moody's Investors Service.
The Board of Management is authorized until April 30, 2003, subject to the
prior approval of the Supervisory Board, to issue new ordinary shares for cash
up to an aggregate nominal amount of [EURO]256 million (100 million ordinary
shares). See also Note 20 to the Consolidated Financial Statements.
DaimlerChrysler's policy is to maintain a high degree of flexibility in its
funding process by using a broad variety of financial instruments and currencies
depending on market conditions. The Group uses instruments of modern portfolio
management in allocating part of its liquidity in stocks and interest-bearing
securities. DaimlerChrysler employs a variety of derivative financial
instruments for hedging purposes. Swaps, swaptions forward rate agreements,
futures, caps and floors are primarily used to manage the risks arising from
changes in
49
<PAGE>
interest rates. The principal derivative financial instruments employed by the
Group to cover foreign currency exposures are forward foreign exchange contracts
and currency options. In accordance with the guidelines established by the Bank
for International Settlements, Corporate Treasury is separated organizationally,
physically and in its technical systems from the administrative functions of
settlement, financial accounting and controlling. See "Item 11. Quantitative and
Qualitative Disclosures About Market Risk."
In recent years, DaimlerChrysler's sources of liquidity have primarily been
provided by operations, funds from capital markets and sales of automotive
retail receivables. The management of DaimlerChrysler believes the funding
available to it from these sources will be sufficient to satisfy its working
capital and debt service requirements for the foreseeable future. Management
also believes that the Group's liquidity and capital resources give it adequate
flexibility to accelerate or decelerate the pace of planned capital spending
programs as appropriate to address shorter term business conditions. The Group's
capital requirements are primarily dependent on management's business plans
regarding the levels and timing of capital expenditures and investments. Subject
to developments affecting the Group which cannot be predicted or controlled,
management currently intends to maintain Group capital expenditure levels
generally in the range of the past three years. DaimlerChrysler is not currently
subject to any commitment for capital expenditures which individually is
material to the Group.
RESEARCH AND DEVELOPMENT
Innovation in products and production systems and shortening lead times in
research and development are essential for the DaimlerChrysler Group to be
competitive in its principal markets and to secure technological leadership.
The Research and Technology department of DaimlerChrysler maintains an
"Integrated Innovations and Technology Management" process as a systematic and
comprehensive approach for formulating a joint technology strategy together with
the Group's business units. The mission of the Research and Technology
department is to function as a hub for new technologies and concepts in order to
support and secure the Group's leading technological position. The Research and
Technology department works closely with the business units on projects
commissioned by the specific units. Also, a number of research projects funded
on the corporate level address the need for long-term research with a Group-wide
scope.
DaimlerChrysler Group research projects are conducted in the following
areas: internal combustion engines and power trains; alternative propulsion
systems; systems, structures and modules for vehicles, aerospace and defense;
cabin interior design, comfort and safety; electronic control systems for
vehicles, aerospace and defense; information, communication and traffic systems;
materials, manufacturing processes and design principles; markets, customers and
future business environment; and new services.
In 1999, DaimlerChrysler presented the NECAR 4, the newest generation of its
zero-emission concept vehicle based on the Mercedes-Benz A-Class. The NECAR 4 is
a fuel cell car that generates electricity via a chemical reaction between
hydrogen and air. It provides ample room for five occupants, reaches a top speed
of 90 mph and offers a driving range of nearly 280 miles before refueling.
DaimlerChrysler expects to introduce a commercial fuel cell car in 2004.
DaimlerChrysler is a partner in the "California Fuel Cell Partnership,"
together with the California Air Resources Board, Ford Motor Company, the
Canadian company Ballard Power Systems Inc., and others. This project is a
collaborative effort to develop fuel cell technology. DaimlerChrysler, Ford and
Ballard are also parties to a joint venture company formed to develop fuel cell
technology for automotive applications. DaimlerChrysler holds an equity interest
of approximately 20% in Ballard.
Through cooperations with world-renowned research institutes and exchange
programs for scientists and employees, DaimlerChrysler actively participates in
the international exchange of new ideas and concepts. DaimlerChrysler maintains
a research and technology center in Palo Alto, California, a vehicle systems
technology center in Portland, Oregon, and a research center for information and
communication technology in Bangalore,
50
<PAGE>
India. In 1999, DaimlerChrysler and the Shanghai Institute of Metallurgy founded
a research joint venture in Shanghai. DaimlerChrysler has established internal
research audit procedures to ensure the quality, efficiency and effectiveness of
its research programs.
In 1999, the DaimlerChrysler Group spent a total of [EURO]7.6 billion on
research and development (1998: [EURO]6.7 billion; 1997: [EURO]6.5 billion).
Research and development costs (including costs reimbursed by third parties) as
a percentage of revenues was 5.1% in 1999. Research performed for and funded by
third parties, which occurred primarily at DaimlerChrysler Aerospace, accounted
for [EURO]1.8 billion (1998: [EURO]1.7 billion; 1997: [EURO]2.1 billion).
Approximately 40,000 people are employed worldwide in the research, development
and testing sectors of DaimlerChrysler.
The following table sets forth the research and development expenditures
funded by the Group and expenditures funded by third parties, principally the
German government and ESA:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
([EURO] in millions)
<S> <C> <C> <C>
Research and development
Group funded projects.................................. 5,737 4,971 4,408
Third party projects................................... 1,838 1,722 2,093
----- ----- -----
Total.............................................. 7,575 6,693 6,501
===== ===== =====
</TABLE>
OUTLOOK
Economic and Market Conditions
DaimlerChrysler anticipates generally favorable economic conditions in its
principal markets during the 2000-2002 period. Overall economic growth is likely
to increase in both Western Europe and the NAFTA region during this period,
although the rate of growth for the NAFTA region may slow. The Japanese economy
continues to show signs of recovery and prospects for the emerging markets in
Asia have improved significantly. In South America, the economic expansion is
expected to begin in 2000.
With stable economic conditions, DaimlerChrysler expects strong sales
volumes to continue in worldwide automobile markets through 2002. Following
1999's record setting pace, slight reductions in demand for automobiles are
anticipated in the NAFTA region and Western Europe, which should be offset in
large part by increased demand in Asia and South America. Moreover, increasing
globalization of the automobile industry, shorter product cycles, excess
capacity and growing pressures to reduce costs are likely to accelerate
consolidation within the industry.
Revenue Growth
Based on current order flow, the scheduled introduction of a variety of new
products, strict cost management at all divisions and an anticipated moderate
appreciation of the euro against the dollar, pound and yen, DaimlerChrysler
expects continued growth through 2002, with the rate of increase highest in
Asia, South America and Eastern Europe.
Automotive Divisions
The Mercedes-Benz Passenger Cars & smart division plans to round out and
update its range of products throughout the planning period. The new C-class,
scheduled for launch in May 2000, will play an important role in strengthening
the worldwide market position of the Mercedes-Benz brand. With the introduction
of the extremely fuel-efficient smart cdi diesel model and the smart City
convertible, DaimlerChrysler believes the smart brand will be well positioned
for improved performance in 2000.
51
<PAGE>
The Chrysler Group division expects to strengthen its position in the
extremely competitive automobile market in the NAFTA region with the renewal of
almost half of its product portfolio over the next two years. Management
believes that the innovative and unconventional PT Cruiser, which will be
available in spring 2000, will define a new market segment and provide
additional opportunity for sales growth. The new generation of minivans
scheduled for launch in the fall of 2000 should further strengthen
DaimlerChrysler's position as market leader in the minivan segment.
The Commercial Vehicles division expects to achieve continued profitable
growth. Although opportunities for increased sales in Western Europe and the
NAFTA region appear limited, prospects are improving in South America and Asia.
DaimlerChrysler expects its new small van, the Vaneo, to provide additional
opportunities for increased sales and market share. The Vaneo is
DaimlerChrysler's first vehicle in the fast-growing segment of less than 2t GVW
and is scheduled to enter the market at year-end 2001.
Other Divisions
The Financial Services business unit plans to focus on expanding its leasing
and financing services for both DaimlerChrysler and non-DaimlerChrysler
products. The IT Services business unit intends to concentrate on further
strengthening its international presence. DaimlerChrysler is also reviewing
strategic alternatives for the IT Services business unit.
Based on a strong order backlog, particularly for commercial aircraft,
DaimlerChrysler also expects Aerospace division revenues for 2000 to increase
over last year's level. In order to meet delivery deadlines for Airbus aircraft,
the Aerospace division plans to increase annual production from 288 aircraft in
1999 to more than 350 in 2002. The European Aeronautic Defence and Space Company
(EADS), which is to be created upon the closing of the previously announced
business combination of DaimlerChrysler Aerospace (Dasa), Aerospatiale Matra and
CASA, will enjoy a considerably stronger competitive position in the global
market than did its individual founding companies.
Adtranz is pursuing a restructuring plan that calls for a turnaround in
operating results in 2000 and annual cost reductions of [EURO]300 million by
2002, as it focuses on the core business of rail vehicles. The Automotive
Electronics business unit anticipates benefiting further from the growing number
of electronic components in automobiles. The MTU/Diesel Engines business unit
expects to expand its business volume, especially in commercial applications.
Prospects for growth look particularly good in Asia.
Capital Expenditures; Research and Development
DaimlerChrysler plans to spend approximately [EURO]45 billion on investments
in property, plant and equipment and research and development in the period
2000-2002, primarily for the development and production preparation of almost 60
new passenger car and commercial vehicle models, which are scheduled to be
introduced over the period ending in 2005.
Strategies for the Future
Management believes that DaimlerChrysler is well-positioned to meet the
challenges of an increasingly competitive global market, which include adjusting
to the continuing consolidation of the automotive industry, addressing the
growing importance of environmental and regulatory considerations, and adapting
to the new electronic marketplace by incorporating Internet technologies in
business processes. DaimlerChrysler has developed six key strategies to respond
to these challenges:
- Attain market leadership in every vehicle segment in which DaimlerChrysler
competes.
- Provide premium services throughout the entire automotive value-added
chain.
- Secure global growth and expand global market presence.
- Form strategic partnerships in non-automotive businesses.
52
<PAGE>
- Achieve worldwide leadership in human resources development and
management.
- Introduce "value added" as a performance measure based on operating profit
(net of cost of capital) or net operating income after tax at the Group
level.
Forward-Looking Information
The Outlook section and other sections in this Annual Report contain
forward-looking statements based on beliefs of DaimlerChrysler management. The
words "anticipate," "believe," "estimate," "expect," "intend," "may", "plan",
"project", and "should" identify forward-looking statements. Such statements
reflect the current views and assumptions of DaimlerChrysler regarding the
future and are subject to risks and uncertainties. Many factors could cause
actual results to differ materially from those expressed or implied by such
forward-looking statements, including, among others, changes in general economic
and business conditions, changes in exchange rates and interest rates,
introduction of competing products, lack of acceptance of products or services
and changes in business strategy. See also "Risk Factors" in "Item 3. Key
Information." DaimlerChrysler does not intend or assume any obligation to update
these forward-looking statements.
Item 6. Directors, Senior Management and Employees.
In accordance with the German Stock Corporation Law (AKTIENGESETZ),
DaimlerChrysler AG has a Supervisory Board (AUFSICHTSRAT) and a Board of
Management (VORSTAND). The two Boards are separate and no individual may
simultaneously be a member of both Boards. The following information is included
in respect of all members of DaimlerChrysler AG's Supervisory Board and its
Board of Management.
SUPERVISORY BOARD
Under the German Stock Corporation Law, the German Co-determination Law
(MITBESTIMMUNGSGESETZ) and the Memorandum and Articles of Association of
DaimlerChrysler AG, the Supervisory Board of DaimlerChrysler AG consists of
twenty members. The principal function of the Supervisory Board is to appoint
and supervise the Board of Management and to approve mid-term planning and
matters not in the ordinary course of business that are of fundamental
importance.
The stockholders elect ten members at the annual general meeting and the
employees elect the remaining ten members. The term of a Supervisory Board
member expires at the end of the general meeting of stockholders in which the
stockholders discharge Supervisory Board members for the fourth fiscal year
following the year in which the member was elected. There is no compulsory
retirement age for members of the Supervisory Board.
Any member elected by the stockholders in a general meeting may be removed
by a majority of the votes cast by the stockholders in a general meeting. Any
member of the Supervisory Board elected by the employees may be removed by
three-quarters of the votes cast by the relevant class of employees. Under
normal circumstances the Supervisory Board acts by simple majority vote and the
Chairman, who is always a representative of the stockholders, has the deciding
vote in case of any deadlock.
All of the current stockholder representatives on the Supervisory Board were
elected by the stockholders at the annual general meeting held on May 18, 1999.
The current employee representatives were appointed by a court pursuant to
Section 104 of the German Stock Corporation Law.
The following table shows the current members of the Supervisory Board,
their ages as of February 28, 2000, the year in which they were first elected or
appointed, their principal occupation and their supervisory board
memberships/directorships. Employee representatives are identified by an
asterisk.
53
<PAGE>
<TABLE>
<S> <C> <C>
Hilmar Kopper, Age: 64
Chairman First elected: 1998 (Daimler-Benz AG: 1990)
Principal Occupation: Chairman of the Supervisory Board of Deutsche
Bank AG
Supervisory Board Akzo-Nobel N.V., Bayer AG, Solvay S.A., Xerox
Memberships/ Corp., Unilever N.V.
Directorships:
Erich Klemm*, Age: 45
Deputy Chairman First elected: 1998 (Daimler-Benz AG: 1988)
Principal Occupation: Chairman of the Corporate Works Council,
DaimlerChrysler AG and DaimlerChrysler Group
Robert E. Allen Age: 65
First elected: 1998 (Chrysler Corporation: 1994)
Principal Occupation: Retired Chairman of the Board and Chief
Executive Officer of AT&T Corp.
Supervisory Board Bristol-Myers Squibb Co., PepsiCo
Memberships/
Directorships:
Willi Boehm* Age: 60
First elected: 1998 (Daimler-Benz AG: 1993)
Principal Occupation: Senior Manager Wage Accounting, Member of the
Works Council, Woerth Plant, DaimlerChrysler
AG
Sir John P. Browne Age: 52
First elected: 1998 (Daimler-Benz AG: 1998)
Principal Occupation: Chief Executive Officer of BP Amoco p.l.c.
Supervisory Board Intel Corporation, Goldman Sachs Inc.
Memberships/
Directorships:
Manfred Goebels* Age: 58
First elected: 1998 (Daimler-Benz AG: 1993)
Principal Occupation: Director Service and Mobility Concept,
Chairman of the Management Representative
Committee, DaimlerChrysler Group
Rudolf Kuda* Age: 59
First elected: 1998 (Daimler-Benz AG: 1978)
Principal Occupation: Retired Head of Department, Executive
Council, German Metalworkers' Union
Robert J. Lanigan Age: 71
First elected: 1998 (Chrysler Corporation: 1984)
Principal Occupation: Chairman Emeritus of Owens-Illinois, Inc.
Supervisory Board IMS Health, Owens-Illinois, Inc.
Memberships/
Directorships:
Helmut Lense* Age: 48
First elected: 1998 (Daimler-Benz AG: 1993)
Principal Occupation: Chairman of the Works Council, Untertuerkheim
Plant, DaimlerChrysler AG
</TABLE>
54
<PAGE>
<TABLE>
<S> <C> <C>
Peter A. Magowan Age: 57
First elected: 1998 (Chrysler Corporation: 1986)
Principal Occupation: Retired Chairman of the Board of Safeway
Inc., President and Managing General Partner
of San Francisco Giants
Supervisory Board Safeway Inc., Caterpillar Inc.
Memberships/
Directorships:
Gerd Rheude* Age: 54
First elected: 1999
Principal Occupation: Chairman of the Works Council, Woerth Plant,
DaimlerChrysler AG
Herbert Schiller* Age: 45
First elected: 1998 (Daimler-Benz AG: 1996)
Principal Occupation: Chairman of the Corporate Works Council,
DaimlerChrysler Services (debis) AG
Dr. rer. pol. Age: 61
Manfred Schneider First elected: 1998 (Daimler-Benz AG: 1993)
Principal Occupation: Chairman of the Board of Management of Bayer
AG
Supervisory Board Allianz AG, Metro AG, RWE AG
Memberships/
Directorships:
Peter Schoenfelder* Age: 50
First elected: 1998 (Daimler-Benz AG: 1990)
Principal Occupation: Chairman of the Works Council, Augsburg
Plant, DaimlerChrysler Aerospace AG
G. Richard Thoman Age: 55
First elected: 1998 (Chrysler Corporation: 1998)
Principal Occupation: President and Chief Executive Officer of
Xerox Corporation
Supervisory Board Fuji Xerox Company Ltd., General Electric
Memberships/ Investments Equity, Union Bancaire Privee
Directorships:
Bernhard Walter Age: 57
First elected: 1998 (Daimler-Benz AG: 1998)
Principal Occupation: Chairman of the Board of Managing Directors
of Dresdner Bank AG
Supervisory Board Bilfinger+Berger Bauaktiengesellschaft,
Memberships/ Degussa-Huels AG, Deutsche Lufthansa AG,
Directorships: Deutsche Telekom AG, Heidelberger Zement AG,
Henkel KGaA, Metallgesellschaft AG,
Staatliche Porzellan-Manufaktur Meissen GmbH,
Thyssen Krupp AG
</TABLE>
55
<PAGE>
<TABLE>
<S> <C> <C>
Lynton R. Wilson Age: 59
First elected: 1998 (Chrysler Corporation: 1994)
Principal Occupation: Chairman of the Board of BCE Inc.
Supervisory Board Imperial Oil Limited, Ontario Power
Memberships/ Generation Inc., Bell Canada International
Directorships: Inc., Nortel Networks Corp., DaimlerChrysler
Canada Inc., Team Canada Inc.,
J.P. Morgan & Co.
Dr.-Ing. Mark Woessner Age: 61
First elected: 1998 (Daimler-Benz AG: 1998)
Principal Occupation: Chairman of the Supervisory Board of
Bertelsmann AG
Supervisory Board Druck- und Verlagshaus Gruner+Jahr AG
Memberships/ (Chairman), Bertelsmann Arvato AG,
Directorships: Bertelsmann Buch AG
Bernhard Wurl* Age: 55
First elected: 1998 (Daimler-Benz AG: 1979)
Principal Occupation: Head of Department, Executive Council, German
Metalworkers' Union
Supervisory Board Deutsche Babcock AG
Memberships/
Directorships:
Stephen P. Yokich* Age: 64
First elected: 1998
Principal Occupation: President of International Union United
Automobile, Aerospace and Agricultural
Implement Workers of America (UAW)
Supervisory Board: Blue Cross Blue Shield of Michigan (BCBSM)
Memberships/
Directorships:
</TABLE>
The Supervisory Board maintains the following standing committees:
- The PRESIDENTIAL COMMITTEE is responsible for deciding the terms of the
service contracts and other contractual arrangements between
DaimlerChrysler AG and the Board of Management. In particular, the
committee determines salaries and incentive compensation awards for
members of the Board of Management and establishes corporate goals for
performance-based compensation plans. Members of the Presidential
Committee are Hilmar Kopper, Erich Klemm, Dr. Manfred Schneider and
Bernhard Wurl. The Presidential Committee held three meetings in 1999.
- The FINANCIAL AUDIT COMMITTEE assists in the appointment of independent
auditors to be elected by the annual general meeting and reviews the scope
of external audit services. The Financial Audit Committee also reviews the
annual financial statements of DaimlerChrysler AG and the consolidated
annual and half-year financial statements of the DaimlerChrysler Group,
taking into account the results of the audits and reviews performed by the
independent auditors. Members of the Financial Audit Committee are Hilmar
Kopper, Erich Klemm, Willi Boehm and Bernhard Walter. The Financial Audit
Committee held two meetings in 1999.
56
<PAGE>
BOARD OF MANAGEMENT
The Supervisory Board determines the size of the Board of Management, which
must have at least two members. Members are appointed by the Supervisory Board
for a maximum term of five years and are eligible for reappointment thereafter.
The normal retirement age for members of the Board of Management is 65 although
it is possible for a member of the Board of Management to continue in office
beyond this age with the approval of the Supervisory Board.
Under certain circumstances, such as a serious breach of duty or a vote of
no confidence by the stockholders in a general meeting, a member of the Board of
Management may be removed by the Supervisory Board prior to the expiration of
his term. A member of the Board of Management may not deal with, or vote on,
matters relating to proposals, arrangements or contracts between himself and
DaimlerChrysler AG and he is under a duty to disclose any material interest in
proposals, arrangements or contracts between DaimlerChrysler AG and third
parties.
The terms of all members of the Board of Management expire in 2003 except
for Mr. Fleig whose term expires in 2004 and Mr. Eaton, who has announced his
intention to retire on March 31, 2000. The current members of the Board of
Management, their ages as of February 28, 2000, the year in which they were
appointed, their current position/area of responsibility and prior positions
held within the last five years, are as follows:
<TABLE>
<S> <C> <C>
Juergen E. Schrempp Age: 55
First appointed: 1998 (Daimler-Benz AG: 1987)
Current Position: Chairman
Prior Position(s): Chairman of the Board of Management of
Daimler-Benz AG
Robert J. Eaton Age: 60
First appointed: 1998 (Chrysler Corporation: 1992)
Current Position: Chairman
Prior Position(s): Chairman of the Board and Chief Executive
Officer of Chrysler Corporation
Dr. rer. pol. Manfred Bischoff Age: 57
First appointed: 1998 (Daimler-Benz AG: 1995)
Responsible for: Aerospace & Industrial Non-Automotive
Prior Position(s): Member of the Board of Management of
Daimler-Benz AG and President and Chief
Executive Officer of Daimler-Benz Aerospace AG
Dr. rer. pol. Eckhard Cordes Age: 49
First appointed: 1998 (Daimler-Benz AG: 1996)
Responsible for: Corporate Development & IT-Management
Prior Position(s): (including responsibility for MTU
Friedrichshafen und TEMIC)
Member of the Board of Management of
Daimler-Benz AG -- Corporate Development and
Directly Managed Businesses; Deputy Member of
the Board of Management -- Corporate
Development and Directly Managed Businesses;
Senior Vice President -- Corporate
Development
</TABLE>
57
<PAGE>
<TABLE>
<S> <C> <C>
Guenther Fleig Age: 51
First appointed: 1999
Responsible for: Human Resources & Labor Relations Director
Prior Position(s): President of DaimlerChrysler France,
DaimlerChrysler Holding France and Head of the
Corporate Representation Office; President of
Mercedes-Benz France; Head of European Sales
Projects, Mercedes-Benz AG
Thomas C. Gale Age: 56
First appointed: 1998 (Chrysler Corporation: 1985)
Responsible for: Product Development, Design Chrysler Group &
Passenger Car Operations
Prior Position(s): Executive Vice President of Chrysler
Corporation -- Product Strategy, Design and
External Affairs and General Manager -- Jeep
Operations; Executive Vice President --
Product Development; Executive Vice
President -- Product Design and International
Operations
Dr. iur. Manfred Gentz Age: 58
First appointed: 1998 (Daimler-Benz AG: 1983)
Responsible for: Finance & Controlling
Prior Position(s): Member of the Board of Management of
Daimler-Benz AG -- Finance & Controlling,
Human Resources
James P. Holden Age: 48
First appointed: 1998 (Chrysler Corporation: 1993)
Responsible for: Chrysler Group
Prior Position(s): Executive Vice President of Chrysler
Corporation -- Sales and Marketing and
General Manager -- Minivan Operations;
Executive Vice President -- Sales and
Marketing; Vice President -- Quality, Capacity
and Process Management
Prof. Juergen Hubbert Age: 60
First appointed: 1998 (Daimler-Benz AG: 1987)
Responsible for: Mercedes-Benz Passenger Cars & smart
Prior Position(s): Member of the Board of Management of
Daimler-Benz AG -- Passenger Cars; Member of
the Board of Management of Mercedes-Benz
AG -- Passenger Cars
Dr. iur. Klaus Mangold Age: 56
First appointed: 1998 (Daimler-Benz AG: 1995)
Responsible for: Services (debis)
Prior Position(s): Member of the Board of Management of
Daimler-Benz AG and President and Chief
Executive Officer of Daimler-Benz
InterServices (debis) AG
</TABLE>
58
<PAGE>
<TABLE>
<S> <C> <C>
Thomas W. Sidlik Age: 50
First appointed: 1998 (Chrysler Corporation: 1992)
Responsible for: Procurement & Supply Chrysler Group & Jeep
Operations
Prior Position(s): Executive Vice President of Chrysler
Corporation -- Procurement & Supply; Vice
President and Chairman of Chrysler Financial
Corporation and General Manager -- Small Car
Operations
Gary C. Valade Age: 57
First appointed: 1998 (Chrysler Corporation: 1990)
Responsible for: Global Procurement & Supply
Prior Position(s): Executive Vice President and Chief Financial
Officer of Chrysler Corporation
Prof. Klaus-Dieter Voehringer Age: 58
First appointed: 1998 (Daimler-Benz AG: 1997)
Responsible for: Research & Technology
Prior Position(s): Member of the Board of Management of
Daimler-Benz AG -- Research & Technology;
Deputy Member of the Board of Management of
Mercedes-Benz AG -- Powertrain Unit
Commercial Vehicles
Dr.-Ing. Dieter Zetsche Age: 46
First appointed: 1998 (Daimler-Benz AG: 1997)
Responsible for: Commercial Vehicles
Prior Position(s): Member of the Board of Management of
DaimlerChrysler AG -- Sales and Marketing;
Member of the Board of Management of
Daimler-Benz AG -- Sales and Marketing;
Member of the Board of Management of
Mercedes-Benz AG -- Passenger Cars Development
</TABLE>
COMPENSATION
General
The amount of compensation paid by the DaimlerChrysler Group to all members
of the Supervisory Board and the Board of Management, as a group, for the year
ended December 31, 1999 was [EURO]53 million. In addition, former executives of
Chrysler Corporation who are members of the Board of Management received a total
of [EURO]4 million in 1999 upon the exercise of stock appreciation rights
granted at the time of the Daimler-Benz/Chrysler business combination to replace
their Chrysler stock options. See also Note 21 to the Consolidated Financial
Statements.
The aggregate amount accrued by the Group during the year ended
December 31, 1999 to provide pension, retirement and similar benefits for the
members of the Supervisory Board and the Board of Management was
[EURO]33 million.
Supervisory Board
Members of the Supervisory Board receive a fixed annual amount of
[EURO]51,129 for serving on the board plus reimbursement of expenses. The
Chairman of the Supervisory Board receives twice that amount, the deputy
Chairman receives 1.5 times that amount, and members serving on committees of
the Supervisory Board receive 1.3 times that amount. Members also receive a flat
fee of [EURO]1,023 for each meeting of the Supervisory Board. This compensation
is fixed in DaimlerChrysler's Memorandum and Articles of Association.
59
<PAGE>
Board of Management
DaimlerChrysler AG has entered into service agreements with members of the
Board of Management. These agreements establish the following four principal
elements of compensation:
- BASE SALARY -- Base salaries are established based on a comparative
analysis of base salaries paid within a selected peer group of
international companies.
- ANNUAL BONUS -- Annual bonuses are based on corporate performance,
primarily in relation to profitability. Bonuses are expressed as a
percentage of base salary and may be adjusted, upward or downward, based
on other corporate objectives, such as shareholder return or revenue
growth, and on individual performance.
- MEDIUM-TERM-INCENTIVE -- Performance-based stock unit awards that track
the value of DaimlerChrysler ordinary shares are made at the beginning of
three year performance periods. The amount ultimately earned at the end of
a performance period is based on the degree of achievement of corporate
goals derived from competitive and internal planning benchmarks, such as
return on net assets, return on sales, revenue growth and quality, and the
market value of DaimlerChrysler ordinary shares. Board of Management
members received 149,050 performance-based stock unit awards in 1999. See
also Note 21 to the Consolidated Financial Statements.
- STOCK APPRECIATION RIGHTS -- Stock appreciation rights (SAR) plans provide
long-term-incentives based on the appreciation of DaimlerChrysler ordinary
shares. DaimlerChrysler granted Board of Management members, as a group,
1,940,000 SARs in 1999 at an exercise price of [EURO]89.70, the price of a
DaimlerChrysler ordinary share on the grant date. These SARs become
exercisable in two equal installments on February 26, 2001 and on
February 25, 2002 and expire on February 23, 2009. Upon exercise, the
holder receives a cash payment equal to the amount by which the market
value of a DaimlerChrysler ordinary share on the exercise date exceeds the
exercise price, multiplied by the number of SARs exercised. See also
Note 21 to the Consolidated Financial Statements.
In the past, the Supervisory Board has negotiated limited benefits upon
termination of a Board of Management member's service prior to the stated
expiration date of his service contract. Moreover, if a U.S. member of the Board
of Management, who was party to a pre-merger employment contract with Chrysler
Corporation, dies during the term of his service agreement, then, in addition to
benefits payable under pension and retirement plans, his estate will be entitled
to receive an annual bonus payment and a medium-term incentive payment, pro
rated through the date of death, that assumes corporate goals have been
achieved. If such member is terminated, or terminates his service with good
reason, as defined in the service agreement, then, in addition to the foregoing,
he is entitled to receive a severance payment expressed as a multiple of the sum
of his base salary and his average bonus over the last three years, together
with an additional amount to reimburse him for any excise tax assessable on any
amounts so received. The Supervisory Board may also negotiate additional or
different terms with Board of Management members at the time their service to
DaimlerChrysler terminates.
60
<PAGE>
EMPLOYEES AND LABOR RELATIONS
At December 31, 1999, the DaimlerChrysler Group employed a workforce of
466,938 people worldwide, which represented an increase of 5.8% from year-end
1998. Of the total number of employees, 241,233 employees were based in Germany
and 123,928 in the United States. The following table sets forth the number of
employees at December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Employees at December 31,
------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ ------------------------------ ------------------------------
Total Germany U.S. Total Germany U.S. Total Germany U.S.
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate.................. 11,526 6,968 4,558 10,010 6,374 3,636 9,462 5,925 3,537
Mercedes-Benz Passenger
Cars & smart............. 99,459 91,698 1,834 95,158 90,963 1,731 91,753 88,920 1,366
Chrysler Group............. 124,837 225 92,044 123,180 215 90,347 118,639 -- 88,301
Commercial Vehicles........ 90,082 45,389 16,990 89,711 45,201 13,216 85,071 44,355 10,187
Sales Organization for
Mercedes-Benz Passenger
Cars and Commercial
Vehicles................. 34,133 24,086 1,457 31,280 22,308 1,352 30,518 21,887 1,266
Services................... 26,240 14,183 4,797 23,734 13,519 4,620 18,303 10,849 4,060
Aerospace.................. 46,107 42,771 99 45,858 42,525 -- 43,521 39,935 572
Other(1)................... 34,554 15,913 2,149 22,571 11,925 2,146 28,382 13,395 1,974
------- ------- ------- ------- ------- ------- ------- ------- -------
DaimlerChrysler Group...... 466,938 241,233 123,928 441,502 233,030 117,048 425,649 225,266 111,263
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- ------------------------
(1) Including holding companies.
------------------------------
On average, the Group had approximately 16,900 temporary employees in 1999.
Almost all the Group's employees in Germany who are members of labor unions
belong to the metalworkers' union (IGM). None of the Group's facilities in
Germany is operated on a "closed shop" basis. In Germany, collective bargaining
agreements for blue collar workers and for white collar employees below
management level are generally negotiated between the regional association of
the companies within a particular industry and the respective unions. The most
recent agreement for "metalworkers," which covers most of the Group's employees
in Germany (including both white collar and blue collar workers), was signed in
February 1999. The agreement, which runs from January 1999 to February 2000,
provides for lump sum payments for the months of January and February of 1999, a
3.2% salary increase effective as of March 1, 1999, and an additional one-time
payment for 1999 equaling 1% of an individual's annual salary. Negotiations
about a new collective bargaining agreement are currently in progress.
In the United States and Canada, substantially all of DaimlerChrysler
Corporation's hourly employees and 24% of its salaried employees are represented
by unions. Of these represented employees, 98% of hourly and 92% of salaried
employees are represented by the United Automobile, Aerospace, and Agricultural
Implement Workers of America (UAW) or the National Automobile, Aerospace and
Agricultural Implement Workers of Canada (CAW).
In 1999, DaimlerChrysler Corporation and the UAW entered into a new
four-year collective bargaining agreement that covers more than 70,000 hourly
and salaried workers in the United States. The agreement, which expires in
September 2003, provides for an annual base wage increase of 3% each contract
year, a one-time lump sum payment of $1,350 per worker, increases in pension
benefit rates, and improvements in certain health care, supplemental
unemployment and other benefits. The agreement limits DaimlerChrysler
Corporation's ability to close plants, reduce employment levels, or dispose of
operations that constitute a UAW bargaining unit, but provides flexibility in
establishing job assignments and work rules in order to increase productivity in
plants.
61
<PAGE>
In addition, DaimlerChrysler Canada, Ltd. and the CAW entered into a new
three-year collective bargaining agreement in 1999 that covers approximately
14,000 workers in Canada through September 2002. It also provides for an annual
base wage increase of 3% each contract year, a one-time lump sum payment of
$1,000 per worker, as well as increases in pension and other benefits.
In March 1997, Daimler-Benz AG, the predecessor company of DaimlerChrysler
AG, concluded a concession agreement with the joint works council of its
automotive operations in Germany. Fundamentally, the agreement provided that
Daimler-Benz would refrain from making layoffs until December 31, 2000, in
return for which the joint works council agreed that any percentage wage
increases negotiated with the unions during that time period would only apply to
the wages determined by applicable union agreements and not to individually
agreed wage components. Daimler-Benz also agreed it would offer jobs to all
apprentices who completed their training program prior to December 31, 2000. The
agreement further provided that there will be more flexibility for the company
to increase or decrease the number of work hours per week. The works councils
also accepted a variety of cost-saving measures, including the reduction of
overtime pay during peak production times.
During the course of 1997 Daimler-Benz AG continued to work with the works
councils regarding how to reduce cost, improve efficiency and maintain or
improve its competitive position in the marketplace. These discussions resulted
in an agreement with the works councils to reduce the automotive workforce at
selected locations by approximately 5,700 over the period 1998 through 2000. The
agreement contemplates that the reductions will be effected in a manner which is
least disruptive to the workforce, and will be compensated by offering permanent
positions, primarily to current apprentices and to university graduates. In
addition, in the process of managing its workforce the Group will attempt to
strengthen its overall technical and specialty expertise competency. Through
December 31, 1999 approximately 4,300 of the 5,700 anticipated reductions had
been effected.
SHARE OWNERSHIP
As of December 31, 1999, the members of the Supervisory Board and the Board
of Management as a group owned 426,668 DaimlerChrysler ordinary shares. This
represented 0.04% of all outstanding shares.
Daimler-Benz AG instituted stockholder approved stock option plans for
management board members and other senior executives in 1996, 1997, and 1998.
For reasons of German law, the options granted under these plans took the form
of conversion rights attached to convertible bonds, with the principal amount
corresponding to a stated value (or par value equivalent) of the ordinary shares
subject to the option -- which was [EURO]2.56 per ordinary share in all cases
and which the optionee paid in cash at the time he or she received the
convertible bond (or option). Conversion rights under the 1996 plan are
exercisable during certain three-week window periods on or before July 12, 2006
at a conversion price of [EURO]42.62 per DaimlerChrysler ordinary share.
Conversion rights are only exercisable if the price per share exceeds a
threshold of [EURO]49.01. As of February 15, 2000, under this plan 4,020
DaimlerChrysler ordinary shares were issuable to members of the Board of
Management.
In 1999, DaimlerChrysler replaced the stock options which were granted under
the 1997 and 1998 plans with stock appreciation rights granted under
corresponding SAR plans. Under these SAR plans holders of options received SARs
in exchange for their options. These SARs have the same terms and conditions as
the stock options they replaced, except that the holder of the SAR has the right
to receive cash equal to the difference between the option exercise price and
the stock price on the date of exercise, instead of the right to receive an
ordinary share.
See also Note 21 to the Consolidated Financial Statements.
As part of its value based management approach, DaimlerChrysler supports
employee stock ownership. DaimlerChrysler offers the employees of Group
companies incorporated in Germany the opportunity to purchase DaimlerChrysler
ordinary shares at a discount on an annual basis. In 1999, each eligible
employee had the right to acquire up to 30 shares with a maximum aggregate
discount of [EURO]153.39 plus one bonus share. A total of 1,176,367 shares were
acquired by 66,377 employees under this program in 1999.
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<PAGE>
Item 7. Major Shareholders and Related Party Transactions.
MAJOR SHAREHOLDERS
The capital stock of DaimlerChrysler AG consists of ordinary shares, no par
value (STUECKAKTIEN), which are issued in registered form. Under the Memorandum
and Articles of Association, each ordinary share represents one vote. Major
shareholders do not have different voting rights.
Under the German Securities Trading Act (WERTPAPIERHANDELSGESETZ), holders
of voting securities of a listed German company must notify the company of the
level of their holding whenever it reaches, exceeds or falls below specified
thresholds. These thresholds are 5%, 10%, 25%, 50% and 75% of a company's
outstanding voting rights.
The table below sets forth, as of December 31, 1999, the number of
DaimlerChrysler ordinary shares held by holders of more than 5% of
DaimlerChrysler ordinary shares and their percentage ownership:
<TABLE>
<CAPTION>
Identity of Person or Group Shares Owned Percent
- --------------------------- ------------ --------
<S> <C> <C>
KARU Beteiligungsverwaltung GmbH & Co. KG,
a wholly owned subsidiary of Deutsche Bank AG............ 119,818,714 11.9%
Kuwait Investment Authority as agent for the Government of
the State of Kuwait...................................... 73,169,320 7.3%
</TABLE>
------------------------
As a result of the business combination of Daimler-Benz and Chrysler in
1998, the percentage ownership of Deutsche Bank decreased from 22% to 12% and
that of the State of Kuwait decreased from 13% to 7%.
As of February 15, 2000, DaimlerChrysler AG had approximately 1.9 million
stockholders. Approximately 330,000 were U.S. holders, of which approximately
70,000 were record holders. Based on the share register, approximately 22% of
DaimlerChrysler ordinary shares were held by U.S. holders as of that date.
See also "Share Ownership" in "Item 6. Directors, Senior Management and
Employees."
RELATED PARTY TRANSACTIONS
In the ordinary course of business, DaimlerChrysler purchases materials,
supplies and services from numerous suppliers throughout the world, including
firms with which certain members of the Supervisory Board are affiliated.
DaimlerChrysler does not consider the amounts involved in such transactions to
be material to its business and believes that these amounts are not material to
the business of the firms involved.
Deutsche Bank AG and its subsidiaries provided various financial and other
services to the Group in 1999 for which they were paid reasonable and customary
fees. KARU Beteiligungsverwaltung GmbH & Co. KG, a wholly owned subsidiary of
Deutsche Bank AG, owns approximately 12% of the outstanding shares of
DaimlerChrysler AG. Hilmar Kopper, Chairman of the Supervisory Board of
DaimlerChrysler AG, is also Chairman of the Supervisory Board of Deutsche Bank
AG.
DaimlerChrysler's subsidiary DaimlerChrysler Aerospace Airbus GmbH is the
German partner in the European Airbus consortium and holds a 37.9% share in
Airbus Industrie G.I.E. The investment in Airbus Industrie is accounted for
using the equity method. DaimlerChrysler Aerospace Airbus provides contract
manufacturing for the Airbus models A319 and A321 and aircraft components for
all Airbus models. DaimlerChrysler Aerospace Airbus receives reasonable and
customary compensation for the goods and services provided to Airbus Industrie.
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<PAGE>
Item 8. Financial Information.
CONSOLIDATED FINANCIAL STATEMENTS
See "Item 18. Financial Statements" and pages F-i, F-1 through F-54 and page
S-1.
OTHER FINANCIAL INFORMATION
Export Sales
In 1999, approximately 650,000 or 59% of all passenger cars and commercial
vehicles produced by DaimlerChrysler in Germany and approximately 310,000 or 14%
of all passenger cars and trucks produced by DaimlerChrysler in the United
States were exported to other countries.
Legal Proceedings
Various legal proceedings are pending against the Group. DaimlerChrysler
believes that such proceedings, including the product matters described below
relating primarily to its North American automotive operations, constitute
ordinary routine litigation incidental to its businesses. See also "Government
Regulation and Environmental Matters -- Environmental Matters" in "Item 4.
Information on the Company" and Note 27 to the Consolidated Financial
Statements.
Various legal proceedings pending against DaimlerChrysler Corporation,
formerly known as Chrysler Corporation, allege defects in various components
(including door and liftgate latches, occupant restraint systems, seats, brake
systems, and fuel systems) in several different vehicle models or allege design
defects relating to vehicle stability (rollover propensity), pedal
misapplication (sudden acceleration), or crashworthiness. Some of these
proceedings seek repair or replacement of the vehicles or compensation for their
alleged reduction in value, while others seek recovery for personal injuries. As
of December 31, 1999, the complaints filed in personal injury proceedings
specify approximately $1.1 billion ([EURO]1.1 billion) in compensatory and
$5.6 billion ([EURO]5.6 billion) in punitive damages in the aggregate. These
amounts represent damages sought by plaintiffs and, therefore, do not
necessarily constitute an accurate measure of the ultimate cost to resolve those
complaints. Further, many of those complaints do not specify a dollar amount of
damages or specify only the jurisdictional minimum. These amounts may vary
significantly from one period to the next depending on the number of new
complaints filed or pending cases resolved in a given period.
On October 8, 1997, a jury awarded $12.5 million ([EURO]12.4 million) in
compensatory damages and $250 million ([EURO]248 million) in punitive damages
against DaimlerChrysler Corporation in JIMENEZ VS. CHRYSLER CORPORATION, a case
filed in U.S. District Court in South Carolina. The complaint alleged that the
liftgate latch striker of a 1985 Dodge Caravan was defective and opened when the
Caravan was struck by another vehicle resulting in the ejection and death of an
occupant. On December 2, 1999, the trial judge denied the company's motion
challenging the verdict, but reduced the compensatory damage award to
$9 million. DaimlerChrysler Corporation has filed an appeal in the United States
Court of Appeals for the Fourth Circuit.
On February 18, 1999, a jury awarded $54.75 million ([EURO]54.37 million) in
compensatory damages and $3.7 million ([EURO]3.7 million) in punitive damages to
the owners of approximately 75,000 1988(3/4)-1990 model year Chrysler vehicles
in CRAWLEY VS. CHRYSLER CORPORATION, a class action lawsuit tried in the Court
of Common Pleas, Philadelphia, Pennsylvania. The complaint alleged that the air
bags in those vehicles were defective because the vent hole positions could
cause hand burns when the air bags deploy. DaimlerChrysler Corporation has filed
motions challenging the verdict and the damage awards, and is pursuing such
motions vigorously.
In addition, ten purported class action lawsuits are pending in various U.S.
federal and state courts that allege that the paint applied to 1982-1997 model
year Chrysler, Plymouth, Jeep and Dodge vehicles delaminates, peels or chips as
the result of defective paint, paint primer, or application processes.
Plaintiffs seek compensatory and punitive damages, costs of repair or
replacement, attorneys' fees and costs.
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<PAGE>
The class action lawsuit reported in DaimlerChrysler's Form 20-F for the
fiscal year ended December 31, 1998 regarding air bags in 1993-1996 Chrysler
minivans was dismissed.
As reported in DaimlerChrysler's Form 6-K for the month of April 1999,
DaimlerChrysler received a "statement of objections" from the European
Commission on April 1, 1999, which alleged that it violated antitrust rules by
impeding cross-border sales of Mercedes-Benz passenger cars to final customers
in the European Economic Area. DaimlerChrysler denies these charges and is
defending itself vigorously in the Commission's pending investigation. If the
Commission rules that DaimlerChrysler violated antitrust rules, it is reasonably
possible that the Commission may impose a substantial fine on DaimlerChrysler.
Litigation is subject to many uncertainties, and the outcome of individual
matters is not predictable with assurance. It is reasonably possible that the
final resolution of some of these matters may require DaimlerChrysler to make
expenditures, in excess of established reserves, over an extended period of time
and in a range of amounts that cannot be reasonably estimated. Although the
final resolution of any such matters could have a material effect on
DaimlerChrysler's consolidated operating results for a particular reporting
period, DaimlerChrysler believes that it should not materially affect its
consolidated financial position.
Dividend Policy
Dividends are proposed by the Supervisory Board and the Board of Management
of DaimlerChrysler AG, based on the year-end unconsolidated financial statements
of DaimlerChrysler AG, and are approved in respect of the prior year at the
annual general meeting of stockholders. The annual general meeting is usually
convened during the second quarter of each year. Holders of record of
DaimlerChrysler ordinary shares on the date of the general meeting of
stockholders at which a dividend is declared are entitled to receive the
dividend, less any amounts required to be withheld on account of taxes or other
governmental charges. Cash dividends payable to holders of ordinary shares will
be distributed by Deutsche Bank AG as paying agent. In Germany, the payment will
be made to the holder's depot bank or other institution holding the shares for
the stockholder which will credit the payment to the stockholder's account. For
purposes of distribution in the United States and Canada, the dividend will be
paid to The Bank of New York as U.S. transfer agent and, for Canadian holders,
transferred to Montreal Trust Company as Canadian transfer agent. For
shareholders in the United States, the payment will be converted from euros into
U.S. dollars unless they instruct otherwise. The U.S. dollar amounts of
dividends received by holders of ordinary shares may be affected by fluctuations
in exchange rates. See "Exchange Rate Information" in "Item 3. Key Information."
DaimlerChrysler AG expects to continue to pay dividends, although there can
be no assurance as to the particular amounts that would be paid from year to
year. The payment of future dividends will depend upon DaimlerChrysler's
earnings, financial condition (including its cash needs), future earnings
prospects and other factors. See "Item 5. Operating and Financial Review and
Prospects."
See also "Dividends" in "Item 3. Key Information."
SIGNIFICANT CHANGES
No significant change has occurred since the date of the annual financial
statements included in this Annual Report.
Item 9. The Offer and Listing.
Trading Markets
The principal trading markets for DaimlerChrysler ordinary shares are the
Frankfurt Stock Exchange and the New York Stock Exchange. The ordinary shares
are also listed on the other German stock exchanges in Berlin, Bremen,
Duesseldorf, Hamburg, Hannover, Munich and Stuttgart, on the Chicago Stock
Exchange, the Pacific Stock Exchange and the Philadelphia Stock Exchange, on the
stock exchanges in Montreal, Paris, Tokyo, Toronto, and on the Swiss stock
exchange.
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<PAGE>
As of December 31, 1999, DaimlerChrysler ordinary shares represented
approximately 7.5% of the Deutsche Aktienindex (DAX), the leading index of
trading on the Frankfurt Stock Exchange, 2.1% of the Dow Jones STOXX 50(SM),
which is composed of stocks from 16 European equity markets, and 2.9% of the Dow
Jones EURO STOXX 50(SM), which includes stocks from the equity markets of those
member states of the European Union that introduced the euro as their common
legal currency on January 1, 1999. See also "Introduction of the Euro" in "Item
4. Information on the Company."
The transfer agents for DaimlerChrysler ordinary shares are Deutsche Bank AG
in Germany, The Bank of New York in the United States and Montreal Trust Company
in Canada.
Trading on the Frankfurt Stock Exchange
The Frankfurt Stock Exchange, which is operated by Deutsche Boerse AG, is
the most significant of the eight German stock exchanges and accounted for
approximately 80% of the turnover in exchange-traded shares in Germany in 1999.
As of December 31, 1999, equity securities traded on the Frankfurt Stock
Exchange included the shares of 3,265 companies, of which 2,554 were non-German.
Trading on the floor of the Frankfurt Stock Exchange commences each business
day at 9:00 a.m. and continues until 5:30 p.m. Central European Time. Markets in
listed securities are generally of the auction type, but listed securities also
change hands in inter-bank dealer markets both on and off the stock exchange.
Price formation is by open outcry, as determined by state appointed specialists
(AMTLICHE KURSMAKLER) who are themselves exchange members, but who do not, as a
rule, deal with the public. Prices for active stocks, including those of larger
companies, are quoted continuously during stock exchange hours. For all other
stocks, a fixed price is determined by auction around mid-session of each
trading day. Transactions settle on the second business day following the day of
their trade.
DaimlerChrysler ordinary shares are also traded on Xetra (Exchange
Electronic Trading), an integrated electronic exchange system operated by
Deutsche Boerse AG. Xetra is available daily from 9:00 a.m. to 5:30 p.m. Central
European Time to brokers and banks which have been admitted to Xetra by the
Frankfurt Stock Exchange. Securities traded by this system include liquid
stocks, warrants and bonds traded on the floor of the Frankfurt Stock Exchange.
Xetra is integrated into the Frankfurt Stock Exchange and is subject to its
rules and regulations. In 1999, Xetra accounted for approximately 88% of the
DaimlerChrysler ordinary shares trading volume at the Frankfurt Stock Exchange.
Trading activities on the German stock exchanges are monitored by the
Federal Supervisory Authority for Securities Trading (BUNDESAUFSICHTSAMT FUER
DEN WERTPAPIERHANDEL). All orders from customers to buy or sell listed
securities must be executed on a stock exchange unless a customer gives specific
instructions to the contrary.
The tables below set forth, for the periods indicated, the Xetra high and
low closing sales prices for the DaimlerChrysler ordinary shares from
November 17, 1998, the first day on which DaimlerChrysler ordinary shares
officially traded on the Frankfurt Stock Exchange. Since January 4, 1999, the
first official trading day of 1999, the prices of shares traded on the German
stock exchanges, including the ordinary shares of DaimlerChrysler AG, have been
quoted in euros. In order to achieve comparability with the 1998 sales prices
quoted in marks, the 1998 sales prices have been converted into euros at the
Official Fixed Conversion Rate. The tables also show, for the periods indicated,
the Xetra highs and lows of the DAX. The DAX is a continuously updated, capital-
weighted performance index of 30 German blue chip companies. In principle, the
shares included in the DAX are selected on the basis of their stock exchange
turnover and their market capitalization. Adjustments of the DAX are
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<PAGE>
made for capital changes, subscription rights and dividends. See "Exchange Rate
Information" in "Item 3. Key Information" with respect to rates of exchange
between the dollar and the mark (translated into euros at the Official Fixed
Conversion Rate) and the dollar and the euro applicable during the periods set
forth below.
<TABLE>
<CAPTION>
Price Per
DaimlerChrysler
Ordinary Share DAX
------------------- -------------------
High Low High Low
-------- -------- -------- --------
([EURO])
<S> <C> <C> <C> <C>
Annual highs and lows
1998 (from November 17, 1998)..................... 85.05 71.22 5,159.21 4,543.02
1999.............................................. 95.45 64.68 6,958.14 4,668.52
Quarterly highs and lows
1998
Fourth Quarter (from November 17, 1998)....... 85.05 71.22 5,159.21 4,543.02
1999
First Quarter................................. 92.65 78.25 5,442.90 4,668.52
Second Quarter................................ 95.45 81.75 5,468.67 4,901.81
Third Quarter................................. 89.10 64.68 5,652.02 4,978.45
Fourth Quarter................................ 77.00 65.15 6,958.14 5,124.55
Monthly highs and lows
1999
July.......................................... 89.10 71.20 5,652.02 5,052.32
August........................................ 73.83 69.40 5,420.36 4,978.45
September..................................... 73.15 64.68 5,483.95 5,119.10
October....................................... 73.81 65.15 5,525.40 5,124.55
November...................................... 73.50 67.60 5,961.45 5,524.92
December...................................... 77.00 65.55 6,958.14 5,933.84
2000
January....................................... 75.50 66.40 7,258.90 6,474.92
February (through February 18, 2000).......... 67.85 65.00 7,709.27 7,050.46
</TABLE>
------------------------
On February 18, 2000 the closing sales price per DaimlerChrysler ordinary
share on Xetra was [EURO]65.00, which was equivalent to $64.03 per ordinary
share, translated at the noon buying rate for euros on that date.
Based on turnover statistics supplied by the Frankfurt Stock Exchange, the
average daily volume of DaimlerChrysler ordinary shares traded on the exchange
(including Xetra) in 1999 was 3.2 million. As of December 31, 1999, the market
capitalization of DaimlerChrysler on the Frankfurt Stock Exchange was
[EURO]78.1 billion.
Trading on the New York Stock Exchange
Official trading of DaimlerChrysler ordinary shares on the New York Stock
Exchange commenced on November 17, 1998. From October 26, 1998 through
November 16, 1998, the ordinary shares traded on the exchange on a when-issued
basis. DaimlerChrysler ordinary shares trade under the symbol "DCX."
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<PAGE>
The following table sets forth, for the periods indicated, the high and low
sales prices per DaimlerChrysler ordinary share as reported on the New York
Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
Price Per
DaimlerChrysler
Ordinary Share
-----------------------
<S> <C> <C>
High Low
------ ------
<CAPTION>
($)
<S> <C> <C>
Annual highs and lows
1998 (from November 17, 1998)............................ 99.06 82.38
1999..................................................... 108.63 65.31
Quarterly highs and lows
1998
Fourth Quarter (from November 17, 1998).............. 99.06 82.38
1999
First Quarter........................................ 108.63 83.31
Second Quarter....................................... 102.00 85.38
Third Quarter........................................ 91.81 65.31
Fourth Quarter....................................... 78.50 66.13
Monthly highs and lows
1999
July................................................. 91.81 71.56
August............................................... 77.88 73.56
September............................................ 77.47 65.31
October.............................................. 78.50 69.25
November............................................. 77.94 67.31
December............................................. 78.25 66.13
2000
January.............................................. 78.69 65.06
February (through February 18, 2000)................. 67.19 62.63
</TABLE>
------------------------
On February 18, 2000, the closing sales price per DaimlerChrysler ordinary
share on the New York Stock Exchange as reported on the NYSE Composite Tape was
$62.88.
Item 10. Additional Information.
OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
The minority stockholders who own 42.4% of Dornier GmbH, a subsidiary of
DaimlerChrysler Aerospace, have the right, exercisable at any time, to exchange
their shareholdings in Dornier for holdings of equal value in DaimlerChrysler
Luft- und Raumfahrt Holding Aktiengesellschaft or DaimlerChrysler AG. If this
right were exercised in full, the number of DaimlerChrysler ordinary shares
which would be issued would not be material to DaimlerChrysler or the
stockholders of DaimlerChrysler AG.
In 1996, DaimlerChrysler Luxembourg Capital S.A., formerly known as
Daimler-Benz Capital (Luxembourg) AG, a DaimlerChrysler subsidiary, issued
4 1/8% bearer notes with appertaining warrants due July 5, 2003 with a nominal
amount of DM 1,000 ([EURO]511) per note. Each note has warrants attached that
originally entitled the noteholder to receive 10.254 Daimler-Benz ordinary
shares, consisting partially of shares already issued and
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<PAGE>
partially of newly issued shares. In accordance with Section 23 of the German
Transformation Act (UMWANDLUNGSGESETZ) these warrants are now DaimlerChrysler AG
warrants which entitle the noteholder to receive 10.30527 DaimlerChrysler
ordinary shares. As of February 15, 2000, there were outstanding warrants for
approximately 1.2 million new DaimlerChrysler ordinary shares.
In 1997, Daimler-Benz AG issued 5 3/4% subordinated mandatory convertible
notes due June 14, 2002 convertible into newly issued Daimler-Benz ordinary
shares on or before June 4, 2002. In accordance with Section 23 of the German
Transformation Act these notes, including notes represented by American
Depositary Notes and DM Book Entry Securities, are now notes of DaimlerChrysler
AG, convertible into DaimlerChrysler ordinary shares. If they are not converted
by June 4, 2002, the notes will be mandatorily converted into DaimlerChrysler
ordinary shares at a conversion rate to be determined on the basis of the
average official quotation for the shares on the Frankfurt Stock Exchange during
a specified window period. As of February 15, 2000, the maximum number of
ordinary shares that would be issued upon exercise of all outstanding conversion
rights was approximately 9.5 million.
In addition, DaimlerChrysler management board members and other senior
executives hold options granted under the stock option plan instituted by
Daimler-Benz AG in 1996. See "Share Ownership" in "Item 6. Directors, Senior
Management and Employees."
MEMORANDUM AND ARTICLES OF ASSOCIATION.
Organization and Register
DaimlerChrysler AG is a stock corporation organized in the Federal Republic
of Germany under the Stock Corporation Law (AKTIENGESETZ). It is registered in
the Commercial Register (HANDELSREGISTER) maintained by the local court in
Stuttgart, Germany, under the entry number "HRB 19360."
Corporate Governance
In contrast to corporations organized in the United States, German stock
corporations are governed by three separate bodies: the annual general meeting
of shareholders, the supervisory board and the board of management. Their roles
are defined by German law and by the corporation's memorandum and articles of
association (SATZUNG), and may be described generally as follows:
- THE ANNUAL GENERAL MEETING OF SHAREHOLDERS -- ratifies the actions of the
corporation's supervisory board and board of management. It approves the
amount of the annual dividend, the appointment of an independent auditor,
and certain significant corporate transactions. In corporations with more
than 2,000 employees, shareholders and employees elect or appoint an equal
number of representatives to the supervisory board. The annual general
meeting must be held within the first eight months of each fiscal year.
- THE SUPERVISORY BOARD -- appoints and removes the members of the
management board and oversees the management of the corporation. Although
prior approval of the supervisory board may be required in connection with
certain significant matters, the law prohibits the supervisory board from
making management decisions.
- THE BOARD OF MANAGEMENT -- manages the corporation's business and
represents it in dealings with third parties. The board of management
submits regular reports to the supervisory board about the corporation's
operations and business strategies, and prepares special reports upon
request. A person may not serve on the board of management and the
supervisory board of a corporation at the same time.
Several additional corporate governance provisions applicable to
DaimlerChrysler AG are summarized below.
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<PAGE>
Objects and Purposes
Section 2 of DaimlerChrysler AG's Memorandum and Articles of Association
states that its object is to pursue, directly or indirectly, business in the
fields of development, production and sale of products and rendering of
services, in particular in the following lines of business: vehicles for use on
land; vehicles for use on water, in the air and in space and other products in
the fields of transport, aerospace, space, and marine technology; engines and
other technological propulsion systems; plants, machinery and equipment for
power generation, distribution and utilization; electrical and electronic
equipment, plants and systems; communication and information technology,
business consulting; financial services of all kinds, insurance brokerage, and
activities in the fields of media and expositions; and management and
development of real property. The Articles authorize DaimlerChrysler AG to take
all actions that serve the attainment of its objects, except that it is not
permitted to carry out directly banking and real property transactions that are
subject to license requirements.
Directors
Under German law, DaimlerChrysler's Supervisory Board members and Board of
Management members owe a duty of loyalty and care to DaimlerChrysler. They must
exercise the standard of care of a prudent and diligent businessman and bear the
burden of proving they did so if their actions are contested. Both boards must
consider the interests of DaimlerChrysler AG's shareholders and its workers and,
to some extent, the common interest. Those who violate their duties may be held
jointly and severally liable for any resulting damages, unless their actions
were validly approved by resolution at a shareholders' meeting. Further, a
Supervisory Board member may not receive a loan from DaimlerChrysler AG unless
approved by the Supervisory Board, and may not vote on a matter that concerns
ratification of his own acts or in which he has a material interest. See also
"Item 6. Directors, Senior Management and Employees" for further information
about the Supervisory Board and the Board of Management.
Ordinary Shares
The share capital of DaimlerChrysler AG consists of ordinary shares of no
par value issued in registered form. Record holders of ordinary shares are
registered in DaimlerChrysler's share register (AKTIENBUCH). The share register
is administered on behalf of DaimlerChrysler AG by The Bank of New York, as
transfer agent and registrar in the United States, and by Deutsche Bank AG, as
transfer agent and registrar in Germany and various other countries.
Some of the significant provisions under German law and DaimlerChrysler's
Articles of Association relating to ordinary shares may be summarized as
follows:
- CAPITAL INCREASES. The share capital may be increased in consideration of
contributions in cash or in property, or by establishing authorized
capital or conditional capital. Authorized capital provides the Board of
Management with the flexibility to issue new shares for a period of up to
five years, generally to preserve liquidity. Conditional capital allows
the Board of Management to issue new shares for specified purposes,
including employee stock option plans, mergers, and the issuance of shares
upon conversion of option bonds and convertible bonds. Capital increases
require an amendment of the Articles of Association approved by 75% of the
issued shares present at the shareholders' meeting at which the increase
is proposed. The Board of Management must also obtain the approval of the
Supervisory Board before issuing new shares. DaimlerChrysler AG's Articles
of Association do not contain conditions regarding changes in the share
capital that are more stringent than the law requires.
- REDEMPTION. The share capital may also be reduced by an amendment of the
Articles of Association approved by 75% of the issued shares present at
the shareholders' meeting.
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- PREEMPTIVE RIGHTS. DaimlerChrysler AG's Articles of Association provide
that the preemptive right of shareholders to subscribe (BEZUGSRECHT) for
any issue of additional shares, debt instruments convertible into shares
or participating debt instruments in proportion to their share holdings in
the existing capital may be excluded under certain circumstances.
- LIQUIDATION. If DaimlerChrysler AG were to be liquidated, any liquidation
proceeds remaining after all of its liabilities were paid would be
distributed to its shareholders in proportion to their share holdings.
- NO LIMITATION ON FOREIGN OWNERSHIP. There are no limitations under German
law or in DaimlerChrysler AG's Articles of Association on the right of
persons who are not citizens or residents of Germany to hold or vote
ordinary shares.
Dividends
Dividends in respect of ordinary shares are declared once a year at the
annual general meeting of shareholders. The Supervisory Board and the Board of
Management ratify the financial statements for each fiscal year and recommend
the disposition of all unappropriated profits for approval by shareholders at
the meeting, including the amount of net profits to be distributed as a
dividend. Shareholders registered in the share register on the date of the
meeting are entitled to receive the dividend. Dividends are paid to shareholders
in proportion to their percentage ownership of the outstanding capital stock.
The Articles of Association authorize the Board of Management, with the
approval of the Supervisory Board, to make an interim payment to shareholders
with respect to the unappropriated profit of the prior financial year, if a
preliminary closing of the financial statements for that year shows a profit.
The interim payment may not exceed 50% of the amount of the foreseeable
unappropriated profit, after deducting any amounts required to be added to the
disclosed reserves. Furthermore, the interim payment may not exceed 50% of the
previous fiscal year's unappropriated profit.
The Articles of Association permit the Board of Management, with the
approval of the Supervisory Board, to issue new shares from capital previously
approved by the shareholders at any time during the year, and to provide that
such new shares are entitled to the entire per ordinary share annual dividend
for the year in which they are issued.
Voting Rights
Each ordinary share represents one vote. Cumulative voting is not permitted
under German law. DaimlerChrysler AG's Articles of Association provide that
resolutions are passed at shareholder meetings by a simple majority of votes
cast, unless a higher vote is required by law. German law requires that the
following matters, among others, be approved by the affirmative vote of 75% of
the issued shares present at the shareholders' meeting at which the matter is
proposed:
- changing the objects and purposes provision in the articles of
association,
- capital increases and capital decreases,
- excluding preemptive rights of shareholders to subscribe for new shares,
- dissolution,
- a merger into, or a consolidation with, another stock corporation,
- a transfer of all or virtually all of the assets, and
- a change of corporate form.
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Shareholder Meetings
The Board of Management, the Supervisory Board, or shareholders owning in
the aggregate at least 5% of the issued shares may call a meeting of
shareholders. There is no minimum quorum requirement for shareholder meetings.
Among other things, the annual general meeting is asked to ratify the actions of
the Board of Management and the Supervisory Board during the prior year, approve
the disposition of unappropriated profit, and the appointment of an independent
auditor. Shareholder representatives to the Supervisory Board are elected at the
annual general meeting for terms of approximately five years.
In order to be entitled to participate and vote at the meeting, a
shareholder must be registered in the share register on the meeting date, and
must also have notified DaimlerChrysler AG no later than on the third day before
the meeting date that he or she wishes to attend the meeting. Instead of voting
in person at the meeting, shareholders in North America may vote their shares by
proxy by signing and returning the proxy card mailed to them in advance of the
meeting. A notice of the meeting, an agenda describing the items to be voted on
at the meeting, and a short form annual report accompany the proxy card. As a
foreign private issuer, DaimlerChrysler is not required to file a proxy
statement under U.S. securities law. The proxy voting process for
DaimlerChrysler's shareholders in North America is substantially similar to the
process utilized by publicly held companies incorporated in the United States.
Amendments to the Articles of Association may be proposed either by the
Supervisory Board and the Board of Management, or by a shareholder or group of
shareholders holding a minimum of either 5% of the issued shares or at least
200,000 shares (assuming a stated value of DM 5 ([EURO]2.56) per share).
Change in Control
There are no provisions in the Articles that would have an effect of
delaying, deferring or preventing a change in control of DaimlerChrysler and
that would only operate with respect to a merger, acquisition or corporate
restructuring involving it or any of its subsidiaries. German law does not
specifically regulate business combinations with interested stockholders.
However, general principles of German law may restrict business combinations
under certain circumstances.
Disclosure of Share Holdings
DaimlerChrysler's Articles of Association do not require shareholders to
disclose their share holdings. The Securities Trading Act
(WERTPAPIERHANDELSGESETZ), however, requires holders of voting securities of a
corporation whose shares are listed on a stock exchange to notify the
corporation of the number of shares they hold if that number reaches, exceeds or
falls below specified thresholds. These thresholds are 5%, 10%, 25%, 50% and 75%
of the corporation's outstanding voting rights.
Currency Conversion -- Dividends
Under the transfer agent agreement in place with the U.S. transfer agent,
shareholders registered in the share register with addresses in the United
States may elect to receive dividends in either euros or U.S. dollars. Unless
instructed otherwise, the U.S. transfer agent will convert all cash dividends
and other cash distributions it receives in respect of ordinary shares into
dollars before payment to the shareholder. The amount distributed will be
reduced by any amounts required to be withheld by DaimlerChrysler AG or the U.S.
transfer agent on account of taxes or other governmental charges. If the U.S.
transfer agent determines, following consultation with DaimlerChrysler AG, that
in its judgment any foreign currency received by it cannot be so converted and
distributed, the U.S. transfer agent may distribute the foreign currency (or an
appropriate document evidencing the right to receive such currency) received by
it or in its discretion hold such foreign currency for the account of the
shareholder entitled to receive the same.
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Other
Claims against members of the Supervisory Board or Board of Management may
be asserted on behalf of DaimlerChrysler AG if the shareholders' meeting so
resolves by simple majority or upon request of shareholders holding in the
aggregate at least 10% of the issued shares. The shareholders' meeting or a
court of competent jurisdiction, upon request by shareholders holding in the
aggregate at least 10% (under special circumstances 5%) of the issued shares or
at least 400,000 shares (under special circumstances 200,000 shares, in each
case, assuming a stated value of DM 5 ([EURO]2.56) per share) must then appoint
a special representative to pursue such a claim.
MATERIAL CONTRACTS
On October 14, 1999, DaimlerChrysler agreed to combine the business of
DaimlerChrysler Aerospace AG with the French aerospace company Aerospatiale
Matra S.A. in a new company called European Aeronautic Defence and Space Company
(EADS). Aerospatiale Matra S.A. is owned by the French government, Lagardere
SCA, a French limited partnership, and the public. On December 2, 1999, Sociedad
Estatal de Participaciones Industriales (SEPI), a Spanish state holding company,
also agreed to combine its aerospace business, Construcciones Aeronauticas S.A.
(CASA), with EADS.
EADS, incorporated under the laws of the Netherlands, will be the largest
aerospace company in Europe, based on 1998 estimated pro forma sales of
approximately [EURO]21 billion and a workforce of approximately 96,000
employees. It will own 80% of Airbus Industrie. DaimlerChrysler will retain its
aircraft engine subsidiary, MTU Muenchen, and [EURO]3.1 billion of cash.
The parties will form a limited liability company, also under the laws of
the Netherlands, which will hold legal title to most of the shares of EADS. The
voting right to these shares will be held by this company on behalf of a Dutch
law contractual partnership. DaimlerChrysler will own 45.75% of the partnership,
the French partners will own 45.75%, and Sociedad Estatal de Participaciones
Industriales will own 8.50%. Upon completion of a planned public stock offering
in 2000, the partnership will own 65.57% of EADS, and 34.43% will be publicly
held.
The terms of the agreements include a put option that allows DaimlerChrysler
to sell its partnership interest in EADS to all or some of the French partners.
The put option may be exercised immediately for specified reasons such as
partnership deadlock on certain matters and, after three years, during certain
periods conditioned upon certain distribution of the shareholding of EADS. The
price is based on the average closing mid-market price in euros of EADS shares
on the Frankfurt and Paris stock exchanges during the 30 trading days prior to
exercise of the put option.
These agreements, and the transactions contemplated thereby, are subject to
various conditions, including regulatory approval in Europe and the United
States.
EXCHANGE CONTROLS
The euro and the mark are fully convertible currencies. There are, except in
limited embargo circumstances, no legal restrictions in Germany on international
capital movements and foreign exchange transactions. For statistical purposes
only, every individual or corporation residing in Germany (a "Resident") must
report to the German Central Bank (DEUTSCHE BUNDESBANK) any payment received
from or made to an individual or a corporation resident outside of Germany (a
"Non-resident") if the payment exceeds DM 5,000 ([EURO]2,556) (or the equivalent
in a foreign currency). In addition, Residents must report any claims against or
any liabilities payable to Non-residents if such claims or liabilities, in the
aggregate, exceed DM 3 million (approximately [EURO]1.5 million) (or the
equivalent in a foreign currency) at the end of any one month.
TAXATION
The following is a discussion of the material United States federal income
and German tax consequences to Qualified Holders holding DaimlerChrysler
ordinary shares. This discussion is based upon existing United States federal
income and German tax law, including legislation, regulations, administrative
rulings and court decisions, as in effect on the date of this Annual Report, all
of which are subject to change, possibly with retroactive effect.
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For purposes of this discussion, in general, a "Qualified Holder" means a
beneficial owner of DaimlerChrysler ordinary shares that (1) is a resident of
the United States for purposes of the United States-Germany income tax treaty
(the "Income Tax Treaty"), which generally includes an individual United States
resident, a corporation created or organized under the laws of the United
States, any state thereof or the District of Columbia and a partnership, estate
or trust, to the extent its income is subject to taxation in the United States
as the income of a United States resident, either in its hands or in the hands
of its partners or beneficiaries, (2) does not hold DaimlerChrysler ordinary
shares as part of the business property of a permanent establishment located in
Germany or as part of a fixed base of an individual located in Germany and used
for the performance of independent personal services and (3) if not an
individual, is not subject to the limitation on benefits restrictions in the
Income Tax Treaty. This discussion assumes that the Qualified Holder holds
DaimlerChrysler ordinary shares as a capital asset. This discussion does not
address all aspects of United States federal income and German taxation that may
be relevant to all Qualified Holders in light of their particular circumstances,
including for example Qualified Holders whose stock was acquired pursuant to the
exercise of an employee stock option or otherwise as compensation or Qualified
Holders who are subject to special treatment under United States federal income
tax laws (for example, financial institutions, insurance companies, tax-exempt
organizations and broker-dealers). This discussion also does not address any
aspects of state, local or non-United States (other than certain German) tax
law.
EACH QUALIFIED HOLDER IS STRONGLY URGED TO CONSULT HIS OR HER TAX ADVISOR AS
TO THE UNITED STATES FEDERAL INCOME AND GERMAN TAX CONSEQUENCES OF HOLDING
DAIMLERCHRYSLER ORDINARY SHARES, INCLUDING THE PARTICULAR FACTS AND
CIRCUMSTANCES THAT MAY BE UNIQUE TO SUCH QUALIFIED HOLDER, AND AS TO ANY OTHER
TAX CONSEQUENCES OF HOLDING DAIMLERCHRYSLER ORDINARY SHARES.
Taxation of Dividends
Under German law, German corporations are required to withhold tax on
dividends in an amount equal to 25% of the gross amount paid to resident and
non-resident stockholders. A partial refund of this 25% withholding tax can be
obtained by Qualified Holders under the Income Tax Treaty (subject to certain
limitations). Qualified Holders are generally subject to United States federal
income tax on dividends paid by German corporations. Subject to applicable
limitations of United States federal income tax law, Qualified Holders may be
able to claim a foreign tax credit for certain German income taxes paid. The
amount of the refund of German withholding tax and the determination of the
foreign tax credit allowable against United States federal income tax generally
depend on whether or not the Qualified Holder is a United States corporation
owning at least 10% of the voting stock of DaimlerChrysler AG (a "10% Holder").
In the case of any Qualified Holder other than a 10% Holder, the German
withholding tax is partially refunded under the Income Tax Treaty, effectively
reducing the withholding tax to 15% of the gross amount of the dividend. In
addition, so long as the German imputation system provides German resident
individual stockholders with a tax credit in respect of dividends paid by German
corporations, the Income Tax Treaty provides that Qualified Holders (other than
10% Holders) are entitled to an additional refund equal to 5% of the gross
amount of the dividend. For United States federal income tax purposes, the
benefit resulting from this additional 5% treaty refund is treated as a refund
received by the Qualified Holder with respect to German corporate taxes equal to
5.88% of the gross amount of the dividend, subject to a German withholding tax
of 0.88% (15% of 5.88%). Qualified Holders will not be entitled to the dividends
received deduction with respect to dividends paid by DaimlerChrysler AG.
Thus, for each $100 of gross dividend paid by DaimlerChrysler AG to a
Qualified Holder (other than a 10% Holder), the dividend after partial refund of
the 25% withholding tax under the Income Tax Treaty will be subject to a German
withholding tax of $15. If the Qualified Holder also applies for the additional
5% treaty refund, German withholding tax is effectively reduced to $10; the cash
received per $100 of gross dividend is $90. For United States federal income tax
purposes, the Qualified Holder is generally treated as receiving a total
dividend of $105.88 (to the extent paid out of current or accumulated earnings
and profits of DaimlerChrysler AG as determined for United States federal income
tax purposes), consisting of the $100 gross dividend and the deemed refund of
German corporate tax of $5.88. The notional $105.88 dividend is deemed to have
been subject to
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German withholding tax of $15.88. Thus, for each $100 of gross dividend, the
Qualified Holder will include $105.88 in gross income and may be entitled to a
foreign tax credit of $15.88, subject to applicable limitations of United States
federal income tax law.
In the case of a 10% Holder, the 25% German withholding tax is reduced under
the Income Tax Treaty to 5% of the gross amount of the dividend. Such 10%
Holders may, therefore, apply for a refund of German withholding tax in the
amount of 20% of the gross amount of the dividend. Subject to applicable
limitations of United States federal income tax laws, a 10% Holder may be
entitled to a foreign tax credit for the 5% German withholding tax on dividends
and for the portion of the total income taxes (trade income tax and corporation
income tax, including any surtax) paid by DaimlerChrysler AG attributable to
distributed profits.
Dividends paid in euros to a Qualified Holder of DaimlerChrysler ordinary
shares will be included in income in a dollar amount calculated by reference to
the exchange rate in effect on the date the dividends (including any deemed
refund of German corporate tax) are received or treated as received by such
holder. If dividends paid in euros are converted into dollars on the date
received or treated as received, Qualified Holders generally should not be
required to recognize foreign currency gain or loss in respect of each dividend.
A German government-appointed commission recently proposed the repeal,
effective January 1, 2001, of the German imputation system that provides German
resident individual shareholders with a tax credit in respect of dividends paid
by German corporations. If the proposed repeal of the German imputation system
were enacted, Qualified Holders would thereafter not be entitled to the
additional 5% treaty refund. DaimlerChrysler AG cannot predict whether this
proposal will be enacted into law in Germany.
A surtax on the German withholding tax is currently levied on dividend
distributions paid by a German resident company. Effective January 1, 1998, the
rate of this surtax was reduced from 7.5% to 5.5%. Based on the new rate, the
surtax amounts to 1.375% (5.5% X 25%) of the gross dividend amount. Under the
Income Tax Treaty, Qualified Holders are entitled to a full refund of this
surtax.
Under Section 904(g) of the United States Internal Revenue Code of 1986, as
amended (the "Code"), dividends paid by a foreign corporation that is treated as
more than 50% owned by United States persons may be treated as United States
source income (rather than foreign source income) for foreign tax credit
purposes, to the extent the foreign corporation earns United States source
income. Such treatment may adversely affect Qualified Holders' ability to use
foreign tax credits. It is possible that DaimlerChrysler AG may be treated as
more than 50% owned by United States persons for purposes of Section 904(g) of
the Code.
Refund Procedures
To claim the refund reflecting the reduction of the German withholding tax
from 25% to 15%, the additional 5% treaty refund and the refund of the 5.5%
German surtax, when applicable, a Qualified Holder must submit (either directly
or, as described below, through the U.S. transfer agent for DaimlerChrysler
ordinary shares or the Depository Trust Company) a claim for refund to the
German tax authorities, with the original bank voucher (or certified copy
thereof) issued by the paying entity documenting the tax withheld within four
years from the end of the calendar year in which the dividend is received.
Claims for refunds are made on a special German claim for refund form, which
must be filed with the German tax authorities: Bundesamt fuer Finanzen, 53221
Bonn-Beuel, Germany. The German claim for refund forms may be obtained from the
German tax authorities at the same address where the applications are filed,
from the Embassy of the Federal Republic of Germany, 4645 Reservoir Road, N.W.,
Washington, D.C. 20007-1998 or from the Office of International Operations,
Internal Revenue Service, 1325 K Street, N.W., Washington, D.C. 20225,
Attention: Taxpayer Service Division, Room 900.
Qualified Holders must also submit to the German tax authorities
certification (IRS Form 6166) of their last filed United States federal income
tax return. Such certification is obtained from the office of the Director of
the Internal Revenue Service Center by filing a request for certification with
the Internal Revenue Service Center in Philadelphia, Pennsylvania, Foreign
Certificate Request, P.O. Box 16347, Philadelphia, PA 19114-0447. Requests for
certification are to be made in writing and must include the Qualified Holder's
name, social security number or
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employer identification number, tax return form number and tax period for which
certification is requested. The Internal Revenue Service will send the
certification directly to the German tax authorities. This certification is
valid for three years and need only be resubmitted in a fourth year in the event
of a subsequent application for refund.
The U.S. transfer agent will receive and distribute dividends to Qualified
Holders who hold DaimlerChrysler ordinary shares of record and will perform
administrative functions necessary to claim the refund reflecting the reduction
in German withholding tax from 25% to 15% (to 5% for 10% Holders), the
additional 5% treaty refund and the refund of the 5.5% German surtax, when
applicable, for such holders. These arrangements may be amended or revoked at
any time in the future.
Under the current procedure, the U.S. transfer agent will prepare the German
claim for refund forms on behalf of such Qualified Holders and file them with
the German tax authorities. In order for the U.S. transfer agent to file the
claim for refund forms, the U.S. transfer agent will prepare and mail to these
Qualified Holders, and the holders will be requested to sign and return to the
U.S. transfer agent, (1) a statement authorizing the U.S. transfer agent to
perform these procedures and agreeing that the German tax authorities may inform
the IRS of any refunds of German taxes and (2) a written authorization to remit
the refund of withholding to an account other than that of the Qualified Holder.
Qualified Holders must also submit to the U.S. transfer agent certification (IRS
Form 6166) of their last filed United States federal income tax return. The U.S.
transfer agent will attach the signed statement, the IRS Form 6166 and the
documentation issued by the paying agency documenting the dividend paid and the
tax withheld to the claim for refund form and file them with the German tax
authorities.
A simplified refund procedure for Qualified Holders whose DaimlerChrysler
ordinary shares are registered with brokers participating in the Depository
Trust Company is in effect between the Depository Trust Company and the German
tax authorities. Under this simplified refund procedure, the Depository Trust
Company provides the German tax authorities with electronic certification of the
U.S. taxpayer status of such Qualified Holders based on information it receives
from its broker participants, and claims a refund on behalf of those Qualified
Holders. Accordingly, these Qualified Holders do not need to file refund claim
forms through the U.S. transfer agent.
If approved by the German tax authorities, a similar simplified refund
procedure may also be implemented by the U.S. transfer agent in the future for
Qualified Holders who hold DaimlerChrysler ordinary shares of record. Under such
a simplified refund procedure, following each dividend payment, the U.S.
transfer agent would file a claim for refund automatically on behalf of all such
Qualified Holders who have instructed the U.S. transfer agent in writing to file
on their behalf.
The German tax authorities will issue refunds denominated in marks. The
refunds will be issued in the name of the U.S. transfer agent or the Depository
Trust Company, as the case may be, which will convert the refunds to dollars and
make corresponding refund payments to Qualified Holders and to brokers. The
brokers, in turn, will remit corresponding refund amounts to the Qualified
Holders holding DaimlerChrysler ordinary shares registered with such brokers.
Qualified Holders of DaimlerChrysler ordinary shares who receive a refund
attributable to reduced withholding taxes under the Income Tax Treaty may be
required to recognize foreign currency gain or loss, which will be treated as
ordinary income or loss, to the extent that the dollar value of the refund
received or treated as received by the Qualified Holder differs from the U.S.
dollar equivalent of the refund on the date the dividend on which such
withholding taxes were imposed was received or treated as received by the
Qualified Holder.
Taxation of Capital Gains
Under the Income Tax Treaty, a Qualified Holder will not be liable for
German tax on capital gains realized or accrued on the sale or other disposition
of DaimlerChrysler ordinary shares.
Upon a sale or other disposition of DaimlerChrysler ordinary shares, a
Qualified Holder will recognize capital gain or loss for United States federal
income tax purposes equal to the difference between the amount realized and the
Qualified Holder's adjusted tax basis in the DaimlerChrysler ordinary shares. In
the case of an individual
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Qualified Holder of DaimlerChrysler ordinary shares, any such capital gain will
be subject to a maximum United States federal income tax rate of 20%, if the
individual Qualified Holder's holding period in the DaimlerChrysler ordinary
shares is more than 12 months.
German Gift and Inheritance Taxes
The United States-Germany estate tax treaty provides that an individual
whose domicile is determined to be in the United States for purposes of such
treaty will not be subject to German inheritance and gift tax (the equivalent of
the United States federal estate and gift tax) on the individual's death or
making of a gift unless the DaimlerChrysler ordinary shares (1) are part of the
business property of a permanent establishment located in Germany or (2) are
part of the assets of a fixed base of an individual located in Germany and used
for the performance of independent personal services. An individual's domicile
in the United States, however, does not prevent imposition of German inheritance
and gift tax with respect to an heir, donee or other beneficiary who is
domiciled in Germany at the time the individual died or the gift was made.
The United States-Germany estate tax treaty also provides a credit against
United States federal estate and gift tax liability for the amount of
inheritance and gift tax paid in Germany, subject to certain limitations, in a
case where the DaimlerChrysler ordinary shares are subject to German inheritance
or gift tax and United States federal estate or gift tax.
German Capital Tax (VERMOEGENSTEUER)
The Income Tax Treaty provides that a Qualified Holder will not be subject
to German capital tax (VERMOEGENSTEUER) with respect to the DaimlerChrysler
ordinary shares. As a result of a judicial decision, the German capital tax
(VERMOEGENSTEUER) presently is not imposed.
Other German Taxes
There are no German transfer, stamp or other similar taxes that would apply
to Qualified Holders upon receipt, purchase, holding or sale of DaimlerChrysler
ordinary shares.
United States Information Reporting and Backup Withholding
Dividends on DaimlerChrysler ordinary shares, and payments of the proceeds
of a sale of DaimlerChrysler ordinary shares, paid within the United States or
through certain U.S.-related financial intermediaries are subject to information
reporting and may be subject to backup withholding at a 31% rate unless the
Qualified Holder (1) is a corporation or other exempt recipient or (2) provides
a taxpayer identification number and certifies that no loss of exemption from
backup withholding has occurred.
DOCUMENTS ON DISPLAY
DaimlerChrysler is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended. In accordance with these
requirements, DaimlerChrysler files reports and other information with the
Securities and Exchange Commission. These materials, including this Annual
Report and the exhibits thereto, may be inspected and copied at the Commission's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and 7 World Trade Center, New York, New York 10048.
Copies of the materials may be obtained from the Public Reference Room of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The public may obtain information on the operation of the Commission's
Public Reference Room by calling the Commission in the United States at
1-800-SEC-0330. The Commission also maintains a web site at http://www.sec.gov
that contains reports, proxy statements and other information regarding
registrants that file electronically with the Commission. DaimlerChrysler's
annual reports and some of the other information
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submitted by DaimlerChrysler to the Commission may be accessed through this web
site. In addition, material filed by DaimlerChrysler can be inspected at the
offices of the New York Stock Exchange at 20 Broad Street, New York, New York
10005.
Item 11. Quantitative and Qualitative Disclosures About Market Risk.
The DaimlerChrysler Group is exposed to market risks from changes in foreign
currency exchange rates, interest rates and equity prices which may adversely
affect its operating results and financial condition. The Group seeks to
minimize these risks through its regular operating and financing activities and,
when deemed appropriate, through the use of derivative financial instruments.
The Group does not use financial instruments for trading or other speculative
purposes.
EXCHANGE RATE RISK
Transaction Risk and Currency Risk Management
As a consequence of the global nature of DaimlerChrysler's businesses, its
operations and its reported financial results and cash flows are exposed to the
risks associated with fluctuations in the exchange rates between the euro, the
dollar and other major world currencies. The Group's businesses are exposed to
transaction risk whenever revenues are denominated in a currency other than the
currency in which the costs relating to those revenues are incurred. This risk
exposure primarily affects the Mercedes-Benz Passenger Cars & smart division and
the Aerospace segment. In the Mercedes-Benz Passenger Cars & smart division,
revenues are denominated in the currencies of the countries in which cars are
sold but manufacturing costs are denominated primarily in euros. Similarly,
Aerospace revenues resulting from the sale of aircraft and other aerospace
related products are principally denominated in dollars due to the requirements
of the marketplace but the products are manufactured almost exclusively in
Germany. An additional risk element associated with the operations of the
Aerospace division is that the sale contracts for its products, especially
aircraft, are generally made well in advance of the production and delivery of
the products. The Commercial Vehicles division is also subject to transaction
risk, although -- because of its global production network -- to a lesser
degree. Since the Chrysler Group segment generates the vast majority of its
revenues and costs in dollars, the transaction risk of this segment is
relatively low.
Cash inflows and outflows of a division are netted if they are denominated
in the same currency. Therefore, only the unmatched amounts are subject to
transaction risk. The currency exposure of DaimlerChrysler is reduced through
the natural hedging potential arising from offsets in the euro exposure of the
Chrysler Group division with the dollar exposure of the Mercedes-Benz Passenger
Cars & smart and Aerospace divisions. In order to provide an additional natural
hedge against the remaining transaction risk exposure, DaimlerChrysler attempts
to increase cash outflows in the same currencies in which it has a net excess
inflow, where possible and appropriate. This is mainly achieved through
increased procurement in foreign currencies and by increasing production in
those countries which are primary markets for the Group's products.
In order to mitigate further the impact of currency exchange rate
fluctuations, DaimlerChrysler continually assesses its exposure to currency
risks and hedges a portion of those risks through the use of derivative
financial instruments. Responsibility for managing DaimlerChrysler's currency
exposures and use of currency derivatives is centralized within the Group's
Currency Committee. The Currency Committee, which consists of two separate
sub-groups, one for the Group's vehicle businesses and one for Aerospace, is
comprised of members of senior management from each of the respective businesses
as well as from the Finance Department of DaimlerChrysler. Decisions concerning
foreign currency hedging taken by the Currency Committee are implemented by the
Corporate Treasury. DaimlerChrysler's Board of Management is regularly informed
of the decisions of the Currency Committee as well as the actions of Corporate
Treasury. Corporate Treasury is responsible for assessing, consolidating and
managing foreign currency exposures through transactions with international
financial institutions. In addition to the currency exposure inherent in the
Group's operational business, exchange rate fluctuations can also affect the
conversion into euros of profits of subsidiaries located outside the euro zone.
This risk is also managed by Corporate Treasury.
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The principal derivative financial instruments used by the Group to cover
foreign currency exposures are forward foreign exchange contracts and currency
options. The maturity dates of forward contracts are established according to
the anticipated cash flows of the Group. The policy of the Group is to use a
mixture of these instruments depending upon the Group's view of market
conditions which is based on fundamental and technical analyses. At
December 31, 1999, the Group had entered into forward foreign exchange contracts
and currency options with a nominal value of [EURO]29.0 billion compared to
[EURO]28.2 billion in 1998. The currencies in which the Group's derivative
financial instruments are denominated are in parallel with the currencies in
which it is subject to transaction risk. See Note 29 to the Consolidated
Financial Statements.
The Group is designating certain derivative financial instruments as hedges
of foreign currency denominated assets, liabilities and firm commitments. To the
extent a derivative financial instrument is designated as hedging a committed
foreign currency transaction, unrealized gains and losses are deferred and
recognized concurrently with the effect of the underlying business transaction.
To the extent applicable accounting requirements do not permit hedge accounting,
the Group marks the derivative financial instruments to market which results in
unrealized gains and losses on financial instruments being recognized at each
reporting date. DaimlerChrysler plans to adopt SFAS 133 effective January 1,
2000. The new Standard will permit the Group to apply hedge accounting for
certain foreign currency derivative contracts on qualifying forecasted
transactions. Under the Group's current accounting policies such contracts are
marked to market with unrealized gains and losses impacting current earnings.
Accordingly, application of the new Standard in accounting for such foreign
currency derivative contracts may result in lower current period earnings
volatility relating to the Group's foreign currency risk management in periods
of significant changes in exchange rates. See "New Accounting Pronouncement" in
"Item 5. Operating and Financial Review and Prospects."
During 1999 the Group's aggregate direct transaction risk was approximately
[EURO]13.0 billion which consisted primarily of dollars ([EURO]7.7 billion),
British Pounds ([EURO]2.7 billion) and Japanese Yen ([EURO]1.5 billion).
Following the introduction of the euro on January 1, 1999, the Group is no
longer exposed to transaction risk in currencies of the euro zone. The 1998
transaction risk arising from these currencies was [EURO]4.4 billion. Excluding
the effect of these currencies on DaimlerChrysler's currency exposure in 1998,
the Group's net transaction risk increased by 13% compared to 1998 as a result
of significantly higher revenues in 1999. During 1999, the dollar, the British
Pound and the Japanese Yen appreciated considerably against the euro.
DaimlerChrysler was able to benefit from this exchange rate development.
However, the smoothing effect of hedging activities undertaken in prior years
diluted these benefits to some extent.
The effective exchange rates for the major world currencies achieved for the
Group through hedging transactions in contrast to the pure unhedged market
average rates for these currencies in 1999 and 1998, respectively, were as
follows:
<TABLE>
<CAPTION>
1999 1998(1)
Currency ------------------------------------------------- -------------------------------------------------
- -------- % Market % % Market %
Effective(2) Change(3) Average(4) Change(3) Effective(2) Change(3) Average(4) Change(3)
------------ --------- ---------- --------- ------------ --------- ---------- ---------
(currency units per [EURO])
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Dollar........... 1.14 (1.7) 1.07 (3.6) 1.16 (2.5) 1.11 (1.8)
British Pound......... 0.68 (5.6) 0.66 (1.5) 0.72 (10.0) 0.67 (2.9)
Japanese Yen.......... 134 16.5 121 (16.6) 115 (5.7) 145 6.6
</TABLE>
- ------------------------
(1) The 1998 exchange rates were originally quoted in marks and have been
converted from marks into euros at the Official Fixed Conversion Rate.
(2) The effective rates shown represent the average of all hedging transactions
for each specific currency which matured during the year shown including all
hedging effects such as swap prices and the net premium revenue and expense
resulting from option transactions.
(3) The percentage change shown is in comparison to the figure shown in the
comparable column in the prior year, except that percentage changes for 1998
are as compared to the 1997 figures which are not shown.
(4) Due to the introduction of the euro, the 1999 market average exchange rates
for the foreign currencies shown are based on the reference rates published
by the European Central Bank. Market average exchange rates for 1998 are
calculated based on the official rates fixed at the Frankfurt Currency
Exchange (FRANKFURTER DEVISENBOERSE).
79
<PAGE>
Exchange Rate Sensitivity
Because the Group enters into foreign exchange transactions for a
significant portion of its contracted and forecasted foreign exchange exposures,
a significant increase or decrease in the exchange rate of the euro relative to
other major world currencies should not, in the short term, materially affect
the Group's cash flows. Over time, however, to the extent that such exchange
rate movements cannot be reflected in the pricing of the Group's products in
local currency they could materially affect the Group's cash flows. In general,
appreciation of the euro in relation to another currency has an adverse effect
on the Group's reported revenues and results, and depreciation of the euro has a
positive effect. The tables below provide information about the effect on the
Group's pre-tax cash flow of a 10% appreciation of the euro against foreign
currencies. The figures shown in the tables were calculated as of December 31,
1999.
<TABLE>
<CAPTION>
U.S. Canadian British Japanese
2000 Dollar Dollar Pound Yen Other(1) Total
- ---- -------- -------- -------- -------- -------- --------
([EURO] equivalent in billions)
<S> <C> <C> <C> <C> <C> <C>
ESTIMATES OF:
Gross Amount of Foreign Currency Exposure.......... 14.2 6.9 3.2 2.1 2.1 28.5
Gross Amount of Foreign Currency Netting........... (6.8) (7.4) (0.3) (0.6) (0.3) (15.4)
Net Transaction Exposure in Foreign Currency....... 7.4 (0.5) 2.9 1.5 1.8 13.1
Loss from a 10% Appreciation of the Euro After
Hedging Activities(2, 3)
Status as of December 31, 1998................. 0.24 -- 0.13 0.06 0.16 0.59
Status as of December 31, 1999................. 0.12 -- 0.05 0.02 0.07 0.26
</TABLE>
<TABLE>
<CAPTION>
U.S. Canadian British Japanese
2001 Dollar Dollar Pound Yen Other(1) Total
- ---- -------- -------- -------- -------- -------- --------
([EURO] equivalent in billions)
<S> <C> <C> <C> <C> <C> <C>
ESTIMATES OF:
Gross Amount of Foreign Currency Exposure.......... 14.8 7.1 3.7 2.0 3.1 30.7
Gross Amount of Foreign Currency Netting........... (7.7) (7.1) (0.3) (0.2) (1.2) (16.5)
Net Transaction Exposure in Foreign Currency....... 7.1 -- 3.4 1.8 1.9 14.2
Loss from a 10% Appreciation of the Euro After
Hedging Activities(2, 3)
Status as of December 31, 1999................. 0.30 -- 0.19 0.04 0.14 0.67
</TABLE>
- ------------------------------
(1) Following the introduction of the euro on January 1, 1999, the Group's
exposure to transaction risk in respect of currencies of participating
European Union member states has been eliminated. As a consequence, this
category no longer includes net exposure of the Group in those currencies.
In 1998 the Group's net exposure in those currencies was approximately
[EURO]4.4 billion.
(2) Sensitivity is calculated based on net transaction exposure after
consideration of the Group's derivative financial instruments entered into
to offset such foreign currency exposure.
(3) Anticipated losses from a more than 10% appreciation of the euro against
those currencies would increase proportionately.
------------------------------
The relatively lower sensitivity shown for 2000 is explained by the Group's
policy to hedge relatively larger portions of short-term anticipated revenues.
As a general rule, the longer expected revenues extend into the future, the
larger is the unhedged portion of such revenues.
Effects of Currency Translation
Many subsidiaries of DaimlerChrysler are located outside the euro zone.
Since the Group's financial reporting currency is the euro, the income
statements of these subsidiaries are translated into euros for inclusion of the
results of these subsidiaries in the DaimlerChrysler consolidated financial
statements. Period-to-period changes in the average exchange rate for a
particular country's currency can significantly affect the translation into
euros of
80
<PAGE>
both revenues and operating income denominated in that currency. Unlike the
effect of exchange rate fluctuations on transaction exposure, the effect of
exchange rate translation exposure does not affect the Group's local currency
cash flows. See Notes 16, 17 and 23 to the Consolidated Financial Statements.
DaimlerChrysler has significant assets, liabilities and operations outside
the euro zone which are denominated in local currencies, most importantly
DaimlerChrysler Corporation and DaimlerChrysler's financial services companies.
Although the long-term currency risk inherent in these investments is subject to
continuing assessment and evaluation, foreign exchange transactions addressing
this type of risk are generally undertaken only in circumstances in which the
Group is considering withdrawal from a specific venture and the repatriation of
the funds generated by such withdrawal. However, effects from currency
fluctuations on the translation of net asset amounts into euros will be
reflected in the Group's equity position.
INTEREST RATE RISK AND EQUITY PRICE RISK
DaimlerChrysler holds a variety of interest rate sensitive assets and
liabilities to manage the liquidity and cash needs of its day-to-day operations.
A substantial volume of interest rate sensitive assets and liabilities are
related to the growing lease and sales financing business. Derivative financial
instruments including swaps, swaptions, forward rate agreements, futures, caps
and floors are used to manage the risks arising from changes in interest rates.
As part of its asset allocation policy, the Group also holds a portfolio of
equity securities.
The Group monitors and manages the risks associated with its financial
instruments through risk management and controlling functions which have a
reporting line independent from Corporate Treasury.
In order to quantify the interest rate risk and the equity price risk of the
Group on a continuous basis, DaimlerChrysler employs value-at-risk analyses as
recommended by the Bank for International Settlements. Value-at-risk figures
indicate maximum potential losses that are not exceeded under normal market
conditions. The value-at-risk calculations employed by DaimlerChrysler are based
on the variance-covariance-approach and assume a 99% confidence level and a
holding period of five days. Estimates of volatilities and correlations are
primarily drawn from the RiskMetrics-TM- datasets regularly published by J.P.
Morgan and supplemented by additional interest rate and equity price
information.
In 1999, the fair value risk to DaimlerChrysler's portfolio of interest rate
sensitive financial instruments was on average [EURO]71 million with a high of
[EURO]94 million and a low of [EURO]42 million. Interest rate risk at year-end
1999 was [EURO]81 million compared to [EURO]42 million at year-end 1998. This
increase was primarily due to the expansion of the Group's lease and sales
financing business, partially offset by the effect of transferring interest rate
sensitive securities to the newly founded DaimlerChrysler Pension Trust.
DaimlerChrysler changed the presentation of interest rate risk from last year's
tabular format to value-at-risk in order to match external disclosure with
internal reporting and risk management methods.
The fair value risk to the portfolio of equity securities was on average
[EURO]148 million with a high of [EURO]201 million and a low of
[EURO]105 million. Comparing year-end 1999 with year-end 1998, equity price risk
decreased from [EURO]171 million to [EURO]105 million. This decrease resulted
mainly from the transfer of equity securities to the DaimlerChrysler Pension
Trust.
Due to risk-reducing correlation effects between the portfolio of interest
rate sensitive financial instruments and the portfolio of equity securities, the
aggregate value-at-risk is less than the sum of the individual values-at-risk.
In 1999, the aggregate value-at-risk for both portfolios was [EURO]127 million
at year-end (1998: [EURO]166 million) and [EURO]168 million on average.
Item 12. Description of Securities Other than Equity Securities.
Not applicable.
81
<PAGE>
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies.
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds.
None.
Item 15. [Reserved].
Item 16. [Reserved].
PART III
Item 17. Financial Statements.
Not applicable.
Item 18. Financial Statements.
See pages F-i, F-1 through F-54 and page S-1, incorporated herein by
reference.
Item 19. Exhibits.
Documents filed as exhibits to this Annual Report:
1.1 Memorandum and Articles of Association (SATZUNG) of DaimlerChrysler AG as
amended to date (English translation included).
2.1 The total amount of long-term debt securities of DaimlerChrysler AG
authorized under any instrument does not exceed 10% of the total assets of
the Group on a consolidated basis. DaimlerChrysler AG hereby agrees to
furnish to the Commission, upon its request, a copy of any instrument
defining the rights of holders of long-term debt of DaimlerChrysler AG or of
its subsidiaries for which consolidated or unconsolidated financial
statements are required to be filed.
4.1 Business Combination Agreement, dated October 14, 1999, relating to the
combination of the businesses of DaimlerChrysler Aerospace AG and
Aerospatiale Matra S.A. to form European Aeronautic Defence and Space
Company (EADS), and Business Combination Agreement, dated December 2, 1999,
relating to the integration of the business of Construcciones Aeronauticas
S.A. (CASA) into EADS.
8.1 Significant subsidiaries as of the end of the year covered by this report:
See "Significant Subsidiaries" in "Item 4. Information on the Company."
10.1 Independent Auditors' Report on Schedule and Consent of KPMG Deutsche
Treuhand-Gesellschaft AG.
10.2 Independent Auditors' Consent of Deloitte & Touche LLP.
10.3 Independent Auditors' Report of Deloitte & Touche LLP on the consolidated
financial statements of DaimlerChrysler Corporation.
82
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this Annual Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: February 28, 2000
<TABLE>
<S> <C> <C>
DAIMLERCHRYSLER AG
By: /s/ ROBERT J. EATON
------------------------------------------
Robert J. Eaton
Chairman of the Board of Management
By: /s/ JUERGEN E. SCHREMPP
------------------------------------------
Juergen E. Schrempp
Chairman of the Board of Management
By: /s/ DR. MANFRED GENTZ
------------------------------------------
Dr. Manfred Gentz
Member of the Board of Management
Finance & Controlling
</TABLE>
83
<PAGE>
DAIMLERCHRYSLER AG
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Independent Auditors' Report................................ F-1
Consolidated Financial Statements:
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997....................... F-2
Consolidated Balance Sheets at December 31, 1999 and
1998................................................... F-4
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1999, 1998 and
1997................................................... F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997................. F-6
Consolidated Fixed Assets Schedule for the year ended
December 31, 1999...................................... F-8
Notes to the Consolidated Financial Statements.......... F-10
Financial Statement Schedule:
Allowance for Doubtful Accounts......................... S-1
</TABLE>
F-i
<PAGE>
Independent Auditors' Report
We have audited the accompanying consolidated balance sheets of
DaimlerChrysler AG and subsidiaries ("DaimlerChrysler") as of December 31, 1999
and 1998, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements are the
responsibility of DaimlerChrysler's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We
did not audit the financial statements of DaimlerChrysler Corporation or certain
of its consolidated subsidiaries ("DaimlerChrysler Corporation"), which
statements reflect total assets constituting 29 percent and 43 percent at
December 31, 1999 and 1998, and total revenues constituting 43 percent,
45 percent and 46 percent for the years ended December 31, 1999, 1998 and 1997,
of the related consolidated totals. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for DaimlerChrysler Corporation, is based solely
on the report of the other auditors.
We conducted our audits in accordance with German and United States
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 and the report of
the other auditors provide a reasonable basis for our opinion.
In 1998 and 1997, DaimlerChrysler accounted for a material joint venture in
accordance with the proportionate method of consolidation as is permitted under
the Seventh Directive of the European Community and the Standards of the
International Accounting Standards Committee. In our opinion, United States
generally accepted accounting principles required that such joint venture be
accounted for using the equity method of accounting. The United States
Securities and Exchange Commission stated that it would not object to
DaimlerChrysler's use of the proportionate method of consolidation as
supplemented by the disclosures in Note 3.
In our opinion, based on our audits and the report of the other auditors,
except for the use of the proportionate method of accounting in 1998 and 1997,
as discussed in the preceding paragraph, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of DaimlerChrysler as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with United States generally
accepted accounting principles.
KPMG DEUTSCHE TREUHAND-GESELLSCHAFT AG
Stuttgart
February 14, 2000
F-1
<PAGE>
DAIMLERCHRYSLER AG
Consolidated Statements of Income
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Consolidated
------------------------------------------------------------------
Year ended December 31,
------------------------------------------------------------------
1999
Note (Note 1) 1999 1998 1997
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Revenues 30 $ 151,035 [EURO]149,985 [EURO]131,782 [EURO]117,572
- --------------------------------------------------------------------------------------------------------
Cost of sales 5 (119,046) (118,219) (103,666) (92,879)
- --------------------------------------------------------------------------------------------------------
Gross margin 31,989 31,766 28,116 24,693
- --------------------------------------------------------------------------------------------------------
Selling, administrative and
other expenses 5 (17,655) (17,532) (16,229) (15,621)
- --------------------------------------------------------------------------------------------------------
Research and development (5,777) (5,737) (4,971) (4,408)
- --------------------------------------------------------------------------------------------------------
Other income 6 832 827 1,099 848
- --------------------------------------------------------------------------------------------------------
Merger costs 1 -- -- (685) --
- --------------------------------------------------------------------------------------------------------
Income before financial
income,
income taxes and
extraordinary items 9,389 9,324 7,330 5,512
- --------------------------------------------------------------------------------------------------------
Financial income, net 7 335 333 763 633
- --------------------------------------------------------------------------------------------------------
Income before income taxes and
extraordinary items 9,724 9,657 8,093 6,145
- --------------------------------------------------------------------------------------------------------
Effects of changes in 1999
German tax law (818) (812) -- --
- --------------------------------------------------------------------------------------------------------
Tax benefit relating to a
special distribution -- -- -- 1,487(1)
- --------------------------------------------------------------------------------------------------------
Income taxes (3,747) (3,721) (3,014) (970)(2)
- --------------------------------------------------------------------------------------------------------
Total income taxes 8 (4,565) (4,533) (3,014) 517
- --------------------------------------------------------------------------------------------------------
Minority interests (18) (18) (130) (115)
- --------------------------------------------------------------------------------------------------------
Income before extraordinary
items 5,141 5,106 4,949 6,547
- --------------------------------------------------------------------------------------------------------
Extraordinary items: 9
- --------------------------------------------------------------------------------------------------------
Gains on disposals of a
business, net of taxes 664 659 -- --
- --------------------------------------------------------------------------------------------------------
Losses on early
extinguishment of debt, net
of taxes (20) (19) (129) --
- --------------------------------------------------------------------------------------------------------
Net income 5,785 5,746 4,820 6,547(3)
- --------------------------------------------------------------------------------------------------------
Earnings per share 31
- --------------------------------------------------------------------------------------------------------
Basic earnings per share
- --------------------------------------------------------------------------------------------------------
Income before
extraordinary items 5.13 5.09 5.16 6.90(3)
- --------------------------------------------------------------------------------------------------------
Extraordinary items 0.64 0.64 (0.13) --
- --------------------------------------------------------------------------------------------------------
Net income 5.77 5.73 5.03 6.90(3)
- --------------------------------------------------------------------------------------------------------
Diluted earnings per share
- --------------------------------------------------------------------------------------------------------
Income before
extraordinary items 5.10 5.06 5.04 6.78(3)
- --------------------------------------------------------------------------------------------------------
Extraordinary items 0.63 0.63 (0.13) --
- --------------------------------------------------------------------------------------------------------
Net income 5.73 5.69 4.91 6.78(3)
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Reflects the tax benefit relating to a special distribution (see Note 20).
(2) Includes non-recurring tax benefits of [EURO]1,003 relating to the decrease
in the deferred tax asset valuation allowance as of December 31, 1997,
applied to the domestic operations that file a combined tax return.
(3) Excluding non-recurring tax benefits, 1997 net income would have been
[EURO]4,057 and basic and diluted earnings per share would have been
[EURO]4.28 and [EURO]4.21, respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
ALL 1998 AND 1997 BALANCES HAVE BEEN RESTATED FROM DEUTSCHE MARKS INTO EUROS
USING THE OFFICIAL FIXED CONVERSION RATE.
F-2
<PAGE>
DAIMLERCHRYSLER AG
Consolidated Statements of Income (Continued)
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Industrial Business Financial Services
- ----------------------------------------------- -----------------------------------------
Year ended December 31, Year ended December 31,
- ----------------------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------- ----------------------------------------- ------------------------------
[EURO]139,929 [EURO]124,010 [EURO]111,166 [EURO]10,056 [EURO]7,772 [EURO]6,406 Revenues
- ----------------------------------------------- ----------------------------------------- ------------------------------
(109,805) (97,492) (87,812) (8,414) (6,174) (5,067) Cost of sales
- ----------------------------------------------- ----------------------------------------- ------------------------------
30,124 26,518 23,354 1,642 1,598 1,339 Gross margin
- ----------------------------------------------- ----------------------------------------- ------------------------------
Selling, administrative and
(16,532) (15,351) (14,913) (1,000) (878) (708) other expenses
- ----------------------------------------------- ----------------------------------------- ------------------------------
(5,737) (4,971) (4,408) -- -- -- Research and development
- ----------------------------------------------- ----------------------------------------- ------------------------------
691 993 769 136 106 79 Other income
- ----------------------------------------------- ----------------------------------------- ------------------------------
-- (685) -- -- -- -- Merger costs
- ----------------------------------------------- ----------------------------------------- ------------------------------
Income before financial
income,
income taxes and
8,546 6,504 4,802 778 826 710 extraordinary items
- ----------------------------------------------- ----------------------------------------- ------------------------------
327 740 618 6 23 15 Financial income, net
- ----------------------------------------------- ----------------------------------------- ------------------------------
Income before income taxes and
8,873 7,244 5,420 784 849 725 extraordinary items
- ----------------------------------------------- ----------------------------------------- ------------------------------
Effects of changes in 1999
German tax law
- ----------------------------------------------- ----------------------------------------- ------------------------------
Tax benefit relating to a
special distribution
- ----------------------------------------------- ----------------------------------------- ------------------------------
Income taxes
- ----------------------------------------------- ----------------------------------------- ------------------------------
(4,340) (2,732) 784 (193) (282) (267) Total income taxes
- ----------------------------------------------- ----------------------------------------- ------------------------------
(16) (128) (114) (2) (2) (1) Minority interests
- ----------------------------------------------- ----------------------------------------- ------------------------------
Income before extraordinary
4,517 4,384 6,090 589 565 457 items
- ----------------------------------------------- ----------------------------------------- ------------------------------
Extraordinary items:
- ----------------------------------------------- ----------------------------------------- ------------------------------
Gains on disposals of a
659 -- -- -- -- -- business, net of taxes
- ----------------------------------------------- ----------------------------------------- ------------------------------
Losses on early
extinguishment of debt,
(19) (129) -- -- -- -- net of taxes
- ----------------------------------------------- ----------------------------------------- ------------------------------
5,157 4,255 6,090 589 565 457 Net income
- ----------------------------------------------- ----------------------------------------- ------------------------------
Earnings per share
- ----------------------------------------------- ----------------------------------------- ------------------------------
Basic earnings per share
- ----------------------------------------------- ----------------------------------------- ------------------------------
Income before
-- -- -- -- -- -- extraordinary items
- ----------------------------------------------- ----------------------------------------- ------------------------------
-- -- -- -- -- -- Extraordinary items
- ----------------------------------------------- ----------------------------------------- ------------------------------
-- -- -- -- -- -- Net income
- ----------------------------------------------- ----------------------------------------- ------------------------------
Diluted earnings per share
- ----------------------------------------------- ----------------------------------------- ------------------------------
Income before
-- -- -- -- -- -- extraordinary items
- ----------------------------------------------- ----------------------------------------- ------------------------------
-- -- -- -- -- -- Extraordinary items
- ----------------------------------------------- ----------------------------------------- ------------------------------
-- -- -- -- -- -- Net income
- ----------------------------------------------- ----------------------------------------- ------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
ALL 1998 AND 1997 BALANCES HAVE BEEN RESTATED FROM DEUTSCHE MARKS INTO EUROS
USING THE OFFICIAL FIXED CONVERSION RATE.
F-3
<PAGE>
DAIMLERCHRYSLER AG
Consolidated Balance Sheets
(in millions)
<TABLE>
<CAPTION>
Consolidated Industrial Business Financial Services
---------------------------------- ------------------------- -------------------------
At December 31, At December 31, At December 31,
---------------------------------- ------------------------- -------------------------
1999
Note (Note 1) 1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------- ------------------------- -------------------------
Assets
- ----------------------------------------------------------------------- ------------------------- -------------------------
Intangible assets 10 $ 2,843 [EURO]2,823 [EURO]2,561 [EURO]2,632 [EURO]2,457 [EURO]191 [EURO]104
- ----------------------------------------------------------------------- ------------------------- -------------------------
Property, plant and
equipment, net 10 36,689 36,434 29,532 36,338 29,479 96 53
- ----------------------------------------------------------------------- ------------------------- -------------------------
Investments and long-term
financial assets 16 3,969 3,942 2,851 3,079 2,149 863 702
- ----------------------------------------------------------------------- ------------------------- -------------------------
Equipment on operating
leases, net 11 27,440 27,249 14,662 3,433 2,886 23,816 11,776
- ----------------------------------------------------------------------- ------------------------- -------------------------
Fixed assets 70,941 70,448 49,606 45,482 36,971 24,966 12,635
- ----------------------------------------------------------------------- ------------------------- -------------------------
Inventories 12 15,090 14,985 11,796 14,036 11,142 949 654
- ----------------------------------------------------------------------- ------------------------- -------------------------
Trade receivables 13 8,902 8,840 7,605 8,522 6,958 318 647
- ----------------------------------------------------------------------- ------------------------- -------------------------
Receivables from
financial services 14 39,006 38,735 26,468 38 8 38,697 26,460
- ----------------------------------------------------------------------- ------------------------- -------------------------
Other receivables 15 12,658 12,571 10,775 5,408 4,847 7,163 5,928
- ----------------------------------------------------------------------- ------------------------- -------------------------
Securities 16 9,032 8,969 12,160 8,250 11,563 719 597
- ----------------------------------------------------------------------- ------------------------- -------------------------
Cash and cash equivalents 17 9,163 9,099 6,589 8,197 5,968 902 621
- ----------------------------------------------------------------------- ------------------------- -------------------------
Non-fixed assets 93,851 93,199 75,393 44,451 40,486 48,748 34,907
- ----------------------------------------------------------------------- ------------------------- -------------------------
Deferred taxes 8 3,832 3,806 5,016 3,710 4,999 96 17
- ----------------------------------------------------------------------- ------------------------- -------------------------
Prepaid expenses 19 7,265 7,214 6,134 7,076 6,008 138 126
- ----------------------------------------------------------------------- ------------------------- -------------------------
Total assets (thereof
short-term 1999:
[EURO]70,111; 1998:
[EURO]57,953) 175,889 174,667 136,149 100,719 88,464 73,948 47,685
- ----------------------------------------------------------------------- ------------------------- -------------------------
Liabilities and
stockholders' equity
- ----------------------------------------------------------------------- ------------------------- -------------------------
Capital stock $ 2,583 [EURO]2,565 [EURO]2,561
- ----------------------------------------------------------------------- ------------------------- -------------------------
Additional paid-in
capital 7,380 7,329 7,274
- ----------------------------------------------------------------------- ------------------------- -------------------------
Retained earnings 24,093 23,925 20,533
- ----------------------------------------------------------------------- ------------------------- -------------------------
Accumulated other
comprehensive income 2,257 2,241 (1)
- ----------------------------------------------------------------------- ------------------------- -------------------------
Treasury stock -- -- --
- ----------------------------------------------------------------------- ------------------------- -------------------------
Stockholders' equity 20 36,313 36,060 30,367 [EURO]30,318 [EURO]25,905 [EURO]5,742 [EURO]4,462
- ----------------------------------------------------------------------- ------------------------- -------------------------
Minority interests 654 650 691 637 674 13 17
- ----------------------------------------------------------------------- ------------------------- -------------------------
Accrued liabilities 22 37,958 37,695 34,629 37,155 34,224 540 405
- ----------------------------------------------------------------------- ------------------------- -------------------------
Financial liabilities 23 64,940 64,488 40,430 4,400 3,631 60,088 36,799
- ----------------------------------------------------------------------- ------------------------- -------------------------
Trade liabilities 24 15,896 15,786 12,848 15,484 12,608 302 240
- ----------------------------------------------------------------------- ------------------------- -------------------------
Other liabilities 25 10,358 10,286 9,249 7,655 6,919 2,631 2,330
- ----------------------------------------------------------------------- ------------------------- -------------------------
Liabilities 91,194 90,560 62,527 27,539 23,158 63,021 39,369
- ----------------------------------------------------------------------- ------------------------- -------------------------
Deferred taxes 8 5,228 5,192 4,165 1,227 1,504 3,965 2,661
- ----------------------------------------------------------------------- ------------------------- -------------------------
Deferred income 26 4,542 4,510 3,770 3,843 2,999 667 771
- ----------------------------------------------------------------------- ------------------------- -------------------------
Total liabilities
(thereof short-term
1999: [EURO]83,171;
1998: [EURO]58,181) 139,576 138,607 105,782 70,401 62,559 68,206 43,223
- ----------------------------------------------------------------------- ------------------------- -------------------------
Total liabilities and
stockholders' equity 175,889 174,667 136,149 100,719 88,464 73,948 47,685
- ----------------------------------------------------------------------- ------------------------- -------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
ALL 1998 BALANCES HAVE BEEN RESTATED FROM DEUTSCHE MARKS INTO EUROS USING THE
OFFICIAL FIXED CONVERSION RATE.
F-4
<PAGE>
DAIMLERCHRYSLER AG
Consolidated Statements of Changes in Stockholders' Equity
(in millions of [EURO])
<TABLE>
<CAPTION>
Accumulated other
comprehensive income
------------------------------------
Additional Cumulative Available- Minimum
Capital paid-in Retained translation for-sale pension Treasury Preferred
stock capital earnings adjustment securities liability stock stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Balance at January 1,
1997 2,444 4,210 16,581 (972) 112 (20) -- . 22,355
- -----------------------------------------------------------------------------------------------------------------------
Net income -- -- 6,547 -- -- -- -- -- 6,547
Other comprehensive income -- -- -- 1,865 157 1 -- -- 2,023
- -----------------------------------------------------------------------------------------------------------------------
Total comprehensive income 8,570
- -----------------------------------------------------------------------------------------------------------------------
Issuance of capital stock 4 85 -- -- -- -- -- -- 89
Purchase and retirement of
capital stock (59) (1,430) -- -- -- -- (462) -- (1,951)
Dividends -- -- (1,276) -- -- -- -- -- (1,276)
Other 2 93 40 -- -- -- 38 . 173
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31,
1997 2,391 2,958 21,892 893 269 (19) (424) . 27,960
- -----------------------------------------------------------------------------------------------------------------------
Net income -- -- 4,820 -- -- -- -- -- 4,820
Other comprehensive income
(loss) -- -- -- (1,402) 259 (1) -- -- (1,144)
- -----------------------------------------------------------------------------------------------------------------------
Total comprehensive income 3,676
- -----------------------------------------------------------------------------------------------------------------------
Issuance of capital stock 163 3,913 -- -- -- -- -- -- 4,076
Purchase and retirement of
capital stock -- -- -- -- -- -- (169) -- (169)
Re-issuance of treasury
stock -- 538 -- -- -- -- 482 -- 1,020
Dividends -- -- (1,086) -- -- -- -- -- (1,086)
Special distribution -- -- (5,284) -- -- -- -- -- (5,284)
Other 7 (135) 191 -- -- -- 111 . 174
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31,
1998 2,561 7,274 20,533 (509) 528 (20) -- -- 30,367
- -----------------------------------------------------------------------------------------------------------------------
Net income -- -- 5,746 -- -- -- -- -- 5,746
Other comprehensive income
(loss) -- -- -- 2,431 (181) (8) -- -- 2,242
- -----------------------------------------------------------------------------------------------------------------------
Total comprehensive income 7,988
- -----------------------------------------------------------------------------------------------------------------------
Issuance of capital stock 4 63 -- -- -- -- -- -- 67
Purchase of capital stock -- -- -- -- -- -- (86) -- (86)
Re-issuance of treasury
stock -- -- -- -- -- -- 86 -- 86
Dividends -- -- (2,356) -- -- -- -- -- (2,356)
Other -- (8) 2 -- -- -- -- -- (6)
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31,
1999 2,565 7,329 23,925 1,922 347 (28) -- -- 36,060
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
ALL 1998 AND 1997 BALANCES HAVE BEEN RESTATED FROM DEUTSCHE MARKS INTO EUROS
USING THE OFFICIAL FIXED CONVERSION RATE.
F-5
<PAGE>
DAIMLERCHRYSLER AG
Consolidated Statements of Cash Flows
(in millions)
<TABLE>
<CAPTION>
Consolidated
-----------------------------------------------------------
Year ended December 31,
-----------------------------------------------------------
1999
(Note 1) 1999 1998 1997
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Net income $ 5,785 [EURO]5,746 [EURO]4,820 [EURO]6,547
- ------------------------------------------------------------------------------------------
Income (loss) applicable to
minority interests 18 18 130 115
- ------------------------------------------------------------------------------------------
Adjustments to reconcile net
income to net cash provided
by operating activities:
- ------------------------------------------------------------------------------------------
Tax benefit relating to a
special distribution -- -- -- (1,487)
- ------------------------------------------------------------------------------------------
Gains on disposals of
businesses (see also Note 9) (1,189) (1,181) (296) (569)
- ------------------------------------------------------------------------------------------
Depreciation and
amortization of equipment on
operating leases 3,338 3,315 1,972 1,456
- ------------------------------------------------------------------------------------------
Depreciation and
amortization of fixed assets 6,077 6,035 5,359 4,847
- ------------------------------------------------------------------------------------------
Change in deferred taxes 2,419 2,402 1,959 (705)
- ------------------------------------------------------------------------------------------
Losses on early
extinguishment of debt
(extraordinary item) 19 19 129 --
- ------------------------------------------------------------------------------------------
Change in financial
instruments 249 247 (191) 146
- ------------------------------------------------------------------------------------------
(Gain) loss on disposal of
fixed assets/securities (1,223) (1,215) (368) (204)
- ------------------------------------------------------------------------------------------
Change in trading securities 499 495 251 (387)
- ------------------------------------------------------------------------------------------
Change in accrued
liabilities 4,029 4,001 1,419 840
- ------------------------------------------------------------------------------------------
Change in other operating
assets and liabilities:
- ------------------------------------------------------------------------------------------
-- inventories, net (2,453) (2,436) (976) (744)
- ------------------------------------------------------------------------------------------
-- trade receivables (738) (733) (688) (555)
- ------------------------------------------------------------------------------------------
-- trade liabilities 1,340 1,331 1,827 1,709
- ------------------------------------------------------------------------------------------
-- other assets and
liabilities (21) (21) 1,334 1,328
- ------------------------------------------------------------------------------------------
Cash provided by operating
activities 18,149 18,023 16,681 12,337
- ------------------------------------------------------------------------------------------
Purchases of fixed assets:
- ------------------------------------------------------------------------------------------
- -- Increase in equipment on
operating leases (19,471) (19,336) (10,245) (7,225)
- ------------------------------------------------------------------------------------------
- -- Purchases of property,
plant and equipment (9,536) (9,470) (8,155) (8,051)
- ------------------------------------------------------------------------------------------
- -- Purchases of other fixed
assets (650) (645) (305) (264)
- ------------------------------------------------------------------------------------------
Proceeds from disposals of
equipment on operating
leases 6,621 6,575 4,903 3,943
- ------------------------------------------------------------------------------------------
Proceeds from disposals of
fixed assets 511 507 515 576
- ------------------------------------------------------------------------------------------
Payments for acquisitions of
businesses (1,298) (1,289) (857) (607)
- ------------------------------------------------------------------------------------------
Proceeds from disposals of
businesses 1,345 1,336 685 1,336
- ------------------------------------------------------------------------------------------
Additions to receivables from
financial services (102,855) (102,140) (81,196) (70,154)
- ------------------------------------------------------------------------------------------
Repayments of receivables from
financial services:
- ------------------------------------------------------------------------------------------
-- Finance receivables
collected 42,221 41,928 33,784 22,257
- ------------------------------------------------------------------------------------------
-- Proceeds from sales of
finance receivables 52,206 51,843 40,950 44,336
- ------------------------------------------------------------------------------------------
Acquisitions of securities
(other than trading) (4,426) (4,395) (4,617) (5,190)
- ------------------------------------------------------------------------------------------
Proceeds from sales of
securities (other than
trading) 3,745 3,719 2,734 3,828
- ------------------------------------------------------------------------------------------
Change in other cash (748) (743) (1,641) 685
- ------------------------------------------------------------------------------------------
Cash used for investing
activities (32,335) (32,110) (23,445) (14,530)
- ------------------------------------------------------------------------------------------
Change in commercial paper
borrowings and short-term
financial liabilities 9,398 9,333 2,503 1,781
- ------------------------------------------------------------------------------------------
Additions to long-term
financial liabilities 13,434 13,340 9,491 9,057
- ------------------------------------------------------------------------------------------
Repayment of financial
liabilities (4,643) (4,611) (4,126) (4,612)
- ------------------------------------------------------------------------------------------
Dividends paid (Financial
Services: including profit
transferred from
subsidiaries) (2,395) (2,378) (6,454) (1,267)
- ------------------------------------------------------------------------------------------
Proceeds from issuance of
capital stock 165 164 4,076 231
- ------------------------------------------------------------------------------------------
Purchase of treasury stock (87) (86) (169) (1,888)
- ------------------------------------------------------------------------------------------
Proceeds from special
distribution tax refund -- -- 1,487 --
- ------------------------------------------------------------------------------------------
Cash provided by (used for)
financing activities 15,872 15,762 6,808 3,302
- ------------------------------------------------------------------------------------------
Effect of foreign exchange
rate changes on cash and
cash equivalents maturing
within 3 months 811 805 (397) 646
- ------------------------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents
maturing within 3 months 2,497 2,480 (353) 1,755
- ------------------------------------------------------------------------------------------
Cash and cash equivalents
(maturing within 3 months)
- ------------------------------------------------------------------------------------------
At beginning of period 6,325 6,281 6,634 4,879
- ------------------------------------------------------------------------------------------
At end of period 8,822 8,761 6,281 6,634
- ------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
ALL 1998 AND 1997 BALANCES HAVE BEEN RESTATED FROM DEUTSCHE MARKS INTO EUROS
USING THE OFFICIAL FIXED CONVERSION RATE.
F-6
<PAGE>
DAIMLERCHRYSLER AG
Consolidated Statements of Cash Flows (Continued)
(in millions)
<TABLE>
<CAPTION>
Industrial Business Financial Services
- -------------------------------------------- ----------------------------------------------
Year ended December 31, Year ended December 31,
- -------------------------------------------- ----------------------------------------------
1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------- ---------------------------------------------- ------------------------------
[EURO]5,157 [EURO]4,255 [EURO]6,090 [EURO]589 [EURO]565 [EURO]457 Net income
- -------------------------------------------- ---------------------------------------------- ------------------------------
Income (loss) applicable to
16 128 114 2 2 1 minority interests
- -------------------------------------------- ---------------------------------------------- ------------------------------
Adjustments to reconcile net
income to net cash provided
by operating activities:
- -------------------------------------------- ---------------------------------------------- ------------------------------
Tax benefit relating to a
-- -- (1,487) -- -- -- special distribution
- -------------------------------------------- ---------------------------------------------- ------------------------------
Gains on disposals of
(1,181) (296) (569) -- -- -- businesses (see also Note 9)
- -------------------------------------------- ---------------------------------------------- ------------------------------
Depreciation and
amortization of equipment on
268 195 37 3,047 1,777 1,419 operating leases
- -------------------------------------------- ---------------------------------------------- ------------------------------
Depreciation and
5,966 5,321 4,820 69 38 27 amortization of fixed assets
- -------------------------------------------- ---------------------------------------------- ------------------------------
1,496 1,560 (997) 906 399 292 Change in deferred taxes
- -------------------------------------------- ---------------------------------------------- ------------------------------
Losses on early
extinguishment of debt
19 129 -- -- -- -- (extraordinary item)
- -------------------------------------------- ---------------------------------------------- ------------------------------
Change in financial
247 (191) 146 -- -- -- instruments
- -------------------------------------------- ---------------------------------------------- ------------------------------
(Gain) loss on disposal of
(1,213) (317) (217) (2) (51) 13 fixed assets/securities
- -------------------------------------------- ---------------------------------------------- ------------------------------
495 251 (387) -- -- -- Change in trading securities
- -------------------------------------------- ---------------------------------------------- ------------------------------
Change in accrued
3,913 1,375 837 88 44 3 liabilities
- -------------------------------------------- ---------------------------------------------- ------------------------------
Change in other operating
assets and liabilities:
- -------------------------------------------- ---------------------------------------------- ------------------------------
(2,387) (1,040) (604) (49) 64 (140) -- inventories, net
- -------------------------------------------- ---------------------------------------------- ------------------------------
(541) (812) (578) (192) 124 23 -- trade receivables
- -------------------------------------------- ---------------------------------------------- ------------------------------
1,222 1,668 1,709 109 159 -- -- trade liabilities
- -------------------------------------------- ---------------------------------------------- ------------------------------
-- other assets and
(415) 224 146 394 1,110 1,182 liabilities
- -------------------------------------------- ---------------------------------------------- ------------------------------
Cash provided by operating
13,062 12,450 9,060 4,961 4,231 3,277 activities
- -------------------------------------------- ---------------------------------------------- ------------------------------
Purchases of fixed assets:
- -------------------------------------------- ---------------------------------------------- ------------------------------
-- Increase in equipment on
(3,192) (3,057) (2,364) (16,144) (7,188) (4,861) operating leases
- -------------------------------------------- ---------------------------------------------- ------------------------------
-- Purchases of property,
(9,407) (8,118) (8,027) (63) (37) (24) plant and equipment
- -------------------------------------------- ---------------------------------------------- ------------------------------
-- Purchases of other fixed
(524) (245) (226) (121) (60) (38) assets
- -------------------------------------------- ---------------------------------------------- ------------------------------
Proceeds from disposals of
equipment on operating
3,303 2,691 2,091 3,272 2,212 1,852 leases
- -------------------------------------------- ---------------------------------------------- ------------------------------
Proceeds from disposals of
411 500 555 96 15 21 fixed assets
- -------------------------------------------- ---------------------------------------------- ------------------------------
Payments for acquisitions of
(1,145) (814) (543) (144) (43) (64) businesses
- -------------------------------------------- ---------------------------------------------- ------------------------------
Proceeds from disposals of
1,336 682 1,336 -- 3 -- businesses
- -------------------------------------------- ---------------------------------------------- ------------------------------
Additions to receivables from
(28) 63 1,067 (102,112) (81,259) (71,221) financial services
- -------------------------------------------- ---------------------------------------------- ------------------------------
Repayments of receivables from
financial services:
- -------------------------------------------- ---------------------------------------------- ------------------------------
-- Finance receivables
-- -- (857) 41,928 33,784 23,114 collected
- -------------------------------------------- ---------------------------------------------- ------------------------------
-- Proceeds from sales of
-- -- -- 51,843 40,950 44,336 finance receivables
- -------------------------------------------- ---------------------------------------------- ------------------------------
Acquisitions of securities
(3,958) (2,015) (3,489) (437) (2,602) (1,701) (other than trading)
- -------------------------------------------- ---------------------------------------------- ------------------------------
Proceeds from sales of
securities (other than
3,333 247 2,065 386 2,487 1,763 trading)
- -------------------------------------------- ---------------------------------------------- ------------------------------
(462) (1,455) 1,365 (281) (186) (680) Change in other cash
- -------------------------------------------- ---------------------------------------------- ------------------------------
Cash used for investing
(10,333) (11,521) (7,027) (21,777) (11,924) (7,503) activities
- -------------------------------------------- ---------------------------------------------- ------------------------------
Change in commercial paper
borrowings and short-term
(260) (1,136) 102 9,593 3,639 1,679 financial liabilities
- -------------------------------------------- ---------------------------------------------- ------------------------------
Additions to long-term
918 322 2,020 12,422 9,169 7,037 financial liabilities
- -------------------------------------------- ---------------------------------------------- ------------------------------
Repayment of financial
439 944 (768) (5,050) (5,070) (3,844) liabilities
- -------------------------------------------- ---------------------------------------------- ------------------------------
Dividends paid (Financial
Services; including profit
transferred from
(2,373) (5,865) (776) (5) (589) (491) subsidiaries)
- -------------------------------------------- ---------------------------------------------- ------------------------------
Proceeds from issuance of
82 3,561 55 82 515 176 capital stock
- -------------------------------------------- ---------------------------------------------- ------------------------------
(86) (169) (1,888) -- -- -- Purchase of treasury stock
- -------------------------------------------- ---------------------------------------------- ------------------------------
Proceeds from special
-- 1,487 -- -- -- -- distribution tax refund
- -------------------------------------------- ---------------------------------------------- ------------------------------
Cash provided by (used for)
(1,280) (856) (1,255) 17,042 7,664 4,557 financing activities
- -------------------------------------------- ---------------------------------------------- ------------------------------
Effect of foreign exchange
rate changes on cash and
cash equivalents maturing
750 (371) 610 55 (26) 36 within 3 months
- -------------------------------------------- ---------------------------------------------- ------------------------------
Net increase (decrease) in
cash and cash equivalents
2,199 (298) 1,388 281 (55) 367 maturing within 3 months
- -------------------------------------------- ---------------------------------------------- ------------------------------
Cash and cash equivalents
(maturing within 3 months)
- -------------------------------------------- ---------------------------------------------- ------------------------------
5,660 5,958 4,570 621 676 309 At beginning of period
- -------------------------------------------- ---------------------------------------------- ------------------------------
7,859 5,660 5,958 902 621 676 At end of period
- -------------------------------------------- ---------------------------------------------- ------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
ALL 1998 AND 1997 BALANCES HAVE BEEN RESTATED FROM DEUTSCHE MARKS INTO EUROS
USING THE OFFICIAL FIXED CONVERSION RATE.
F-7
<PAGE>
DAIMLERCHRYSLER AG
Consolidated Fixed Assets Schedule
(in millions of [EURO])
<TABLE>
<CAPTION>
Acquisition or Manufacturing Costs
-----------------------------------------------------------------------------------------------
Acquisitions/ Balance at
Balance at disposals December
January 1, Currency of Reclassi- 31,
1999 change businesses Additions fications Disposals 1999
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Other intangible assets 737 55 21 236 22 88 983
Goodwill 3,564 359 108 103 -- 73 4,061
- --------------------------------------------------------------------------------------------------------------------------
Intangible assets 4,301 414 129 339 22 161 5,044
- --------------------------------------------------------------------------------------------------------------------------
Land, leasehold
improvements and
buildings including
buildings on land owned
by others 18,018 983 196 997 270 232 20,232
Technical equipment and
machinery 26,245 2,085 201 2,796 336 990 30,673
Other equipment, factory
and office equipment 17,135 1,436 117 2,699 414 1,385 20,416
Advance payments relating
to plant and equipment
and construction in
progress 4,539 632 20 2,997 (1,042) 46 7,100
- --------------------------------------------------------------------------------------------------------------------------
Property, plant and
equipment 65,937 5,136 534 9,489 (22) 2,653 78,421
- --------------------------------------------------------------------------------------------------------------------------
Investments in affiliated
companies 718 40 (29) 370 (2) 35 1,062
Loans to affiliated
companies 29 4 8 60 -- 59 42
Investments in associated
companies 358 22 19 158 89 100 546
Investments in related
companies 1,178 101 15 182 (87) 66 1,323
Loans to associated and
related companies 71 9 (1) 142 -- 1 220
Long-term securities 676 -- . 109 -- -- 785
Other loans 195 8 9 207 -- 46 373
- --------------------------------------------------------------------------------------------------------------------------
Investments and long-term
financial assets 3,225 184 21 1,228 -- 307 4,351
- --------------------------------------------------------------------------------------------------------------------------
Equipment on operating
leases (2) 18,129 3,139 112 19,336 -- 8,038 32,678
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Currency translation changes with period end rates.
(2) Excluding initial direct costs.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
ALL 1998 BALANCES HAVE BEEN RESTATED FROM DEUTSCHE MARKS INTO EUROS USING THE
OFFICIAL FIXED CONVERSION RATE.
F-8
<PAGE>
DAIMLERCHRYSLER AG
Consolidated Fixed Assets Schedule (Continued)
(in millions of [EURO])
<TABLE>
<CAPTION>
Depreciation/Amortization Book Value(1)
- ---------------------------------------------------------------------------- ---------------------
Acquisitions/ Balance at Balance at Balance at
Balance at disposals December December December
January 1, Currency of Reclassi- 31, 31, 31,
1999 change businesses Additions fications Disposals 1999 1999 1998
- ---------------------------------------------------------------------------- --------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
386 17 8 137 2 31 519 464 351 Other intangible assets
1,354 131 22 215 . 20 1,702 2,359 2,210 Goodwill
- ---------------------------------------------------------------------------- --------------------- -------------------------
1,740 148 30 352 2 51 2,221 2,823 2,561 Intangible assets
- ---------------------------------------------------------------------------- --------------------- -------------------------
Land, leasehold
improvements and
buildings including
buildings on land owned
8,422 197 47 631 (6) 132 9,159 11,073 9,596 by others
Technical equipment and
16,759 922 115 2,538 2 761 19,575 11,098 9,486 machinery
Other equipment, factory
11,224 804 72 2,482 2 1,332 13,252 7,164 5,911 and office equipment
Advance payments relating
to plant and equipment
-- . -- 4 . 3 1 7,099 4,539 and construction
- ---------------------------------------------------------------------------- --------------------- -------------------------
Property, plant and
36,405 1,923 234 5,655 (2) 2,228 41,987 36,434 29,532 equipment
- ---------------------------------------------------------------------------- --------------------- -------------------------
Investments in affiliated
92 . 15 15 (3) 2 117 945 626 companies
Loans to affiliated
4 -- -- -- -- -- 4 38 25 companies
Investments in associated
8 . 11 7 -- 10 16 530 350 companies
Investments in related
214 . 15 4 3 20 216 1,107 964 companies
Loans to associated and
38 -- -- -- -- -- 38 182 33 related companies
1 -- -- -- -- . 1 784 675 Long-term securities
17 . -- 2 -- 2 17 356 178 Other loans
- ---------------------------------------------------------------------------- --------------------- -------------------------
Investments and long-term
374 . 41 28 -- 34 409 3,942 2,851 financial assets
- ---------------------------------------------------------------------------- --------------------- -------------------------
Equipment on operating
3,563 555 13 3,315 -- 1,872 5,574 27,104 14,566 leases (2)
- ---------------------------------------------------------------------------- --------------------- -------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
ALL 1998 BALANCES HAVE BEEN RESTATED FROM DEUTSCHE MARKS INTO EUROS USING THE
OFFICIAL FIXED CONVERSION RATE.
F-9
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements
(in millions of [EURO], except per share amounts)
BASIS OF PRESENTATION
1. The Company and the Merger
DaimlerChrysler AG ("DaimlerChrysler" or the "Group") was formed through the
merger of Daimler-Benz Aktiengesellschaft ("Daimler-Benz") and Chrysler
Corporation ("Chrysler") in November 1998 ("Merger"). The consolidated financial
statements of DaimlerChrysler have been prepared in accordance with United
States Generally Accepted Accounting Principles ("U.S. GAAP"), except that the
Group accounts for certain joint ventures in accordance with the proportionate
method of consolidation (see Note 3). Prior to December 31, 1998,
DaimlerChrysler prepared and reported its consolidated financial statements in
Deutsche Marks ("DM"). With the introduction of the euro ("[EURO]") on
January 1, 1999, DaimlerChrysler has presented the accompanying consolidated
financial statements in euro. Accordingly, the Deutsche Mark consolidated
financial statements for prior periods have been restated into euro using the
Official Fixed Conversion Rate of [EURO]1 = DM1.95583. DaimlerChrysler's 1998
and 1997 restated euro financial statements depict the same trends as would have
been presented if it had continued to present its consolidated financial
statements in Deutsche Marks. The Group's consolidated financial statements
will, however, not be comparable to the euro financial statements of other
companies that previously reported their financial information in a currency
other than Deutsche Marks. All amounts herein are shown in millions of euros and
for the year 1999 are also presented in U.S. dollars ("$"), the latter being
unaudited and presented solely for the convenience of the reader at the rate of
[EURO]1 = $1.0070, the Noon Buying Rate of the Federal Reserve Bank of New York
on December 31, 1999.
Pursuant to the amended and restated business combination agreement dated
May 7, 1998, 1.005 Ordinary Shares, no par value ("DaimlerChrysler Ordinary
Share"), of DaimlerChrysler were issued for each outstanding Ordinary Share of
Daimler-Benz and .6235 DaimlerChrysler Ordinary Shares were issued for each
outstanding share of Chrysler common stock, stock options and performance
shares. DaimlerChrysler issued 1,001.7 million Ordinary Shares in connection
with these transactions.
The Merger was accounted for as a pooling of interests and accordingly, the
historical results of Daimler-Benz and Chrysler for 1998 and 1997 have been
restated as if the companies had been combined for all periods presented. In
connection with the Merger, [EURO]685 of merger costs ([EURO]401 after tax) were
incurred and charged to expense in 1998. These costs consisted primarily of fees
for investment bankers, attorneys, accountants, financial printing, accelerated
management compensation and other related charges.
Certain prior year balances have been reclassified to conform with the
Group's current year presentation.
Commercial practices with respect to the products manufactured by
DaimlerChrysler necessitate that sales financing, including leasing
alternatives, be made available to the Group's customers. Accordingly, the
Group's consolidated financial statements are significantly influenced by
activities of the financial services businesses. To enhance the readers'
understanding of the Group's consolidated financial statements, the accompanying
financial statements present, in addition to the consolidated financial
statements, information with respect to the financial position, results of
operations and cash flows of the Group's industrial and financial services
business activities. Such information, however, is not required by U.S. GAAP and
is not intended to, and does not represent the separate U.S. GAAP financial
position, results of operations or cash flows of the Group's industrial or
financial services business activities. Transactions between the Group's
industrial and financial businesses principally represent intercompany sales of
products, intercompany borrowings and related interest, and other support under
special vehicle financing programs. The effects of transactions between the
industrial and financial services businesses have been eliminated within the
industrial business columns.
F-10
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
2. Summary of Significant Accounting Policies
CONSOLIDATION -- All material companies in which DaimlerChrysler has legal
or effective control are consolidated. Significant investments in which
DaimlerChrysler has a 20% to 50% ownership ("associated companies") are
generally accounted for using the equity method. For certain investments in
joint ventures, DaimlerChrysler uses the proportionate method of consolidation
(see Note 3). All other investments are accounted for at cost.
For business combinations accounted for under the purchase accounting
method, all assets acquired and liabilities assumed are recorded at fair value.
An excess of the purchase price over the fair value of net assets acquired is
capitalized as goodwill and amortized over the estimated period of benefit on a
straight-line basis.
The effects of intercompany transactions have been eliminated.
FOREIGN CURRENCIES -- The assets and liabilities of foreign subsidiaries
where the functional currency is other than the euro are generally translated
using period-end exchange rates while the statements of income are translated
using average exchange rates during the period. Differences arising from the
translation of assets and liabilities in comparison with the translation of the
previous periods are included as a separate component of stockholders' equity.
The assets and liabilities of foreign subsidiaries operating in highly
inflationary economies are remeasured into euro on the basis of period-end rates
for monetary assets and liabilities and at historical rates for non-monetary
items, with resulting translation gains and losses being recognized in income.
Further, in such economies, depreciation and gains and losses from the disposal
of non-monetary assets are determined using historical rates.
The exchange rates of the significant currencies of non-euro participating
countries used in preparation of the consolidated financial statements were as
follows (prior periods have been restated from Deutsche Marks into euros using
the Official Fixed Conversion Rate of [EURO]1 = DM1.95583):
<TABLE>
<CAPTION>
Exchange rate at Annual average
December 31, exchange rate
------------------- ------------------------------
1999 1998 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
[EURO]1 [EURO]1 [EURO]1 [EURO]1 [EURO]1
= = = = =
------ ------ ------ ------ ------
Currency:
Brazil................................... BRL 1.80 1.42 1.93 1.29 1.22
Great Britain............................ GBP 0.62 0.70 0.66 0.67 0.69
Japan.................................... JPY 102.73 134.84 121.25 144.96 136.20
USA...................................... USD 1.00 1.17 1.07 1.11 1.13
</TABLE>
REVENUE RECOGNITION -- Revenue is recognized when title passes or services
are rendered net of discounts, sales incentives, customer bonuses and rebates
granted. Sales under which the Group conditionally guarantees the minimum resale
value of the product are accounted for as operating leases with the related
revenues and costs deferred at the time of title passage. Operating lease income
is recorded when earned on a straight-line basis. Revenue on long-term contracts
is generally recognized under the percentage-of-completion method based upon
contractual milestones or performance. Revenue from finance receivables is
recorded on the interest method.
The Group sells significant amounts of finance receivables in transactions
subject to limited credit risk. The Group generally sells its receivables to a
trust and remains as servicer, for which it is paid a servicing fee. Servicing
fees are earned on a level-yield basis over the remaining term of the related
sold receivables. In a subordinated capacity, the Group retains residual cash
flows, a limited interest in principal balances of the sold receivables and
certain cash deposits provided as credit enhancements for investors. Gains and
losses from the
F-11
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
sales of finance receivables are recognized in the period in which such sales
occur. In determining the gain or loss for each qualifying sale of finance
receivables, the investment in the sold receivable pool is allocated between the
portion sold and the portion retained based upon their relative fair values.
PRODUCT-RELATED EXPENSES -- Expenditures for advertising and sales promotion
and for other sales-related expenses are charged to expense as incurred.
Provisions for estimated costs related to product warranty are made at the time
the related sale is recorded. Research and development costs are expensed as
incurred.
EARNINGS PER SHARE -- Basic earnings per share is calculated by dividing net
income by the weighted average number of shares outstanding. Diluted earnings
per share reflects the potential dilution that would occur if all securities and
other contracts to issue Ordinary Shares were exercised or converted (see
Note 31). Net income represents the earnings of the Group after minority
interests. Basic and diluted earnings per Ordinary Share for the years ended
December 31, 1998 and 1997 have been restated to reflect the conversion of
Daimler-Benz and Chrysler shares into DaimlerChrysler Ordinary Shares (see
Note 1) and the dilutive effect resulting from the discount to market value at
which the Daimler-Benz Ordinary Shares were sold in the rights offering (see
Note 20).
INTANGIBLE ASSETS -- Purchased intangible assets, other than goodwill, are
valued at acquisition cost and are generally amortized over their respective
useful lives (3 to 40 years) on a straight-line basis. Goodwill derived from
acquisitions is capitalized and amortized over 3 to 40 years. The Group
periodically assesses the recoverability of its goodwill based upon projected
future cash flows.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment is valued at
acquisition or manufacturing costs less accumulated depreciation. Depreciation
expense is recognized either using the declining balance method until the
straight-line method yields larger expenses or the straight-line method. Special
tooling costs are capitalized and amortized over their estimated useful lives,
primarily using the units of production method. The costs of internally produced
equipment and facilities include all direct costs and allocable manufacturing
overhead. Costs of the construction of certain long-term assets include
capitalized interest which is amortized over the estimated useful life of the
related asset. The following useful lives are assumed: buildings -- 17 to
50 years; site improvements -- 8 to 20 years; technical equipment and machinery
- -- 3 to 30 years; and other equipment, factory and office equipment -- 2 to
15 years.
LEASING -- The Group is a lessee of property, plant and equipment and lessor
of equipment, principally passenger cars and commercial vehicles. All leases
that meet certain specified criteria intended to represent situations where the
substantive risks and rewards of ownership have been transferred to the lessee
are accounted for as capital leases. All other leases are accounted for as
operating leases. Equipment on operating leases, where the Group is lessor, is
valued at acquisition cost and depreciated over its estimated useful life,
generally 3 to 14 years, using the straight-line method.
LONG-LIVED ASSETS -- The Group reviews long-lived assets to be held and used
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
NON-FIXED ASSETS -- Non-fixed assets represent the Group's inventories,
receivables, securities and cash, including amounts to be realized in excess of
one year. In the accompanying footnotes, the portion of assets and liabilities
to be realized and settled in excess of one year has been disclosed.
MARKETABLE SECURITIES AND INVESTMENTS -- Securities are accounted for at
fair values, if readily determinable. Unrealized gains and losses on trading
securities, representing securities bought principally for the purposes of
selling them in the near term, are included in income. Unrealized gains and
losses on available-for-sale securities are included in accumulated other
comprehensive income, net of applicable deferred income taxes. All other
securities are recorded at cost. Unrealized losses on all marketable securities
and investments that are other than temporary are recognized in income.
F-12
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
INVENTORIES -- Inventories are valued at the lower of acquisition or
manufacturing cost or market, cost being generally determined on the basis of an
average or first-in, first-out method ("FIFO"). Certain of the Group's U.S.
inventories are valued using the last-in, first-out method ("LIFO").
Manufacturing costs comprise direct material and labor and applicable
manufacturing overheads, including depreciation charges.
FINANCIAL INSTRUMENTS -- DaimlerChrysler uses derivative financial
instruments for hedging purposes. Financial instruments, including derivatives
(especially currency futures, options and swaps, security options and interest
rate swaps), which are not designated as hedges of specific assets, liabilities,
or firm commitments are marked to market and any resulting unrealized gains or
losses are recognized in income. If there is a direct connection between a
derivative financial instrument and an underlying transaction and a derivative
is so designated, a valuation unit is formed. Once allocated, gains and losses
from these valuation units, which are used to manage interest rate and currency
risks of identifiable assets, liabilities, or firm commitments, do not affect
income until the underlying transaction is realized (see Note 29 d).
ACCRUED LIABILITIES -- The valuation of pension liabilities and
postretirement benefit liabilities is based upon the projected unit credit
method in accordance with Statement of Financial Accounting Standards ("SFAS")
87, "Employers' Accounting for Pensions," and SFAS 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." An accrued liability for taxes
and other contingencies is recorded when an obligation to a third party has been
incurred, the payment is probable and the amount can be reasonably estimated.
The effects of accrued liabilities relating to personnel and social costs are
valued at their net present value where appropriate.
USE OF ESTIMATES -- Preparation of the financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NEW ACCOUNTING PRONOUNCEMENTS -- On January 1, 1999, DaimlerChrysler adopted
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities," issued by the American Institute of Certified Public Accountants.
SOP 98-5 provides, among other things, guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up activities
and organization costs to be expensed as incurred. Adoption of this accounting
pronouncement did not have a material effect on DaimlerChrysler's consolidated
financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." This Standard
requires companies to record derivatives on the balance sheet as assets and
liabilities, measured at fair value. Gains and losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. With the issuance
of SFAS 137, "Accounting for Derivative Instruments and Hedging Activities --
Deferral of the Effective Date of FASB Statement No. 133, an Amendment of FASB
Statement No. 133," this Standard is effective for fiscal years beginning after
June 15, 2000. DaimlerChrysler plans to adopt SFAS 133 effective January 1,
2000. The new Standard will permit the Group to apply hedge accounting for
certain foreign currency derivative contracts on qualifying forecasted
transactions. Under the Group's current accounting policies such contracts are
marked to market with unrealized gains and losses impacting current earnings.
Accordingly, application of the new Standard in accounting for such foreign
currency derivative contracts may result in lower current period earnings
volatility relating to the Group's foreign currency risk management in periods
of significant changes in exchange rates.
F-13
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
3. Scope of Consolidation
SCOPE OF CONSOLIDATION -- DaimlerChrysler comprises 549 foreign and domestic
subsidiaries (1998: 481) and 16 joint ventures (1998: 82); the latter are
generally accounted for on a pro rata basis. A total of 55
(1998: 27) subsidiaries are accounted for in the consolidated financial
statements using the equity method of accounting. During 1999, 76 subsidiaries
and 2 joint ventures were included in the consolidated financial statements for
the first time. A total of 69 subsidiaries and 7 joint ventures were no longer
included in the consolidated group. Significant effects of changes in the
consolidated group on the consolidated balance sheets and the consolidated
statements of income are explained further in the notes to the consolidated
financial statements. A total of 343 subsidiaries ("affiliated companies") are
not consolidated as their combined influence on the financial position, results
of operations, and cash flows of the Group is not material (1998: 313). The
effect of such non-consolidated subsidiaries for all years presented on
consolidated assets, revenues and net income of DaimlerChrysler was
approximately 1%. In addition, 7 (1998: 7) companies administering pension funds
whose assets are subject to restrictions have not been included in the
consolidated financial statements. The consolidated financial statements include
109 associated companies (1998: 110) accounted for at cost and recorded under
investments in related companies as these companies are not material to the
respective presentation of the financial position, results of operations or cash
flows of the Group.
INVESTMENT IN ADTRANZ -- In the first quarter of 1999, DaimlerChrysler
acquired the remaining outstanding shares of Adtranz, a rail systems joint
venture, from Asea Brown Boveri for $472 ([EURO]441). The acquisition has been
accounted for under the purchase method of accounting. The purchase price has
been allocated to assets acquired and liabilities assumed based on their
estimated fair values. This allocation resulted in goodwill of [EURO]100, which
will be amortized on a straight-line basis over 17 years. Prior to the
acquisition, the Group accounted for its investment in Adtranz, including its 65
subsidiaries in 1998, using the proportionate method of consolidation.
Accordingly, the consolidated financial statements of DaimlerChrysler as of
December 31, 1998 and for the years ended December 31, 1998 and 1997 included
DaimlerChrysler's 50% interest in the assets and liabilities, revenues and
expenses and cash flows of Adtranz.
Under U.S. GAAP, DaimlerChrysler's investment in Adtranz was required to be
accounted for using the equity method of accounting. The differences in
accounting treatment between the proportionate and equity methods would not have
affected reported stockholders' equity or net income of DaimlerChrysler. Under
the equity method of accounting, DaimlerChrysler's net investment in Adtranz
would have been included within investments in the balance sheet and its share
of the net loss of Adtranz together with the amortization of the excess of the
cost of its investment over its share of the investment's net assets would have
been reported as part of financial income, net in the Group's statement of
income. Additionally, Adtranz would have impacted the Group's reported cash
flows only to the extent of the investing cash outflow in 1998 of [EURO]159
resulting from a capital contribution by DaimlerChrysler. For purposes of its
United States financial reporting obligation, DaimlerChrysler has requested and
received permission from the United States Securities and Exchange Commission to
prepare its consolidated financial statements with this departure from U.S.
GAAP.
Summarized consolidated financial information of Adtranz follows as of
December 31, 1998 and for the years ended December 31, 1998 and 1997. The
amounts represent those used in the DaimlerChrysler consolidation, including
goodwill resulting from the formation of Adtranz. Other companies included in
the consolidated financial statements according to the proportionate method are
not material.
F-14
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Balance sheet information
<TABLE>
<CAPTION>
At December 31, 1998
--------------------
<S> <C>
Fixed assets(1)........................................ 728
Non-fixed assets....................................... 842
-----
Total assets........................................... 1,570
=====
Stockholders' equity................................... 385
Minority interests..................................... 7
Accrued liabilities.................................... 542
Liabilities............................................ 636
-----
Total liabilities and stockholders' equity............. 1,570
=====
</TABLE>
- ------------------------
(1) Includes net goodwill resulting from the formation of Adtranz of [EURO]348.
Statement of income information
<TABLE>
<CAPTION>
Year ended
December 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues.................................................... 1,658 1,631
Operating loss(1)........................................... (322) (222)
Net loss.................................................... (316) (154)
</TABLE>
- ------------------------
(1) The operating losses for 1998 and 1997 include impairment charges on
goodwill of [EURO]64 and [EURO]61, respectively.
Cash flow information
<TABLE>
<CAPTION>
Year ended
December 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from:
Operating activities...................................... (130) 72
Investing activities...................................... (84) (12)
Financing activities...................................... 161 (50)
Effect of foreign exchange on cash.......................... (2) .
---- ---
Change in cash (maturing within 3 months)................... (55) 10
Cash (maturing within 3 months) at beginning of period...... 155 145
---- ---
Cash (maturing within 3 months) at end of period............ 100 155
==== ===
</TABLE>
In 1998, cash maturing within 3 months includes [EURO]30 (1997: [EURO]51)
held by DaimlerChrysler AG in connection with internal cash concentration
procedures.
F-15
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
4. Dispositions
Due to an initial public offering in March 1999 as well as to the selling of
a substantial portion of its remaining interests in September 1999, debis AG, a
wholly-owned subsidiary of DaimlerChrysler, reduced its remaining interest in
debitel AG to 10 percent (see Note 9).
In March 1998, the Group's semiconductor business was sold to an American
company, Vishay Intertechnology, Inc. Also, during 1998 the Group sold further
interests, including the sale of 30% of its interests in
LFK-Lenkflugkoerpersysteme GmbH and 100% of its interests in CMS, Inc. and two
real-estate-project-companies. The total pretax gain from these dispositions was
approximately [EURO]300.
In January 1997, DaimlerChrysler sold its interests in AEG Electrocom GmbH
and AEG ElectroCom International, Inc. (sorting and recognition systems) to
Siemens AG resulting in a pretax gain of [EURO]110.
In July 1997, debis AG terminated its strategic relationship with Cap Gemini
Sogeti S.A. through the sale of its 24.4% interest resulting in a pretax gain of
[EURO]420.
During December 1997, DaimlerChrysler completed an initial public offering
("IPO") of its common stock in Dollar Thrifty Automotive Group, Inc. ("DTAG"),
formerly Pentastar Transportation Group, Inc., for net proceeds of [EURO]343.
The IPO of the common stock interest resulted in a pretax and after-tax gain of
[EURO]65. The gain was deferred and will be recognized over the remaining term
of the vehicle supply agreements with DTAG, which end in 2001. The tax effect on
this transaction reflects the difference between the book and tax basis of the
Group's stock interest in DTAG for which deferred taxes were not provided, in
accordance with SFAS 109, "Accounting for Income Taxes." In addition, the 1997
earnings include the recognition of [EURO]86 ([EURO]53 after taxes) of
previously deferred profits from the sale of vehicles from DaimlerChrysler to
DTAG.
NOTES TO THE CONSOLIDATED STATEMENTS OF INCOME
5. Functional Costs and Other Expenses
Selling, administrative and other expenses are comprised of the following:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Selling expenses................................... 11,744 10,100 9,663
Administration expenses............................ 5,145 5,217 4,709
Goodwill amortization and writedowns............... 215 227 210
Other expenses..................................... 428 685 1,039
------ ------ ------
17,532 16,229 15,621
====== ====== ======
</TABLE>
Expenses amounting to [EURO]229 and [EURO]369 related to the repayment of
development cost subsidies were recorded under other expenses in 1998 and 1997,
respectively (see Note 28).
F-16
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Personnel expenses included in the statement of income are comprised of:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Wages and salaries................................. 21,044 19,982 18,656
Social levies...................................... 3,179 2,990 2,817
Net periodic pension cost (see Note 22a)........... 931 1,126 1,077
Net periodic postretirement benefit cost (see
Note 22a)........................................ 783 866 755
Other expenses for pensions and retirements........ 221 69 65
------ ------ ------
26,158 25,033 23,370
====== ====== ======
</TABLE>
Number of employees (annual average):
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Hourly employees................................ 279,124 268,764 261,426
Salaried employees.............................. 170,539 152,415 147,882
Trainees/apprentices............................ 13,898 12,760 12,353
------- ------- -------
463,561 433,939 421,661
======= ======= =======
</TABLE>
In 1999, 14,851 people (1998: 36,024 people; 1997: 34,448 people) were
employed in joint venture companies.
In 1999, the total remuneration paid by Group companies to the members of
the Board of Management of DaimlerChrysler AG amounted to [EURO]55.4, and the
remuneration paid to the members of the Supervisory Board of DaimlerChrysler AG
totaled [EURO]1.2. Disbursements to former members of the Board of Management of
DaimlerChrysler AG and their survivors amounted to [EURO]23.4. An amount of
[EURO]100.5 has been accrued in the financial statements of DaimlerChrysler AG
for pension obligations to former members of the Board of Management and their
survivors. As of December 31, 1999, no advances or loans existed to members of
the Board of Management of DaimlerChrysler AG.
6. Other Income
Other income includes gains on sales of property, plant and equipment
([EURO]132, [EURO]99 and [EURO]95 in 1999, 1998 and 1997, respectively), rental
income, other than relating to financial services leasing activities ([EURO]153,
[EURO]138 and [EURO]87 in 1999, 1998 and 1997, respectively) and reductions in
certain accruals ([EURO]130, [EURO]199 and [EURO]154 in 1999, 1998 and 1997,
respectively). In 1998 and 1997, gains on sales of companies of [EURO]389 and
[EURO]117, respectively, were recognized in other income.
F-17
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
7. Financial Income, net
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Income (loss) from investments ............................. 19 (111) 66
of which from affiliated companies [EURO]41 (1998:
[EURO](20); 1997: [EURO]17)
Gains, net from disposals of investments and shares in
affiliated and associated companies....................... 41 37 459
Write-down of investments and shares in affiliated
companies................................................. (19) (55) (76)
Income from companies included at equity.................... 23 59 36
------ ----- -----
Income (loss) from investments, net......................... 64 (70) 485
------ ----- -----
Other interest and similar income .......................... 1,382 1,327 1,320
of which from affiliated companies [EURO]17 (1998:
[EURO]13; 1997: [EURO]10)
Interest and similar expenses............................... (729) (702) (640)
------ ----- -----
Interest income, net........................................ 653 625 680
------ ----- -----
Income from securities and long-term receivables............ 913 231 376
Write-down of securities and long-term receivables.......... (17) (10) (10)
Realized and unrealized gains (losses) on derivative
financial instruments..................................... (1,078) 145 (794)
Other, net.................................................. (202) (158) (104)
------ ----- -----
Other financial income (loss), net.......................... (384) 208 (532)
------ ----- -----
333 763 633
====== ===== =====
</TABLE>
The Group capitalized interest expenses related to qualifying construction
projects of [EURO]163 (1998: [EURO]186; 1997: [EURO]207).
8. Income Taxes
Income before income taxes and extraordinary items amounted to [EURO]9,657
(1998: [EURO]8,093; 1997: [EURO]6,145), of which [EURO]2,688 was generated by
the Group's operations in Germany (1998: [EURO]2,229; 1997: [EURO]1,450).
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current taxes
Germany......................................... 1,074 (267) (1,472)
Foreign......................................... 1,538 1,322 1,660
Deferred taxes
Germany......................................... 836 967 (910)
Foreign......................................... 1,085 992 205
----- ------ ------
4,533 3,014 (517)
===== ====== ======
</TABLE>
In 1999, the tax laws in Germany were changed including a reduction in the
retained corporate income tax rate from 45% to 40% and the broadening of the tax
base. The effects of the changes in German tax laws were recognized as a charge
of [EURO]812 (basic: [EURO]0.81 per share; diluted: [EURO]0.80 per share) in the
consolidated statement of
F-18
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
income in 1999. The effects of the reduction in the tax rate on the deferred tax
assets and liabilities of the Group's German companies as of December 31, 1998
amounted to [EURO]290. The broadening of the tax base resulted in tax expense of
[EURO]522.
German corporate tax law applies a split-rate imputation with regard to the
taxation of the income of a corporation and its shareholders. In accordance with
the tax law in effect for fiscal 1999, retained corporate income is initially
subject to a federal corporate tax of 40% (1998 and 1997: 45%) plus a solidarity
surcharge of 5.5% (1998: 5.5%; 1997: 7.5%) on federal corporate taxes payable.
Including the impact of the surcharge, the federal corporate tax rate amounts to
42.2% (1998: 47.475%; 1997: 48.375%). Upon distribution of certain retained
earnings generated in Germany to stockholders, the corporate income tax rate on
the earnings is adjusted to 30%, plus a solidarity surcharge of 5.5% (1998:
5.5%; 1997: 7.5%) on the distribution corporate tax, for a total of 31.65%
(1998: 31.65%; 1997: 32.25%), by means of a refund for taxes previously paid.
Upon distribution of retained earnings in the form of a dividend, stockholders
who are taxpayers in Germany are entitled to a tax credit in the amount of
federal income taxes previously paid by the corporation.
For German companies, the deferred taxes for 1999 are calculated using
effective corporate income tax rates of 42.2% (1998 and 1997: 47.475%) plus the
after federal tax benefit rate for trade tax of 9.3% (1998 and 1997: 8.525%).
The effect of the tax rate reductions in 1999 and 1997 on deferred tax balances
are reflected separately in the reconciliations presented below.
A reconciliation of income taxes determined using the German corporate tax
rate of 42.2% (1998: 47.475%; 1997: 48.375%) plus the after federal tax benefit
rate for trade taxes of 9.3% (1998: 8.525%; 1997: 8.625%) for a combined
statutory rate of 51.5% in 1999 (1998: 56%; 1997: 57%) is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Expected expense for income taxes................. 4,973 4,532 3,503
Effect of changes in 1999 German tax laws......... 812 -- --
Change of solidarity surcharge in 1997............ -- -- 68
Credit for dividend distributions................. (500) (515) (1,624)
Foreign tax rate differential..................... (966) (1,012) (813)
Release of valuation allowances on German deferred
tax assets as of December 31, 1997.............. -- -- (1,003)
Changes in valuation allowances on German deferred
tax assets...................................... 23 112 (465)
Write-downs of investments, different for tax
purposes........................................ (28) (18) (240)
Amortization of non-deductible goodwill........... 33 78 55
Other............................................. 186 (163) 2
------ ------ ------
Actual expense (benefit) for income taxes......... 4,533 3,014 (517)
====== ====== ======
</TABLE>
The 1999 and 1998 income tax credits from dividend distributions amounted to
[EURO]500 and [EURO]515, respectively, and reflected mainly the tax benefits
from the dividend distributions of [EURO]2.35 per Ordinary Share to be paid in
respect of 1999 and 1998.
The 1997 income tax credit from dividend distributions amounted to
[EURO]1,624 and reflected primarily a tax benefit of [EURO]1,487 from the
special distribution. This benefit resulted from the refund of taxes previously
paid on undistributed profits at a rate of 50% in excess of the effective tax
rate of 30% on distributed profits.
F-19
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
In 1997, the decrease in the consolidated domestic valuation allowances was
due in part to [EURO]465 utilization of tax loss carryforwards. Additionally,
[EURO]1,003 was due to the reversal of the remaining valuation allowances as of
December 31, 1997 for the German companies included in the filing of a combined
tax return ("Organschaft") on the basis that the current and the expected
results of operations supported a conclusion that it was more likely than not
that the deferred tax assets would be realized.
During 1997, the Group sold its investment in Cap Gemini Sogeti S.A. and
realized a gain of [EURO]420 in its consolidated financial statements which was
not taxable since write-downs were previously not recognized for tax purposes.
Deferred income tax assets and liabilities are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Property, plant and equipment............................. 1,217 2,063
Equipment on operating leases............................. 920 1,068
Investments and long-term financial assets................ 1,983 97
Inventories............................................... 1,424 1,328
Receivables............................................... 993 527
Net operating loss and tax credit carryforwards........... 1,011 1,056
Retirement plans.......................................... 3,662 3,880
Other accrued liabilities................................. 4,248 4,166
Liabilities............................................... 1,482 846
Deferred income........................................... 1,246 1,144
Other..................................................... 490 452
------- -------
18,676 16,627
Valuation allowances...................................... (363) (411)
------- -------
Deferred tax assets....................................... 18,313 16,216
------- -------
Property, plant and equipment............................. (3,346) (2,743)
Equipment on operating leases............................. (5,600) (4,252)
Inventories............................................... (499) (483)
Receivables............................................... (3,278) (3,645)
Prepaid expenses.......................................... (508) (450)
Retirement plans.......................................... (4,127) (2,069)
Other accrued liabilities................................. (671) (367)
Taxes on undistributed earnings of foreign subsidiaries... (520) (297)
Other..................................................... (1,150) (1,059)
------- -------
Deferred tax liabilities.................................. (19,699) (15,365)
------- -------
Deferred tax assets (liabilities), net.................... (1,386) 851
======= =======
</TABLE>
At December 31, 1999, the Group had corporate tax net operating losses
("NOLs") and credit carryforwards amounting to [EURO]2,232 (1998: [EURO]1,724)
and German trade tax NOLs amounting to [EURO]1,352 (1998: [EURO]2,156). In 1999,
the corporate tax NOLs and credit carryforwards relate to losses of foreign and
domestic non-Organschaft companies and are partly limited in their use to the
Group. The valuation allowances on deferred tax assets of
F-20
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
foreign and domestic operations decreased by [EURO]48. In future periods,
depending upon the financial results, management's estimate of the amount of the
deferred tax assets considered realizable may change, and hence the valuation
allowances may increase or decrease.
Net deferred income tax assets and liabilities in the consolidated balance
sheets are as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------- ----------------------
thereof thereof
Total non-current Total non-current
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Deferred tax assets.......................... 3,806 2,937 5,016 3,979
Deferred tax liabilities..................... (5,192) (4,689) (4,165) (2,884)
------ ------ ------ ------
Deferred tax assets (liabilities), net....... (1,386) (1,752) 851 1,095
====== ====== ====== ======
</TABLE>
DaimlerChrysler provided foreign withholding taxes of [EURO]343 (1998:
[EURO]297) on [EURO]6,868 (1998: [EURO]5,948) in cumulative undistributed
earnings of foreign subsidiaries because these earnings are not intended to be
permanently reinvested in those operations. In addition, beginning in 1999, the
German tax law requires that deductible expenses are reduced by 5% of foreign
dividends received. The additional German tax of [EURO]177 on the future payout
of these foreign dividends was recognized in 1999 and included in "Effects of
changes in 1999 German tax laws." The Group did not provide income taxes or
foreign withholding taxes on [EURO]13,224 (1998: [EURO]6,016) in cumulative
earnings of foreign subsidiaries because these earnings are intended to be
indefinitely reinvested in those operations. It is not practicable to estimate
the amount of unrecognized deferred tax liabilities for these undistributed
foreign earnings.
Including the items charged or credited directly to related components of
stockholders' equity, the expense (benefit) for income taxes consists of the
following:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Expense (benefit) for income taxes before
extraordinary items............................... 4,533 3,014 (517)
Income tax expense (benefit) of extraordinary
items............................................. 470 (78) --
Stockholders' equity for employee stock option
expense in excess of amounts recognized for
financial purposes................................ (31) (212) (39)
Stockholders' equity for items of other
comprehensive income.............................. (155) 296 176
------ ----- -----
4,817 3,020 (380)
====== ===== =====
</TABLE>
9. Extraordinary Items
In March 1999, debis AG, a wholly-owned subsidiary of DaimlerChrysler, sold
a portion of its interests in debitel AG in an initial public offering of its
ordinary shares for proceeds of [EURO]274. In September 1999, debis AG sold an
additional portion of its remaining interests in debitel AG to Swisscom for
proceeds of [EURO]924. The sales resulted in an extraordinary after-tax gain of
[EURO]659 (net of income tax expense of [EURO]481) and reduced debis' remaining
interest in debitel to 10 percent. U.S. GAAP requires that when a significant
disposition of assets or businesses occurs within two years subsequent to
accounting for a business combination using the pooling-of-interests method of
accounting that the gain or loss be reported as an extraordinary item. Due to
the significance of the September 1999 transaction, the gains from both the
March and September dispositions have been reported in the accompanying
consolidated statements of income as extraordinary items, net of taxes.
In 1999 the Group extinguished [EURO]51 of long-term debt resulting in an
extraordinary after tax loss of [EURO]19 (net of income tax benefit of
[EURO]11).
F-21
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
In December 1998, DaimlerChrysler extinguished [EURO]257 of the outstanding
principal amount of its Auburn Hills Trust Guaranteed Exchangeable Certificates
due 2020 (the "Certificates") at a cost of [EURO]454. The extinguishment of the
Certificates resulted in an extraordinary after tax loss of [EURO]129 (net of
income tax benefit of [EURO]78).
NOTES TO THE CONSOLIDATED BALANCE SHEETS
10. Intangible Assets and Property, Plant and Equipment, net
Information with respect to changes in the Group's intangible assets and
property, plant and equipment is presented in the Consolidated Fixed Assets
Schedule included herein. Intangible assets represent principally goodwill and
intangible pension assets.
Property, plant and equipment includes buildings, technical equipment and
other equipment capitalized under capital lease agreements of [EURO]368 (1998:
[EURO]394). Depreciation expense on assets under capital lease arrangements was
[EURO]32 (1998: [EURO]38; 1997: [EURO]29).
11. Equipment on Operating Leases, net
Information with respect to changes in the Group's equipment on operating
leases is presented in the Consolidated Fixed Assets Schedule included herein.
Of the total equipment on operating leases, [EURO]26,409 represent automobiles
and commercial vehicles (1998: [EURO]14,078).
Noncancellable future lease payments due from customers for equipment on
operating leases at December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ 4,939
2001........................................................ 3,956
2002........................................................ 2,102
2003........................................................ 459
2004........................................................ 178
thereafter.................................................. 187
------
11,821
======
</TABLE>
12. Inventories
<TABLE>
<CAPTION>
At December 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Raw materials and manufacturing supplies................. 2,602 2,278
Work-in-process ......................................... 6,285 4,568
thereof relating to long-term contracts and programs in
process [EURO]2,000 (1998: [EURO]919)
Finished goods, parts and products held for resale....... 9,887 7,631
Advance payments to suppliers............................ 518 312
------ ------
19,292 14,789
------ ------
Less: Advance payments received ......................... (4,307) (2,993)
thereof relating to long-term contracts and programs in
process [EURO]1,166 (1998: [EURO]578)
------ ------
14,985 11,796
====== ======
</TABLE>
Certain of the Group's U.S. inventories are valued using the LIFO method. If
the FIFO method had been used instead of the LIFO method, inventories would have
been higher by [EURO]691 (1998: [EURO]549).
F-22
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
13. Trade Receivables
<TABLE>
<CAPTION>
At December 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Receivables from sales of goods and services............................... 8,859 8,020
Long-term contracts and programs, unbilled, net of advance payments
received................................................................. 779 442
--------- ---------
9,638 8,462
Allowance for doubtful accounts............................................ (798) (857)
--------- ---------
8,840 7,605
========= =========
</TABLE>
As of December 31, 1999, [EURO]469 of the trade receivables mature after
more than one year (1998: [EURO]399).
14. Receivables from Financial Services
<TABLE>
<CAPTION>
At December 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Receivables from:
Sales financing.......................................................... 32,696 20,635
Finance leases........................................................... 11,440 9,542
--------- ---------
44,136 30,177
Initial direct costs..................................................... 143 96
Unearned income.......................................................... (5,977) (4,245)
Unguaranteed residual value of leased assets............................. 1,032 804
--------- ---------
39,334 26,832
Allowance for doubtful accounts.......................................... (599) (364)
--------- ---------
38,735 26,468
========= =========
</TABLE>
As of December 31, 1999, [EURO]21,194 of the financing receivables mature
after more than one year (1998: [EURO]14,733).
Sales financing and finance lease receivables consist of retail installment
sales contracts secured by automobiles and commercial vehicles. Contractual
maturities applicable to receivables from sales financing and finance leases in
each of the years following December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000.............................................................. 20,184
2001.............................................................. 8,043
2002.............................................................. 5,935
2003.............................................................. 3,568
2004.............................................................. 2,166
thereafter........................................................ 4,240
---------
44,136
=========
</TABLE>
Actual cash flows will vary from contractual maturities due to future sales
of finance receivables, prepayments and charge-offs.
F-23
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
In the normal course of business, the Group sells to third parties certain
of its receivables from financial services. In 1999, the Group sold financial
receivables for proceeds of [EURO]51,843 (1998: [EURO]40,950; 1997:
[EURO]44,336).
15. Other Receivables
<TABLE>
<CAPTION>
At December 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Receivables from affiliated companies.................................... 850 480
Receivables from related companies(1).................................... 1,250 804
Other receivables and other assets....................................... 11,598 10,740
--------- ---------
13,698 12,024
Allowance for doubtful accounts.......................................... (1,127) (1,249)
--------- ---------
12,571 10,775
========= =========
</TABLE>
- --------------------------
(1) Related companies include entities which have a significant ownership in
DaimlerChrysler or entities in which the Group holds a significant
investment.
Other receivables and other assets include retained interests in sold
receivables and subordinated asset backed certificates of [EURO]4,006 (1998:
[EURO]3,046).
As of December 31, 1999, [EURO]3,390 of the other receivables mature after
more than one year (1998: [EURO]4,199).
16. Securities, Investments and Long-Term Financial Assets
Information with respect to the Group's investments and long-term financial
assets is presented in the Consolidated Fixed Assets Schedule included herein.
Securities included in non-fixed assets are comprised of the following:
<TABLE>
<CAPTION>
At December 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Debt securities........................................................... 4,347 4,565
Equity securities......................................................... 938 971
Equity-based funds........................................................ 1,191 1,970
Debt-based funds.......................................................... 2,493 4,654
--------- ---------
8,969 12,160
========= =========
</TABLE>
F-24
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Carrying amounts and fair values of debt and equity securities included in
securities and investments for which fair values are readily determinable are
classified as follows:
<TABLE>
<CAPTION>
At December 31, 1999 At December 31, 1998
------------------------------------------ --------------------------------------------
Unrealized Unrealized
Fair -------------------- Fair ----------------------
Cost value Gain Loss Cost value Gain Loss
--------- --------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-sale................. 8,114 8,486 522 150 10,501 11,183 706 24
Trading............................ 487 483 -- 4 934 977 44 1
--------- --------- --------- --------- --------- --------- --------- ---------
Securities......................... 8,601 8,969 522 154 11,435 12,160 750 25
--------- --------- --------- --------- --------- --------- --------- ---------
Investments and long-term financial
assets available-for-sale........ 296 784 488 -- 278 675 397 --
--------- --------- --------- --------- --------- --------- --------- ---------
8,897 9,753 1,010 154 11,713 12,835 1,147 25
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
The aggregate costs, fair values and gross unrealized holding gains and
losses per security class are as follows:
<TABLE>
<CAPTION>
At December 31, 1999 At December 31, 1998
-------------------------------------------- ----------------------------------------------
Unrealized Unrealized
-------------------- ----------------------
Cost Fair value Gain Loss Cost Fair value Gain Loss
--------- ----------- --------- --------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity securities.................. 977 1,662 698 13 1,116 1,623 512 5
Debt securities issued by the
German government and its
agencies......................... 159 167 8 -- 93 93 -- --
Municipal securities............... 20 20 -- -- 418 418 -- --
Debt securities issued by foreign
governments...................... 1,682 1,654 13 41 892 893 4 3
Corporate debt securities.......... 1,234 1,210 -- 24 1,459 1,478 31 12
Equity-based funds................. 935 1,191 276 20 1,761 1,970 209 --
Debt-based funds................... 2,526 2,495 15 46 4,309 4,654 345 --
Asset-backed securities............ 622 616 -- 6 597 595 1 3
Other marketable debt securities... 255 255 -- -- 134 134 1 1
--------- --------- --------- --------- --------- --------- --------- ---------
Available-for-sale................. 8,410 9,270 1,010 150 10,779 11,858 1,103 24
--------- --------- --------- --------- --------- --------- --------- ---------
Trading............................ 487 483 -- 4 934 977 44 1
--------- --------- --------- --------- --------- --------- --------- ---------
8,897 9,753 1,010 154 11,713 12,835 1,147 25
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
F-25
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
The estimated fair values of investments in debt securities, by contractual
maturity, are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without penalty.
<TABLE>
<CAPTION>
At December 31,
--------------------
Available-for-sale 1999 1998
- ------------------------------------------------------------ --------- ---------
<S> <C> <C>
Due within one year......................................... 1,473 975
Due after one year through five years....................... 1,806 2,122
Due after five years through ten years...................... 477 129
Due after ten years......................................... 166 385
--------- ---------
3,922 3,611
========= =========
</TABLE>
Proceeds from disposals of available-for-sale securities were [EURO]6,540
(1998: [EURO]2,734; 1997: [EURO]1,432), including [EURO]4,059 related to the
contribution to the DaimlerChrysler Pension Trust (see Note 22a). Gross realized
gains from sales of available-for-sale securities were [EURO]627 (1998:
[EURO]98; 1997: [EURO]92), while gross realized losses were [EURO]4 (1998:
[EURO]8; 1997: [EURO]1). DaimlerChrysler uses the specific identification method
as a basis for determining cost and calculating realized gains and losses.
Other securities classified as cash equivalents were approximately
[EURO]5,400 and [EURO]4,600 at December 31, 1999 and 1998, respectively, and
consisted primarily of purchase agreements, commercial paper and certificates of
deposit.
17. Cash and Cash Equivalents
Cash and cash equivalents include [EURO]338 (1998: [EURO]308) of deposits
with original maturities of more than three months.
18. Additional Cash Flow Information
Liquid assets recorded under various balance sheet captions are as follows:
<TABLE>
<CAPTION>
At December 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash and cash equivalents originally maturing within 3 months....................... 8,761 6,281 6,634
Cash and cash equivalents originally maturing after 3 months........................ 338 308 175
Securities.......................................................................... 8,969 12,160 10,180
Other............................................................................... 133 324 336
--------- --------- ---------
18,201 19,073 17,325
========= ========= =========
</TABLE>
The following represents supplemental information with respect to cash
flows:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Interest paid........................................................................... 3,315 2,553 1,953
Income taxes paid....................................................................... 1,883 993 1,699
</TABLE>
F-26
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
19. Prepaid Expenses
Prepaid expenses are comprised of the following:
<TABLE>
<CAPTION>
At December 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Prepaid pension cost............................................................................ 6,236 5,309
Other prepaid expenses.......................................................................... 978 825
--------- ---------
7,214 6,134
========= =========
</TABLE>
As of December 31, 1999, [EURO]6,118 of the total prepaid expenses mature
after more than one year (1998: [EURO]5,280).
20. Stockholders' Equity
NUMBER OF SHARES ISSUED AND OUTSTANDING
DaimlerChrysler had issued and outstanding 1,003,261,403 and 1,001,733,220
registered, Ordinary Shares of no par value at December 31, 1999 and 1998,
respectively. Each share represents approximately [EURO]2.56 of capital stock.
SPECIAL DISTRIBUTION
On May 27, 1998 the Daimler-Benz shareholders approved, and on June 15, 1998
Daimler-Benz paid, a special distribution of [EURO]10.23 ([EURO]10.04 after
adjustment to reflect the approximately 20% discount to market value at which
the Daimler-Benz Ordinary Shares and ADS were sold in the rights offering) per
Ordinary Share/ADS.
RIGHTS OFFERING
In June 1998, Daimler-Benz issued to holders of Daimler-Benz Ordinary
Shares, ADS and convertible debt securities, rights to acquire up to an
aggregate of 52.4 million newly issued Daimler-Benz Ordinary Shares and on
June 25, 1998, Daimler-Benz issued and sold 52.4 million Daimler-Benz Ordinary
Shares for net proceeds of [EURO]3,827. The rights issued by Daimler-Benz
entitled the holders to purchase Daimler-Benz Ordinary Shares at approximately a
20% discount to the market price of Daimler-Benz Ordinary Shares. Basic and
diluted earnings per Ordinary Share have been restated to reflect the dilutive
effect resulting from the discount to market value at which the Daimler-Benz
Ordinary Shares were sold in the rights offering.
TREASURY STOCK
During the second half of 1999, DaimlerChrysler purchased approximately
1.2 million of its Ordinary Shares and reissued the shares to employees in
connection with an employee share purchase plan.
In November 1998, Chrysler contributed 23.5 million shares of its common
stock to the Chrysler Corporation Retirement Master Trust, which serves as a
funding medium for and holds the assets of various pension and retirement plans
of Chrysler.
PREFERRED STOCK
On July 24, 1998, Chrysler redeemed all of the outstanding Chrysler
Depositary Shares representing its Series A Convertible Preferred Stock.
F-27
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
AUTHORIZED AND CONDITIONAL CAPITAL
Through April 30, 2003, the Board of Management is authorized, upon approval
of the Supervisory Board, to increase capital stock by a total of up to
[EURO]256 and to issue shares of up to [EURO]26 to employees.
With respect to the 4.125% convertible notes and the 5.75% subordinated
mandatory convertible notes described below, capital stock may be conditionally
increased by up to [EURO]43.7 for conversions. In addition, DaimlerChrysler is
authorized to issue shares equaling up to [EURO]102 of capital stock in
connection with convertible bonds or bonds with warrants issued or guaranteed by
April 30, 2003.
CONVERTIBLE NOTES
In June 1997, DaimlerChrysler issued 5.75% subordinated mandatory
convertible notes due June 14, 2002 with a nominal amount of [EURO]66.83 per
note. These convertible notes represent a nominal amount of [EURO]508 including
7,600,000 notes which may be converted into 0.86631 newly issuable shares before
June 4, 2002. Notes not converted by this date will be mandatorily converted at
a conversion rate between 0.86631 and 1.25625 Ordinary Shares per note to be
determined on the basis of the average market price for the shares during the
last 20 trading days before June 8, 2002. During 1999, 665 (1998: 3,713; 1997:
156) DaimlerChrysler Ordinary Shares were issued upon exercise.
During 1996, DaimlerChrysler Luxembourg Capital S.A., a wholly-owned
subsidiary of DaimlerChrysler, issued 4.125% bearer notes with appertaining
warrants due July 5, 2003, in the amount of [EURO]383 with a nominal value of
[EURO]511 each, including a total of 7,690,500 options which, on the basis of
the option agreement (as amended), entitles the bearer of the option to
subscribe for shares of DaimlerChrysler AG. The option price per share is
[EURO]42.67 in consideration of exchange of the notes or [EURO]44.49 in cash.
During 1999, options for the subscription of 1,517,468 (1998: 5,027,002; 1997:
1,785) newly issued DaimlerChrysler Ordinary Shares have been exercised.
COMPREHENSIVE INCOME
The changes in the components of other comprehensive income (loss) are as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------- ----------------------------- -----------------------------
Pretax Tax effect Net Pretax Tax effect Net Pretax Tax effect Net
-------- ----------- ------ ------- ----------- ------- -------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unrealized gains (losses)
on securities:
Unrealized holding
gains (losses)....... 292 (163) 129 659 (354) 305 439 (230) 209
Reclassification
adjustments for
(gains) losses
included in net
income............... (623) 313 (310) (103) 57 (46) (106) 54 (52)
------- ---------- ----- ------ ---------- ------ ------- ---------- -----
Net unrealized gains
(losses)........... (331) 150 (181) 556 (297) 259 333 (176) 157
Foreign currency
translation
adjustments............ 2,431 -- 2,431 (1,402) -- (1,402) 1,865 -- 1,865
Minimum pension liability
adjustments............ (13) 5 (8) (2) 1 (1) 1 (.) 1
------- ---------- ----- ------ ---------- ------ ------- ---------- -----
Other comprehensive
income (loss).......... 2,087 155 2,242 (848) (296) (1,144) 2,199 (176) 2,023
======= ========== ===== ====== ========== ====== ======= ========== =====
</TABLE>
F-28
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
MISCELLANEOUS
Minority stockholders of Dornier GmbH have the right to exchange their
interests in Dornier for holdings of equal value in DaimlerChrysler Luft- und
Raumfahrt Holding AG or Ordinary Shares of DaimlerChrysler AG and such options
are exercisable at any time.
Under the German corporation law (Aktiengesetz), the amount of dividends
available for distribution to shareholders is based upon the earnings of
DaimlerChrysler AG (parent company only) as reported in its statutory financial
statements determined in accordance with the German commercial code
(Handelsgesetzbuch). For the year ended December 31, 1999, DaimlerChrysler
management has proposed a distribution of [EURO]2,358 ([EURO]2.35 per share) of
the 1999 earnings of DaimlerChrysler AG as a dividend to the stockholders.
21. Stock-Based Compensation
The Group currently has various stock appreciation rights ("SARs") plans
resulting from newly adopted plans and the conversion of former Daimler-Benz
Stock Option and former Chrysler plans. In addition, the Group has a stock
option plan which was originally established by Daimler-Benz in 1996 and has
been converted to options for DaimlerChrysler Ordinary Shares. The Group also
has a performance-based stock award plan. Prior to the Merger, Chrysler had both
fixed stock option and performance-based stock compensation plans. These
Chrysler plans were terminated as a result of the Merger and all outstanding
options and awards became vested and were converted into equivalent
DaimlerChrysler Ordinary Shares. The Group accounts for all stock-based
compensation plans in accordance with APB Opinion No. 25 and related
interpretations.
STOCK APPRECIATION-BASED PLANS
In the first half of 1999, DaimlerChrysler established a new stock
appreciation rights plan (the "SAR Plan 1999") which provides eligible employees
of the Group with the right to receive cash equal to the appreciation of
DaimlerChrysler Ordinary Shares subsequent to the date of grant. The stock
appreciation rights granted under the SAR Plan 1999 vest in equal installments
on the second and third anniversaries from the date of grant. All unexercised
SARs expire ten years from the grant date. The exercise price of a SAR is equal
to the fair market value of DaimlerChrysler's Ordinary Shares on the date of
grant. On February 24, 1999, the Group issued 11.4 million SARs at an exercise
price of [EURO]89.70.
As discussed below, DaimlerChrysler converted all options granted under its
existing stock option plans from 1997 and 1998 into SARs in the second quarter
of 1999.
In conjunction with the consummation of the Merger in 1998, the Group
implemented a SAR plan (22.3 million SARs at an exercise price of $75.56 each).
The initial grant of SARs replaced Chrysler fixed stock options that were
converted to DaimlerChrysler Ordinary Shares as of the consummation of the
Merger. SARs which replaced stock options that were exercisable at the time of
the consummation of the Merger were immediately exercisable at the date of
grant. SARs related to stock options that were not exercisable at the date of
consummation of the Merger became exercisable in two installments; 50 percent on
the six-month and one-year anniversaries of the consummation date.
F-29
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
A summary of the activity related to the Group's SAR plans as of and for the
years ended December 31, 1999 and 1998 is presented below (SARs in millions):
<TABLE>
<CAPTION>
1999 1998
----------------------------- -----------------------------
Number of Weighted-avg. Number of Weighted-avg.
SARs exercise price SARs exercise price
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year......................... 22.2 [EURO] 64.58 -- [EURO] --
Granted.................................................. 11.4 89.70 22.3 64.58
Exchange of Stock Options for SARs....................... 15.2 79.79 -- --
Exercised................................................ (2.2) 64.91 (0.1) 64.58
Forfeited................................................ (0.8) 76.07 -- --
--------- ---------- --------- ----------
Outstanding at end of year............................... 45.8 75.68 22.2 64.58
========= ========== ========= ==========
SARs exercisable at year-end............................. 26.8 [EURO] 64.92 11.3 [EURO] 64.58
========= ========== ========= ==========
</TABLE>
The Group grants performance-based stock awards to certain eligible
employees with performance periods of up to three years and track the value of
DaimlerChrysler Ordinary Shares. The amount ultimately earned in cash
compensation at the end of a performance period is based on the degree of
achievement of corporate goals. In 1999, the Group issued 0.7 million
performance-based stock awards.
Compensation expense or benefit on SARs and performance-based stock awards
is recorded based on changes in the market price of DaimlerChrysler Ordinary
Shares and, in case of performance-based stock awards, the attainment of certain
performance goals. For the years ended December 31, 1999 and 1998 the Group
recognized compensation benefit of [EURO]106 and compensation expense of
[EURO]251, respectively, for SARs and performance-based stock awards.
STOCK OPTION PLANS
DaimlerChrysler established, based on shareholder approvals, the 1998, 1997
and 1996 Stock Option Plans (former Daimler-Benz plans), which provide for the
granting of options ("Stock Options") for the purchase of DaimlerChrysler
Ordinary Shares to certain members of management. The options granted under the
Plans are evidenced by non-transferable convertible bonds with a principal
amount of [EURO]511 per bond due ten years after issuance. During certain
specified periods each year, each convertible bond may be converted into 201
DaimlerChrysler Ordinary Shares, if the market price per share on the day of
conversion is at least 15% higher than the predetermined conversion price and
the options (granted in 1998 and 1997) have been held for a 24 month waiting
period. The specific terms of these plans are as follows:
<TABLE>
<CAPTION>
Bonds
granted in Due Stated interest rate Conversion price
- ----------- ---------- --------------------- ----------------
<S> <C> <C> <C>
1996 July 2006 5.9% [EURO] 42.62
1997 July 2007 5.3% [EURO] 65.90
1998 July 2008 4.4% [EURO] 92.30
</TABLE>
In the second quarter of 1999, DaimlerChrysler converted all options granted
under the 1998 and 1997 Stock Option Plans into SARs. All terms and conditions
of the new SARs are identical to the stock options which were replaced, except
that the holder of a SAR has the right to receive cash equal to the difference
between the exercise price of the original option and the fair value of the
Group's stock at the exercise date rather than receiving DaimlerChrysler
Ordinary Shares.
F-30
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Analysis of the Stock Options issued to management is as follows (options in
millions):
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------- -------------------------- --------------------------
Average Average Average
Number conversion Number conversion Number conversion
of Stock price per of Stock price per of Stock price per
Options share Options share Options share
----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year....... 15.5 [EURO] 79.63 7.5 [EURO] 65.60 0.2 [EURO] 42.62
Bonds sold......................... -- -- 8.2 92.30 7.4 65.90
Converted.......................... -- -- (.) 42.62 (0.1) 42.62
Repayment.......................... (0.2) 79.10 (0.2) 72.22 (.) 65.90
Exchanged for SARs................. (15.2) 79.79 -- -- -- --
---------- ------------ ---------- ------------ ---------- ------------
Outstanding at year-end............ 0.1 42.62 15.5 79.63 7.5 65.60
========== ============ ========== ============ ========== ============
Exercisable at year-end............ 0.1 [EURO] 42.62 0.1 [EURO] 42.62 0.1 [EURO] 42.62
========== ============ ========== ============ ========== ============
</TABLE>
No compensation expense was recognized in 1999 in connection with the stock
option plans (1998: [EURO]38; 1997: none).
CHRYSLER FIXED STOCK OPTION COMPENSATION PLANS
A summary of the status of fixed stock option grants under Chrysler's
stock-based compensation plans as of December 31, 1998 and 1997, and changes
during the years ending on those dates is presented below (options in millions):
<TABLE>
<CAPTION>
1998 1997
------------------------- -------------------------
Chrysler Weighted- Chrysler Weighted-
shares average shares conversion
under conversion under exercise
option price option price
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year... 30.7 $ 27.71 28.5 $ 23.68
Granted............................ 9.2 39.82 10.1 33.72
Exercised.......................... (3.8) 23.38 (7.8) 20.92
Forfeited.......................... (0.1) 30.60 (0.1) 26.70
Converted to DaimlerChrysler
shares........................... (36.0) 31.24 -- --
--------- ------------ --------- ------------
Outstanding at end of year......... -- -- 30.7 27.71
========= ============ ========= ============
Options exercisable at year-end.... -- -- 13.4 $ 23.43
========= ============ ========= ============
</TABLE>
No compensation expense was recognized for Chrysler fixed stock option
grants since the options had conversion prices of not less than the market value
of Chrysler's common stock at the date of grant.
CHRYSLER PERFORMANCE-BASED STOCK COMPENSATION PLAN
Chrysler's stock-based compensation plans also provided for the awarding of
Performance Shares, which rewarded attainment of performance objectives.
Performance Shares were awarded at the commencement of a performance cycle (two
to three years) to each eligible executive (officers and a limited number of
senior executives). At the end of each cycle, participants earned no Performance
Shares or a number of Performance
F-31
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Shares, ranging from a set minimum to a maximum of 150 percent of the award for
that cycle, as determined by a committee of Chrysler's Board of Directors based
on the Chrysler's performance in relation to the performance goals established
at the beginning of the performance cycle.
Compensation expense recognized for Performance Share awards was [EURO]65
and [EURO]18 for 1998 and 1997, respectively. Unearned Chrysler Performance
Share awards outstanding at the date of the Merger and December 31, 1997 were
1.9 million and 0.9 million, respectively. As a result of the Merger, all
Performance Shares were vested and converted into DaimlerChrysler Ordinary
Shares.
MISCELLANEOUS
If compensation expense for stock-based compensation had been based upon the
fair value at the grant date, consistent with the methodology prescribed under
SFAS 123,"Accounting for Stock Based Compensation," the Group's net income and
basic and diluted earnings per share would have been reduced by approximately
[EURO]127 and [EURO]25 (basic earnings per share: [EURO]0.13 and [EURO]0.03;
diluted earnings per share: [EURO]0.13 and [EURO]0.03) in 1998 and 1997,
respectively. No additional compensation expense would have been recognized
under SFAS 123 in 1999.
The fair value of the DaimlerChrysler stock options issued in conjunction
with the 1998 and 1997 Stock Option Plans was calculated at the grant date based
on a trinomial tree option pricing model which considers the terms of the
issuance. The underlying assumptions and the resulting fair value per option are
as follows (at grant date):
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Expected dividend yield................................ 2.45% 0.83%
Expected volatility.................................... 35.2% 26.2%
Risk-free interest rate................................ 4.09% 3.65%
Expected lives (in years).............................. 2 2
Fair value per option.................................. [EURO] 19.38 [EURO] 11.76
</TABLE>
The fair value of each Chrysler fixed stock option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants and resulting fair values in 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Expected dividend yield................................ 4.0% 4.7%
Expected volatility.................................... 29% 26%
Risk-free interest rate................................ 5.7% 6.2%
Expected lives (in years).............................. 5 5
Fair value per option.................................. $ 9.20 $ 6.79
</TABLE>
The fair value of each Performance Share award was estimated at the date of
grant based on the market value of a share of Chrysler common stock on the date
of grant. Performance Share awards were recognized over performance cycles of
two to three years. However, because all outstanding fixed stock option and
Performance Share grants were vested as of the date of the Merger, for purposes
of SFAS 123, all remaining compensation expense was recognized in 1998.
F-32
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
22. Accrued Liabilities
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------
1999 1998
---------------------- ----------------------
Due after Due after
Total one year Total one year
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Pension plans and similar obligations
(see Note 22 a)................................... 14,048 13,075 16,618 15,714
Income and other taxes.............................. 2,281 77 1,122 246
Other accrued liabilities (see Note 22 b)........... 21,366 7,813 16,889 6,464
--------- --------- --------- ---------
37,695 20,965 34,629 22,424
========= ========= ========= =========
</TABLE>
A) PENSION PLANS AND SIMILAR OBLIGATIONS
Pension plans and similar obligations are comprised of the following
components:
<TABLE>
<CAPTION>
At December 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Pension liabilities (pension plans)....................................... 5,588 9,148
Accrued postretirement health and life insurance benefits................. 7,756 7,020
Other benefit liabilities................................................. 704 450
--------- ---------
14,048 16,618
========= =========
</TABLE>
In the fourth quarter of 1999, DaimlerChrysler AG established the
"DaimlerChrysler Pension Trust" to provide for future pension benefit payments
in Germany. DaimlerChrysler AG contributed [EURO]4,059 of securities to the
Pension Trust, thereby reducing accrued pension liabilities. In January 2000,
DaimlerChrysler AG contributed an additional [EURO]1,275 of securities to the
Pension Trust.
PENSION PLANS
The Group provides pension benefits to substantially all of its hourly and
salaried employees. Plan benefits are principally based upon years of service.
Certain pension plans are based on salary earned in the last year or last five
years of employment while others are fixed plans depending on ranking (both wage
level and position).
At December 31, 1999, plan assets were invested in diversified portfolios
that consisted primarily of debt and equity securities, including 9.7 million
shares of DaimlerChrysler Ordinary Shares with a market value of [EURO]750 in a
U.S. plan, which were contributed in connection with the Merger. Assets and
income accruing on all pension trust and relief funds are used solely to pay
pension benefits and administer the plans.
F-33
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
The following information with respect to the Group's pension plans is
presented by German Plans and Non-German Plans (principally comprised of plans
in the U.S.). DaimlerChrysler uses the rates of the 1998 Heubeck mortality
tables for the valuation of the German pension liabilities.
<TABLE>
<CAPTION>
At December 31, At December 31,
1999 1998
------------------- -------------------
Non- Non-
German German German German
Plans Plans Plans Plans
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in Projected benefit obligations:
Projected benefit obligations at beginning of year....... 12,599 16,010 11,378 15,905
------ ------ ------ ------
Foreign currency exchange rate changes................. -- 2,664 -- (1,212)
Service cost........................................... 267 430 258 429
Interest cost.......................................... 756 1,185 732 1,033
Plan amendments........................................ -- 1,983 35 47
Actuarial (gains) losses............................... (28) (2,142) 686 821
Acquisitions and other................................. 68 518 12 (22)
Benefits paid.......................................... (539) (1,070) (502) (991)
------ ------ ------ ------
Projected benefit obligations at end of year............. 13,123 19,578 12,599 16,010
====== ====== ====== ======
Change in plan assets
Fair value of plan assets at beginning of year........... 2,898 19,424 2,740 18,012
------ ------ ------ ------
Foreign currency exchange rate changes................. -- 3,309 -- (1,410)
Actual return on plan assets........................... 226 3,463 302 2,478
Employer contributions................................. 4,059 166 -- 1,305
Plan participant contributions......................... -- 27 -- 20
Acquisitions and other................................. -- 498 -- 7
Benefits paid.......................................... (149) (1,064) (144) (988)
------ ------ ------ ------
Fair value of plan assets at end of year................. 7,034 25,823 2,898 19,424
====== ====== ====== ======
</TABLE>
F-34
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
A reconcilation of the funded status to the amounts recognized in the
consolidated balance sheets is as follows:
<TABLE>
<CAPTION>
At December 31, At December 31,
1999 1998
------------------- -------------------
Non- Non-
German German German German
Plans Plans Plans Plans
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Funded status(1)............................................ 6,089 (6,245) 9,701 (3,414)
Unrecognized actuarial net gains (losses)................. (691) 3,859 (723) 54
Unrecognized prior service cost........................... (7) (3,530) (6) (1,530)
Unrecognized net assets at date of initial application.... -- (252) -- (357)
----- ------ ----- ------
Net amount recognized....................................... 5,391 (6,168) 8,972 (5,247)
===== ====== ===== ======
Amounts recognized in the consolidated balance sheets
consist of:
Prepaid pension cost...................................... -- (6,236) -- (5,309)
Accrued pension liability................................. 5,391 197 8,972 176
Intangible assets......................................... -- (98) -- (94)
Accumulated other comprehensive income.................... -- (31) -- (20)
----- ------ ----- ------
Net amount recognized....................................... 5,391 (6,168) 8,972 (5,247)
===== ====== ===== ======
</TABLE>
- ------------------------
(1) Difference between the projected benefit obligations and the fair value of
plan assets.
Assumed discount rates and rates of increase in remuneration used in
calculating the projected benefit obligations together with long-term rates of
return on plan assets vary according to the economic conditions of the country
in which the pension plans are situated. The weighted-average assumptions used
in calculating the actuarial values for the principal pension plans were as
follows (in %):
<TABLE>
<CAPTION>
Non-German
German Plans Plans
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Weighted-average assumptions as of December 31:
Discount rate............................................. 6.0 6.0 6.5 7.5 6.5 6.8
Expected return on plan assets............................ 7.7 7.7 7.7 9.8 9.8 9.8
Rate of compensation increase............................. 2.8 3.0 3.5 5.9 6.0 6.0
</TABLE>
F-35
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
The components of net periodic pension cost were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
Non- Non- Non-
German German German German German German
Plans Plans Plans Plans Plans Plans
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Service cost............................... 267 430 258 429 243 295
Interest cost.............................. 756 1,185 732 1,033 718 998
Expected return on plan assets............. (223) (1,872) (203) (1,514) (198) (1,372)
Amortization of:
Unrecognized net actuarial losses
(gains).................................. 1 41 (2) 80 (1) 54
Unrecognized prior service cost.......... -- 214 -- 187 (2) 196
Unrecognized net obligation.............. -- 129 -- 126 -- 125
Other.................................... 1 2 (3) 3 -- 21
---- ------ ---- ------ ---- ------
Net periodic pension cost.................. 802 129 782 344 760 317
==== ====== ==== ====== ==== ======
</TABLE>
The projected benefit obligations and fair value of plan assets for pension
plans with accumulated benefit obligations in excess of plan assets were
[EURO]13,934 and [EURO]7,818, respectively, as of December 31, 1999 and
[EURO]13,391 and [EURO]3,497, respectively, as of December 31, 1998.
OTHER POSTRETIREMENT BENEFITS
Certain DaimlerChrysler operations in the U.S. and Canada provide
postretirement health and life insurance benefits to their employees. Upon
retirement from DaimlerChrysler the employees may become eligible for
continuation of these benefits. The benefits and eligibility rules may be
modified periodically.
At December 31, 1999, plan assets were invested in diversified portfolios
that consisted primarily of debt and equity securities.
F-36
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
The following information is presented with respect to the Group's
postretirement benefit plans.
<TABLE>
<CAPTION>
At December 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Change in accumulated postretirement benefit obligations:
Accumulated postretirement benefit obligations at
beginning of year....................................... 9,886 9,667
------ -----
Foreign currency exchange rate changes.................. 1,645 (763)
Service cost............................................ 209 189
Interest cost........................................... 702 646
Plan amendments......................................... 246 280
Actuarial (gains) losses................................ (1,687) 373
Acquisitions and other.................................. 51 (52)
Benefits paid........................................... (525) (454)
------ -----
Accumulated postretirement benefit obligations at
end of year............................................. 10,527 9,886
====== =====
Change in plan assets:
Fair value of plan assets at beginning of year............ 1,574 91
------ -----
Foreign currency exchange rate changes.................. 273 (24)
Actual return on plan assets............................ 241 13
Employer contributions.................................. 773 1,498
Benefits paid........................................... (45) (4)
------ -----
Fair value of plan assets at end of year.................. 2,816 1,574
====== =====
</TABLE>
A reconciliation of the funded status to the amounts recognized in the
consolidated balance sheets is as follows:
<TABLE>
<CAPTION>
At December 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Funded status(1)............................................ 7,711 8,312
Unrecognized actuarial net gains (losses)................. 574 (1,015)
Unrecognized prior service cost........................... (529) (277)
----- ------
Net amount recognized....................................... 7,756 7,020
===== ======
</TABLE>
- ------------------------
(1) Difference between the accumulated postretirement obligations and the fair
value of plan assets.
The amount recognized in the consolidated balance sheets consists only of
accrued postretirement health and life insurance benefits.
F-37
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Assumed discount rates and rates of increase in remuneration used in
calculating the accumulated postretirement benefit obligations together with
long-term rates of return on plan assets vary according to the economic
conditions of the country in which the plans are situated. The weighted-average
assumptions used in calculating the actuarial values for the postretirement
benefit plans were as follows (in %):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Weighted-average assumptions as of December 31:
Discount rate............................................. 7.8 6.5 6.8
Expected return on plan assets............................ 10.0 10.0 8.5
Health care inflation rate in following (or "base")
year.................................................... 5.8 6.0 6.5
Ultimate health care inflation rate (2002)................ 5.0 5.0 5.0
</TABLE>
The components of net periodic postretirement benefit cost were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Service cost................................................ 209 189 164
Interest cost............................................... 702 646 592
Expected return on plan assets.............................. (169) (6) (5)
Amortization of:
Unrecognized net actuarial losses (gains)................. 10 14 (1)
Unrecognized prior service cost........................... 31 23 4
Unrecognized net asset.................................... -- -- (1)
Other....................................................... -- -- 2
---- ---- ---
Net periodic postretirement benefit cost.................... 783 866 755
==== ==== ===
</TABLE>
The following schedule presents the effects of a one-percentage-point change
in assumed health care cost trend rates:
<TABLE>
<CAPTION>
1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------- --------------
<S> <C> <C>
Effect on total of service and interest cost components..... 121 (99)
Effect on accumulated postretirement benefit obligations.... 1,117 (870)
</TABLE>
PREPAID EMPLOYEE BENEFITS
In 1996 DaimlerChrysler established a Voluntary Employees' Beneficiary
Association ("VEBA") trust for payment of non-pension employee benefits. At
December 31, 1999 and 1998, the VEBA had a balance of [EURO]3,231 and
[EURO]1,979, respectively, of which [EURO]2,698 and [EURO]1,498, respectively,
were designated and restricted for the payment of postretirement health care
benefits. Contributions to the VEBA trust during the years ended December 31,
1999, 1998 and 1997 were [EURO]727, [EURO]292 and [EURO]975, respectively.
F-38
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
B) OTHER ACCRUED LIABILITIES
Other accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
At December 31,
-------------------
<S> <C> <C>
1999 1998
------ ------
Accrued warranty costs and price risks...................... 7,505 6,386
Accrued losses on uncompleted contracts..................... 993 762
Restructuring............................................... 595 635
Accrued personnel and social costs.......................... 3,409 2,263
Other....................................................... 8,864 6,843
------ ------
21,366 16,889
====== ======
</TABLE>
Accruals for restructuring comprise certain employee termination benefits
and costs which are directly associated with plans to exit specified activities.
The changes in these provisions are summarized as follows:
<TABLE>
<CAPTION>
Termination Exit Total
benefits costs liabilities
----------- -------- -----------
<S> <C> <C> <C>
Balance at January 1, 1997.................................. 570 363 933
Utilizations and transfers.................................. (269) (187) (456)
Reductions.................................................. (45) (37) (82)
Additions................................................... 299 34 333
----- ----- -----
Balance at December 31, 1997................................ 555 173 728
Utilizations and transfers.................................. (242) (110) (352)
Reductions.................................................. (12) (19) (31)
Additions................................................... 259 31 290
----- ----- -----
Balance at December 31, 1998................................ 560 75 635
Utilizations and transfers.................................. (321) 21 (300)
Reductions.................................................. (15) (9) (24)
Additions................................................... 183 101 284
----- ----- -----
Balance at December 31, 1999................................ 407 188 595
===== ===== =====
</TABLE>
In connection with the Group's restructuring, provisions were recorded for
termination benefits of [EURO]183 (1998: [EURO]259; 1997: [EURO]299), in 1999
principally within directly managed businesses and DaimlerChrysler Aerospace, in
1998 principally within the Automotive Business of the former Daimler-Benz Group
and DaimlerChrysler Aerospace and in 1997 principally within the Automotive
Business of the former Daimler-Benz Group. In connection with these
restructuring efforts, the Group effected workforce reductions of approximately
2,400 employees (1998: 7,100; 1997: 6,600) and paid termination benefits of
[EURO]239 (1998: [EURO]413; 1997: [EURO]503), of which [EURO]168 (1998:
[EURO]242; 1997: [EURO]269) were charged against previously established
liabilities. At December 31, 1999 the Group had liabilities for estimated future
terminations for approximately 7,400 employees.
Exit costs in 1999, 1998 and 1997 primarily result from the restructuring of
directly managed businesses.
F-39
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
23. Financial Liabilities
<TABLE>
<CAPTION>
At December 31,
-------------------
1999 1998
-------- --------
<S> <C> <C> <C>
Notes/Bonds................................................. 7,892 3,207
Commercial paper............................................ 20,879 11,015
Liabilities to financial institutions....................... 5,941 4,999
Liabilities to affiliated companies......................... 466 158
Loans, other financial liabilities.......................... 257 319
Liabilities from capital lease and residual value
guarantees................................................ 1,286 777
------ ------
Short-term financial liabilities (due within one year)...... 36,721 20,475
------ ------
Maturities
---------
Notes/Bonds ................................................ 2001-2097 21,440 14,576
of which due in more than five years: [EURO]5,781 (1998:
[EURO]2,605)
Liabilities to financial institutions ...................... 2001-2019 5,398 4,311
of which due in more than five years: [EURO]2,455 (1998:
[EURO]2,185)
Liabilities to affiliated companies ........................ 145 171
of which due in more than five years: [EURO]-- (1998:
[EURO]28)
Loans, other financial liabilities ......................... 192 64
of which due in more than five years: [EURO]53 (1998:
[EURO]36)
Liabilities from capital lease and residual value
guarantees ............................................... 592 833
of which due in more than five years: [EURO]258 (1998:
[EURO]228)
------ ------
Long-term financial liabilities............................. 27,767 19,955
------ ------
64,488 40,430
====== ======
</TABLE>
Weighted average interest rates for notes/bonds, commercial paper and
liabilities to financial institutions are 6.9%, 5.6% and 4.7%, respectively, at
December 31, 1999.
Commercial paper is denominated in euros and U.S. dollars and includes
accrued interest. Bonds and liabilities to financial institutions are largely
secured by mortgage conveyance, liens and assignment of receivables of
approximately [EURO]1,599 (1998: [EURO]1,526).
Aggregate amounts of financial liabilities maturing during the next five
years and thereafter are as follows:
<TABLE>
<CAPTION>
there-
2000 2001 2002 2003 2004 after
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Financial liabilities........................... 36,721 6,617 6,996 2,750 2,857 8,547
</TABLE>
At December 31, 1999, the Group had unused short-term credit lines of
[EURO]12,821 (1998: [EURO]7,984) and unused long-term credit lines of
[EURO]11,046 (1998: [EURO]10,903). In July 1999, DaimlerChrysler consolidated
its existing credit facilities into a $17 billion revolving credit facility with
a syndicate of international banks. The new credit agreement is divided into two
tranches. The first tranche is a multi-currency revolving credit facility which
allows DaimlerChrysler AG and several subsidiaries to borrow up to $5 billion
with a maturity of 7 years at interest rates based on LIBOR. The second tranche
is a revolving credit facility which allows DaimlerChrysler North America
F-40
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Holding Corporation, a wholly-owned subsidiary of DaimlerChrysler AG, to borrow
up to $12 billion ($6 billion with a maturity of 5 years and $6 billion with a
maturity of 1 year) at various interest rates. The $12 billion revolving credit
facility serves as a back-up for certain commercial paper drawings.
24. Trade Liabilities
<TABLE>
<CAPTION>
At December 31, 1999 At December 31, 1998
------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Due Due
Due after Due after
after five after five
Total one year years Total one year years
------ -- -- ------ -- --
Trade liabilities...................... 15,786 26 1 12,848 54 1
</TABLE>
25. Other Liabilities
<TABLE>
<CAPTION>
At December 31, 1999 At December 31, 1998
------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Due Due
Due after Due after
after five after five
Total one year years Total one year years
------ --- -- ----- --- --
Liabilities to affiliated companies............ 411 56 56 349 -- --
Liabilities to related companies............... 1,193 3 -- 665 20 11
Other liabilities.............................. 8,682 229 9 8,235 587 2
------ --- -- ----- --- --
10,286 288 65 9,249 607 13
====== === == ===== === ==
</TABLE>
Liabilities to related companies are primarily obligations to Airbus
Industrie G.I.E., Toulouse.
As of December 31, 1999, other liabilities include tax liabilities of
[EURO]871 (1998: [EURO]1,025) and social benefits due of [EURO]758 (1998:
[EURO]759).
26. Deferred Income
As of December 31, 1999, [EURO]907 of the total deferred income is to be
recognized after more than one year (1998: [EURO]986).
OTHER NOTES
27. Litigation and Claims
Various claims and legal proceedings have been asserted or instituted
against the Group, including some purporting to be class actions, and some which
demand large monetary damages or other relief which could result in significant
expenditures. Litigation is subject to many uncertainties, and the outcome of
individual matters is not predictable with assurance. It is reasonably possible
that the final resolution of some of these matters may require the Group to make
expenditures, in excess of established reserves, over an extended period of time
and in a range of amounts that cannot be reasonably estimated. The term
"reasonably possible" is used herein to mean that the chance of a future
transaction or event occurring is more than remote but less than likely.
Although the final resolution of any such matters could have a material effect
on the Group's consolidated operating results for the particular reporting
period in which an adjustment of the estimated reserve is recorded, the Group
believes that any resulting adjustment should not materially affect its
consolidated financial position.
F-41
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
28. Commitments and Contingencies
Commitments and contingencies are presented at their contractual values and
include the following:
<TABLE>
<CAPTION>
At December 31,
----------------------
<S> <C> <C>
1999 1998
----- -----
Guarantees.................................................. 3,564 2,449
Notes payable............................................... 33 103
Contractual guarantees...................................... 303 500
Pledges of indebtedness of others........................... 373 307
----- -----
4,273 3,359
===== =====
</TABLE>
Contingent liabilities principally represent guarantees of indebtedness of
non-consolidated affiliated companies and third parties and commitments by Group
companies as to contractual performance by joint venture companies and certain
non-incorporated companies, partnerships and project groups.
DaimlerChrysler is subject to potential liability under government
regulations and various claims and legal actions which are pending or may be
asserted against DaimlerChrysler concerning environmental matters. Estimates of
future costs of such environmental matters are inevitably imprecise due to
numerous uncertainties, including the enactment of new laws and regulations, the
development and application of new technologies, the identification of new sites
for which DaimlerChrysler may have remediation responsibility and the
apportionment and collectibility of remediation costs among responsible parties.
DaimlerChrysler establishes reserves for these environmental matters when a
loss is probable and reasonably estimable. It is reasonably possible that the
final resolution of some of these matters may require DaimlerChrysler to make
expenditures, in excess of established reserves, over an extended period of time
and in a range of amounts that cannot be reasonably estimated. Although the
final resolution of any such matters could have a material effect on
DaimlerChrysler's consolidated operating results for the particular reporting
period in which an adjustment of the estimated reserve is recorded,
DaimlerChrysler believes that any resulting adjustment should not materially
affect its consolidated financial position.
DaimlerChrysler periodically initiates voluntary service actions and recall
actions to address various customer satisfaction, safety and emissions issues
related to vehicles it sells. DaimlerChrysler establishes reserves for product
warranty, including the estimated cost of these service and recall actions, when
the related sale is recognized. The estimated future costs of these actions are
based primarily on prior experience. Estimates of the future costs of these
actions are inevitably imprecise due to numerous uncertainties, including the
enactment of new laws and regulations, the number of vehicles affected by a
service or recall action, and the nature of the corrective action which may
result in adjustments to the established reserves. It is reasonably possible
that the ultimate cost of these service and recall actions may require
DaimlerChrysler to make expenditures, in excess of established reserves, over an
extended period of time and in a range of amounts that cannot be reasonably
estimated. Although the ultimate cost of these service and recall actions could
have a material effect on DaimlerChrysler's consolidated operating results for
the particular reporting period in which an adjustment of the estimated reserve
is recorded, DaimlerChrysler believes that any such adjustment should not
materially affect its consolidated financial position.
In connection with the development of aircraft, DaimlerChrysler Aerospace
Airbus GmbH ("DA") is committed to Airbus Industrie to incur future development
costs. At December 31, 1999, the remaining commitment not recorded in the
financial statements aggregated approximately [EURO]342.
F-42
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Airbus Industrie G.I.E. ("Airbus consortium") has given a performance
guarantee to Agence Executive, the French government agency overseeing Airbus.
This performance guarantee has been assumed by DA to the extent of its 37.9%
participation in the Airbus consortium.
At December 31, 1999, in connection with DA's participation in the Airbus
consortium, DA was contingently liable related to the Airbus consortium's
irrevocable financing commitments in respect of aircraft on order, including
options, for delivery in the future. In addition, DA was also contingently
liable related to credit guarantees and participations in financing receivables
of the Airbus consortium under certain customer finance programs. When entering
into such customer financing commitments, the Airbus consortium has generally
established a secured position in the aircraft being financed. The Airbus
consortium and DA believe that the estimated fair value of the aircraft securing
such commitments would substantially offset any potential losses from the
commitments. Based on experience, the probability of material losses from such
customer financing commitments is considered remote.
DA's obligations under the foregoing financing commitments of the Airbus
consortium are joint and several with its other partners in the consortium. In
the event that Airbus, despite the underlying collateral, should be unable to
honor its obligations, each consortium partner would be jointly and severally
liable to third parties without limitation. Between the consortium partners, the
liability is limited to each partner's proportionate share in Airbus.
In 1989, the Group acquired Messerschmitt-Boelkow-Blohm GmbH ("MBB"), which
included DaimlerChrysler Aerospace Airbus GmbH (then known as Deutsche Airbus
GmbH) which was and continues to be the German participant in Airbus Industrie.
In connection with this acquisition, the Government of the Federal Republic of
Germany undertook responsibility for certain financial obligations of MBB and
DaimlerChrysler Aerospace Airbus GmbH and agreed to provide certain ongoing
limited financial assistance for development programs and other items. Such
undertakings, advances and assistance were to be repaid by DaimlerChrysler
Aerospace Airbus GmbH on a contingent basis equal to 40% of the prior year's
pretax profit, as defined in the agreement with the Government, beginning in
2001, and royalty payments based on sales of aircraft.
During 1998 and 1997, DaimlerChrysler Aerospace Airbus GmbH settled these
contingent obligations with the Federal Republic of Germany for payments of
[EURO]895 and [EURO]716, respectively. The 1998 settlement, which resulted in
the complete discharge of all remaining obligations to the German Federal
Government, related to the Airbus A300/310 and A330/340 series aircraft as well
as to financial assistance not related to development, while the 1997 settlement
related primarily to the A320 aircraft and its derivatives. Of the foregoing
settlement payments, [EURO]229 and [EURO]369 were expensed in 1998 and 1997,
respectively. The remainder of the settlement payments were capitalized and are
being amortized over those aircraft to be delivered in the future to which the
settlements related.
In connection with certain production programs the Group has committed to
certain levels of outsourced manufactured parts and components over extended
periods at market prices. The Group may be required to compensate suppliers in
the event the committed volumes are not purchased.
F-43
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Total rentals under operating leases, charged as an expense in the statement
of income, amounted to [EURO]964 (1998: [EURO]984; 1997: [EURO]910). Future
minimum lease payments under rental and lease agreements which have initial or
remaining terms in excess of one year at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Operating leases
----------------
<S> <C>
2000.................................................. 676
2001.................................................. 452
2002.................................................. 341
2003.................................................. 252
2004.................................................. 217
thereafter............................................ 904
</TABLE>
29. Information About Financial Instruments
A) USE OF FINANCIAL INSTRUMENTS
In the course of day-to-day financial management, DaimlerChrysler purchases
financial instruments, such as financial investments, variable- and
fixed-interest bearing securities, equity securities, forward exchange contracts
and currency options. The Group also issues financial instruments such as
eurobonds, commercial paper and medium-term-notes. As a consequence of
purchasing and issuing these types of financial instruments, the Group may be
exposed to risks from changes in interest and currency exchange rates as well as
share prices. Additionally, the Group conducts business on a global basis in
numerous major international currencies and is, therefore, exposed to adverse
movements in foreign currency exchange rates. DaimlerChrysler uses derivative
financial instruments to reduce such risks. Without the use of these instruments
the Group's market risks would be higher.
Based on regulations issued by regulatory authorities for financial
institutions, the Group has established guidelines for risk assessment
procedures and controls for the use of financial instruments, including a clear
segregation of duties with regard to operating financial activities and
settlement, accounting and controlling.
Market risk in portfolio management is quantified according to the
"value-at-risk" method which is commonly used among banks. Using historical
variability of market values, potential changes in value resulting from changes
of market prices are calculated on the basis of statistical methods. The maximum
acceptable market risk is established by senior management in the form of risk
capital, approved for a period not exceeding one year. Adherence to risk capital
limitations is regularly monitored.
B) NOTIONAL AMOUNTS AND CREDIT RISK
The contract or notional amounts shown below do not always represent amounts
exchanged by the parties and, thus, are not necessarily a measure for the
exposure of DaimlerChrysler through its use of derivatives.
The notional amounts of off-balance sheet financial instruments are as
follows:
<TABLE>
<CAPTION>
At December 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Currency contracts......................................... 28,974 28,204
Interest rate contracts.................................... 25,911 26,162
</TABLE>
F-44
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Currency contracts include foreign exchange forward and option contracts
which are mainly utilized to hedge existing receivables and liabilities, firm
commitments and anticipated transactions denominated in foreign currencies
(principally U.S. dollars, Japanese Yen and major non-euro currencies in
Europe). The objective of the Group's hedging transactions is to reduce the
market risk of its foreign denominated future cash flows to exchange rate
fluctuations. The Group has entered into currency contracts for periods of one
to five years.
The Group enters into interest rate and interest rate cross-currency swaps,
interest rate forward and futures contracts and interest rate options in order
to safeguard financial investments against fluctuating interest rates as well as
to reduce funding costs, to diversify sources of funding, or to alter interest
rate exposures arising from mismatches between assets and liabilities.
The Group may be exposed to credit-related losses in the event of
non-performance by counterparties to financial instruments. Counterparties to
the Group's financial instruments represent, in general, international financial
institutions. DaimlerChrysler does not have a significant exposure to any
individual counterparty, based on the rating of the counterparties performed by
established rating agencies. The Group believes the overall credit risk related
to utilized derivatives is insignificant.
C) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the price at which one party
would assume the rights and/or duties of another party. Fair values of financial
instruments have been determined with reference to available market information
at the balance sheet date and the valuation methodologies discussed below.
Considering the variability of their value-determining factors, the fair values
presented herein may not be indicative of the amounts that the Group could
realize in a current market exchange.
The carrying amounts and fair values of the Group's financial instruments
are as follows:
<TABLE>
<CAPTION>
At December 31, 1999 At December 31, 1998
----------------------- -----------------------
Carrying Fair Carrying Fair
amount value amount value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial instruments (other than derivative
instruments):
Assets:
Financial assets................................. 1,360 1,360 912 912
Receivables from financial services.............. 38,735 38,835 26,468 26,460
Securities....................................... 8,969 8,969 12,160 12,160
Cash and cash equivalents........................ 9,099 9,099 6,589 6,589
Other............................................ 133 133 261 261
Liabilities:
Financial liabilities............................ 64,488 64,954 40,430 40,459
Derivative instruments:
Assets:
Currency contracts............................... 57 74 338 744
Interest rate contracts.......................... 34 348 97 309
Liabilities:
Currency contracts............................... 944 2,109 268 349
Interest rate contracts.......................... 61 590 19 303
</TABLE>
In determining the fair values of derivative financial instruments, certain
compensating effects from underlying transactions (e.g. firm commitments and
anticipated transactions) are not taken into consideration. At
F-45
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
December 31, 1999 and 1998, the Group had deferred net unrealized gains (losses)
on forward currency exchange contracts and options of [EURO](1,148) and
[EURO]325, respectively, purchased against firm foreign currency denominated
sales commitments extending for a period of three years.
The carrying amounts of cash, other receivables and accounts payable
approximate fair values due to the short-term maturities of these instruments.
The methods and assumptions used to determine the fair values of other
financial instruments are summarized below:
FINANCIAL ASSETS AND SECURITIES -- The fair values of securities in the
portfolio were estimated using quoted market prices. The Group has certain
equity investments in related and affiliated companies not presented in the
table, as certain of these investments are not publicly traded and determination
of fair values is impracticable.
RECEIVABLES FROM FINANCIAL SERVICES -- The carrying amounts of variable rate
finance receivables were estimated to approximate fair value since they are
priced at current market rates. The fair values of fixed rate finance
receivables were estimated by discounting expected cash flows using the current
rates at which comparable loans of similar maturity would be made as of
December 31, 1999 and 1998.
The fair values of residual cash flows and other subordinated amounts
arising from receivable sale transactions were estimated by discounting expected
cash flows at current market rates.
FINANCIAL LIABILITIES -- The fair value of publicly traded debt was
estimated using quoted market prices. The fair values of other long-term notes
and bonds were estimated by discounting future cash flows using rates currently
available for debt of similar terms and remaining maturities. The carrying
amounts of commercial paper and borrowings under revolving credit facilities
were assumed to approximate fair value due to their short maturities.
INTEREST RATE CONTRACTS -- The fair values of existing instruments to hedge
interest rate risks (e.g. interest rate swap agreements) were estimated by
discounting expected cash flows using market interest rates over the remaining
term of the instrument. Interest rate options are valued on the basis of quoted
market prices or on estimates based on option pricing models.
CURRENCY CONTRACTS -- The fair values of forward foreign exchange contracts
were based on EZB reference exchange rates that consider forward premiums or
discounts. Currency options were valued on the basis of quoted market prices or
on estimates based on option pricing models.
D) ACCOUNTING FOR AND REPORTING OF FINANCIAL INSTRUMENTS
The income or expense of the Group's financial instruments (other than
derivative instruments), with the exception of receivables from financial
services and financial liabilities related to leasing and sales financing
activities, are recognized in financial income, net. Interest income on
receivables from financial services and gains and losses from sales of
receivables are recognized as revenues. Interest expense on financial
liabilities related to leasing and sales financing activities are recognized as
cost of sales. The carrying amounts of the financial instruments (other than
derivative instruments) are included in the consolidated balance sheets under
their related captions.
Financial instruments, including derivatives, purchased to offset the
Group's exposure to identifiable and committed transactions with price, interest
or currency risks are accounted for together with the underlying business
transactions ("hedge accounting"). Gains and losses on forward contracts and
options hedging firm
F-46
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
foreign currency commitments are deferred off-balance sheet and are recognized
as a component of the related transactions, when recorded (the "deferral
method"). However, a loss is not deferred if deferral would lead to the
recognition of a loss in future periods.
In the event of an early termination of a currency exchange agreement
designated as a hedge, the gain or loss continues to be deferred and is included
in the settlement of the underlying transaction.
Interest differentials paid or received under interest rate swaps purchased
to hedge interest risks on debt are recorded as adjustments to the effective
yields of the underlying debt ("accrual method").
In the event of an early termination of an interest rate related derivative
designated as a hedge, the gain or loss is deferred and recorded as an
adjustment to interest income, net over the remaining term of the underlying
financial instrument.
All other financial instruments, including derivatives, purchased to offset
the Group's net exposure to price, interest or currency risks, but which are not
designated as hedges of specific assets, liabilities or firm commitments are
marked to market and any resulting unrealized gains and losses are recognized
currently in financial income, net. The carrying amounts of derivative
instruments are included under other assets and accrued liabilities.
Derivatives purchased by the Group under macro-hedging techniques, as well
as those purchased to offset the Group's exposure to anticipated cash flows, do
not generally meet the requirements for applying hedge accounting and are,
accordingly marked to market at each reporting period with unrealized gains and
losses recognized in financial income, net. At such time that the Group meets
the requirements for hedge accounting and designates the derivative financial
instrument as a hedge of a committed transaction, subsequent unrealized gains
and losses would be deferred and recognized along with the effects of the
underlying transaction.
30. Segment Reporting
During the first quarter of 1999, DaimlerChrysler combined the activities of
the Chrysler Financial Services segment and the Services segment into a new
segment entitled Services. Prior periods have been reclassified to conform with
the 1999 presentation. Information with respect to the Group's industry segments
follows:
MERCEDES-BENZ PASSENGER CARS & SMART. This segment includes activities
related mainly to the development, manufacture and sale of passenger cars and
off-road vehicles under the brand names Mercedes-Benz and smart as well as
related parts and accessories.
CHRYSLER GROUP. This segment includes the research, design, manufacture,
assembly and sale of cars and trucks under the brand names Chrysler, Plymouth,
Jeep-Registered Trademark- and Dodge and related automotive parts and
accessories.
COMMERCIAL VEHICLES. This segment is involved in the development,
manufacture and sale of vans, trucks, buses and Unimogs as well as related parts
and accessories. The products are sold mainly under the brand names
Mercedes-Benz and Freightliner.
SERVICES. The activities in this segment extend to the marketing of
services related to information technology, financial services (principally
retail and lease financing for vehicles and dealer financing), insurance
brokerage, trading as well as telecommunications and media (in 1998 and 1997).
F-47
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
AEROSPACE. This division comprises the development, manufacture and sale of
commercial and military aircraft and helicopters, satellites and related space
transportation systems, defense-related products, including radar and radio
systems, and propulsion systems.
OTHER. Represents principally the Directly Managed Businesses including
rail systems (including 50% interest in Adtranz in 1998 and 1997), automotive
electronics (including microelectronics in 1997) and diesel engines. Other also
contains corporate research, real estate activities and holding and financing
companies.
The Group's management reporting and controlling systems are substantially
the same as those described in the summary of significant accounting policies
(U.S. GAAP). The Group measures the performance of its operating segments
through "Operating Profit." Segment Operating Profit is defined as income before
financial income and income taxes included in the consolidated statement of
income, modified to exclude certain pension and postretirement benefit costs, to
include certain financial income, net and to include or exclude certain
miscellaneous items, principally representing merger costs in 1998.
Additionally, in 1999 the pre-tax gains on the sales of shares in debitel of
[EURO]1,140 (see Note 9) have been included in the measurement of the Services
segment operating profit since such amounts were included in the Group's
measurement of the segment's performance.
Sales and revenues related to transactions between segments are generally
recorded at values that approximate third-party selling prices.
Revenues are allocated to countries based on the location of the customer;
long-term assets, according to the location of the respective units.
Capital expenditures represent the purchase of property, plant and
equipment.
F-48
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
<TABLE>
<CAPTION>
Mercedes-
Benz
Passenger
Cars Chrysler Commercial Aero- Elimi- Consoli-
& smart Group Vehicles Services space Other nations dated
--------- -------- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999
Revenues.............................. 35,592 63,666 25,480 10,662 9,144 5,441 -- 149,985
Intersegment sales.................... 2,508 419 1,215 2,270 47 411 (6,870) --
------ ------ ------ ------ ------ ------ ------- -------
Total revenues........................ 38,100 64,085 26,695 12,932 9,191 5,852 (6,870) 149,985
Operating Profit (Loss)............... 2,703 5,051 1,067 2,039 730 (399) (179) 11,012
Identifiable segment assets........... 17,611 49,825 11,549 77,266 11,934 65,368 (58,886) 174,667
Capital expenditures.................. 2,228 5,224 770 324 336 589 (1) 9,470
Depreciation and amortization......... 1,580 3,346 677 3,348 290 275 (187) 9,329
1998
Revenues.............................. 30,859 56,350 22,374 10,371 8,722 3,106 -- 131,782
Intersegment sales.................... 1,728 62 788 1,039 48 420 (4,085) --
------ ------ ------ ------ ------ ------ ------- -------
Total revenues........................ 32,587 56,412 23,162 11,410 8,770 3,526 (4,085) 131,782
Operating Profit (Loss)............... 1,993 4,255 946 985 623 (130) (79) 8,593
Identifiable segment assets........... 17,098 38,121 11,936 49,625 12,970 33,653 (27,254) 136,149
Capital expenditures.................. 1,995 3,920 832 285 326 797 -- 8,155
Depreciation and amortization......... 1,310 2,837 692 2,038 289 293 (168) 7,291
1997
Revenues.............................. 25,874 52,023 19,481 8,679 7,751 3,764 -- 117,572
Intersegment sales.................... 1,680 3 531 725 65 257 (3,261) --
------ ------ ------ ------ ------ ------ ------- -------
Total revenues........................ 27,554 52,026 20,012 9,404 7,816 4,021 (3,261) 117,572
Operating Profit (Loss)............... 1,716 3,412 342 777 284 (214) (87) 6,230
Identifiable segment assets........... 15,003 38,976 11,000 41,921 11,174 23,926 (17,169) 124,831
Capital expenditures.................. 1,885 4,501 601 193 255 635 (19) 8,051
Depreciation and amortization......... 1,160 2,288 687 1,627 306 324 (170) 6,222
</TABLE>
Capital expenditures for equipment on operating leases for 1999, 1998 and
1997 for the Services segment amounted to [EURO]16,144, [EURO]7,188 and
[EURO]4,861, respectively.
F-49
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Income before financial income, income taxes and
extraordinary items....................................... 9,324 7,330 5,512
Not allocated:
certain pension and postretirement benefit costs........ 379 688 721
miscellaneous (1998: principally merger costs).......... 150 746 35
Allocated:
certain financial income, net........................... 19 (171) (38)
extraordinary item--gains on disposals of a business
(before income taxes; see Note 9)..................... 1,140 -- --
------ ----- -----
Consolidated operating profit............................... 11,012 8,593 6,230
====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Other
European American Other Consoli-
Revenues Germany Union(1) U.S. countries Asia countries dated
- -------- -------- -------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1999.................... 28,393 21,567 78,104 11,727 4,796 5,398 149,985
1998.................... 24,918 20,072 65,300 11,519 4,311 5,662 131,782
1997.................... 21,317 17,132 56,615 10,576 5,587 6,345 117,572
</TABLE>
- ------------------------
(1) Excluding Germany.
Germany accounts for [EURO]14,711 of long-term assets (1998: [EURO]12,953;
1997: [EURO]12,040), the U.S. for [EURO]43,036 (1998: [EURO]25,344; 1997:
[EURO]22,632) and other countries for [EURO]12,701 (1998: [EURO]11,309; 1997:
[EURO]9,797).
F-50
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
31. Earnings per Share
The computation of basic and diluted earnings per share for "Income before
extraordinary items" is as follows (in millions of euros or millions of shares,
except earnings per share):
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Income before extraordinary items.................. 5,106 4,949 6,547
Less: preferred stock dividends.................... -- -- (1)
------- ----- -----
Income before extraordinary items--basic............. 5,106 4,949 6,546
======= ===== =====
Income before extraordinary items.................. 5,106 4,949 6,547
Interest expense on convertible bonds and notes
(net of tax)...................................... 18 20 19
------- ----- -----
Income before extraordinary items--diluted........... 5,124 4,969 6,566
======= ===== =====
Weighted average number of shares
outstanding--basic................................. 1,002.9 959.3 949.3
======= ===== =====
Dilutive effect of convertible bonds and notes..... 10.7 19.8 12.8
Shares issued on exercise of dilutive options...... -- 18.3 17.7
Shares purchased with proceeds of options.......... -- (11.8) (13.5)
Shares applicable to convertible preferred stock... -- 0.2 0.8
Shares contingently issuable....................... -- 1.3 1.1
------- ----- -----
Weighted average number of shares
outstanding--diluted............................... 1,013.6 987.1 968.2
======= ===== =====
Earnings per share before extraordinary items
Basic.............................................. 5.09 5.16 6.90
======= ===== =====
Diluted............................................ 5.06 5.04 6.78
======= ===== =====
</TABLE>
An income tax charge of [EURO]812 relating to changes in German tax laws was
included in the consolidated statement of income for the year ended
December 31, 1999 and resulted in a reduction of basic and diluted earnings per
share of [EURO]0.81 and [EURO]0.80, respectively (see Note 8). In 1998, merger
costs of [EURO]401 (net of tax) impacted basic and diluted earnings per share by
a decrease of [EURO]0.42 and [EURO]0.41. In 1997, tax benefits relating to a
special distribution and to a decrease in the deferred tax asset valuation
allowance of [EURO]2,490 resulted in an increase of basic and diluted earnings
per share by [EURO]2.62 and [EURO]2.57, respectively.
In 1997, convertible bonds issued in connection with the 1997 Stock Option
Plan were not included in the computation of diluted earnings per share because
the options' underlying target stock price was greater than the market price for
DaimlerChrysler Ordinary Shares on December 31, 1997. For the same reason,
convertible bonds issued in connection with the 1998 Stock Option Plan were not
included in the computation at December 31, 1998.
Unexercised employee stock options to purchase 0.2 million shares of
DaimlerChrysler Ordinary Shares as of December 31, 1997 were not included in the
computations of diluted earnings per share because the options' exercise prices
were greater than the average market price of DaimlerChrysler Ordinary Shares
during the period.
F-51
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
32. Summarized Financial Information
Summarized financial information for DaimlerChrysler North America Holding
Corporation (formerly Daimler-Benz North America Corporation), DaimlerChrysler
Corporation and Chrysler Financial Company, L.L.C. and their respective
consolidated subsidiaries are set forth below (in millions of U.S. $):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C> <C>
DaimlerChrysler North America Holding Corporation
and consolidated subsidiaries(1)
Cash, cash equivalents and marketable securities.......... 9,624 8,592
Receivables from financial services....................... 26,515 21,463
Property and equipment, net............................... 24,737 22,347
Equipment on operating leases, net........................ 22,898 13,176
Other assets.............................................. 25,146 22,722
------- -------
Total assets.............................................. 108,920 88,300
======= =======
Current liabilities....................................... 54,137 41,364
Non-current liabilities................................... 35,099 30,212
Stockholder's equity...................................... 19,684 16,724
------- -------
Stockholder's equity and liabilities...................... 108,920 88,300
======= =======
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Net sales of products..................................... 89,292 78,405 69,581
Finance and other revenues................................ 7,468 6,321 6,168
Total expenses............................................ 92,278 80,845 72,639
Income before extraordinary item.......................... 4,482 3,881 3,110
Net income................................................ 4,462 3,738 3,110
</TABLE>
- ------------------------
(1) Effective December 31, 1999, DaimlerChrysler AG contributed its shares of
DaimlerChrysler Corporation to DaimlerChrysler North America Holding
Corporation. Accordingly, 1998 and 1997 amounts have been restated to
include the accounts of DaimlerChrysler Corporation and consolidated
subsidiaries.
F-52
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C> <C>
DaimlerChrysler Corporation and consolidated subsidiaries(1)
Cash, cash equivalents and marketable securities.......... 8,671 8,049
Receivables from financial services....................... 15,042 14,191
Property and equipment, net............................... 23,131 20,799
Other assets.............................................. 35,499 25,984
------- -------
Total assets.............................................. 82,343 69,023
======= =======
Current liabilities....................................... 35,985 30,989
Non-current liabilities................................... 30,735 24,879
Stockholder's equity...................................... 15,623 13,155
------- -------
Stockholder's equity and liabilities...................... 82,343 69,023
======= =======
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Sales of manufactured products............................ 67,176 61,721 56,986
Finance and insurance revenues............................ 4,114 2,062 1,636
Other revenues............................................ 1,060 1,796 2,451
Total expenses............................................ 68,425 62,348 58,268
Income before extraordinary item.......................... 3,925 3,231 2,805
Net income................................................ 3,905 3,088 2,805
</TABLE>
- ------------------------------
(1) Including Chrysler Financial Company, L.L.C. and consolidated subsidiaries.
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C> <C>
Chrysler Financial Company, L.L.C. and consolidated
subsidiaries
Finance receivables and retained interests, net........... 18,713 17,307
Vehicles leased, net...................................... 11,850 4,133
Loans and other amounts due from affiliates............... 1,852 1,930
Other assets.............................................. 1,709 1,940
------- -------
Total assets.............................................. 34,124 25,310
======= =======
Current liabilities....................................... 14,178 9,946
Non-current liabilities................................... 16,622 12,028
Shareholder's investment.................................. 3,324 3,336
------- -------
Shareholder's investment and liabilities.................. 34,124 25,310
======= =======
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net margin and other revenues............................. 1,401 1,705 1,669
Total costs and expenses.................................. 922 1,012 1,032
Net earnings.............................................. 374 457 419
</TABLE>
F-53
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Separate full consolidated financial statements of DaimlerChrysler North
America Holding Corporation, DaimlerChrysler Corporation and Chrysler Financial
Company, L.L.C. and their respective consolidated subsidiaries are not presented
as management has determined that such information is not material to holders of
the outstanding debt securities. Certain prior year amounts for DaimlerChrysler
Corporation and Chrysler Financial Company, L.L.C. have been reclassified to
conform to the current year presentation.
33. Formation of EADS
In October 1999, DaimlerChrysler, the French Lagardere Group and the French
government agreed to merge their respective aerospace and defense activities
into a new company. In December 1999, Sociedad Estatal de Participaciones
Industriales (SEPI) agreed to join the Franco-German alliance. The new
corporation, to be called European Aeronautic, Defense and Space Company (EADS),
will be established through a merger of Aerospatiale Matra S.A., DaimlerChrysler
Aerospace AG and Construcciones Aeronauticas S.A. (CASA). The transaction is
expected to be completed in the first half of 2000. Consummation of the merger
is subject to various conditions, including among others, approval of certain
governmental authorities.
F-54
<PAGE>
DAIMLERCHRYSLER AG
Allowance for Doubtful Accounts
(in millions of [EURO])
<TABLE>
<CAPTION>
Balance at Charged to Balance
beginning costs and Amounts at end
of 1999 expenses written off of 1999
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Receivables from financial services................... 364 510 (275) 599
Trade receivables..................................... 857 49 (108) 798
Other receivables..................................... 1,249 125 (247) 1,127
----- --- ---- -----
2,470 684 (630) 2,524
===== === ==== =====
</TABLE>
<TABLE>
<CAPTION>
Balance at Charged to Balance
beginning costs and Amounts at end
of 1998 expenses written off of 1998
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Receivables from financial services................... 401 452 (489) 364
Trade receivables..................................... 819 89 (51) 857
Other receivables..................................... 1,206 104 (61) 1,249
----- --- ---- -----
2,426 645 (601) 2,470
===== === ==== =====
</TABLE>
<TABLE>
<CAPTION>
Balance at Charged to Balance
beginning costs and Amounts at end
of 1997 expenses written off of 1997
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Receivables from financial services................... 346 562 (507) 401
Trade receivables..................................... 743 121 (45) 819
Other receivables..................................... 1,348 73 (215) 1,206
----- --- ---- -----
2,437 756 (767) 2,426
===== === ==== =====
</TABLE>
S-1
<PAGE>
This report has
been printed on
environment-friendly
paper bleached without
the use of chlorine.
<PAGE>
Exhibit 1.1
DAIMLERCHRYSLER AG
SATZUNG
I. ALLGEMEINE BESTIMMUNGEN
PARAGRAPH 1 FIRMA, SITZ
Die unter der Firma DaimlerChrysler AG bestehende Aktiengesellschaft hat ihren
Sitz in Stuttgart.
PARAGRAPH 2 GEGENSTAND
(1) Gegenstand des Unternehmens ist die unmittelbare oder mittelbare
Taetigkeit auf dem Gebiet der Entwicklung, der Herstellung und des
Vertriebs von Erzeugnissen und der Erbringung von Dienstleistungen,
insbesondere in folgenden Geschaeftszweigen:
- Landfahrzeuge,
- Wasser-, Luft- und Raumfahrzeuge sowie sonstige Erzeugnisse
der Verkehrs-, Luftfahrt-, Raumfahrt- und Meerestechnik,
- Motoren und andere technische Antriebe,
- Anlagen, Maschinen und Geraete fuer die Erzeugung,
Uebertragung und Nutzung von Energie,
- elektrische und elektronische Geraete, Anlagen und Systeme,
- Kommunikations- und Informationstechnik, Unternehmensberatung,
- Finanzdienstleistungen, Versicherungsvermittlungen, Media- und
Messeaktivitaeten und
- Verwaltung und Entwicklung von Immobilien.
(2) Die Gesellschaft ist zu allen Handlungen und Massnahmen berechtigt, die
der Erreichung des Gesellschaftszwecks dienen.
(3) Die Gesellschaft kann Zweigniederlassungen im In- und Ausland errichten
sowie sich an anderen Unternehmen beteiligen. Die Gesellschaft kann
Unternehmen erwerben oder sie veraeussern, sie unter einheitlicher
Leitung zusammenfassen und Unternehmensvertraege mit ihnen schliessen
oder sich auf die Verwaltung der Beteiligung beschraenken. Sie ist
berechtigt, ihren Betrieb ganz oder teilweise in
Beteiligungsunternehmen auszugliedern.
(4) Die Gesellschaft darf genehmigungsbeduerftige Finanzdienstleistungen
sowie Bank- und Immobiliengeschaefte nicht unmittelbar selbst taetigen.
II. GRUNDKAPITAL UND AKTIEN
PARAGRAPH 3 GRUNDKAPITAL
(1) Das Grundkapital der Gesellschaft betraegt EURO 2.560.890.312,55. Es
ist eingeteilt in 1.001.733.220 auf den Namen lautende Stueckaktien.
(2) Der Vorstand ist ermaechtigt, das Grundkapital in der Zeit bis zum
30. April 2003 mit Zustimmung des Aufsichtsrats einmalig oder in
Teilbetraegen um insgesamt bis zu EURO 255.645.940,60 (genehmigtes
Kapital I) durch Ausgabe neuer auf den Namen lautender Stueckaktien
gegen Bareinlagen zu erhoehen. Dabei ist den Aktionaeren ein
Bezugsrecht einzuraeumen. Das Bezugsrecht der Aktionaere kann
ausgeschlossen werden, soweit Spitzenbetraege auszugleichen sind.
Das Bezugsrecht der Aktionaere kann ferner ausgeschlossen werden,
soweit es erforderlich ist, um Inhabern von Optionsscheinen bzw.
Inhabern von Wandelschuldverschreibungen, die von der Daimler-Benz
Aktiengesellschaft oder ihren Tochtergesellschaften ausgegeben
wurden oder zukuenftig von der DaimlerChrysler AG oder deren
Tochtergesellschaften ausgegeben werden, ein Bezugsrecht auf neue
Aktien in dem Umfang zu gewaehren, wie es ihnen nach Ausuebung der
Options- oder Wandlungsrechte bzw. nach Erfuellung von
Wandlungspflichten zustuende. Das Bezugsrecht kann schliesslich
ausgeschlossen werden, soweit der auf die neuen Aktien entfallende
Anteil am Grundkapital weder insgesamt zehn vom Hundert des zum
Zeitpunkt der Eintragung dieses genehmigten Kapitals bestehenden
Grundkapitals noch insgesamt zehn vom Hundert des im Zeitpunkt der
Ausgabe der neuen Aktien bestehenden Grundkapitals uebersteigt und
der Ausgabebetrag der neuen Aktien den Boersenpreis nicht wesentlich
<PAGE>
im Sinne der Paragraphen 203 Abs. 1 und 2, 186 Abs. 3 Satz 4 AktG
unterschreitet.
(3) Der Vorstand ist ermaechtigt, das Grundkapital in der Zeit bis zum 30.
April 2003 mit Zustimmung des Aufsichtsrats einmalig oder in
Teilbetraegen um insgesamt bis zu EURO 25.564.594,06 (genehmigtes
Kapital II) durch Ausgabe neuer auf den Namen lautender Stueckaktien
gegen Bareinlagen zum Zwecke der Ausgabe von Belegschaftsaktien zu
erhoehen. Dabei ist das Bezugsrecht der Aktionaere ausgeschlossen.
Ueber den weiteren Inhalt der Aktienausgabe entscheidet der Vorstand
mit Zustimmung des Aufsichtsrats.
(4) Das Grundkapital ist um bis zu EURO 102.258.376,24, eingeteilt in bis
zu 40.000.000 Stueck auf Namen lautende Stueckaktien mit einem auf
diese Aktien entfallenden anteiligen Betrag des Grundkapitals von je
EURO 2,56 (gerundet), bedingt erhoeht (bedingtes Kapital I). Die
bedingte Kapitalerhoehung wird nur insoweit durchgefuehrt, wie die
Inhaber von Options-und Wandlungsrechten, die den von der
DaimlerChrysler AG oder deren 100%-igen unmittelbaren oder mittelbaren
Beteiligungsgesellschaften bis zum 30. April 2003 auszugebenden bzw. zu
garantierenden Options- oder Wandelanleihen beigefuegt sind, von ihren
Options- bzw. Wandlungsrechten Gebrauch machen oder wie die zur
Wandlung verpflichteten Inhaber der von der DaimlerChrysler AG oder
deren 100%-igen unmittelbaren oder mittelbaren
Beteiligungsgesellschaften bis zum 30. April 2003 auszugebenden bzw. zu
garantierenden Wandelschuldverschreibungen ihre Pflicht zur Wandlung
erfuellen. Die neuen Aktien nehmen vom Beginn des Geschaeftsjahres an,
in dem sie durch Ausuebung von Options-und/oder Wandlungsrechten oder
durch Erfuellung von Wandlungspflichten entstehen, am Gewinn teil.
(5) Der Vorstand ist ermaechtigt, das Grundkapital in der Zeit bis zum
31. Dezember 1999 mit Zustimmung des Aufsichtsrats einmalig oder in
Teilbetraegen um insgesamt bis zu EURO 76.693.782,18 durch Ausgabe
neuer auf den Namen lautender Stueckaktien gegen Sacheinlagen zu
erhoehen (genehmigtes Kapital III). Die Aktien sind jeweils fuer den
auf die einzelne Stueckaktie entfallenden anteiligen Betrag des
Grundkapitals auszugeben, also fuer jeweils EURO 2,56 (gerundet).
Die neuen Aktien nehmen vom Beginn des am 31. Dezember 1998 endenden
ersten Geschaeftsjahres am Gewinn teil; falls die Aktien erst nach
der ordentlichen Hauptversammlung der Gesellschaft im Jahr 1999
ausgegeben werden, nehmen sie erst vom Beginn des Geschaeftsjahres
1999 an am Gewinn teil.
Zur Zeichnung der neuen Aktien sind ausschliesslich Aktionaere der
Daimler-Benz Aktiengesellschaft oder fuer Aktionaere der Daimler-Benz
Aktiengesellschaft handelnde Treuhaender zuzulassen. Dabei ist das
Bezugsrecht der Aktionaere ausgeschlossen.
Als Gegenleistung fuer die von ihnen gezeichneten Aktien haben die
Aktionaere der Daimler-Benz Aktiengesellschaft auf den Inhaber lautende
Stueckaktien der Daimler-Benz Aktiengesellschaft an die Gesellschaft zu
uebertragen. Fuer jede Stueckaktie der Daimler-Benz Aktiengesellschaft
mit einem auf sie entfallenden anteiligen Betrag des Grundkapitals von
EURO 2,56 (gerundet) erhaelt der Aktionaer der Daimler-Benz
Aktiengesellschaft oder der Treuhaender je 1,005 Stueckaktie der
Gesellschaft.
Ueber den weiteren Inhalt der Aktienausgabe entscheidet der Vorstand
mit Zustimmung des Aufsichtsrats.
(6) Das Grundkapital ist weiter um bis zu EURO 43.715.455,84, eingeteilt in
bis zu 17.100.000 Stueck auf Namen lautende Stueckaktien mit einem auf
diese Aktien entfallenden anteiligen Betrag des Grundkapitals von je
EURO 2,56 (gerundet), bedingt erhoeht (bedingtes Kapital II). Diese
bedingte Kapitalerhoehung erfolgt zur Durchfuehrung der Verschmelzung
mit der Daimler-Benz Aktiengesellschaft.
Sie wird nur insoweit durchgefuehrt, als aufgrund der Ausuebung von
Optionsrechten zum Bezug von Aktien der Daimler-Benz
Aktiengesellschaft aus der 4-1/8 %-DM-Optionsanleihe von 1996/2003
der Daimler-Benz Capital (Luxemburg) AG ("DM-Optionsanleihe
1996/2003") und der Ausuebung von Wandlungsrechten und -pflichten
zum Bezug von Aktien der Daimler-Benz Aktiengesellschaft aus den
nachrangigen 5-3/4%-DM-Inhaber-Teilschuldverschreibungen mit
Pflichtwandlung von 1997/2002 der Daimler-Benz Aktiengesellschaft
<PAGE>
("DM-Pflichtwandelanleihe 1997/2002") in der Zeit vom 1. Juli 1998
bis zum Wirksamwerden der Verschmelzung neue Stueckaktien der
Daimler-Benz Aktiengesellschaft ausgegeben werden, die nicht vor
Wirksamwerden der Verschmelzung in Aktien der Gesellschaft
umgetauscht werden, und deshalb ueber die durch die unbedingte
Kapitalerhoehung zur Durchfuehrung der Verschmelzung mit der
Daimler-Benz Aktiengesellschaft geschaffenen Stueckaktien hinaus
weitere Stueckaktien der Gesellschaft benoetigt werden, um alle bei
Wirksamwerden der Verschmelzung vorhandenen Aktien aussenstehender
Aktionaere der Daimler-Benz Aktiengesellschaft in Stueckaktien der
Gesellschaft umzutauschen.
Die neuen Aktien aus dem bedingten Kapital II nehmen, soweit sie fuer
Aktien der Daimler-Benz Aktiengesellschaft aus der DM-Optionsanleihe
1996/2003 gewaehrt werden, vom Beginn des Geschaeftsjahres an am Gewinn
teil, in das der Ausuebungstag faellt, soweit sie fuer Aktien der
Daimler-Benz Aktiengesellschaft aus der DM-Pflichtwandelanleihe
1997/2002 gewaehrt werden, vom Beginn des Geschaeftsjahres an, in dem
diese Aktien der Daimler-Benz Aktiengesellschaft ausgegeben werden.
Falls die Verschmelzung mit der Daimler-Benz Aktiengesellschaft erst
nach der ordentlichen Hauptversammlung der Daimler-Benz
Aktiengesellschaft im Jahr 1999 in das fuer die Gesellschaft
zustaendige Handelsregister eingetragen wird, sind die neuen Aktien
abweichend von der vorstehenden Regelung erst ab dem 1. Januar 1999
gewinnberechtigt. Bei einer weiteren Verzoegerung der Eintragung ueber
die ordentliche Hauptversammlung des Folgejahres hinaus verschiebt sich
der Beginn der Gewinnberechtigung entsprechend der vorstehenden
Regelung jeweils um ein Jahr.
(7) Das Grundkapital ist weiter um bis zu EURO 40.034.154,30, eingeteilt
in bis zu 15.660.000 Stueck auf Namen lautende Stueckaktien mit
einem auf diese Aktien entfallenden anteiligen Betrag des
Grundkapitals von je EURO 2,56 (gerundet), bedingt erhoeht
(bedingtes Kapital III). Diese bedingte Kapitalerhoehung erfolgt zur
Durchfuehrung der Verschmelzung mit der Daimler-Benz
Aktiengesellschaft. Sie wird nur insoweit durchgefuehrt, als
Inhabern der Wandelschuldverschreibungen aus der 5,9
%-DM-Wandelanleihe von 1996/2006 der Daimler-Benz
Aktiengesellschaft, aus der 5,3 %-DM-Wandelanleihe von 1997/2007 der
Daimler-Benz Aktiengesellschaft und der 4,4 % Wandelanleihe von
1998/2008 der Daimler-Benz Aktiengesellschaft Wandlungsrechte zum
Bezug von Aktien der Daimler-Benz Aktiengesellschaft zustehen und
aufgrund der Ausuebung dieser Wandlungsrechte in der Zeit vom 1.
Juli 1998 bis zum Wirksamwerden der Verschmelzung neue Stueckaktien
der Daimler-Benz Aktiengesellschaft ausgegeben werden, die nicht vor
Wirksamwerden der Verschmelzung in Aktien der Gesellschaft
umgetauscht werden, und deshalb ueber die durch die unbedingte
Kapitalerhoehung zur Durchfuehrung der Verschmelzung mit der
Daimler-Benz Aktiengesellschaft geschaffenen Stueckaktien hinaus
weitere Stueckaktien der Gesellschaft benoetigt werden, um alle bei
Wirksamwerden der Verschmelzung vorhandenen Aktien aussenstehender
Aktionaere der Daimler-Benz Aktiengesellschaft in Stueckaktien der
Gesellschaft umzutauschen.
Die neuen Aktien aus dem bedingten Kapital III nehmen vom Beginn des
Geschaeftsjahres an am Gewinn teil, in dem die Wandlung in Aktien der
Daimler-Benz Aktiengesellschaft wirksam wird. Falls die Verschmelzung
mit der Daimler-Benz Aktiengesellschaft erst nach der ordentlichen
Hauptversammlung der Daimler-Benz Aktiengesellschaft im Jahr 1999 in
das fuer die Gesellschaft zustaendige Handelsregister eingetragen wird,
sind die neuen Aktien abweichend von der vorstehenden Regelung erst ab
dem 1. Januar 1999 gewinnberechtigt. Bei einer weiteren Verzoegerung
der Eintragung ueber die ordentliche Hauptversammlung des Folgejahres
hinaus verschiebt sich der Beginn der Gewinnberechtigung entsprechend
der vorstehenden Regelung jeweils um ein Jahr.
(8) Das Grundkapital ist um bis zu EURO 43.715.455,84, eingeteilt in bis zu
17.100.000 Stueck auf Namen lautende Stueckaktien mit einem auf diese
Aktien entfallenden anteiligen Betrag des Grundkapitals von je EURO
2,56 (gerundet), bedingt erhoeht (bedingtes Kapital IV). Diese bedingte
Kapitalerhoehung wird nur insoweit durchgefuehrt, als die Inhaber von
Options- und Wandlungsrechten aus der 4-1/8 %-DM Optionsanleihe von
1996/2003 der Daimler-Benz Capital (Luxemburg) AG
("DM-Optionsanleihe 1996/2003") und aus den nachrangigen 5-3/4%-
DM-Inhaber-Teilschuldverschreibungen mit Pflichtwandlung von
<PAGE>
1997/2002 der Daimler-Benz Aktiengesellschaft
("DM-Pflichtwandelanleihe 1997/2002") von ihren Options- oder
Wandlungsrechten nach Wirksamwerden der Verschmelzung mit der
Daimler-Benz Aktiengesellschaft Gebrauch machen oder die zur
Wandlung verpflichteten Inhaber der Wandelschuldverschreibungen aus
der DM-Pflichtwandelanleihe 1997/2002 ihre Pflicht zur Wandlung nach
Wirksamwerden der Verschmelzung mit der Daimler-Benz
Aktiengesellschaft erfuellen. Die neuen Aktien aus der
DM-Optionsanleihe 1996/2003 nehmen vom Beginn des Geschaeftsjahres
an am Gewinn teil, in das der Ausuebungstag faellt, die neuen Aktien
aus der DM-Pflichtwandelanleihe 1997/2002 vom Beginn des
Geschaeftsjahres an, in dem sie ausgegeben werden.
(9) Das Grundkapital ist um bis zu EURO 40.034.154,30, eingeteilt in bis
zu 15.660.000 Stueck auf Namen lautende Stueckaktien mit einem auf
diese Aktien entfallenden anteiligen Betrag des Grundkapitals von je
EURO 2,56 (gerundet), bedingt erhoeht (bedingtes Kapital V). Diese
bedingte Kapitalerhoehung wird nur insoweit durchgefuehrt, als
Inhabern der Wandelschuldverschreibungen aus der
5,9%-DM-Wandelanleihe von 1996/2006, aus der 5,3%-DM-Wandelanleihe
von 1997/2007 und aus der 4,4%-Wandelanleihe von 1998/2008, die von
der Daimler-Benz Aktiengesellschaft aufgrund der Ermaechtigung der
Hauptversammlung vom 22. Mai 1996 in Verbindung mit der
Ergaenzungsermaechtigung der Hauptversammlung vom 28. Mai 1997
begeben wurden, Wandlungsrechte zustehen und sie nach Wirksamwerden
der Verschmelzung mit der Daimler-Benz Aktiengesellschaft von ihren
Wandlungsrechten Gebrauch machen. Die neuen Aktien nehmen vom Beginn
des Geschaeftsjahres an am Gewinn teil, in dem die Wandlung wirksam
wird.
PARAGRAPH 4 AKTIENURKUNDEN
(1) Die Form und den Inhalt von Aktienurkunden, etwaigen Gewinnanteils- und
Erneuerungsscheinen setzt der Vorstand mit Zustimmung des Aufsichtsrats
fest. Das gleiche gilt fuer Schuldverschreibungen und Zinsscheine.
(2) Ein Anspruch der Aktionaere auf Verbriefung ihrer Aktien und
Gewinnanteile ist ausgeschlossen, soweit dies gesetzlich zulaessig und
nicht eine Verbriefung nach den Regeln einer Boerse erforderlich ist,
an der die Aktie zugelassen ist. Die Gesellschaft ist berechtigt,
Aktienurkunden auszustellen, die einzelne Aktien (Einzelaktien) oder
mehrere Aktien (Sammelaktien) verkoerpern.
III. DER VORSTAND
PARAGRAPH 5 ZUSAMMENSETZUNG
Der Vorstand besteht aus mindestens zwei Mitgliedern. Der Aufsichtsrat bestellt
die Vorstandsmitglieder nach den Bestimmungen des Aktiengesetzes und des
Mitbestimmungsgesetzes und bestimmt ihre Zahl.
PARAGRAPH 6 VERTRETUNG DER GESELLSCHAFT
Die Vertretung der Gesellschaft erfolgt durch zwei Vorstandsmitglieder oder ein
Vorstandsmitglied gemeinschaftlich mit einem Prokuristen.
IV. DER AUFSICHTSRAT
PARAGRAPH 7 ZUSAMMENFASSUNG, AMTSDAUER, NIEDERLEGUNG DES AMTS
(1) Der Aufsichtsrat besteht aus 20 Mitgliedern, von denen 10 Mitglieder
durch die Aktionaere und 10 Mitglieder durch die Arbeitnehmer gewaehlt
werden. Die Wahl erfolgt laengstens fuer die Zeit bis zur Beendigung
der Hauptversammlung, die ueber die Entlastung fuer das vierte
Geschaeftsjahr nach dem Beginn der Amtszeit beschliesst. Hierbei wird
das Geschaeftsjahr, in dem die Amtszeit beginnt, nicht mitgerechnet.
Die Hauptversammlung kann fuer Mitglieder der Aktionaere bei der Wahl
eine kuerzere Amtszeit bestimmen.
(2) Jedes Mitglied des Aufsichtsrats kann sein Amt unter Einhaltung einer
vierwoechigen Frist auch ohne wichtigen Grund durch schriftliche
Mitteilung an den Vorsitzenden des Aufsichtsrats niederlegen. Der
Vorsitzende des Aufsichtsrats oder im Falle einer Amtsniederlegung
durch den Vorsitzenden sein Stellvertreter kann einer Kuerzung der
Frist zustimmen.
<PAGE>
(3) Die Amtszeit des ersten Aufsichtsrats endet mit Eintragung dieser
Satzungsbestimmung in das Handelsregister der Gesellschaft.
PARAGRAPH 8 DER VORSITZENDE DES AUFSICHTSRATS UND SEINE STELLVERTRETER
(1) Im Anschluss an die Hauptversammlung, in der die zehn
Aufsichtsratsmitglieder der Aktionaere gewaehlt worden sind, findet
eine Aufsichtsratssitzung statt, zu der es einer Einladung nicht
bedarf. In dieser Sitzung waehlt der Aufsichtsrat nach dem
Mitbestimmungsgesetz fuer die Dauer seiner Amtszeit aus seiner Mitte
einen Vorsitzenden und einen Stellvertreter.
(2) Scheidet der Vorsitzende oder sein Stellvertreter vor Ablauf der
Amtszeit aus, wird unverzueglich ein Nachfolger des Ausgeschiedenen
fuer dessen restliche Amtszeit gewaehlt.
PARAGRAPH 9 AUSSCHUESSE DES AUFSICHTSRATS
(1) Im Anschluss an die Wahl des Vorsitzenden des Aufsichtsrats und des
Stellvertreters bildet der Aufsichtsrat zur Wahrnehmung der in
Paragraph 31 Abs. 3 Mitbestimmungsgesetz genannten Aufgabe fuer die
Dauer seiner Amtszeit einen Ausschuss, dem der Vorsitzende des
Aufsichtsrats, sein Stellvertreter und zwei weitere Mitglieder
angehoeren, von denen je eines von den Aufsichtsratsmitgliedern der
Arbeitnehmer und der Aktionaere mit der Mehrheit der abgegebenen
Stimmen gewaehlt werden.
(2) Scheidet eines der weiteren Mitglieder des in Abs. 1 genannten
Ausschusses vorzeitig aus, wird unverzueglich ein Nachfolger des
Ausgeschiedenen fuer dessen restliche Amtszeit gewaehlt.
(3) Fuer die Neuwahlen nach Abs. 2 gelten die gleichen Vorschriften wie
fuer die Wahlen nach Abs. 1.
(4) Der Aufsichtsrat kann aus seiner Mitte Ausschuesse fuer besondere
Aufgaben und Befugnisse bilden. Den Ausschuessen des Aufsichtsrats
koennen auch, soweit gesetzlich zulaessig, entscheidende Befugnisse des
Aufsichtsrats uebertragen werden. Fuer Beschlussfassungen in den
Ausschuessen gelten Paragraph 10 Abs. 6 bis 8, soweit nicht zwingende
gesetzliche Vorschriften entgegenstehen; Paragraph 10 Abs. 5 findet
keine Anwendung.
PARAGRAPH 10 SITZUNGEN, BESCHLUESSE UND WILLENSERKLAERUNGEN DES AUFSICHTSRATS
(1) Der Vorsitzende des Aufsichtsrats - im Fall seiner Verhinderung sein
Stellvertreter - beruft die Sitzungen des Aufsichtsrats ein. Die
Einberufung hat unter Einhaltung einer Frist von zwei Wochen
schriftlich (auch per Telefax), fernschriftlich oder telegrafisch zu
erfolgen. In ihr sind die einzelnen Gegenstaende der Tagesordnung so
eindeutig anzugeben, dass bei der Sitzung abwesende
Aufsichtsratsmitglieder von ihrem Recht der schriftlichen Stimmabgabe
Gebrauch machen koennen. In dringenden Faellen kann die
Einberufungsfrist bis auf drei Tage abgekuerzt werden.
(2) Ist ein Tagesordnungspunkt nicht ordnungsgemaess angekuendigt worden,
darf hierueber nur beschlossen werden, wenn kein Aufsichtsratsmitglied
widerspricht.
Abwesenden Aufsichtsratsmitgliedern ist in einem solchen Fall
Gelegenheit zu geben, binnen einer vom Vorsitzenden festzusetzenden
angemessenen Frist der Beschlussfassung nachtraeglich zu widersprechen;
der Beschluss wird erst wirksam, wenn die abwesenden
Aufsichtsratsmitglieder innerhalb der Frist nicht widersprochen haben.
(3) Der Aufsichtsrat ist beschlussfaehig, wenn alle Mitglieder des
Aufsichtsrats unter der zuletzt bekanntgegebenen Anschrift eingeladen
wurden und mindestens zehn Aufsichtsratsmitglieder an der
Beschlussfassung teilnehmen.
(4) Der Vorsitzende des Aufsichtsrats - im Fall seiner Verhinderung sein
Stellvertreter - leitet die Sitzung des Aufsichtsrats und bestimmt die
Reihenfolge der Verhandlungsgegenstaende sowie die Art der Abstimmung.
(5) Sind bei einer Beschlussfassung nicht saemtliche
Aufsichtsratsmitglieder anwesend und lassen die fehlenden
Aufsichtsratsmitglieder nicht schriftliche Stimmabgaben ueberreichen,
<PAGE>
ist die Beschlussfassung auf Antrag von mindestens zwei anwesenden
Aufsichtsratsmitgliedern zu vertagen. Im Fall einer Vertagung findet
die erneute Beschlussfassung, sofern keine besondere
Aufsichtsratssitzung einberufen wird, in der naechsten
turnusmaessigen Sitzung statt. Ein nochmaliges Minderheitsverlangen
auf Vertagung ist bei einer erneuten Beschlussfassung nicht
zulaessig.
Nimmt der Vorsitzende des Aufsichtsrats an der Sitzung teil oder
befindet sich ein anwesendes Aufsichtsratsmitglied im Besitz seiner
schriftlichen Stimmabgabe, findet der vorstehende Unterabsatz keine
Anwendung, wenn bei der Beschlussfassung die gleiche Anzahl von
Aufsichtsratsmitgliedern der Aktionaere und der Arbeitnehmer
persoenlich anwesend ist oder durch schriftliche Stimmabgabe an der
Beschlussfassung teilnimmt oder wenn eine etwaige Ungleichheit
dadurch aufgehoben wird, dass sich einzelne Aufsichtsratsmitglieder
nicht an der Beschlussfassung beteiligen.
(6) Die Beschluesse werden mit einfacher Mehrheit der abgegebenen Stimmen
gefasst, soweit nicht gesetzlich andere Mehrheiten vorgeschrieben sind.
Bei Feststellung des Abstimmungsergebnisses werden Stimmenthaltungen
nicht mitgezaehlt.
Ergibt eine Abstimmung Stimmengleichheit, so kann jedes
Aufsichtsratsmitglied die zweite Abstimmung verlangen. Der Vorsitzende
des Aufsichtsrats - im Fall seiner Verhinderung sein Stellvertreter -
bestimmt, wann die Abstimmung wiederholt wird. Ergibt sich auch bei der
zweiten Abstimmung Stimmengleichheit, hat der Vorsitzende des
Aufsichtsrats zwei Stimmen.
(7) Abwesende Aufsichtsratsmitglieder koennen dadurch an der
Beschlussfassung des Aufsichtsrats und seiner Ausschuesse teilnehmen,
dass sie schriftliche Stimmabgaben durch andere Aufsichtsratsmitglieder
ueberreichen lassen. Dies gilt auch fuer die zweite Stimme des
Vorsitzenden des Aufsichtsrats.
(8) Der Vorsitzende des Aufsichtsratsrats - im Fall seiner Verhinderung
sein Stellvertreter - kann einen Beschluss des Aufsichtsrats auch durch
schriftliche (auch per Telefax), fernschriftliche oder telegrafische
Abstimmung herbeifuehren, wenn kein Aufsichtsratsmitglied diesem
Verfahren innerhalb einer vom Vorsitzenden bestimmten angemessenen
Frist widerspricht.
(9) Der Vorsitzende des Aufsichtsrats - im Fall seiner Verhinderung sein
Stellvertreter - gibt die Willenserklaerungen des Aufsichtsrats und
seiner Ausschuesse ab und fuehrt deren Schriftwechsel.
(10) Ueber die Verhandlungen und Beschluesse des Aufsichtsrats sind
Niederschriften anzufertigen, die vom Vorsitzenden zu unterzeichnen
sind. Die Niederschrift ist allen Mitgliedern zuzuleiten.
PARAGRAPH 11 GEHEIMHALTUNGSPFLICHT DER AUFSICHTSRATSMITGLIEDER
Die Aufsichtsratsmitglieder haben Stillschweigen zu bewahren ueber vertrauliche
Angaben und Geheimnisse der Gesellschaft, namentlich Betriebs- oder
Geschaeftsgeheimnisse, die den Aufsichtsratsmitgliedern durch ihre Taetigkeit im
Aufsichtsrat bekannt werden. Beabsichtigt ein Aufsichtsratsmitglied, Dritten
Angaben insbesondere ueber Inhalt und Verlauf von Aufsichtsratssitzungen sowie
vom Inhalt von Aufsichtsratsvorlagen und -beschluessen weiterzugeben, hat es
vorher den Vorsitzenden des Aufsichtsrats zu unterrichten, um etwaige
Meinungsverschiedenheiten ueber die Geheimhaltungspflicht zu beseitigen.
PARAGRAPH 12 AUFSICHTSRATSVERGUETUNG
Die Mitglieder des Aufsichtsrats erhalten neben dem Ersatz ihrer Auslagen-
einschliesslich einer ihnen fuer die Aufsichtsratstaetigkeit zur Last
fallenden Umsatzsteuer - eine feste, nach Ablauf des Geschaeftsjahres
zahlbare Verguetung, die sich fuer das einzelne Mitglied auf EURO 51.129,19,
fuer den Vorsitzenden auf den 2-fachen, fuer den Stellvertreter des
Vorsitzenden auf den 1,5-fachen und fuer gewaehlte Mitglieder in Ausschuessen
des Aufsichtsrats auf den 1,3-fachen Betrag beziffert. Darueber hinaus
erhalten die Mitglieder des Aufsichtsrats fuer jede Aufsichtsratssitzung ein
Sitzungsgeld von EURO 1.022,58.
<PAGE>
V. DIE HAUPTVERSAMMLUNG
PARAGRAPH 13 EINBERUFUNG DER HAUPTVERSAMMLUNG
(1) Die Hauptversammlung wird durch den Vorstand oder den Aufsichtsrat
einberufen. Sie findet am Sitz der Gesellschaft oder an jedem anderen
rechtlich nicht ausgeschlossenen Ort statt.
(2) Die Einberufung ist mindestens einen Monat vor dem Tag, bis zu dessen
Ablauf sich die Aktionaere fuer die Versammlung anzumelden haben,
bekanntzugeben; der Tag der Einberufung und der letzte Tag der
Anmeldefrist sind hierbei nicht mitzurechnen.
PARAGRAPH 14 ORDENTLICHE HAUPTVERSAMMLUNG
Die Hauptversammlung, die ueber die Entlastung des Vorstands und Aufsichtsrats,
die Verwendung des Bilanzgewinns, die Wahl des Abschlusspruefers und
gegebenenfalls die Feststellung des Jahresabschlusses beschliesst (ordentliche
Hauptversammlung), findet innerhalb der ersten acht Monate eines jeden
Geschaeftsjahres statt.
PARAGRAPH 15 VORAUSSETZUNGEN FUER DIE TEILNAHME UND DIE STIMMRECHTSAUSUEBUNG
Zur Teilnahme an der Hauptversammlung und zur Ausuebung des Stimmrechts
werden die Aktionaere zugelassen, die am Tage der Hauptversammlung im
Aktienbuch der Gesellschaft eingetragen sind und die sich nicht spaeter als
am dritten Tage vor der Versammlung bei der Gesellschaft angemeldet haben.
PARAGRAPH 16 STIMMRECHT
Jede Aktie gewaehrt eine Stimme.
PARAGRAPH 17 VORSITZ IN DER HAUPTVERSAMMLUNG
(1) Den Vorsitz in der Hauptversammlung fuehrt der Vorsitzende des
Aufsichtsrats oder im Fall seiner Verhinderung ein von ihm bestimmtes
Mitglied des Aufsichtsrats, in Ermangelung einer solchen Bestimmung das
von den Aufsichtsratsmitgliedern der Aktionaere gemaess Paragraph 27
Abs. 3 Mitbestimmungsgesetz gewaehlte Mitglied. Ist keiner von diesen
erschienen oder zur Leitung der Versammlung bereit, wird der
Versammlungsleiter durch den Aufsichtsrat gewaehlt.
(2) Der Vorsitzende leitet die Verhandlungen und bestimmt die Reihenfolge
der Verhandlungsgegenstaende sowie die Art und Form der Abstimmung.
PARAGRAPH 18 BESCHLUSSFASSUNG
(1) Die Beschluesse der Hauptversammlung werden, soweit nicht zwingende
Vorschriften des Aktiengesetzes etwas Abweichendes bestimmen, mit
einfacher Mehrheit der abgegebenen Stimmen gefasst. Soweit das
Aktiengesetz ausserdem zur Beschlussfassung eine Mehrheit des bei der
Beschlussfassung vertretenen Grundkapitals vorschreibt, genuegt, soweit
dies gesetzlich zulaessig ist, die einfache Mehrheit des vertretenen
Kapitals.
(2) Der Aufsichtsrat ist berechtigt, Aenderungen der Satzung, die nur die
Fassung betreffen, zu beschliessen.
VI. JAHRESABSCHLUSS UND VERWENDUNG DES BILANZGEWINNS
PARAGRAPH 19 GESCHAEFTSJAHR, RECHNUNGSLEGUNG
(1) Das Geschaeftsjahr ist das Kalenderjahr.
(2) Der Vorstand hat in den ersten drei Monaten des Geschaeftsjahres den
Jahresabschluss und den Lagebericht fuer das vergangene Geschaeftsjahr
aufzustellen und dem Abschusspruefer vorzulegen. Unverzueglich nach
ihrer Aufstellung hat der Vorstand den Jahresabschluss nebst
Lagebericht dem Aufsichtsrat zugleich mit dem Vorschlag vorzulegen, den
der Vorstand der Hauptversammlung fuer die Verwendung des Bilanzgewinns
machen will.
PARAGRAPH 20 ABSCHLAGSZAHLUNG AUF DEN BILANZGEWINN
Der Vorstand ist - mit Zustimmung des Aufsichtsrats - ermaechtigt, nach Ablauf
des Geschaeftsjahres auf den voraussichtlichen Bilanzgewinn einen Abschlag an
die Aktionaere zu zahlen, wenn ein vorlaeufiger Abschluss fuer das vergangene
<PAGE>
Geschaeftsjahr einen Jahresueberschuss ergibt. Als Abschlag darf hoechstens die
Haelfte des Betrages gezahlt werden, der von dem Jahresueberschuss nach Abzug
der Betraege verbleibt, die nach Gesetz oder Satzung in Gewinnruecklagen
einzustellen sind. Ausserdem darf der Abschlag nicht die Haelfte des
vorjaehrigen Bilanzgewinns uebersteigen.
PARAGRAPH 21 MASSSTAB FUER DIE GEWINNBETEILIGUNG DER AKTIONAERE
(1) Die Gewinnanteile der Aktionaere bestimmen sich nach ihren Anteilen am
Grundkapital.
(2) Bei Ausgabe neuer Aktien kann eine andere Gewinnberechtigung
festgesetzt werden.
VII. BEKANNTMACHUNGEN
PARAGRAPH 22
Die Bekanntmachungen der Gesellschaft erfolgen durch Veroeffentlichung im
Bundesanzeiger.
VIII. GRUENDUNGSAUFWAND
PARAGRAPH 23
Die mit der Gruendung der Gesellschaft und der Eintragung im Handelsregister
verbundenen Kosten und Steuern (insbesondere Notar- und Gerichtsgebuehren,
Kosten der Veroeffentlichung, Steuern, Rechts-und Steuerberatungskosten,
Gutachterkosten, Bankkosten) bis zum Betrag von insgesamt EURO 5.112,92 traegt
die Gesellschaft.
<PAGE>
DAIMLERCHRYSLER AG
MEMORANDUM AND ARTICLES OF ASSOCIATION
<PAGE>
I. GENERAL PROVISIONS
SECTION 1 NAME, REGISTERED OFFICE
The name of the stock corporation is DaimlerChrysler AG. Its registered
office is situated in Stuttgart.
SECTION 2 OBJECT
(1) The object of the company is to pursue, directly or indirectly,
business in the fields of development, production and sale of products
and rendering of services, in particular in the following lines of
business:
- vehicles for use on land,
- vehicles for use on water, in the air and in space and other
products in the fields of transport, aerospace, space, and
marine technology,
- engines and other technological propulsion systems,
- plants, machinery and equipment for power generation,
distribution and utilization,
- electrical and electronic equipment, plants and systems,
- communication and information technology, business
consultancy,
- financial services of all kinds, insurance brokerage, and
activities in the fields of media and expositions and
- management and development of real property.
(2) The company may take all actions and measures which serve the
attainment of its objects.
(3) The company may set up domestic as well as foreign subsidiaries and
acquire interests in other companies. The company may purchase, dispose
of, bring under joint management and conclude inter-company agreements
with other companies, or limit itself to the management of its
interest. The company is authorized to, wholly or partly, drop-down its
business in subsidiaries.
(4) The company may not engage directly in banking and real property
transactions that are subject to license requirements.
II. CAPITAL STOCK AND SHARES
SECTION 3 CAPITAL STOCK
(1) The capital stock of the company amounts to EURO 2,560,890,312.55 and
is divided up into 1,001,733,220 no par value registered shares.
(2) The Board of Management is authorized upon the approval of the
Supervisory Board to increase the capital stock in the period up to
April 30, 2003 by a total of EURO 255,645,940.60 (authorized capital I)
in a lump sum or in partial amounts by issuing new no par value
registered shares in exchange for cash contributions. At the same time,
the shareholders shall be granted stock subscription rights. The stock
subscription rights of the shareholders may be excluded to the extent
that residual amounts are to be offset. Furthermore, the stock
subscription rights of the shareholders may be excluded to the extent
that it is necessary to extend to holders of warrants or of convertible
bonds or notes issued by Daimler-Benz Aktiengesellschaft or its
subsidiaries, or to be issued by DaimlerChrysler AG or its subsidiaries
in the future, subscription rights for new shares in the volume to
which they would be entitled after exercising the warrants or
conversion rights or after fulfilling conversion obligations. Finally,
the stock subscription rights may be excluded to the extent that the
share in capital stock allocated to the new shares exceeds neither a
total of ten percent of the capital stock existing at the time when
this authorized capital is registered nor a total of ten percent of the
capital stock existing at the time when the new shares are issued, and
providing the issue price of the new shares is not significantly lower
within the meaning of sections 203 para 1, 203 para 2 and 186 para 3
sentence 4 of the German Stock Corporation Act (AKTIENGESETZ) than the
market price.
<PAGE>
(3) The Board of Management is authorized upon the approval of the
Supervisory Board to increase the capital stock in the period up to
April 30, 2003 by a total of EURO 25,564,594.06 (authorized capital II)
in a lump sum or in partial amounts by issuing new no par value
registered shares in exchange for cash contributions for the purpose of
issuing employee shares. At the same time, subscription rights of the
shareholders shall be excluded. The Board of Management shall determine
the additional conditions of issuance of the shares upon the approval
of the Supervisory Board.
(4) The capital stock shall be conditionally increased by up to EURO
102,258,376.24 divided up into up to 40,000,000 no par value registered
shares with a proportionate amount of the capital stock of EURO 2.56
(rounded up) allotted to each share (conditional capital I). The
conditional capital increase shall be accomplished only to the extent
that the holders of option or conversion rights attached to, bonds or
notes with warrants or convertible bonds or notes to be issued or
guaranteed by DaimlerChrysler AG or its wholly owned direct or indirect
subsidiaries by April 30, 2003 exercise their option or conversion
rights, or to the extent that the holders obligated to convert
convertible bonds or notes to be issued or guaranteed by
DaimlerChrysler AG or its wholly owned direct or indirect subsidiaries
by April 30, 2003 fulfill their conversion obligations. The new shares
shall be entitled to participate in profits as of the beginning of the
financial year in which such shares come into existence through the
exercise of option and/or conversion rights or through the fulfillment
of conversion obligations.
(5) The Board of Management is authorized upon the approval of the
Supervisory Board to increase the capital stock in the period up to
December 31, 1999 by a total of up to EURO 76,693,782.18 in a lump sum
or in partial amounts by issuing new no par value registered shares in
exchange for contributions in kind (authorized capital III). The shares
shall each be issued for the proportionate amount of the capital stock
allotted to the individual no par value share, i.e. for EURO 2.56
(rounded up) each. The new shares shall participate in profits as of
the beginning of the financial year ending on December 31, 1998,
however, if the shares are issued after the company's Ordinary General
Meeting in 1999, they shall only participate in profits as of the
beginning of the financial year 1999.
The new shares are exclusively for the subscription of shareholders of
Daimler-Benz Aktiengesellschaft or trustees acting on behalf of
shareholders of Daimler-Benz Aktiengesellschaft. At the same time,
subscription rights of the shareholders shall be excluded.
As consideration for shares subscribed by them, the shareholders of
Daimler-Benz Aktiengesellschaft have to transfer no par value bearer
shares of Daimler-Benz Aktiengesellschaft to the company. The
shareholder of Daimler-Benz Aktiengesellschaft or the trustee shall
receive 1.005 no par value share of the company for each no par value
share of Daimler-Benz Aktiengesellschaft with a proportionate amount of
the capital stock of EURO 2.56 (rounded up) allotted to such a share.
The Board of Management shall determine the additional conditions of
issuance of the shares upon the approval of the Supervisory Board.
(6) In addition, the capital stock shall be conditionally increased by up
to EURO 43,715,455.84 divided up into up to 17,100,000 no par value
registered shares with a proportionate amount of the capital stock of
EURO 2.56 (rounded up) allotted to each share (conditional capital II).
This conditional capital increase is for the purpose of consummating
the merger with Daimler-Benz Aktiengesellschaft. It shall be
accomplished only to the extent that as a consequence of the exercise
of option rights to subscription of shares of Daimler-Benz
Aktiengesellschaft attached to the 4 1/8 % DM-notes with warrants of
1996/2003 of Daimler-Benz Capital (Luxembourg) AG ("DM-notes with
warrants 1996/2003") and of the exercise of rights to conversion or of
obligations to convert into shares of Daimler-Benz Aktiengesellschaft
attached to the 5 3/4 %-DM-subordinated mandatory convertible bearer
notes of 1997/2002 of Daimler-Benz Aktiengesellschaft ("DM-mandatory
convertible notes 1997/2002") no par value shares of Daimler-Benz
Aktiengesellschaft are issued in the period from July 1, 1998 up to the
time when the merger becomes effective, if those are not exchanged into
shares of the company before the time when the merger becomes
effective, and that, therefore, there is a need for additional no par
<PAGE>
value shares of the company, exceeding the no par value shares created
through the unconditional capital increase for the consummation of the
merger with Daimler-Benz Aktiengesellschaft, in order to exchange all
shares of outside shareholders of Daimler-Benz Aktiengesellschaft
existing at the time when the merger becomes effective into no par
value shares of the company.
The new shares based on conditional capital II which are issued in
order to be exchanged for shares of Daimler-Benz Aktiengesellschaft
created through the DM-notes with warrants 1996/2003, shall
participate in profits as of the beginning of the financial year
which includes the "day of exercise". The new shares of the
conditional capital II which are issued in order to be exchanged for
shares of Daimler-Benz Aktiengesellschaft created through the
DM-mandatory convertible notes 1997/2002, shall participate in
profits as of the beginning of the financial year in which they are
issued. In the event that the merger with Daimler-Benz
Aktiengesellschaft is not entered in the Commercial Register
pertaining to the company until after the Annual General Meeting of
Daimler-Benz Aktiengesellschaft in 1999, the new shares shall,
notwithstanding the above provision, only be entitled to participate
in profits as from January 1, 1999. In the event that such
registration is delayed further until after the Annual General
Meeting of the following year, commencement of participation in
profits shall be postponed by one year respectively in accordance
with the above provision.
(7) In addition, the capital stock shall be conditionally increased by up
to EURO 40,034,154.30 divided up into up to 15,660,000 no par value
registered shares with a proportionate amount of the capital stock of
EURO 2.56 (rounded up) allotted to each share (conditional capital
III). This conditional capital increase is carried out for the purpose
of the consummation of the merger with Daimler-Benz Aktiengesellschaft.
It shall be accomplished only to the extent that the holders of the
convertible bonds attached to the 5.9 %-DM-convertible bonds of
1996/2006 of Daimler-Benz Aktiengesellschaft, to the 5.3
%-DM-convertible bonds of 1997/2007 of Daimler-Benz Aktiengesellschaft,
and to the 4.4 %-DM-convertible bonds of 1998/2008 Daimler-Benz
Aktiengesellschaft, have rights of conversion into shares of
Daimler-Benz Aktiengesellschaft, and that as a consequence of the
exercise of such conversion rights in the period from July 1, 1998, up
to the time, when the merger becomes effective, new no par value shares
of Daimler-Benz Aktiengesellschaft are issued, which have not been
exchanged for shares of the company before the time when the merger
becomes effective, and that, therefore, there is a need for additional
no par value shares of the company, exceeding the no par value shares
created through the unconditional capital increase for the consummation
of the merger with Daimler-Benz Aktiengesellschaft, in order to
exchange all shares of outside shareholders of Daimler-Benz
Aktiengesellschaft existing at the time when the merger becomes
effective into no par value shares of the company.
The new shares based on conditional capital III shall participate in
profits as of the beginning of the financial year in which the
conversion into shares of Daimler-Benz Aktiengesellschaft becomes
effective. In the event that the merger with Daimler-Benz
Aktiengesellschaft is not entered in the Commercial Register
(Handelsregister) pertaining to the company until after the Annual
General Meeting of Daimler-Benz Aktiengesellschaft in 1999, the new
shares shall, notwithstanding the above provision, only be entitled
to participate in profits as from January 1, 1999. In the event that
such registration is delayed further until after the Annual General
Meeting of the following year, commencement of participation in
profits shall be postponed by one year respectively in accordance
with the above provision.
(8) The capital stock shall be conditionally increased by an additional
EURO 43,715,455.84, divided up into up to 17,100,000 no par value
registered shares with a proportionate amount of the capital stock of
EURO 2.56 (rounded up) allotted to each share (conditional capital IV).
This conditional increase of capital shall be accomplished only to the
extent that the holders of warrants and conversion rights attached to
the 4 1/8 %-DM-notes with warrants of 1996/2003 of Daimler-Benz Capital
(Luxembourg) AG ("DM-notes with warrants 1996/2003") and to the 5 3/4
%-DM-subordinated mandatory convertible bearer notes of 1997/2002 of
Daimler-Benz Aktiengesellschaft ("DM-mandatory convertible notes
1997/2002") exercise their option or conversion rights after the time
<PAGE>
when the merger with Daimler-Benz Aktiengesellschaft has become
effective, or to the extent that holders obligated to convert
convertible notes attached to the DM-mandatory convertible notes
1997/2002 fulfill their obligation to convert such notes after the time
when the merger with Daimler-Benz Aktiengesellschaft has become
effective. The new shares created through the DM-notes with warrants
1996/2003 shall participate in profits as of the beginning of the
financial year to which the "day of exercise" belongs, the new shares
created through the DM-mandatory convertible notes 1997/2002 as of the
beginning of the financial year in which they are issued.
(9) The capital stock shall be conditionally increased by EURO
40,034,154.30, divided up into up to 15,660,000 no par value registered
shares with a proportionate amount of the capital stock of EURO 2.56
(rounded up) allotted to each share (conditional capital V). This
conditional increase of capital shall be accomplished only to the
extent that the holders of the convertible bonds attached to the 5.9
%-DM-convertible bonds of 1996/2006, to the 5.3 %-DM-convertible bonds
of 1997/2007, and to the 4.4 %-DM-convertible bonds of 1998/2008,
issued by Daimler-Benz Aktiengesellschaft upon the authorization of the
Annual General Meeting of May 22, 1996, in conjunction with the
supplementary authorization of the Annual General Meeting on May 28,
1997, have conversion rights and exercise their conversion rights after
the time when the merger with Daimler-Benz Aktiengesellschaft has
become effective. The new shares shall participate in profits as of the
beginning of the financial year in which the conversion becomes
effective.
SECTION 4 SHARE CERTIFICATES
(1) The form and contents of share certificates, dividend coupons and
renewal coupons, if any, shall be determined by the Board of Management
with the agreement of the Supervisory Board. The same shall apply to
debentures and interest coupons.
(2) To the extent legally permissible and unless required under the
rules of a stock exchange where the shares are listed, shareholders'
rights to stock certificates and dividend coupons are disallowed.
The company may issue share certificates, representing single shares
(Einzelaktien) or several shares (Sammelaktien).
III. THE BOARD OF MANAGEMENT
SECTION 5 COMPOSITION
The Board of Management shall consist of not less than two members. The
Supervisory Board shall appoint the members of the Board of Management in
accordance with the provisions of the Stock Corporation Act and the
Co-determination Act (MITBESTIMMUNGSGESETZ) and shall determine their number.
SECTION 6 REPRESENTATION OF THE COMPANY
Two members of the Board of Management or one member of the Board of Management
and one holder of a special power of attorney (PROKURA) shall be entitled to
represent the company.
IV. THE SUPERVISORY BOARD
SECTION 7 COMPOSITION, TERM OF OFFICE, RETIREMENT
(1) The Supervisory Board shall consist of twenty members, of whom ten
shall be elected by the shareholders and ten by the employees. The
appointment is for a period ending no later than the close of the
General Meeting which ratifies the members' actions during the fourth
financial year following the commencement of their term of office,
exclusive of the financial year in which that term begins. The General
Meeting may, when electing, determine a shorter period of office for
the members elected by the shareholders.
(2) Any member of the Supervisory Board may, by giving four weeks' notice
in writing to the Chairman of the Supervisory Board, resign even
without showing good cause. The Chairman of the Supervisory Board, or
in the event that the Chairman resigns from office, his deputy, may
grant consent to a reduction of the period.
<PAGE>
(3) The term of office of the first Supervisory Board shall expire upon
entry of this provision in the Commercial Register (HANDELSREGISTER).
SECTION 8 CHAIRMAN AND DEPUTY CHAIRMAN OF THE SUPERVISORY BOARD
(1) Following the General Meeting at which the ten shareholders'
representatives on the Supervisory Board are elected, a meeting of the
Supervisory Board shall take place, to which an invitation need not be
issued. At this meeting, the Supervisory Board shall, in accordance
with the Co-determination Act, appoint a Chairman and a Deputy Chairman
from its members for the duration of its term of office.
(2) If the Chairman or the Deputy Chairman resign before the expiration of
their term of office, a successor shall be elected without delay for
the remainder of the term.
SECTION 9 COMMITTEES OF THE SUPERVISORY BOARD
(1) Following the election of the Chairman and Deputy Chairman of the
Supervisory Board, the Supervisory Board shall elect a committee for
the duration of its term of office pursuant to its obligations under
section 31, sub-section 3 of the Co-determination Act, which shall
include the Chairman and the Deputy Chairman of the Supervisory Board
and two further members, one to be elected by the employees'
representatives on the Supervisory Board from their members and one by
the shareholders' representatives from their members, by a majority of
the votes cast.
(2) If one of the further members of the committee mentioned in sub-clause
1 resigns prematurely, a successor shall be elected without delay for
the remainder of that member's term of office.
(3) Elections under sub-clause 2 shall be subject to the same regulations
as elections under sub-clause 1.
(4) The Supervisory Board may form committees from its members entrusted
with special tasks or powers. To the extent permitted by law, the
powers of the Supervisory Board to pass resolutions may also be
exercised by such committees. For resolutions in the committees, clause
10, sub-clauses 6 to 8 shall apply, save as otherwise required by
binding statutory provisions; clause 10, sub-clause 5 shall not apply.
SECTION 10 MEETINGS, RESOLUTIONS AND STATEMENTS OF INTENT OF THE SUPERVISORY
BOARD
(1) Meetings of the Supervisory Board shall be convened by the Chairman of
the Supervisory Board or his Deputy if the Chairman is unable to do so.
Meetings shall be called in writing (including by telefax), by telex or
by telegram, with two weeks' notice. The individual items on the agenda
shall be stated with such clarity as to allow members of the
Supervisory Board not present at the meeting to make use of their right
to a vote in writing. In urgent cases, the required notice of meeting
may be shortened to three days.
(2) If due notice has not been given of an item on the agenda, a resolution
may be passed only if no member of the Supervisory Board objects.
Absent members of the Supervisory Board shall be given the opportunity
to object to the resolution within a reasonable period to be decided by
the Chairman; the resolution shall only become effective if the absent
members of the Supervisory Board have not objected within the specified
period.
(3) A quorum of the Supervisory Board shall be constituted when notices
have been issued to all its members at their last known address and at
least ten members of the Supervisory Board participate in passing the
resolution.
(4) The Chairman of the Supervisory Board, or his Deputy if the Chairman is
unable to do so, shall preside as Chairman at meetings of the
Supervisory Board and shall decide the order of items on the agenda and
the manner of voting.
(5) If, when a resolution is to be passed, the members of the Supervisory
Board are not present in their entirety, and if those members not
<PAGE>
present do not submit a written vote, the resolution shall be postponed
if at least two of the members present so request. In the event of
postponement and if a special meeting of the Supervisory Board is not
convened, the resolution shall be deferred to the next regular meeting.
On the second occasion, a minority request for postponement shall not
be permissible.
If the Chairman of the Supervisory Board is present at the meeting or
if one of the members present is in possession of his written vote, the
above sub-clause shall not apply when the number of shareholders'
representatives on the Supervisory Board present in person or
submitting a written vote equals the number of employees'
representatives or when an inequality is offset by the abstention of
certain Supervisory Board members from the voting.
(6) Resolutions shall be passed by a simply majority of votes cast unless
other forms of majority are required by law. In determining the result
of the vote, abstentions shall not be counted.
In the event of an equality of votes, any member of the Supervisory
Board may request that a second vote take place. The Chairman, or the
Deputy Chairman should the Chairman be unable to do so, shall decide
when the vote is to be repeated. If the second vote, also, results in
an equality of votes, the Chairman of the Supervisory Board shall have
a second or casting vote.
(7) Members of the Supervisory Board who are not present may participate in
a resolution of the Supervisory Board and its committees by submitting
a written vote via other members. This shall also apply to the second
vote of the Chairman of the Supervisory Board.
(8) The Chairman of the Supervisory Board, or the Deputy Chairman should
the Chairman be unable to do so, may also arrange for the voting on a
resolution of the Supervisory Board to take place in writing (including
by telefax), by telex or by telegram if no member of the Supervisory
Board objects to this procedure within an appropriate period to be
decided by the Chairman.
(9) The Chairman of the Supervisory Board, or the Deputy Chairman if the
Chairman is unable to do so, shall issue the statements of intent of
the Supervisory Board and its committees and conduct their
correspondence.
(10) Minutes of the Supervisory Board's discussions and resolutions shall be
prepared and signed by the Chairman. The minutes shall be forwarded to
all members.
SECTION 11 DUTY OF SECRECY OF MEMBERS OF THE SUPERVISORY BOARD
The members of the Supervisory Board shall be bound to secrecy in respect of
confidential information and company secrets, in particular business or trade
secrets which become known to members of the Supervisory Board through their
activities on the Supervisory Board. If a member of the Supervisory Board
intends to pass on to third parties information, particularly about the
proceedings of a meeting of the Supervisory Board or the contents of documents
and resolutions of the Supervisory Board, he shall give prior notice to the
Chairman of the Supervisory Board in order to exclude any possible differences
of opinion in construing the duty of secrecy.
SECTION 12 REMUNERATION OF THE SUPERVISORY BOARD
The members of the Supervisory Board shall receive, in addition to reimbursement
of their expenses (including the costs of any value added tax incurred by them
as a consequence of their office), a fixed remuneration to be paid after the
close of the financial year. The remuneration shall amount to EURO 51,129.19,
for the individual member, twice this amount for the Chairman, 1.5 times this
amount for the Deputy Chairman and 1.3 times this amount for members elected to
committees of the Supervisory Board. Furthermore, the members of the Supervisory
Board shall receive a flat fee of EURO 1,022.58 for each meeting of the
Supervisory Board.
V. THE GENERAL MEETING
SECTION 13 CONVENING OF GENERAL MEETINGS
(1) General Meetings shall be convened by the Board of Management or the
Supervisory Board. General Meetings shall take place at the registered
office of the company or at any other location not excluded by law.
<PAGE>
(2) Notice of the meeting shall be given at least one month prior to the
last day on which the shareholders have to register for the General
Meeting. The term of notice shall be calculated exclusive of the day on
which notice is given and the last day of the period of registration.
SECTION 14 THE ANNUAL GENERAL MEETING
The General Meeting which ratifies the actions of the Board of Management and
the Supervisory Board, and approves the disposition of Unappropriated Profit,
the appointment of the auditor and, if applicable, the audited financial
statements (Annual General Meeting), shall take place within the first eight
months of each financial year.
SECTION 15 REQUIREMENTS FOR PARTICIPATION AND THE EXERCISE OF VOTING RIGHTS
Those shareholders who are registered in the share register on the day of the
General Meeting and who have notified the company no later than on the third day
before the General Meeting shall be entitled to participate in General Meetings
and to exercise voting rights.
SECTION 16 VOTING RIGHTS
Each share represents one vote.
SECTION 17 CHAIRMANSHIP OF GENERAL MEETINGS
(1) The Chairman of the Supervisory Board shall preside as chairman at
General Meetings. If he is unable to do so, the Meeting shall be
chaired by a member of the Supervisory Board appointed by the
Chairman or, failing such appointment, the member elected by the
shareholders' representatives on the Supervisory Board in accordance
with Section 27 sub-section 3 of the Co-determination Act. If none
of the above-mentioned is present or none agrees to chair the
meeting, the Chairman of the Meeting shall be elected by the
Supervisory Board.
(2) The Chairman shall preside over the proceedings and decide the order of
business and the manner of voting.
SECTION 18 RESOLUTIONS
(1) Resolutions shall be passed at General Meetings by a simple majority of
votes cast, save as otherwise required by binding provisions of the
Stock Corporation Act. If the Stock Corporation Act also requires that
a resolution be passed by a majority of the capital stock represented
at the Meeting, a simple majority of the capital represented shall
suffice, provided this is permitted by law.
(2) Changes to the Memorandum and Articles of Association which affect
merely the form of words may be passed by resolution of the Supervisory
Board.
VI. FINANCIAL STATEMENTS AND DISPOSITION OF THE UNAPPROPRIATED PROFIT
SECTION 19 FINANCIAL YEAR, ACCOUNTING
(1) The financial year is the calendar year.
(2) The Board of Management shall prepare the financial statements and the
business review of the previous financial year during the first three
months of the financial year and submit them to the auditor. Upon
preparation, the Board of Management shall immediately submit to the
Supervisory Board the financial statements and the business review
together with the proposal for disposition of the Unappropriated Profit
which the Board of Management intends to put before the General
Meeting.
SECTION 20 INTERIM DISTRIBUTION OF THE UNAPPROPRIATED PROFIT
Following the end of the financial year, the Board of Management is - with the
approval of the Supervisory Board - permitted to make an interim payment to the
shareholders with respect to the foreseeable Unappropriated Profit, if a
preliminary closing of the Financial Statements of the past financial year shows
a profit for the year. The maximum to be paid is half of the amount which
<PAGE>
remains of the Unappropriated Profit for the year after deducting the amounts
which, pursuant to law or to the Memorandum and Articles of Association, must be
transferred to the disclosed reserves. Furthermore, the interim payment shall
not exceed one half of the previous year's Unappropriated Profit.
SECTION 21 CRITERIA FOR THE SHAREHOLDERS' PARTICIPATION IN PROFITS
(1) The dividends paid to shareholders shall be proportional to their
shares in the stock capital.
(2) When new shares are issued, a different entitlement to profits may be
specified.
VII. ANNOUNCEMENTS
SECTION 22
Announcements of the company shall be published in the Federal Gazette
(Bundesanzeiger).
VIII. EXPENSES OF FORMATION
SECTION 23
Expenses and taxes incurred in connection with the formation of the company and
its registration in the Commercial Register (in particular notary and court
fees, expenses for announcements, taxes, legal and tax consultants' fees,
expenses for experts, bank fees) shall be borne by the company up to an amount
of EURO 5,112.92 in total.
<PAGE>
Exhibit 4.1
DAIMLERCHRYSLER LUFT - UND RAUMFAHRT HOLDING AG
AND
DAIMLERCHRYSLER AEROSPACE AG
AND
LAGARDERE SCA
AND
SOGEPA
---------------------------------------------------------------------------
BUSINESS COMBINATION AGREEMENT
RELATING TO THE MERGER OF DAIMLERCHRYSLER
AEROSPACE AG AND AEROSPATIALE MATRA
---------------------------------------------------------------------------
<PAGE>
CONTENTS
CLAUSE PAGE
1. Interpretation..........................................................2
2. Preliminary Actions.....................................................8
3. Conditions Precedent....................................................9
4. Conduct Of Business Up To Closing......................................11
5. Closing................................................................16
6. Indemnities............................................................18
7. Regulatory Matters.....................................................19
8. Representations And Warranties.........................................19
9. Tax....................................................................29
10. Confidentiality........................................................30
11. Settlement Of Disputes.................................................31
12. Status Of Parties......................................................32
13. Guarantees.............................................................32
14. Costs..................................................................34
15. General................................................................34
16. Notices................................................................35
17. Counterparts...........................................................36
18. Governing Law..........................................................37
Schedule 1 AEROSPATIALE MATRA.................................................41
Schedule 2 DELTA GROUP........................................................40
Schedule 3 ESTABLISHMENT OF NEW DELTA AND TRANSFER OF DELTA BUSINESS..........41
Schedule 4 HOLDINGS CV........................................................42
Schedule 5 LISTCO.............................................................43
Schedule 6 CLOSING: NEW DELTA................................................44
Schedule 7 CLOSING: AEROSPATIALE MATRA BIS...................................45
Schedule 8 DISTRIBUTION ON WINDING UP IN KIND BY AEROSPATIALE MATRA...........46
Schedule 9 TAX CLEARANCES.....................................................47
Schedule 10 NET CASH..........................................................49
Schedule 11 CASH EXTRACTION...................................................51
<PAGE>
Schedule 12 VALUATION EXAMPLE.................................................52
Schedule 13 PERMITTED ADVISORS................................................53
<PAGE>
T H I S A G R E E M E N T is made on 14th October 1999
B E T W E E N:
(1) DAIMLERCHRYSLER LUFT - UND RAUMFAHRT HOLDING AG, a German stock
corporation (Aktiengesellschaft) registered at the commercial registry
of the local court in Munich under number HRB 91671 ("DC Sub"); and
(2) DAIMLERCHRYSLER AEROSPACE AG, a German stock corporation
(Aktiengesellschaft) registered at the commercial registry of the local
court in Munich under number HRB 99454 ("Delta"); and
(3) LAGARDERE SCA, registered in France in the Paris company and commercial
registry (with registered number B 320 366 446) and having its
registered office at 4 rue de Presbourg, 75116 Paris, France
("Lagardere"); and
(4) SOCIETE DE GESTION DE PARTICIPATIONS AERONAUTIQUES - SOGEPA, a societe
anonyme incorporated under the laws of France registered at the Paris
companies registry (with registered number B318186756) and having its
registered office at 56, rue de Lille, 75007, Paris, France ("Sogepa").
WHEREAS:
(A) On 9 December 1997, the European Heads of State and Government called
upon the major European industrialists in aeronautics, space and defence
to undertake a process of consolidation.
The formation of Aerospatiale Matra was based on the industrial
agreement dated 3 March 1999, one express aim of which was to seek
industrial and strategic cooperation with major European aerospace and
defence companies.
Aerospatiale Matra and Dasa have maintained a close relationship for a
long time and are at the roots of the European successes of Ariane and
Airbus, in which they hold 75.8% of the shares. They have already worked
closely together at the heart of joint companies relating to their
helicopter activities (Eurocopter) and in the field of space activities.
All of the activities of Aerospatiale Matra and Dasa are aimed at world
markets and their consortiums, joint ventures, partnerships and joint
companies such as Airbus, Eurocopter, Arianespace and Matra BAe Dynamics
are already ranked amongst the best in the world.
This is why the decision was logically taken to merge the activities of
Aerospatiale Matra and Dasa into a single European company in the field
of aeronautics, space and defence activities in order to create the
European leader in this sector, capable of competing with other world
companies.
In the context, this European company will, inter alia, pursue the
following objectives:
<PAGE>
o to develop the synergies in order to create the industrial
conditions for the growth of the new company
o to create the European leader in the field of aeronautics, space
and defence activities. This will lead to the continuation of
negotiations on the consolidation of the sector with other
European companies, on the scale relevant on a world level
o in the same spirit to further develop the numerous cooperation
agreements or ventures in all these fields of the new company
with a view to making them world leaders in their activities
o specifically to make quick progress towards the creation of an
integrated Airbus company.
(B) The purpose of this Agreement is to set out the parties' rights and
obligations in connection with the formation of Holdings CV and Listco
including the arrangements for:
(i) the establishment of Holdings CV as a limited partnership
constituted under Dutch law between the Managing Partner as the
general partner and each of the Principals (or permitted
designees) as limited partners;
(ii) the establishment of Listco as the entity in which Holdings CV
will hold shares;
(iii) the establishment of Aerospatiale Matra Bis;
(iv) the transfer to Aerospatiale Matra Bis of the Aerospatiale Matra
Business;
(v) the establishment of New Delta;
(vi) the transfer to Listco of New Delta and of Aerospatiale Matra
Bis;
(vii) the distribution (by Aerospatiale Matra to Aerospatiale Matra's
shareholders) of Aerospatiale Matra's shares in Listco by the
liquidation of Aerospatiale Matra;
(viii) the dissolution of Aerospatiale Matra;
(ix) the establishment of Topco by, inter alia, Lagardere and Sogepa;
and
(x) the transfer to Topco by Lagardere and Sogepa of part of their
respective shareholdings in Listco.
NOW THEREFORE IT IS AGREED as follows:
1. INTERPRETATION
1.1 In this Agreement, unless the context otherwise requires, the following
terms shall have the following meanings:
<PAGE>
"AEROSPATIALE MATRA BIS" the French company to be established
pursuant to Clause 2.4 to which the
business, assets and liabilities of
Aerospatiale Matra are to be
transferred in accordance with
Schedule 1;
"AEROSPATIALE MATRA BUSINESS" the business described in Schedule
1;
"AEROSPATIALE MATRA GROUP" Aerospatiale Matra and its
Subsidiaries from time to time;
"AEROSPATIALE MATRA SHAREHOLDERS the agreement amongst certain
AGREEMENT" shareholders of Aerospatiale Matra
in force at the date hereof;
"AEROSPATIALE MATRA SHARES" the shares in Aerospatiale Matra
allotted to Lagardere on 4 June
1999;
"AEROSPATIALE MATRA WARRANTED ACCOUNTS" the financial statements as at 31
December 1998 relating to the
Aerospatiale Matra Group annexed
hereto as Annex A;
"BUDGET" the summary business plan for the
Aerospatiale Matra Group or, as
appropriate, the Delta Group, in the
agreed form;
"BUSINESS DAY" a day on which banks generally are
open in Paris, Amsterdam and
Frankfurt for a full range of
business;
"CLOSING" closing of this Agreement in
accordance with the terms of Clause
5;
"CLOSING DATE" the date on which Closing takes
place;
"COMPANY" a body corporate formed under the
laws of any country;
"CONDITIONS PRECEDENT" the conditions set out in Clause
3.1;
"DC" DC, a German stock corporation
(Aktiengesellschaft) registered at
the commercial registry of the local
court in Stuttgart under number
19360 with its seat at Stuttgart,
Germany;
"DC GROUP" DC and its Subsidiaries from time to
time;
"DELTA BUSINESS" the business described in Schedule
2;
"DELTA GROUP" Delta and its Subsidiaries until
such time as New Delta is
established in accordance with
Schedule 3 and, thereafter, New
Delta and its Subsidiaries;
<PAGE>
"DELTA SHARES" the entire issued share capital of
New Delta;
"DELTA WARRANTED ACCOUNTS" the financial statements as at 31
December 1998 relating to the Delta
Group annexed hereto as Annex B;
"DISPOSE" sell, transfer, assign, grant
options over, create licences in
respect of, create or permit any
Encumbrance to exist over, or
otherwise dispose of, or enter into
any legally binding commitment to do
any of the foregoing, and related
expressions shall be construed
accordingly;
"ENCUMBRANCE" any mortgage, charge (whether fixed
or floating), lien, hypothecation,
pledge, right of usufruct,
encumbrance, security interest or
other third party right or interest
over or in respect of a particular
asset other than liens arising by
operation of law in the ordinary
course of business;
"FRANKFURT STOCK EXCHANGE" Frankfurter Wertpapierborse,
operated by Deutsche Borse AG;
"FRENCH GAAP" generally accepted accounting
standards and principles in France;
"FS AND LISTCO PRINCIPLES" the statement of principles in the
agreed form to form the basis of an
agreement to be entered into between
the French State and Listco relating
to ballistic missiles;
"GUARANTEE" the guarantee from DC to Lagardere
and Aerospatiale Matra and their
respective Groups, of even date
herewith;
"GERMAN GAAP" generally accepted accounting
standards and principles in Germany;
"GROUP" all or any of the DC Group, the
Lagardere Group, the Aerospatiale
Matra Group, the Delta Group, the
Sogepa Group or the Listco Group as
the case may be;
"HOLDINGS CV" the limited partnership to be
established pursuant to Clause 2.3;
"HSR ACT" Hart-Scott-Rodino Antitrust
Improvements Act 1976;
"LAGARDERE GROUP" Lagardere and its Subsidiaries from
time to time;
<PAGE>
"LISTCO" the company to be established
pursuant to Clause 2.4;
"LISTCO GROUP" Listco and its Subsidiaries from
time to time;
"LISTCO SHARES" ordinary shares in the capital of
Listco;
"MANAGING PARTNER" the managing partner of Holdings
C.V.;
"MERGER DOCUMENTS" this Agreement, the Participation
Agreement, the Guarantee and those
documents, agreements and
arrangements which are Schedules or
Exhibits to this Agreement or the
Participation Agreement or which are
referred to in this Agreement or the
Participation Agreement or any such
Schedules or Exhibits as documents
in the agreed form;
"NET CASH" has the meaning applicable in
accordance with Schedule 10;
"NEW DELTA" the company to be established
pursuant to Clause 5.2.1;
"NOTIONAL AGREED VALUATION" EUR 18,022 million based on the
financial information contained in
the Budgets and assuming Net Cash of
EUR 570 million for Aerospatiale
Matra and Net Cash of EUR 967
million for New Delta (this notional
agreed valuation is only for the
purpose of calculating the effect of
cash extraction on the equalised
value);
"PARIS BOURSE" ParisBourseSBF SA;
"PARTICIPATION AGREEMENT" the Participation Agreement in the
agreed form to be entered into
between DC, Topco, Sogepa and
Lagardere at Closing;
"PERMITTED DIVIDEND" the dividend by Aerospatiale Matra
and the profit transfer by Delta to
DC referred to in Clause 4.4;
"PRINCIPAL" DC Sub or Lagardere (as the case may
be);
"REGULATORY ACTION" any order of a court of competent
jurisdiction or any order, decision
or conclusive view made, given or
expressed by a competent
governmental or regulatory authority
or agency or an enactment of a
legislative body:
(a) which prohibits or
materially restricts the
transactions contemplated
hereby or requires them to
be materially delayed; or
<PAGE>
(b) which would prohibit or
materially restrict the
carrying on of the business
of the Listco Group as
contemplated by the Merger
Documents; or
(c) which prohibits or
materially restricts or
would prohibit or
materially restrict the
carrying on of the business
of any member of the DC
Group or the Lagardere
Group or imposes or would
impose any material
conditions as to the
carrying on of any such
business; or
(d) in consequence of which any
member of the DC Group, the
Lagardere Group, the
Aerospatiale Matra Group,
the Delta Group or the
Listco Group would incur
material fines or a
material liability in
damages were the Merger
Document or the matters
contemplated therein to be
performed in accordance
with their respective
terms;
"RELEVANT COMPANY" has the meaning given to it in
Clause 4.1;
"RELIEF" any loss, relief, allowance,
exemption, set-off, deduction, right
to repayment or credit or other
relief of a similar nature granted
or available in relation to tax
pursuant to any legislation or
otherwise;
"75% SUBSIDIARY" in relation to an undertaking (the
"holding undertaking"), any other
undertaking in which the holding
undertaking (or persons acting on
its or their behalf) for the time
being directly or indirectly holds
or controls seventy five per cent.
or more of both the shares (or
securities or other interests) in
the other undertaking and the voting
rights exercisable at general
meetings of the shareholders or
members of the other undertaking
deciding on all, or substantially
all, matters, and any undertaking
which is a 75% Subsidiary of another
undertaking shall also be a 75%
Subsidiary of any further
undertaking of which that other is a
75% Subsidiary;
"SOGEPA GROUP" Sogepa and its Subsidiaries from
time to time;
"SOGEPA SHARES" the shares in Aerospatiale Matra to
be held by Sogepa at Closing in
respect of the 15% of Listco Shares
to be contributed to Holdings CV;
<PAGE>
"SUBSIDIARY" in relation to an undertaking ("the
holding undertaking"), any other
undertaking in which the holding
undertaking (or persons acting on
its behalf) for the time being
directly or indirectly holds or
controls either:
(i) a majority of the voting
rights exercisable at
general meetings of the
members of that undertaking
on all, or substantially
all, matters; or
(ii) the right to appoint or
remove directors having a
majority of the voting
rights exercisable at
meetings of the board of
directors or equivalent
body of that undertaking on
all, or substantially all,
matters;
and any undertaking which is a
Subsidiary of another undertaking
shall also be a Subsidiary of any
further undertaking of which that
other is a Subsidiary;
"TAX" AND "TAXATION" includes any and all forms of taxes,
levies, imposts, duties, charges and
contributions of whatever nature
(including but not limited to taxes
on income, profits and gains,
customs duties, value added taxes,
excise duties, stamp duty, document
tax and social security
contributions) and all withholding
or deductions in respect of each or
any of the foregoing of whatever
nature, imposed whatsoever by a
Taxation Authority together with any
(actual or contingent) refund,
reclaim or reimbursement claim
relating to any State, regional or
local authority subsidy granted or
paid, and whether directly or
primarily chargeable against,
recoverable from or attributable to
a company or any other entity,
unincorporated association or person
or persons and all fines, penalties,
charges and interest relating to any
of the foregoing or to any claim for
any of the foregoing but excluding
any GRUNDSTEUER, IMPOTS LOCAUX, and
any equivalent tax under the laws of
any jurisdiction;
"TAXATION AUTHORITY" any governmental, state, provincial,
local or municipal authority or
agency, or other body having
competent authority, of or in any
country having applicable
jurisdiction in respect of tax;
<PAGE>
"TOPCO" a SOCIETE PAR ACTIONS SIMPLIFIEE to
be formed in accordance with the
Topco Shareholders Agreement;
"TOPCO SHAREHOLDERS AGREEMENT" the Topco Shareholders Agreement in
the agreed form to be entered into
between, inter alia, Lagardere and
Sogepa at Closing;
"UNDERTAKING" a body corporate or partnership or
any unincorporated association
situated in any jurisdiction
carrying on a trade or business with
or without a view to profit,
(including, for the avoidance of
doubt, but not limited to, a societe
en commandite par actions, a
groupement d'interet economique
("GIE"), a GmbH & Co., KG and an
OHG) (and, in relation to an
undertaking which is not a company,
expressions in this Agreement
appropriate to companies shall be
construed as references to the
corresponding persons, officers,
documents or organs (as the case may
be) appropriate to undertakings of
that description;
"US GAAP" generally accepted accounting
standards and principles in the
United States of America; and
"WARRANTIES" the warranties contained in Clause
8.1, 8.2 or, as appropriate, Clause
8.3.
1.2 Clause and paragraph headings in this Agreement and its Schedules are
included for convenience only and shall not affect the interpretation of
this Agreement.
1.3 The Recitals and Schedules to this Agreement shall form part of this
Agreement and shall have the same force and effect as if set out in the
body of this Agreement. Accordingly, references to this Agreement shall
include references to its Recitals and Schedules.
1.4 In this Agreement, unless the context otherwise requires:
(a) the singular shall include the plural and vice versa;
(b) references to persons shall include individuals, companies,
undertakings and governmental, supranational and state
agencies and regulatory bodies; and
(c) references to Recitals, Clauses and Schedules and parts
thereof are to Recitals, Clauses and Schedules of and to this
Agreement and parts thereof respectively.
1.5 Any reference in this Agreement to another document being in "the agreed
form" or "the agreed terms" is to such a document either:
(a) in a form agreed between the Principals and initialled for and
on behalf of the Principals for the purpose of
identification; or
<PAGE>
(b) in such other form as may be agreed in writing by the
Principals in substitution therefor.
1.6 References to any statute or statutory provision or EC Directive include
a reference to that statute or statutory provision or EC Directive as
amended, extended, re-enacted, consolidated or replaced from time to
time (whether before or after the date of this Agreement) and shall
include any order, regulation, instrument or other subordinate
legislation made under that statute, statutory provision or EC
Directive.
1.7 Any reference in this Agreement to any entity, act or event or any
right, action, remedy, method of judicial proceeding, legal document,
legal status, court official or any legal concept or thing in respect of
any jurisdiction other than the Netherlands shall be deemed to include a
reference to the closest analogous equivalent thereto in that
jurisdiction.
2. PRELIMINARY ACTIONS
2.1 DC Sub and Delta shall procure the establishment of New Delta in
accordance with Schedule 3. DC Sub shall extract cash of EUR 700 million
and to the extent that tax is borne by New Delta, by reason of that
extraction, the amount of that tax shall be included in calculating the
amount of cash extracted for the purpose of determining whether those
limits have been respected from the Delta Group in accordance with
Schedule 11 prior to Closing. DC Sub shall also extract additional cash
from the Delta Group of no more than EUR 2,933,700,000 and no less than
EUR 2,133,600,000, and to the extent that tax is borne by New Delta, by
reason of that extraction, the amount of that tax shall be included in
calculating the amount of cash extracted for the purpose of determining
whether those limits have been respected also in accordance with
Schedule 11 and prior to Closing (such extraction, and the amount, to be
notified to Lagardere not fewer than 10 Business Days before extraction
together with all other information relating thereto as Lagardere may
reasonably request). DC Sub shall not extract more (nor less) cash than
that notified to Lagardere under this Clause 2.1, save in respect of the
Permitted Dividend.
2.2 Lagardere and Sogepa shall procure the establishment of Topco.
2.3 DC Sub and Lagardere shall procure the establishment of Holdings CV and
the Managing Partner in accordance with Schedule 4.
2.4 DC Sub, Lagardere and Sogepa shall procure the establishment of Listco
in accordance with Schedule 5.
2.5 Lagardere and Sogepa shall procure the establishment of Aerospatiale
Matra Bis.
2.6 The parties agree as soon as possible after the date hereof to enter
into good faith negotiations to combine the electronic defence
activities of Listco and Thomson CSF. It is acknowledged that Lagardere
and the French State do not intend to accept change in the status of
Alcatel as first private shareholder of Thomson CSF.
<PAGE>
2.7 The parties acknowledge that CASA is a potential strategic partner of
Listco and agree to enter into negotiations with CASA's shareholders
with a view to CASA's business being contributed to Listco and its
shareholders thereby owning shares in the capital of Listco, on
substantially similar terms to those envisaged in the memorandum of
understanding signed on 11 June 1999 between DC and SEPI.
3. CONDITIONS PRECEDENT
3.1 Closing shall be conditional upon each of the following conditions
having first been satisfied:
(a) Holdings CV, the Managing Partner, Listco and Topco each
having been established, pursuant to Clause 2;
(b) Aerospatiale Matra Bis having been established pursuant to
Clause 2 and the Aerospatiale Matra Business having been
transferred to Aerospatiale Matra Bis in accordance with
Schedule 1;
(c) either or both of:
(i) the Commission of the European Communities (the
"European Commission") having issued a decision pursuant
to Article 6(1)(b) or Article 8(2) of European Community
Council Regulation 4064/89 ("Regulation 4064/89") and,
if such decision is given subject to conditions or
obligations, such conditions or obligations being
reasonably satisfactory to the Principals; or the
competent authorities of any EC Member State concerned,
pursuant to either Article 21(3), or a decision of the
European Commission under Article 9(1), of Regulation
4064/89, having granted their consent, approval or
clearance and, if such decision is given subject to
conditions or obligations, such conditions or
obligations being reasonably satisfactory to the
Principals; and/or
(ii) an EC Member State having invoked Article 296(1) of the
EC Treaty (as amended by the Treaty of Amsterdam) and
requesting the Principals not to notify the merger under
Regulation 4064/89 and, if such request is given subject
to conditions or obligations imposed on the Principals,
such conditions or obligations being reasonably
satisfactory to the Principals, and no EC Member State
having validly taken any Regulatory Action (or action,
proceeding or proposal which if successfully pursued by
the person initiating the same would result in a
Regulatory Action);
(d) pursuant to the HSR Act the Federal Trade Commission or the
Anti-trust Division of the Department of Justice of the United
States of America and, if applicable, Committee for Foreign
Investment in the United States of America, having given all
such consents or approvals as may be required or necessary in
form and substance reasonably satisfactory to the Principals;
<PAGE>
(e) all such consents or approvals as may be necessary having been
obtained from the Commission des Participations et de
Transferts of France for the matters contemplated by the
Merger Documents;
(f) the tax clearances described in Schedule 9 being obtained in
form and substance reasonably satisfactory to the Principals;
(g) Lagardere and Aerospatiale Matra having obtained from the
French Ministere de la Defense, pursuant to an application in
form and substance reasonably satisfactory to the Principals,
approval of the principle that there will be no limitation for
German nationals working for Listco except in respect of
French regulations (of general application) to non-French
nationals) applying generally for the protection of military
secrets;
(h) Lagardere, Aerospatiale Matra, DC Sub and Delta having
obtained from the French Ministere de l'Economie et des
Finances approval in form and substance reasonably
satisfactory to the Principals of the transactions
contemplated by the Merger Documents, pursuant to the French
Laws 86-793 dated July 2, 1986; 86-912 dated August 6, 1986
(as amended by the law dated July 19, 1993); 89-465 dated July
10, 1989 and the "arrete" dated December 24, 1992;
(i) no Regulatory Action (or action, proceeding or proposal which
if successfully pursued by the person initiating the same
would result in a Regulatory Action) having been taken, which
has not been revoked, annulled, withdrawn, discontinued,
abandoned, repealed, discharged or otherwise ceased to have
effect prior to Closing;
(j) no Change of Control or Event of Default having occurred (as
those terms are respectively defined in the Participation
Agreement) in relation to DC Sub, Lagardere, Sogepa and Topco
or any member of their respective Groups to which the
provisions of Clause 20 of the Participation Agreement would
apply if it were in force;
(k) the termination of the Aerospatiale Matra Shareholders
Agreement in terms reasonably satisfactory to the Principals;
and
(l) the Paris Bourse and Frankfurt Stock Exchange admitting the
Listco Shares to trading on their respective official lists of
traded securities.
3.2 The Principals and Sogepa shall use all reasonable endeavours to ensure,
and shall co-operate with each other in ensuring, that each of the
Conditions Precedent is satisfied as soon as possible. If the required
ruling regarding (i) the book value continuation in relation to the
contribution of Listco Shares into Holdings CV and/or (ii) the tax
exemption of dividend payments and distribution of profits as set out in
Schedule 9 is not obtained in form and substance reasonably
<PAGE>
satisfactory to the Principals then, provided that the alternative tax
clearance on avoiding German capital gains tax on the contribution of
New Delta to Listco is obtained in form and substance reasonably
satisfactory to the Principals, as set out in Schedule 9, the condition
precedent contained in Clause 3.1(f) shall be waived by the Principals
in respect of such clearance and the Principals shall, instead,
constitute a limited liability company in the form of a Dutch BV
("HOLDCO") in place of Holdings CV having, mutatis mutandis, the
characteristics of Holdings CV and the Managing Partner, whereupon all
references to Holdings CV and the Managing Partner in this Agreement
shall be replaced by references to Holdco, mutatis mutandis. Further,
the parties shall co-operate to agree all such other changes as may be
required to be made to the revised structure and to the Merger
Documents. The Dutch capital duty arising from the contributions of
Listco Shares to Holdings CV shall be borne equally between the
Principals.
3.3 Save as otherwise agreed by the Principals in writing if any of the
Conditions Precedent shall not have been satisfied or waived in writing
by the appropriate party or parties referred to in Clause 3.5 by 12:00
midnight, Netherlands time, on 30 June 2000 (or such later time and/or
date as the Principals may agree in writing), this Agreement shall lapse
and (subject to Clause 3.4) shall cease to have any further force or
effect.
3.4 The lapse of this Agreement in accordance with Clause 3.3 shall be
without prejudice to any accrued rights of the parties in respect of
prior breaches of this Agreement, but none of the parties shall have any
further obligation or liability to the others, save that the provisions
of Clauses 10 to 18 inclusive shall continue in full force and effect.
3.5 DC Sub shall be solely entitled to waive satisfaction of the Condition
Precedent contained in sub-paragraph (j) of Clause 3.1, to the extent
that it applies to the Lagardere Group or the Aerospatiale Matra Group
and Topco shall be solely entitled to waive satisfaction of the
Condition Precedent contained in sub-paragraph (j) of Clause 3.1, to the
extent that it applies to the DC Group or the Delta Group. Any waiver of
the Conditions Precedent contained in the remaining sub-paragraphs of
Clause 3.1 shall only be by both Principals.
4. CONDUCT OF BUSINESS UP TO CLOSING
4.1 In this Clause 4 a "Relevant Company" means any and each of the members
of the Aerospatiale Matra Group and of the Delta Group respectively.
4.2 Each of DC Sub and Lagardere shall ensure that from the date of this
Agreement up to and including Closing the Aerospatiale Matra Business
and the Delta Business (as the case may be) is conducted prudently in
the ordinary and usual course and that all reasonable measures are taken
to protect and preserve the assets comprised therein. Without prejudice
to the generality of the foregoing and save as (i) expressly provided in
any of the Merger Documents or (ii) as required pursuant to applicable
law or regulation or (iii) as required pursuant to a contractual
obligation which is existing prior to the date of this Agreement and
either (a) entered into in the ordinary and usual course or (b)
disclosed to the other Principal prior to the date hereof, none of the
following actions shall, unless in the ordinary and usual course (which
exception shall not apply to Clause 4.2(a)), be taken prior to or at
Closing without the prior written consent of both of the Principals:
<PAGE>
(a) the making of any change in (or variation of the rights
attaching to) the authorised or issued share or loan capital
of any Relevant Company involving any person other than
another Relevant Company in the same Group whether by way of
the issue of (or grant of any option or Encumbrance over) any
shares, stock, debentures or other transferable or
exchangeable securities, or the reduction, consolidation or
sub-division of share capital, purchase of own shares or
redemption of shares, debentures or other transferable
securities;
(b) the recommendation, declaration, payment or making of any
dividends or any other form of distribution to its
shareholders (other than any other Relevant Company in the
same Group) by any Relevant Company;
(c) the entry into, renewal or modification, variation or waiver
by any Relevant Company of the terms and conditions of any
contract, transaction or arrangement which:
(i) is between any member of the DC Group or the Lagardere
Group and any Relevant Company and which is outside the
ordinary and proper course of the Delta Business or, as
the case may be, the Aerospatiale Matra Business or is
not on arm's length terms;
(ii) would involve any guarantee, surety, indemnity or other
obligation (including any form of Encumbrance to deliver
the whole or part of the assets, undertaking or
property) being given or assumed or created by any
Relevant Company for the benefit, or to secure the
liability or obligations, of any member of the DC Group
or the Lagardere Group; or
(iii) involves any loan or advance or any credit (other than
normal trade credit) to any member of the DC Group or
the Lagardere Group;
(d) the assumption or undertaking of any borrowing which would cause
aggregate borrowings of the Aerospatiale Matra Business or, as
the case may be, the Delta Business to exceed the amount
allocated to borrowing in the Aerospatiale Matra Budget and
Delta Budget, respectively, for the period between the date of
this Agreement and Closing;
(e) the creation of any Encumbrance over the whole or any part of
the undertaking, property or assets of any Relevant Company
(other than to secure borrowings permitted under Clause 4.2(d)
of that company or any other Relevant Company in the same
Group);
(f) the disposal of the whole or any part of the undertaking,
property or assets of the Aerospatiale Matra Business or, as the
case may be, the Delta Business (or any interest therein), or
the acquisition by any Relevant Company in respect of the
Aerospatiale Matra Business or, as the case may be, the Delta
Business of any assets or business or the entry into of any
contract for such disposal or acquisition where either the
consideration for, or the aggregate value of, such
<PAGE>
business, undertaking, property or assets exceeds any specific
provision therefor contained in the Aerospatiale Matra Budget
or, as appropriate, Delta Budget, by more than 10% in aggregate;
(g) the acquisition, purchase, subscription for, pledging, disposal
of or transfer of any shares, debentures, stock, partnership,
mortgages or other interests or securities (or any interest
therein) in any undertaking (other than in a Relevant Company in
the same Group) or the making of any agreement to do so by any
Relevant Company;
(h) the giving, extension or renewal by any Relevant Company of any
guarantee, indemnity, surety, covenant, letters of comfort or
support (irrespective of whether or not the same may be legally
binding) to secure the liabilities or obligations of any person
(other than a Relevant Company in the same Group);
(i) the entry into, termination, variation or disposal by any
Relevant Company of any interest in any partnership, joint
venture, teaming agreement, collaboration agreement with any
person (including, for the avoidance of doubt, by way of a GIE
("Groupement, d'Interet Economique") or profit sharing agreement
with any person or any alliance with any person (other than any
other Relevant Company in the same Group)) which is material in
the context of the business of the Aerospatiale Matra Business
or as the case may be the Delta Business or the making of any
agreement to do so;
(j) the entry into, termination (by the employing company) or
material variation of any employment agreement or
employment-related agreement with any director or senior
employee having a current aggregate remuneration entitlement of
EUR 140,000 or more engaged in the Aerospatiale Matra Business
or the Delta Business (other than the renewal of any existing
agreements or arrangements and promotions and increases in
salary awarded in the normal course of their employment);
(k) the entry into of any agreement or arrangement with or making of
any loan or provision of any credit or financial facilities or
other benefits to any person who will become a director or
senior employee of any member of the Listco Group or any
relative of such person or any undertaking acting as nominee of,
or controlled by, any such person, save (in the case of any such
loan or facilities or benefits) for those available under the
standard terms and conditions of employment in respect of such
individual;
(l) the amendment or variation of the accounting principles of any
Relevant Company (other than any change to German GAAP disclosed
in writing by DC or DC Sub to Lagardere prior to the date hereof
and required for purposes of producing the certified accounts of
the Delta Group required for the extraction of cash described in
Schedule 11);
(m) the entry into of any contract, arrangement or commitment
involving expenditure on capital account which would cause
aggregate capital
<PAGE>
expenditure of the Aerospatiale Matra Business or, as the case
may be, the Delta Business to exceed the amount allocated to
capital expenditure for such period in the Aerospatiale Matra
Budget or, as appropriate, the Delta Budget, by 10% or in
relation to any one project, by 10%. For the purpose of this
paragraph the aggregate amount payable under any agreement for
hire, hire purchase or purchase on credit sale or conditional
sale terms shall be deemed to be capital expenditure incurred in
the period in which such agreement is entered into;
(n) the making of any material change in the level or terms of the
insurance cover maintained in respect of the Aerospatiale Matra
Business or the Delta Business; and
(o) the acceptance of any obligation or the acquisition of any
asset, interest or right by Holdings CV or Listco.
4.3 Without prejudice to Clause 4.2, each of DC Sub and Lagardere (as the
case may be) shall ensure that from the date of this Agreement up to
Closing each Relevant Company:
(a) shall consult fully with the other in relation to any matters
which may have a material effect upon the Aerospatiale Matra
Business or the Delta Business (as the case may be); and
(b) without the prior written consent of the other shall not enter
into any contract or commitment (or make a bid which may lead to
any contract or commitment) which is outside the ordinary and
usual course of business and:
(i) has a value or is likely to involve expenditure in
excess of EUR 2,500,000; or
(ii) is likely to result in any material change in the nature
of the operations and activities of the Aerospatiale
Matra Business or, as the case may be, the Delta
Business; or
(iii) is estimated to make a loss.
4.4 For the avoidance of doubt Clause 4.2 and Clause 4.3 shall not apply to
any steps taken by DC Sub, Lagardere or Aerospatiale Matra (or any
member of their respective Groups) in relation to (i) the transaction
known as Project Astrium to the extent such steps are taken pursuant to
agreements between Lagardere (or any member of the Lagardere Group) and
DC (or any member of the DC Group), (ii) the cash extraction process
described in Schedule 11; (iii) the payment of a dividend by
Aerospatiale Matra from distributable profits applicable to the
financial period ending 31 December 1999; (iv) the transfer of
distributable profits of Delta, from the financial period ending 31
December 1999, by Delta to DC in accordance with the terms of the
existing applicable profit transfer agreement; (v) the off-setting of
distributable profits against capital reserves by Aerospatiale Matra; or
(vi) the distribution by Delta to DC Sub of an amount up to, but not
exceeding, EUR 200 million, from distributable profits of
<PAGE>
Delta for the accounting period ending 30 November 1999 by which time DC
will have used its best efforts to have completed the cash extraction
pursuant to Clause 2.1 at a rate of 6% per annum (being the rate
consistent with the rate earned, on the basis of past performance, by
members of the DC Group on cash deposited as part of the DC Group's
ordinary treasury arrangements) until the completion of the cash
extraction process on the amount of cash extracted pursuant to paragraph
(ii) above. For the avoidance of doubt it is expressly acknowledged that
following completion of the cash extraction process any interest arising
on the cash extracted shall be for the account of DC. Any dividend or
profit transfer permitted by (iii) and (iv) above shall only be in such
amounts as reflect and preserve the Resulting Equity Ownership reflected
in Schedule 12 (after the cash extraction referred to in paragraph (ii)
above).
4.5 From the date hereof DC Sub and Lagardere shall have 21 days to prepare
for the review process described in Clauses 4.5 to 4.8 (inclusive). From
the date falling 21 days from the date hereof until the date falling 21
days thereafter each of DC Sub and Lagardere shall make available to the
other and to each of their advisers listed in Schedule 13 the
information applicable to them or, in the case of Lagardere, applicable
to the Aerospatiale Matra Group or, in the case of DC Sub, applicable to
the Delta Group in accordance with lists of information, such lists to
be agreed between DC Sub and Lagardere but substantially in the form of
the list in the agreed form (such list to apply equally to the Delta
Group and to the Aerospatiale Matra Group). The period of 21 days from
the date hereof (but not the period of 21 days for review) referred to
in this clause 4.5 may be varied by agreement between, and the
information and materials shall be provided at such place as is
specified by, DC Sub and Lagardere (and no other party's agreement shall
be required for that purpose).
4.6 Each of DC Sub and Lagardere (and their respective advisers) shall
review information made available to them pursuant to Clause 4.5 in an
orderly and timely manner.
4.7 Lagardere shall periodically report to and consult with Sogepa on the
matters reviewed by it as part of the process described in Clause 4.5 to
4.8 (inclusive) and shall report and consult on any facts giving rise to
a potential claim under Clause 8 or Clause 9. Lagardere shall take no
action under Clause 4.8 without the consent of Sogepa.
4.8 Should either of DC Sub, Sogepa or Lagardere discover any matter during
the investigation process referred to in Clause 4.6 which may reasonably
be expected to have the effect of reducing the Notional Agreed Valuation
of the Listco Group by EUR 2 billion or more DC Sub and Lagardere shall:
(a) notify the other of their discovery, the basis for it and the
reason for their interpretation of it as being materially and
adversely different from the bases and assumptions referred to
above;
(b) attempt, through discussion with the other and, where
appropriate, respective advisers to resolve their differences;
and
<PAGE>
(c) at any time by the date falling 14 days after the 42 days
referred to in Clause 4.5 be entitled (by notice in writing
served on the other) to terminate this Agreement.
4.9 Upon a termination of this Agreement pursuant to and in accordance with
Clause 4.8(c) this Agreement shall terminate with immediate effect,
whereupon each party's further rights and obligations shall immediately
cease (without prejudice to any accrued rights or obligations at the
time of termination).
5. CLOSING
5.1 Subject to Clause 3.3, Closing shall take place at the office of
Clifford Chance at Apollolaan 171, 1077 AS Amsterdam, Holland or such
other place as is agreed by DC Sub and Lagardere on the seventh Business
Day following the satisfaction of the last Condition Precedent to be
satisfied. At or before Closing the following matters shall be effected.
5.2 New Delta
5.2.1 DC Sub and Delta shall procure the transfer by way of
contribution of New Delta from Delta to Listco in
consideration for the issue to Delta of that number of Listco
Shares representing that proportion, P, of the total issued
share capital of Listco, X + Y, calculated as follows:
P = X x 100
-----
X + Y,
where: X = V - D
Y = EUR 9,649 million;
V = EUR 8,374 million;
D = the amount extracted by any member of the Delta Group to
DC or any member of the DC Group (other than a member of the
Delta Group) pursuant to Clause 2.1, (excluding the EUR 700
million referred to in Clause 2.1 and Schedule 11),
as set out, by way of example, in Schedule 12.
5.2.2 For purposes of Clause 5.2.1 Delta shall transfer by way of
contribution to Listco the entire issued share capital of New
Delta free of any Encumbrance.
5.2.3 For purposes of Clauses 5.2.1 and 5.2.2 the parties shall do
or procure all of those things respectively required of them
in Schedule 6.
5.3 Aerospatiale Matra
5.3.1 Sogepa and Lagardere shall procure the transfer by way of
contribution of Aerospatiale Matra Bis from Aerospatiale Matra
to Listco in consideration for
<PAGE>
the issue to Aerospatiale Matra of that number of Listco
Shares, representing that proportion, Q, of the total issued
share capital of Listco, X + Y, calculated as follows:
Q = 100 - P
and as set out, by way of example, in Schedule 12.
5.3.2 For purposes of Clause 5.3.1 Sogepa and Lagardere shall
procure the transfer by Aerospatiale Matra by way of
contribution to Listco of the entire issued share capital of
Aerospatiale Matra Bis free of any Encumbrance.
5.3.3 For purposes of Clauses 5.3.1 and 5.3.2 the parties shall do
or procure all of those things respectively required of them
in Schedule 7.
5.4 Liquidation
5.4.1 Upon completion of the matters described in Clauses 5.2 and
5.3 Lagardere and Sogepa shall exercise such rights as are
available to them to procure the dissolution of Aerospatiale
Matra by doing or procuring all of those things respectively
required of them in Schedule 8 and Lagardere and Sogepa shall
procure the distribution on winding-up of Aerospatiale Matra,
by Aerospatiale Matra to Aerospatiale Matra's shareholders, of
Aerospatiale Matra's Listco Shares.
5.4.2 For purposes of Clause 5.4.1 Sogepa and Lagardere shall
exercise such rights as are available to them to procure that
Aerospatiale Matra shall transfer to its shareholders the
Listco Shares held by Aerospatiale Matra pro rata the number
of Aerospatiale Matra Shares held by Aerospatiale Matra
shareholders.
5.5 DC Sub shall, and Sogepa and Lagardere shall procure that Topco shall,
have their Listco Shares representing (after the issue referred to in
clause 5.7) 30% of the issued share capital of Listco for Topco (on the
one hand) and for DC Sub (on the other hand) managed by the Managing
Partner through the partnership between them (constituted as Holdings
CV) in return for 50% (each) of the partnership interests of Holdings
CV.
5.6 Each of Lagardere and Sogepa shall transfer Listco Shares to Topco in
consideration for the issue to each of Lagardere and Sogepa of interests
of Topco (in both cases in accordance with and as specified in the Topco
Shareholders Agreement).
5.7 DC Sub shall, and Lagardere and Sogepa shall procure that Topco shall,
use its best efforts to procure the issue by Listco of new shares of
Listco in an amount equal to 16.3% (or such other proportion as may be
agreed by the Principals in writing after the date hereof) of the
(pre-issue) issued share capital of Listco. No party, nor any member of
their respective Groups, shall participate in such issue. The parties
shall procure that Holdings CV does not hold Listco Shares representing
less than 60% of the issued share capital of Listco after any issue
referred to in Clause 5.7 and an issue in connection with a transaction
involving CASA.
<PAGE>
5.8 DC Sub, Lagardere, and Sogepa shall, and Lagardere and Sogepa shall
procure that Topco shall, enter into the Participation Agreement.
5.9 Sogepa, DC Sub and Lagardere shall exercise such rights as are available
to them to procure that Listco shall, enter into an agreement relating
to ballistic missiles in accordance with the FS and Listco Principles.
5.10 Each of the parties shall procure that all agreed form documents
identified in this Agreement as to be signed and delivered by them at
Closing are so signed and delivered.
5.11 In the event of any conflict between the terms of this Agreement and
those of any document entered into for the purposes of, or in connection
with, the transactions contemplated by the Merger Documents, the terms
of this Agreement shall prevail as between the parties to this Agreement
and, unless expressly provided in any such document to the contrary,
nothing contained in any such document shall have the effect of varying
or waiving any of the obligations of the parties under this Agreement.
6. INDEMNITIES
6.1 DC Sub shall indemnify Lagardere (for itself and on behalf of each
member of the Lagardere Group) and shall keep them indemnified, against
(save in respect of any consequential loss not foreseeable by DC Sub (or
any member of the DC Group)) all or any costs, claims, demands,
expenses, losses or liabilities that they (or any of them) may suffer or
incur from the date hereof as a result of all or any of the shareholders
of Dornier GmbH (a German limited liability company) other than a member
of the Delta Group (together, the "Do Family") obtaining or seeking to
obtain any rights or remedies against Lagardere (or any member of the
Lagardere Group), Holdings CV, the Managing Partner, Delta, New Delta,
Listco or any member of the Listco Group or the Delta Group. The
indemnity contained in this Clause 6.1 shall also extend to Listco to
the extent such protection is not provided for in the transfer of New
Delta to Listco.
6.2 DC Sub may use Excess Shares owned by Delta to satisfy any claim which
the Do Family may obtain or seek to obtain. DC Sub shall use its
reasonable endeavours to procure that any such claim by the Do Family is
satisfied in shares in DC.
6.3 Lagardere shall indemnify DC Sub (for itself and on behalf of each
member of the DC Group) and shall keep them indemnified, against (save
in respect of any consequential loss not foreseeable by Lagardere (or
any member of the Lagardere Group)) all or any costs, claims, demands,
expenses, losses or liabilities that they (or any of them) may suffer or
incur from the date hereof as a result of Dassault Industrie obtaining
or seeking to obtain any rights or remedies under an agreement dated 10
November 1998 against Listco (or any member of the Listco Group) or the
Aerospatiale Matra Group in relation to the shares of Dassault Aviation
owned by Aerospatiale Matra (and only to the extent that the said 10
November 1998 agreement is not terminated in accordance with its terms).
6.4 Lagardere shall indemnify DC Sub (for itself and on behalf of each
member of the DC
<PAGE>
Group) and shall keep them indemnified against (save in respect of any
consequential loss not foreseen by Lagardere (or any member of the
Lagardere Group) all or any costs, claims, demands, expenses, losses or
liabilities that they (or any of them) may suffer or incur from the date
hereof as a result of (i) British Aerospace Public Limited Company or
any of its Subsidiaries (ii) Northern Telecom Limited or any of its
Subsidiaries or (iii) Diehl exercising or seeking to exercise any rights
or remedies against Listco (or any member of its Group) or the
Aerospatiale Matra Group in relation to, respectively, (i) Matra BAe
Dynamics S.A.S. (ii) Matra Nortel Communications S.A.S. or (iii) BBV
and/or BGT by reason of the transactions contemplated by the Merger
Documents.
6.5 For the avoidance of doubt Clause 8.4 shall not apply to this Clause 6.
7. REGULATORY MATTERS
7.1 As soon as reasonably practicable after the signing of this Agreement,
DC Sub and Lagardere shall (unless DC Sub and Lagardere otherwise agree)
make a joint notification in form and substance reasonably satisfactory
to each of DC Sub and Lagardere to the European Commission in respect of
the transactions and arrangements contemplated by this Agreement
pursuant to Regulation 4064/89.
7.2 DC Sub and Lagardere shall co-operate with one another to ensure that
all information necessary or desirable for the making of (or responding
to any requests for further information consequent upon) any necessary
or desirable notifications or filings in respect of, or of the
transactions and arrangements contemplated by, the Merger Documents is
supplied to the party dealing with such notifications and filings and
that they are properly, accurately and promptly made.
7.3 If any Regulatory Action is taken or threatened, DC Sub and Lagardere
shall promptly meet to discuss the situation and the action to be taken
as a result, and (if such be the case) whether any modification to the
terms of the Merger Documents (or any other agreement to be entered into
pursuant hereto) shall be made, in order that any requirements (whether
as a condition of giving any approval, exemption, clearance, or consent
or otherwise) of the European Commission or other regulatory authority
may be reconciled with, and within the scope of, the transactions and
arrangements contemplated by this Agreement. DC Sub and Lagardere shall
thereafter co-operate in giving effect to any modifications agreed upon.
7.4 If under relevant European Community or other laws the European
Commission or other regulatory authority (after all appropriate
notifications and hearings have been made and held) take any Regulatory
Action the effect of which is that effect should or may not be given to
the basic principles of the transactions and arrangements between the
parties pursuant to the Merger Documents, then DC Sub and Lagardere
shall promptly meet to decide the appropriate course in the mutual
interests of the parties to give effect to the requirements of the
European Commission and/or other regulatory authority(ies).
<PAGE>
8. REPRESENTATIONS AND WARRANTIES
8.1 DC Sub hereby represents and warrants to (a) Lagardere and (b) Sogepa at
the date of this Agreement that:
8.1.1 Each of DC, DC Sub, Delta, New Delta and all other members of
the Delta Group is a corporation duly organised and
incorporated and validly existing under the laws of its
jurisdiction of incorporation and has now and has had at all
relevant times full corporate power and authority to carry on
and operate its respective businesses conducted by it from
time to time and as it will be conducted upon Closing.
8.1.2 Each of DC, DC Sub, Delta, New Delta and all other members of
the Delta Group has now and has had at all relevant times full
corporate power and capacity and authority to enter into the
Merger Documents to which it is expressed to be a party
including, without limitation, the Participation Agreement and
the execution and delivery of the same and the consummation of
the transactions contemplated thereby have been or will by
Closing have been duly authorised by all necessary corporate
action on the part of DC, DC Sub, Delta, New Delta and all other
members of the Delta Group. The Merger Documents will constitute
upon their execution and delivery, the legal, valid and binding
obligation of DC, DC Sub, Delta, New Delta and all other members
of the Delta Group as the case may be, enforceable against it in
accordance with their terms, except as a Court may refuse to
grant specific performance.
8.1.3 The execution, delivery and performance of the Merger Documents
will not:
(a) violate (or, as the case may be, did not violate) any of
the provisions of the statutes of DC, DC Sub, Delta, New
Delta and all other members of the Delta Group; and
(b) save as expressly contemplated in the Merger Documents,
will not conflict with or result in a breach of or give
rise to a right of termination of or cancellation of or
result in the creation of any Encumbrance or accelerate
the performance required by the terms of any judgement,
law or regulation or court order or any agreement or
instrument to which DC, DC Sub, Delta, New Delta and all
other members of the Delta Group is a party or to which
it or its property is subject, or constitute a default
thereunder and has not done so.
8.1.4 Except as set out in Clauses 3, 5 and 7, or as otherwise
disclosed in writing by (or on behalf of) DC (or DC Sub) to
Lagardere (or its advisers), no filing with, and no consent,
waiver, approval or authorisation of, any governmental
authority or any third party is or was required in connection
with the execution, performance and delivery by DC, DC Sub,
Delta, New Delta (and all other members of the Delta Group) of
the Merger Documents or the
<PAGE>
performance by DC, DC Sub, Delta, New Delta (and all other
members of the Delta Group) of any of the transactions
contemplated thereby.
8.1.5 The information provided by or on behalf of DC, DC Sub or
Delta to, or on behalf of, Lagardere or Aerospatiale Matra
for, or in connection with, the transaction contemplated by
the Merger Documents was prepared and so provided in good
faith.
8.1.6 Delta is the sole legal and beneficial owner of the Delta
Shares and has no other assets. The Delta Shares comprise the
whole of the allotted and issued share capital of New Delta,
have been properly allotted and issued and are fully paid or
credited as fully paid. There is no Encumbrance, and there is
no agreement, arrangement or obligation to create or give an
Encumbrance, in relation to any of the Delta Shares or
unissued shares in the capital of New Delta. Other than any
Merger Document there is no agreement, arrangement or
obligation requiring the creation, allotment, issue, transfer,
redemption or repayment of, or the grant to a person of the
right (conditional or not) to require the allotment, issue,
transfer, redemption or repayment of, a share in the capital
of New Delta. New Delta does not have a Subsidiary other than
the companies referred to in Schedule 2 (the "Delta
Subsidiaries"). Delta has no interest in, and has not agreed
to acquire an interest in, anybody other than the Delta
Subsidiaries. Each allotted and issued share in the capital of
each Delta Subsidiary is legally and beneficially owned by
Delta alone, has been properly allotted and issued and is
fully paid or credited as fully paid. There is no Encumbrance,
and no agreement, arrangement or obligation to create or give
an Encumbrance, in relation to a share or unissued share in
the capital of each Delta Subsidiary.
8.1.7 The Delta Warranted Accounts have been prepared on a proper
and consistent basis in accordance with the applicable law and
US GAAP. Those accounts show a true and fair view of the
assets, liabilities and state of affairs of the Delta Group as
at 31 December 1998 and of the profits and losses of the Delta
Group for the financial year ended on 31 December 1998.
8.1.8 The Delta Warranted Accounts reserve or provide in accordance
with US GAAP for all tax liable to be assessed on New Delta or
any member of the Delta Group or for which it is or may become
accountable, for all periods starting on or before 31 December
1998. The Delta Warranted Accounts reserve (in accordance with
US GAAP) for all contingent or deferred liabilities to tax and
pensions commitments for all periods starting on or before 31
December 1998 and no tax shall arise in respect of the period
from 31 December 1998 until Closing other than tax on profits
arising in the ordinary and usual course of business except in
respect of any tax cost specifically indicated in Schedule 3
or Schedule 11.
8.1.9 Neither the execution nor the performance of any Merger
Document will result in losing the benefit of an asset, grant,
subsidy, right or privilege which
<PAGE>
New Delta or any member of the Delta Group enjoys at the date
of this Agreement or will conflict with, result in a breach
of, give rise to an event of default under, require the
consent of a person under, enable a person to terminate or
relieve a person from an obligation under any agreement or
arrangement to which Delta or any member of the Delta Group is
a party or any legal or administrative requirement by which
New Delta or any member of the Delta Group is bound.
8.1.10 New Delta (or any relevant member of the Delta Group) has
obtained, and has complied with, the terms and conditions of,
each Permit. Each Permit is valid, in force and unconditional
or subject only to a condition that has been satisfied. No
Permit will be revoked, suspended, cancelled, varied or not
renewed as a result of the execution or performance of any
Merger Document. For these purposes "Permit" means a permit,
licence, consent, approval, certificate, qualification or
other authorisation required for the effective operation of
the business of any member of the Delta Group or for its
ownership, possession, occupation and use of an asset.
8.1.11 Save to the extent provided for in the Delta Warranted
Accounts no member of the Delta Group is involved in a civil,
criminal, arbitration, administrative or other proceedings in
respect of which the potential loss or liability may exceed
EUR 2.5 million. No civil, criminal, arbitration,
administrative or other proceeding is pending or threatened by
or against any member of the Delta Group. No fact or
circumstance exists which might give rise to a civil,
criminal, arbitration, administration or other proceeding
involving any member of the Delta Group. There is no
outstanding judgement, order, decree, arbitral award or
decision of a court, tribunal, arbitrator or governmental
agency against any member of the Delta Group.
8.1.12 Since 31 December 1998 and excluding matters required for the
implementation of the transaction contemplated by the Merger
Documents (or as otherwise disclosed in writing between the
Principals), the extraction of cash from the business of the
Delta Group has been in accordance with the ordinary and
normal course of business of the Delta Group.
8.2 Lagardere hereby represents and warrants to (a) DC Sub and (b) Sogepa at
the date of this Agreement that:
8.2.1 Each of Lagardere, Aerospatiale Matra and other members of the
Lagardere Group is a corporation (or, as appropriate,
partnership) duly incorporated (or constituted) and validly
existing under the laws of its jurisdiction of incorporation
(or constitution) and has now and has had at all relevant
times full power and authority to carry on and operate its
respective businesses conducted by it from time to time and as
it will be conducted upon Closing.
8.2.2 Each of Lagardere, Aerospatiale Matra and other relevant
members of the Lagardere Group has now and has had at all
relevant times full power and capacity and authority to enter
into the Merger Documents to which it is
<PAGE>
expressed to be a party including, without limitation, the
Participation Agreement and the execution and delivery of the
same and the consummation of the transactions contemplated
thereby have been or will by Closing have been duly authorised
by all necessary action on the part of Lagardere, Aerospatiale
Matra and other relevant members of the Lagardere Group. The
Merger Documents will constitute, upon their execution and
delivery, the legal, valid and binding obligation of
Lagardere, Aerospatiale Matra and other relevant members of
the Lagardere Group as the case may be, enforceable against it
in accordance with their terms, except as a Court may refuse
to grant specific performance.
8.2.3 The execution, delivery and performance of the Merger
Documents will not:
(a) violate (or, as the case may be, did not violate) any of
the provisions of the Bye-laws of Lagardere,
Aerospatiale Matra and other relevant members of the
Lagardere Group;
(b) save as expressly contemplated in the Merger Documents
conflict with or result in a breach of or give rise to a
right of termination of or cancellation of or result in
the creation of any Encumbrance or accelerate the
performance required by the terms of any judgement, law
or regulation or court order or any agreement or
instrument to which Lagardere, Aerospatiale Matra and
other relevant members of the Lagardere Group is a party
or to which it or its property is subject, or constitute
a default thereunder and has not done so.
8.2.4 Except as set out in Clauses 3, 5 and 7, or as otherwise
disclosed in writing by (or on behalf of) Lagardere to DC or
DC Sub (or their advisers) no filing with, and no consent,
waiver, approval or authorisation of, any governmental
authority or any third party is or was required in connection
with the execution, performance and delivery by Lagardere,
Aerospatiale Matra (and other relevant members of the
Lagardere Group) of the Merger Documents contemplated hereby
or the performance by Lagardere, Aerospatiale Matra (and other
relevant members of the Lagardere Group) or any of the
transactions contemplated thereby.
Lagardere hereby represents and warrants to DC Sub at the date of this
Agreement that:
8.2.5 The information provided by or on behalf of Lagardere to, or
on behalf of, DC or DC Sub, for, or in connection with, the
transaction contemplated by the Merger Documents was prepared
and so provided in good faith.
8.2.6 Lagardere is the sole legal and beneficial owner of the
Aerospatiale Matra Shares. The Aerospatiale Matra Shares
comprise approximately 33% of the whole of the allotted and
issued share capital of Aerospatiale Matra, have been properly
allotted and issued and are fully paid or credited as fully
paid. There is no Encumbrance, and there is no agreement,
arrangement or obligation to
<PAGE>
create or give an Encumbrance, in relation to any of the
Aerospatiale Matra Shares. Other than any Merger Document
there is no agreement, arrangement or obligation requiring the
transfer, redemption or repayment of, or the grant to a person
of the right (conditional or not), to require the transfer,
redemption or repayment of the Aerospatiale Matra Shares.
Aerospatiale Matra does not have a Subsidiary other than the
companies referred to as Aerospatiale Matra Subsidiaries in
Schedule 1 (the "Aerospatiale Matra Subsidiaries").
Aerospatiale Matra has no interest in, and has not agreed to
acquire an interest in, anybody other than the Aerospatiale
Matra Subsidiaries and Aerospatiale Matra Bis. Each allotted
and issued share in the capital of each Aerospatiale Matra
Subsidiary is legally and beneficially owned by Aerospatiale
Matra alone, has been properly allotted and issued and is
fully paid or credited as fully paid. There is no Encumbrance,
and no agreement, arrangement or obligation to create or give
an Encumbrance, in relation to a share or unissued share in
the capital of each Aerospatiale Matra Subsidiary.
Lagardere and Sogepa hereby severally represent and warrant to DC Sub at
the date of this Agreement that:
8.2.7 The Aerospatiale Matra Warranted Accounts have been prepared
on a proper and consistent basis in accordance with the
applicable law and French GAAP. Those accounts show a true and
fair view of the assets, liabilities and state of affairs of
the Aerospatiale Matra Group as at 31 December 1998 and of the
profits and losses of the Aerospatiale Matra Group for the
financial year ended on 31 December 1998.
8.2.8 The Aerospatiale Matra Warranted Accounts reserve or provide
in accordance with French GAAP for all tax liable to be
assessed on Aerospatiale Matra or any member of the
Aerospatiale Matra Group or for which it is or may become
accountable, for all periods starting on or before 31 December
1998. The Aerospatiale Matra Warranted Accounts reserve (in
accordance with French GAAP) for all contingent or deferred
liabilities to tax for all periods starting on or before 31
December 1998 and no tax shall arise in respect of the period
from 31 December 1998 until Closing other than tax on profits
arising in the ordinary and usual course of business and tax
of Aerospatiale Matra (on its own account) arising exclusively
in connection with the transaction contemplated by the Merger
Documents.
8.2.9 Neither the execution nor the performance of any Merger
Document will result in losing the benefit of an asset, grant,
subsidy, right or privilege which Aerospatiale Matra or any
member of the Aerospatiale Matra Group enjoys at the date of
this Agreement or will conflict with, result in a breach of,
give rise to an event of default under, require the consent of
a person under, enable a person to terminate or relieve a
person from an obligation under any agreement or arrangement
to which Aerospatiale Matra or any member of the Aerospatiale
Matra Group is a party or any legal or administrative
<PAGE>
requirement by which Aerospatiale Matra or any member of the
Aerospatiale Matra Group is bound.
8.2.10 Aerospatiale Matra (or any relevant member of the Aerospatiale
Matra Group) has obtained, and has complied with, the terms
and conditions of, each Permit. Each Permit is valid, in force
and unconditional or subject only to a condition that has been
satisfied. No Permit will be revoked, suspended, cancelled,
varied or not renewed as a result of the execution or
performance of any Merger Document. For these purposes
"Permit" means a permit, licence, consent, approval,
certificate, qualification or other authorisation required for
the effective operation of the business of any member of the
Aerospatiale Matra Group or for its ownership, possession,
occupation and use of an asset.
8.2.11 Save to the extent provided for in the Aerospatiale Matra
Warranted Accounts no member of the Aerospatiale Matra Group
is involved in a civil, criminal, arbitration, administrative
or other proceedings in respect of which the potential loss or
liability may exceed EUR 2.5 million. No civil, criminal,
arbitration, administrative or other proceeding is pending or
threatened by or against any member of the Aerospatiale Matra
Group. No fact or circumstance exists which might give rise to
a civil, criminal, arbitration, administration or other
proceeding involving any member of the Aerospatiale Matra
Group. There is no outstanding judgement, order, decree,
arbitral award or decision of a court, tribunal, arbitrator or
governmental agency against any member of the Aerospatiale
Matra Group.
8.2.12 Since 31 December 1998 and excluding matters required for the
implementation of the transaction contemplated by the Merger
Documents (or as otherwise disclosed in writing between the
Principals), the extraction of cash from the business of the
Aerospatiale Matra Group has been in accordance with the
ordinary and normal course of business of the Aerospatiale
Matra Group.
8.3 Sogepa hereby represents and warrants to DC Sub and Lagardere at the
date of this Agreement that:
8.3.1 It has now and has had at all relevant times full power and
capacity and authority to enter into the Merger Documents to
which it is expressed to be a party and the execution and
delivery of the same and the consummation of the transactions
contemplated thereby have been or will by Closing have been
duly authorised by all necessary corporate action on its part.
The Merger Documents will constitute upon their execution and
delivery the legal, valid and binding obligation of Sogepa
enforceable against it in accordance with their terms, except
as a Court may refuse to grant specific performance.
8.3.2 The execution, delivery and performance of the Merger
Documents will not:
<PAGE>
(a) violate (or, as the case may be, did not violate) any of
the provisions of the constitutional documents of
Sogepa; and
(b) save as expressly contemplated in the Merger Documents,
will not conflict with or result in a breach of or give
rise to a right of termination of or cancellation of or
result in the creation of any Encumbrance or accelerate
the performance required by the terms of any judgement,
law or regulation or court order or any agreement or
instrument to which the French State or Sogepa is a
party or to which it or its property is subject, or
constitute a default thereunder and has not done so.
8.3.3 Except as disclosed in writing by (or on behalf of) Sogepa (or
its advisers) or as envisaged by the Merger Documents, no
filing with, and no consent, waiver, approval or authorisation
of, any governmental authority or any third party is or was
required in connection with the execution, performance and
delivery by Sogepa of the Merger Documents or the performance
by Sogepa of any of the transactions contemplated thereby.
8.3.4. Sogepa will at Closing be the sole legal and beneficial owner
of the Sogepa Shares, which have been properly allotted and
issued and are fully paid or credited as fully paid. There is
no Encumbrance, and there is no agreement, arrangement or
obligation to create or give an Encumbrance, in relation to
any of the Sogepa Shares. Other than any Merger Document there
is no agreement, arrangement or obligation requiring the
transfer, redemption or repayment of, or the grant to a person
of the right (conditional or not) to require the transfer,
redemption or repayment of the Sogepa Shares.
8.4 Remedies
8.4.1 In respect of a breach of the Warranties:
(a) the sole recourse shall be an action for damages against
the relevant entity giving the Warranty (and, for these
purposes, any Warranty given by Lagardere and Sogepa
under Clause 8.2.7 to 8.2.12 (inclusive) shall be deemed
to be given by one entity only) (the "Debtor") from the
other (or others) (the "Claimant");
(b) the limitations set out in Clause 8.5 shall apply (other
than in respect of Clauses 8.1.1 to 8.1.4 (inclusive),
Clauses 8.2.1 to 8.2.4. (inclusive) and Clauses 8.3.1 to
8.3.3. (inclusive)); and
(c) for the avoidance of doubt any liability for a breach of
the Warranties shall not be grossed-up to include any
tax payable thereon by the Claimant.
8.4.2 Save to the extent otherwise provided herein the Parties waive
all or any rights they may have to rescission or restitution.
8.5 Limitations
<PAGE>
8.5.1 A Debtor shall not be liable to a Claimant for any claim under
Clause 8.4 (a "Claim"):
(a) unless it receives from the Claimant written notice
containing details of the Claim including the Claimant's
estimate of the amount of the Claim:
(i) on or before the date of approval by the board of
Aerospatiale Matra or, as appropriate, Listco of
financial statements for that company relating to
the first complete accounting period falling after
the Closing Date, in the case of a Claim for
breach of any of the Warranties other than a Claim
covered by paragraph (ii) below;
(ii) in respect of any Claim relating to taxation or
social security contributions, on or before the
expiry of thirty 30 days after the expiry of the
legal prescription period applicable to the
subject matter of the Claim;
(b) unless the liability of the Debtor after application of
the provisions of this Clause 8.5 other than this
sub-clause 8.5.1 in respect of that individual Claim
would exceed EUR 2.5 million in which case the Claimant
shall be entitled to claim the entire amount of the
Claim, subject to the provisions of Clause 8.5.1(c);
(c) unless the aggregate amount of the liability of the
Debtor following application of the provisions of this
Clause 8.5 other than this sub-clause 8.5.1 for all
Claims would exceed EUR 25 million, in which case the
Debtor shall be liable to the Claimant only in respect
of the losses exceeding EUR 25 million.
8.5.2 The aggregate amount of the liability of the Debtor for all
Claims shall not exceed EUR 2.5 billion.
8.5.3 The Debtor shall not be liable for any Claim:
(a) if and to the extent that the fact, matter, event or
circumstance giving rise to such Claim was fairly and
reasonably disclosed by the Debtor to the Claimant prior
to the signature of this Agreement; or
(b) if and to the extent that the matter is specifically
disclosed or is specifically provided or reserved for in
the relevant Aerospatiale Matra Warranted Accounts or,
as appropriate, the Delta Warranted Accounts.
8.5.4 If the Claimant becomes aware that any claim has been made or
is threatened by a third party after Closing (a "Third Party
Claim") which, following the application of the provisions of
this Clause 8.5, is likely to result in the Claimant being
entitled to make a Claim against the Debtor:
(a) the Claimant shall give notice of such Third Party Claim
to the Debtor as soon as reasonably practicable and in
any event within seven (7) days of becoming aware of it
and, in any event, at least seven (7) days prior
<PAGE>
to the expiry of the period allowed by law for
responding to such Third Party Claim and shall give the
Debtor and its professional advisors all reasonable
information and facilities to investigate any such Third
Party Claim: Failure by the Claimant in respect of its
obligations under this Clause 8.5.4 (a) shall absolve
the Debtor from liability in respect of the Third Party
Claim, to the extent that such failure causes or
increases the Debtor's liability in respect of a Claim;
(b) the Debtor shall not make or permit any admission of
liability, agreement or compromise in respect of such
Third Party Claim without prior consultation with and
prior written consent of the Claimant (not to be
unreasonably withheld or delayed);
(c) the Debtor may for 6 months from the date of receipt of
the notice referred to in Clause 8.5.4(a), take all such
reasonable steps or proceedings as it may consider
necessary to avoid, resist, defend, appeal or compromise
any such Third Party Claim to the extent only that such
acts or omissions do not cause or increase a Claim.
8.5.5 Any Claim shall (if not previously satisfied, settled or
withdrawn) be deemed to have been withdrawn (and no new Claim
may be made in respect of the matter giving rise to such
withdrawn Claim) unless legal proceedings in respect of it
have been commenced within 6 months of notification to the
Debtor pursuant to Clause 8.5.1.
8.5.6 In calculating the liability of the Debtor in respect of any
Claim such Claim shall be reduced by:
(a) the aggregate of:
(i) any amount by which any asset shall have been
under-stated; and
(ii) any amount by which any liability shall have been
overstated;
in the Aerospatiale Matra Warranted Accounts or, as
appropriate, the Delta Warranted Accounts, less the
aggregate of:
(iii) any amount by which any other liabilities shall
have been under-stated therein; and
(iv) any amount by which any assets shall have been
over-stated therein;
(b) the amount by which any provision or reserve (including
any provision or reserve taken into account in
calculating the net value of an asset) in the
Aerospatiale Matra Warranted Accounts or, as
appropriate, the Delta Warranted Accounts, has been
established to have been unnecessary or excessive;
<PAGE>
(c) any amount recovered in respect of any debt written off
in the Aerospatiale Matra Warranted Accounts or, as
appropriate, the Delta Warranted Accounts; and
(d) the extent that any liability is discharged or satisfied
below the amount attributed thereto in the Aerospatiale
Matra Warranted Accounts or, as appropriate, the Delta
Warranted Accounts;
provided that no amount shall be taken into account more than
once pursuant to this Clause 8.5.6.
8.5.7 If any matter referred to in Clause 8.5.6 is established after
payment has been made by the Debtor to the Claimant pursuant
to one or more Claims, the Claimant shall forthwith refund to
the Debtor an amount equivalent to the amount by which such
matter would have reduced such payment if it had been
established before the date of the Claim.
8.5.8 No liability shall attach to the Debtor in respect of any
Claim to the extent that any taxation liability for which any
company or entity contributed by that Debtor, directly or
indirectly, to Listco, is reduced or extinguished as a result
of the loss subject to the Claim.
8.5.9 The Debtor shall have no liability in respect of any Claim in
respect of any tax audit which merely modifies the tax period
during which a deductible charge or amortisation may be taken,
or in which income or gain may be realised (except to the
extent that either such modification results in any Relief
(otherwise useable within the same tax period) being lost or
to the extent of penalties, interest and cost of funds).
8.5.10 The Debtor shall not be liable in respect of any Claim to the
extent that such Claim is attributable to, or is increased as
a result of, any legislation not in force at the date hereof
or to any change of law or administrative practice which takes
effect retrospectively or occurs as a result of any change in
the basis or method of calculation of, or any increase in the
rates of, taxation in force at the date hereof.
8.5.11 Where the Claimant is entitled to recover from a third party
any sum which is the subject of an actual or potential Claim,
the Claimant shall promptly notify the Debtor and, if so
required by the Debtor, the Claimant shall, before seeking to
recover any amount from the Debtor under this Agreement, first
take all steps as the Debtor may reasonably require to enforce
such recovery and thereafter any Claim shall be limited (in
addition to the limitations on the liability of the Debtor
referred to in this Clause) to the amount by which the loss or
damage (including the costs of recovery) shall exceed the
amount so recovered.
8.5.12 If the Debtor pays to the Claimant an amount in discharge of a
Claim and the Claimant subsequently recovers from a third
party a sum which is referable to
<PAGE>
the Claim (including without limitation by way of insurance),
the Claimant shall forthwith repay to the Debtor:
(a) an amount equal to the sum recovered less any reasonable
out-of-pocket costs and expenses incurred in recovering
the same; or
(b) if the figure resulting under paragraph (a) above is
greater than the amount paid by the Debtor in respect of
the relevant Claim, such lesser amount as shall have
been so paid by the Debtor.
8.6 In relation to Warranties given by Lagardere and Sogepa in Clause 8.2.7
to 8.2.12 (inclusive) and those given to Lagardere and Sogepa in Clause
8.1.5 to Clause 8.1.12 (inclusive) Lagardere and Sogepa may substitute
Topco as the giver or, as appropriate, recipient of such Warranties in
place of and to the exclusion of themselves, including in relation to
accrued or then current claims or liabilities.
9. TAX
9.1 DC Sub, Delta and Lagardere shall, and shall cause their respective
Subsidiaries and (so far as each of them is able) members of the Listco
Group to, and Lagardere and Sogepa shall exercise such rights as are
available to them to cause Aerospatiale Matra to, co-operate in
connection with the making of any claims or elections for taxation
purposes requested:
(a) by DC or DC Sub in respect of the steps taken by DC or DC Sub
to create New Delta, transfer New Delta to Listco, transfer
Listco Shares to Holdings CV and create and issue a
convertible security over certain of the Listco Shares issued
to Delta under Clause 5.2.1 and by Lagardere or Aerospatiale
Matra in respect of the transfer of the Aerospatiale Matra
Business to Listco and the transfer of Listco Shares to
Holdings CV or the distribution of the Listco Shares to
Aerospatiale Matra shareholders on winding up of Aerospatiale
Matra, or any other matter necessary or desirable for the
implementation of Closing; and/or
(b) by DC or DC Sub in connection with the taxation affairs of DC,
DC Sub, Delta, New Delta or any of their respective
Subsidiaries or by Lagardere or Aerospatiale Matra in
connection with the taxation affairs of Lagardere or
Aerospatiale Matra, or any of their respective Subsidiaries,
in either case in respect of any period beginning on or before
Closing,
provided that nothing in this Clause 9.1 shall entitle any party to
require to be done anything which would or might (a) give rise to any
liability or additional liability on the part of any of the parties or
Holdings CV or Listco whether immediate, contingent or deferred or (b)
reduce any Relief available to the parties or Holdings CV or Listco.
9.2 Each of DC Sub, Delta and Lagardere shall, and Lagardere and Sogepa
shall exercise such rights as are available to them to procure that
Aerospatiale Matra shall co-operate, and undertakes to procure (or, as
appropriate, exercise such rights as are available to them to procure)
that their respective Subsidiaries shall co-operate, to ensure that the
<PAGE>
others of them and the members of their respective Groups, are, where
relevant, provided with sufficient information to enable it to submit,
and to deal with any matters arising out of, any returns, notices,
claims for Relief or allowances, or computations, to any relevant
taxation or excise authorities in respect of any period beginning on or
before Closing.
9.3 Each of the parties shall, and Lagardere and Sogepa shall exercise such
rights as are available to them to procure that Aerospatiale Matra
shall, co-operate, and undertakes to procure (or, as appropriate,
exercise such rights as are available to them to procure) that their
respective Subsidiaries shall co-operate, to facilitate the issue of
dividend access shares in such manner, within the Listco Group, as may
reasonably be practicable including without limitation equalisation
arrangements relating to French and German source income within the
Listco Group.
9.4 To the extent that (i) the transfer of New Delta from Delta to Listco
gives rise to German real estate transfer tax, or (ii) the dissolution
of Aerospatiale Matra gives rise to droit de partage or other tax, such
tax shall be borne or paid by Listco. To the extent that any transaction
contemplated in Schedule 3 gives rise to German real estate transfer
tax, that tax shall be borne by DC Sub or Delta.
10. CONFIDENTIALITY
10.1 Each of the parties undertakes to each of the others that it shall keep
confidential and not (without the prior written consent of the others)
disclose to any person or use or exploit commercially for its own
purposes the existence and terms of this Agreement. In performing its
obligations under this Clause 10, each of the parties shall apply such
standards of confidentiality as it applies generally in relation to its
own confidential information.
10.2 Each of the parties further undertakes to procure that members of its
Group observe the provisions of this Clause 10 as fully as if they were
parties hereto in lieu of that party and to use all reasonable
endeavours to ensure that its employees and agents observe such
confidentiality.
10.3 Clauses 10.1 and 10.2 shall not apply to:
(a) the disclosure of information to a company which is another
member of the DC Group, the Aerospatiale Matra Group or the
Lagardere Group (as the case may be) where such disclosure is
for a purpose reasonably incidental to this Agreement; or
(b) information acquired from a third party with the right to
divulge the same; or
(c) information required to be disclosed by operation of law or
any stock exchange regulations or any binding judgement or
order or by any requirement of any competent authority; or
<PAGE>
(d) disclosure in confidence to a party's professional advisers of
information reasonably required to be disclosed for use in
connection with transactions and matters contemplated hereby
or related hereto; or
(e) information which is or becomes within the public domain
(otherwise than through the default of the recipient of that
information).
10.4 Subject to Clause 10.5, no announcement or press release in connection
with the signature or subject matter of this Agreement shall be made or
issued by or on behalf of any party or any of its Subsidiaries without
the prior written approval of the other parties (such approval not to be
unreasonably withheld or delayed).
10.5 If a party has an obligation to make or issue any announcement required
by law or by any stock exchange or by any governmental authority in
connection with this Agreement, that party shall give the other parties
every reasonable opportunity to comment on any such announcement or
release before it is made or issued and the approval of the other
parties shall be required to any specific references therein to
themselves, their business or to Holdings CV (provided always that this
shall not have the effect of preventing the party making the
announcement or release from complying with its legal and stock exchange
obligations.)
11. SETTLEMENT OF DISPUTES
11.1 If there shall be any dispute, controversy or claim ("Dispute") between
any of the parties arising out of or in connection with this Agreement,
including the breach, lapse, termination, or invalidity of this
Agreement, the relevant parties shall use their best endeavours to
resolve the matter on an amicable basis. If one party serves written
notice on another party or parties that a Dispute has arisen and such
parties are unable to resolve such Dispute within a period of thirty
(30) days from the service of such notice, then the matter shall be
referred to a panel consisting of the Chief Executives (or equivalent)
for the time being of each of Lagardere and DC (the "Panel"). No
recourse to arbitration under this Agreement shall take place unless and
until such procedure has been followed.
11.2 If the Panel shall have been unable to resolve the Dispute within a
period of forty-five (45) days following its reference to it, it shall
be referred by any of the parties in dispute (for purposes of this
Clause 11, the "Claimant(s)") to and finally resolved by arbitration
pursuant to the Rules of Arbitrations of the International Chamber of
Commerce ("I.C.C") then in force and in accordance with the following
provisions of this Clause 11.
11.3 The Tribunal should consist of three arbitrators. If there is more than
one Claimant and/or more than one Respondent, then the Claimant parties
and/or the Respondent parties shall jointly nominate an arbitrator. If
they cannot agree, such arbitrator(s) shall be selected by the I.C.C.
11.4 The two arbitrators thus nominated shall within thirty (30) days
nominate a third arbitrator who shall not be a national of France or
Germany. If they cannot agree, then the Chairman shall be selected by
the I.C.C.
<PAGE>
11.5 The seat of arbitration shall be the Hague, the Netherlands. The
arbitration shall be conducted in the English language.
11.6 In arriving at their award, the arbitrators shall apply the terms and
conditions of this Agreement. The award of the arbitrators shall be
final and binding on the parties to the Dispute. Neither the Claimant(s)
nor the Respondent(s) shall seek recourse to a court of law or other
authorities to appeal against the award of the arbitrators on matters of
fact or law. Reasonable costs of the arbitration shall be awarded to the
successful party(ies) as the arbitrators shall determine.
11.7 If any Dispute raises issues which are substantially the same as or
connected with issues raised in a Dispute which has already been
referred to arbitration under this Agreement or the Participation
Agreement (an "Existing Dispute"), or arises out of substantially the
same facts as are the subject of an Existing Dispute (a "Related
Dispute"), the Tribunal appointed or to be appointed in respect of any
such Existing Dispute shall also be appointed in respect of any Related
Dispute.
11.8 The Tribunal, upon the request of a party to a Dispute or a party to
this Agreement which itself wishes to be joined in any reference to
arbitration proceedings in relation to a Dispute, may join any party to
this Agreement to any reference to arbitration proceedings in relation
to that Dispute and may make a single, final award determining all
Disputes between them. Each of the parties to this Agreement hereby
consents to be joined to any reference to arbitration proceedings in
relation to any Dispute at the request of a party to that Dispute.
11.9 Where, pursuant to the above provisions, the same Tribunal has been
appointed in relation to two or more Disputes, the Tribunal may, with
the agreement of all parties concerned or upon the application of one of
the parties, being a party to each of the Disputes, order that the whole
or part of the matters at issue shall be heard together upon such terms
or conditions as the Tribunal thinks fit. The Tribunal shall have power
to make such directions and any interim or partial award as it considers
just and desirable.
11.10 Nothing in these dispute resolution provisions shall be construed as
preventing either party from seeking conservatory relief in any court of
competent jurisdiction.
11.11 If there is any conflict between the Rules of Arbitration of the I.C.C.
and this Clause 11, this Clause 11 shall govern.
12. STATUS OF PARTIES
12.1 Nothing in this Agreement shall operate to create any agency or
partnership between the parties or between Listco or, as the case may
be, Holdings CV, the Managing Partner and any of them.
12.2 None of the parties nor any member of their respective Groups shall have
any authority to act for, or to make any commitment or incur any
liability or obligation for, or on behalf of, each other or Listco or,
as the case may be, Holdings CV, the Managing Partner (or any of their
respective Subsidiaries) except as specifically authorised so to
<PAGE>
do in this Agreement or any of the Merger Documents or by separate
written authorisation.
13. GUARANTEES
13.1.1 Lagardere hereby (as a primary obligor and not as a surety
only) irrevocably and unconditionally guarantees (as an
independent guarantee) to each of DC Sub, Sogepa and Delta
(each a "DC/Sogepa Beneficiary") and indemnifies each
DC/Sogepa Beneficiary in respect of the due and punctual
performance of the obligations binding on relevant Lagardere
Group companies who are required to perform obligations under
any of the Merger Documents (a "Lagardere Obligor") and
contained in the Merger Documents. In the case of default by a
Lagardere Obligor of its obligations under any of the Merger
Documents, Lagardere agrees on demand to make good to the
relevant DC/Sogepa Beneficiary all losses, damages, costs and
expenses arising out of such default or breach and will if so
required to do by notice in writing from DC Sub or, as the
case may be, Delta immediately observe and perform such
obligations as if Lagardere were substituted for that
Lagardere Obligor as primary obligor.
13.1.2 DC Sub hereby (as a primary obligor and not as a surety only)
irrevocably and unconditionally guarantees (as an independent
guarantee) to each of Lagardere, Sogepa and Aerospatiale Matra
(each a "Lagardere/Sogepa Beneficiary") and indemnifies each
Lagardere/Sogepa Beneficiary in respect of the due and
punctual performance of the obligations binding on each of
Delta and relevant DC Group companies who are required to
perform obligations under any of the Merger Documents (a "DC"
Obligor") and contained in the Merger Documents. In the case
of default by a DC Obligor of its obligations under any of the
Merger Documents, DC agrees on demand to make good to the
relevant Lagardere/Sogepa Beneficiary all losses, damages,
costs and expenses arising out of such default or breach and
will if so required to do by notice in writing from Lagardere
or, as in the case may be, Aerospatiale Matra immediately
observe and perform such obligations as if DC Sub were
substituted for that DC Obligor as primary obligor.
13.2 The guarantees contained in this Clause will not be discharged or
affected by:
(a) any granting of time or other indulgence or without limitation
any extension, renewal, acceptance, forbearance or release in
respect of any of the obligations or liabilities of any party
under any of the Merger Documents;
(b) any waiver or release of any right or option of any party
under any of the Merger Documents;
(c) any modification or variation of the terms of any of the
Merger Documents;
(d) any irregularity defect or informality in any of the Merger
Documents or any legal limitation, disability or incapacity of
any party or want of authority of
<PAGE>
any director or officer appearing to be acting for or on
behalf of any party to any of the Merger Documents;
(e) any transfer or assignment of rights or obligations by any
party under any of the Merger Documents;
(f) any corporate reorganisation, reconstruction, amalgamation,
dissolution, merger, acquisition of or by or other alteration
in the corporation existence or structure of any party to the
Merger Documents or any other person;
(g) any composition or arrangement by any party to the Merger
Documents or any other person; and
(h) any other act or omission of any kind by any party to the
Merger Documents or any other person or any other
circumstances whatsoever which might constitute a legal or
equitable discharge of the guarantees entered into;
it being the intention of the parties that the guarantees and
indemnities set out in this Clause shall be absolute and unconditional
in any and all circumstances so that the guarantees and indemnities may
be enforced by the relevant parties as often as the need may arise.
13.3 The guarantees herein contained shall remain in full force and effect
until final performance in full by the parties to the Merger Documents
of all their obligations thereunder and notwithstanding the insolvency
of Holdings CV, the Managing Partner or Listco or any other event unless
specifically provided for in the Merger Documents.
14. COSTS
14.1 Save as otherwise expressly provided in this Agreement and the Merger
Documents, all costs, charges and expenses, including taxes, incurred in
connection with the steps taken to implement the preliminary
reorganisation, Closing and subsequent distribution by, and liquidation
of, Aerospatiale Matra and the obtaining of any necessary third party
consents or approvals, shall be borne by DC Sub or Delta in the case of
the matters to be carried out by DC Sub or Delta (including the matters
contemplated in Schedules 2, 3, 6 and 11) and by Lagardere or, as
appropriate, Lagardere and Sogepa shall procure that Aerospatiale Matra,
in the case of the matters to be carried out by Lagardere or, as
appropriate, Aerospatiale Matra (including the matters contemplated in
Schedules 1, 5 and 7), shall pay those costs.
14.2 All costs, charges and expenses incurred in connection with the
incorporation of (a) Holdings CV or the Managing Partner shall be borne
by the Managing Partner; and (b) Topco shall be borne by Topco.
14.3 Save as provided in Clauses 14.1 and 14.2 each party shall bear and pay
its own costs, charges and expenses (including the fees of its advisers)
incurred in the negotiation, preparation and implementation of this
Agreement (and the transactions referred to herein or contemplated
hereby).
<PAGE>
15. GENERAL
15.1 This Agreement and any documents referred to in this Agreement
constitute the entire agreement, and supersede any previous agreements
between any of the parties relating to the subject matter of this
Agreement.
15.2 Each of the parties shall (at its own expense) execute, or procure the
execution of, all such other documents and do, or procure the doing of,
all such other acts and things as may be reasonably required on its part
or on the part of any member of its respective Group for the purpose of
giving full effect to this Agreement.
15.3 None of the parties shall, except with the prior written consent of the
others assign or transfer or purport to assign or transfer any of its
rights or obligations under this Agreement.
15.4 This Agreement may not be varied except by an agreement in writing
executed by each of the parties.
15.5 No waiver by a party of a failure or failures by another party to
perform any provision of this Agreement shall operate or be construed as
a waiver in respect of any other or further failure whether of a like or
different character.
15.6 It is agreed that:
15.6.1 no party has entered into this Agreement in reliance upon any
representation, warranty or undertaking of any other party
which is not expressly set out or referred to in this
Agreement;
15.6.2 a party shall have no claim or remedy in respect of
misrepresentation (whether negligent or otherwise) or untrue
statement made by any other party;
15.6.3 this clause shall not exclude liability for fraudulent
misrepresentation.
15.7 Neither DC Sub, Delta nor any member of the DC Group shall, without the
prior written consent of Lagardere, sell, transfer, dispose or grant an
option, right or interest over or purchase, acquire or take an option,
right or interest over or otherwise deal, in any way whatsoever, in any
shares or debentures or any interest in any share (including, without
limitation, depository receipt) or debenture in the capital of
Aerospatiale Matra, or purport to do any of the foregoing or procure,
encourage or incite any person to do any of the foregoing. DC Sub, Delta
(or any member of the DC Group) may enter into a transaction as a result
of which it (or any member of the DC Group) acquires Aerospatiale Matra
Shares provided that the principal purpose of that transaction is not
the acquisition of those Aerospatiale Matra Shares.
16. NOTICES
16.1 Any notice or other communication to be given hereunder shall either be
delivered by hand or sent by facsimile transmission (provided that, in
the case of facsimile transmission, the notice is confirmed by being
delivered by hand or sent by pre-paid registered post with
acknowledgement of receipt at the same time) as follows:-
<PAGE>
(a) DAIMLERCHRYSLER LUFT - UND RAUMFAHRT HOLDING AG
Address: Postfach 801109, 81663 Muenchen, Germany
Fax No: +4989-607- 34306
Addressed for the personal attention of:
The Chairman of the Board
(b) LAGARDERE SCA
Address: 4 rue de Presbourg, 75116 Paris, France
Fax No: +33 1 40 69 20 01
Addressed for the personal attention of:
The Secretaire General
(c) DAIMLERCHRYSLER AEROSPACE AG
Address: Postfach 801109, 81663 Muenchen, Germany
Fax No: +4989-607-34306
Addressed for the personal attention of:
The Chairman of the Board
(d) SOGEPA
Address: 56 rue de Lille, 75007 Paris, France
Fax No: +33 1 53 18 95 66
Addressed for the personal attention of:
The Secretaire General
16.2 A party may change the address, fax number or the name of the person for
whose attention notices are to be addressed by serving a notice on the
other parties hereto in accordance with this Clause 16.
16.3 All notices given in accordance with this Clause 16 are effective as
follows:
(a) if delivered by hand, at the time of delivery; and
(b) if communicated by facsimile, at the time of transmission
recorded on a transmission report showing transmission of all
parts of the notice,
PROVIDED that where delivery by hand or transmission by facsimile occurs
after 6pm on a Business Day or on a day which is not a Business Day, the
notice shall be effective as from 9am on the next following Business
Day. References to time in this clause 16.3 are to local time in the
country of the addressee.
<PAGE>
16.4 In proving such service it shall be sufficient to prove that the
envelope containing such notice was properly addressed and delivered
either to the address shown thereon (or, in the case of confirmation of
a notice sent by facsimile transmission, into the custody of the postal
authorities as a pre-paid letter), or that the facsimile transmission
was made after obtaining in person or by telephone appropriate evidence
of the capacity of the addressee to receive the same, as the case may
be.
16.5 All notices or communications under or in connection with this Agreement
shall be in the English language or, if in any other language,
accompanied by a translation into English. In the event of any conflict
between the English text and the text in any other language the English
text shall prevail.
17. COUNTERPARTS
This Agreement may be executed in any number of counterparts, and shall
be as valid and effective so executed as if executed in a single
document.
18. GOVERNING LAW
This Agreement is to be governed by and construed in accordance with the
laws of the Netherlands.
AS WITNESS the hands of the duly authorised representatives of the parties
hereto the day and year first before written.
<PAGE>
SCHEDULE 1
AEROSPATIALE MATRA
AEROSPATIALE MATRA BUSINESS
The entire business, assets and liabilities of Aerospatiale Matra as at the date
hereof and as carried on in the normal and ordinary course prior to transfer of
Aerospatiale Matra Bis including, without limitation, the Aerospatiale Matra
Group.
AEROSPATIALE MATRA INVESTMENTS
<TABLE>
<CAPTION>
INTEREST COMPANY HEAD OFFICE BUSINESS SECTOR
%
<S> <C> <C> <C>
37.90 Airbus Industrie Blagnac
37.90 Avsa SARL Blagnac
37.90 Societe Commerciale A-300-SOCA Blagnac
37.90 Airbus Simulators Services Blagnac
37.90 Aina Holdings Inc. Herndon, Virginia, USA Aircraft
37.90 Airbus Transport International Blagnac
50 GIE ATR Toulouse
50 GIE Satic Colomiers
37.90 Airbus Finance Co Dublin, Ireland
37.90 Airbus Ind Fin. Serv Dublin, Ireland
60 Eurocopter Holding Paris
70 Eurocopter Marignane
70 Eurocopter Deutschland Munich
70 American Eurocopter Corp Dallas, Texas, USA Helicopters
70 Eurocopter Canada Ltd Ontario, Canada
49.08 Samaero Singapore
53.50 Helibras Brazil
90 Sodern Limeil-Brevannes Space & Defense
50 GIE Euromissile Fontenay-aux-Roses Missiles
50 Ceberg Le Plessis-Robinson
98.31 Sogerma Merignac
98.31 Seca Le Bourget
98.31 Barfield Miami, USA
68.81 Revima Roissy-Charles de Gaulle Maintenance
49.32 Composites Aquitaine St-Medard-en-Jalles
98.31 Hermet Exploration Colomiers
98.31 Maroc Aviation Casablanca
98.31 Noise Reduction Engineering Washington DC, USA
100 Socata Le Bourget General Aviation
45.76 Dassault Aviation Paris
45.76 Dassault International France Vaucresson
45.76 Dassault Falcon Jet & subsidiaries Teterboro, New Jersey, USA
<PAGE>
<CAPTION>
INTEREST COMPANY HEAD OFFICE BUSINESS SECTOR
%
<S> <C> <C> <C>
45.76 Sognee Industries Sursnes Military Aircraft
& Business Aircraft
45.76 Dassault Aero Service
45.76 Dassault Assurances Courtage
45.76 Dassault International Inc. Paramus, New Jersey, USA
45.76 Societe Toulouse Colomiers
21.26 Office General de l'Air (OGA) Paris
21.90 Sofema Paris Other
50 Aerospatiale Thomson Electronique de Vol Velizy
(ATEV)
</TABLE>
TRANSFER TO AEROSPATIALE MATRA BIS
- - Approval by Aerospatiale Matra shareholders at an extraordinary general
meeting (see Schedule 5).
- - Report by an independent auditor on all Aerospatiale Matra assets and
liabilities as transferred to Aerospatiale Matra Bis.
<PAGE>
SCHEDULE 2
DELTA GROUP
New Delta, Eurocopter Holding S.A., Dornier GmbH, DC Aerospace Airbus GmbH,
Bayern Chemie GmbH, TDA Armements SAS, Dornier Satellitensysteme GmbH, Nortel
Dasa Network Systems GmbH & Co, KG, Airbus Industrie G.I.E.,
LFK-Lenkflugkorpersysteme GmbH, Delta Flugzeugwerft GmbH, Dornier Luftfahrt
GmbH, Dornier Medizintechnik GmbH.
<PAGE>
SCHEDULE 3
ESTABLISHMENT OF NEW DELTA AND TRANSFER OF DELTA BUSINESS
1. Delta and its sole shareholder DC Sub shall establish DADC Luft-und
Raumfahrt-Beteiligungs AG (DADC). Delta contributes its 57.55%
participation in Dornier Satellitensysteme ("DO"). GmbH in consideration
for 75% of the shares in DADC. DC Sub contributes cash in consideration
for 25% of the shares in DADC. The cash contribution will be equivalent
to 1/3 of the market value of the DO. GmbH participation contributed by
Delta.
2. Delta hives down its Delta business (including the shares in DADC but
excluding the shares in MTU-M) into a wholly owned subsidiary (New
Delta) (AUSGLIEDERUNG according to sec. 123 subs. 3 Transformation
Act).
3. The Delta business shall exclude claims and past liabilities relating to
Fokker Holding BV and any contingent liabilities relating to Dornier
Luftfahrt GmbH.
<PAGE>
SCHEDULE 4
HOLDINGS CV
Holdings CV shall be established as a limited partnership (COMMANDITAIRE
VENNOOTSCHAP) under Dutch law pursuant to a limited partnership agreement
between the Managing Partner acting as the general partner (BEHEREND VENNOOR)
and each of DC and Topco (or permitted alternatives) as limited partners
(COMMANDITAIRE VENNOTEN).
Each of the limited partners shall contribute to Holdings CV the Listco Shares
that are issued to them at Closing. The Managing Partner shall be entitled to a
de minimis (to be agreed) proportion of Holdings CV's profits subject to a
maximum amount of EUR 1,000 per year. Each of the limited partners shall be
entitled to 50% of the remaining profits of Holdings CV.
MANAGING PARTNER
The Managing Partner shall be incorporated as a private limited liability
company (BESLOTEN VENNOOTSCHAP MET BEPERKTE AANSPRAKELIJKHEID) under Dutch law
with an issued share capital of EUR 20,000 and having articles of association in
a form to be agreed. DC and Topco shall each hold 50% of the issued and
outstanding shares in the Managing Partner and shall each be entitled to
nominate 50% of the members of the Board of the Managing Partner.
<PAGE>
SCHEDULE 5
LISTCO
(a) Aerospatiale Matra Shareholders approval by 2/3 majority to:
- Contribute, in exchange for Listco Shares, the entire issued
share capital of Aerospatiale Matra Bis, per statutory auditor
report.
- Wind-up Aerospatiale Matra.
- Distribute to Aerospatiale Matra shareholders, as a
liquidation dividend, the Listco Shares received in exchange
for the Aerospatiale Matra Bis shares contributed.
(b) Approval (by Listco shareholders) of Aerospatiale Matra Bis shares
contribution, in accordance with the independent auditor report.
(c) Waiver from CMF of obligation to make an "Offre publique de retrait".
<PAGE>
SCHEDULE 6
CLOSING: NEW DELTA
Steps required to close transfer described in Clause 5.2, to include:
- - approval by general meeting of Delta;
- - signature of share transfer agreement;
- - updating Delta statutory books;
- - board/secretary/accountants/registered office/bank mandates/accounting
reference date changes, as appropriate;
- - issue and allotment of Listco Shares to Delta transferor, delivery of
applicable share certificates, updating Listco allotments register.
<PAGE>
SCHEDULE 7
CLOSING: AEROSPATIALE MATRA BIS
Steps required to close transfer described in Clause 5.3, to include:
- - delivery of transfer form for Aerospatiale Matra Bis share capital;
- - delivery of all applicable share certificates;
- - updating of applicable statutory books;
- - board/secretary/accountants/registered office/bank mandates/account
reference date changes, as appropriate;
- - all other deliverables not comprising shares;
- - issue and allotment of Listco Shares to Aerospatiale Matra, delivery of
applicable share certificates, updating Listco allotments register.
<PAGE>
SCHEDULE 8
DISTRIBUTION ON WINDING UP IN KIND BY AEROSPATIALE MATRA
Approval of a distribution (on winding up of Aerospatiale Matra) of Listco
Shares to shareholders of Aerospatiale Matra by resolution of the shareholders
of Aerospatiale Matra.
<PAGE>
SCHEDULE 9
TAX CLEARANCES
FRANCE
1. Ruling securing application of article 210A of the French Tax Code (Code
General des Impots) in respect of contribution of Aerospatiale Matra
Business by Aerospatiale Matra to Aerospatiale Matrabis.
2. Ruling securing application of article 210A of the French Tax Code in
respect of the contribution of Aerospatiale Matrabis shares by
Aerospatiale Matra to Listco.
3. Rulings securing application of article 115.2 and 210B of the French Tax
Code in respect of the distribution of Listco Shares to Aerospatiale
Matra shareholders upon liquidation of Aerospatiale Matra.
These rulings shall provide that:
- The capital gain on the Listco Shares shall be exempt of
corporate tax and additional contributions
- The distribution of the Listco Shares to Aerospatiale Matra
shareholders shall not be considered as a taxable dividend
- The Listco Shares shall have the same tax value for the
Aerospatiale Matra shareholders as the Aerospatiale Matra shares
- The liquidation of Aerospatiale Matra shall not be considered as
a breach by Lagardere of its commitment to retain the
Aerospatiale Matra shares
4. Ruling securing application of article 210A of the French Tax Code in
respect of (i) contribution of Listco Shares to Topco by SOGEPA and
Lagardere and (ii) contribution of Listco Shares to Holdco by Topco.
These rulings shall be delivered in accordance with the tax authorities usual
practice for this type of reorganisation and will be subject to conditions
enabling the French State to tax the rolled over gains.
GERMANY
1. Ruling confirming that the issue of an exchangeable bond (to be
exchanged for Listco Shares after a minimum holding period of 7 years)
issued by Delta or by a Luxembourg Subsidiary of Delta does not lead to
a profit realisation in Delta (such realisation only taking place once
the bond is converted), such ruling being given in relation to sec. 8b
(2) KStG (German Corporation Income Tax Act). The economic ownership
(sec. 39 AO (German Tax Code)) of the shares in Listco remains with
Delta until the conversion. secs. 23 (4), 20 (1) sentence 2 UmwStG
(German Transformation Tax Act).
<PAGE>
2. Ruling confirming the effectiveness of a book value continuation clause
in the contribution of New Delta shares into Listco.
The ruling to confirm that the contribution of shares in New Delta into
Listco by Delta in return for Listco Shares is in all material respects
tax-neutral transaction if Listco continues the book values of the
participation, such ruling being given in relation to sec. 8b (2) KStG
(German Corporation Income Tax Act).
3. Ruling regarding a book value continuation clause in the contribution of
Listco Shares into Holdings CV, as well as with respect to the tax
exemption of dividend payments to Delta.
The ruling to establish that the contribution of Listco Shares into
Holdings CV by Delta upon a continuation of the book value is, in all
material respects a tax-neutral transaction. Furthermore, it should
establish that both dividend payments from Listco to Delta via Holdings
CV as well as profits arising from the sale of Listco Shares held
through Holdings CV by Delta, are exempted from German taxation. This in
particular depends upon Holdings CV being qualified as an asset
management partnership (vermogensverwaltende Personengesellschaft) under
German law and not as a commercial partnership.
A ruling acknowledging that DC would not be liable to German capital
gains tax on the contribution into Listco if DC is to hold part of its
interest in Listco through a Holdco.
THE NETHERLANDS
1. CAPITAL DUTY. Ruling regarding the capital tax exemption on the
contribution of New Delta shares and the shares of Aerospatiale Matra
Bis into Listco and on the contribution of Listco Shares by DC and Topco
to Holdco.
2. WITHHOLDING TAXES. Ruling regarding the absence of dividend withholding
taxes on distributions by Listco through Holdings CV to DC and Topco.
3. Confirmation by the Dutch tax authorities that the Dutch tax
legislation as it currently stands provides for an exemption of
corporation tax on capital gains recognised on any sale of Listco
Shares by the Managing Partner for the account of Topco.
<PAGE>
SCHEDULE 10
NET CASH
FOR BOTH AEROSPATIALE MATRA AND DELTA
o consolidated cash and cash equivalents less long and short term
borrowings, as stated in the Delta Warranted Accounts or the
Aerospatiale Matra Warranted Accounts, as appropriate.
o financial investments, to the extent that they are contributed to
Listco, representing investments and loans to non consolidated
affiliated companies as stated in the Delta Warranted Accounts or the
Aerospatiale Matra Warranted Accounts, as appropriate, with the
exception of any qualifying investments for which future income was
included in consolidated EBIT in the Business Plans of the respective
businesses
o the amounts derived above will subsequently be adjusted as follows:
AEROSPATIALE MATRA
o plus the post tax proceeds of the disposal of Aerospatiale Matra's 50%
holding in Sextant Avionique undertaken post 31 December 1998
DELTA
o less the repayment of outstanding Launch Aid obligations undertaken post
31 December 1998
o less the provision for pension liabilities as stated in the Delta
Warranted Accounts.
For illustrative purposes we have set out below the estimation of Net Cash
<TABLE>
<CAPTION>
AEROSPATIALE MATRA MILLION
(EUROS)
- -------------------------------------------------------------------------------
<S> <C>
Financial Assets 249
- -------------------------------------------------------------------------------
Net Debt (11)
- -------------------------------------------------------------------------------
Sextant Avionique 332
- -------------------------------------------------------------------------------
570
<PAGE>
- -------------------------------------------------------------------------------
DELTA MILLION
(EUROS)
- -------------------------------------------------------------------------------
Net Cash 5,214
- -------------------------------------------------------------------------------
Launch Aid Repayment (895)
- -------------------------------------------------------------------------------
Pension Liability (2,653)
- -------------------------------------------------------------------------------
Agreed EUR 700 million cash extraction (700)
- -------------------------------------------------------------------------------
967
===============================================================================
</TABLE>
<PAGE>
SCHEDULE 11
CASH EXTRACTION
<TABLE>
<CAPTION>
CURRENTLY CONTEMPLATED
AMOUNT
EURO IN MILLIONS
<S> <C>
Delta AG book equity (German GAAP) 12/98 2136
Write-up of Assets under German GAAP
MTU 205
Delta AG 187
Delta Airbus (DA) 228
Dornier 179
Eurocopter 206
Release retained earnings DA 205
Separation Temic, MTU-F, AVG -121
MTU 1. H99
MTU 2. H99
Delta AG 1. H99
Delta AG 2. H99
Separation of DA Cash GmbH 205
TOTAL 3429
</TABLE>
<PAGE>
SCHEDULE 12
VALUATION EXAMPLE
<TABLE>
<CAPTION>
DELTA AEROSPATIALE SUM
MATRA
(EUROS) (EUROS) (EUROS)
Millions millions millions
<S> <C> <C> <C>
IMPLIED VALUE CONTRIBUTION V 9,649 V 9,649 19,297
Non-contribution of MTU - 1,275 Nil
Notional Agreed Valuation 8,464 9,649 18,022
Cash extracted - 2,728 Nil
ACTUAL EQUITY VALUE CONTRIBUTION X 5,646 Y 9,649 15,295
RESULTING EQUITY OWNERSHIP P 36.91% Q 63.09%
</TABLE>
<PAGE>
SCHEDULE 13
PERMITTED ADVISORS
For Lagardere, Robert Fleming, Arthur Andersen, Cabinet Darrois, Clifford
Chance.
For Delta, Goldman Sachs, Freshfields, Deringer.
For Sogepa, Rothschild & Cie and Jeantet.
<PAGE>
SIGNED BY JURGEN E. SCHREMPP )
AND BY ECKHARD CORDES duly )
authorised, for and on behalf of )
DAIMLERCHRYSLER LUFT - )
UND RAUMFAHRT HOLDING AG )
SIGNED BY )
duly authorised, for )
and on behalf of )
DAIMLERCHRYSLER )
AEROSPACE AG )
SIGNED BY )
duly authorised, for )
and on behalf of )
LAGARDERE SCA )
SIGNED BY )
duly authorised, for )
and on behalf of )
SOGEPA )
<PAGE>
AGREEMENT
ON THE COMBINATION
OF THE
EADS BUSINESS
AND
CASA BUSINESS
BETWEEN
DAIMLERCHRYSLER LUFT- UND
RAUMFAHRT HOLDING AKTIENGESELLSCHAFT
AND
DAIMLERCHRYSLER AEROSPACE AG
AND
LAGARDERE SCA
AND
SOCIETE DE GESTION DE PARTICIPATIONS AERONAUTIQUES - SOGEPA
AND
AEROSPATIALE MATRA S.A.
AND
SOCIEDAD ESTATAL DE PARTICIPACIONES INDUSTRIALES
DECEMBER 2, 1999
<PAGE>
TABLE OF CONTENTS
PREAMBLE .....................................................................2
Article I
Interpretation.......................................................3
Article II
Combination of the Aerospatiale Matra Business, the Dasa Business
and the Casa Business; Casa Cash-out................................11
Article III
Conditions for the Consummation of the Casa Integration;
Termination.........................................................12
Article IV
Due Diligence Review................................................15
Article V
Casa Closing........................................................16
Article VI
Industrial Plan; Covenants; Reports.................................20
Article VII
Covenants and Indemnities...........................................22
Article VIII
Regulatory Matters..................................................24
Article IX
Representations and Warranties......................................25
Article X
Breach of Warranties................................................25
Article XI
Confidentiality.....................................................29
Article XII
Miscellaneous.......................................................31
<PAGE>
- ii -
LIST OF SCHEDULES
Schedule 1 ASM-Dasa Business-Combination Agreement and Supplemental Agreement
Schedule 2 Aerospatiale Matra Business
Schedule 3 Aerospatiale Matra Subsidiaries
Schedule 4 Aerospatiale Matra Warranted Accounts
Schedule 5 Casa Business
Schedule 6 Casa Subsidiaries
Schedule 7 Casa Warranted Accounts
Schedule 8 Dasa Business
Schedule 9 Dasa Subsidiaries
Schedule 10 Dasa Warranted Accounts
Schedule 11 Dasa Warranties
Schedule 12 Lagardere Warranties
Schedule 13 Sepi Warranties
Schedule 14 Sogepa Warranties
Schedule 15 Due Diligence Schedule
Schedule 16 Sepi advisers
Schedule 17 Lagardere advisers
Schedule 18 Valuation Example
Schedule 19 Summary of Industrial Plan
Schedule 20 Estimated Resources to achieve objectives of Industrial Plan
Schedule 21 List of Permits
Schedule 22 Description of "Getafe Site"
Schedule 23 Description of "San Pablo Site"
Schedule 24 Dasa Cash Extractions
Schedule 25 Aerospatiale Matra Cash Extractions
Schedule 26 Casa Cash Extractions
<PAGE>
BETWEEN
(1) DAIMLERCHRYSLER LUFT- UND RAUMFAHRT HOLDING AKTIENGESELLSCHAFT, a
German stock corporation (AKTIENGESELLSCHAFT) registered at the
commercial registry of the local court in Munich under number HRB 91671
with its seat at Munich, Germany; and
(2) DAIMLERCHRYSLER AEROSPACE AG, a German stock corporation
(AKTIENGESELLSCHAFT ) registered at the commercial registry of the
local court in Munich under number HRB 99454 with its seat at
Munich, Germany; and
(3) LAGARDERE SCA, a SOCIETE EN COMMANDITE PAR ACTIONS incorporated under
the laws of France, registered at the Paris company and commercial
registry (with registered number B 320 366 446) and having its
registered office at 4 rue de Presbourg, 75116 Paris, France; and
(4) SOCIETE DE GESTION DE PARTICIPATIONS AERONAUTIQUES - SOGEPA, a SOCIETE
ANONYME incorporated under the laws of France, registered at the Paris
companies registry (with registered number B 318 186 756) and having
its registered office at 56, rue de Lille, 75007 Paris, France; and
(5) AEROSPATIALE MATRA, a SOCIETE ANONYME, incorporated under the laws of
France, registered at the Paris company and commerciale registry (with
registered number B 572 094 514 RCS Paris) and having its registered
office at 37 boulevard de Montmoreney, 75781 Paris, France; and
(6) SOCIEDAD ESTATAL DE PARTICIPACIONES INDUSTRIALES, an ENTIDAD DE DERECHO
PUBLICO created under the laws of Spain and whose principal office is
at 8, Plaza del Marques de Salamanca, 28006, Madrid, Spain.
(hereinafter referred to as the "Parties" and each a "Party")
<PAGE>
- 2 -
PREAMBLE
A. On October 14, 1999, DaimlerChrysler Luft- und Raumfahrt Holding AG
("DCLRH"), DaimlerChrysler Aerospace AG ("Dasa"), Lagardere SCA
("Lagardere") and Societe de Gestion de Participations Aeronautiques -
Sogepa ("Sogepa") entered into an agreement regarding the combination
of the businesses of Aerospatiale Matra S.A. ("Aerospatiale Matra") and
Dasa in [European Aeronautic Defence and Space Company] ("EADS"), a
corporation to be incorporated under Dutch law in order to create a
single European company in the field of aeronautic, space and defense
activities capable of competing with other world companies. A copy of
the Business Combination Agreement is attached as Schedule 1 as amended
by the Supplemental Agreement also attached as Schedule 1 (together the
"Business Combination Agreement").
B. The Business Combination Agreement provides that Casa is a potential
strategic partner of EADS whose business should also be integrated into
the combined entity. Therefore, DCLRH, Dasa, Lagardere, Sogepa and
Sociedad Estatal de Participaciones Industriales ("Sepi") holding
approximately 99.3% of the shares in Casa have agreed that Sepi should
participate in creating the single European aeronautic, space and
defense company as a founding member by contributing all of its shares
in Construcciones Aeronauticas S.A. ("Casa") into EADS in order to
further promote the European consolidation of the aeronautic, space and
defense industry and to strengthen the competitiveness and
profitability of EADS.
C. The integration of Casa's business into EADS will on the basis of the
transactions contemplated in the Business Combination Agreement be
implemented as follows:
Sepi will contribute its entire shareholding in Casa to EADS against
issuance of new shares in EADS. Sepi's shareholding in EADS will be
managed through a contractual partnership to be established under Dutch
law between Sepi, DC and Topco.
D. EADS and its Subsidiaries will be managed as an integrated entity under
a unified group management structure.
<PAGE>
- 3 -
NOW THEREFORE, it is agreed as follows:
ARTICLE I
INTERPRETATION
1.1 In this Agreement, unless the context otherwise requires, the following
terms shall have the following meanings:
"Accounts Date" shall have the meaning given to it in Clause
8 of Schedule 13;
"Aerospatiale Matra Bis" the French company to be established
pursuant to Clause 2.5 of the Business
Combination Agreement to which the business,
assets and liabilities of Aerospatiale Matra
are to be transferred;
"Aerospatiale Matra Bis Shares" the entire issued share capital of
Aerospatiale Matra Bis;
"Aerospatiale Matra Business" the business described in Schedule 2;
"Aerospatiale Matra Group" Aerospatiale Matra and its Subsidiaries from
time to time;
"Aerospatiale Matra Shares" the shares in Aerospatiale Matra allotted to
Lagardere on 4 June 1999;
"Aerospatiale Matra Subsidiaries" the direct and indirect Subsidiaries of
Aerospatiale Matra Bis listed in Schedule 3;
"Aerospatiale Matra Warranted the financial statements as at 31 December
Accounts" 1998 relating to the Aerospatiale
Matra Group annexed hereto as Schedule 4;
"ASM-Dasa Closing" closing of the Business Combination
Agreement in accordance with the terms of
Clause 5 thereof;
"Business Combination Agreement" shall have the meaning given to it in
Preamble A;
<PAGE>
- 4 -
"Business Day" a day on which banks generally are open in
Paris, Amsterdam, Madrid and Frankfurt for a
full range of business;
"Casa Business" the business described in Schedule 5;
"Casa Closing" closing of this Agreement in accordance with
the terms of Art. V;
"Casa Closing Date" the date on which Casa Closing takes place;
"Casa Group" means Casa and its Subsidiaries from time to
time;
"Casa Subsidiaries" the Subsidiaries of Casa listed in Schedule
6;
"Casa Warranted Accounts" the financial statements as at the Accounts
Date Casa and its Subsidiaries annexed
hereto as Schedule 7;
"Claim" has the meaning as defined in Art. X para.
10.5;
"Claimant" has the meaning as defined in Art. X para.
10.2;
"company" a body corporate formed under the laws of
any country
"Contributed Casa Shares" the shares in Casa held by Sepi constituting
99.285281% of Casa's issued share capital to
be transferred by Sepi to EADS pursuant to
Art. V para. 5.2;
"Contributed Dasa-owned Casa the shares in Casa held by Dasa constituting
Shares" 0.7098% of Casa's issued share capital to be
contributed by Dasa to EADS pursuant to Art.
V para. 5.2;
"Contributed Dasa New Shares" the shares in Dasa New to be contributed to
EADS pursuant to Clause 5.2 of the Business
Combination Agreement;
<PAGE>
- 5 -
"DC" DaimlerChrysler AG, a German stock
corporation (AKTIENGESELLSCHAFT) registered
at the commercial registry of the local
court in Stuttgart under number 19360 with
its seat at Stuttgart, Germany;
"DC Group" DC and its Subsidiaries from time to time;
"Dasa Business" the business described in Schedule 8;
"Dasa Group" Dasa and its Subsidiaries until such time as
the hive-down as described in Schedule 3 of
the Business Combination Agreement of the
Dasa Business into Dasa New has been
completed and, thereafter, Dasa New and its
Subsidiaries;
"Dasa New" the company to be established pursuant to
Clause 5.2.1 of the Business Combination
Agreement;
"Dasa Subsidiaries" the direct and indirect Subsidiaries of Dasa
listed in Schedule 9;
"Dasa Warranted Accounts" the financial statements as at 31 December
1998 relating to the Dasa Group annexed
hereto as Schedule 10;
"Dasa Warranties" the Warranties set out in Schedule 11 given
by DCLRH;
"dispose" sell, transfer, assign, grant options over,
create licenses in respect of, create or
permit any Encumbrance to exist over, or
otherwise dispose of, or enter into any
legally binding commitment to do any of the
foregoing, and related expressions shall be
construed accordingly;
"EADS" the company to be established pursuant to
Clause 2.4 of the Business Combination
Agreement;
"EADS Group" EADS and its Subsidiaries from time to time;
<PAGE>
- 6 -
"EADS Shares" ordinary shares in the capital of EADS;
"Encumbrance" any mortgage, charge (whether fixed or
floating), lien, hypothecation, pledge,
right of usufruct, encumbrance, security
interest or other third party right or
interest over or in respect of a particular
asset other than liens arising by operation
of law in the ordinary course of business;
"Frankfurt Stock Exchange" Frankfurter Wertpapierborse, operated by
Deutsche Borse AG;
"French GAAP" generally accepted accounting standards and
principles in France;
"German GAAP" generally accepted accounting standards and
principles in Germany;
"Guarantee" the guarantee from DC to (i) Sepi and its
Group and to (ii) Sogepa and (iii) to
Lagardere and Aerospatiale Matra and their
Groups, all of even date herewith;
"Group" with respect to an entity, that entity and
all Subsidiaries of such entity;
"Holdings CP" the contractual partnership to be
established in accordance with the Holdings
CP Partnership Agreement;
"Holdings CP the partnership agreement for Holdings CP
Partnership Agreement" to be entered into between the Managing
Partner, DC, Topco and Sepi, consistent with
the Modified Participation Agreement;
"HSR Act" Hart-Scott-Rodino Antitrust Improvements Act
1976;
"Industrial Plan" has the meaning as defined in Art. VI para.
6.1 sub- para. 6.1.1;
<PAGE>
- 7 -
"Lagardere Group" Lagardere and its Subsidiaries from time to
time;
"Lagardere Warranties" the Warranties set out in Schedule 12 given
by Lagardere;
"Managing Partner" the managing partner of Holdings CP;
"Merger Documents" means this Agreement, the Business
Combination Agreement, the Modified
Participation Agreement and the Guarantee
and those documents, agreements and
arrangements which are Schedules or Exhibits
to this Agreement, the Business Combination
Agreement or the Modified Participation
Agreement or which are referred to in this
Agreement, the Business Combination
Agreement, the Modified Participation
Agreement or any such Schedules or Exhibits
as documents in the agreed form;
"Modified Participation the participation agreement in the agreed
Agreement" form to be entered into between DC, Sepi,
Topco, Sogepa and Lagardere at Casa Closing;
"Paris Bourse" ParisBourseSBF SA;
"Principal" DCLRH or Lagardere or Sepi (as the case may
be);
"Regulatory Action" any order of any court of competent
jurisdiction (other than in connection with
suits which are subject to the
indemnifications pursuant to Art. 7 para.
7.3, 7.4 and 7.5) or any order, decision or
conclusive view made, given or expressed by
a competent governmental or regulatory
authority or agency or an enactment of a
legislative body:
(a) which prohibits or materially
restricts the transactions
contemplated hereby or requires
them to be materially delayed; or
<PAGE>
- 8 -
(b) which would prohibit or materially
restrict the carrying on of the
business of the EADS Group as
contemplated by the Merger
Documents; or
(c) which prohibits or materially
restricts or would prohibit or
materially restrict the carrying on
of the business of any member of
the DC Group, the Lagardere Group
or the Sepi Group or imposes or
would impose any material
conditions as to the carrying on of
any such business; or
(d) in consequence of which any member
of the DC Group, the Lagardere
Group, the Aerospatiale Matra
Group, the Sepi Group or the EADS
Group would incur material fines or
a material liability in damages
were the Merger Documents or the
matters contemplated therein to be
performed in accordance with their
respective terms;
"Sepi Group" Sepi and its Subsidiaries from time to time;
"Sepi Warranties" the Warranties set out in Schedule 13 given
by Sepi;
"Signing Date" shall mean the date hereof;
"Sogepa Group" Sogepa and its Subsidiaries from time to
time;
"Sogepa Shares" the shares in Aerospatiale Matra to be held
by Sogepa at ASM-Dasa Closing in respect of
the 15% of EADS shares to be contributed to
Holdings CP;
"Sogepa Warranties" the Warranties set out in Schedule 14 given
by Sogepa;
"Subsidiary" in relation to an undertaking ("the holding
undertaking"), any other undertaking in
which the holding undertaking (or persons
acting on its behalf) for the time being
directly or indirectly holds or controls
either:
<PAGE>
- 9 -
(i) a majority of the voting rights
exercisable at general meetings of
the members of that undertaking on
all, or substantially all, matters;
(ii) the right to appoint or remove
directors having a majority of the
voting rights exercisable at
meetings of the board of directors
or equivalent body of that
undertaking on all, or
substantially all, matters;
and any undertaking which is a Subsidiary of
another undertaking shall also be a
Subsidiary of any further undertaking of
which that other is a Subsidiary;
"tax" and "taxation" includes any and all forms of taxes, levies,
imposts, duties, charges and contributions
of whatever nature (including but not
limited to taxes on income, profits and
gains, customs duties, value added taxes,
excise duties, stamp duty, document tax and
social security contributions) and all
withholding or deductions in respect of each
or any of the foregoing of whatever nature,
imposed whatsoever by a public body together
with any (actual or contingent) refund,
reclaim or reimbursement claim relating to
any State, regional or local authority
subsidy granted or paid and whether directly
or primarily chargeable against recoverable
from or attributable to a company or any
other entity, unincorporated association or
person or persons and all fines, penalties,
charges and interest relating to any of the
foregoing or to any claim for any of the
foregoing but excluding any GRUNDSTEUER,
IMPOTS LOCAUX, and any equivalent tax under
the laws of any jurisdiction;
"Topco" a SOCIETE PAR ACTIONS SIMPLIFIEE to be
formed in accordance with the Topco
Shareholders Agreement;
<PAGE>
- 10 -
"Topco Shareholders Agreement" the Topco Shareholders Agreement in the
agreed form to be entered into between
Lagardere and Sogepa at ASM-Dasa Closing;
"undertaking" a body corporate or partnership or any
unincorporated association situated in any
jurisdiction carrying on a trade or business
with or without a view to profit,
(including, for the avoidance of doubt, but
not limited to, a societe en commandite par
actions, a groupement d'int eret economique
("GIE"), a GmbH & Co., KG and an oHG) (and,
in relation to an undertaking which is not a
company, expressions in this Agreement
appropriate to companies shall be construed
as references to the corresponding persons,
officers, documents or organs (as the case
may be) appropriate to undertakings of that
description);
"US GAAP" generally accepted accounting standards and
principles in the United States of America;
"Warranties" the representations and warranties given by
DCLRH, Lagardere, Sogepa and Sepi,
respectively, contained in Art. IX and
Schedules 11, 12, 13 and 14;
"Warrantor" has the meaning as defined in Art. X para.
10.1.
1.2 Article and paragraph headings in this Agreement and its Schedules are
included for convenience only and shall not affect the interpretation
of this Agreement.
1.3 The Preamble and Schedules to this Agreement shall form part of this
Agreement and shall have the same force and effect as if set out in the
body of this Agreement. Accordingly, references to this Agreement shall
include references to its Preamble and Schedules.
1.4 In this Agreement, unless the context otherwise requires:
(a) the singular shall include the plural and vice versa;
(b) references to persons shall include individuals, companies,
undertakings and governmental, supranational and state
agencies and regulatory bodies;
<PAGE>
- 11 -
(c) references to Preamble, Clauses, Schedules, Articles (or
"Art.") and Paragraphs (or "para.") and parts thereof are to
Preamble, Clauses, Schedules, Articles and Paragraphs of and
to this Agreement and parts thereof respectively.
1.5 Any reference in this Agreement to another document being in "the
agreed form" or "the agreed terms" is to such a document either:
(a) in a form agreed between the Principals and initialed for and
on behalf of the Principals for the purpose of identification;
or
(b) in such other form as may be agreed in writing by the
Principals in substitution therefor.
ARTICLE II
COMBINATION OF THE AEROSPATIALE MATRA BUSINESS, THE DASA BUSINESS AND THE CASA
BUSINESS; CASA CASH-OUT
2.1 IMPLEMENTATION OF BUSINESS COMBINATION AGREEMENT
Subject to the satisfaction of the conditions precedent set forth in
the Business Combination Agreement or waiver thereof in accordance with
the provisions of the Business Combination Agreement, DCLRH, Dasa,
Lagardere and Sogepa hereby undertake to Sepi to implement the
combination of the Dasa Business and the Aerospatiale Matra Business in
accordance with their respective obligations under the Business
Combination Agreement and to carry out all actions and measures
contemplated therein in accordance with their respective obligations
thereunder in accordance with its terms as amended hereby.
Nothing in this Agreement will prevent the Parties to the Business
Combination Agreement from implementing the Business Combination
Agreement in accordance with its terms.
<PAGE>
- 12 -
2.2 INTEGRATION OF CASA BUSINESS INTO EADS
Subject to the provisions of this Agreement, the Parties agree to
integrate the Casa Business into EADS together with the implementation
of the merger of the Aerospatiale Matra Business and the Dasa Business.
2.3 CASA CASH EXTRACTION AND DIVIDEND
Prior to the contribution of the Contributed Casa Shares to EADS
pursuant to Art. V para 5.2 below, Sepi will extract from Casa:
(a) an amount of [EURO]280,000,000 out of distributable reserves
and a reduction of the registered share capital of Casa, and
(b) the amount of the after-tax profit of Casa for the fiscal year
ending on December 31, 1999, however limited to a maximum
amount of [EURO]60,000,000, as a dividend.
2.4 To the extent that tax is borne by Casa, by reason of the cash
extraction and dividend referred to in sub-paragraphs (a) and (b) of
para. 2.3, the amount of that tax shall be included in calculating the
amount of cash extracted and of the dividend for the purpose of
determining whether the limits in these paragraphs have been respected.
2.5 Sepi acknowledges that the Parties to the Business Combination
Agreement will enter into good faith negotiations to combine the
electronic defense activities of EADS and Thomson CSF.
2.6 Sepi acknowledges having reviewed the Ballistic Missiles Letter.
ARTICLE III
CONDITIONS FOR THE CONSUMMATION OF THE CASA INTEGRATION; TERMINATION
3.1 CONDITIONS PRECEDENT
The Casa Closing pursuant to Art. V shall be conditional upon each of
the following conditions having first been satisfied or waived in
writing by all Parties hereto:
(a) implementation of the preliminary actions set forth in Clauses
2.1-2.5 of the Business Combination Agreement;
<PAGE>
- 13 -
(b) satisfaction of all the conditions precedent set forth in
Clause 3 of the Business Combination Agreement or waiver in
accordance with the provisions thereof;
(c) either or both of:
(i) the Commission of the European Communities (the
"European Commission") having issued a decision
pursuant to Article 6 (1) (b) or Article 8 (2) of
European Community Council Regulation 4064/89
("Regulation 4064/89") and, if such decision is given
subject to conditions or obligations, such conditions
or obligations being reasonably satisfactory to the
Principals; or the competent authorities of any EC
Member State concerned, pursuant to either Article 21
(3), or a decision of the European Commission under
Article 9 (1), of Regulation 4064/89, having granted
their consent, approval or clearance and, if such
decision is given subject to conditions or
obligations, such conditions or obligations being
reasonably satisfactory to the Principals; and/or;
(ii) an EC Member State having invoked Article 296 (1) of
the EC Treaty (as amended by the Treaty of Amsterdam)
and requesting the Principals not to notify the
merger under Regulation 4064/89 and, if such request
is given subject to conditions or obligations imposed
on the Principals, such conditions or obligations
being reasonably satisfactory to the Principals, and
no EC Member State having validly taken any
Regulatory Action (or action, proceeding or proposal
which if successfully pursued by the person
initiating the same would result in a Regulatory
Action);
(d) pursuant to the HSR Act, the Federal Trade Commission or the
Anti-trust Division of the Department of Justice of the United
States of America and, if applicable, Committee for Foreign
Investment in the United States of America, having given all
such consents or approvals as may be required or necessary in
form and substance reasonably satisfactory to the Principals;
(e) authorization of the transaction by the Spanish Council of
Ministers (CONSEJO DE MINISTROS) under article 12.5 of the Act
5/1996 of 10 January and other applicable or related
regulations;
(f) authorisation of the foreign investments in Casa by the
Spanish Council of Ministers (CONSEJO DE MINISTROS) under
article 11 of Royal Decree 664/1999 of 23 April and related
regulations;
<PAGE>
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(g) all such consents or approvals as may be necessary having been
obtained from the COMMISSION DES PARTICIPATIONS ET DES
TRANSFERTS of France for the matters contemplated in the
Business Combination Agreement having regard to the matters
contemplated in this Agreement;
(h) Lagardere and Aerospatiale Matra having obtained from the
French MINISTERE DE LA DEFENSE, pursuant to an application in
form and substance reasonably satisfactory to the Principals,
approval of the principle that there will be no limitation for
German and Spanish nationals working for EADS except in
respect of French regulations (of general application to
non-French nationals) applying generally for the protection of
military secrets;
(i) the parties hereto having obtained from the French MINISTERE
DE L'ECONOMIE ET DES FINANCES approval in form and substance
reasonably satisfactory to the Principals of the transactions
contemplated in the Merger Documents, pursuant to the French
Laws 86-793 dated 2 July 1986, 86-912 dated 6 August 1986 (as
amended by the law dated 9 July 1993), 89-465 dated 10 July
1989 and the ARRETE dated 24 December 1992;
(j) expiration of the periods set forth in Art. IV para. 4.3 (c)
of this Agreement and of Clause 4.8 (c) of the Business
Combination Agreement without any of the Parties hereto or
thereto having exercised its termination right, if any, within
such periods.
3.2 LAPSE OF THIS AGREEMENT
In the event that any of the conditions set forth above have not been
satisfied or waived in writing by the Parties by 12:00 midnight,
Netherlands time, on June 30, 2000 or such later date as the Parties
may agree in writing, this Agreement shall lapse and cease to have any
further force or effect except for the provisions of Art. XI and XII
which shall continue in full force and effect. In such case, any claims
for damages, save in respect of prior breaches of this Agreement, shall
be excluded.
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ARTICLE IV
DUE DILIGENCE REVIEW
4.1 REVIEW OF CERTAIN MATTERS RELATING TO AEROSPATIALE MATRA BUSINESS AND
CASA BUSINESS
The Parties have agreed on a schedule for a due diligence review as
attached hereto as Schedule 15. The Parties agree that neither Dasa nor
any other company of the DC Group assumes any responsibility or
liability whatsoever to Lagardere, Aerospatiale Matra, Sogepa or Sepi
in respect of the reports or presentations to be provided by Dasa
pursuant to Schedule 15 or the information contained therein or omitted
therefrom.
If either or both of Lagardere and Sepi wishes to carry out a review
process they shall proceed according to the timetable set out in
Schedule 15. The information regarding the Aerospatiale Matra Business
to be made available by Lagardere to Sepi and its advisors listed in
Schedule 16 and the information regarding the Casa Business to be made
available by Sepi to Lagardere and its advisors listed in Schedule 17
shall in each case be in accordance with lists of information to be
agreed between Lagardere and Sepi. If both Lagardere and Sepi wish to
carry out a review, the list of information shall be agreed on a
reciprocal basis. The information and material shall be provided in
such place as is specified by Lagardere or, as the case may be, by
Sepi.
Each of Sepi and Lagardere (and their respective advisors) shall review
the information made available to them pursuant to the above provisions
in an orderly and timely manner.
4.2 CONSULTATION ETC. WITH SOGEPA
Lagardere shall if Sogepa so wishes (in such case at joint cost) carry
out a review process as mentioned in Clause 4.1 above and periodically
report to and consult with Sogepa on the matters reviewed by it as part
of the process described in para. 4.1 to 4.3 (inclusive) and shall
report and consult on any facts giving rise to a potential claim under
Art. IX and X. Lagardere shall take no action under para. 4.3 without
the consent of Sogepa.
4.3 TERMINATION RIGHT OF LAGARDERE AND SEPI
Should either Lagardere, Sogepa or Sepi discover any matter during the
review process referred to in para. 4.1 above which may reasonably be
expected to have the effect of reducing the aggregate notional value of
the EADS Group, Y+X +S as defined in Art. V
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para. 5.2 sub-para 5.2.1 and 5.2.3 below, in case of matters discovered
by Lagardere or Sogepa by [EURO]250 million or more or in case of
matters discovered by Sepi by [EURO]2 billion or more, Lagardere or
Sepi, as the case may be, shall
(a) notify the other, Sogepa and DCLRH of their discovery, the
basis for it and the reason for its interpretation of it as
being materially and adversely different from the bases and
assumptions referred to above;
(b) attempt, through discussions with the other, Sogepa and DCLRH
and, where appropriate, respective advisors, to resolve the
differences; and
(c) at any time on or before 7 January 2000 be entitled (by notice
in writing served on the other, Sogepa and DCLRH) to terminate
this Agreement.
4.4 For the avoidance of doubt, it is hereby acknowledged and agreed that
either Lagardere or Sepi shall be entitled to carry out a review under
this Article and to exercise their termination right (if any) under
this Article regardless of whether or not the other carries out a
review under this Article.
4.5 TERMINATION RIGHTS OF DCLHR AND LAGARDERE
The Parties agree that the termination rights of DCLRH and Lagardere
set forth in Clause 4.8 of the Business Combination Agreement shall
continue to apply and the exercise of a termination right pursuant to
Clause 4.8 of the Business Combination Agreement by DCLRH or Lagardere,
as the case may be, shall also have the effect of terminating this
Agreement vis-a- vis all Parties hereto.
ARTICLE V
CASA CLOSING
5.1 CASA CLOSING
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The Casa Closing shall take place on the date of, and simultaneously
with, the ASM-Dasa Closing pursuant to Clause 5 of the Business
Combination Agreement subject to the satisfaction or waiver of the
conditions precedent set forth in Art. III above. If the conditions
precedent set forth in Article III above have not been satisfied or
waived by the date on which the conditions precedent to the ASM-Dasa
Closing are satisfied or waived (other than the condition precedent set
out in Clause 3.1 (i), (j) and (l) of the Business Combination
Agreement) then, subject to Art. III para. 3.2, the Casa Closing will
take place on the date immediately following the satisfaction or waiver
of the conditions precedent set forth in Article III above, unless, in
the reasonable opinion of DCLRH, Lagardere and Sogepa following
consultations with Sepi, the Casa Closing at such date would have a
material disruptive effect on the implementation of the offering
referred to in Clause 5.7 of the Business Combination Agreement, in
which case the Casa Closing shall take place as soon as reasonably
practicable after the listing of the new shares, in any event no later
than 90 days after the ASM-Dasa Closing.
The Casa Closing shall take place at the offices of Clifford Chance in
Amsterdam, Apollolaan 171, 1077 AS Amsterdam, Holland. At the Casa
Closing, the matters set forth in the following provisions (other than
para. 5.4) shall be effected.
5.2 TRANSFER OF CASA SHARES TO EADS; PARTICIPATIONS IN EADS
5.2.1 Transfer of Sepi's Shareholding in Casa
Without prejudice to Art. II para. 2.3, Sepi shall transfer by way of
contribution in kind the Contributed Casa Shares free of any
Encumbrance to EADS against issuance to Sepi of that number of EADS
Shares representing that proportion, U, of the total issued share
capital of EADS, ((Y + V - D) x (1+t)) + S, calculated as follows:
(a)
U = 99.3 x R
------------
100
(b) R = S
------------------------- x 100
((Y + V - D) x (1+t)) + S
where:
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R = Ratio for Contributed Casa Shares and Contributed Dasa-owned
Casa Shares after Contribution
S = [EURO]1,027,270,000 (notional value of Casa after the cash
extraction and dividend pursuant to Art. II para. 2.3)
Y = [EURO]9,649,000,000 (notional value of Aerospatiale Matra
after Permitted Dividend as defined in the Business
Combination Agreement)
V = [EURO]8,374,000,000 (notional value of Dasa after
Permitted Dividend as defined in the Business Combination
Agreement)
D = the amount extracted by DC or any member of the DC Group
(other than a member of the Dasa Group) pursuant to Clause 2.1
of the Business Combination Agreement (excluding the
[EURO]700 million referred to in Clause 2.1 of the Business
Combination Agreement and Schedule 10 thereto).
t = the number of shares in EADS issued and subscribed in the
offering referred to in Clause 5.7 of the Business Combination
Agreement divided by the number of shares of EADS prior to
such offering (assuming that the new shares are of the same
nominal amount as the shares outstanding prior to the
offering), provided that "t" shall equal zero (0) if the
contribution of the Contributed Casa Shares and the
contribution of the Contributed Dasa-owned Casa Shares
pursuant to para. 5.2.2 below takes place prior to the
offering referred to in Clause 5.7 of the Business Combination
Agreement.
as set out, by way of example, in Schedule 18.
The notional values set forth above are only for the purpose of
calculating the ratios of the participations, the effect of cash
extraction (D) on the ratios and the dilution of the Sepi shareholding
in case that the contribution of the Contributed Casa Shares and the
Contributed Dasa-owned Casa Shares takes place after the offering
referred to in Clause 5.7 of the Business Combination Agreement. In the
event that the contribution of the Contributed Casa Shares and the
Contributed Dasa-owned Casa Shares takes place after the offering, the
current market valuation of EADS shall not affect the agreed valuation.
5.2.2 Transfer of Dasa's Shareholding in Casa
Dasa shall transfer by way of contribution in kind the Contributed
Dasa-owned Casa Shares free of any Encumbrance to EADS against issuance
to Dasa of that number of
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EADS Shares representing that proportion, W, of the total issued share
capital of EADS, ((Y + V - D) x (1+t)) + S, calculated as follows:
W = R - U
5.2.3 Calculation of Dasa's and Aerospatiale Matra's Participation
If, as intended by the parties, the contribution of the Contributed
Casa Shares and the Contributed Dasa-owned Casa Shares pursuant to
para. 5.2.1 and 5.2.2 above occurs together with the contribution of
the Dasa New Shares and the Aerospatiale Matra Bis Shares pursuant to
Clauses 5.2 and 5.3 of the Business Combination Agreement, then, by way
of derogation to Clause 5.2.1 of the Business Combination Agreement,
the proportion, P, of the total issued share capital of EADS to be
issued to Dasa in exchange for the contribution of the shares in Dasa
New to EADS is calculated as follows:
P = X x 100
---------
X + Y + S
where:
X = V - D
Furthermore, by way of derogation to Clause 5.3.1, the proportion, Q,
of the total issued share capital of EADS to be issued to Aerospatiale
Matra shall be calculated as follows:
Q = 100 - P - R.
5.3 MANAGEMENT OF EADS SHARES IN HOLDINGS CP
By way of derogation to Clause 5.5 of the Business Combination
Agreement, Dasa shall, and Lagardere and Sogepa shall procure that
Topco shall transfer legal title to their shares in EADS representing
(after the contribution of Casa pursuant to para. 5.2.1 and 5.2.2
above and the issue referred to in Clause 5.7 of the Business
Combination Agreement) 30 % of the total issued share capital of EADS
for Topco (on the one hand) and for Dasa (on the other hand) to the
Managing Partner whilst retaining the economic ownership of such
shares in accordance with the terms of the Holdings CP Partnership
Agreement.
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Subject to para 5.4 below, Sepi shall transfer legal title to all of
its shares in EADS to the Managing Partner whilst retaining the
economic ownership of such shares in accordance with the terms of the
Holdings CP Partnership Agreement.
5.4 PARTICIPATION BY SEPI IN PUBLIC OFFERING
By way of derogation to Clause 5.7 of the Business Combination
Agreement, the issue of new shares in EADS shall be limited to such
proportion that each of the shareholdings in EADS held by the DC Group
and by Topco (after such issue and the contribution of the Contributed
Casa Shares and the Contributed Dasa-owned Casa Shares) is not reduced
to an amount lower than 30% of the issued share capital of EADS.
Sepi agrees that it shall not directly or indirectly participate by
subscribing for new shares in the issue of new EADS shares referred to
in Clause 5.7 of the Business Combination Agreement.
In the preparation of the primary and secondary offering of EADS
shares, Sepi will participate in the working teams and the decision
making process, the final decision always being with DCLRH, Lagardere
and Sogepa. It must be ensured that the shares in EADS held by Sepi
and Dasa directly or through the Managing Partner are registered for
trading at the relevant stock exchanges. Sepi may decide to reduce its
portion of shares in EADS to be managed by the Managing Partner
pursuant to para. 5.3 and, upon consultation with DCLRH, Lagardere and
Sogepa taking into account existing market conditions and subject to
their prior consent, participate to this extent in a secondary
offering of EADS shares.
5.5 MODIFIED PARTICIPATION AGREEMENT
DC, Sepi, Lagardere and Sogepa shall, and Lagardere and Sogepa shall
procure that Topco shall, enter into the Modified Participation
Agreement.
5.6 ACCESSION OF EADS TO THIS AGREEMENT
DCLRH, Lagardere and Sogepa shall procure, and Sepi accepts, that EADS
shall enter into this Agreement (including the undertakings pursuant
to Art. VI para. 6.2) by signing a deed of adherence.
<PAGE>
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ARTICLE VI
INDUSTRIAL PLAN; COVENANTS; REPORTS
6.1 INDUSTRIAL PLAN/BUSINESS PLAN
6.1.1 Industrial Plan
The Parties have elaborated an Industrial Plan for Casa which has been
initialled by the Parties, for purposes of identification ("Industrial
Plan"), a summary of which is attached hereto as Schedule 19.
6.1.2 Level of Resources
The level of resources (capital expenditure, R & D and headcount) for
Casa estimated at this stage as necessary by the Parties to achieve the
objectives of the Industrial Plan is attached as Schedule 20.
6.1.3 EADS Business Plan
The business plan for EADS will be adjusted and updated by the
management of EADS according to the course of business by taking into
account the integration of the Casa Business and the implementation of
the Industrial Plan.
6.2 UNDERTAKINGS OF EADS
The Parties acknowledge and agree that the following undertakings are
the undertakings to be given by EADS upon its accession to this
Agreement under Art. V para. 5.6.
6.2.1 Covenants regarding Industrial Plan
EADS hereby undertakes for a period of three years following the Casa
Closing Date (i) to ensure the implementation of the Industrial Plan
(as amended from time to time subject to the provisions of the Modified
Participation Agreement) without deviating from or changing the
Industrial Plan (as amended from time to time subject to the provisions
of the Modified Participation Agreement), (ii) not to dispose of the
shares in Casa held by it from time to time, (iii) not to wind-up the
affairs of Casa and (iv) not to dispose of substantial assets or
activities necessary for the implementation of the In-dustrial Plan (as
amended from time to time subject to the provisions of the Modified
Participation Agreement) without the prior consent of Sepi. DCLRH,
Lagardere and Sogepa shall exercise all rights
<PAGE>
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and powers which they are able to exercise in relation to EADS with a
view to ensuring the implementation of the Industrial Plan (as amended
from time to time subject to the provisions of the Modified
Participation Agreement). For the avoidance of doubt, nothing in this
para. 6.2.1 shall require DCLRH, Lagardere or Sogepa to make available
any financing or security.
6.2.2 Implementation Reports
EADS shall render to Sepi semi-annual reports ("Implementation
Reports") on the status of implementation of the Industrial Plan. The
reports shall be delivered to Sepi in writing within two months of the
end of the period which they cover. Each report will cover the period
from 1 January to 30 June or, as the case may be, 1 July to 31
December, except (i) the first report to be delivered shall cover the
period from Casa Closing to 31 December 2000 and (ii) the last report
to be delivered under this para. shall cover the period from the date
to which the previous report was prepared up to the third anniversary
of the Casa Closing. Any reasonable requests by Sepi for additional
information regarding the implementation of the Industrial Plan shall
be answered in writing by EADS without undue delay.
ARTICLE VII
COVENANTS AND INDEMNITIES
7.1 COVENANTS OF SEPI
Sepi shall use its best efforts to procure the following prior to the
Casa Closing Date:
(a) all land, real estate, concessions, buildings, facilities and
other assets owned by Casa or the Casa Companies shall have
been properly recorded in the respective Property and
Cadastral Registry and any other applicable Registries free
and clear of any pledges, mortgages, encumbrances and third
party rights;
(b) Casa and the Casa Companies shall have obtained the licenses,
permits, registrations and authorities listed in Schedule 21;
(c) The boundaries of the 388,305 m2 located in Getafe described
in Schedule 22 owned by the Ministry of Defence and presently
occupied by Casa under authorisation of the Ministry of
Defence (the "Getafe Site") shall have been
<PAGE>
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properly determined and the Getafe Site shall have properly
been recorded in the Property and Cadastral Registry.
(d) Casa shall have obtained from Aeropuertos Nacionales y
Navegacion Aerea (AENA) a comprehensive concession regarding
Casa's further use of the entire San Pablo site in Sevilla, as
described in Schedule 23 ("San Pablo Site") and comparable
conditions as the existing ones or AENA shall have confirmed
in writing that such a concession will be issued.
7.2 COVENANTS OF DCLRH AND DASA
DCLRH and Dasa shall use their best effort to procure (with the
co-operation of the other Principals to the extent required) that
within a reasonable time after the Casa Closing Date, Dasa New and DC
shall have entered into an agreement (i) giving Dasa New the beneficial
ownership of the intellectual property rights based on inventions made
by Dasa which have been registered since January 1, 1998 in the name of
DC on a non-exclusive basis or, at DC's discretion (ii) transferring to
Dasa New the legal ownership of such intellectual property rights
(including back and cross licenses) without consideration.
7.3 INDEMNITY
DCLRH shall indemnify Sepi and shall keep Sepi indemnified against
(save in respect of any consequential loss not foreseeable by DCLRH (or
any member of the DC Group)) all or any costs, claims, demands,
expenses, losses or liabilities as Sepi may suffer or incur from the
date hereof as a result of all or any of the shareholders of Dornier
GmbH other than a member of the Dasa Group (together the "Do Family")
obtaining or seeking to obtain any rights or remedies against Sepi,
Holdings CP, the Managing Partner, Dasa, Dasa New, EADS or any member
of the EADS Group or the Dasa Group. The indemnity contained in this
para. 7.3 shall also extend to EADS to the extent such protection is
not provided for in the transfer of Dasa New to EADS.
7.4 Lagardere shall indemnify Sepi and shall keep it indemnified against
(save in respect of any consequential loss not foreseeable by Lagardere
(or any member of the Lagardere Group)) all or any costs, claims,
demands, expenses, losses or liabilities that it may suffer or incur
from the date hereof as a result of Dassault Industrie obtaining or
seeking to obtain any rights or remedies under an agreement dated 10
November 1998 against EADS (or any member of the EADS Group) or the
Aerospatiale Matra Group in relation to the shares of Dassault Aviation
owned by
<PAGE>
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Aerospatiale Matra (and only to the extent that the said 10 November
1998 agreement is not terminated in accordance with its terms).
7.5 Lagardere shall indemnify Sepi and shall keep it indemnified
against (save in respect of any consequential loss not foreseen by
Lagardere (or any member of the Lagardere Group) all or any costs,
claims, demands, expenses, losses or liabilities that it may suffer or
incur from the date hereof as a result of (i) British Aerospace Public
Limited Company or any of its Subsidiaries (ii) Northern Telecom
Limited or any of its Subsidiaries or (iii) Diehl exercising or seeking
to exercise any rights or remedies against EADS (or any member of its
Group) or the Aerospatiale Matra Group in relation to, respectively,
(i) Matra BAe Dynamics S.A.S. (ii) Matra Nortel Communications S.A.S.
or (iii) BBV and/or BGT by reason of the transactions contemplated by
the Merger Documents.
ARTICLE VIII
REGULATORY MATTERS
As soon as reasonably practicable after the signing of this Agreement,
DCLRH, Lagardere and Sepi shall make a notification in form and
substance reasonably satisfactory to each of DCLRH, Lagardere and Sepi
to the European Commission in respect of the transactions and
arrangements contemplated by this Agreement pursuant to Regulation
4064/89. The Parties will use their best efforts to procure that at the
earliest time possible the notification procedures under the Business
Combination Agreement and under this Agreement are pursued together for
all practical purposes in order to promote a quick and efficient
process.
DCLRH, Lagardere and Sepi shall co-operate with one another to ensure
that all information necessary or desirable for the making of (or
responding to any requests for further information consequent upon) any
necessary or desirable notifications or filings in respect of, or of
the transactions and arrangements contemplated by, the Business
Combination Agreement and this Agreement is supplied to the Party
dealing with such notifications and filings and that they are properly,
accurately and promptly made.
If any Regulatory Action is taken or threatened, DCLRH, Lagardere and
Sepi shall promptly meet to discuss the situation and the action to be
taken as a result, and (if such be the case) whether any modification
to the terms of the transactions and arrangements contemplated by the
Business Combination Agreement or this Agreement shall be made, in
order that any requirements (whether as a condition of giving any
approval, exemption, clearance, or consent or otherwise) of the
European Commission or other regulatory authority may be reconciled
with, and within the scope of, the transactions and arrangements
contemplated by the Business Combination Agreement or this Agreement.
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DCLRH, Lagardere and Sepi shall thereafter co-operate in giving effect
to any modifications of this Agreement agreed upon.
It is understood that the Parties to the Business Combination Agreement
are free to agree on any modifications to the Business Combination
Agreement and the transactions contemplated therein for the purpose of
reconciliation with any requirements of the European Commission or
other regulatory authorities. If any modifications agreed between the
Parties to the Business Combination Agreement would have a material
impact on the transactions contemplated in this Agreement, the Parties
hereto will enter into good faith negotiations on the necessary
modifications to the terms hereof with a view to maintaining their
interests in respect of the transactions contemplated herein. If the
Parties cannot agree on such modifications within a period of two
months or such shorter period as may be specified by the relevant
authority, Sepi shall have the right to terminate this Agreement.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
9.1 REPRESENTATIONS AND WARRANTIES OF DCLRH
DCLRH hereby gives the Dasa Warranties to Sepi as of the Signing Date
or as of such other date as stated therein.
9.2 REPRESENTATIONS AND WARRANTIES OF LAGARDERE
Lagardere hereby gives the Lagardere Warranties to Sepi as of the
Signing Date or as of such other date as stated therein.
9.3 REPRESENTATIONS AND WARRANTIES OF SOGEPA
Sogepa hereby gives the Sogepa Warranties to Sepi as of the Signing
Date or as of such other date as dated therein.
9.4 REPRESENTATIONS AND WARRANTIES OF SEPI
Sepi hereby gives the Sepi Warranties to DCLRH, Lagardere and Sogepa as
of the Signing Date or as of such other date as stated therein.
<PAGE>
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ARTICLE X
BREACH OF WARRANTIES
10.1 REMEDY
In case of a breach of any of the Warranties, the entity giving such
Warranty (for these purposes, for the avoidance of doubt, any
Warranties given by Lagardere and Sogepa pursuant to Art. IX para. 9.2
and 9.3 shall be deemed to be given severally) (the "Warrantor") may
attempt to remedy such breach within a reasonable period of time not
to exceed thirty (30) Business Days after receipt of a written default
notice by the defaulting Party.
10.2 DAMAGES
If a breach of a Warranty is not remedied by the Warrantor within the
period set forth above, the respective Party (or Parties) to which
such Warranty is given (the "Claimant(s)") may require the Warrantor
to pay damages to the Claimant provided that any liability for a
breach of the Warranties shall not be grossed-up to include any tax
payable thereon by the Claimant.
Save as otherwise provided herein, the Parties waive all or any rights
they may have to rescission or restitution.
10.3 LIMITATIONS
A claim against a Warrantor (except in case of breaches of Clause 13
of the Dasa Warranties (Schedule 11), Clause 14 of the Lagardere
Warranties (Schedule12) and Clauses 7 and 14 of the Sepi Warranties
(Schedule 13)) can only be asserted if and to the extent (i) the
amount of each individual claim is in excess of 250,000 and (ii) the
aggregate amount of all claims in excess of 250,000 is in excess of 2
million. The aggregate amount of all claims against a Warrantor is
limited to a maximum amount of 800,000,000, provided that any
liability for breach of Clause 13 of the Dasa Warranties, Clause 14 of
the Lagardere Warranties and Clause 7 or 14 of the Sepi Warranties
shall not be subject to, or set off against, any limitation of
liability.
10.4 TIME RESTRICTIONS
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A Warrantor shall not be liable to a Claimant for any claim under this
Art. X (a "Claim") unless it receives from the Claimant written notice
containing details of the Claim including the Claimant's estimate of
the amount of the Claim:
(a) on or before the date of approval by the board of EADS of
the financial statements for EADS relating to the first
complete accounting period falling after the Casa Closing,
in the case of a Claim for breach of any of the Warranties
other than a Claim covered by para. (ii) below;
(b) in respect of any Claim relating to taxation or social
security contributions, on or before the expiry of thirty
(30) days after the expiry of the legal prescription period
applicable to the subject matter of the Claim.
Any Claim shall (if not previously satisfied, settled or withdrawn) be
deemed to have been withdrawn (and no new Claim may be made in respect
of the matter giving rise to such withdrawn Claim) unless legal
proceedings in respect of it have been commenced within six (6) months
of notification to the Warrantor pursuant to the foregoing provisions.
10.5 DISCLOSURE OF FACTS
The Warrantor shall not be liable for any Claim:
(a) if and to the extent that the fact, matter, event or
circumstance giving rise to such Claim was fairly and
reasonably disclosed by the Warrantor to the Claimant prior
to the signature of this Agreement; or
(b) if and to the extent that the matter is specifically
disclosed or is specifically provided or reserved for in the
relevant Aerospatiale Matra Warranted Accounts or, as
appropriate, the Dasa Warranted Accounts or, as appropriate,
the Casa Warranted Accounts.
10.6 REDUCTION OF CLAIMS
In calculating the liability of the Warrantor in respect of any Claim
such Claim shall be reduced by:
(a) the aggregate of:
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(i) any amount by which any asset shall have been
under-stated; and
(ii) any amount by which any liability shall have been
overstated;
in the Aerospatiale Matra Warranted Accounts or, as
appropriate, the Dasa Warranted Accounts or, as appropriate,
the Casa Warranted Accounts, less the aggregate of:
(iii) any amount by which any other liabilities shall
have been under-stated therein; and
(iv) any amount by which any assets shall have been
overstated therein;
(b) the amount by which any provision or reserve (including any
provision or reserve taken into account in calculating the
net value of an asset) in the Aerospatiale Matra Warranted
Accounts or, as appropriate, the Dasa Warranted Accounts or,
as appropriate, the Casa Warranted Accounts, has been
established to have been unnecessary or excessive;
(c) any amount recovered in respect of any debt written off in
the Aerospatiale Matra Warranted Accounts or, as
appropriate, the Dasa Warranted Accounts or, as appropriate,
the Casa Warranted Accounts; and
(d) the extent that any liability is discharged or satisfied
below the amount attributed in the Aerospatiale Matra
Warranted Accounts or, as appropriate the Dasa Warranted
Accounts or, as appropriate, the Casa Warranted Accounts;
provided that no amount shall be taken into account more than once
pursuant to this para. 10.6.
10.7 TAX EFFECTS
No liability shall attach to the Warrantor in respect of any Claim to
the extent that any taxation liability for which any company or entity
contributed by that Warrantor, directly or indirectly, to EADS, is
reduced or extinguished as a result of the loss subject to the Claim.
The Warrantor shall have no liability in respect of any Claim in
respect of any tax audit which merely modifies the tax period during
which a deductible charge or amortisation may be taken, or in which
income or gain may be realised (except that either such
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modification results in any relief (otherwise useable within the same
tax period) being lost or to the extent of penalties, interest and
cost of funds).
10.8 CHANGED LEGISLATION
The Warrantor shall not be liable in respect of any Claim to the
extent that such Claim is attributable to, or is increased as a result
of, any legislation not in force at the date hereof or to any change
in law or administrative practice which takes effect retrospectively
or occurs as a result of any change in the basis or method of
calculation of, or any increase in the rates of, taxation in force at
the date hereof.
10.9 RECOVERY FROM THIRD PARTIES
Where the Claimant is entitled to recover from a third party any sum
which is the subject of an actual or potential Claim, the Claimant
shall promptly notify the Warrantor and, if so required by the
Warrantor, the Claimant shall, before seeking to recover any amount
from the Warrantor under this Agreement, first take all steps as the
Warrantor may reasonably require to enforce such recovery and
thereafter any Claim shall be limited (in addition to the limitations
on the liability of the Warrantor referred to in para. 10.3) to the
amount by which the loss or damage (including the costs of recovery)
shall exceed the amount so recovered.
If the Warrantor pays to the Claimant an amount in discharge of a
Claim and the Claimant subsequently recovers from a third party a sum
which is referable to the Claim (including without limitation by way
of insurance), the Claimant shall forthwith repay to the Warrantor:
(a) an amount equal to the sum recovered less any reasonable
out-of-pocket costs and expenses incurred in recovering the
same; or
(b) if the figure resulting under para. (a) above is greater
than the amount paid by the Warrantor in respect of the
relevant Claim, such lesser amount as shall have been so
paid by the Warrantor.
10.10 RIGHT TO SUBSTITUTE TOPCO
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In relation to Warranties given by Lagardere in Clauses 8 to 13 of the
Lagardere Warranties and Sogepa in Clauses 6 to 11 of the Sogepa
Warranties and those given by Sepi to Lagardere and Sogepa in Clauses
1 to 14 of the Sepi Warranties Lagardere and Sogepa may substitute
Topco as the giver or, as appropriate, recipient of such Warranties in
place of and to the exclusion of themselves, including in relation to
accrued or then current claims or liabilities.
ARTICLE XI
CONFIDENTIALITY
11.1 CONFIDENTIALITY OBLIGATIONS
Each of the Parties undertakes to each of the others that it shall
keep confidential and not (without the prior written consent of the
others) disclose to any person or use or exploit commercially for its
own purposes the existence and terms of this Agreement. In performing
its obligations under this Art. XI, each of the Parties shall apply
such standards of confidentiality as it applies generally in relation
to its own confidential information.
11.2 RESPONSIBILITY FOR GROUP MEMBERS
Each of the Parties further undertakes to procure that members of its
Group observe the provisions of this Art. XI as fully as if they were
Parties hereto in lieu of that Party and to use all reasonable
endeavours to ensure that its employees and agents observe such
confidentiality.
11.3 EXCEPTIONS
Para. 11.1 and 11.2 shall not apply to:
(a) the disclosure of information to a company which is another
member of the Group of the respective Party (as the case may
be) where such disclosure is for a purpose reasonably
incidental to this Agreement; or
(b) information acquired from a third party with the right to
divulge the same; or
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(c) information required to be disclosed by operation of law or
any stock exchange regulations or any binding judgement or
order or by any requirement of any competent authority; or
(d) disclosure in confidence to a Party's professional advisers
of information reasonably required to be disclosed for use
in connection with transactions and matters contemplated
hereby or related hereto; or
(e) information which is or becomes within the public domain
(otherwise than through the default of the recipients of
that information); or
(f) information to the extent that the disclosure of such
information is required for the satisfaction of the
conditions precedent set forth in Art. III para. 3.1; or
(g) information necessary to monitor the implementation of the
Industrial Plan and which is disclosed to the Spanish
government until the third anniversary of the Casa Closing
Date.
11.4 ANNOUNCEMENTS AND PRESS RELEASES
Subject to para. 11.5, no announcement or press release in connection
with the signature or subject of this Agreement shall be made or
issued by or on behalf of any Party or any of its Subsidiaries without
the prior written approval of the other Parties (such approval not to
be unreasonably withheld or delayed).
11.5 MANDATORY ANNOUNCEMENTS
If a Party has an obligation to make or issue any announcement
required by law or by any stock exchange or by any governmental
authority in connection with this Agreement, that Party shall give the
other Parties every reasonable opportunity to comment on any such
announcement or release before it is made or issued and the approval
of the other Parties shall be required to any specific references
therein to themselves, their business or to Holdings CP (provided
always that this shall not have the effect of preventing the Party
making the announcement or release from complying with its legal and
stock exchange obligations.)
<PAGE>
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ARTICLE XII
MISCELLANEOUS
12.1 TERMINATION OF THIS AGREEMENT
In the event any of the Parties hereto exercises its right to
terminate this Agreement in accordance with the provisions of this
Agreement, this Agreement shall lapse and cease to have further force
or effect except for the provisions of Art. XI and XII which shall
continue in full force and effect and any claims for damages, save in
respect of prior breaches of this Agreement, shall be excluded.
12.2 COSTS
Each of the Parties shall bear its costs incurred in connection with
the preparation, the execution and the consummation of this Agreement.
For the avoidance of doubt, each of the Parties shall bear any capital
duty on their respective contributions into EADS. Jointly caused costs
will be borne by the Parties as agreed or, insofar as such costs are
not covered by agreement, in proportion to their (indirect)
shareholding in EADS.
12.3 IMPLEMENTATION
Each of the Parties shall (at its own expense) execute, or procure the
execution of, all such other documents and do, or procure the doing
of, all such other acts and things as may be reasonably required on
its part or any member of its respective Group for the purpose of
implementing and giving full effect to this Agreement.
12.4 SEVERABILITY
If any of the provisions of this Agreement is invalid or
unenforceable, the remaining provisions of this Agreement shall remain
unaffected. The invalid or unenforceable provision shall be replaced
by a valid or enforceable provision, which comes as close as possible
to the economic purpose of the invalid or unenforceable provision.
<PAGE>
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12.5 NOTICES AND DECLARATIONS
12.5.1 All declarations and notices under this Agreement shall be made in
writing to:
If DCLRH and/or Dasa:
Address: Postfach 801109, 81663 Muenchen, Germany
Fax: +49 89 607 34306
Addressed for the personal attention of: The Chairman of the Board
If to Lagardere:
Address: 4 rue de Presbourg, 75116 Paris, France
Fax: +33 1 40 69 20 01
Addressed for the personal attention of: The Secretaire General
If to Sogepa:
Address: 56 rue de Lille, 75007 Paris, France
Fax: +33 1 53 18 95 66
Addressed for the personal attention of: The Secretaire General
If to Sepi and/or Casa:
Address: 8 Plaza del Marques de Salamanca, 28006 Madrid, Spain
Fax: +34 91 396 14 28
Addressed for the personal attention of: The Secretary of the Board
If to EADS:
Address:
Fax:
Addressed for the personal attention of:
12.5.2 A Party may change the address, fax number or the name of the person
for whose attention notices are to be addressed by serving a notice on
the other Parties hereto in accordance with this para. 12.5.
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12.5.3 All notices given in accordance with this para 12.5 are effective as
follows:
(a) if delivered by hand, at the time of delivery; and
(b) if communicated by facsimile, at the time of transmission
recorded on a transmission report showing transmission of
all parts of the notice,
Provided that where delivery by hand or transmission by facsimile
occurs after 6 p.m. on a Business Day or on a day which is not a
Business Day, the notice shall be effective as from 9 a.m. on the next
following Business Day. References to time in this Clause 12.5.3 are
to local time in the country of the addressee.
12.5.4 In proving such service it shall be sufficient to prove that the
envelope containing such notice was properly addressed and delivered
either to the address shown thereon (or, in the case of confirmation
of a notice sent by facsimile, into the custody of the postal
authorities as pre-paid letter), or that the facsimile transmission
was made after obtaining in person or by telephone appropriate
evidence of the capacity of the addressee to receive the same, as the
case may be.
12.5.5 All notices or communications under or in connection with this
Agreement shall be in the English language or, if in any other
language, accompanied by a translation into English. In the event of
any conflict between the English text and the text in any other
language the English text shall prevail.
12.6 LANGUAGE
There are Spanish and English versions of this Agreement and its
Schedules. The Spanish version as well as the English version are
executed by the Parties. Since the negotiations have been conducted in
English, in case of a conflict, the English version shall prevail.
12.7 APPLICABLE LAW
This Agreement shall be governed by and be construed in accordance
with the laws of the Netherlands.
12.8 ARBITRATION
12.8.1 If there shall be any dispute, controversy or claim ("Dispute")
between any of the Parties arising out of or in connection with this
Agreement, including the breach, lapse, termination, or invalidity of
this Agreement, the relevant Parties shall use their best
<PAGE>
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endeavours to resolve the matter on an amicable basis. If one Party
serves written notice on another Party or Parties that a Dispute has
arisen and such Parties are unable to resolve such Dispute within a
period of thirty (30) days from the service of such notice, then the
matter shall be referred to a panel consisting of the Chief Executives
(or equivalent) for the time being of each of Topco, DC and Sepi as
relevant (the "Panel"). No recourse to arbitration under this
Agreement shall take place unless and until such procedure has been
followed.
12.8.2 If the Panel shall have been unable to resolve the Dispute within a
period of fourty-five (45) days following its reference to it, it
shall be referred by any of the Parties in dispute (for purposes of
this Clause 12.8, the "Claimant(s)") to and finally resolved by
arbitration pursuant to the Rules of Arbitrations of the International
Chamber of Commerce ("I.C.C.") then in force and in accordance with
the following provisions of this Clause 12.8.
12.8.3 Each of the Claimant and the Respondent shall nominate one arbitrator
each. If there is more than one Claimant and/or more than one
Respondent, then the Claimant Parties and/or the Respondent Parties
shall jointly nominate an arbitrator. If they cannot agree, such
arbitrator(s) shall be selected by the I.C.C.
12.8.4 The two arbitrators thus nominated shall within thirty (30) days
nominate an additional arbitrator who shall not be a national of
France, Germany or Spain. If they cannot agree, then the Chairman
shall be selected by the I.C.C.
12.8.5 The seat of arbitration shall be the Hague, the Netherlands. The
arbitration shall be conducted in the English language.
12.8.6 In arriving at their award, the arbitrators shall apply the terms and
conditions of this Agreement. The award of the arbitrators shall be
final and binding on the Parties to the Dispute. Neither the
Claimant(s) nor the Respondent(s) shall seek recourse to a court of
law or other authorities to appeal against the award of the
arbitrators on matters of fact or law. Reasonable costs of the
arbitration shall be awarded to the successful Party(ies) as the
arbitrators shall determine.
12.8.7 If any Dispute raises issues which are substantially the same as or
connected with issues raised in a Dispute which has already been
referred to arbitration under this Agreement or the Business
Combination Agreement or the Modified Participation Agreement or the
Participation Agreement (an "Existing Dispute"), or arises out of
substantially the same facts as are the subject of an Existing Dispute
(a "Related Dispute"), the Tribunal
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appointed or to be appointed in respect of any such Existing Dispute
shall also be appointed in respect of any Related Dispute.
12.8.8 The Tribunal, upon the request of a Party to a Dispute or a Party to
this Agreement which itself wishes to be joined in any reference to
arbitration proceedings in relation to a Dispute, may join any Party
to this Agreement to any reference to arbitration proceedings in
relation to that Dispute and may make a single, final award
determining all Disputes between them. Each of the Parties to this
Agreement hereby consents to be joined to any reference to arbitration
proceedings in relation to any Dispute at the request of a Party to
that Dispute.
12.8.9 Where, pursuant to the above provisions, the same Tribunal has been
appointed in relation to two or more Disputes, the Tribunal may, with
the agreement of all Parties concerned or upon the application of one
of the Parties, being a Party to each of the Disputes, order that the
whole or part of the matter at issue shall be heard together upon such
terms or conditions as the Tribunal thinks fit. The Tribunal shall
have power to make such directions and any interim or partial award as
it considers just and desirable.
12.8.10 Nothing in these dispute resolution provisions shall be construed as
preventing either Party from seeking conservatory or injunctive relief
(summary proceedings) in any court of competent jurisdiction.
12.8.11 If there is any conflict between the Rules of Arbitration of the
I.C.C. and this Clause 12.8, this Clause 12.8 shall govern.
12.9 GENERAL PROVISIONS
12.9.1 None of the Parties shall, except with the prior written consent of
the others assign or transfer or purport to assign or transfer any of
its rights or obligations under this Agreement.
12.9.2 This Agreement may not be varied except by an agreement in writing
executed by each of the Parties.
12.9.3 No waiver by a Party of a failure or failures by another Party to
perform any provision of this Agreement shall operate or be construed
as a waiver in respect of any other or further failure whether of a
like or different character.
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12.9.4 It is agreed that no Party has entered into this Agreement in reliance
upon any representation, warranty or undertaking or any other Party
which is not expressly set out or referred to in this Agreement;
12.9.5 Sepi shall not , and shall procure that Casa shall not, without the
prior written consent of Sogepa and Lagardere, sell, transfer, dispose
or grant an option, right or interest over or purchase, acquire or
take an option, right or interest over or otherwise deal, in any way
whatsoever, in any shares or debentures or any interest in any share
(including, without limitation, depository receipt) or debenture in
the capital of Aerospatiale Matra, or purport to do any of the
foregoing or procure, encourage or incite any person to do any of the
foregoing.
12.10 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement and understanding of
the Parties and supersedes all prior oral or written agreements,
understandings or arrangements between them or any of them relating to
the subject matter of this Agreement, unless this Agreement contains
an express reference to other documents or agreements.
The Parties agree that this Agreement shall be notarized without delay
after its execution.
<PAGE>
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SIGNED BY )
duly authorised, for and on behalf of )
DAIMLERCHRYSLER LUFT- )
UND RAUMFAHRT HOLDING AG )
SIGNED BY )
duly authorised, for and on behalf of )
DAIMLERCHRYSLER )
AEROSPACE AG )
SIGNED BY )
duly authorised, for and on behalf of )
LAGARDERE SCA )
SIGNED BY )
duly authorised, for and on behalf of )
SOCIETE DE GESTION DE )
PARTICIPATIONS AERONAUTIQUES )
- - SOGEPA )
SIGNED BY )
duly authorised, for and on behalf of )
AEROSPATIALE MATRA S.A. )
SIGNED BY )
duly authorised, for and on behalf of )
SOCIEDAD ESTATAL DE )
PARTICIPACIONES INDUSTRIALES )
<PAGE>
EXHIBIT 10.1
INDEPENDENT AUDITORS' REPORT ON SCHEDULE AND CONSENT
The Board of Directors and Stockholders DaimlerChrysler AG:
The audits of DaimlerChrysler AG and subsidiaries ("DaimlerChrysler") referred
to in our qualified report dated February 14, 2000, included the related
financial statement schedule for each of the years in the three-year period
ended December 31, 1999, as contained in the DaimlerChrysler Annual Report on
Form 20-F for the year ended December 31, 1999. The financial statement schedule
is the responsibility of DaimlerChrysler's management. Our responsibility is to
express an opinion on the financial statement schedule based on our audits. In
our opinion, based on our audits and the report of other auditors, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Our auditors' report referred to above contains a qualification as a result of a
departure from United States generally accepted accounting principles for
DaimlerChrysler's accounting for a material joint venture in 1998 and 1997 in
accordance with the proportionate method of consolidation. In our opinion,
United States generally accepted accounting principles required that such joint
venture be accounted for using the equity method of accounting.
We consent to incorporation by reference in the registration statement on Form
F-3 (No. 333-11306) of DaimlerChrysler North America Holding Corporation, the
registration statements on Form S-8 (Nos. 333-5074, 333-7082 and 333-8998) of
DaimlerChrysler AG, and the registration statements on Form S-3 (Nos. 33-71169
and 333-92583) of Chrysler Financial Company L.L.C. of our report dated February
14, 2000, relating to the consolidated balance sheets of DaimlerChrysler as of
December 31, 1999 and 1998, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1999, and related financial statement
schedule. Such consolidated financial statements were prepared in accordance
with United States generally accepted accounting principles except for the use
of the proportionate method of consolidation in 1998 and 1997 with respect to a
material joint venture, as discussed above. Our report with respect thereto
appears in the DaimlerChrysler Annual Report on Form 20-F for the year ended
December 31, 1999, and was based in part on the report of other auditors.
KPMG Deutsche Treuhand-Gesellschaft AG
Stuttgart
February 25, 2000
<PAGE>
EXHIBIT 10.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our report dated February 2,
2000 (relating to the consolidated financial statements of DaimlerChrysler
Corporation not presented separately herein), included as Exhibit 10.3 of the
Annual Report on Form 20-F of DaimlerChrysler AG for the year ended December 31,
1999, in the following Registration Statements:
REGISTRATION
FORM STATEMENT NO. ISSUER
F-3 333-11306 DaimlerChrysler North America
Holding Corporation
S-8 333-5074 DaimlerChrysler AG
S-8 333-7082 DaimlerChrysler AG
S-8 333-8998 DaimlerChrysler AG
S-3 33-71169 Chrysler Financial Company L.L.C.
S-3 333-92583 Chrysler Financial Company L.L.C.
Deloitte & Touche LLP
Detroit, Michigan
February 23, 2000
<PAGE>
EXHIBIT 10.3
[ON DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors
DaimlerChrysler Corporation
Auburn Hills, Michigan
We have audited the accompanying consolidated balance sheet of DaimlerChrysler
Corporation and consolidated subsidiaries ("the Company") as of December 31,
1999 and 1998, and the related consolidated statements of income and cash flows
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Chrysler Financial
Company L.L.C. (a consolidated subsidiary) for the year ended December 31, 1999,
which statements reflect total assets and total revenues constituting 39% and
5%, respectively, of the related consolidated totals for that year. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Chrysler
Financial Company L.L.C. for the year ended December 31, 1999, is based solely
on the report of such other auditors.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of DaimlerChrysler Corporation and its consolidated
subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
February 2, 2000
