<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-9
(RULE 14D-101)
SOLICITATION/RECOMMENDATION STATEMENT UNDER
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
------------------
DETROIT DIESEL CORPORATION
(Name of Subject Company)
------------------------
DETROIT DIESEL CORPORATION
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class of Securities)
250837101
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
JOHN F. FARMER, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
DETROIT DIESEL CORPORATION
13400 OUTER DRIVE, WEST
DETROIT, MICHIGAN 48239-4001
TELEPHONE: (313) 592-5000
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Person Filing Statement)
/ / Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
ITEM 1. SUBJECT COMPANY INFORMATION.
NAME AND ADDRESS.
The name of the subject company is Detroit Diesel Corporation, a Delaware
corporation ("Detroit Diesel"). The address of the principal executive offices
of Detroit Diesel is 13400 Outer Drive, West, Detroit, Michigan 48239-4001, and
its telephone number is (313) 592-5000.
SECURITIES.
The class of equity securities to which this Solicitation/Recommendation
Statement (this "Statement") relates is the shares of Common Stock, par value
$0.01 per share, of Detroit Diesel (the "Shares"). As of July 20, 2000,
23,120,291 Shares were issued and outstanding. An additional 1,203,375 Shares
are subject to outstanding options and 102,560 Shares have been granted as
deferred stock awards as of such date.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.
NAME AND ADDRESS.
The name, business address and business telephone number of Detroit Diesel,
which is the subject company and the person filing this Statement, are set forth
in Item 1 above.
TENDER OFFER.
This Statement relates to the tender offer by Diesel Project
Development, Inc., a Delaware corporation ("Purchaser") and a wholly owned
subsidiary of DaimlerChrysler North America Holding Corporation, a Delaware
corporation ("DCNA") and a wholly owned subsidiary of DaimlerChrysler AG, a
German Aktiengesellschaft ("DaimlerChrysler AG"), to purchase all outstanding
Shares at a purchase price of $23.00 per Share, net to the seller in cash (less
any required withholding taxes), without interest thereon, on the terms and
subject to the conditions set forth in the Offer to Purchase, dated July 31,
2000 (the "Offer to Purchase"), and in the related Letter of Transmittal (the
"Letter of Transmittal," which, together with the Offer to Purchase, as they may
be amended or supplemented from time to time, constitute the "Offer"), copies of
which are filed as Exhibits (a)(1) and (a)(2) herewith, respectively, and are
incorporated herein by reference in their entirety. DDC Holdings, Inc., a
subsidiary of Penske Corporation ("Penske") and a 48.6% shareholder of Detroit
Diesel, has agreed to sell its shares to the Purchaser and to tender them
pursuant to the Offer. The Offer is described in a Tender Offer Statement on
Schedule TO dated July 31, 2000 (the "Schedule TO"), which was filed with the
Securities and Exchange Commission on July 31, 2000.
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of July 20, 2000 (the "Merger Agreement"), among DCNA, the Purchaser and
Detroit Diesel. Following the consummation of the Offer and the satisfaction or
waiver of certain conditions described in the Offer to Purchase, the Purchaser
will merge with and into Detroit Diesel (the "Merger"). Detroit Diesel will
continue as the surviving corporation. In the Merger, each outstanding Share
(other than Shares owned by Detroit Diesel, DCNA or the Purchaser or any of
their respective subsidiaries or held by stockholders who perfect and do not
withdraw or otherwise lose their appraisal rights under Delaware law) will be
converted into the right to receive the merger consideration, which will be
$23.00 per Share, net to the seller in cash (less any required withholding
taxes), or any higher price paid per Share in the Offer (the "Offer Price"). A
copy of the Merger Agreement is filed as Exhibit (e)(1) hereto and is
incorporated herein by reference in its entirety.
The Schedule TO states that the principal executive offices of DCNA and the
Purchaser are located at 1000 Chrysler Drive, Auburn Hills, Michigan 48326-2766,
and the telephone number of each is (248) 512-6130.
1
<PAGE>
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
CONFLICTS OF INTEREST.
AGREEMENTS WITH EXECUTIVE OFFICERS. Certain contracts, agreements,
arrangements and understandings between Detroit Diesel and its executive
officers, directors and affiliates are described in Detroit Diesel's Annual
Meeting Proxy Statement dated March 24, 2000. Annexes B and C of Detroit
Diesel's Proxy Statement are filed herewith as Exhibit (e)(2)(i) and are
incorporated herein by reference. The information incorporated by reference is
considered to be a part of this Statement, except for any information that is
superseded by information included directly in this Statement.
EXISTING AGREEMENTS WITH DCNA. Certain contracts, agreements, arrangements
and understandings between Detroit Diesel and its affiliates and DCNA and its
affiliates are described on page 9 of Detroit Diesel's Proxy Statement under the
caption "Certain Stockholders" and are filed herewith as
Exhibit (e)(2)(ii) and are incorporated by reference. The information
incorporated by reference is considered to be a part of this Statement, except
for any information that is superseded by information included directly in this
Statement. In addition, the information set forth in Section 8 of the Offer to
Purchase under the caption "Certain Information Concerning DCNA and the
Purchaser" is incorporated herein by reference.
PROPOSED EMPLOYMENT AGREEMENTS. On July 19, 2000, the Board of Directors
authorized Detroit Diesel to enter into employment agreements with eleven of its
executive officers, which, in consultation with DaimlerChrysler AG, Detroit
Diesel has committed to execute promptly upon finalization of the agreement for
each such executive officer. Generally, each employment agreement will provide
for employment of the officer at his current salary and bonus level, subject to
increase, for a period of two years. Each agreement may be terminated by Detroit
Diesel with or without cause, as more specifically described in the employment
agreement. If Detroit Diesel terminates an officer's employment agreement
without cause, the officer will be entitled to receive his base salary and
bonus, as in effect on the date of termination, together with benefits under
Detroit Diesel's benefits plans, for a period expiring on the second anniversary
of the date of the applicable employment agreement.
AGREEMENTS BETWEEN PENSKE AND DCNA. DDC Holdings, Inc., ("DDC Holdings")
which is an indirect wholly owned subsidiary of Penske Corporation ("Penske")
and is Detroit Diesel's largest stockholder, has entered into a Stock Purchase
Agreement with DCNA that, subject to the terms and conditions stated therein,
requires DDC Holdings, among other things, to tender its Shares in the Offer.
AGREEMENTS BETWEEN DETROIT DIESEL AND PENSKE. At the request of
DaimlerChrysler AG and in order to facilitate the Merger, Detroit Diesel and
Penske have entered into a Stock Put Option Agreement, effective following the
Merger, pursuant to which Penske has granted Detroit Diesel an irrevocable put
option to sell to Penske 51% of the outstanding capital stock of VM
Holdings, Inc. ("VM Holdings"). VM Holdings is a Detroit Diesel subsidiary that
owns 100% of the outstanding equity interests in VM Motori S.p.A. and Detroit
Diesel Motores do Brasil, Ltda. Also, DaimlerChrysler AG recognized the need for
a Management Services Agreement. Accordingly, such an agreement was entered into
by Penske and Detroit Diesel pursuant to which Penske will receive $5 million
over three years for specified management services including, among other
things, taxes, risk management, customer relations, executive service and
development. Both the Stock Put Option Agreement and the Management Services
Agreement only take effect if the Merger occurs.
The provisions of the Stock Purchase Agreement, the Stock Put Option
Agreement and the Management Services Agreement are described in detail in the
Offer to Purchase under the captions "Introduction" and "The Merger Agreement;
The Stock Purchase Agreement; The Stock Put Option Agreement and The Management
Services Agreement", which information is incorporated herein by reference.
2
<PAGE>
Except as described or referred to in this Item 3, there exists on the date
hereof no material agreement, arrangement or understanding and no actual or
potential material conflict of interest between Detroit Diesel or any affiliates
of Detroit Diesel and either (i) Detroit Diesel, its executive officers,
directors or affiliates or (ii) DCNA, the Purchaser or any of their respective
officers, directors or affiliates.
The Special Committee and the Board of Directors were aware of these actual
and potential conflicts of interest, as well as the agreements described above,
and considered them along with the other matters described below in Item 4, "The
Solicitation or Recommendation--Reasons for the Recommendation."
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
RECOMMENDATION.
RECOMMENDATION OF THE SPECIAL COMMITTEE. At a meeting held on July 19, 2000
the Special Committee unanimously (i) recommended that the Board of Directors
find that the Merger Agreement, the Offer and the Merger are fair to and in the
best interests of Detroit Diesel's stockholders and (ii) recommended that the
form, terms and conditions of the Merger Agreement be approved by the Board of
Directors and that the Board of Directors recommend to the stockholders of
Detroit Diesel that they tender their shares pursuant to the Offer and adopt the
Merger Agreement.
RECOMMENDATION OF THE DETROIT DIESEL BOARD OF DIRECTORS. At a meeting held
on July 19, 2000, after hearing the Special Committee's recommendation, the
Detroit Diesel Board of Directors, by unanimous vote of those present, and based
on, among other things, the recommendation of the Special Committee,
(i) determined that the Offer and the Merger are fair to and in the best
interests of Detroit Diesel's stockholders, (ii) approved the form, terms and
conditions of the Merger Agreement; and (iii) recommended that Detroit Diesel's
stockholders tender their Shares in the Offer and adopt the Merger Agreement.
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF DETROIT
DIESEL TENDER THEIR SHARES IN THE OFFER.
A letter to the stockholders of Detroit Diesel, a letter to brokers,
dealers, commercial banks, trust companies and other nominees, a letter to
clients for use by brokers, dealers, commercial banks, trust companies and other
nominees communicating the Offer and the Detroit Diesel Board of Directors'
recommendation, press releases announcing or describing the Offer and the Merger
are filed herewith as Exhibits (a)(3), (a)(4), (a)(5), (a)(6), (a)(7) and
(a)(8), respectively, and are incorporated herein by reference.
REASONS FOR THE RECOMMENDATION.
In reaching the recommendation referred to in this Item 4, the Board of
Directors took into account numerous factors, including but not limited to the
following:
1. The familiarity of the Board of Directors with the financial
condition, results of operations, competitive position, business and
prospects of the Detroit Diesel, as reflected in the Detroit Diesel's
historical and projected financial information, current economic and market
conditions and the nature of the industry in which it operates.
2. The Board of Directors' view that consolidation is increasing within
the heavy-duty truck, automotive and off-road industries, and its concern
that Detroit Diesel's ability to continue to compete effectively in the
engine business would be significantly affected if it did not align itself
with a better-capitalized participant in these industries. Moreover,
DaimlerChrysler AG constituted the best strategic partner for such an
alliance, and therefore the highest value opportunity, since approximately
40% of Detroit Diesel's sales are to heavy-duty truck and automotive
affiliates of DaimlerChrysler AG and Detroit Diesel is already aligned with
a DaimlerChrysler AG affiliate in a worldwide joint engine program in the
off-road market.
3
<PAGE>
3. The oral opinion (which was subsequently confirmed in writing)
delivered by Morgan Stanley & Co. Incorporated to the Special Committee on
July 19, 2000, to the effect that, based upon and subject to the assumptions
and limitations described in the opinion, on the date of such opinion the
consideration to be received by holders of shares of Detroit Diesel Common
Stock pursuant to the Merger Agreement was fair, from a financial point of
view, to such holders (other than Penske and DaimlerChrysler AG and their
affiliates). The full text of the written opinion, which sets forth the
assumptions made, the procedures followed, the matters considered and the
limitations on the review undertaken by Morgan Stanley & Co. Incorporated,
is attached as Annex I and is incorporated herein by reference. We urge you
to read Morgan Stanley's opinion carefully and in its entirety.
4. The reciprocal rights of first refusal held by Penske and the
Purchaser that were granted under Section 5.07 of the 1993 Financing
Agreement filed as exhibit (e)(3) hereto, which is incorporated herein by
reference.
5. The historical market prices of, and recent trading activity in, the
Shares, particularly the fact that the Offer and the Merger will enable
Detroit Diesel stockholders to quickly realize a premium of approximately
27% over the weighted average trading price of the Shares during the period
from July 18, 1999 to July 18, 2000.
6. The financial and other terms and conditions of the Merger
Agreement, the Offer and the Merger, including (i) the provision permitting
the Detroit Diesel Board of Directors to amend or withdraw its
recommendation made above, if it determines that it is consistent with its
fiduciary duties to do so, (ii) the provision permitting the Board of
Directors to terminate the Merger Agreement if it withdraws or adversely
modifies its recommendation referred to above, (iii) the provision which,
while prohibiting Detroit Diesel, its subsidiaries, officers and directors
from initiating, soliciting, encouraging or otherwise knowingly facilitating
any acquisition proposal, permits the Board of Directors, in response to an
unsolicited acquisition proposal that relates to a business combination or
asset sale that the Board of Directors concludes in good faith (after
consultation with Detroit Diesel's financial advisor) would, if consummated,
provide greater aggregate value to Detroit Diesel's stockholders,
participate in discussions or negotiations, or furnish information, to any
person related to such acquisition proposal, and (iv) the amount of the
termination fee and the circumstances under which it would become payable.
The Detroit Diesel Board of Directors did not assign relative weights to the
foregoing factors or determine that any factor was of particular importance.
Rather, the Board of Directors viewed their position and recommendation as being
based on the totality of the information presented to and considered by it.
INTENT TO TENDER.
To the best knowledge of Detroit Diesel, after making reasonable inquiry,
each of Detroit Diesel's executive officers, directors, affiliates and
subsidiaries, other than individuals whose Shares are restricted shares and
individuals who intend to make charitable contributions of Shares, currently
intends to tender pursuant to the Offer or sell all Shares held of record or
beneficially owned by them as of the date hereof. In addition, pursuant to the
Stock Purchase Agreement, DDC Holdings, holder of 48.6% of the outstanding
Shares has agreed to tender all of the Shares held by it or its affiliates in
the Offer. See the information set forth in the Offer to Purchase under the
caption "The Merger Agreement; The Stock Purchase Agreement; The Stock Put
Option Agreement and the Management Services Agreement--The Stock Purchase
Agreement", which is incorporated herein by reference.
ITEM 5. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED.
Pursuant to an engagement letter, the Special Committee of the Board of
Directors engaged Morgan Stanley & Co. Incorporated as its financial advisor to
assist the Special Committee in its analysis and
4
<PAGE>
consideration of the Merger Agreement, the Offer and the Merger and to render an
opinion as to the fairness of the $23.00 per Share to be received by holders of
Shares (other than Penske and
DaimlerChrysler AG and their affiliates) pursuant to the Merger Agreement.
Pursuant to the terms of the engagement letter, Detroit Diesel paid Morgan
Stanley & Co. Incorporated a fee of $1,500,000 following the delivery of its
fairness opinion. Detroit Diesel has also agreed to reimburse Morgan Stanley &
Co. Incorporated for its reasonable expenses and to indemnify Morgan Stanley &
Co. Incorporated against certain liabilities, including liabilities under the
U.S. federal securities laws.
Neither Detroit Diesel nor any person acting on its behalf has employed,
retained or compensated, or currently intends to employ, retain or compensate,
any person to make solicitations or recommendations to the stockholders of
Detroit Diesel on its behalf with respect to the Offer or the Merger.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
No transactions in the Shares during the past 60 days have been effected by
Detroit Diesel or, to the best of Detroit Diesel's knowledge, by any executive
officer, director, affiliate or subsidiary of Detroit Diesel.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
Except as described or referred to in this Statement, no negotiation is
being undertaken or engaged in by Detroit Diesel which relates to (i) a tender
offer or other acquisition of the Shares by Detroit Diesel, any of its
subsidiaries or any other person, (ii) an extraordinary transaction, such as a
merger, reorganization, or liquidation, involving Detroit Diesel or any of its
subsidiaries, (iii) a purchase, sale, or transfer of a material amount of assets
by Detroit Diesel or any of its subsidiaries or (iv) any material change in the
present dividend rate or policy, or indebtedness or capitalization of Detroit
Diesel.
Except as described or referred to in this Statement, there are no
transactions, resolutions, agreements in principle, or signed contracts entered
into in response to the Offer that would relate to one or more of the matters
referred to in this Item 7.
ITEM 8. ADDITIONAL INFORMATION.
The information contained in the Offer to Purchase filed as Exhibit (a)(1)
herewith is incorporated herein by reference. The Merger Agreement provides that
promptly upon the purchase of and payment for Shares pursuant to the Offer, DCNA
will be entitled to designate such additional number of directors, rounded up to
the next whole number, on the Detroit Diesel Board of Directors that equals the
product of (1) the total number of directors on the Detroit Diesel Board of
Directors (giving effect to the directors designated by DCNA pursuant to the
Merger Agreement) and (2) the percentage that the number of Shares so purchased
and paid for bears to the total number of Shares then outstanding. Detroit
Diesel has agreed, upon request of the Purchaser, promptly to increase the size
of the Detroit Diesel Board of Directors or exercise its best efforts to secure
the resignations of such number of directors, or both, as is necessary to enable
DCNA's designees to be so elected to the Detroit Diesel Board of Directors and,
subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder, to cause DCNA's designees to be so elected; PROVIDED, HOWEVER, that
until the Effective Time there shall be at least two members of the Detroit
Diesel Board of Directors who were members of the Special Committee. Information
concerning DCNA's designees and other information required by Rule 14f-1 is set
forth in Annex II hereto. The provisions of the Merger Agreement relating to
these arrangements are described in the Offer to Purchase under the captions
"Introduction" and "The Merger Agreement; The Stock Purchase Agreement; The
Stock Put Option Agreement and The Management Services Agreement--The Merger
Agreement--Directors" and are incorporated herein by reference.
5
<PAGE>
ITEM 9. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
(a)(1) Offer to Purchase dated July 31, 2000.*+
(a)(2) Letter of Transmittal.*+
(a)(3) Letter from the Chairman of Detroit Diesel to Detroit
Diesel's Stockholders, dated July 31, 2000.+
(a)(4) Letter from the Dealer Managers to Brokers, Dealers,
Commercial Banks, Trust Companies, and Nominees.*
(a)(5) Letter to clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Nominees.*
(a)(6) Text of press release issued by DCNA and Purchaser, dated
July 20, 2000.*
(a)(7) Text of press release issued by Detroit Diesel, dated
July 20, 2000.
(a)(8) Text of press release issued by Detroit Diesel, dated
July 27, 2000.
(a)(9) Opinion of Morgan Stanley & Co. Incorporated, dated
July 19, 2000 (included as Annex I hereto).+
(e)(1) Agreement and Plan of Merger dated as of July 20, 2000,
among DCNA, the Purchaser and Detroit Diesel (incorporated
by reference to Exhibit 2 to Detroit Diesel's Current Report
on Form 8-K dated July 26, 2000).
(e)(2)(i)-(ii) Annexes B and C and Page 9 of Detroit Diesel's Annual
Meeting Proxy Statement dated March 24, 2000 (incorporated
by reference to the Schedule 14A of Detroit Diesel, filed on
March 24, 2000 (File No. 001-12394)).
(e)(3) Financing Agreement by and between the Purchaser and Detroit
Diesel, dated April 30, 1993 (incorporated by reference to
Exhibit 10.5 to the registration statement on Form S-1 filed
on July 30, 1993, as amended (file no. 33-66760)).
</TABLE>
------------------------
* Incorporated by reference to the Schedule TO filed by DCNA and the Purchaser
on July 31, 2000.
+ Mailed to Detroit Diesel's stockholders.
6
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this Statement is true, complete and correct.
DETROIT DIESEL CORPORATION
By: /s/ Charle G. McClure
------------------------------------
Name: Charles G. McClure
Title: President and Chief Executive
Officer
Dated: July 31, 2000
7
<PAGE>
ANNEX I
July 19, 2000
Special Committee of the Board of Directors
Detroit Diesel Corporation
13400 Outer Drive West
Detroit, Michigan 48239
Members of the Special Committee of the Board of Directors:
We understand that Detroit Diesel Corporation (the "Company"),
DaimlerChrysler North America Holding Corporation ("DCNA"), a company wholly
owned by DaimlerChrysler AG ("DaimlerChrysler"), and Diesel Project
Development, Inc., a wholly owned subsidiary of DCNA ("Acquisition Sub"),
propose to enter into an Agreement and Plan of Merger, substantially in the form
of the draft dated July 17, 2000 (the "Merger Agreement") which provides, among
other things, for (i) the commencement by Acquisition Sub of a tender offer (the
"Tender Offer") for all outstanding shares of common stock, par value $.01 per
share, of the Company (the "Common Stock") for $23.00 per share net to the
seller in cash, and (ii) the subsequent merger (the "Merger") of Acquisition Sub
with and into the Company. Pursuant to the Merger, the Company will become a
wholly owned subsidiary of DCNA and each outstanding share of Common Stock,
other than shares held in treasury or by DCNA or any subsidiary of the Company
or DCNA or as to which dissenters' rights have been perfected, will be converted
into the right to receive $23.00 per share in cash. The terms and conditions of
the Tender Offer and the Merger are more fully set forth in the Merger
Agreement.
We further understand that approximately 21% of the outstanding shares of
the Common Stock is owned indirectly by DCNA and 49% is owned by DDC
Holdings, Inc., ("DDC"), a company indirectly held by Penske Corporation
("Penske"). Additionally, we understand that in connection with the Merger, DDC
and DCNA propose to enter into a Stock Purchase Agreement, substantially in the
form of the draft dated July 17, 2000, pursuant to which DDC will, among other
things, tender its shares of the Common Stock to DCNA in the Tender Offer.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of Common Stock pursuant to the Merger
Agreement is fair from a financial point of view to such holders (other than
Penske and DaimlerChrysler and their affiliates).
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning the Company prepared by the management of the
Company;
(iii) reviewed certain financial projections prepared by the management of
the Company;
(iv) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
(v) reviewed the reported prices and trading activity for the Common Stock;
(vi) compared the financial performance of the Company and the prices and
trading activity of the Common Stock with that of certain other
comparable publicly-traded companies and their securities;
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(viii) reviewed the draft Merger Agreement and certain related documents; and
(ix) performed such other analyses and considered such other factors as we
have deemed appropriate.
I-1
<PAGE>
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company. We have not made any independent valuation or appraisal of the assets
or liabilities of the Company, nor have we been furnished with any such
appraisals. In addition, we have assumed that the Tender Offer and Merger will
be consummated in accordance with the terms set forth in the Merger Agreement.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of the Company
or any of its assets, nor did we negotiate with any party.
We have been retained to provide a fairness opinion to the Special Committee
of the Board of Directors of the Company in connection with this transaction and
will receive a fee for our services. In the past, Morgan Stanley & Co.
Incorporated and its affiliates have provided financial advisory and financing
services for DaimlerChrysler and have received fees for the rendering of these
services.
It is understood that this letter is for the information of the Special
Committee of the Board of Directors of the Company, except that this opinion may
be included in its entirety in any filing made by the Company in respect of the
transaction with the Securities and Exchange Commission. In addition, Morgan
Stanley expresses no opinion or recommendation as to whether the shareholders of
the Company should tender their shares of Common Stock in connection with the
Tender Offer or how they should vote at any shareholders' meeting held in
connection with the Merger.
Based upon and subject to foregoing, we are of the opinion on the date
hereof that the consideration to be received by the holders of shares of Common
Stock pursuant to the Merger Agreement is fair from a financial point of view to
such holders (other than Penske and DaimlerChrysler and their affiliates).
<TABLE>
<S> <C> <C>
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ PAUL R. AARON
-----------------------------------------
Paul R. Aaron
Principal
</TABLE>
I-2
<PAGE>
ANNEX II
INFORMATION STATEMENT PURSUANT TO SECTION 14(F) OF THE
SECURITIES EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
GENERAL
This Information Statement is being mailed on or about July 28, 2000, as
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Detroit Diesel Corporation, a Delaware corporation
("Detroit Diesel"), with respect to the tender offer by Diesel Project
Development, Inc., a Delaware corporation (the "Purchaser") and a wholly owned
subsidiary of DaimlerChrysler North America Holding Corporation, a Delaware
corporation ("DCNA") and wholly owned subsidiary of DaimlerChrysler AG
("DaimlerChrysler"), to the holders of record of the issued and outstanding
common stock, par value $0.01 per share, of Detroit Diesel (the "Shares").
Capitalized terms used and not otherwise defined herein shall have the meaning
set forth in the Schedule 14D-9. This Information Statement is being distributed
in connection with the possible election of persons designated by DCNA to a
majority of the seats on the Detroit Diesel Board of Directors (the "Detroit
Diesel Board"). The tender offer is being made by the Purchaser for all of the
outstanding Shares at a price of $23.00 per Share in cash, pursuant to the terms
of the Agreement and Plan of Merger (the "Merger Agreement"), dated as of
July 20, 2000, by and among Detroit Diesel, DCNA and the Purchaser, and upon the
terms set forth in the Offer to Purchase and Letter of Transmittal, copies of
which have been mailed to Detroit Diesel's stockholders by the Purchaser. The
Merger Agreement provides that, subject to the terms and conditions of the
Merger Agreement, following the purchase of Shares pursuant to Offer, at the
effective time of the Merger, the Purchaser will be merged with and into Detroit
Diesel, and Detroit Diesel will be the surviving corporation.
The Merger Agreement provides that promptly upon the purchase of and payment
for Shares by the Purchaser or any of its affiliates pursuant to the Offer, DCNA
shall be entitled to designate such additional number of directors, rounded up
to the next whole number, on the Detroit Diesel Board that equals the product of
(1) the total number of directors on the Detroit Diesel Board (giving effect to
the directors designated by DCNA pursuant to the Merger Agreement) and (2) the
percentage that the number of Shares so purchased and paid for bears to the
total number of Shares then outstanding. In furtherance thereof, Detroit Diesel
will, upon the request of the Purchaser, promptly increase the size of the
Detroit Diesel Board or exercise its best efforts to secure the resignations of
such number of directors, or both, as is necessary to enable DCNA's designees to
be so elected to the Detroit Diesel Board, provided, however, that until the
effective time of the Merger there shall be at least two members of the Detroit
Diesel Board who were members of the Special Committee.
This Information Statement is required by Section 14(f) of the Exchange Act
and Rule 14f-1 promulgated thereunder. You are urged to read this Information
Statement carefully. You are not, however, required to take any action in
connection with this Information Statement.
The Offer commenced on July 31, 2000 and is scheduled to expire on
August 25, 2000, at which time, if all conditions to the Offer have been
satisfied or waived and certain other circumstances do not exist, the Purchaser
will purchase all of the Shares validly tendered pursuant to the Offer and not
withdrawn.
The information contained in this Information Statement concerning
Purchaser, DCNA and the Designees (as defined below) has been furnished to
Detroit Diesel by DCNA, and Detroit Diesel assumes no responsibility for the
accuracy or completeness of any such information.
At the close of business on July 20, 2000, there were 23,120,291 Shares
issued and outstanding. An additional 1,203,375 Shares are subject to
outstanding options and 102,560 Shares have been granted as deferred stock
awards as of such date. There were approximately 2,400 stockholders. Based on
the latest information provided to Detroit Diesel, Penske Corporation
beneficially owns approximately 48.6% of Detroit Diesel's outstanding common
stock, and the Purchaser beneficially owns approximately 21.4%.
II-1
<PAGE>
DESIGNEES TO THE DETROIT DIESEL BOARD
DCNA has informed Detroit Diesel that it currently intends to choose the
additional designees (the "DCNA Designees") it has the right to designate to the
Detroit Diesel Board pursuant to the Merger Agreement from among the executive
officers of the Purchaser and DCNA listed below. Eckhard Cordes and Dieter E.
Zetsche presently serve as members of the Detroit Diesel Board and will retain
their Board positions. Each of the following individuals has consented to serve
as a director of Detroit Diesel if appointed or elected. None of the DCNA
Designees currently is a director of, or holds any positions with, Detroit
Diesel. DCNA has advised Detroit Diesel that, to the best of DCNA's knowledge,
except as set forth below, none of the DCNA Designees or any of their affiliates
beneficially owns any equity securities or rights to acquire any such securities
of Detroit Diesel, nor has any such person been involved in any transaction with
Detroit Diesel or any of its directors, executive officers or affiliates that is
required to be disclosed pursuant to the rules and regulations of the Commission
other than with respect to transactions between DCNA or its affiliates and
Detroit Diesel that have been described in this Information Statement or the
Schedule 14D-9.
The name, age, present principal occupation or employment and five-year
employment history of each of the individuals who may be selected as DCNA
Designees are set forth below. Unless otherwise indicated, each such individual
has held his or her present position as set forth below for the past five years
and each occupation refers to employment with DaimlerChrysler AG.
DESIGNEES TO THE DETROIT DIESEL BOARD
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AGE AND OTHER INFORMATION
---- -------- ---------------------
<S> <C> <C>
Arne Anderson............... 57 Mr. Anderson has been a Director, Mergers & Acquisitions
DaimlerChrysler AG at DaimlerChrysler AG since April 1996. Prior to that he
Mercedesstrasse 137 was a member of the legal department of AEG AG.
HPC: F601
D-70327 Stuttgart
Germany
Jurgen Benner............... 41 Mr. Benner has been a Director, Strategic Planning
DaimlerChrysler AG Commercial Vehicles Division at DaimlerChrysler AG since
Mercedesstrasse 137 January 1999. Prior to that he was in the Strategic
HPC: F300 Planning and Controlling Business Units Overseas.
D-70546 Stuttgart
Germany
Joachim Drees............... 35 Mr. Drees has been a Senior Manager, Mergers &
DaimlerChrysler AG Acquisitions at DaimlerChrysler AG since April 1996.
Mercedesstrasse 137 Prior to that Mr. Drees was a Senior Consultant at
HPC: F601 Baumgartner & Partner.
D-70327 Stuttgart
Germany
Dr. Albert Kirchmann........ 43 Dr. Kirchmann is a Director, Controlling, Business
DaimlerChrysler AG Planning and Finance of the Powertrain Business Unit of
Mercedesstrasse 137 DaimlerChrysler AG. Prior to that position, he had
HPC: B304 positions in Strategy and Planning, Mercedes Benz Spain,
D-70567 Stuttgart Corporate Strategy, Mercedes Benz AG, and Controlling
Germany Finance Powertrain Business Unit of DaimlerChrysler AG.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AGE AND OTHER INFORMATION
---- -------- ---------------------
<S> <C> <C>
Dr. Edgar Krokel............ 47 Dr. Krokel has been a Vice President, Mergers &
DaimlerChrysler AG Acquisitions at DaimlerChrysler AG since January 1997.
Epplestrasse 225 Prior to that he had a position in the financial
HPC: 0216 department of DaimlerBenz AG.
D-70567 Stuttgart
Germany
Gunter Moll................. 45 Mr. Moll has been a Senior Manager, Mergers &
DaimlerChrysler AG Acquisitions at DaimlerChrysler AG since April 1996.
Mercedesstrasse 137 Prior to that he had a position in the legal department
HPC: F601 of AEG AG.
D-70327 Stuttgart
Germany
Werner Speckner............. 55 Mr. Speckner has been a Vice President, Member of the
MTU Motoren-und Turbinen- Management Board and Chief Financial Officer of MTU
Union Motoren-und Turbinen-Union since April 1994.
Friedrichshafen GmbH
D-88040 Friedrichshafen
Germany
Wendelin Wolbert............ 46 Mr. Wolbert has been a Vice President, Strategy,
DaimlerChrysler AG Corporate Controlling and Strategic
Mercedesstrasse 137 Marketing/Multi-Brand Management--Commercial Vehicles at
HPC: F300 DaimlerChrysler AG since June 1997. Prior to that Mr.
D-70546 Stuttgart Wolbert was the head of the Central Business
Germany Administration and Controlling Function of the German
Sales Organization.
</TABLE>
It is expected that the first of the DCNA Designees to assume office would
assume office at any time following the purchase by the Purchaser of a number of
Shares in an amount equal to or greater than the number of Shares necessary to
satisfy the Minimum Condition, which purchase cannot be earlier than August 25,
2000, and that, upon assuming office, the DCNA Designees will thereafter
constitute at least a majority of the entire Detroit Diesel Board. This step
will be accomplished at a meeting or by written consent of the Detroit Diesel
Board provided that the size of the Detroit Diesel Board will be increased or
sufficient numbers of current directors will resign, or both, such that,
immediately following such action, the number of vacancies to be filled by the
DCNA Designees, together with the Board positions held by Messrs. Cordes and
Zetsche, will constitute at least a majority of the available positions on the
Detroit Diesel Board or such greater percentage as may be required pursuant to
the terms of the Merger Agreement. It is currently not known which, if any, of
the current directors of Detroit Diesel will resign.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AGE AND OTHER INFORMATION
---- -------- ---------------------
<S> <C> <C>
Eckhard Cordes.............. 49 Mr. Cordes has been a director of Detroit Diesel since
March 1997, and his current term as a Class III director
expires in 2002. Mr. Cordes is a Member of the
DaimlerChrysler Board of Management, responsible for
Corporate Development and Information Technology. Before
that, he was a Senior Vice President, Corporate
Development of DaimlerBenz AG from 1995 to 1996.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AGE AND OTHER INFORMATION
---- -------- ---------------------
<S> <C> <C>
John E. Doddridge........... 59 Mr. Doddridge has been a director of Detroit Diesel
since January 1994, and his current term as a Class II
director expires in 2001. Mr. Doddridge is the Chairman
and Chief Executive Officer of Intermet Corp., a
publicly-traded metal casting company.
Richard M. Donnelly......... 57 Mr. Donnelly has been a director of Detroit Diesel since
1999, and his current term as a Class III director
expires in 2002. Mr. Donnelly is the President of
Donnelly Associates, which focuses on strategies for
manufacturing, restructuring and globalization. Before
that, he was Vice President and Group Executive for
Manufacturing & Quality for International Operations at
General Motors Corporation from 1998 to 1999 and
President, General Motors Europe from 1994 to 1998.
Mr. Donnelly is also a member of the Board of Directors
of Brown & Sharpe Manufacturing Company.
William E. Hoglund.......... 65 Mr. Hoglund has been a director of Detroit Diesel since
1990, and his current term as a Class III director
expires in 2002. Mr. Hoglund retired as Executive Vice
President of General Motors Corporate Affairs and Staff
Support Group in 1994. Mr. Hoglund is also a member of
the Boards of Directors of Capital Automotive REIT and
Mead Corporation, as well as the Sloan Foundation.
Gary G. Jacobs.............. 59 Mr. Jacobs has been a director of Detroit Diesel since
January 1994, and his current term as a Class I director
expires in 2000. He is the President and Chief Executive
Officer of Laredo National Bancshares, Inc. (a bank
holding company) and Chairman, President and Chief
Executive Officer of The Laredo National Bank.
Ludvik F. Koci.............. 64 Mr. Koci has been a director of Detroit Diesel since its
organization in 1987, and his current term as a Class II
director expires in 2001. Mr. Koci has been Vice
Chairman of Detroit Diesel since November 1997. Before
that, he had been President and Chief Operating Officer
of Detroit Diesel from 1989 to 1997 and Executive Vice
president from Detroit Diesel's organization in 1987 to
1989. Prior to Detroit Diesel's commencement of
operations in January 1988, Mr. Koci had been employed
by General Motors since 1954. Mr. Koci is also a member
of the Board of Directors of Wabash National
Corporation, Focus Hope and a number of charitable and
religious organizations.
Charles G. McClure.......... 46 Mr. McClure is President and Chief Executive Officer of
Detroit Diesel. He has been a director since 1997, and
his current term as a Class II director expires in 2001.
Before joining Detroit Diesel in 1997, Mr. McClure had
been President, and previously Vice President and
General Manager, of The America Division of Johnson
Controls, Inc. from 1995 to 1997. Mr. McClure is also a
director of Williams Controls, Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AGE AND OTHER INFORMATION
---- -------- ---------------------
<S> <C> <C>
Roger S. Penske............. 63 Mr. Penske has been Chairman and a director of Detroit
Diesel since its organization in 1987, and his current
term as a Class III director expires in 2002. Mr. Penske
is also Chairman of the Board and Chief Executive
Officer of Penske Corporation. Penske Corporation is a
privately-owned diversified transportation services
company which (among other things) holds, through its
subsidiaries, interests in a number of businesses,
including Penske Truck Leasing Co., L.P., United Auto
Group, Inc., International Speedway Corporation, and
Diesel Technology Company. Mr. Penske is also a member
of the Boards of Directors of General Electric Company,
United Auto Group, Inc., International Speedway
Corporation and Delphi Automotive Systems Corporation.
Joseph F. Welch............. 65 Mr. Welch has been a director of Detroit Diesel since
January 1994, and his current term as a Class I director
expires in 2000. He is the Chairman and Chief Executive
Officer of The Bachman Company, a producer of snack
foods.
R. Jamison Williams, Jr..... 58 Mr. Williams has been a director of Detroit Diesel since
1988, and his current term as a Class I director expires
in 2000. He is a Senior Partner in the law firm of
Williams, Williams, Ruby & Plunkett, P.C., in
Birmingham, Michigan. Mr. Williams beneficially owns
approximately 30% of the outstanding common stock of
Clarke Detroit Diesel-Allison, Inc., an authorized
Detroit Diesel distributor which in 1999 purchased from
Detroit Diesel approximately $31 million of products and
received from Detroit Diesel approximately $6 million
for the performance of warranty services.
Dieter E. Zetsche........... 47 Mr. Zetsche has been a director of Detroit Diesel since
January 2000, and his term as a Class II director
expires in 2001. Mr. Zetsche is a member of
DaimlerChrysler's Board of Management, responsible for
its Commercial Vehicles Division. Before that, he was a
member of DaimlerChrysler's Board of Management,
responsible for its Sales Division from 1998 to 1999; a
member of the Board of Management of Daimler-Benz AG,
responsible for its Sales Division from 1997 to 1998;
and a member of the Board of Management of Mercedes-Benz
AG, responsible for its Sales Division from 1995 to
1997. Mr. Zetsche is also a member of the Supervisory
Boards of debis AG, Deutsche BP, Hamburg and DEKRA,
Stuttgart.
</TABLE>
CURRENT BOARD OF DIRECTORS OF DETROIT DIESEL
GENERAL
The Detroit Diesel Board has established the Audit Committee of Detroit
Diesel Board (the "Audit Committee") and the Compensation Committee of Detroit
Diesel Board (the "Compensation Committee"). The Detroit Diesel Board does not
have a nominating committee; that function is performed by the entire Detroit
Diesel Board. The Audit Committee, which is comprised of Gary G. Jacobs,
Chairman, Joseph F. Welch and R. Jamison Williams, Jr., is responsible for
recommending to the Detroit Diesel
II-5
<PAGE>
Board the appointment of independent auditors, reviewing the activities and the
reports of Detroit Diesel's independent auditors, and reporting the results of
its review to the Board. The Audit Committee also periodically reviews the
activities of Detroit Diesel's internal audit staff and the adequacy of Detroit
Diesel's internal controls. The Compensation Committee, which is comprised of
John E. Doddridge, Chairman, Eckhard Cordes, Richard M. Donnelly and William E.
Hoglund, is responsible for recommending to the Board the remuneration
arrangements for senior management and directors, recommending to the Board
compensation plans in which officers or directors are eligible to participate
and granting awards under Detroit Diesel's stock incentive plan.
During 1999, the Detroit Diesel Board held five meetings. The Detroit Diesel
Board also took certain actions by unanimous written consent in lieu of a
meeting twice. The Audit Committee met three times and the Compensation
Committee met two times. Mr. Cordes missed four Board meetings and two
Compensation Committee meetings.
DIRECTOR COMPENSATION
Directors who are not employees of Detroit Diesel or DaimlerChrysler receive
directors' fees of $50,000 per year, plus $1,000 per day of attendance at
committee or other meetings relating to company business (other than for a day
on which there is a board meeting). These directors may elect to defer their
compensation under Detroit Diesel's Deferred Compensation Plan for Directors, a
non-qualified benefits plan for non-employee directors, into a cash account or a
unit account. Amounts deferred into a unit account are allocated based on the
price of Detroit Diesel's common stock at the time of deferral, and the value of
this account is directly related to the performance of Detroit Diesel's common
stock. In addition, Detroit Diesel reimburses its directors for expenses,
including travel, they incur in connection with attending meetings.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
In 1999, A. Gordon Clark, Senior Vice President-Sales, filed a statement of
beneficial ownership on Form 4 with the Securities and Exchange Commission late.
II-6
<PAGE>
CERTAIN BUSINESS RELATIONSHIPS
PURCHASER AND ITS AFFILIATES
In 1999, Detroit Diesel and its affiliates had business relationships with
Purchaser and its affiliates, including DaimlerChrysler, MTU Motoren- und
Turbinen-Union Friedrichshafen GmbH ("MTU"), and Freightliner Corporation.
Under Detroit Diesel's financing agreement with Purchaser, DDC
Holdings, Inc. (a subsidiary of Penske Corporation) has agreed to vote for the
election to Detroit Diesel's Board of a number of nominees designated by
Purchaser in proportion to Purchaser's percentage interest in the total number
of outstanding shares of Detroit Diesel's stock. One Purchaser nominee will also
be a member of the Detroit Diesel Board's Compensation Committee. Purchaser has
agreed to vote its shares of Detroit Diesel's stock for DDC Holdings' nominees,
consistent with Purchaser's rights to Detroit Diesel Board representation.
Eckhard Cordes and Dieter E. Zetsche are the nominees of Diesel Project
Development serving on the Detroit Diesel Board pursuant to this voting
agreement. Mr. Cordes is a member of the Detroit Diesel Board's Compensation
Committee. Under the financing agreement, Purchaser's consent is required on
significant business matters, including Detroit Diesel's business plan, certain
debt and equity issuances, acquisitions and major investments, and transactions
with affiliates.
Detroit Diesel paid DaimlerChrysler and its affiliates $5.8 million in 1999
for service parts pursuant to a North American distribution agreement for parts
and service for certain Mercedes-Benz industrial diesel engines and other
miscellaneous items. In 1999, Detroit Diesel sold approximately $163.8 million
of engines and related parts to DaimlerChrysler and approximately
$790.8 million to Freightliner.
In 1999, Detroit Diesel paid MTU $39.6 million for engine blocks for the
Series 149 engine, parts for the DDC/MTU Series 2000 engines and MTU/DDC
Series 4000 engines, engines and service parts pursuant to an agreement for MTU
products and services in North America, and other miscellaneous items, and
received from MTU approximately $2.4 million as reimbursement for warranty
services on MTU engines. Detroit Diesel will pay MTU approximately $9.7 million
over the next several years related to the allocation of costs incurred under
license agreements for the DDC/MTU Series 2000 engines and MTU/DDC Series 4000
engines.
PENSKE CORPORATION AND ITS AFFILIATES
Detroit Diesel and its affiliates had business relationships with Penske
Corporation and its affiliates, including Diesel Technology Company, in 1999.
Detroit Diesel paid $105.4 million to Diesel Technology for products. Detroit
Diesel also paid approximately $21.9 million in 1999 to Penske Corporation and
its affiliates for logistics services, vehicle lease charges, sales incentives,
office rent, charges associated with the use of aircraft, the use and
acquisition of demonstration products, and for various miscellaneous services.
Detroit Diesel rendered miscellaneous services to Penske Corporation and its
affiliates for which it was paid approximately $48,000 in 1999.
II-7
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains stockholding information for Detroit Diesel's
directors and executive officers.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
TERM BENEFICIALLY OWNED
POSITIONS WITH TO -------------------
NAME AGE COMPANY EXPIRE NUMBER PERCENT
---- -------- -------------------------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
DIRECTORS
Eckhard Cordes.................. 49 Director 2002 0 *
John E. Doddridge............... 59 Director 2001 10,133 *
Richard M. Donnelly............. 57 Director 2002 1,974 *
William E. Hoglund.............. 65 Director 2002 10,943 *
Gary G. Jacobs.................. 59 Director 2003 3,800 *
Ludvik F. Koci.................. 64 Vice Chairman and Director 2001 165,143 *
Charles G. McClure.............. 46 President, Chief Executive 2001 28,610 *
Officer and Director
Roger S. Penske................. 63 Chairman and Director 2002 128,000 *
Joseph F. Welch................. 65 Director 2003 10,410 *
R. Jamison Williams, Jr......... 58 Director 2003 8,100 *
Dieter E. Zetsche............... 47 Director 2001 0 *
OTHER EXECUTIVE OFFICERS
Robert R. Allran 56 Executive Vice President- -- 56,324 *
Engineering and Operations
Calvin C. Sharp 48 Senior Vice President- -- 12,946 *
Administration
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (18 PERSONS)................. 547,645 2%
</TABLE>
--------------------------
* Under 1%.
The amount shown in this table for Mr. Penske includes 3,000 shares owned by
Mr. Penske as custodian for three of his children, but does not include shares
for which Mr. Penske disclaims beneficial ownership: 11,240,000 shares owned by
DDC Holdings and 1,000 shares owned by his wife. The amounts shown for
Mr. Cordes and Mr. Zetsche do not include 4,935,461 shares of common stock owned
by Purchaser for which each disclaims beneficial ownership.
For the executive officers, the amounts shown in the table include shares
that they have the right to acquire upon exercising options on or before
September 30, 2000, as follows: Mr. Penske--97,500 shares; Mr. Koci--97,500
shares; Mr. McClure--22,500 shares; Mr. Allran--22,500 shares; and
Mr. Sharp--7,750 shares. The executive officers, as a group, have the right to
acquire 309,125 shares of the common stock upon exercising options on or before
September 30, 2000.
The amounts shown for Messrs. Koci and Allran also include deferred stock
awards (Mr. Koci--41,024 shares and Mr. Allran--20,512 shares). The deferred
stock awards are vested and will be issued to a person 90 days after termination
of his employment. Until issued, these persons have no voting or disposition
rights on their deferred stock.
The amounts shown for Messrs. Doddridge, Donnelly, Hoglund and Welch include
the common stock equivalent of director compensation deferred by each of them
pursuant to Detroit Diesel's Deferred Compensation Plan for Directors.
II-8
<PAGE>
EXECUTIVE COMPENSATION
The following table provides compensation information for the 1999, 1998 and
1997 fiscal years for Detroit Diesel's chief executive officer and the four most
highly compensated executive officers other than the chief executive officer,
and for a former executive officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION ------------
---------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION
POSITION YEAR ($) ($) ($) (#) ($)
--------------------------------- -------- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Roger S. Penske.................. 1999 $475,000 $780,000 0 0 0
Chairman 1998 $450,000 $633,000 0 15,000 0
1997 $450,000 $455,000 0 20,000 0
Ludvik F. Koci................... 1999 $460,000 $585,000 $ 1,200 0 $10,400
Vice Chairman 1998 $435,000 $474,750 $ 800 15,000 $10,400
1997 $425,000 $341,000 $19,259 20,000 $10,400
Charles G. McClure............... 1999 $445,000 $585,000 $ 1,200 0 $10,400
President and Chief 1998 $425,000 $395,620 $95,600 15,000 $10,400
Executive Officer 1997 $145,208 $325,000 0 20,000 0
Robert R. Allran................. 1999 $282,617 $248,000 $ 1,200 0 $10,400
Executive Vice 1998 $260,700 $210,000 $ 800 6,000 $10,400
President--Engineering 1997 $234,888 $167,000 $59,620 6,000 $10,400
and Operations
Calvin C. Sharp.................. 1999 $218,000 $248,000 $ 1,200 0 $10,400
Senior Vice President-- 1998 $190,000 $210,000 $ 800 5,000 $10,400
Administration 1997 $178,502 $ 82,000 0 5,000 $10,400
Timothy D. Leuliette............. 1999 $465,000 $585,000 0 0 0
Former Vice Chairman 1998 $440,000 $474,750 0 15,000 0
1997 $425,000 $341,000 0 70,000 0
</TABLE>
The compensation described in this table does not include medical, group
life insurance or other benefits that are available generally to all of Detroit
Diesel's salaried employees. It also does not include certain perquisites and
other personal benefits, securities or property received by these executive
officers, not material in amount.
The "Salary" column includes salary reduction elections made under Detroit
Diesel's 401(k) plan for salaried employees and its flexible benefits plan. The
"Other Annual Compensation" column includes for 1998, profit sharing; for 1998
for Mr. McClure, a special incentive payment; and for 1997 for Messrs. Koci and
Allran, reimbursements for taxes associated with the vesting of restricted
stock. The "All Other Compensation" column includes Detroit Diesel's matching
contributions under Detroit Diesel's 401(k) plan.
OPTION VALUES AT FISCAL YEAR END
The following table shows the number of shares covered by both exercisable
and non-exercisable stock options held by Messrs. Penske, Koci, McClure, Allran
and Sharp as of December 31, 1999. This table also shows the value on that date
of their "in-the-money" options, which is the positive spread, if any, between
II-9
<PAGE>
the exercise price of existing stock options and $19.19 per share (the closing
market price of the common stock on December 31, 1999). No options were
exercised in 1999 by any of these persons.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
-------------------------- -------------------------
(#) ($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------------------------- -------------------------
<S> <C> <C>
Roger S. Penske................................... 88,750/21,250 $21,880/$21,880
Ludvik F. Koci.................................... 88,750/21,250 $21,880/$21,880
Charles G. McClure................................ 13,750/21,250 $0/$0
Robert R. Allran.................................. 19,500/7,500 $6,564/$6,564
Calvin C. Sharp................................... 5,250/6,250 $2,735/$2,735
</TABLE>
EMPLOYEE BENEFIT PLAN
Detroit Diesel maintains the Detroit Diesel Corporation Employees' Pension
Plan (the "Salaried Plan"), under which salaried employees of Detroit Diesel are
eligible to participate on the first of the month following 30 days of
employment. The Salaried Plan is qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and is a defined benefit plan of
the type known as a "cash balance plan." Each payroll period during the plan
year, Detroit Diesel credits to a participant's hypothetical account an amount
equal to 6.25% of the participant's annual base salary; the participant's
account is increased annually at an indexed rate of interest, based on the rate
of return for one-year U.S. Treasury Bills. Upon retirement, a participant may
elect to receive the value of his account in a lump sum or in the form of an
annuity. A minimum benefit is payable under the Salaried Plan equal to 1.31% of
the participant's highest five year average annual compensation during the
participant's last ten years of employment times his years of service, plus
0.32% of average annual compensation in excess of two times his "covered
compensation" (based on Social Security wages), times his years of service (up
to a maximum of 35 years). The compensation covered by the Salaried Plan is a
participant's base pay during a calendar year. A participant's compensation
covered under the Salaried Plan is generally the same as that shown in the
"salary" column of the Summary Compensation Table. However, pursuant to
Section 401(a)(17) of the Code, the amount of compensation that can be
considered in computing benefits under the Salaried Plan was $160,000 for each
of 1998 and 1999 and will be $170,000 for 2000, and, under current law, will be
raised in $10,000 increments in succeeding years by annual cost-of-living
adjustments determined by the U.S. Secretary of the Treasury. In addition,
Detroit Diesel has implemented the Detroit Diesel Supplemental Executive
Retirement Plan (the "SER Plan"), an unfunded, nonqualified benefit plan for
executive officers designated by the Compensation Committee. Participants under
this plan are entitled to a benefit that, when aggregated with the amount that
they receive under the Salaried Plan, would cause them to receive an amount
equal to the amount they would have received under the Salaried Plan without
applying the IRS compensation and maximum benefit limits. Participants who
formerly worked for General Motors will also receive a benefit based on General
Motors service and the formula in the General Motors Pension Plan as in effect
on December 31, 1987, and the participant's average annual compensation at the
time of retirement or termination of employment.
The estimated annual benefits payable upon retirement, including the amount
of the benefit based on any General Motors service (based on an expected
retirement age of 65, straight life form of payments and deductions for social
security) and benefits under the SER Plan, are for Mr. Koci--$270,048,
Mr. McClure--$315,644, Mr. Allran--$219,601, and Mr. Sharp--$139,511. Credited
years of service under the Salaried Plan as of December 31, 1999, are for
Mr. Koci--45 years, Mr. McClure--2 years, Mr. Allran--34 years, and
Mr. Sharp--26 years.
II-10
<PAGE>
Participants become 100% vested upon completion of five or more years of
service, or upon the attainment of age 65 or death while in the employ of
Detroit Diesel. Mr. McClure will not become vested until 2002.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Detroit Diesel Board, which is composed
entirely of non-employee directors, oversees Detroit Diesel's programs for
compensating executive officers and other key management employees and approves
the salaries and other incentive awards to senior executives.
OBJECTIVES
Detroit Diesel has developed a comprehensive compensation program designed
to attract, reward and retain key management employees and to motivate them to
achieve individual and corporate performance goals. Detroit Diesel believes that
a substantial portion of total compensation should be linked to specific,
measurable financial results that are intended to create shareholder value. In
keeping with this philosophy, in 1999 the committee approved revisions to the
executive bonus incentive programs to increase the focus on bottom-line
profitability and, in addition, the implementation of a long-term incentive
component for certain senior executives. These new initiative are expected to
further align management's interest with shareholders' interest and long-term
shareholder value.
PROGRAM COMPONENTS
The primary components of Detroit Diesel's executive compensation program
are base salary, cash bonuses and stock incentives. Executives also participate
in benefit plans available to all salaried employees.
In 1999, base salaries for senior executive officers reflected their level
of responsibility and experience, taking into account, among other things, the
individual's initiative, contributions to Detroit Diesel's overall performance,
managerial ability and handling of special projects. These same factors are
applied by management's Executive Committee, consisting of the Chairman, Vice
Chairman and President, with the assistance of other senior executive officers
and the personnel administration department, to establish base salaries for
other key management employees. Base salaries for senior executives and key
management employees generally are reviewed every 18 months for possible
adjustment, but are not necessarily changed that often. The committee also
relies on industry comparisons to ensure that the base salaries, benefits and
other perquisites provided to senior executive officers remain competitive in
keeping with the objectives of attracting and retaining talented and able
leaders.
The committee established cash bonuses for the Chairman, Vice Chairman and
President based upon a specified percentage of pre-tax earnings. For other key
management employees, the committee approved a collective bonus pool of 5% of
Detroit Diesel's earnings before interest and taxes. Early in 1999, each key
management employee was allocated a target bonus based upon the projected bonus
pool and subject to adjustment for the following performance measures: overall
corporate profitability; performance of the product line or functional area to
which the employee is assigned; and employee-specific performance goals and
challenges subjectively evaluated by upper management. An employee could receive
up to 115% of the target bonus if Detroit Diesel profitability exceeded the
projected corporate profitability established by the business plan, but no
bonuses would be paid under this bonus plan unless te company achieved at least
50% of projected corporate profitability. Senior management recommended to the
Committee bonuses under this plan for 1999, which the Committee reviewed and
approved without objection or change.
At the 1999 annual meeting, shareholders approved the Detroit Diesel
Corporation 1998 Stock Incentive Plan, submitted following the exhaustion of all
stock incentives available under the 1993 Stock Incentive Plan. The stated
purpose of both stock incentive plans is to provide financial incentives to
II-11
<PAGE>
selected key management employees of Detroit Diesel and its subsidiaries to
promote long-term growth and financial success of that group by (i) attracting
and retaining employees of outstanding ability, (ii) strengthening that group's
capability to develop, maintain and direct a competent management team,
(iii) providing an effective means for that group to acquire an ownership
interest in the company, (iv) motivating key employees to achieve long-range
performance goals and objectives, and (v) providing incentive compensation
competitive with other similar companies. The Compensation Committee administers
the stock incentive plans and makes grants under the plans, except that the full
board of directors makes grants to senior executive officers who are also
directors. All grants under the stock incentive plans are approved by a majority
of the members of the committee or the board of directors, as the case may be,
who are "Non-Employee Directors" as that term is used in Rule 16b-3 of the
Securities Exchange Act of 1934. Awards under the stock incentive plans can
consist of incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock awards, unrestricted stock awards and
deferred stock awards.
Grants under the 1993 Stock Incentive Plan were made in 1993, 1995, 1996,
1997 and 1998. No awards were made under the plans in 1999.
At various times in the past, Detroit Diesel has adopted certain broad-based
employee benefit plans in which the senior executive officers and other key
management employees have been permitted to participate, including the salaried
employees' pension plan, the salaried employees' 401(k) savings plan with
certain matching company contributions, and the life, health and disability
benefit plans available to all salaried employees. Detroit Diesel also provides
to certain executives a Supplemental Executive Retirement Plan designed to
restore certain pension benefits lost due to federal limitations on
distributions. This plan is an unfunded, nonqualified plan for a limited number
of key senior executives designated by the committee. Key management employees
also receive a company provided automobile for business and personal use and
dome senior executives are eligible for certain other perquisites. Other than
with respect to common stock held as an investment option under the 401(k)
savings plan. benefits under these plans are not directly or indirectly tied to
company performance.
CHIEF EXECUTIVE OFFICER COMPENSATION
In October 1999, the Board conferred the responsibilities attributable to
the function of chief executive officer of Detroit Diesel to Charles G. McClure,
President. Roger S. Penske remains Chairman of the Board. The Committee approved
the 1999 bonus plan for the Chairman, Vice Chairman and President based upon a
specified percentage of Detroit Diesel's 1999 pre-tax earnings and increased
Mr. McClure's percentage commensurate with his new responsibilities.
Mr. Penske, who was Chief Executive Officer until October 1999, received a bonus
of $585,000, both of which reflect the implementation of the Committees's
approved plan.
II-12
