<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 25, 2000
REGISTRATION NO.
- - - - - - --------------------------------------------------------------------------------
- - - - - - --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 20-F
<TABLE>
<S> <C>
(MARK ONE)
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED:
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ---------- TO ----------
COMMISSION FILE NUMBER:
BASF AKTIENGESELLSCHAFT
(Exact name of Registrant as specified in its charter)
BASF CORPORATION*
(Translation of registrant's name into English)
<TABLE>
<S> <C>
FEDERAL REPUBLIC OF GERMANY CARL BOSCH STRASSE 38
(Jurisdiction of Incorporation or Organization) LUDWIGSHAFEN, GERMANY 67056
(Address of Principal Executive Offices)
</TABLE>
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
American Depositary Shares representing
BASF Shares of no par value New York Stock Exchange
BASF ordinary shares of no par value 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.
As of May 1, 2000, there were 620,991,200 BASF ordinary shares of no par
value outstanding.
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. Yes [ ] No [ ]. Not applicable.
Indicate by check mark which financial statement item the registrant has
elected to follow. Item 17 [ ] Item 18 [X]
- - - - - - --------------------------------------------------------------------------------
- - - - - - --------------------------------------------------------------------------------
* BASF Corporation is also the name of a wholly owned subsidiary of the
registrant in the United States.
** Not for trading, but only in connection with the registration of American
Depositary Shares.
<PAGE> 2
BASF Aktiengesellschaft is incorporated as a stock corporation organized
under the laws of the Federal Republic of Germany. As used in this Registration
Statement, "BASF Aktiengesellschaft" refers solely to the ultimate parent
company of the BASF Group. "BASF" refers to BASF Aktiengesellschaft and its
consolidated subsidiaries.
The Consolidated Financial Statements of BASF are based on the accounting
and valuation principles of the German Commercial Code (Handelsgesetzbuch) and
the German Stock Corporation Act (Aktiengesetz).
As of January 1, 1998, certain accounting and valuation methods have been
adjusted to U.S. generally accepted accounting principles (U.S. GAAP) to the
extent permissible under the German Commercial Code. The effects of these
changes and the reconciliation of remaining significant deviations to U.S. GAAP
are described in Notes 2 and 3 to the Consolidated Financial Statements included
in Item 19. Insignificant deviations from U.S. GAAP have not been reconciled to
U.S. GAAP because the impact on net income and stockholders' equity is not
material.
As of January 1, 1999, the financial statements have been prepared in euros
(E). The Consolidated Financial Statements for the years ending December 31,
1998, and December 31, 1997, were originally prepared in German marks (DM); they
have been converted into euros at the official fixed conversion rate as of
January 1, 1999, of DM 1.95583 = E1.00. The restated financial statements depict
the same trends and relationships among BASF accounts as those previously
reported prior to the introduction of the euro. Unless otherwise indicated, all
monetary amounts shown in the Consolidated Financial Statements and in the Notes
are expressed in million euros, except per share amounts.
The translation of euros into dollars has been made solely for the
convenience of the reader at the noon buying rate of the Federal Reserve Bank of
New York (the "Noon Buying Rate") on December 31, 1999, which was
E0.9930 = $1.00. No representation is made that such amounts in euros could have
been or could be converted into dollars at that or any other exchange rate on
such date or any other dates.
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This Registration Statement contains certain forward-looking statements and
information relating to BASF that are based on the current expectations,
estimates and projections of its management and information currently available
to BASF. These statements include, but are not limited to, statements about
BASF's strategies, plans, objectives, expectations, intentions, expenditures,
and assumptions and other statements contained in this Registration Statement
that are not historical facts. When used in this document, the words
"anticipate," "believe," "estimate," "expect," "intend," "plan" and "project"
and other similar expressions are generally intended to identify forward-looking
statements.
These statements reflect the current views of BASF with respect to future
events, are not guarantees of future performance and involve certain risks and
uncertainties that are difficult to predict. In addition, certain
forward-looking statements are based upon assumptions as to future events that
may not prove to be accurate.
Many factors could cause the actual results, performance or achievements of
BASF to be materially different from any future results, performance or
achievements that may be expressed or implied by such forward-looking
statements. These factors include, among others:
- changes in general political, economic and business conditions in the
countries or regions in which BASF operates;
- changes in the laws or policies of governments or other governmental or
quasi-governmental activities in the countries in which BASF operates;
- changes in the composition of BASF Group companies and the successful
integration of acquisitions, divestitures and joint venture activities;
- increased price competition and the introduction of competing products by
other companies;
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<PAGE> 3
- the ability to develop, introduce and market innovative products and
applications;
- the length and depth of product and industry business cycles,
particularly in the automotive, construction, electrical and textile
industries;
- changes in the demand for, supply of, and market prices of crude oil,
refined products, natural gas and petrochemicals, including changes in
production quotas in OPEC countries and the deregulation of the natural
gas transmission industry in Europe;
- the cost and availability of feedstock and other raw materials, including
naphtha, and the price of steamcracker products;
- the ability to pass increases in raw material prices on to customers;
- changes in the degree of patent and other legal protection afforded to
BASF's products;
- regulatory approval, particularly in the areas of pharmaceuticals, fine
chemicals, crop protection and plant biotechnology, and market acceptance
of new products;
- unexpected negative results from research and development and testing of
current product candidates;
- the ability to maintain plant utilization rates and to implement planned
capacity additions and expansions;
- the ability to reduce production costs by implementing technological
improvements to existing plants;
- the existence of temporary industry surplus production capacity resulting
from the integration and start-up of new world-scale plants;
- potential liability resulting from pending or future litigation,
including litigation and investigations relating to antitrust violations
in the vitamins business;
- potential liability for remedial actions under existing or future
environmental regulations;
- changes in currency exchange rates, interest rates and inflation rates;
- the successful integration of and conversion to the euro; and
- changes in business strategy and various other factors referenced in this
Registration Statement.
Many of these factors are macroeconomic in nature and are, therefore,
beyond the control of BASF's management. 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. BASF does not
intend, and does not assume any obligation, to update the forward-looking
statements contained in this Registration Statement.
ii
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I
ITEM 1. DESCRIPTION OF BUSINESS..................................... 1
General................................................... 1
Background and Historical Development..................... 4
Description of Business Segments
Chemicals.............................................. 5
Plastics & Fibers...................................... 19
Colorants & Finishing Products......................... 39
Health & Nutrition..................................... 48
Oil & Gas.............................................. 68
Employees................................................. 77
Environmental Matters..................................... 79
Research and Development.................................. 82
Supplies and Raw Materials................................ 83
E-commerce................................................ 84
ITEM 2. DESCRIPTION OF PROPERTY..................................... 86
ITEM 3. LEGAL PROCEEDINGS........................................... 92
ITEM 4. CONTROL OF REGISTRANT....................................... 94
ITEM 5. NATURE OF TRADING MARKET.................................... 95
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY
HOLDERS..................................................... 98
ITEM 7. TAXATION.................................................... 99
ITEM 8. SELECTED FINANCIAL DATA..................................... 103
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 108
Overview.................................................. 108
Basis of Presentation..................................... 110
Results of Operations..................................... 111
Liquidity and Capital Resources........................... 143
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK... 155
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT........................ 168
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS...................... 173
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR
SUBSIDIARIES................................................ 174
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.............. 175
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED.................. 176
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES............................. 188
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES.................................................. 188
PART IV
ITEM 17. FINANCIAL STATEMENTS........................................ 189
ITEM 18. FINANCIAL STATEMENTS........................................ 189
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS........................... 189
</TABLE>
iii
<PAGE> 5
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
INTRODUCTION
BASF is a return-focused global company generating long-term growth and
profitability from its chemical businesses, positioning itself for continuing
growth in health and nutrition and strengthening its presence in European and
other oil and gas markets. The company offers a wide range of products,
including high-value chemicals, plastics, colorants, automotive and industrial
coatings, crop protection products, pharmaceuticals, fine chemicals,
petrochemicals, crude oil and natural gas.
BASF is comprised of the parent company, BASF Aktiengesellschaft of
Ludwigshafen, Germany, and 149 consolidated subsidiaries. The company has
customers in more than 170 countries and operates production sites in 38
countries.
For the year ended December 31, 1999, BASF reported sales of E29.47
billion, income from operations of E2.01 billion and net income after taxes and
minority interests of E1.24 billion. Europe accounted for 58% of BASF's total
sales in 1999. BASF's activities in North America (comprised of the United
States, Mexico and Canada), accounted for 23% of sales. The Asia, Pacific Area,
Africa region contributed 13% to sales, while South America accounted for 6%.
Although Europe remains the company's primary market, BASF expects that its
activities outside of Europe will make an increasingly larger contribution to
its business. BASF plans to invest approximately E2.5 billion between 2000 and
2004 in its activities in North America, where it currently produces
approximately 90% of the products it sells there. BASF has also set a goal of
generating 20% of its worldwide sales in the Asia-Pacific region by 2010, with
70% of these sales originating from local production.
BASF is committed to strengthening its financial performance and
competitive position by bolstering cyclically resilient operations, achieving
cost and market leadership in operations that are sensitive to economic
pressures and expanding its activities in growth regions such as Asia as well as
North and South America. One of BASF's financial objectives is to achieve an
average annual increase of at least 10% in income from operations on a
comparable basis between 2000 and 2002.
BASF's long-term strategy and activities are guided by the principles of
Sustainable Development. The company's objective is to meet the economic,
ecological and social needs of today's society without compromising the ability
of future generations to meet their own needs. BASF contributes to Sustainable
Development by participating in the worldwide "Responsible Care(R)" initiative
developed by companies in the global chemical industry. BASF's aims are to avoid
accidents, to prevent its activities from impairing human and animal health and
to tailor its product range to the tenets of sustainability.
BUSINESS SEGMENTS
BASF has five separate business segments: Chemicals, Plastics & Fibers,
Colorants & Finishing Products, Health & Nutrition and Oil & Gas. These business
segments encompass BASF's 15 operating divisions. For financial reporting
purposes, BASF treats the three operating divisions of BASF's Health & Nutrition
business segment as three separate reportable operating segments:
Pharmaceuticals, Fine Chemicals and Crop Protection.
Chemicals
BASF produces a full range of chemicals in a highly integrated
approach to manufacturing. BASF's chemical production starts with basic
petrochemicals and inorganic chemicals substantially for captive use within
the company and extends to high-value chemicals and related products sold
to
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<PAGE> 6
external customers. BASF sells its chemicals to a multitude of industries,
particularly the chemical, construction, automotive and electronics
industries.
Plastics & Fibers
BASF is one of the world's largest plastics and fiber products
manufacturers. Its products include styrenic plastics, engineering and
high-performance plastics, thermoplastics, foams, nylon fibers and
polyurethane plastics.
Colorants & Finishing Products
The Colorants & Finishing Products segment manufactures a number of
BASF's high-value chemical products. Among the segment's products are
colorants, pigments, automotive and industrial coatings as well as
adhesives. BASF also manufactures superabsorbents, which are used to
manufacture sanitary care products.
Health & Nutrition: Pharmaceuticals, Fine Chemicals and Crop Protection
BASF is active in the areas of pharmaceuticals, fine chemicals and
crop protection. In pharmaceuticals, BASF is focused on therapeutic areas
with high medical need and large patient populations. BASF is also a
leading supplier of fine chemicals, including vitamins and other nutrients
for human and animal nutrition. In addition, BASF produces a variety of
crop protection products, including fungicides and herbicides.
Oil & Gas
The Oil & Gas segment operates through BASF's subsidiary Wintershall
AG. The main activities of the Oil & Gas segment are the exploration and
production of crude oil and natural gas and, together with Wintershall AG's
partner Gazprom of Russia, the marketing, distribution and trading of
natural gas in Central and Eastern Europe.
GROUP STRATEGY
Three key elements of BASF's strategy are:
- generating long-term growth and profitability from its chemical
activities;
- positioning itself for continuing growth in health and nutrition; and
- strengthening its presence in European and other oil and gas markets.
As an industry leader, BASF has set the following strategic goals:
- Achieve significant cost and operational production efficiencies
through its Verbund approach to integration
BASF believes it is one of the world's most efficient chemical producers
due to the highly integrated nature of its manufacturing sites. BASF's
integrated approach, known in German as "Verbund," generates significant
efficiencies throughout BASF's production activities, which BASF
believes historically has allowed the company to achieve higher
operating returns than its less-integrated competitors. Verbund is
powerfully represented at BASF's chemical manufacturing sites, which are
among the largest in the world. At its headquarters site in
Ludwigshafen, which serves as a model for Verbund, about 350 plants and
processes are integrated vertically and horizontally in dozens of
value-adding chains. This approach allows BASF to manufacture basic
chemicals predominately for sale to other operations within the company.
Although the transfer prices that these operations pay for internal
purchases are typically based on market prices, Verbund offers internal
buyers significant savings in logistics and in energy, transportation,
purchasing and infrastructure costs. BASF operations transform products
that they buy internally
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<PAGE> 7
into a multitude of precursors, intermediates, polymers and high-value
end products for sale to external customers. About 75% of the products
that BASF sells to external customers through its activities in the
Chemicals, Plastics & Fibers and Colorants & Finishing Products segments
are produced at its Verbund sites.
- Expand cyclically resilient business activities
BASF strives constantly to strengthen businesses in its portfolio that
are resilient to economic cycles. These areas include BASF's production
of high-value chemicals, pharmaceuticals, fine chemicals and crop
protection products. BASF is also expanding its marketing, distribution
and trading activities in the European natural gas market with partner
Gazprom of Russia.
- Aggressively manage the business portfolio
In businesses that are sensitive to economic cycles, BASF's goal is to
achieve cost leadership and develop strong market positions to diminish
the impact of difficult periods on earnings. BASF strives to achieve
this goal by investing in new technology, seeking operational advantages
by developing joint ventures with strong partners and exiting business
areas that offer insufficient returns.
- Expand global activities in geographic areas experiencing fast growth
or having the potential for faster growth
BASF is reinforcing its Verbund strategy as it expands its activities in
North America and Asia, where it plans to build two integrated
manufacturing sites. The company also plans to strengthen its sales and
marketing activities in South America. BASF has set a goal of achieving
an above-average growth rate in North America, Asia and South America
and is making the appropriate investments and acquisitions to achieve
this goal. In its home European market, which accounts for the largest
proportion of the company's total annual capital expenditures, BASF is
strengthening its core businesses.
- Develop BASF's innovative powers
BASF capitalizes on innovation to create and maintain a competitive
advantage. It targets research and development spending to create a
steady flow of new products and improved processes. These innovations
keep BASF's manufacturing methods and production plants at the forefront
of technology and include incrementally improving product quality and
purity, increasing product yields as well as reducing waste by-products
and energy requirements.
- Generate incentives for employees and value for shareholders
BASF's goal is to increasingly align the interests of management with
shareholders and to generate shareholder value. BASF recently
implemented a worldwide stock option program for senior executives that
allows them to purchase company stock on preferential terms if BASF
shares achieve defined performance goals. BASF has also established an
employee stock purchase program, which is currently available to
employees in Germany who are not eligible for the stock options program.
BASF plans to expand the program to employees outside of Germany. In
addition, believing that stockholders should receive an appropriate
share of profits, BASF more than doubled its dividends between 1994 and
1999. The company also started a share buyback program in 1999 and
launched a second program to buy back up to E2 billion in stock in March
2000.
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<PAGE> 8
BACKGROUND AND HISTORICAL DEVELOPMENT
BASF Aktiengesellschaft was incorporated in 1952 under the name "Badische
Anilin- und Soda-Fabrik AG." In 1973, the company changed its name to BASF
Aktiengesellschaft. BASF's headquarters are located in Ludwigshafen, Germany.
Although BASF Aktiengesellschaft was incorporated in 1952, it traces its
historical origins to 1865 when a stock corporation was founded under the name
"Badische Anilin- und Soda-Fabrik" and began producing coal tar dyestuffs. The
company rapidly gained a leading position in the world dye market. In the early
1900s, Badische Anilin- und Soda-Fabrik began transforming itself into a
multifaceted chemicals company.
In the mid-1920s, Badische Anilin- und Soda-Fabrik AG was merged into I.G.
Farbenindustries AG ("I.G. Farben"), a group formed from Germany's principal
chemical and pharmaceutical companies, including Bayer AG ("Bayer") and
Farbwerke Hoechst Aktiengesellschaft vormals Meister Lucius & Bruning
("Hoechst").
Following World War II, the Allied High Commission for Germany - formed by
the United States, Great Britain, France and the former Soviet Union to
administer occupied Germany - seized the assets of I.G. Farben. Based on Law No.
35 of the Allied High Commission, the assets were later partially dispersed to
12 newly incorporated companies, including Hoechst, Bayer and Badische Anilin-
und Soda-Fabrik AG. Under Law No. 35, Badische Anilin- und Soda-Fabrik AG
assumed no debts, liabilities and obligations of I.G. Farben, except for certain
liabilities expressly provided for in the regulation issued by the Allied High
Commission.
In the 1950s and 1960s, BASF started to expand beyond its domestic
operations by building both production and sales facilities outside Germany and
by establishing partnerships and joint ventures in Europe, North America and
South America. In 1958, BASF established a U.S. joint venture with The Dow
Chemical Company, significantly strengthening its operations. In 1969, BASF
acquired Wyandotte Chemicals Corp., further expanding its base of operations in
the United States. These companies formed the nucleus of BASF Corporation, into
which BASF consolidated its North American activities in 1985.
In 1969, BASF acquired the German oil company Wintershall AG. Since then,
BASF has significantly strengthened and developed its exploration and marketing
of oil and gas by entering into a strategic partnership with Gazprom of Russia,
one of the world's leading natural gas producers. In 1993, BASF and Gazprom
established the joint venture WINGAS to market and distribute gas in Central and
Eastern Europe.
In 1975, BASF broadened its base in pharmaceuticals by acquiring a majority
interest in Knoll AG. BASF purchased the remaining interests in Knoll in 1982.
Knoll, which is based in Ludwigshafen, Germany, offers a targeted line of
pharmaceutical products. BASF acquired Boots Pharmaceuticals of the United
Kingdom in 1995, strengthening its presence in the important North American
pharmaceuticals market.
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<PAGE> 9
DESCRIPTION OF BUSINESS SEGMENTS
CHEMICALS
SEGMENT OVERVIEW
BASF's Chemicals segment is one of the largest chemical producers in the
world based on sales. The Chemicals segment produces a full range of products,
from basic petrochemicals and inorganic chemicals to high-value specialty
chemicals, allowing BASF to exploit fully the benefits of its Verbund approach
to integration.
The following table sets forth the Chemicals segment's sales to third
parties, percentage of total BASF sales, intersegmental transfers and income
from operations for the last three years:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
(EUROS IN MILLIONS)
<S> <C> <C> <C>
Sales to third parties............................. E4,471 E4,255 E4,393
Percentage of total BASF sales..................... 16% 15% 15%
Intersegmental transfers........................... E2,101 E1,935 E1,848
Income from operations............................. E1,089 E 922 E 698
</TABLE>
The Chemicals segment produces a wide variety of chemicals that are sold to
a multitude of industries, including the chemical, construction, automotive,
electronics, detergents, colorants, coatings and health and nutrition
industries.
In December 1999, BASF agreed to sell for E215 million the COMPO(R)
specialty fertilizer business conducted by its subsidiary, COMPO GmbH of
Munster, Germany, to K+S Aktiengesellschaft of Kassel, Germany, and that K+S
would assume the marketing and sale of agricultural fertilizers manufactured by
BASF. In 1998 and 1999, the business activities acquired by K+S had sales of
about E920 million, of which COMPO(R) products accounted for about one third and
agricultural fertilizers accounted for about two thirds. Starting in 2000, BASF
will account for sales of fertilizer products in its Other segment, and prior
financial data for the Chemicals segment has been restated as of January 1,
1997, to reflect the dissolution of the Fertilizers division.
The Chemicals segment exemplifies the benefits of BASF's Verbund approach
to integration because its divisions both intensively consume and manufacture
products along the company's core value-adding chains. Virtually all products
that the segment sells to external customers are produced within this integrated
network. Although most of the segment's sales are to external customers,
approximately 30% of the segment's total sales are intersegmental transfers to
other BASF operations for the manufacture of higher-value products. These
products manufactured for captive use include many basic and intermediate
chemicals.
The Chemicals segment's strategic goal is to expand and strengthen its
position as a competitive and profitable global producer. The Chemicals segment
aims to maintain its leading market position in Europe and to expand operations
in North America and the Asia-Pacific region. Achieving economies of scale and
making investments in technology, processes and products are the most important
factors for the segment's competitiveness. BASF's capital expenditures relating
to the Chemicals segment are focused on building new world-scale plants that
offer state-of-the-art technology.
As part of its intention to fulfill its strategic goals, BASF will
reorganize effective June 1, 2000, its Petrochemicals & Inorganics and
Industrial Chemicals divisions to form two new global operating divisions. BASF
believes the new organizational structure will better conform to its
value-adding chains and make the company's integration even more efficient. The
former Petrochemicals & Inorganics division will be named "Petrochemicals" and
will be responsible for the manufacturing and marketing of products from
steamcrackers as well as plasticizers and solvents. The former Industrial
Chemicals division will be renamed "Inorganics" and will be responsible for the
production and marketing of inorganic chemicals
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<PAGE> 10
which include ammonia, nitric acid, sulfuric acid and chlorine. It will also be
responsible for catalysts as well as glues and impregnating resins.
The divisions comprising the Chemicals segment and their principal products
are:
PETROCHEMICALS & INORGANICS:
<TABLE>
<CAPTION>
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
<S> <C> <C> <C>
- Petrochemicals including ethylene, - Starting materials largely for captive
propylene, butenes and benzene use within BASF to manufacture
higher-value
- Organic basic chemicals such as acetylene chemicals, polymers, fertilizers and crop
and methanol protection products
- Inorganic basic chemicals such as
ammonia, sulfuric acid, chlorine and
sodium hydroxide
- Inorganic specialty products reactions
- Industrial gases
- Catalysts - Organic reactions
</TABLE>
INDUSTRIAL CHEMICALS:
<TABLE>
<CAPTION>
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
<S> <C> <C> <C>
- Plasticizers and plasticizer raw - Additives to soften plastics
materials including oxo alcohols and
phthalic anhydride
- Oxygenated solvents including acetates - Solvents to process, apply, clean or
and glycol ethers separate materials mainly in the
coatings, pharmaceuticals, cosmetics and
household products industries
- Glues and impregnating resins including - Wood-to-wood adhesives and bonding
formaldehyde and melamine applications
</TABLE>
INTERMEDIATES:
<TABLE>
<CAPTION>
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
<S> <C> <C> <C>
- Amines - Precursors or components for products
such as pharmaceuticals, crop protection
products, polymers, surfactants and gas
treatment systems
- Diols - Polyurethanes, polymers, solvents,
textile fibers and products for the
coating industry
- Carboxy and dyestuff intermediates - Precursors for crop protection products,
pharmaceuticals, polymers, textiles,
leather and paper products
- Carboxylic acid and miscellaneous - Additives and/or components for the feed
intermediates and food, textile, leather, life sciences
and polyurethanes industries
</TABLE>
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<PAGE> 11
SPECIALTY CHEMICALS:
<TABLE>
<CAPTION>
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
<S> <C> <C> <C>
- Ethylene derivatives such as ethylene - Precursors and components for products
oxide, glycols, surfactants and glycol such as detergents, anti-freeze and
ethers polyester fibers, films and PET plastic
bottles
- Isobutene derivatives such as - Precursors and components for products
polyisobutene such as fuel and lubricant additives
- Hydrocyanic acid derivatives such as - Paper manufacturing, electroplating,
chelating agents laundry products and photographic
development
- Propylene derivatives such as propylene - Precursors and components for products
oxide, propylene glycols, surfactants and such as hydraulic fluids, solvents and
dispersants detergents
</TABLE>
SEGMENT STRATEGY
The Chemicals segment provides the foundation for BASF's Verbund approach
to integration, supplying all of the company's chemical customers - both
internal and external - with a wide spectrum of quality chemicals at competitive
prices.
The Chemical segment's strategy is to maintain its leading market position
in Europe, to expand operations in North America and the Asia-Pacific region and
to improve its competitive position by employing the most efficient technologies
and processes available.
In 1999, the Chemicals segment spent E763 million on capital expenditures.
BASF has major projects underway in North America and Asia. A major project
in Asia is the expansion of the new Verbund site in Kuantan, Malaysia, where the
first plants went on stream in March 2000. In addition, BASF is planning a new
Verbund site in Nanjing, China. BASF expects plants at the Nanjing site to start
up in 2005. In North America, BASF and its partner, TotalFinaElf S.A., are
currently building the world's largest liquid steamcracker at TotalFinaElf's
refinery in Port Arthur, Texas. The steamcracker, scheduled to begin operation
in the second quarter of 2001, will supply propylene, ethylene and other
products to BASF's Verbund sites in Geismar, Louisiana, and Freeport, Texas.
In 1999, the Chemicals segment invested approximately E149 million in
research and development. Research activities are focused on improving
value-adding production chains that serve the segment and on developing higher
value-added products. BASF is developing new products and production processes,
in particular for organic and inorganic intermediates and industrial and
specialty chemicals.
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<PAGE> 12
The main capital expenditure projects of the Chemicals segment currently
include:
<TABLE>
<CAPTION>
PROJECTED ANNUAL
CAPACITY AT COMPLETION PROJECTED
OF PROJECT START-UP OF
LOCATION PROJECT (METRIC TONS) OPERATION
-------- ------- ---------------------- -----------
<S> <C> <C> <C>
Kuantan, Malaysia Oxo C4 alcohols 240,000(1) 2001
Phthalic anhydride 40,000 2001
Plasticizers 100,000 2001
Butanediol 100,000 2002
Formic acid 50,000 2003
Butyl acetate 50,000 2004
Port Arthur, Texas Steamcracker 830,000 ethylene and 2001
860,000 propylene(2)
Butadiene 410,000(3) 2002
Ludwigshafen, Germany Formaldehyde expansion 470,000 2000
Optically active amines 2,000 2001
Butanediol expansion 190,000 2001
Dimethylhexanediol 2,000 2001
Antwerp, Belgium Ethylene oxide expansion 400,000 2001
Glycols expansion 300,000 2001
Freeport, Texas Hexanediol 20,000 2001
Geismar, Louisiana Ethylene oxide expansion 420,000 2000
Glycols expansion 390,000 2000
Aniline 120,000 2000
</TABLE>
- - - - - - ---------------
(1) Conducted through a joint venture between BASF (60%) and Petronas (40%)
(capacity reflects total joint venture capacity).
(2) Conducted through a joint venture between BASF (60%) and TotalFinaElf (40%)
(capacity reflects total joint venture capacity).
(3) Conducted through a joint venture between Shell (60%), BASF (24%) and
TotalFinaElf (16%) (capacity reflects total joint venture capacity).
PETROCHEMICALS & INORGANICS
OVERVIEW
BASF's Petrochemicals & Inorganics division produces approximately 300
basic commodity chemicals, of which approximately 70% are used within BASF for
higher-value products. The division provides the first step in BASF's Verbund
approach to integration, and all of BASF's integrated value-adding chains begin
with products from the division.
The principal raw materials used in this division include naphtha, which is
a colorless liquid derived from refining crude oil, and natural gas. The
division purchases 15% of its raw materials from other BASF operations, which is
primarily natural gas purchased from BASF's subsidiary Wintershall AG. All other
principal raw materials (natural gas and naphtha) are bought from external
sources. BASF does not rely on any dominant supplier for its raw materials.
8
<PAGE> 13
The Petrochemicals & Inorganics division's principal products include the
basic building blocks of petrochemistry produced in steamcrackers, which use
steam to crack naphtha mainly into ethylene and propylene - two important
petrochemical materials. BASF also produces acetylene, methanol and ammonia, all
of which are chemicals based on natural gas. In addition, BASF produces
significant volumes of major inorganic basic products, such as sulfuric acid,
sodium hydroxide and chlorine, mainly for captive use. The Petrochemicals &
Inorganics division produces industrial gases for consumption at BASF's Verbund
sites in Ludwigshafen, Germany and Antwerp, Belgium.
BASF operates three steamcrackers - two in Ludwigshafen and one in Antwerp.
They have a combined annual capacity of l.3 million metric tons of ethylene,
750,000 metric tons of propylene, 450,000 metric tons of C4 cuts (a mixture of
C4 hydrocarbons such as butadiene) and 700,000 metric tons of aromatics such as
benzene. Virtually all of these products are used for captive use to supply
value-adding chains within BASF's Ludwigshafen and Antwerp sites. Although the
steamcrackers mainly supply products for captive use within the company, BASF
also maintains positions in the ethylene merchant markets to ensure high
capacity utilization.
In North America, BASF and its partner TotalFinaElf are currently building
the world's largest liquid steamcracker at TotalFinaElf's refinery in Port
Arthur, Texas. The steamcracker, scheduled to start operations in the second
quarter of 2001, will supply propylene, ethylene and other products to BASF's
Verbund sites in Geismar, Louisiana, and Freeport, Texas. BASF is the majority
partner with a 60% ownership interest and the site operator. The combined
investment between BASF and TotalFinaElf will be approximately E1 billion, with
BASF's share being E600 million. The steamcracker will have an annual capacity
of approximately 830,000 metric tons of ethylene and 860,000 metric tons of
propylene. In a new joint venture, BASF is planning to build the world's largest
butadiene extraction plant in Port Arthur, Texas, with partners TotalFinaElf and
Shell. In Asia, BASF plans to build a steamcracker as part of its new Verbund
site in Nanjing, China, in cooperation with its partners, China Petro-Chemical
Corporation (SINOPEC) and Yangzi Petrochemical Corporation.
Manufacturing and developing catalysts are also important to the
Petrochemicals & Inorganics division. Catalysts are substances, usually metals
used in relatively small amounts, which, when added to a chemical process, speed
or slow the rate of the chemical reaction without being consumed in the process.
Developing catalysts plays an important role in BASF's strategy to protect and
expand its technological leadership because catalysts often help increase
product yields. BASF catalysts are used mainly in internal processes, but are
also sold to external customers on a selective basis.
Virtually all of the products in the Petrochemicals & Inorganics division
are commodities; low production cost is therefore key to the success of the
division. Highly competitive cost positions are achieved through economies of
scale and integrated Verbund sites. The Petrochemical & Inorganics division
sells its products, many of which constitute first steps in BASF's integrated
value-adding chains, to other BASF operations at the same site at market prices.
By buying these products from BASF's own Petrochemical & Inorganics division,
however, other BASF operations benefit from efficiencies in logistics and
savings in energy, transportation, purchasing and infrastructure costs. This
approach underpins BASF's ability to efficiently manufacture higher-value
products throughout its operations.
The Petrochemicals & Inorganics division's sales to third parties were E747
million in 1999.
9
<PAGE> 14
PRODUCTS
Production capacity for the major products in the Petrochemicals &
Inorganics division is as follows:
<TABLE>
<CAPTION>
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS) PRIMARY APPLICATIONS
------- -------------------------- --------------------
<S> <C> <C>
Ethylene 1,300,000 - Plastics
- Specialty chemicals
- Solvents
- Dispersions
Propylene 750,000 - Plastics
- Plasticizers
- Solvents
- Specialty chemicals
Ammonia 1,500,000 - Fertilizers
- Glues and impregnating resins
- Dyestuffs
- Animal nutrition
Benzene 300,000 - Plastics
Chlorine 460,000 - Plastics
- Dispersions
- Solvents
Acetylene 90,000 - Plastics
- Vitamins
- Pharmaceuticals
Methanol 450,000 - Glues and impregnating resins
- Chemical intermediates
- Solvents
- Vitamins
Sulfuric acid 820,000 - Fiber products
Sodium hydroxide 470,000 - Chemicals
</TABLE>
MARKETS AND DISTRIBUTION
In 1999, Europe accounted for 87% of the Petrochemicals & Inorganics
division's sales to external customers, North America for 5% and Asia for 7%.
Specialty chemical and other chemical companies are the primary external
customers of this division, and many of these customers are competitors of BASF.
Approximately 70% of the division's sales are to other BASF divisions.
The Petrochemicals & Inorganics division produces commodity products that
are subject to strong cyclicality in pricing. Changes in the costs of raw
materials have an almost immediate effect on the division's financial
performance. The division sells its products to external customers pursuant to
long-term supply contracts and into merchant markets for commodity products.
The Petrochemicals & Inorganics division's primary competitors in the
commodity markets are a small number of large chemical companies, including The
Dow Chemical Company of the United States,
10
<PAGE> 15
Shell Chemicals U.K. and BP Amoco Chemical, Inc. of the United Kingdom, and
Enichem, a unit of ENI S.p.A. of Italy.
INDUSTRIAL CHEMICALS
OVERVIEW
BASF's Industrial Chemicals division sells more than 250 petrochemical
derivative products to approximately 3,000 customers worldwide in a broad range
of industries. The main product lines of the Industrial Chemicals division are:
- plasticizers, which are used to make rigid plastics flexible;
- solvents, which are often used to facilitate chemical processes; and
- glues and impregnating resins, which are used for all types of
wood-to-wood adhesion and for the impregnation of decorative paper.
BASF's customers use industrial chemicals in the production of their own
higher-value products. The construction industry is the largest end-market for
the Industrial Chemicals division's products, followed by the furniture, cable
and wire, automotive, sporting goods, packaging and clothing industries.
Many of the Industrial Chemicals division's products constitute an interim
level within BASF's value-adding chains, serving as precursors for many final
products. The principal raw materials used by the division are ethylene,
propylene, butenes, synthesis gas, methanol, o-xylene, phenol, melamine and
urea. BASF produces all of these products, except o-xylene and phenol, for
captive use. The Industrial Chemicals division purchases approximately 70% of
its raw materials from within BASF.
Approximately 40% of the division's production is designated for captive
use within BASF. These internal transfers include major amounts of oxo alcohols,
phthalic anhydride and formaldehyde to create higher-value products. This
captive use within BASF provides steady demand that helps maintain good capacity
utilization levels at the division's production plants.
The Industrial Chemicals division's goal is to increase sales in Asia and
North America by expanding its production capacity in these regions, primarily
to support BASF operations but also to meet the needs of external customers.
BASF is currently creating new production capacity for industrial chemicals with
its partner Petronas at BASF's new Verbund site in Kuantan, Malaysia. BASF also
plans to include production plants for the Industrial Chemicals division at a
planned Verbund site in Nanjing, China, with its partner Yangzi Petrochemical
Company.
Cost leadership is vital for the Industrial Chemicals division due to the
commodity pricing structure for many of its products. BASF believes its
integrated approach to manufacturing at world-scale plants helps the division
control costs and compete effectively in its key product areas. Offering
customers innovative products, especially in the areas of glues, resins and
plasticizers, is also important for BASF to maintain a competitive advantage.
The Industrial Chemicals division's sales to third parties were E765
million in 1999.
PRODUCTS
The Industrial Chemicals division has three major product lines:
Plasticizers and Plasticizer Raw Materials
BASF offers a broad range of plasticizers, which are used in chemical
processes to make rigid plastics flexible. These products include standard
plasticizers based on phthalic anhydride under the trade name Palatinol(R) as
well as specialty plasticizers under the trade names Plastomoll(R) and
Palamoll(R). BASF also markets the plasticizer precursors phthalic anhydride and
higher plasticizer range alcohols. BASF sells these products globally, and the
construction and cable and wire industries are the primary end-markets.
11
<PAGE> 16
Solvents
BASF offers a wide range of oxygenated, halogen-free solvents that are used
to dissolve other chemicals and facilitate chemical reactions. BASF's particular
strengths are in oxo alcohols, acetates, glycol ethers and glycol ether acetates
as well as in the specialty solvents dimethylformamide (DMF), dimethylacetamide
(DMAC) and cyclohexanone. BASF sells most of these products globally and
primarily to the coatings, pharmaceuticals and cosmetics industries.
Glues and Impregnating Resins
BASF offers a wide variety of tailor-made, wood-to-wood adhesives. These
adhesives are used to bond particles in the production of chipboard and for the
surface bonding of wooden components. BASF also produces impregnating resins,
which are used to manufacture decorative paper. The primary market for these
products is Europe.
Production capacity for the major products in the Industrial Chemicals
division is as follows:
<TABLE>
<CAPTION>
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS) PRIMARY APPLICATIONS
------- -------------------------- --------------------
<S> <C> <C>
Oxo C4 alcohols 790,000 - Plasticizers
- Solvents
- Dispersions
Phthalic anhydride 127,000 - Plasticizers
- Resins
Plasticizers (phthalates) 300,000 - Flexible PVC
Formaldehyde condensation products 600,000 - Glues and impregnating resins
Formaldehyde 484,000 - Glues and impregnating resins
</TABLE>
MARKETS AND DISTRIBUTION
In 1999, Europe accounted for 56% of the Industrial Chemicals division's
sales to external customers, North America for 28% and the Asia, Pacific Area,
Africa region for approximately 13%.
The Industrial Chemicals division sells products through BASF's own sales
force as well as through wholesalers. Some of this division's customers are also
competitors of BASF.
The Industrial Chemicals division produces commodities characterized by
cyclicality in pricing. The market for plasticizers and oxo alcohols is
characterized by excess capacity, which has resulted in stiff competition and
pricing pressure. Competition in the market for industrial chemicals is based on
strong customer relationships, comprehensive product services and price.
The primary competitors of BASF's Industrial Chemicals division are a
diverse number of medium and large chemical companies. BASF is the world's
largest producer of oxo alcohols and second largest producer of plasticizers.
BASF considers BP Amoco Chemical, Inc. of the United Kingdom; Eastman Chemicals
Corp., Exxon Chemicals Company and Union Carbide Corp. of the United States; and
Celanese AG and the Degussa-Huls AG unit Oxeno of Germany to be its main
competitors in the areas of plasticizers and solvents. For glues and
impregnating resins, Nordkemi Oy of Finland (consisting of the former Dyno
Industrier ASA of Norway and Neste Chemicals of Finland) and Elf Atochem of
France are BASF's primary competitors.
12
<PAGE> 17
INTERMEDIATES
OVERVIEW
The Intermediates division manufactures approximately 550 products that are
sold to approximately 3,000 customers worldwide. These customers typically
purchase the division's chemical precursors to create higher-value chemicals.
The division has four major product areas:
- amines,
- diols,
- carboxylic acids and miscellaneous intermediates, and
- carboxy and dyestuff intermediates.
Customers of the Intermediates division are largely active in the
manufacture of surfactants, plastics, polyurethanes, textile fibers, resins,
paints, colorants, pharmaceuticals and crop protection products.
The Intermediates division represents an important link in BASF's Verbund
approach to integration because it purchases more than 80% of its raw materials
from within BASF, benefiting from efficiencies in logistics and savings in
energy, transportation, purchasing and infrastructure costs. The division also
consumes by-products of other BASF chemical operations, thus adding value to
otherwise wasted product streams. The principal raw materials that the division
uses are methanol, formaldehyde, acetylene, C4 aldehyde, acrylonitrile, ammonia,
ethylene oxide, ethylene, chlorine, benzene and nitric acid.
Many of the Intermediates division's products are resilient to economic
cycles, making the division a steady and solid contributor to BASF's
profitability. The division's products are often the result of multi-stage
production processes within BASF before intermediates are sold to external
customers. The division, however, also satisfies high demand within BASF for
cost-efficient precursors for the production of crop protection products,
pharmaceuticals, paint resins, plastics, adhesives, dyes, pigments and process
chemicals for the textile, leather and paper industries. Internal transfers, in
particular of amines, to other BASF operations account for approximately 30% of
the division's total sales.
The keys to the Intermediates division's success are achieving
technological and cost leadership, offering customized products and,
increasingly, developing a global production presence. To achieve technological
and cost leadership, BASF participates in targeted research and process
development programs for new, efficient world-scale production sites. The
Intermediates division cooperates with key customers to develop new, tailor-made
products. To increase its global presence, the Intermediates division intends to
expand its operations outside of Europe, particularly in Asia with a major focus
on the new Verbund sites in Kuantan, Malaysia, and Nanjing, China, as well as
the production site in Ulsan, Korea. BASF is specifically aiming to build on its
existing global leadership position in the production of diols and to expand its
production of amines to capture an increased share of global markets.
The Intermediates division's sales to third parties were E1.472 billion in
1999.
PRODUCTS
The Intermediates division has four major product areas:
Amines
BASF is one of the world's largest producers of amines, which are
principally used to make laundry and cleaning products, process chemicals and
crop protection products. BASF offers approximately 140 different amines
worldwide. Key products include aniline (manufactured mainly for captive use
within BASF), ethanolamines, ethyleneamines, alkylamines, alkylalkanolamines and
specialty amines. Amines are sold globally, but Europe is BASF's primary market
for these products.
13
<PAGE> 18
Diols
BASF is the world's largest manufacturer of diols, which are chemical
building blocks for products such as plastics, polyurethanes, fibers and paints.
Key products include 1,4-butanediol, tetrahydrofuran, PolyTHF(R),
gamma-butyrolactone, N-methylpyrrolidone, hexanediol and neopentylglycol. BASF
sells and produces diols globally.
Carboxylic Acids and Miscellaneous Intermediates
This product group includes formic acid, propionic acid and adipic acid as
well as various chemical specialties that include alcoholates, formamide and
triphenylphosphine. These chemicals can be used, for example, to manufacture
preservatives for the feed and food industries, auxiliaries for textile and
leather applications as well as health and nutrition products. The Intermediates
division sells these products mainly in Europe and Asia. BASF's strategy is to
increase sales in Asia by focusing capital expenditures on this region.
Carboxy and Dyestuff Intermediates
BASF manufactures carbonyl chloride derivatives, dialdehydes and
imidazoles. These chemicals are often used in the manufacture of paper,
polymers, textiles and leather products. Europe is BASF's primary market for
these products, but BASF has targeted Asia for future substantial growth.
14
<PAGE> 19
Production capacity for the major products in the Intermediates division is
as follows:
<TABLE>
<CAPTION>
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS) PRIMARY APPLICATIONS
------- -------------------------- --------------------
<S> <C> <C>
Aniline/Dinitrotoluene 375,000/85,000 - Polyurethane plastics
- Rubber industry applications
Alkylamines 215,0000 - Crop protection
- Water treatment
- Pharmaceuticals
- Rubber chemicals
Ethanolamines/ 208,000 - Laundry and cleaning materials
Alkylalkanolamines - Water treatment
- Crop protection products
- Gas purification
Specialty amines 120,000 - Surfactants
- Rubber industry
- Crop protection
- Polyurethane and epoxy
Carbonyl chloride derivatives 31,000 - Organic peroxides
- Pharmaceuticals
Butanediol 370,000 - Plastics and polyurethanes
Polytetrahydrofuran 65,000 - Fibers
(PolyTHF(R)) - Polyurethanes
Hexanediol 30,500 - Plastics
- Coating resins
Formic acid/Propionic acid 180,000/80,000 - Preservatives
Formamide 100,000 - Crop protection products
</TABLE>
MARKETS AND DISTRIBUTION
In 1999, Europe accounted for approximately 51% of the Intermediate
division's sales to external customers. North and South America together
accounted for approximately 26% and the Asia, Pacific Area, Africa region
accounted for approximately 23%. BASF sells this division's products through its
own sales force as well as through distributors.
A significant majority of the Intermediates division's products are
resilient to economic cycles, but the division also manufactures products that
are commodities and characterized by cyclicality in pricing. The trend toward
commodity pricing is increasing.
The competitors of the Intermediates division range from major industry
participants to smaller, specialized chemical companies. While BASF competes
mainly on the basis of price, product offering and quality along with customer
service are important for success. BASF is among the top three producers
worldwide in its four intermediates business sectors. Approximately 10 medium to
large companies compete globally in the amines market. BASF considers its global
competitors based in the United States to be Union Carbide Corp., Air Products
Corp., The Dow Chemical Company and Huntsman Corporation.
15
<PAGE> 20
Its key European competitors are UCB S.A. of Belgium and Akzo Nobel N.V. of the
Netherlands. In its diols activities, BASF considers its competitors to be
Eastman Chemicals Corp., International Specialty Products Inc. and E.I. du Pont
de Nemours and Company of the United States; Eurodiol S.A. of Belgium in Europe;
and Mitsubishi Chemicals Corporation of Japan, Shinwa Petrochemicals of Korea,
Tonen Chemical Corporation of Japan and Dairen Chemical Corporation of Taiwan in
Asia. Competitors in the carboxy and dyestuff intermediates group are PPG
Industries, Inc. of the United States and Groupe SNPE of France. The main
competitors in carboxylic acids are Kemira OY of Finland and BP Amoco Chemical,
Inc. in Europe, and Celanese AG of Germany, Union Carbide Corp. and Eastman
Chemicals Corp. in the United States.
SPECIALTY CHEMICALS
OVERVIEW
The Specialty Chemicals division, which is one of the world's largest
manufacturers of high-value chemicals, produces more than 1,200 products that
are sold to over 4,000 customers worldwide in more than 50 major industries.
The Specialty Chemicals division supplies products to the detergent, paper
and cleaning products industries, including surfactants and chelates used to
produce paper and cleansing agents. It supplies anti-freeze and brake fluids to
the automotive industry as well as fuel and lubricant additives to the mineral
oil industry. The division also sells ethylene glycol to manufacturers of
polyester fibers, films and PET (polyethylene terephthalate) plastic bottles.
The division's electroplating chemicals are used in the electronics industry and
its biocides are used for disinfection in various applications.
Products of the Specialty Chemicals division often represent the end
products of several significant value-adding chains within BASF's Verbund.
BASF's approach to integration gives the Specialty Chemicals division an
advantage over small and medium-sized companies that lack the cost advantages of
integration. The most important chains from which the division benefits are
based on derivatives of ethylene as well as the raw materials propylene,
isobutene and hydrocyanic acid. BASF is among the world's largest producers of
ethylene oxide, which is a derivative of ethylene, and offers a large variety of
products based on this chemical. The Specialty Chemicals division manufactures
ethylene oxide at large world-scale plants at BASF's Verbund sites and is
responsible for a substantial part of BASF's ethylene-based products. The
division purchases 85% of its precursors from within BASF and sells almost 80%
of its products to external customers.
BASF's goal is to become one of the world's leading producers of nonionic
surfactants based on ethylene oxide, both through acquisitions and by expanding
its production capacity. Surfactants enhance cleansing efficiency and are used,
for example, in household detergents and dishwashing agents as well as in
industrial and institutional cleaning applications. BASF acquired and
successfully integrated the U.S. surfactants businesses of both PPG Industries,
Inc. and Olin Corporation of the United States at the end of 1997. These
acquisitions considerably increased BASF's market share of specialty surfactants
and helped BASF become a leading supplier of surfactants in North America. The
new nonionic surfactants plant at BASF's site in Geismar, Louisiana, will make a
significant contribution to the company's already strong market position. BASF
is a leading nonionic surfactants manufacturer in the European market.
In 1998, BASF also acquired the U.S. chelating agents business of Ciba
Specialty Chemicals Holding Inc. of Switzerland, improving its position as a
global supplier of chelating agents, which are used to manufacture paper and
detergents, among other things.
The Specialty Chemicals division's goal is to expand its regional presence
outside of Europe, particularly for surfactants in North America and for glycols
in Asia. The division also aims to work closely with customers to develop
higher-value products, especially in the detergent industry. BASF is actively
expanding its marketing activities and production capacity in the Asia-Pacific
region to achieve medium and long-term growth. The ethylene oxide and glycols
sites within BASF's planned Verbund site in Nanjing, China, are part of this
growth strategy.
16
<PAGE> 21
The Specialty Chemicals division's sales to third parties were El.409
billion in 1999.
PRODUCTS
The Specialty Chemicals division's products are largely based on four
value-adding chains: ethylene, isobutene, hydrocyanic acid and propylene. The
division sells its products worldwide, but sales are concentrated mostly in
Europe and the United States.
Ethylene Derivative Chemistry
Ethylene derivative chemistry products form the core of the Specialty
Chemicals division. These products are used mainly to produce surfactants,
glycols and glycol ethers. BASF produces nonionic surfactants, which are often
used in detergents, that are based on aliphatic alcohols and ethylene oxide or
on block polymers that are produced by combining ethylene oxide and propylene
oxide. BASF is one of Europe's largest ethylene glycol producers, a product used
in anti-freeze in the automotive industry. BASF also supplies ethylene glycol to
polyester manufacturers for the production of fibers, films and PET plastic
bottles. Waxes synthesized from ethylene also are used in various surface
treatment applications for automobiles and floors.
Isobutene Derivative Chemistry
Isobutene is the starting material for BASF's Keropur(R) and Glissopal(R)
brand fuel and lubricant additives. BASF is one of the world's largest global
suppliers of polyisobutene and its derivatives, such as polyisobuteneamine,
which are part of the isobutene value-adding chain. The key markets for fuel
additives are North America and Europe. Polyisobutene is marketed directly to
motor oil additive manufacturers.
Hydrocyanic Acid Derivative Chemistry
BASF produces several chelating agents based on hydrocyanic acid that are
used to manufacture paper and detergents and also serve as process chemicals in
various industries. Applications include paper manufacturing, electroplating,
laundry products and photographic chemicals.
Propylene Derivative Chemistry
Propylene oxide is synthesized within the Specialty Chemicals division from
propylene and serves as a base for a wide variety of products including
surfactants, hydraulic fluids, solvents and propylene glycols. Another product
of the propylene value-adding chain is acrylic acid, which is used to
manufacture dispersants and auxiliary chemicals for detergents and water
treatment. In addition to the production capacity listed below, BASF has access
to additional capacity of propylene oxide through its BASELL joint venture with
Shell.
17
<PAGE> 22
Production capacity for the major products in the Specialty Chemicals
division is as follows:
<TABLE>
<CAPTION>
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS) PRIMARY APPLICATIONS
------- -------------------------- --------------------
<S> <C> <C>
Alkoxylation products 305,000 - Nonionic surfactants
Chelating agents 55,000 - Paper manufacturing
- Detergents
Ethylene oxide 770,000 - Nonionic surfactants
- Glycols
Propylene oxide 124,000 - Nonionic surfactants
- Propylene glycols
Ethylene glycols 550,000 - Anti-freeze
- Polyester
Propylene glycols 80,000 - Solvents
Glycol ethers 125,000 - Brake and hydraulic fluids
</TABLE>
MARKETS AND DISTRIBUTION
In 1999, Europe accounted for approximately 54% of the Specialty Chemicals
division's sales to external customers, while North America accounted for
approximately 33%. The Asia, Pacific Area, Africa region and South America
together accounted for the remaining sales of approximately 13%.
BASF sells products from the Specialty Chemicals division through its own
sales force, as well as through wholesalers. Some of the division's customers
are also competitors of other BASF divisions.
Competition varies significantly in the markets for the division's numerous
products. In the markets for some basic products, such as ethylene glycol,
competition is based mainly on price. Competition in the markets for high-value
products, such as specialty surfactants and fuel additives, is based mainly on
product offering and quality and product performance.
Competitors in the industry range from a large number of small, specialized
chemical manufacturers to the world's largest global chemical companies. BASF
considers its principal competitors of the Specialty Chemicals division to be
Clariant International Ltd. of Switzerland, Shell Chemicals U.K. of the United
Kingdom and Union Carbide Corp. and The Dow Chemical Company of the United
States.
18
<PAGE> 23
PLASTICS & FIBERS
SEGMENT OVERVIEW
BASF is one of the world's leading plastics and fiber products
manufacturers based on sales and offers one of the industry's most comprehensive
product ranges. The products of the Plastics & Fibers segment include:
- standard plastics, such as polystyrene, polyethylene and polypropylene;
- polyurethane raw materials as well as polyurethane products and systems;
- nylon fibers and nylon intermediates;
- styrene copolymers used in higher-value plastic applications; and
- engineering plastics, which are high-performance materials that can
withstand high temperatures, are resistant to chemicals and can often
replace metal and wood in applications.
The following table sets forth the Plastics & Fibers segment's sales to
third parties, percentage of total BASF sales, intersegmental transfers and
income from operations for the last three years:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
(EUROS IN MILLIONS)
<S> <C> <C> <C>
Sales to third parties......................... E7,395 E7,573 E8,533
Percentage of total BASF sales................. 26% 27% 29%
Intersegmental transfers....................... E 450 E 414 E 421
Income from operations......................... E 368 E 539 E 640
</TABLE>
The principal customers of the Plastics & Fibers segment are active in a
broad range of industries, including the construction, packaging, automotive,
electronics, consumer products, textiles and sports and leisure industries.
The Plastics & Fibers segment, whose products often represent some of the
highest stages in BASF's value-adding chains, benefits significantly from
several levels of Verbund-generated cost savings. The Plastics & Fibers segment
also benefits from the ability of BASF's Verbund sites to guarantee a steady
flow of precursors, even during periods of industry short supply. The segment
buys a number of raw materials externally but does not rely on any dominant
supplier.
Europe is BASF's core market for plastics. To ensure the continued success
of the Plastics & Fibers segment, BASF is currently positioning itself to better
respond to customer needs by building regional production sites in the key
markets of the segment's leading customers. BASF is also expanding existing
production sites, application centers and sales offices in the segment's major
markets as well as establishing and acquiring new sites to serve emerging growth
markets such as Asia and South America. Finding new applications in cooperation
with customers is also important for the Plastics & Fibers segment's future
success.
The divisions comprising the Plastics & Fibers segment and their principal
products are:
<TABLE>
<S> <C>
STYRENIC POLYMERS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- PS, PS-I (polystyrene) - Packaging
- Household appliances
- Housings for consumer electronics
- EPS (expandable polystyrene) and - Building insulation
XPS (extruded polystyrene) - Packaging
</TABLE>
19
<PAGE> 24
<TABLE>
<S> <C>
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- EPP (expanded polypropylene) - Automotive components
- Packaging for fragile products
- Insulation pads
- Sports equipment
- MF (melamine resin foam) - Soundproofing materials
- Automotive components
- Fire protection materials
ENGINEERING PLASTICS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- ABS (acrylonitrile-butadiene-styrene) - Electrical and consumer electronics
equipment
- Household appliances
- Office equipment
- Automotive components
- ASA (acrylonitrile-styrene-acrylate) - Uncoated exterior automotive parts
- Sports equipment
- Electrical equipment such as microwave
ovens
- SAN (styrene-acrylonitrile) - Household and toiletry items
- Cosmetics packaging
- Office and household equipment
- PA (nylon 6 and 6,6) - Automotive engine components
- Electrical components
- Housings for electrical equipment
- Films for food and packaging
- PBT (polybutylene terephthalate) - Electrical connectors
- Automotive components
- POM (polyoxymethylene) - Mechanical and precision engineering
equipment
- High-end children's toys
- PSU (polysulfone) - Chemical engineering materials
- PES (polyethersulfone) - Medical equipment
POLYURETHANES:
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- Polyols - Coatings
- Isocyanates - Elasticizers
</TABLE>
20
<PAGE> 25
<TABLE>
<S> <C>
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- Polyurethane systems - Fibers
- Foam
- TPU (thermoplastic polyurethane - Flexible cable coverings
elastomers)
- Cellular elastomers - Shock absorbers
- Buffers
- Sports equipment
FIBER PRODUCTS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- Caprolactam - Precursor for nylon 6
- Ammonium sulfate - Detergents and fertilizers
- Polycaprolactam (nylon 6) - Fiber spinning
- Plastics applications
- Nylon filaments - Textile fibers for apparel
- Carpet fibers for residential, commercial
and automotive applications
- Adipic acid - Precursor for nylon 6,6
- Hexamethylene diamine - Precursor for nylon 6,6
- Nylon 6,6 - Fiber spinning
- Plastics applications
- Acrylonitrile - Precursor for nylon 6,6
- Plastics application
</TABLE>
POLYOLEFINS (CONDUCTED THROUGH BASF'S TARGOR AND ELENAC SUBSIDIARIES):
<TABLE>
<S> <C>
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- Various polypropylene grades: - Consumer product packaging
- Standard polymers - Containers
- Compounds - Appliance housings
- Metallocene polypropylene - Luggage
- Outdoor furniture
- Fibers for use in rugs, ropes, nets and
textiles
- Toys and children's play equipment
- Various polyethylene grades - Packaging for food products
- Plastic bags
- Bottles
- Barrels
- Plastic films for applications in
agriculture and construction
- Tubes and cables
- Fibers
- Toys and children's play equipment
</TABLE>
21
<PAGE> 26
SEGMENT STRATEGY
BASF's goal is to strengthen its position as one of the leading global
competitors in the plastics and fibers industry. BASF believes that achieving
cost and technology leadership and developing a global presence are key to the
success of the Plastics & Fibers segment.
To achieve its goals, BASF plans to:
- achieve cost leadership by developing state-of-the-art technologies to
manufacture products in world-scale plants offering significant
economies of scale;
- consolidate production at existing plants;
- extend current product applications through technological development;
- enter new product markets;
- expand business in regions with growth potential, such as Asia and
South America; and
- enter strategic partnerships when appropriate.
To achieve cost and technology leadership, the Plastics & Fibers segment is
targeting its capital expenditures on the construction of new, world-scale
plants, on the consolidation of production at existing plants and on research
and development. In 1999, the segment's capital expenditures were E998 million
and totaled more than E2 billion between 1997 and 1999.
As part of its goal to develop a global presence, the Plastics & Fibers
segment is targeting investments to take advantage of the considerable growth
potential in Asia. BASF's expansion in the region already includes the world's
largest ABS plastic production plant in Ulsan, Korea, which began operations in
1998, as well as a production site in Nanjing, China. The Nanjing site, where
BASF also plans to build a major Verbund site, currently produces the complete
styrene value-adding chain and includes plants for ethylbenzene, styrene,
polystyrene and expandable polystyrene. The Nanjing operations are part of the
Yangzi BASF Styrenics joint venture with Yangzi Petrochemical Corp. BASF has a
60% interest in this joint venture.
As part of its strategy to enter into partnerships where appropriate, BASF
and Shell Petroleum N.V., a holding company in the Royal Dutch/Shell Group of
Companies, signed in December 1999 an agreement to combine the companies Elenac,
Targor and Montell to create one of the world's largest polyolefins companies.
BASF and Shell will each own 50% of the new joint venture, the holding company
of which will be based in the Netherlands. BASF is contributing E350 million in
cash, its 50% stake in Elenac and its 100% stake in Targor to the joint venture,
which BASF expects will be the world's largest polypropylene producer and the
fourth largest polyethylene producer. Shell is contributing its 100% stake in
Montell and its 50% stake in Elenac. Elenac and Targor had total combined sales
in 1999 of approximately E3 billion and income from operations of approximately
E160 million. BASF intends to account for the new joint venture, which is
expected to begin operations in the second half of 2000, on an equity basis.
In 1999, the Plastics & Fibers segment invested approximately E180 million
in research and development activities. Research has focused on improving
existing manufacturing processes and developing cost-effective manufacturing
alternatives. Developing partnerships and collaborating with customers on new
applications and products is also important to the segment's research and
development efforts.
22
<PAGE> 27
The main capital expenditure projects of the Plastics & Fibers segment
currently include:
<TABLE>
<CAPTION>
PROJECTED ANNUAL
CAPACITY AT COMPLETION PROJECTED
OF PROJECT START-UP
LOCATION PROJECT (METRIC TONS) OF OPERATION
-------- ------- ---------------------- ------------
<S> <C> <C> <C>
Wesseling, Germany PE-HD (polyethylene - high 250,000(1) 2000
density) expansion
Berre, France PE-LD (polyethylene - low 320,000(1) 2000
density) expansion
Tarragona, Spain Polypropylene 225,000(2) 2001
Nanjing, China PE-LD 400,000(3) 2004
Caojing, China MDI (diphenylmethane 160,000(4) 2004
diisocyanate) (40% stake)
TDI (toluene diisocyanate) 130,000(5) 2004
(70% stake)
Geismar, Louisiana MDI expansion 140,000 2000
TDI expansion 160,000 2001
Schwarzheide, Germany TDI expansion 70,000 2000
Singapore SM (styrene monomers)/ PO 550,000 SM/ 2001
(propylene oxide) 250,000 PO(6)
Ludwigshafen, Germany EB (ethylbenzene)/ SM (styrene 600,000 EB/ 2002
monomers) 550,000 SM
Antwerp, Belgium EB From 350,000 2001
to 890,000
San Jose dos Campos, HIPS (high-impact polystyrene) 110,000 2000
Brazil
Guaratingueta, Brazil EPS (expandable polystyrene) 40,000 2001
</TABLE>
- - - - - - ---------------
(1) Conducted through Elenac, a 50-50 joint venture with Shell Petroleum N.V. of
the Netherlands (capacity reflects total joint venture capacity).
(2) Conducted through Targor, formerly a 50-50 joint venture with Celanese AG
that is now 100% owned by BASF and fully consolidated.
(3) Conducted through a joint venture with YPC and SINOPEC (capacity reflects
total joint venture capacity).
(4) Conducted through a joint venture with Chinese partner, Huntsman-ICI
Polyurethanes and Nippon Polyurethanes (capacity reflects total joint
venture capacity).
(5) Conducted through a joint venture with Chinese partner (capacity reflects
total joint venture capacity).
(6) Conducted through a 50-50 joint venture with Shell (capacity reflects total
joint venture capacity).
STYRENIC POLYMERS
OVERVIEW
BASF, the inventor of polystyrene, is one of a small number of global
producers of styrenic polymers, supplying approximately 700 principal customers
in all major geographic markets of the world.
The Styrenic Polymers division supplies customers with plastics to make
thousands of products ranging from food containers and housings for consumer
products to foamed boards for building insulation. Polystyrene, which can be
used in both rigid or foamed applications, is an easy-to-process material and
offers an excellent price-to-performance ratio compared to alternative
materials, giving it an advantage in
23
<PAGE> 28
the high-growth consumer packaging and consumer goods industries. BASF believes
similar growth opportunities exist for the division's two major products used in
building insulation - Styropor(R) and Styrodur(R).
The Styrenic Polymers division purchases approximately 30% of its raw
materials from within BASF, benefiting significantly from the Verbund approach
to integration. For example, by purchasing from BASF both benzene and ethylene
to manufacture styrene, a precursor for polystyrene, the division benefits from
efficiencies in logistics and lower transportation costs. In addition, BASF's
Verbund provides the division with a reliable source for precursors, even during
periods of short supply. The division's principal raw materials are benzene,
ethylene, butadiene rubber and pentane. The division sells approximately 90% of
its products to external customers.
BASF believes that achieving cost and technology leadership, as well as
strengthening its global presence, are crucial to ensuring the continued
competitiveness of its styrenic polymers products. Through acquisitions and
capacity expansions, BASF has completed the first phase of a globalization
strategy aimed at producing polystyrene and expanded polystyrene products on a
regional basis in all major markets. Major projects in 1999 included:
- integrating the acquired polystyrene business of CBE (BASF
Poliestireno) into BASF S.A., Brazil;
- adding additional GPPS (general purpose polystyrene) capacity to
BASF's site in Nanjing, China; and
- starting up a new Styropor(R) plant in Nanjing, China.
As a result of these activities, BASF currently operates polystyrene plants
in what it considers to be the world's most important markets. It will continue
to expand in the Asian and South American growth markets through debottlenecking
and the addition of new capacities. The main focus in Europe is to consolidate
and upgrade the ethylbenzene and styrene operations and streamline polystyrene
production capacity at existing European sites. The concentration of production,
the closure of production lines and workforce reductions are a vital part of the
restructuring efforts in BASF's polystyrene business, and led to improved
overall competitiveness in 1999. BASF also achieved improvements in its
logistics and cost reductions as a result of the restructuring project for its
foams business in Europe. BASF is focused on achieving sustained rates of return
in each market of the Styrenic Polymers division before pursuing further
expansion.
The Styrenic Polymers division's sales to third parties were El.827 billion
in 1999.
PRODUCTS
The Styrenic Polymers division's key product lines include:
PS, PS-I (Polystyrene)
BASF's polystyrene products range from rigid and transparent
general-purpose plastics to high impact-resistant grades that customers shape
using injection molding, extrusion and blow molding. Styrolux(R) complements
BASF's polystyrene product portfolio and combines toughness and transparency.
BASF sells polystyrene globally and ships it to customers in granulate form.
Primary applications:
- Packaging and disposable products
- Household appliances
- Housings for consumer electronics
24
<PAGE> 29
EPS (Expandable Polystyrene)
BASF sells expandable polystyrene under the brand name Styropor(R).
Invented by BASF more than 50 years ago, Styropor(R) is a leading product in the
building insulation market. In 2000, Neopor(R), a new product with superior
insulation capabilities, will be broadly introduced in the European market. BASF
sells expandable polystyrene globally and ships it to customers in the form of
beads. Insulation manufacturers transform the beads into foam boards for sale to
wholesalers. Other customers transform the beads into shape-molded parts for
packaging. Expandable polystyrene's advantages include heat insulation, high
compressive strength, shock absorption, low weight and moisture resistance.
Primary applications:
- Building insulation
- Packaging
XPS (Extruded Polystyrene)
BASF sells extruded polystyrene under the brand name Styrodur(R). It is a
green, extruded, rigid polystyrene foam that is made using environmentally
friendly carbon dioxide as a blowing agent. Styrodur(R) is a leading product in
the building insulation market, where BASF sells it to wholesalers in the form
of foam boards. BASF also sells Styrodur(R) to customers for use in packaging
products. Sales of the Styrodur(R) product line, which offers heat insulation,
low water absorption and compressive strength, are concentrated in Europe.
Primary applications:
- Building insulation
EPP(Expandable Polypropylene)
BASF sells expandable polypropylene under the brand name Neopolen P(R),
which is often used to make foam components. BASF ships Neopolen(R) to customers
in the form of pre-expanded beads. Sales are concentrated in Europe and North
and South America.
Primary applications:
- Automotive components
- Packaging for fragile products
- Insulation pads
- Sports equipment
MF (Melamine Resin Foam)
BASF sells melamine resin foam under the brand name Basotect(R). It is a
flexible foam material that absorbs sound and offers high heat resistance and
good flame retardant attributes. BASF ships Basotect(R) to customers as foam
boards or foam blocks. The product's primary markets are Europe, the United
States and Japan.
Primary applications:
- Automotive components
- Soundproofing materials
- Fire protection materials
- Houseware and consumer applications
25
<PAGE> 30
Production capacity for the major products in the Styrenic Polymers
division is as follows:
<TABLE>
<CAPTION>
PRODUCT ANNUAL PRODUCTION CAPACITY
------- --------------------------
<S> <C>
Ethylbenzene 1,550,000 metric tons
Styrene monomers 550,000 metric tons(1)
Styrene 1,595,000 metric tons
Polystyrene 1,415,000 metric tons
EPS (expandable polystyrene) 580,000 metric tons
XPS (extruded polystyrene) 980,000 cubic meters
EPP (expanded polypropylene) 10,800 metric tons
MF (melamine resin foams) 150,000 cubic meters
</TABLE>
- - - - - - ---------------
(1) Conducted through a 50-50 joint venture with Shell (capacity reflects total
joint venture capacity).
MARKETS AND DISTRIBUTION
In 1999, Europe accounted for approximately 45% of the Styrenic Polymers
division's sales, North America for approximately 25%, the Asia, Pacific Area,
Africa region for approximately 20% and South America for 10%.
The Styrenic Polymers division sells products primarily through its own
regional sales force, supported by BASF technical and marketing experts.
The market for styrenic polymers is global and characterized by narrowing
margins, price competition and a push toward greater commodity-based pricing.
Competition is predominantly based on price, followed by quality and,
increasingly, on global delivery capabilities. The division's major customers
require that top suppliers have a global presence and provide accompanying
services, such as technical support and reliable delivery. Demand for styrenic
polymers continues to rise due to overall economic growth in both industrial and
emerging markets. To address these trends, BASF is seeking cost and technology
leadership and is expanding its production and marketing presence to all major
markets.
The principal global competitor of the Styrenic Polymers division is The
Dow Chemical Company of the United States. The division also competes in North
America with Nova Chemical Corporation of Canada and in Europe with ATOFINA of
France and Enichem of Italy. BASF competes with other regional competitors, such
as Chi Mei of Taiwan in Asia.
ENGINEERING PLASTICS
OVERVIEW
BASF is one of the world's leading producers of engineering plastics.
BASF's Engineering Plastics division produces one of the industry's broadest
product ranges for highly specialized applications. The division sells its
products to approximately 1,500 customers worldwide. The customer base consists
largely of high-performance plastic molders and a variety of plastic component
manufacturers in the automotive, consumer electronics, electrical equipment and
packaging industries.
Many of Engineering Plastics division's products have chemical and physical
properties that enable them to withstand high temperatures and to resist
chemical exposure to corrosives and solvents. These properties make the products
less susceptible to physical damage in a variety of high performance
applications. BASF has played an active role in the automotive industry's shift
from metals to plastics to lower vehicle weight and production costs and to
improve fuel efficiency. The Engineering Plastics division often works with
suppliers to automotive manufacturers to develop specific applications for parts
such as engine components, airbag housings and electronic connectors. BASF's
Ultramid(R) plastic, for example, is one of the world's leading products used in
manufacturing automotive engine manifolds.
The Engineering Plastics division benefits from BASF's Verbund approach to
integration by purchasing 55% of its raw materials from other BASF operations.
The division purchases most of its
26
<PAGE> 31
monomers, such as caprolactam, butadiene and styrene, from within BASF and
purchases glass fibers and polymer additives from external sources. By
purchasing from within BASF, the division generates efficiencies in logistics
and savings in energy, transportation, purchasing and infrastructure costs. The
Engineering Plastics division sells virtually all of its products to external
customers.
Customers of the Engineering Plastics division often rate product
performance and customer support as important, but prices are becoming an
increasingly critical factor in choosing a supplier. To compete effectively, the
Engineering Plastics division must contain costs by consolidating its product
line and replacing older plants with new, world-scale plants that provide
significant economies of scale. In addition to containing costs, it is paramount
for BASF to have preferred supplier status with global customers, many of whom
demand collaboration in the development of specific plastic applications.
Preferred supplier status ensures early involvement in a customer's projects and
fosters close and lasting business relationships.
The Engineering Plastics division's sales to third parties were El.276
billion in 1999.
PRODUCTS
Engineering plastics are sold in the form of pellets, enabling customers to
manufacture an array of specific components for high-performance applications.
The Engineering Plastics division's products, all of which are sold
globally, are:
Styrene Copolymers
ABS (Acrylonitrile-Butadiene-Styrene Copolymer)
Terluran(R) and Rorfalin(R) are trade names for BASF's top styrene
copolymer plastic. It offers superior surface quality, colorfastness and
luster.
Primary applications:
- Electrical and consumer electronics equipment
- Household appliances
- Office equipment
- Automotive components
ASA (Acrylonitrile-Styrene-Acrylate Copolymers)
Luran(R) S is the trade name for BASF's styrene copolymer plastic
modified with rubber to make it durable against weathering, aging and
chemicals.
Primary applications:
- Uncoated exterior automotive parts
- Sports equipment such as surfboards and boats
- High-end electrical equipment such as microwave ovens and coffee
makers
SAN (Styrene-Acrylonitrile Copolymers)
Luran(R) is BASF's trade name for SAN plastic. It is transparent,
chemical and dishwasher resistant and offers a high degree of stiffness
and resistance to temperature change.
Primary applications:
- Household and toiletry items
- Cosmetics packaging
27
<PAGE> 32
- Office and household equipment
MABS (Methacrylate-Acrylonitrile-Butadiene-Styrene Copolymer)
Terlux(R) is the trade name for BASF's MABS plastic. It offers
transparency, luster, toughness and resistance against chemicals.
Primary applications:
- Hygiene and cosmetic product containers
- Medical equipment housings
- Office equipment housings
PS/PPE Blend (Blend of Impact Modified Polystyrene and Polyphenylene
Ethers)
Luranyl(R) is the trade name for BASF's blend of plastics that
offers high heat resistance, high dimensional stability, hot water
resistance and low moisture absorption.
Primary applications:
- Plumbing and sanitary applications
- Battery chargers
Technical Plastics
PA (Polyamide)
Ultramid(R) is the trade name for BASF's plastics based on nylon 6,
nylon 6,6 and other copolymers manufactured by BASF. It offers toughness
and strength as well as both heat and chemical resistance.
Primary applications:
- Automotive engine intake manifolds, pedals and engine covers
- Flame retardant plastics for electrical components such as switches
and circuit breakers
- Housings for electrical equipment
- Films for food packaging
PBT (Polybutylene Terephthalate)
Ultradur(R) is the trade name for BASF's plastic based on PBT. It
features high stiffness, strength, dimensional stability and aging
resistance.
Primary applications:
- Electrical connectors
- Automotive components such as windshield wiper arms
POM (Polyoxymethylene)
Ultraform(R) is the trade name for BASF's POM plastic. It offers
high stiffness and strength, resilience and low wear.
Primary applications:
- Clips and fasteners
- Speaker grilles
28
<PAGE> 33
- High-end children's toys
- Mechanical and precision engineering devices such as shafts and
gears
PES (Polyether Sulfone) and PSU (Polysulfone)
Ultrason(R) S and E are the trade names for BASF's PES and PSU
plastics. They are used in high performance applications that exceed the
capabilities of other plastics. These products can replace other
plastics such as thermosets as well as metals and ceramics. The most
important features of Ultrason(R) are stiffness, mechanical strength and
its ability to perform continuously at high temperatures. Other
important features include electrical insulation properties and
dimensional stability.
Primary applications:
- Chemical engineering materials
- Medical equipment
- Automotive components
Production capacity for the major products in the Engineering Plastics
division is as follows:
<TABLE>
<CAPTION>
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS)
- - - - - - ------- --------------------------
<S> <C>
ABS, ASA, SAN 400,000
Nylon 6 and 6,6 and PBT 336,000
POM 71,000
PES and PSU 3,000
</TABLE>
MARKETS AND DISTRIBUTION
In 1999, Europe accounted for 61% of the Engineering Plastics division's
sales, North America for 20%, the Asia, Pacific Area, Africa region for 17% and
South America for 2%.
BASF sells engineering plastics products primarily through its own regional
sales force. BASF employees at technical centers in Germany, France, England,
Spain, the United States and Japan intensively support the activities of the
Engineering Plastics division. These centers not only help customers develop
applications but also independently research new markets and applications in
which plastics can replace more conventional materials, such as metal or wood.
The Engineering Plastics division's leading customers, particularly in the
automotive industry, are primarily global companies that demand uniform
worldwide standards for products and services in all major markets of the world.
The engineering plastics business is a specialized one and competition is based
more on product quality than on price. However, some of the products within the
division's styrene copolymers group have also become commodity-like, and price
is becoming an increasingly important factor for many customers when choosing
suppliers. To maintain a solid customer base, BASF must achieve cost leadership
and secure preferred supplier status with customers. BASF's focus is on
strengthening its position in Europe and expanding its business in North
America. BASF is also expanding the Engineering Plastics division's activities
in Asia, a region where many customers have relocated operations, to support
both regional consumption and exports.
Major global competitors of the Engineering Plastics division include Bayer
AG and Celanese AG of Germany, as well as The Dow Chemical Company, E.I. du Pont
de Nemours and Company, and General Electric Company of the United States and
Chi Mei of Taiwan. Plastics activities are a significant part of the portfolio
for all of these global competitors.
29
<PAGE> 34
POLYURETHANES
OVERVIEW
BASF's Polyurethanes division is one of the world's three largest producers
of polyurethane, an important specialty plastic used to produce a wide spectrum
of rigid, flexible, foamed and compact components for consumer products.
A polyurethane is a polymer that is produced through the reaction of two
liquid chemicals: an isocyanate and a polymeric alcohol (a polyol). Polyurethane
customers buy these liquid chemicals and combine them at their own manufacturing
sites to produce polyurethane foams or parts. BASF's polyurethane products are
often used to make a variety of automotive parts, including bumpers, steering
wheels and instrument panels. BASF's polyurethanes can also be found in
household goods, such as mattresses and upholstery, and in sports equipment,
such as in-line skates and athletic shoes. The fashion industry is increasingly
using BASF's polyurethanes, particularly to manufacture synthetic leathers.
The Polyurethanes division sells its products to customers in two principal
ways:
- Polyurethane Basic Materials: The Polyurethanes division sells
individual polyurethane basic materials (isocyanates and polyols) to
customers. The customers then apply their own technology to formulate
the liquid basic materials so that, when combined, they will react and
solidify into a material with particular properties.
- Polyurethane Systems: A polyurethane system consists of
pre-fabricated, ready-to-use formulations of isocyanates and polyols.
The Polyurethanes division sells these specially formulated,
tailor-made isocyanates and polyols to customers. When the customer
combines them, these liquid chemicals react and solidify into a
material that possesses the technical properties specified by the
customer.
The Polyurethanes division also sells polyurethane special elastomers,
which are specialized end-products used mainly in the automotive and electrical
industry.
The Polyurethanes division's principal raw materials are toluene, benzene
and propylene. The division benefits significantly from BASF's Verbund approach
to integration, purchasing approximately 80% of its precursors from other BASF
operations. These purchases from within BASF generate efficiencies in logistics
and savings in energy, transportation, purchasing and infrastructure costs. The
Polyurethanes division sells the vast majority of its products to external
customers.
BASF offers its polyurethane basic materials, systems and specialized
end-products to numerous customers that require a high degree of application
technology. The Polyurethanes division sells its products to a variety of
industries, some of which are highly concentrated, such as the automotive and
electrical appliance industries, and others that are highly fragmented, such as
the shoe and construction industries.
Effective January 1, 1999, BASF placed its PVC (polyvinyl chloride)
activities in its Solvin joint venture with Solvay of Belgium. BASF has a 25%
ownership interest in Solvin, which has assumed the marketing responsibility for
BASF's PVC-based products. The joint venture strengthens BASF's relatively small
market position in PVC by uniting BASF's activities with those of Solvay, one of
the world's leading PVC manufacturers.
The keys to the Polyurethane division's success are maintaining low costs
and establishing a global presence for polyurethane basic materials, and
maintaining strong relationships with customers for polyurethane systems and
special elastomers. To reduce basic material costs, the division is increasing
capacity utilization at existing plants and shifting production from older, less
efficient plants to new, world-scale plants that offer substantial economies of
scale. In addition, the division benchmarks its production processes against
those of its competitors to further its streamlining efforts.
To establish a global presence for basic materials, the Polyurethanes
division is investing in additional production capacity in Europe, North America
and Asia, which are the primary markets for the three
30
<PAGE> 35
main polyurethane precursors - polyols and the isocyanates MDI (diphenylmethane
diisocyanate) and TDI (toluene diisocyanate).
For polyurethane systems and special elastomers, strong relationships with
leading industry customers are crucial because of the highly individualized
nature of these products. To strengthen its relationships with customers, BASF
has established a global network of system houses, which are production sites,
that work closely with customers to provide specially formulated products for
individual needs. The Polyurethanes division currently has 23 system houses
around the world in locations near customers, and BASF intends to establish or
acquire more. BASF's system houses include two new sites recently established in
China and Malaysia.
The Polyurethanes division's sales to third parties were E2.157 billion in
1999.
PRODUCTS
The Polyurethanes division's product lines include:
Polyurethane Basic Materials
The Polyurethanes division sells basic materials globally to customers that
make polyurethane plastics by reacting isocyanates with polyols.
Isocyanates
MDI (Diphenylmethane Diisocyanate)
MDI is a versatile chemical that can be used to make flexible foams
as well as semi-rigid and rigid polyurethane plastics.
Primary applications:
- Furniture
- Automotive parts such as seats and steering wheels
- Carpet backings
- Shoe soles
TDI (Toluene Diisocyanate)
TDI is a chemical used primarily in the manufacture of flexible
foams.
Primary applications:
- Foam cushions for furniture
- Automobile seats
- Athletic track surfaces
Polyols
Polyether Polyols
Polyether polyols are combined with isocyanates to make virtually
all polyurethane products, other than those made with polyester polyols.
Primary applications:
- Rigid foams
- Flexible foams
31
<PAGE> 36
Polyester Polyols
Polyester polyols are combined with isocyanates to make primarily
semi-rigid polyurethane plastics.
Primary applications:
- Cable sheathing
- Shoe soles
Polyurethane Systems
BASF's worldwide systems group offers tailor-made polyurethane products for
a wide variety of applications. The systems are grouped according to the
combination of their properties, for example, rigid, flexible or semi-rigid.
BASF develops ready-to-use polyurethane systems for customers, fulfilling the
customers' specific engineering requirements, at its system houses around the
world. Automotive OEM (original equipment manufacturer) suppliers comprise a
significant customer group for polyurethane systems. OEM suppliers make seats,
steering wheels, fenders and dashboards using BASF's polyurethane systems.
Polyurethane Special Elastomers
BASF sells polyurethane special elastomers, consisting of TPU and cellular
elastomers, mainly in Europe, South America, North America and Japan. The
automotive and electrical industries are the major customers for these products.
TPU (Thermoplastic Polyurethane Elastomers)
BASF sells TPU under the trade name Elastollan(R). Elastollan(R) is
based on both polyether polyols and polyester polyols. It is supplied in
granular form to customers who use it primarily to make flexible plastic
cable coverings. Customers for these products are primarily in the
automotive and cable and wire industries.
Cellular Elastomers
The trade names for BASF's cellular elastomers, or shock-absorbing,
rigid plastics, are Cellasto(R), Elastocell(R) and Emdicell(R). BASF is
the world's largest producer of cellular elastomers and sells them, for
example, as molded end-products for use as shock absorbers and buffers
in the automotive industry and as components in sports equipment.
Production capacity for the major products in the Polyurethanes division is
as follows:
<TABLE>
<CAPTION>
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS)
------- --------------------------
<S> <C>
MDI 433,000
TDI 160,000
Polyether polyols 422,000
Polyester polyols 94,000
TPU (thermoplastic polyurethane) 35,000
Propylene oxide 250,000(1)
</TABLE>
- - - - - - ---------------
(1) Conducted through a 50-50 joint venture with Shell (capacity reflects total
joint venture capacity).
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<PAGE> 37
MARKETS AND DISTRIBUTION
In 1999, Europe accounted for approximately 51% of the Polyurethane
division's sales, North America for approximately 31%, the Asia, Pacific Area,
Africa region for approximately 16% and South America for approximately 2%.
The Polyurethanes division markets its products on two different levels.
First, the division sells globally as commodities its polyurethane basic
products. Second, the division sells globally as customized, ready-to-use
products its polyurethane systems and special elastomers, which comprise more
than half of the division's products based on volume. BASF's 23 system houses
located around the world act as distribution channels for all of the
Polyurethanes division's products. Elastogran GmbH, a 100% subsidiary of BASF,
conducts BASF's polyurethane systems and special elastomer activities in Europe,
the Middle East and Africa. Elastogran has four manufacturing locations in
Germany and six throughout the rest of Europe.
Global demand for all polyurethane products continues to rise because of
general economic growth in both industrial and emerging markets. The market for
polyurethanes basic materials is characterized by some cyclicality, but less so
than the market for most other standard plastics, primarily because polyurethane
basic materials are relatively specialized and are produced pursuant to
proprietary technologies that BASF possesses. Competition in the market for
basic materials is based primarily on price, although product quality and
technical application assistance are also important to customers.
The markets for polyurethane systems and special elastomers are even less
cyclical than that for polyurethane basic materials. Competition in the market
for polyurethane systems and special elastomers is based primarily on a
supplier's ability to satisfy customers' technical application needs by
providing tailor-made formulations of isocyanates and polyols and also on a
supplier's ability to accommodate customers' just-in-time approach to
manufacturing by delivering customized products quickly and at the appropriate
time. Strong customer relationships are important in the markets for these
products.
The main competitors of the Polyurethanes division are Bayer AG of Germany,
The Dow Chemical Company, Huntsman-ICI and Lyondell Chemical Company of the
United States as well as Shell Chemicals U.K. of the United Kingdom. BASF is the
third largest producer based on volume, after Dow and Bayer, of polyurethane
basic materials and systems. BASF is the market leader for cellular elastomers,
followed by Freudenberg & Company of Germany and Dunlop Adhesives of the United
States. BASF is among the top three suppliers of TPU, and Bayer and The BF
Goodrich Company of the United States are BASF's major competitors with respect
to this product.
FIBER PRODUCTS
OVERVIEW
The Fiber Products division is a global leader in the production of nylon
fibers and intermediates. BASF supplies more than a fifth of the total annual
world production, based on volume, of caprolactam, a key ingredient needed to
manufacture the precursor polycaprolactam for nylon 6 -- one of two major types
of nylon. The division's products are found in numerous items used in daily
life, particularly in carpets, clothing and other textiles, and also in
high-performance engineering plastics made from nylon fibers.
The Fiber Products division produces two types of nylon - nylon 6 and nylon
6,6. Nylon 6 is made from caprolactam and is used in tufted, knitted and woven
fabrics, such as carpets and apparel, in molded plastics and in tires. Nylon 6,6
is made from adipic acid and hexamethylene diamine and is used in home
furnishings and, like nylon 6, in woven fabrics and apparel. BASF is continuing
to strengthen its position as the world's largest producer of nylon 6, with
major nylon intermediate manufacturing sites in North America and Europe. BASF's
Fiber Products division delivers its products to customers primarily as pellets
and in liquid form but also in some cases as nylon filaments.
The Fiber Products division's principal raw materials are cyclohexane,
ammonia and propylene, which are purchased both from within BASF and from
external suppliers. The division benefits significantly from
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<PAGE> 38
BASF's Verbund approach to integration, purchasing approximately 70% of the
precursors for nylon 6 and 40% of the precursors for nylon 6,6 from other BASF
operations. These purchases from within BASF generate efficiencies in logistics
and savings in energy, transportation, purchasing and infrastructure costs.
Based on volume, the Fiber Products division sells approximately 60% of the
caprolactam it produces to external customers. The remaining 40% is produced for
captive use by the Fiber Products and Engineering Plastics divisions.
The division's customer base varies from region to region. In the more
mature markets of Europe and North America, there are a small number of large
customers, whereas in emerging markets, such as Asia, the customer base consists
of numerous, smaller customers. The primary customers of the Fiber Products
division are commercial and residential carpet producers in the United States,
including Shaw Carpets Ltd., Mohawk Carpet Corporation and Beaulieu of America.
BASF also sells automotive carpet fibers and interior products to major
automotive manufacturers.
BASF's goal for the Fiber Products division is to expand its existing
presence in the market for high-end nylon products, which allow for higher
margins, while maintaining profitable growth in other product areas. Although
the market for nylon fibers is global and relatively mature, BASF believes there
is room for growth in all major markets for high-end nylons, particularly in
Asian countries such as Taiwan, Indonesia and China. BASF's basic nylon 6
products are already the industry standard in Asia. To take advantage of
potential growth in the high-end nylon market, BASF is committed to continuously
improving the qualities and performance of its caprolactam and nylon
intermediates. BASF is also focusing its marketing efforts on the mills that
produce and retailers that sell nylon-containing textiles in Asia and the United
States.
With respect to its other product areas, BASF aims to strengthen its
position as the world's largest producer of nylon 6 by making its nylon 6
products more cost-effective and by expanding its production capacity for
caprolactam, the key precursor of nylon 6. BASF will increase its production of
nylon 6 intermediates at its site in Freeport, Texas. In the production of nylon
6,6, recent research activities in the Fiber Products division have led to the
use of more cost-effective nylon 6,6 precursors, which are based on butadiene
instead of cyclohexane as a raw material. This patented process has tested
successfully, and BASF is planning to implement it soon on a commercial scale at
a new plant that BASF is contemplating to build on its own or with a partner. In
the production of carpet fibers, BASF recently established a new joint venture
for the production of nylon 6 carpet fibers in Asia. The joint venture has
commenced operations and serves markets in China, Australia and New Zealand.
The Fiber Products division's sales to third parties were E1.193 billion in
1999.
PRODUCTS
BASF has the following product lines in its Fiber Products division:
Caprolactam, Polycaprolactam, Adipic Acid, Hexamethylene Diamine and Other
Fiber Intermediate Products
Caprolactam forms the basis for manufacturing polycaprolactam, the main
precursor for nylon 6. BASF sells a variety of caprolactam products, including
caprolactam in its pure form, nylon 6 for use in engineering plastics and
Ultramid BS(R), a nylon 6-based spinning polymer. Adipic acid, acrylonitrile and
hexamethylene diamine form the basis for nylon 6,6. BASF sells a variety of
nylon 6,6 products, including adipic acid and hexamethylene diamine in their
pure forms, Ultramid A(R), which is used for engineering plastics, and Ultramid
AS(R), a nylon 6,6-based spinning polymer. BASF sells all of these products
globally.
Primary applications include precursors for fibers used in:
- Carpeting
- Apparel
- Upholstery fabrics
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<PAGE> 39
Carpet Products
BASF is a leading supplier of nylon 6 fibers and yarns. BASF supplies both
pre-colored and natural nylon 6 to the commercial and residential carpet
markets, primarily in North America and Asia. In addition, major vehicle
manufacturers in North America use BASF's solution-dyed nylon 6 yarns in
automotive carpet applications. BASF's trade names for nylon fibers and yarns
include Zefiron 2000(R) solution-dyed nylon and Zeftron 2000(R) ZX solution-dyed
nylon. The division has also introduced the 6ixAgain(R) carpet-recycling program
in the United States, which recycles carpets so that the nylon materials can be
reused by BASF and resold to external customers.
Primary applications:
- Commercial carpets
- Residential carpets
- Automotive carpets
Textile Products
BASF offers a diversified line of fine denier nylon yarns and mid-denier
POY yarns (partially oriented yarns), both of which are superior grades of nylon
6 that are silky, soft and comfortable. BASF is also a primary supplier of nylon
6 for high-performance upholstery fabrics for commercial use. Some of BASF's
trade names include Matinesse(R) nylon, Micro Touch(R) microdenier nylon,
Powersilk(TM) nylon, Shimmereen(R) nylon, Silky Touch(R) microdenier nylon,
Sportouch(R) microdenier, Ultra Touch(R) nylon, Zefsport(R) nylon and Zeftron(R)
200 nylon. BASF sells these products mainly in the United States.
Primary applications:
- Intimate apparel
- Swimwear and activewear
- Socks and circular knit items
Industrial Fibers
The industrial fibers business consists of two major product lines:
Basofil(R) heat and flame resistant fiber and the Resistat(R) collection of
conductive and anti-static fibers. Basofil(R) is sold in Europe and the United
States. Resistat(R) is twisted with other fibers to produce commercial carpet
fibers. The primary market for these products is the United States.
Primary applications:
- Basofil(R) fibers for fire-blocking, filtration and workwear
applications
- Resistat(R) fibers for commercial carpet products
Production capacity for the major products in the Fiber products division
is as follows:
<TABLE>
<CAPTION>
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS)
------- --------------------------
<S> <C>
Caprolactam 700,000
Adipic acid 240,000
Acrylonitrile 300,000
Nylon carpet fibers 128,000
Nylon textiles 25,000
Nylon polymers for fibers 375,000
</TABLE>
35
<PAGE> 40
MARKETS AND DISTRIBUTION
In 1999, North America accounted for approximately 44% of the Fiber
Products division's sales, Europe for approximately 31% and the Asia, Pacific
Area, Africa region for approximately 25%.
BASF sells products of the Fiber Products division through its own regional
sales force, which is supported by BASF marketing and technical service groups.
The Fiber Products division targets its marketing efforts at the mills that
produce and retailers that sell nylon-containing textiles in Asia and the United
States to create awareness and demand for its products.
The markets for caprolactam and the other intermediate products are
characterized by cyclicality, price competition and commodity pricing. BASF is
seeking cost and technology leadership in nylon 6,6 production by developing
commercially its new nylon 6,6 precursors that are based on butadiene, which is
more cost-effective than BASF's existing production based on cyclohexane. For
nylon 6 fibers, the most important criteria cited by customers in their decision
to buy fiber products from BASF are product quality, product performance and
BASF's reliability as a supplier. Price, however, is becoming increasingly
important to nylon 6 customers for basic nylon 6 products and high-end products
as well.
The nylon market is characterized by a small number of global producers,
including E.I. du Pont de Nemours and Company, Honeywell Inc. and Solutia Inc.
of the United States, DSM N.V. of the Netherlands and Rhodia S.A. of France.
DuPont is the largest worldwide producer of all nylon products based on volume,
followed by BASF and Rhodia. Competition for nylon 6 remains keen among major
suppliers in Western Europe, Japan, Russia and Poland. BASF is the largest nylon
6 producer worldwide, based on volume, followed by Honeywell and DSM. The market
for nylon 6,6 is characterized by a small number of major competitors. DuPont is
the dominant nylon 6,6 manufacturer worldwide. In North America, DuPont is the
largest nylon 6.6 producer, followed by BASF.
POLYOLEFINS
In December 1999, BASF and Shell Petroleum N.V., a holding company in the
Royal Dutch/Shell Group of Companies, signed an agreement to combine the
companies Elenac, Targor and Montell to create one of the world's largest
polyolefins companies. BASF and Shell will each own 50% of the new company, the
holding company of which will be based in the Netherlands.
The new joint venture, an example of BASF's strategy to work in
partnerships where appropriate to achieve market and cost leadership, is
expected to be the world's largest polypropylene producer and the fourth largest
polyethylene producer. BASF is contributing to the new joint venture E350
million in cash and its stakes in Elenac and Targor, which in 1999 had combined
sales of approximately E3 billion and income from operations of approximately
E160 million.
The European Commission approved in March 2000 the joint venture after BASF
and Shell committed to divesting approximately 600,000 metric tons of
polypropylene production and approximately 130,000 metric tons of compounding
capacity as well as Targor's Novolen(R) licensing business. BASF and Shell also
agreed that other companies could obtain a license or immunity for metallocene
catalysts from the new joint venture under non-discriminating conditions.
The new joint venture still requires approval from other regulatory
authorities, including the U.S. Federal Trade Commission, but is expected to
begin operations in the second half of 2000.
BASF intends to account for the new joint venture on an equity basis.
Before reaching an agreement to merge its polyolefins activities with
Shell, BASF had grouped its polyolefins activities in two separate joint
ventures:
- Elenac is a European-oriented 50-50 joint venture with Shell Petroleum
N.V. that commenced operations on March 1, 1998 to produce and market
polyethylene plastic products. BASF consolidates the joint venture,
including its affiliates, on a pro rata basis. Elenac is Europe's second
largest supplier of polyethylene, producing annually about two million
metric tons at sites in
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<PAGE> 41
Germany, France, Spain and the United Kingdom. Elenac also sells licenses
for polyethylene production technology and catalysts.
The following table lists Elenac's principal products:
<TABLE>
<CAPTION>
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS) PRIMARY APPLICATIONS
------- -------------------------- --------------------
<S> <C> <C> <C>
Ethylene 1,420,000 - Precursor for polyethylene
Propylene 550,000 - Precursor for polypropylene
PE-LD 810,000 - Food packaging
(polyethylene - low density) - Films for agriculture and
construction
- Cables
PE-LLD 210,000 - Packaging
(polyethylene - linear low density) - Films for agriculture and
construction
- Health and hygiene films
- High-clarity and
high-strength films
- Cables
PE-HD 900,000 - Bottles, barrels,
containers
(polyethylene - high density) - Pipes
- Fuel tanks
- Fibers
- Film for carrying bags
</TABLE>
- Targor is a 50-50 joint venture with Hoechst AG created on July 1, 1997
to manufacture polypropylene. As of October 1999, Hoechst AG transferred
its equity in the joint venture to its subsidiary, Celanese AG, which
Hoechst subsequently divested through a spin-off. At the same time as
creating the joint venture with Shell, BASF acquired Celanese's 50%
ownership stake in Targor. Targor is Europe's largest polypropylene
manufacturer and also sells licenses for polypropylene production
technologies and catalysts. Targor, which has an annual total
polymerization capacity of 1.67 million metric tons, has production sites
in Germany, France, Spain, the United Kingdom and the Netherlands. BASF
fully consolidates Targor's financial performance.
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<PAGE> 42
The following table lists Targor's principal products:
<TABLE>
<CAPTION>
ANNUAL
PRODUCTION CAPACITY
PRODUCT (METRIC TONS) PRIMARY APPLICATIONS
------- ------------------- --------------------
<S> <C> <C> <C>
Standard polypropylene 1,400,000(1) - Packaging
- Fibers for ropes, nets and carpets
- Automotive components
- High-performance films
- High-transparency films and containers
Polypropylene compounds 340,000 - Electrical engineering parts
with mineral or - Automotive components
glass-fiber
reinforcement - Construction elements
</TABLE>
- - - - - - ---------------
(1) Includes metallocene-catalized polypropylene.
Shell will contribute its wholly-owned subsidiary Montell N.V. to the new
joint venture. Montell is a global leader in the production, marketing and sale
of polypropylene, advanced polypropylene materials and related products. The
company has plants in more than 30 locations on five continents.
BASF's polyolefins sales to third parties were E2.080 billion in 1999.
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<PAGE> 43
COLORANTS & FINISHING PRODUCTS
SEGMENT OVERVIEW
BASF is a leading global producer of performance chemicals, polymer
dispersions, colorants and coatings through its Colorants & Finishing Products
segment. The segment produces a broad range of high-value chemicals that it
sells to many global companies in the automotive, paper, packaging, textile,
sanitary care, construction, printing and leather industries.
The following table sets forth the segment's sales to third parties,
percentage of total BASF sales, intersegmental transfers and income from
operations for the last three years:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
(EUROS IN MILLIONS)
<S> <C> <C> <C>
Sales to third parties............................. E6,540 E6,188 E6,395
Percentage of total BASF sales..................... 23% 22% 22%
Intersegmental transfers........................... E 371 E 291 E 259
Income from operations............................. E 480 E 642 E 608
</TABLE>
The segment's products often represent the final stages in many
value-adding chains within BASF's Verbund approach to integration. This approach
allows the Colorants & Finishing Products segment to purchase many of its raw
materials from within BASF, thereby generating efficiencies in logistics and
savings in energy, transportation, purchasing and infrastructure costs. BASF
uses these efficiencies and savings to achieve cost leadership for many of the
products in the segment, particularly the acrylic acid-based products of the
segment's Dispersions division.
The key elements of the segment's success are developing products and
application technologies tailored to the specific requirements of customers and
better meeting customer needs by establishing and expanding manufacturing plants
and application development centers in regions where customers are active. BASF
is also investing capital in highly efficient plants to reduce production costs.
Close customer relationships are particularly important to the segment for the
development of innovative customized products and application systems.
The divisions comprising the Colorants & Finishing Products segment and
their principal products are:
COLORANTS:
<TABLE>
<CAPTION>
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
<S> <C>
- - - - - - - Pigments - Paints, plastics, inks and special
applications
- - - - - - - Printing systems - Commercial inks and print technologies
for printing newspapers, magazines, color
advertising materials and books
- - - - - - - Textile dyes - Dyes for coloring cloth, textile
fibers, yarn and fabrics
- - - - - - - Textile chemicals - All products for the textile processing
chain
- Inks for ink-jet printing in textile
applications
- - - - - - - Leather dyes and chemicals - Leather production
</TABLE>
39
<PAGE> 44
COATINGS:
<TABLE>
<CAPTION>
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
<S> <C>
- - - - - - - Automotive OEM (original equipment - Automotive coatings for vehicle
manufacturer) coatings manufacturers
- - - - - - - Automotive refinish coatings - Automotive coatings for repair work
- - - - - - - Industrial coatings - Commercial vehicles
- Household appliances
- Industrial buildings
- Automotive components
- - - - - - - Decorative paints in South America - Interior and exterior use in
residential and commercial buildings
</TABLE>
DISPERSIONS:
<TABLE>
<CAPTION>
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
<S> <C>
- - - - - - - Acrylic monomers - Precursors for acrylic polymers
- - - - - - - Polymers - Adhesives
- Paints and finishes
- Non-woven materials
- Coatings
- - - - - - - Paper chemicals - Paper processing chemicals
- Paper dyes
- Dispersions for paper coating
- - - - - - - Superabsorbents - Absorbent materials for diapers and
sanitary care products
</TABLE>
SEGMENT STRATEGY
The focus of the Colorants & Finishing Products segment is on developing
integrated system solutions that provide customers with tailor-made products and
application processes. These efforts allow the segment to differentiate its
products and services from those of its competitors and to foster close, lasting
relationships with its customers.
Key strategies for the divisions in this segment are as follows:
- Colorants
The Colorants division's goal is to improve its cost structure to better
compete against both low-cost industry leaders and new competition in
Asia and South America, where its fastest-growing customer bases are
located. BASF targets its capital spending to continually improve
production efficiency. Part of this strategy is to divest the division's
masterbatch business and to combine its textile dye operations with
DyStar to increase its competitive position and focus on expanding and
modernizing its activities in strong growth sectors, such as organic
pigments. Negotiations regarding the proposed masterbatch divestiture
are under way.
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<PAGE> 45
- Coatings
The Coatings division plans to build on the success of a recent
restructuring, which streamlined the division's product lines to
eliminate less profitable products and improve the division's financial
performance. The division's current focus on four core product
lines - automotive coatings, automotive refinish coatings, industrial
coatings and, for the South American market, decorative
paints - resulted from these efforts. BASF believes that the Coatings
division can achieve and sustain a leading market position and attain
high profitability in these core product lines. With its restructuring
efforts largely completed, the Coatings division is seeking to
strengthen its core activities through both internal growth, joint
ventures and acquisitions.
- Dispersions
To satisfy growing demand for the Dispersions division's products in
North America and Asia, BASF plans to establish a broader geographic
presence while maintaining both cost leadership and its current position
as a leading acrylic acid manufacturer. BASF is focusing the division's
capital spending on restructuring its European operations to improve
efficiency, adding capacity through expansion and acquisitions in North
America as well as building new manufacturing sites for acrylic acid and
its derivatives in Malaysia and China. BASF is also planning to
establish new plants to manufacture superabsorbents in Europe, Asia and
South America.
The main capital expenditure projects for the Colorants & Finishing
Products segment currently include:
<TABLE>
<CAPTION>
PROJECTED ANNUAL
CAPACITY AT COMPLETION PROJECTED
OF PROJECT START-UP
LOCATION PROJECT (METRIC TONS) OF PROJECT
-------- ------- ---------------------- ----------
<S> <C> <C> <C>
Ludwigshafen, Germany Dispersions restructuring
and expansion 400,000 2000
Monaca, Pennsylvania Dispersions expansion 335,000 2000
Kuantan, Malaysia Acrylic acid and acrylates 160,000 (acrylic acid) 2000
160,000 (acrylates)
Shanghai, China Dispersions expansion 150,000 2000
Guaratingueta, Brazil Butyl acrylate 50,000 2001
Morganton, North Carolina Powder coatings expansion 9,000 2000
Shanghai, China Specialty dyes 750 2000
</TABLE>
In 1999, capital expenditures for the Colorants & Finishing Products
segment totaled E324 million. The segment also spent E160 million on research
and development activities in 1999.
COLORANTS
OVERVIEW
BASF's Colorants division provides product solutions to customers who use
pigments, textile chemicals and dyes, leather chemicals and dyes, and printing
systems. Customers of this division are primarily in the construction,
automotive, textile and leather industries as well as in the electronics and
packaging industries.
BASF is one of the world's major pigment suppliers, a leader in the
production of organic and inorganic pigments and a top global supplier of
complete printing ink and printing plate systems. BASF is also one of the
world's leading global suppliers of textile dyes, and its product lines cover
approximately 70% of the products sold in the global dye market. The division's
textile chemicals business unit covers
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<PAGE> 46
virtually the entire spectrum of non-colored textile applications. BASF is also
a world leader in the leather chemicals and dyes business, commanding strong
positions in all major geographic markets.
The Colorants division purchases approximately 25% of its raw materials
from other BASF operations, generating efficiencies in logistics and savings in
energy, transportation, purchasing and infrastructure costs. The division
consumes a multitude of raw materials and has no principal raw materials or
dominant suppliers. The Colorants division sells virtually all of its products
to external customers.
In recent years, the Colorants division has experienced continual pressure
on prices, a drop in demand and worldwide overcapacity for many of its products,
all of which have adversely affected the profitability of the division. Over the
last three years, the division has undertaken considerable restructuring
measures to improve efficiency. As a result, the division has improved its
capacity utilization by narrowing its product line, restructuring and
consolidating production sites and transferring production capacity from Europe
to Asia and South America, where its fastest-growing customer base is located.
In November 1999, BASF announced its intention to merge its textile dye
operations into DyStar GmbH, a 50-50 joint venture between Bayer AG and Hoechst
AG. BASF, Bayer and Hoechst have signed a letter of intent that contemplates the
parties contributing their textile dye operations to the new venture in
proportion to the value of the operations and being partners with equal rights.
The exact level of the various ownership stakes has yet to be determined as the
agreement among the parties is still under negotiation. In addition, the
proposed transaction has not yet received approval from regulatory authorities.
BASF expects the joint venture to begin operations on July 1, 2000, at the
earliest.
The Colorants division is now intensifying its marketing activities in
emerging growth regions, particularly North America and Asia, and developing new
products and applications in close cooperation with customers in business areas
with strong growth and profit potential.
The Colorants division's sales to third parties were E2.217 billion in
1999.
PRODUCTS
The Colorants division sells its products on a worldwide basis, but has
mainly regional markets. The major product lines of the Colorants division are:
Pigments
The pigments product group offers organic and inorganic pigments, pigment
preparations, non-textile dyes and process chemicals. Pigments are insoluble dry
coloring materials for paints, inks and special applications. BASF's pigment
products are used in the plastics, leather and printing industries, as well as
in automotive, decorative and industrial paint applications. The primary market
for BASF's pigment products is Europe, while the strategic focus for growth is
North America, Japan and emerging markets in Asia.
Printing Systems
The printing systems product group offers a complete range of commercial
inks for different print technologies and plates for flexography and letterpress
print processes. BASF offers printing inks for use in the printing industry,
particularly in sheet-offset systems and web-offset systems, which are used to
print newspapers and magazines, color advertising materials, books and
brochures. BASF also sells printing inks for use in the packaging industry. The
primary market for BASF's printing systems products is Europe.
Textile Dyes
BASF is one of the world's leading producers of dyestuffs for colorants.
BASF's offerings are grouped into four product lines: reactive dyes, disperse
dyes, vat dyes and Indigo, which covers more than 70% of the total worldwide
textile dyes market by product type. The most important sales region is Asia,
followed
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<PAGE> 47
by Europe and North America. BASF intends to merge its textile dyes operations
with DyStar, a joint venture between Hoechst and Bayer, in mid-2000.
Textile Chemicals
BASF offers textile auxiliaries, dyeing chemicals, pigment preparations for
textile printing as well as inks and auxiliaries for ink-jet printing
technology. BASF's product range covers a wide spectrum of non-colored textile
applications. The primary markets for BASF's textile chemicals are Asia and
Europe.
Leather Chemicals and Dyes
BASF is one of the world's leading producers of leather chemicals and dyes,
producing a full range of products for nearly all aspects of the leather
production process. The primary markets for BASF's leather products are Europe,
Asia and South America.
Production capacity for the major products in the Colorants division is as
follows:
<TABLE>
<CAPTION>
PRODUCT ANNUAL PRODUCTION CAPACITY
------- --------------------------
<S> <C>
Organic pigments 36,100 metric tons
Printing inks 150,000 metric tons
Printing plates 1,000,000 square meters
Textiles dyes 27,000 metric tons
Textile and leather chemicals 165,000 metric tons
</TABLE>
MARKETS AND DISTRIBUTION
In 1999, Europe was the Colorants division's principal market, accounting
for 55% of its sales. The Asia, Pacific Area, Africa region accounted for 23%,
North America for 14% and South America for 8%.
BASF's own regional sales network sells approximately 95% of the Colorants
division's products. Distributors sell the balance of products, primarily to
smaller customers.
The Colorants division manufactures many products that are commodity-like
and are characterized by fairly uniform pricing worldwide. Overcapacity,
particularly in textile dyes, has been a significant problem in recent years.
BASF generally considers Ciba Specialty Chemicals Holding Inc., Clariant
International Ltd. of Switzerland, DIC/Sun Group of Asia, DyStar GmbH and Bayer
AG of Germany to be its main competitors, although each product group in the
Colorants division has specific competitors:
- In pigments, BASF considers itself to be among the industry leaders
along with Ciba, DIC/Sun Group and Clariant. BASF sells its pigments
primarily in Europe from large production sites in Germany, but also
supports its regional marketing activities through production sites in
Brazil, the United States and China.
- In printing systems, BASF is a leading printing system supplier in
Europe, but Asian competitors dominate the global market.
- In textile dyes, BASF is one of the world's leading producers, along
with DyStar and Ciba. BASF is considered the global market leader in
vat dyes and Indigo.
- In textile chemicals, BASF is one of the world's top three producers,
along with Clariant and Ciba. BASF's activities have a strategic
regional focus on Asia and Europe.
- In leather dyes and chemicals, BASF is one of the world's leading
producers and competes against Bayer, TFL Ledertechnik GmbH & Co. KG
of Germany, Stahl International B.V. of the Netherlands and Clariant
and a host of small regional producers. The most important markets for
BASF's leather products are Asia, Europe and South America. BASF
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<PAGE> 48
manufactures these products in 20 countries to best meet the needs of
a highly fragmented market comprised primarily of small customers.
COATINGS
OVERVIEW
BASF is one of the world's leading producers of high-quality coating
products, offering innovative and environmentally responsible products for the
automotive industry, including both finishes and refinishes, and for particular
segments of the industrial coatings market. BASF also sells decorative paints in
South America for interior and exterior use in residential and commercial
buildings.
BASF's Coatings division provides customers with innovative high-solid,
waterborne and powder coating systems that reduce or eliminate solvent emissions
and are considered environmentally and economically efficient. BASF sees
significant growth opportunities for a new powder-slurry coating system it
jointly developed in partnership with DaimlerChrysler AG and Durr Systems GmbH
of Germany. This economical and environmentally friendly system reduces the
amount of paint needed to coat a vehicle without compromising quality.
BASF sells a majority of its coating products to automobile manufacturers
for coating new vehicles, which accounted for 40% of the Coatings division's
sales in 1999, and to automotive refinishers, which accounted for 25% of sales.
In 1999, the industrial coatings business accounted for 20% of the division's
sales and the decorative paints business in South America for 15%.
The Coatings division purchases approximately 15% of its raw materials from
other BASF operations. The division's principal raw materials are pigments,
solvents, resins and additives; the division does not rely on a dominant
supplier. The division sells all of its products to external customers.
The Coatings division plans to build on the success of a recent
restructuring, which streamlined the division's product lines to eliminate less
profitable products and improve the division's financial performance. The
division's current focus on four core product lines - automotive coatings,
automotive refinish coatings, industrial coatings and, for the South American
market, decorative paints - resulted from these streamlining efforts. BASF
believes that the Coatings division can achieve and sustain a leading market
position and attain high profitability in these core product lines.
With its restructuring efforts largely completed, the Coatings division is
seeking to strengthen its core activities through internal growth, joint
ventures and acquisitions. The Coatings division has recently made two
acquisitions in industrial coatings to make BASF a world leader in the field. In
September 1999, BASF acquired the worldwide coatings business of Norsk Hydro
ASA, which is comprised of the Hydro Coatings Group, UK, and had 1998 sales of
approximately E30 million. In December 1999, BASF agreed with Rohm and Haas Co.
to acquire Morton Industrial Coatings, which Rohm acquired in June 1999 as part
of its acquisition of Morton International. The acquired company, which had 1998
sales of about E150 million, has five production sites in North America.
The key to the Coatings division's success is maintaining preferred
supplier status with major customers by working with them to develop system
solutions, which are tailor-made products and services. These system solutions
help the division differentiate its product offerings from those of its
competitors and to foster lasting relationships with customers. Being able to
deliver tailor-made products quickly is also important to the division's
success. Customers that use automotive and industrial coatings in particular
require quick delivery of coatings at specified times to accommodate their
just-in-time approach to manufacturing. To satisfy these needs, BASF's Coatings
division is locating its operations near its customers' production sites.
The Coatings division's sales to third parties were El.876 billion in 1999.
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PRODUCTS
The Coatings division's products are sold on a global basis, with the
exception of decorative paints, which are sold only in South America. The
division has the following four major product lines:
Automotive OEM Coatings
BASF offers a complete line of automotive OEM coatings and extensive
technical support to major vehicle manufacturers. BASF is a leading supplier for
primer coats, fillers, top-coats and clearcoats. Most of the world's leading
automobile manufacturers are long-standing customers of BASF.
Automotive Refinish Coatings
For the refinishing of automobiles and commercial vehicles, BASF offers
topcoat and undercoat materials through coating systems under the well-known
brand names Glasurit(R) and R-M(R). Most of these systems, which are sold to
paint distributors and automotive repair and body shops, increasingly use
solvent-reducing waterborne coatings as well as high-solid systems.
Industrial Coatings
BASF offers environmentally efficient systems for coating industrial
products. Application technologies include powder, liquid, e-coat and coil
coatings that are used on household appliances, transportation equipment,
industrial buildings, radiators and automotive components. For example, BASF is
the leading school bus coatings supplier in North America. Other key uses for
BASF's industrial coatings are wood finishes in the furniture industry and
coatings for plastic parts.
Decorative Paints
BASF is the leading distributor of decorative paints for interior and
exterior use in the South American market. BASF's dispersion and building paints
are marketed under the Suvinil(R) trademark and enjoy a high level of customer
recognition.
Production capacity for the major products in the Coatings division is as
follows:
<TABLE>
<CAPTION>
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS)
------- --------------------------
<S> <C>
Powder coatings 25,000
Waterborne coatings 40,000
</TABLE>
MARKETS AND DISTRIBUTION
In 1999, Europe accounted for 41% of the Coatings division's sales. North
America accounted for 32% of the division's sales, while South America accounted
for 24% and the Asia, Pacific Area, Africa region for 3%. BASF is a global
competitor in the coatings industry and is expanding in all regional markets,
especially in South America and Asia.
BASF sells products of the Coatings division to customers, particularly
those in the automotive industry, primarily through its own sales force.
Third-party distributors also sell products to the automotive refinish,
industrial coatings and South American decorative paint businesses. BASF also
licenses some of its paint and coating technology to third parties.
Although price is important to the division's customers, competition is
also based on the ability of coatings suppliers to collaborate with customers
and quickly deliver tailor-made products and applications, particularly to
vehicle manufacturers using a just-in-time approach to manufacturing. BASF's
Suvinil(R) line of decorative paints compete in South America primarily on the
basis of brand recognition, product quality and price. Suvinil(R) products enjoy
a high level of customer recognition, and BASF is the market leader in the South
American decorative paints market.
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<PAGE> 50
BASF considers E.I. du Pont de Nemours and Company and PPG Industries, Inc.
of the United States to be the primary worldwide competitors of the Coatings
division, and Nippon Paint Company Ltd. and Kansai Paint Company Ltd. of Japan
to be the division's competitors in Asia.
DISPERSIONS
OVERVIEW
BASF's Dispersions division is one of the largest producers of acrylic acid
and its derivative products, which are mainly dispersions and superabsorbents.
In a dispersion, also known as an emulsion, small globules of polymers are
suspended in a liquid, usually water. After applying a dispersion to a solid
surface, the liquid evaporates, leaving the globules to dry uniformly over the
surface.
Dispersions are used in a multitude of industries, including the
manufacture of paper, decorative paints, adhesives, non-woven materials,
carpets, fibers and plastics. The division also manufactures superabsorbents,
which are used as absorbent materials in sanitary care products such as diapers.
The most important customers of the Dispersions division are the paper,
construction, adhesive, sanitary care and coatings industries.
The Dispersions division purchases approximately 70% of its raw materials
from other BASF operations, particularly propylene, for the production of
acrylic acid as well as styrene and butadiene. By purchasing the vast majority
of its raw materials internally, the division benefits from efficiencies in
logistics and savings in energy, transportation, purchasing and infrastructure
costs. The division sells most of its products to external customers, but also
sells approximately 10% of its products to other BASF operations.
BASF's goals for the Dispersions division are to maintain the division's
position as a leading acrylic acid manufacturer, to maintain and improve the
division's cost leadership and to expand the business in all regions,
particularly North America and Asia. To achieve these goals, BASF is focusing
the division's capital spending on restructuring its European operations to
improve efficiency, on adding capacity for the production of dispersions in
North America and on building new manufacturing sites for acrylic acid and its
derivatives in Malaysia and China as well as in Brazil.
The Dispersions division is especially committed to expanding its
activities in superabsorbents through acquisitions and capital expenditures,
which are planned for Europe, Asia and South America. In November 1999, BASF
reached an agreement to purchase for about E557 million the worldwide
superabsorbents business of Chemdal International Corporation, a subsidiary of
AMCOL International Corp. Chemdal, which had 1998 sales of approximately E221
million, has production sites in the United States, the United Kingdom and
Thailand. The acquisition will increase BASF's annual superabsorbents production
capacity by more than 160,000 metric tons to about 300,000 metric tons.
Regulatory approval on antitrust matters has already been granted in the United
States and Germany. The transaction requires the approval of AMCOL shareholders,
which is expected to be given at the end of May.
The Dispersions division's sales to third parties were E2.302 billion in
1999.
PRODUCTS
The Dispersions division's sells its products globally. The division has
the following four major product groups that are to a significant extent based
on acrylic acid and its derivatives:
Acrylic Monomers
BASF is the world's largest producer of acrylic monomers, which are sold
directly to customers in the form of acrylic acid, acrylic ester and special
acrylics. Acrylic monomers are used as precursors to manufacture dispersions,
superabsorbents, detergents, flocculants and fibers. These products are used in
a wide range of industries.
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<PAGE> 51
Polymers
The Dispersions division's polymers consist mainly of polymer dispersions
for the manufacturing of adhesives, paints and finishes, non-woven materials and
coatings. BASF's strengths lie particularly in the innovative field of adhesive
raw materials as well as in dispersions for paints and other coating materials.
Paper Chemicals
BASF offers the paper industry a complete and integrated range of chemical
products for all aspects of the paper production process, including the
manufacturing of untreated paper, paper finishing and wastewater treatment. The
Dispersion division's product range consists of process chemicals, paper dyes
and dispersions for paper coating.
Superabsorbents
BASF sells superabsorbents globally to customers who use these products to
manufacture absorbent materials such diapers and other sanitary care products.
MARKETS AND DISTRIBUTION
The primary market for the Dispersions division is Europe, which accounted
for more than 55% of the division's sales in 1999. North America accounted for
approximately 28%, the Asia, Pacific Area, Africa region for 12% and South
America for 5% of sales in 1999. The Dispersions division's strategic goal is to
increase market share in growing markets, especially in North America and the
Asia-Pacific region.
BASF sells the vast majority of the division's products primarily through
its own regional sales network. Some smaller customers purchase products through
distributors. Many of the division's products, particularly dispersions, contain
up to 50% water. To minimize transportation costs, BASF manufactures these
products at local plants and markets and sells them on a regional basis. Acrylic
monomers, however, are distributed globally from production sites in
Ludwigshafen, Germany; Antwerp, Belgium; and Freeport, Texas. A new acrylic
monomers plant in Kuantan, Malaysia is expected to begin operations in 2000.
Prices for Dispersions division products depend on the costs of raw
materials that the division purchases primarily from other BASF operations, and
also on industry capacity utilization. Products such as acrylic monomers and
some dispersions have commodity-like attributes and can be affected by
cyclicality in pricing. Other products, particularly superabsorbents and many
paper chemicals, are relatively resilient to economic cycles and compete
primarily on the basis of product innovation and quality.
BASF's main competitor in acrylic monomers and polymers is Rohm & Haas Co.
of the United States. The Dow Chemical Company and Hercules of the United States
are BASF's main competitors in paper chemicals. In the superabsorbents business,
BASF's main global competitors are Stockhausen GmbH & Co. of Germany and Nippon
Shokubai Co., Ltd. of Japan.
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HEALTH & NUTRITION
SEGMENT OVERVIEW
BASF's Health & Nutrition business segment is active in pharmaceuticals,
crop protection and fine chemicals - businesses that offer opportunities for
high returns and are typically resilient to economic cycles.
The Health & Nutrition business segment conducts its activities through its
Pharmaceuticals, Fine Chemicals and Crop Protection divisions, which are
considered as separate reportable operating segments. Each of these three
divisions focuses on specific product areas or therapeutic categories and
develops, produces and markets products on a global basis. These products
include BASF's flagship drugs Meridia(R)/ Reductil(R)/Raductil(R), an
antiobesity medication, and Synthroid(R), a thyroid insufficiency medication.
Other important products include crop protection products such as herbicides and
fungicides, fine chemicals such as vitamins and nutraceuticals, and animal
nutrition products, including amino acids and enzymes.
The following table sets forth for each of the Health & Nutrition business
segment's three reportable operating segments the segment's sales to third
parties, percentage of total BASF sales, intersegmental transfers and income
from operations for the last three years:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
(EUROS IN MILLIONS)
<S> <C> <C> <C>
PHARMACEUTICALS
Sales to third parties............................. E1,792 E2,091 E2,483
Percentage of total BASF sales..................... 6% 8% 8%
Intersegmental transfers........................... E 2 E 13 E 55
Income from operations(1).......................... (35) 66 11
FINE CHEMICALS
Sales to third parties............................. E1,154 E1,256 E1,374
Percentage of total BASF sales..................... 4% 4% 5%
Intersegmental transfers........................... E 40 E 31 E 32
Income from operations(2).......................... 182 114 (794)
CROP PROTECTION
Sales to third parties............................. E1,641 E1,750 E1,745
Percentage of total BASF sales..................... 6% 6% 6%
Intersegmental transfers........................... E 35 E 49 E 36
Income from operations............................. 201 203 195
</TABLE>
- - - - - - ---------------
(1) Includes special items in 1997: E(22) million, in 1998: E(4) million
and in 1999: E(164) million.
(2) Includes special items in 1997: E(37) million, in 1998: E2 million
and in 1999: E(829) million.
The Health & Nutrition business segment sells its products primarily to
customers in the healthcare, farming, food processing, animal and human
nutrition, and personal care industries.
The business segment contributes to BASF's Verbund approach to integration
by purchasing a number of precursors from the company's chemical operations and
using them to create higher value products. The Fine Chemicals division in
particular benefits from efficiencies in logistics and savings in energy,
transportation, purchasing and infrastructure costs derived from internally
purchasing precursors used in manufacturing vitamins and other nutrition
products.
The ability to continuously develop innovative and safe products and to
bring them quickly to market is critical to the success of the Health &
Nutrition business segment. BASF's Pharmaceuticals division targets therapeutic
areas with high medical need and large patient populations. The Crop Protection
division focuses on traditional fungicide and herbicide applications but is also
investing in the emerging field of plant biotechnology. In the Fine Chemicals
division, generating a flow of new products and
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<PAGE> 53
maintaining cost are particularly important to the competitiveness of the
division. The Fine Chemicals division believes it generally has a good cost
position compared to its competitors. In the few areas where the division's
production costs do not compare favorably with those of competitors, BASF is
making process improvements in existing plants and entering into production
joint ventures to achieve economies of scale and reduce costs.
The divisions comprising the Health & Nutrition business segment and their
principal products are:
PHARMACEUTICALS:
<TABLE>
<CAPTION>
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
<S> <C>
- - - - - - - Ethical pharmaceuticals - Cardiovascular
- Thyroid
- Antiobesity
- Pain/inflammation
- Central nervous system
- - - - - - - Pharmaceutical active ingredients - Beverages
(moving to the Fine Chemicals division - Cardiovascular
as of mid-2000): - Respiration/cough and colds
- Caffeine - Pain/inflammation
- Theophylline
- Ephedrine
- Acetaminophen/Paracetamol
- Ibuprofen
</TABLE>
FINE CHEMICALS:
<TABLE>
<CAPTION>
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
<S> <C>
- - - - - - - Vitamins - Animal and human nutrition
- - - - - - - Nutraceuticals - Human nutrition
- - - - - - - Enzymes - Animal nutrition
- - - - - - - Amino acids - Animal nutrition
- - - - - - - Organic acids - Grain and compound feed preservation
- - - - - - - Cosmetic ingredients - Personal care items such as skin-care
additives and sunscreen agents
- - - - - - - Aroma chemicals - Fragrance and flavor raw materials
- - - - - - - Polymers - Hair sprays
- Styling mousses and gels
- Hair conditioners
</TABLE>
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<PAGE> 54
CROP PROTECTION:
<TABLE>
<CAPTION>
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
<S> <C>
- - - - - - - Herbicides - Agrochemicals to control weeds
- - - - - - - Fungicides - Agrochemicals to control fungal attack
</TABLE>
SEGMENT STRATEGY
BASF's Health & Nutrition business segment focuses on the research,
development and marketing of innovative products to better human health and to
improve the yields and quality of agricultural crops. Demand for many of the
Health & Nutrition business segment's products targeted at these sectors is
likely to increase because of growth in the world population and shifts in age
demographics in certain markets. BASF is also active in the field of animal
nutrition. In addition, BASF also supplies products to the cosmetics and fashion
industries, areas that offer additional prospects for growth while demanding
innovation.
While each of the divisions in the Health & Nutrition business segment
faces competition and sets goals particular to its industry, they all share the
following strategic objectives:
- maximizing returns from their existing product portfolios;
- ensuring a steady flow of new and innovative products through focused
research and development and an increased number of collaborative
efforts and licensing agreements; and
- taking full advantage of common technology platforms.
PHARMACEUTICALS
OVERVIEW
BASF Pharma encompasses the worldwide pharmaceutical activities of BASF.
BASF Pharma's strategy is to become a pharmaceuticals specialist offering
innovative drugs that allow it to achieve and sustain leadership positions in
specific therapeutic areas with high medical need and large patient populations.
Existing products and those under development focus on six therapeutic areas:
cardiovascular, thyroid, antiobesity, central nervous system, pain/inflammation
and immune system disorders.
BASF entered the pharmaceuticals industry when it acquired Nordmark-Werke
of Germany in 1968. Since that time, BASF has expanded its pharmaceuticals
operations both through internal growth and through acquisitions, including:
- a majority holding in Knoll AG of Germany in 1975 and full ownership
in 1982;
- the ethical/prescription-based pharmaceutical business of Boots plc of
the United Kingdom in 1995; and
- a majority stake in Hokuriku Seiyaku Co. of Japan in 1996 (first
consolidated in 1998).
BASF has used these acquisitions to strengthen its presence in European,
U.S. and several Asian ethical drug markets and to begin building a business
platform in Japan, the second largest pharmaceuticals market in the world.
BASF Pharma's flagship products are Synthroid(R), a synthetic thyroxine
compound to treat thyroid insufficiency, Meridia(R)/Reductil(R)/Raductil(R), a
medication to help manage obesity, and Isoptin(R) for the treatment of
hypertension, coronary heart disease and angina.
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In January 2000, BASF announced a series of major changes to BASF Pharma's
business focus and organization. These include:
- BASF Pharma will concentrate on the research, development and
production as well as marketing and sales of prescription medications.
- As a result, the pharmaceutical active ingredients business will be
transferred in mid-2000 to BASF's Fine Chemicals division.
- In July 2000, a new global management team called the BASF Pharma
Executive Board will start operating from London and focus on key
geographic markets and therapeutic areas.
PRODUCTS
The following table lists representative products of BASF Pharma:
<TABLE>
<CAPTION>
BRAND NAME* ACTIVE INGREDIENT INDICATION
----------- ----------------- ----------
<S> <C> <C>
Cardiovascular
Isoptin(R)(2) Verapamil Coronary heart disease,
hypertension and arrhythmia
Rytmonorm(R)/ Propafenon Arrhythmia
Rythmol(R)(3)
Gopten(R)/Mavik(R)(8) Trandolapril Hypertension/post
myocardial infarction
Tarka(R)(9) Verapamil and trandolapril Hypertension
Antiobesity
Meridia(R)/Reductil(R)/ Sibutramine Obesity
Raductil(R)(4)
Thyroid Insufficiency
Synthroid(R)(1) Synthetic thyroxine Hypothyroidism
Pain/Anti-Inflammatory
Dilaudid(R)(10) Hydromorphone Severe pain
Brufen(R)(6) Ibuprofen Mild pain
Hydrocodone and Moderate to severe pain
Vicodin(R)/Vicoprofen(R)(5) acetaminophen or ibuprofen
Central Nervous System
Akineton(R) Biperiden Parkinson's disease
</TABLE>
- - - - - - ---------------
* Numbers in table indicate ranking as one of BASF Pharma's best-selling
drugs in 1999.
Cardiovascular Products
Isoptin(R), a calcium channel blocker, is the second best-selling product
in the BASF Pharma portfolio and is sold worldwide, with its major market in
France and Germany. The drug has been without patent protection since the early
to mid-1980s and faces increasingly strong competition from generics
manufacturers. BASF expects declining sales for Isoptin(R) in the major European
markets as a result of both falling prices and declining volumes. BASF expects
Isoptin(R) sales to remain stable in other markets.
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<PAGE> 56
Rytmonorm(R)/Rythmol(R) is a sodium channel blocker and BASF Pharma's third
best-selling product. BASF Pharma currently markets the drug in 75 countries,
with the United States being the most important market. Although the drug has
been without patent protection since the early 1990s, sales of the drug have
grown at an annual compounded average rate of 13% during the last three years. A
slow-release formulation of the drug that is patent-protected until 2014 is
currently in Phase III clinical trials.
Gopten(R)/Mavik(R) was originally licensed from the former Hoechst AG of
Germany and has patent protection until 2007. This drug is an
angiotensin-converting-enzyme inhibitor, also known as an ACE-inhibitor, and was
launched in 1993 and is sold worldwide.
Tarka(R) is marketed in more than 20 countries, primarily in Europe, and is
used to treat hypertension in patients who do not respond to treatment with
either Isoptin(R) or Gopten(R) alone. Tarka is a fixed combination of the active
ingredients verapamil and trandolapril. It was launched in 1997 and has patent
protection in the European Union until 2012 and in the United States until 2015.
Antiobesity Products
Meridia(R)/Reductil(R)/Raductil(R) is an antiobesity product that inhibits
the re-uptake by brain cells of the natural signal chemicals serotonin and
norepinephrine, which leads to a feeling of fullness and reduces food intake.
BASF Pharma sells the drug in more than 20 countries and markets it under the
brand name Meridia(R) in the United States, Reductil(R) in Germany, Switzerland
and South America and Raductil(R) in Central America and the Caribbean. The drug
has patent protection for the treatment of obesity until 2012 in the United
States and until 2014 in the European Union.
Thyroid Insufficiency Products
Synthroid(R) is currently BASF Pharma's top-selling medication and one of
the most-prescribed medications in the United States. It is used to treat people
suffering from hypothyroidism, or insufficient production of thyroid hormones.
BASF Pharma also sells this drug in Canada, Brazil and Belgium. Synthroid(R) has
been without patent protection for more than 30 years. BASF nevertheless sees
growth opportunities for the drug in the treatment of currently undiagnosed
patients and through the introduction of the drug in new commercially attractive
markets.
Pain/Anti-Inflammatory Products
Vicodin(R), Vicoprofen(R) and Dilaudid(R) all treat moderate to severe
pain. BASF Pharma markets these drugs mainly in the United States. BASF Pharma
markets Brufen(R), which is used for treating mild pain, mainly outside the
United States. Dilaudid(R), Brufen(R) and Vicodin(R) do not have patent
protection. Vicoprofen(R) was introduced in 1997 and has patent protection until
2004. BASF signed in 1999 a three-year agreement with Walter Lorenz Surgical,
Inc., of the United States to jointly promote Vicoprofen(R) to oral and
craniomaxillofacial surgeons in the United States. In 2000, Abbott Laboratories
of the United States and BASF signed a co-promotion agreement under which Abbott
will promote Vicoprofen(R) and Dilaudid(R) to hospital-based physicians,
hospitals, emergency rooms and free-standing surgical centers in the United
States.
Central Nervous System
Akineton(R) is a standard anti-psychotic drug used for the treatment of
younger patients suffering from Parkinson's disease as well as for the treatment
of extrapyramidal symptoms (EPS). Akineton(R) is marketed worldwide and is
recommended by the World Health Organization (WHO) as the anti-cholinergic of
choice. Although patent protection for Akineton(R) expired in the mid-1960s,
BASF believes the drug is well-established in its niche market segment.
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Pharmaceutical Active Ingredients
The main products in this category are caffeine, theophylline, ephedrine,
acetaminophen and ibuprofen. Beverage manufacturers are the primary buyers of
caffeine, while theophylline and ephedrine are used to treat respiratory
diseases. Acetaminophen and ibuprofen are used in a variety of over-the-counter
and prescription products to treat mild pain. All of BASF Pharma's production
sites for these products have GMP (good manufacturing practices) certification,
a quality standard granted by an independent agency and demanded by companies
who market and sell these products. BASF sells these products worldwide, with
the United States being the most important market, followed by Western Europe.
BASF is the number one producer worldwide of all the products listed in this
category, except acetaminophen, where it is number three.
As part of the new orientation of BASF Pharma to focus on the research,
development and production as well as the marketing and sales of prescription
medications, the pharmaceutical active ingredients business will be transferred
to BASF's Fine Chemicals division in mid-2000.
Generic Pharmaceuticals
BASF Pharma's strategy is to promote a broad range of economically priced
drugs in specific therapeutic areas and to offer "generics plus," which are
value-added generics that can, for example, offer improved delivery systems. The
first of these products was a bronchodilator drug, salbutamol, delivered through
a breath-activated aerosol inhaler. BASF Pharma's generics business currently
focuses on European markets.
SALES
The Pharmaceuticals division's sales to third parties were E2.483 billion
in 1999. Ethical drugs, which BASF defines as drugs that require a prescription
from a physician and which are sold under an individual brand name, have a
strategic priority. Sales of these drugs increased 17.8% in 1999 to E2.1
billion.
The following table shows BASF Pharma's ethical drugs sales for 1999 by
therapeutic field:
<TABLE>
<CAPTION>
PRODUCT 1999 SALES
------- -------------------
(EUROS IN MILLIONS)
<S> <C>
Cardiovascular.............................................. E595
Thyroid..................................................... 397
Antiobesity................................................. 137
Pain/inflammation........................................... 323
Central nervous system...................................... 231
</TABLE>
Sales from BASF's top 10 drugs were approximately E1.3 billion in 1999,
representing approximately 53% of BASF Pharma's sales.
Synthroid(R) sales have been growing at an annual compounded average rate
of 12% since 1994 and were E397 million in 1999. Almost all managed care
programs in the United States provide reimbursement for Synthroid(R), which
significantly contributes to the drug's success. A class action lawsuit was
filed in the United States in which BASF was named as a defendant for allegedly
suppressing bio-equivalence data in a report published in 1997. For further
information about litigation involving Synthroid(R), see "Item 3. Legal
Proceedings" and Note 23 to the Consolidated Financial Statements included in
Item 19.
Meridia(R)/Reductil(R)/Raductil(R), which was launched in the United States
in February 1998, is BASF Pharma's fourth largest-selling product with sales of
E137 million in 1999. BASF intends to launch this product worldwide through
partnerships. BASF has already established partnerships with Eisai of Japan for
the Japanese market and AstraZeneca GmbH of Germany for the German market.
Isoptin(R) sales were E204 million in 1999. Isoptin(R) has been without
patent protection since the early to mid-1980s. Sales have been declining since
the early 1990s primarily due to cost containment measures
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in health care and more recently due to competition from generics. This decline
in sales, however, appears to be leveling off in many markets, and BASF believes
that Isoptin(R) will continue to be among its top 10 best-selling drugs.
Effective January 1, 2000, BASF Pharma and Smith & Nephew plc of the United
Kingdom signed a partnership agreement in wound care involving BASF Pharma's
enzymatic debriding agent collagenase, which BASF Pharma had been promoting
under the brand names Iruxol(R)/Santyl(R)/Novuxol(R). Under the terms of the
agreement, Smith & Nephew will market and sell the wound care medication and
BASF Pharma will provide the company with the final product.
RESEARCH AND DEVELOPMENT
BASF Pharma focuses its research and development on discovering innovative
therapies in areas with high medical need and large patient populations. In
addition, BASF Pharma has a number of projects that could improve how often
drugs are administered and also how they are absorbed by the human body.
In 1999, BASF Pharma spent E405 million, or approximately 16% of sales, on
research and development. BASF Pharma's primary research centers are located in
Ludwigshafen, Germany; Nottingham, England; Worcester, Massachusetts; and
Katsuyama, Japan.
Drug development is time consuming, expensive and unpredictable. On
average, only one out of many thousands of chemical compounds discovered by
researchers proves to be both medically effective and safe enough to become an
approved medicine. The process from discovery to regulatory approval can take
more than 10 years. Candidates can fail at any stage of the process, which
consists of three phases, and even late-stage candidates may ultimately fail to
receive regulatory approval.
Five products are currently in late stages of clinical development.
Depending on positive Phase III clinical trial data, BASF Pharma intends to
launch these products by 2003. These products are:
<TABLE>
<CAPTION>
PRODUCT/BRAND NAME INDICATION STATUS
- - - - - - ------------------ ---------- ------
<S> <C> <C>
Viprinex(R) Stroke Phase III
Dilaudid OROS(R) Pain In registration
Segard(R) Septic shock Phase III
Rythmol(R)SR Arrhythmia Phase III
D2E7 Rheumatoid arthritis Phase III
</TABLE>
Several of BASF Pharma's strategic partnerships with pharmaceutical
companies and biotechnology firms are opening additional opportunities for the
development, sale and marketing of new drugs.
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<PAGE> 59
The following table lists BASF Pharma's most significant research and
development partnerships:
<TABLE>
<CAPTION>
ALLIANCE PARTNER THERAPEUTIC OR TECHNOLOGY AREA
---------------- ------------------------------
<S> <C>
Alza (USA) Pain
Cambridge Antibody Technology (UK) Human monoclonal antibodies
DevCo Pharmaceuticals (UK) Parkinson's disease
Eisai (Japan) Rheumatoid arthritis and obesity
EVOTEC BioSystems (Germany) Ultra high-throughput screening
Genetic Institute/American Home Products Autoimmune disease
(USA)
Hayashibara (Japan) Human monoclonal antibodies
Lexicon Genetics (USA) Genomics
Mitsui (Japan) Thrombosis
Tularik (USA) Obesity
Warner-Lambert (USA) Immune disease
</TABLE>
These partnerships are conducted pursuant to standard research and
development agreements that provide for milestone payments, that is, payments
upon attaining certain stages of development. All of the products that are the
subjects of these agreements are still in the development-registration stages.
Also in the area of research and development, BASF Pharma is building its
expertise to exploit the potential of melt extrusion technology, which is widely
used with plastics. BASF has applied this technology for use with
pharmaceuticals. BASF Pharma intends to develop and produce improved solid
dosage forms of active ingredients which have low aqueous solubility or poor
bioavailability, meaning the absorption by the body. BASF is currently examining
several active ingredients for possible improvements. The technology is
commercialized for in-house use mainly in the area of generics, but it is also
made available to other companies on a contract manufacturing basis.
MARKETS AND DISTRIBUTION
In 1999, Europe accounted for approximately 37% of BASF Pharma's sales and
North America for approximately 42%. Sales in the Asia, Pacific Area, Africa
region were approximately 15%. South America accounted for 6%.
BASF Pharma is present in all major pharmaceutical markets and sells its
products in approximately 100 countries. Sales, however, remain concentrated in
the United States, Western Europe and Japan, the most significant markets for
pharmaceuticals.
BASF Pharma's products are marketed primarily to physicians. Marketing and
sales efforts are also directed at healthcare maintenance organizations in the
United States and at government agencies and private insurance groups in Europe
and elsewhere. BASF Pharma's own sales force usually conducts sales and
marketing activities. BASF Pharma increasingly markets certain pharmaceutical
products in the United States directly to consumers by way of television,
newspaper and magazine advertising. For example, BASF Pharma has been utilizing
direct-to-consumer advertising since October 1998 to market its
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antiobesity drug Meridia(R) in the United States. In some markets,
direct-to-consumer advertising for prescription drugs is restricted or
prohibited, for example in most European countries.
In many countries, pharmaceutical products are subject to
government-imposed price controls, budgets or reimbursement programs. Since the
early 1990s, pressure has been growing for healthcare cost containment in many
countries.
Competition in the pharmaceuticals industry is based on innovative
research, rapid product development, low-cost production and creative marketing.
The ability to attract qualified personnel and to secure capital resources is
also an important competitive factor. BASF Pharma's products compete with the
products of other international pharmaceutical companies and research-based
biotechnology companies. In addition, BASF Pharma competes in some markets with
generic product producers. BASF Pharma's main competitors are Roche Group of
Switzerland in the market for antiobesity products. In the field of
cardiovascular products, Pfizer, Inc. of the United States and Bayer AG of
Germany are the main competitors for calcium-channel blockers in hypertension
and American Home Products Corporation of the United States for arrhythmia
products. In the market for thyroid products, BASF Pharma's competitors are
generic manufacturers. In the market for pain/inflammation products, BASF Pharma
competes with a number of local competitors and suppliers of over-the-counter
products. BASF Pharma holds a strong position in the pharmaceutical active
ingredients markets for caffeine, theophylline, ephedrine and ibuprofen. It is
among the top three companies for acetaminophen, along with Mallinckrodt Inc. of
the United States and Rhodia S.A. of France.
GOVERNMENTAL REGULATION
Pharmaceutical products must receive regulatory approval before they can be
marketed in individual countries. The regulatory requirements follow stringent
standards that vary among different countries. Before a drug can qualify for
marketing approval, a registration dossier must be submitted to a regulatory
authority for review and evaluation. The registration dossier principally
contains detailed information about the safety, efficacy and quality of a new
medication. It also provides details about the manufacturing process, the
production plant and information provided to patients. The registration process
can last between a few months and a few years and depends on the nature of the
medication under review, the quality of the submitted data and the efficiency of
the review procedure. If a drug meets the approval requirements, a regulatory
authority will grant a product license for marketing. After the product launch
and during marketing, it is a legal requirement that the manufacturer monitor
potential adverse reactions and report any to the appropriate authorities.
The process of developing a pharmaceutical product from discovery through
testing, registration and initial product launch typically takes more than 10
years. In clinical Phase I, a pharmaceutical compound is tested in a small group
of healthy volunteers for safety, side effects and pharmacological profile. In
clinical Phase II, a pharmaceutical compound is tested in a limited number of
patient volunteers for safety, efficacy and appropriate dosage. In clinical
Phase III, a pharmaceutical compound is tested in a larger diverse group of
patient volunteers to assess safety, efficacy, side effects and dosage in a
statistically significant fashion. The results of these clinical trials are then
submitted to appropriate regulatory authorities with the objective of obtaining
approval to sell the drug. After commercial launch, trials are held to monitor
the safety and efficacy of the products in large patient groups and to
investigate potential new applications.
The principal regulatory authority in the United States is the Food and
Drug Administration (FDA), which administers and executes requirements covering
the testing, approval, safety, effectiveness, manufacturing, labeling and
marketing of prescription pharmaceuticals. Over the years, FDA requirements have
increased the amount of time and money necessary to develop new products and
bring them to market in the United States. In 1997, the Food and Drug
Administration Modernization Act was passed and was the culmination of a
comprehensive legislative reform effort designed to streamline regulatory
procedures within the FDA and to improve the regulation of drugs, medical
devices, and food. The legislation was principally designed to ensure the timely
availability of safe and effective drugs and
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biologics by expediting the premarket review process for new products. A key
provision of the legislation is the re-authorization of the Prescription Drug
User Fee Act of 1992, which permits the continued collection of user fees from
prescription drug manufacturers to augment FDA resources earmarked for the
review of human drug applications. This helps provide the resources necessary to
ensure the timely approval of safe and effective new drugs.
In the European Union, there are two different approval procedures
available: a centralized procedure and one based on the Mutual Recognition
Procedure. The London-based European Agency for the Evaluation of Medicinal
Products (EMEA) governs the centralized drug registration and approval process
and consists of two committees, one for proprietary medicinal products (CPMP)
and one for veterinary medicinal products (CVMP). Each member state of the
European Union has two members on each committee. The committee makes a
recommendation based on a review of an appointed rapporteur and co-rapporteur,
who are part of the CPMP/CVMP. Following the committee's recommendation, the
European Commission issues its formal decision, which is valid throughout the EU
without further action. When the approval process is successful, the drug may be
marketed within all member states of the European Union. The other method is the
Mutual Recognition Procedure in which one country carries out the primary and
main evaluation. The other member states then have 90 days to decide if they
accept or reject the decision made by the reference member state. If the
countries do not follow the decision of the reference country, then the process
can be referred to the CPMP and will be reviewed there as in the centralized
procedure. The formal decision will be made by the European Commission based on
this evaluation.
In Japan, there are two issues that make the approval process difficult for
drugs developed outside of that country. First, the Japanese approval agency
only recognizes some of the documents used in registration procedures in other
countries. Second, the Japanese approval agency requires that tests to determine
appropriate dosages for Japanese patients be conducted on Japanese patient
volunteers. Due to these issues, parts of Phase II and of Phase III of the
clinical program generally need to be repeated in Japan. This could mean a delay
of two or three years in introducing a drug developed outside of Japan to the
Japanese market.
In recent years, efforts have been made between the European Union, the
United States and Japan to achieve shorter development and registration times
for medicinal products by harmonizing the individual requirements of the three
regions. The process is called the International Conference on Harmonization.
For the foreseeable future, however, approval must be obtained in each market.
FINE CHEMICALS
OVERVIEW
BASF's Fine Chemicals division develops, manufactures and sells
approximately 600 different high-value specialty products to approximately 6,000
customers.
BASF is one of the world's leading vitamin producers, and vitamins account
for about half of the Fine Chemicals division's sales. For further information
on antitrust matters involving BASF's vitamins business, see "Item 3. Legal
Proceedings." The division's other major products include carotenoids and
nutraceuticals for the food and nutritional supplement industries and enzymes
and amino acids for the animal nutrition industry. BASF also produces a number
of raw materials for cosmetics and aroma chemical companies.
The Fine Chemicals division benefits from BASF's Verbund approach to
integration by purchasing approximately 50% of its raw materials from other BASF
operations, ensuring economies of scale, efficient use of by-products, lower
capital expenditures for capacity additions, lower transportation costs and
reliable supplies. These cost savings and other advantages improve the ability
of the Fine Chemicals division to compete in international markets, where
competition for many of its products is based on price. Virtually all of the
division's products are sold to external customers.
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About 60% of the division's raw material purchases are bulk commodities
from external and internal sources, such as sugar and molasses for lysine
production and nutrients for vitamin premixes. These supplies are readily
available on the market. Among specialty inputs, no single product accounts for
more than 4% of total external purchases.
From 1995 to 1998, BASF made significant capital expenditures on production
plants and manufacturing equipment in Germany, Denmark, and the United States,
particularly in the carotenoid product area. Total capital expenditures for the
Fine Chemicals division reached or exceeded E100 million in both 1997 and 1998
and were E73 million in 1999. The Fine Chemical division's most significant
capacity expansions were for the production of vitamin E and citral, an aroma
chemical. BASF made a major acquisition in the fine chemicals area in May 1998
by purchasing the worldwide business in lysine, a feed additive, of the Korean
Daesang Group, including a production plant in Kunsan, Korea.
The key elements of the division's success are establishing a global sales
presence by maintaining low costs and achieving preferred supplier status with
major customers, as this status promotes lasting relationships and often
generates higher sales volumes. BASF believes that its Fine Chemicals division
generally has a good cost position in comparison to its competitors. In the few
areas where the division's production costs do not compare favorably with those
of competitors, BASF is making process improvements in existing plants and
entering into production joint ventures to achieve economies of scale and reduce
costs. To foster close relationships with major customers, the Fine Chemicals
division is establishing near its customers additional regional technology
centers and pre-mix plants for both animal and human nutrition. These sites
allow the division to collaborate with customers in the product development
process and to take advantage of BASF's substantial research and development
capacity. BASF is also expanding its presence in new product fields,
particularly nutraceuticals for human nutrition and enzymes for animal
nutrition.
PRODUCTS
The following are the main product lines of the Fine Chemicals group:
Vitamins
Vitamins is the largest of the Fine Chemicals division's product groups in
terms of sales. BASF produces six of the 13 naturally occurring vitamins. These
include the water-soluble vitamins B2 (riboflavine), Calpan (calcium
d-pantothenate) and C as well as the fat-soluble vitamins A, E and D3. The
production of precursors for vitamin C is coming on stream in a joint venture
with Cerestar and Merck KGaA of Germany. The Fine Chemicals division sells
vitamins to the human and animal nutrition industries. Most of BASF's vitamins
sales are roughly divided between Europe and North America.
Carotenoids
Carotenoids are nature-identical products that provide certain health
benefits and are also used to color foods. This product line includes
beta-carotene and astaxanthin for the food, feed and nutritional supplement
industries for human and animal nutrition. More than half of BASF's carotenoid
sales are in Europe.
Nutraceuticals
BASF defines nutraceuticals as naturally occurring substances with benefits
for health, fitness and well-being that are typically present in human food.
BASF currently sells its nutraceuticals almost exclusively in the United States.
Enzymes
Enzymes, which are proteins that function as biochemical catalysts, are
used for animal nutrition to improve feed absorption. BASF's enzyme product line
includes Natuphos(R), which the Fine Chemicals
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division produces and markets pursuant to a cooperation agreement with DSM NV of
the Netherlands. Most of BASF's enzymes sales are roughly divided between Europe
and North America.
Amino Acids
Amino acids are feed additives that serve as a complementary growth area
within BASF's animal nutrition business. An important product is lysine, of
which BASF is one of the world's largest producers. BASF entered the lysine
market in May 1998 by acquiring the worldwide lysine business of Korea's Daesang
Group. The Fine Chemicals division has a strong foothold in the Asian market for
amino acids, with more than a third of its sales for this product group in the
region.
Organic acids
Organic acids are used as preservatives for grains and compound feeds. BASF
offers a wide range of organic acid products that suppress the growth of molds
and bacteria. BASF is the leading supplier of standard and tailor-made organic
acids for the fee industry in Europe and Asia.
Cosmetics Ingredients
Cosmetics ingredients are sold as raw materials for many fashion-driven
personal care products, including skin-care additives and sunscreen agents. BASF
sells these products primarily in Europe. In 1999, BASF acquired the Z-Cote(R)
zinc-based ultraviolet A (UVA) absorber business of sunSmart Inc. of the United
States to broaden and strengthen its sunscreen ingredients product line.
Aroma Chemicals
Aroma chemicals are fragrance and flavor raw materials that are used as
precursors for perfumes, food products, detergents and cosmetics. BASF sells
these products primarily in Europe.
Polymers
Polymers include hair-setting polymers for hairsprays, styling mousses,
gels and hair conditioners. Polymers are also used in pharmaceutical
applications such as disinfectants and tableting agents. BASF sells polymers to
the pharmaceuticals and cosmetics industries primarily in Europe.
Pharmaceutical Active Ingredients
The pharmaceutical active ingredients business will be transferred from the
Pharmaceuticals division to the Fine Chemicals division in mid-2000. BASF
believes that this will create potential marketing synergies with the existing
Fine Chemicals businesses supplying the pharmaceuticals industry, such as pharma
polymers.
SALES
The Fine Chemicals division's sales to third parties were El.374 billion in
1999. The following table shows the Fine Chemicals division's 1999 sales by
customer industry:
<TABLE>
<CAPTION>
CUSTOMER INDUSTRY 1999 SALES
----------------- -------------------
(EUROS IN MILLIONS)
<S> <C>
Animal nutrition............................................ E727
Personal care, cosmetics, aroma chemicals and other
products.................................................. 323
Human nutrition and pharmaceutical ingredients.............. 324
</TABLE>
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RESEARCH AND DEVELOPMENT
The Fine Chemicals division's research and development activities focus on
constantly improving BASF's cost position while generating a flow of new
products. In 1999, the Fine Chemicals division spent approximately 5% of its
consolidated sales on research and development activities.
More than 40% of the Fine Chemicals division's research and development
expenses in 1999 were allocated to vitamins and carotenoids. Approximately 15%
of the funds were spent to develop new product lines; other feed additives
received approximately 15%. The remaining funds were spent on polymers and other
fine chemicals products.
In the animal nutrition business, BASF is seeking to increase its market
share by improving product quality and reducing production costs. BASF is also
directing research efforts at extending the feed additives product range, for
example, by extending the carotenoid product line with astaxanthin and by adding
new heat-stable enzymes to the Natuphos(R)/Natustarch(R) range of feed enzymes.
These enzymes are designed to improve digestion in animals and reduce the
phosphate content of excretions. In the medium term, BASF intends to launch NSP
(non-starch polysaccharide) enzymes and a new variety of Natugrain(R).
In nutraceuticals, BASF's goal for the next phase of product development
includes lipoic acid, lycopene and lutein.
Biotechnological production processes are becoming increasingly important
to the success of many fine chemical products because they reduce variable
production costs and allow for continuous improvement in the bacteria strains
and fermentation processes for vitamins. BASF has successfully replaced chemical
synthesis with biotechnology-based processes to produce vitamin B2 and vitamin
C.
In the cosmetics and pharmaceuticals additives businesses, BASF is
developing both new products and new applications to increase market share.
Early-phase research partnerships with customers provide additional
opportunities to bring new products to market faster and to keep pace with the
relatively short product life cycles typical of consumer product industries.
MARKETS AND DISTRIBUTION
In 1999, Europe accounted for 41% of the Fine Chemicals division's sales,
North America for 31%, the Asia, Pacific Area, Africa region for 20% and South
America for 8%.
The main customers of the Fine Chemicals division are global participants
in the animal nutrition, human nutrition, personal care and aroma chemical
industries. Many of the division's products are sold in relatively small volume
and are often tailor-made to meet customer specifications.
BASF sells the vast majority of its fine chemical products through its own
sales force, which targets major global customers. Key account managers are
assigned to these major customers on the basis of region and product group.
Through its sales and marketing departments, BASF works closely with
customers to develop specific applications and to collaborate on developing new
products. These departments, which are located regionally around the world,
offer customers extensive technical and laboratory services.
BASF's competitive position depends to a large extent on its ability to
compete on both price and quality. This requires leadership in production
process engineering and technology. In addition, BASF expects that the ability
to quickly develop innovative products with high growth potential, such as
nutraceuticals, will remain an important competitive factor.
BASF expects the trend toward globalization and consolidation to continue
among customers of the Fine Chemicals division. Product differentiation is based
on quality, price and value-added services. BASF believes that cost-effective
production processes will be critical to ensure future success in this industry,
as will preferred supplier status with important customers. The trend toward
commoditization for certain fine chemicals, such as fat-soluble vitamins, is
intensifying, and competition based on price is likely to increase
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in the future. BASF is exposed to competition from new market entrants,
especially from China. Entrants from China, in particular, tend to be low cost
producers that compete on the basis of price, primarily in the European feed and
food vitamins market. Competition from new entrants has affected other regional
feed vitamins markets to a more limited degree. The pharmaceuticals market,
however, has not been noticeably affected to date by increased competition from
new entrants.
BASF considers its main competitors in the animal nutrition area to be
Roche Group of Switzerland, Archer Daniels Midland Co. of the United States,
Novo Nordisk A/S of Denmark, Aventis/Rhodia S.A. of France, Eisai Co. Ltd. of
Japan and new entrants from China. In the human nutrition area, BASF's main
competitors are Roche, Merck KGaA of Germany, Takeda Chemical Industries, Ltd.
of Japan, International Specialty Products Inc. and Warner Jenkinson Co., Inc.
of the United States. In pharmaceuticals, BASF considers International Specialty
Products and FMC Corporation of the United States to be its main competitors. In
the area of personal care and cosmetics, Roche of Switzerland, International
Specialty Products, Hercules Inc., Bush Boake Allen Inc. and National Starch &
Chemical Co. of the United States and Imperial Chemical Industries plc of the
United Kingdom are the main competitors of BASF.
GOVERNMENTAL REGULATION
BASF's various Fine Chemicals products are subject to regulation by
government agencies throughout the world. The primary emphasis of these
requirements is to assure the safety and effectiveness of BASF's products. Of
particular importance in the United States is the Food and Drug Administration
(FDA), which regulates many of BASF's Fine Chemicals products. The FDA oversees
the marketing, manufacturing and labeling of dietary supplements, including
vitamins. The Federal Trade Commission regulates claims made in the advertising
of dietary supplements. The Center for Veterinary Medicine within the FDA is
responsible for ensuring that animal drugs and medicated feeds are safe and
effective for their intended uses and that food from treated animals is safe for
human consumption. Animal health products are also regulated in the United
States by the United States Department of Agriculture and the Environmental
Protection Agency.
One of the major markets for BASF's fine chemicals is the European Union
(EU). In the EU, similar regulatory systems are established on the national
level of different member states as well as on the pan-European government
level. Positive lists and negative lists exist in Europe and they regulate the
usage of various substances in order to ensure consumer safety. Before the
substances are added to these lists, they are subject to a rigorous approval
procedure. A product is approved in the EU only after its safety is assessed by
a committee of independent academic scientists.
In countries other than the United States and those of the European Union
in which BASF conducts business, BASF is subject to regulatory and legislative
climates that are similar to or sometimes even more restrictive than those
described above. The regulatory environment in Japan, for example, can be more
restrictive than that of the United States or the EU countries.
CROP PROTECTION
OVERVIEW
BASF's Crop Protection division is a leading supplier and marketer of
herbicides and fungicides to the farming community. The division is also
actively pursuing further opportunities in novel crop protection products and
plant biotechnology. The division currently offers approximately 570 products to
approximately 4,100 wholesalers around the world. The division's principal
products are sold mainly to farmers who use them to improve crop yields and
quality.
The Crop Protection division benefits from BASF's Verbund approach to
integration by purchasing approximately 20% of its precursors from other BASF
operations. Virtually all of the products manufactured by the division are sold
to external customers.
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On March 21, 2000, BASF announced that it signed an agreement to acquire
the crop protection business of American Home Products Corporation (AHP) of the
United States for about $3.8 billion.
The acquisition would more than double BASF's annual crop protection sales.
This purchase, which still requires approval from relevant governmental
antitrust authorities, is expected to be completed by July 1, 2000. The BASF
Supervisory Board has approved the transaction.
Through the combination of these activities, BASF intends to become even
more competitive in crop protection due to three key factors:
- BASF will move to a leading position in major agricultural markets.
BASF is expanding its presence particularly in the important
agricultural markets of North and South America as well as
strengthening its established position in Europe.
- BASF will offer a strong and broad portfolio of products, including an
established and proven line of insecticides, targeting a broad range
of crops.
- BASF will have a combined pipeline under development containing 15
active ingredients expected to be launched by 2006 with a combined
peak annual sales potential of about $2 billion.
The combined business would have had pro forma 1999 sales of $3.6 billion
and income from operations before one-time restructuring items of $450 million.
About $250 million in annual synergy effects are expected to be generated by the
transaction, with approximately half of the benefits to be achieved in the first
full year after the acquisition.
As part of its goal for the Crop Protection division to reflect the global
nature of its business, BASF intends - pending regulatory approval for its
acquisition of American Cyanamid - to move the division's global headquarters to
Mount Olive, New Jersey, to better serve the North American market.
BASF has also made other significant acquisitions in recent years in the
area of crop protection, including:
- the U.S. and Canadian crop protection business of Sandoz AG of
Switzerland in 1996, making BASF one of the major players in the
worldwide corn herbicide business;
- a majority stake in Micro Flo, the second-largest supplier of generic
products for the U.S. crop protection market, in 1998; and
- a 40% stake in Svalof Weibull, a major European seed supplier based in
Sweden, in 1999.
To improve the Crop Protection division's product line, BASF is investing
in research to develop new fungicides and herbicides. At the same time, BASF is
focusing on a broader spectrum of crop production agents by actively engaging in
research and development on the combination of agricultural chemicals, seeds and
biotechnology traits.
BASF's goal in the field of plant biotechnology is to offer crop plants
with improved vitamin and nutritional content and cultivation properties. As a
first step, BASF in 1998 established two plant biotechnology joint ventures
called Metanomics and SunGene. This was followed in 1999 by the acquisition of a
40% ownership stake in the Swedish seed breeding company Svalof Weibull and the
founding of the joint venture BASF Plant Science GmbH into which the plant
biotechnology research of BASF and Svalof Weibull were merged.
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PRODUCTS
The following table lists BASF's major crop protection products:
<TABLE>
<CAPTION>
BRAND NAME ACTIVE INGREDIENT APPLICATIONS PRIMARY MARKETS
---------- ----------------- ------------ ---------------
<S> <C> <C> <C>
Herbicides
Basagran(R) Bentazone - Vegetables - North America
- Cereals - South America
- Potatoes - Europe
- Rice
- Soybeans
- Turf
- Corn
Pyramin(R) Chloridazone - Beets - Europe
Rebell(R)
Banvel(R) Dicamba - Corn - North America
Clarity(R) - Grains
Frontier(R) Dimethenamid - Corn - North America
Guardsman(R) - Soybeans - Europe
- Broadleaf crops
Butisan(R) Metazachlor - Rapeseed - Europe
Novall(R) (canola)
Nimbus(R)
2,4-D Phenoxies - Cereals - Worldwide
MCPA - Turf
CMPP
2,4-DP
Poast(R) Sethoxydim - Soybeans - North America
- Cotton - South America
- Peanuts
Fungicides
Opus(R) Epoxiconazole - Cereal - Europe
- Coffee - South America
- Rice
- Sugar beets
Allegro(R) Kresoxim-methyl - Cereals - Europe
Juwel(R) - Grapes - North America
Ogam(R) - Fruits
Mentor(R) - Vegetables
Stroby(R)/
Sovran(R)
Cyngus(R)
</TABLE>
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<TABLE>
<CAPTION>
BRAND NAME ACTIVE INGREDIENT APPLICATIONS PRIMARY MARKETS
---------- ----------------- ------------ ---------------
<S> <C> <C> <C>
Other
Growth
regulators
Pix(R) Mepiquatchloride - Cotton - North America
Cycocel(R) Chlormequatchloride - Cereals
Soil fumigant
Basamid(R) Dazomet - All crops - Worldwide
Insecticides
Perfekthion(R) Dimethoate - All crops - Worldwide
Salut(R) Dimethoate and
Chlorpyrifos
Nexter(R) Pyridaben
</TABLE>
Herbicides
Bentazone
BASF introduced bentazone in 1975 as a selective post-emergence
herbicide to control many broad-leafed weeds. It is frequently used in
mixtures with other BASF active ingredients and also with third-party
active ingredients.
Chloridazone
BASF introduced this herbicide in 1964 as a pre-emergence and early
post-emergence herbicide to control weeds. BASF has also combined
chloridazone with other active ingredients to broaden its application
range.
Dicamba
BASF acquired this ingredient from Sandoz in December 1996. It is used
in mixtures with several other active ingredients, including bentazone.
Approximately 70% to 80% of the worldwide market for dicamba is for use on
corn in North America and Western Europe.
Dimethenamid
BASF acquired this herbicide from Sandoz in 1996. It is a selective
pre-emergence herbicide and can be used alone or in combination with other
pre-emergence herbicides such as atrazine.
Metazachlor
Introduced in 1982, metazachlor is a selective and mainly soil-active
herbicide that controls broadleaf weeds and grasses. The product can be
used both as a pre-emergence and post-emergence herbicide. Approximately
90% of sales of metazachlor are for winter rapeseed (canola) in Western
Europe.
Phenoxies
These herbicides are used on a wide variety of crops, particularly
cereals, for broadleaf weed control primarily in Europe and North America.
Sethoxydim
BASF licensed this active ingredient from Nippon Soda and introduced
it in 1982 as a post-emergence graminicide. It is produced in a joint
venture with Nippon Soda and Mitsui Bussan.
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Fungicides
Kresoxim-methyl
BASF first launched this broad-spectrum fungicide, which is BASF's
best selling active ingredient, in Germany in 1996 and then introduced it
to all major European markets in 1997 and 1998. This fungicide replicates
the naturally occurring fungicide strobilurin A. It controls many classes
of plant fungi and is considered an innovative product because of its
effectiveness, mode of action and activity within plants. Kresoxim-methyl
is also registered and sold in the United States for ornamental plants
grown in greenhouses, apples, pears and grapes.
Epoxiconazole
First introduced in 1993, epoxiconazole is one of the leading products
in the azole sector. This product's success is based on its effectiveness
in controlling many major cereal foliar diseases, including mildew and rust
in wheat, barley and rye. It has a good growth potential in new crop
sectors such as coffee, rice, bananas and sugar beets.
SALES
The Crop Protection division's sales to third parties were E1.745 billion
in 1999. The following table shows 1999 sales by major product areas:
<TABLE>
<CAPTION>
PRODUCT AREAS 1999 SALES
------------- -------------------
(EUROS IN MILLIONS)
<S> <C>
Herbicides.................................................. E900
Fungicides.................................................. 549
Other agrochemical products (soil fumigants, growth
regulators and insecticides).............................. 296
</TABLE>
RESEARCH AND DEVELOPMENT
BASF's research and development activities in Crop Protection focus on the
core areas of fungicides and herbicides. As part of its plan to launch four new
fungicides and four new herbicides by 2003 or 2004, BASF launched three new
active ingredients in 1999. In 1999, research and development spending in the
Crop Protection division was approximately 11% of the division's consolidated
sales.
BASF has put great emphasis on developing innovative products that comply
with the highest environmental and safety standards. Synergies in fundamental
research with BASF's Pharmaceuticals and Fine Chemicals divisions are leveraged
to identify new product development candidates.
Plant Biotechnology
In addition to the research and development efforts discussed above, BASF
in 1998 established two research joint ventures, Metanomics and SunGene, with
partners from the scientific community. Metanomics, based in Berlin, Germany, is
studying functional genomics -- the analysis of the function of individual genes
in plants, which can lead to the discovery of the key genes needed to
genetically modify crop plants. SunGene, based in Gatersleben, Germany, tests
commercially attractive genes and develops new technologies for the efficient
introduction of genes into plants. In 1999, BASF acquired a 40% ownership stake
in the Swedish seed breeding company Svalof Weibull and, together with Svalof
Weibull, established the joint venture BASF Plant Science GmbH into which the
plant biotechnology research of both companies were merged. By establishing BASF
Plant Science GmbH, BASF has significantly strengthened its presence in the
plant biotechnology field. BASF has the goal of becoming a leading competitor in
the plant biotechnology market and expanding its position as a major supplier to
the agricultural industry. In March 2000, BASF announced that it would
substantially step up its operations in
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plant biotechnology. Research funds will amount to more than E700 million over
the next ten years. BASF also intends to allocate additional funds for the
acquisition of seed companies or participations therein.
BASF believes that biotechnology will be crucial to the crop protection
industry in the 21st century. However, new crop varieties developed through
biotechnology, particularly those with genetically modified traits such as
herbicide resistance, have experienced significant criticism from the public in
Western Europe. Fears about unknown health risks still dominate public
perception in Europe, and producers of genetically modified crops are struggling
to address these concerns.
BASF is not currently active in the genetic modification of crops to
improve their resistance to herbicides. BASF's biotechnology efforts are focused
instead on the use of biotechnology to create crop plants that are more
resilient to adverse weather and that have increased vitamin and nutritional
content. BASF believes that in the long term the benefits afforded by
biotechnology will lead to more public acceptance of products using
biotechnology.
At present, BASF is focusing its biotechnology research efforts on the
following areas:
- improved tolerance to cold and drought;
- higher content of plant constituents such as oil, proteins,
carbohydrates; and
- improved yield of plant constituents such as vitamins and
health-promoting fatty acids.
BASF cannot give assurances that any of its research and development
projects will survive the development process and ultimately obtain the
requisite regulatory approval or, if approved, will be commercially profitable.
Competitors may also launch competing or improved products.
MARKETS AND DISTRIBUTION
The largest market for Crop Protection division products is Western Europe,
which accounted for 42% of the division's consolidated sales in 1999. North
America accounted for 35%, South America for 14% and the Asia-Pacific region for
6%. The areas of Eastern Europe, Africa and Western Asia accounted for 3%.
The Crop Protection division competes primarily on product quality,
innovation and service. BASF directs marketing and sales efforts at farmers
through multi-staged marketing channels that include wholesalers and commercial
distributors. In all major markets, BASF has its own sales force for the Crop
Protection division's products, but enters into co-distribution agreements in
smaller markets where BASF does not have its own presence. BASF actively markets
its products in specialist publications and through activities targeted at
farmers. As part of these marketing activities, BASF offers customers of its
newer, specialized products advice on applications and product use.
The number of suppliers of crop protection products is relatively
concentrated. The 10 largest companies in 1999, which include BASF, accounted
for more than 90% of worldwide sales. According to industry statistics for 1999,
BASF ranks among the top four fungicide suppliers and among the top seven
herbicide producers. The consolidation process that has taken place during the
last 10 years has been driven primarily by the high capital expenditures
necessary for the increasing requirements in testing for environmental, health
and safety standards for registration of products; complex manufacturing process
engineering; and a need for a presence in all major markets.
The market for crop protection products is seasonal and partly influenced
by food commodity prices on a global basis. The world market for crop protection
chemicals is likely to be stagnant in the short-term due to agricultural reform
measures in the European Union. In addition, the introduction of genetically
modified, herbicide-resistant crops mainly from Monsanto Co. has significantly
restricted BASF's soybean herbicide sales in North America.
BASF considers the main competitors of the Crop Protection division to be
Aventis S.A. of France, Novartis International AG of Switzerland, Monsanto Co.,
The Dow Chemical Company and E.I. du Pont
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de Nemours and Company of the United States, AstraZeneca plc of the United
Kingdom and Bayer AG of Germany.
GOVERNMENTAL REGULATION
In most countries, crop protection products (including genetically modified
plants) must obtain government regulatory approval prior to marketing. The
regulatory framework for crop protection and environmental health products is
directed to ensure the protection of the consumer, the applicator and the
environment. The strictest standards are applied in the United States, Japan and
Western Europe. In the United States, the EPA (Environmental Protection Agency)
has the responsibility for registration of all chemicals released into the
environment, including herbicides, insecticides, fungicides and plant growth
regulators whether they are used for crop protection or for public health.
Significant amounts of EPA resources are concentrated on the effects of crop
protection products on the environment and on the safety of fish, wildlife and
water resources. Plant-based crop protection products are also regulated by the
USDA (U.S. Department of Agriculture) for environmental safety of the plant and
by the FDA (U.S. Food and Drug Administration) to ensure the safety of the food.
Since human exposure to a crop protection or environmental or public health
product may occur from residues on food or from residential lawn use and/or
indoor residential use, the safety assessment considers the human risk from all
anticipated routes of exposure. Special sensitivities, food consumption and
exposure patterns on infants and children are specifically considered. If the
product is used on a food crop, a legal limit for residual chemical or a
tolerance is established for the specific chemical. This limit is based on a
strict health standard and the data provided by the manufacturer.
It generally takes five to seven years from discovery of a new crop
protection product until the dossier is submitted to the appropriate regulatory
agency for product approval. There are no statutory time frames in the United
States for registration of new crop protection and environmental health
products. The standard time frames for a pesticide not regulated under "reduced
risk" are typically 30 to 36 months. For a pesticide in the "reduced risk"
category, this time frame is shortened to an average of 24 months. Numerous
initiatives on part of both the EPA and crop protection manufacturers aim to
streamline the review process and reduce the review time for a new product have
not been successful.
Genetically modified plants must undergo a regulatory assessment by the
USDA for environmental safety including impact on native species and the impact
of environmental release. The FDA considers the safety of the modified food and
whether it is "substantially similar" to existing food products. Part of this
review considers the possible introduction of new toxins or potential allergens
into the food. Foods that are not considered "substantially similar" must
undergo a more detailed review and approval process within the FDA.
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OIL & GAS
SEGMENT OVERVIEW
BASF conducts the activities of its Oil & Gas segment through its
subsidiary Wintershall AG, one of the leading oil and gas companies in Germany.
Wintershall and its affiliated companies are active in two primary areas:
- Oil and Natural Gas Exploration and Production
Wintershall participates in the search and production of oil and
natural gas in 10 countries on four continents. BASF presently conducts
its most significant oil exploration and production operations in North
Africa and the Middle East as well as in Germany, and its most
significant gas exploration and production activities in Argentina and
Germany. Wintershall's strategy is to increase its hydrocarbon
production in the next five to 10 years by at least 50% while
maintaining a ratio of proven reserves to production of approximately 10
years.
- Natural Gas Distribution and Trading
BASF conducts natural gas distribution and trading activities through
two joint ventures - WINGAS GmbH (WINGAS) and Wintershall Erdgas
Handelshaus GmbH (WIEH) - in partnership with OAO Gazprom of Russia.
WINGAS owns and operates a large pipeline system in Germany for the
distribution of natural gas and also owns and operates one underground
natural gas storage site, which is the largest in Western Europe. WIEH
acts exclusively as a trading company, purchasing Russian natural gas
and marketing it to WINGAS and Verbundnetz Gas AG (VNG), a transmission
and distribution company in eastern Germany in which Wintershall has a
15.8% ownership interest. WIEH also markets Russian natural gas in
Central Europe through its Swiss subsidiary Wintershall Erdgas
Handelshaus AG (WIEE) of Zug, Switzerland.
Effective December 31, 1999, Wintershall exited the oil marketing and
refinery business by selling for cash to Veba Oel AG, a subsidiary of Veba AG,
its Emsland refinery in Lingen, Germany, together with its 15% stake in ARAL AG,
a retail gasoline station network in Germany. (The segment's 1999 financial data
includes figures from the oil marketing and refinery business since the sale was
completed at the end of the year.) The businesses sold to Veba Oel had 1998
sales of approximately E850 million. Prior to the transaction, Wintershall had
sold to ARAL approximately 60% of the transportation fuels produced at the
Lingen refinery, which has a capacity of 800,000 barrels per day. Wintershall
had marketed the remaining 40% of the transportation fuel, as well as other
products manufactured at the refinery, through its own sales force. BASF
believes its decision to divest its holdings in ARAL and the Lingen refinery are
significant steps in the restructuring of its portfolio and concentrating on its
core activities in the Oil & Gas segment. The proceeds from the sale of BASF's
stake in ARAL are included in BASF's financial results for 1999. The proceeds
from the sale of the refinery are included in the Oil & Gas segment's income
from operations for 1999.
The Oil & Gas segment sells to third parties most of the natural gas it
produces, but through WINGAS, it also supplies BASF with most of the natural gas
consumed at BASF's Verbund site in Ludwigshafen, Germany. The Oil & Gas segment
sells to third parties all of the oil it produces.
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Largely because of its well balanced portfolio, the Oil & Gas segment has
maintained a strong competitive position despite a significant decrease in crude
oil prices in 1998. The Oil & Gas segment's sales and income from operations for
the last three fiscal years were as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
(EUROS IN MILLIONS)
<S> <C> <C> <C>
Sales to third parties, net of petroleum and natural
gas taxes............................................ E3,198 E2,685 E3,051
Petroleum and natural gas taxes........................ 1,597 1,603 1,845
Intersegmental transfers............................... 247 235 177
Sales incl. intersegmental transfers................... 3,445 2,920 3,228
Royalties.............................................. 176 204 214
Sales incl. intersegmental transfers, less royalties... 3,269 2,716 3,014
Income from operations................................. 473 276 741
</TABLE>
The Oil and Gas segment's sales to third parties, net of petroleum and
natural gas taxes, in 1997 and 1998 accounted for 11.2% of BASF's total sales in
1997 and 9.7% of BASF's total sales in 1998. In 1999, the segment accounted for
10.4% of BASF's total sales.
SEGMENT STRATEGY
In its exploration and production business, the Oil & Gas segment aims to
increase both oil and gas production by at least 50% in the next five to 10
years while maintaining a ratio of proven reserves to production of
approximately 10 years. Wintershall's strategy for achieving this goal is:
- to increase oil and gas production in Germany through further
exploration activities and field developments;
- to expand its activities in Northern Africa to offset the depletion of
existing oil reserves;
- to increase its production of gas from existing fields in Argentina in
order to satisfy increasing demand for natural gas in the southern
cone region in South America; and
- to engage in the exploration and development of oil and gas in Russia
through a strategic partnership with OAO Gazprom.
Wintershall is seeking to achieve its growth strategy by also divesting
activities with only a limited potential for expansion. These activities
include, for example, Wintershall Canada, which the company sold as of December
1, 1999. Wintershall sold its subsidiary in the United Kingdom in May 2000 and
plans to sell parts of its interests in Qatar.
In the natural gas marketing and distribution business, WINGAS currently is
the third largest natural gas transmission and distribution company in Germany
with an actual market share of 9% and long-term supply contracts covering 13% of
the anticipated German natural gas distribution market in 2010. By pursuing
strategic pipeline ventures and making investments to further expand its natural
gas storage site in Rehden, Germany, WINGAS is striving to secure by 2001
long-term contracts covering 15% of the anticipated German market in 2010.
Ongoing deregulation of the European natural gas market could require
natural gas distributors, including WINGAS, to give third parties access to
their pipelines. Deregulation could create significant growth opportunities for
WINGAS because, with access to third-party pipelines, it could transport natural
gas through the extensive transmission networks of its larger competitors and
increase its customer base.
EXPLORATION AND PRODUCTION OF OIL AND NATURAL GAS
The exploration and production of oil and natural gas historically have
been Wintershall's core businesses, with operations primarily in Germany, Libya,
Dubai and the Netherlands. Upon the 1998 dissolution of Deminex, a former joint
venture among Wintershall, VEBA Oel and RWE-DEA,
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Wintershall acquired significant natural gas exploration and production
operations in Argentina as well as non-consolidated activities in Russia and
Azerbaijan.
BASF believes that Wintershall presently has finding and development costs
that are below the industry average. Unlike global oil and gas exploration and
production companies, Wintershall focuses its exploration and production
activities on a select number of prolific hydrocarbon regions where a
combination of local technical expertise, strategic alliances and, where
possible, operating experience allow it to develop petroleum resources at
below-average costs.
Wintershall is the operator of most of the significant exploration and
production projects in which it has an interest. In projects where it is not the
operator, Wintershall assumes a variety of roles ranging from supplying funds to
participating in operating decisions pursuant to agreements with operators.
The activities that the Oil & Gas segment presently conducts are as
follows:
<TABLE>
<CAPTION>
COUNTRY ACTIVITIES COUNTRY ACTIVITIES
------- ---------- ------- ----------
<S> <C> <C> <C>
Argentina Oil and Gas Netherlands
Exploration and Gas Exploration and
Production Production
Azerbaijan* Oil Exploration Qatar Oil Exploration
Dubai Oil Exploration and Russia* Oil Exploration and
Production Production
Germany Oil and Gas Spain* Commitments for
Exploration and Hydrocarbon
Production Exploration
Libya Oil Exploration and United Kingdom Gas Exploration and
Production Production
</TABLE>
- - - - - - ---------------
* Non-consolidated activities.
RESERVES
The Oil & Gas segment's proved oil and gas reserves and proved developed
oil and gas reserves in each of four geographic areas as of December 31, 1999,
1998 and 1997 were as follows:
<TABLE>
<CAPTION>
NORTH
AFRICA AND REST OF
GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL
------- ----------- --------- ------- -----
<S> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1999
Oil (millions of barrels)
Proved reserves........................ 86 509 26 - 621
Proved developed reserves.............. 66 465 18 - 549
Gas (billions of cubic feet)
Proved reserves........................ 432 247 788 119 1,586
Proved developed reserves.............. 301 - 476 73 850
AT DECEMBER 31, 1998
Oil (millions of barrels)
Proved reserves........................ 37 545 27 6 615
Proved developed reserves.............. 34 509 14 5 562
Gas (billions of cubic feet)
Proved reserves........................ 470 247 746 195 1,658
Proved developed reserves.............. 343 - 400 142 885
</TABLE>
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<TABLE>
<CAPTION>
NORTH
AFRICA AND REST OF
GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL
------- ----------- --------- ------- -----
<S> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1997
Oil (millions of barrels)
Proved reserves........................ 38 410 - 6 454
Proved developed reserves.............. 36 408 - 6 450
Gas (billions of cubic feet)
Proved reserves........................ 464 - - 206 670
Proved developed reserves.............. 333 - - 140 473
</TABLE>
At 1999 levels of production, in terms of barrel of oil equivalents, proved
oil reserves would last approximately 11.3 years. At 1999 levels of production,
in terms of cubic feet equivalents, proved gas reserves would last approximately
11.8 years.
The Oil & Gas segment's most significant oil reserves are in North
Africa/Middle East and Germany, with the substantial majority of these reserves
being located in Libya. The most significant natural gas reserves are in
Argentina and Germany.
EXPLORATION AND PRODUCTION
The net quantities of oil and gas produced as well as the average sales
price and production cost (lifting cost) per unit of oil and gas produced in
each of the last three years were as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
OIL
Net quantities produced (millions of barrels).............. 47 53 55
Average sales price (per barrel)........................... E12.16 E 7.20 E12.73
Average production cost (lifting cost) (per barrel)........ E 2.68 E 2.89 E 2.84
GAS
Net quantities produced (billions of cubic feet)........... 73 71 135
Average sales price (per thousand cubic feet).............. E 2.09 E 2.06 E 1.36
Average production cost (lifting cost) (per thousand cubic
feet).................................................... E 0.56 E 0.65 E 0.40
</TABLE>
Wintershall's total gross and net productive wells, total gross and net
developed acres and total gross and net undeveloped acres (both leases and
concessions) as of December 31, 1999, were as follows:
<TABLE>
<CAPTION>
NORTH
AFRICA AND REST OF
GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL
------- ----------- --------- ------- ------
<S> <C> <C> <C> <C> <C>
OIL
Total gross productive wells............ 621 303 80 - 1,004
Total net productive wells.............. 301.9 58.7 26.9 - 387.5
GAS
Total gross productive wells............ 148 - 96 28 272
Total net productive wells.............. 62.8 - 30.5 4.7 98.0
OIL AND GAS ACREAGES
(THOUSANDS OF ACRES)
Total gross developed acres............. 437 1,010 168 459 2,074
Total net developed acres............... 181 353 45 103 682
Total gross undeveloped acres........... 2,027 4,480 3,316 511 10,334
Total net undeveloped acres............. 871 3,890 988 112 5,861
</TABLE>
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The Oil & Gas segment's exploration expenditures in 1999 were E40 million.
Either directly or through its subsidiaries, Wintershall was involved in the
drilling of 14 exploratory wells that were completed in 1999 compared with 28
exploratory wells completed in 1998. In 1999, nine of the exploratory wells
completed were productive compared to 17 in 1998. As of December 31, 1999,
Wintershall had begun drilling three additional exploration wells. Exploration
activities continue to focus on North Africa (mainly Libya), Argentina and
Germany.
More than 80% of the Oil & Gas segment's oil reserves and production
activities are in North Africa and the Middle East. The substantial majority of
these reserves and production activities are in Libya, where the segment
operates several onshore oilfields and plans to utilize associated natural gas
for local consumption. Remaining oil production takes place primarily in the
Mittelplate offshore oil field in the German North Sea, Dubai and Argentina. In
August 1996, the United States adopted the Iran and Libya Sanctions Act. The
Sanctions Act requires the President of the United States to impose under
particular circumstances two or more enumerated sanctions on companies that
engage in trade or investment activities in Libya. BASF cannot predict future
interpretations of, or the implementation policy of the U.S. government with
respect to, the Sanctions Act. BASF, however, does not believe that the
Sanctions Act will have a material adverse effect on BASF's financial condition
or results of operations.
With 129 million barrels of proved reserves, the Mittelplate field is the
largest German oil reservoir known to exist. Wintershall and its partner,
RWE-DEA, have been producing oil from an offshore production platform since
1987. Each partner has a 50% interest in the project. A horizontal well drilled
into the Mittelplate field from an onshore site struck oil-bearing horizons in
1998, providing good prospects for a significant increase in production. In
1999, two additional extended-reach wells were completed. Wintershall's share of
Mittelplate oil production has been contracted to RWE-DEA and Elf Oil Germany, a
unit of TotalFinaElf S.A., for refining.
Most of Wintershall's natural gas production takes place in Argentina.
Wintershall acquired its Argentine gas operations through the September 1998
dissolution of Deminex. The principal reason for the dissolution was to allow
the partners in the joint venture to control their own exploration and
production operations and to manage costs more effectively in the increasingly
competitive exploration and production business. By acquiring Deminex's gas
operations in Argentina, Wintershall added 746 billion cubic feet to its total
natural gas reserves. Wintershall intends to further develop its gas reserves in
Argentina and to increase its market share in the southern cone region in South
America. Wintershall also holds a 10% share in the "Cruz del Sur" gas pipeline
project, which is expected to be completed by the end of 2000. With this
pipeline, which runs from Punta Lara, Argentina, to Montevideo, Uruguay,
Wintershall expects to participate in the strategic development of new gas
markets in Uruguay and southern Brazil.
The Oil & Gas segment has a 49.95% participation interest and is the
operator in the development of the first natural gas offshore project on the
German continental shelf approximately 300 kilometers off the German North Sea
coast. Production is scheduled to begin in 2000 with an anticipated production
volume of 112 million cubic feet per day. The major partners in this development
project include BEB Erdgas und Erdol and RWE-DEA. N.V. Nederlandse Gasunie, a
Dutch natural gas distributor, has contracted to purchase the natural gas
produced from this field.
In spring 1999, BASF signed a German-Russian economic agreement with OAO
Gazprom that provides a framework for future project-specific agreements. The
agreement contemplates the joint participation of Wintershall and Gazprom in the
exploration and production of oil and gas primarily in Russia. Wintershall and
Gazprom are specifically planning to participate in the development of three
large oil and gas fields in Russia: one in the Timan-Pechora region and two in
Western Siberia. Such development will have to be the subject of future
agreements. Gazprom and Wintershall are currently developing geotechnical
concepts needed for the economic and technical development of these fields.
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In general, oil and gas exploration and production activities require high
levels of investment and entail particular economic risks and opportunities.
These activities tend to be highly regulated, and companies engaging in these
activities generally may face intervention by governments in matters such as:
- the award of exploration and production licenses;
- the imposition of specific drilling and other work obligations;
- environmental protection measures;
- control over the development and abandonment of fields and
installations; and
- restrictions on production.
Crude oil prices are subject to international supply and demand and other
factors that are beyond an oil company's control. Political developments can
affect world supply of and demand for oil, and therefore oil prices as well.
Such factors can also affect the price of natural gas sold under long-term
contracts because, under long-term contracts in Germany and in many other
countries, natural gas pricing typically is tied to prices of refined products
pursuant to a specified time lag. Crude oil prices are generally set in U.S.
dollars, while costs may be incurred in a variety of currencies. Fluctuations in
exchange rates therefore can give rise to foreign exchange exposures.
As with most international oil and gas companies, substantial portions of
the oil and gas reserves of Wintershall are located in countries outside the
European Union and North America, some of which can be considered politically
and economically less stable than European Union or North American countries.
These reserves and the related operations may be subject to political risks,
including:
- increases in taxes and royalties;
- the establishment of production and export limits;
- the renegotiation of contracts;
- the nationalization of assets;
- changes in local government regimes and policies, as well as changes
in business customs and practices;
- payment delays;
- currency exchange restrictions; and
- losses and impairment of operations by actions of insurgent groups.
To date, none of these risks has significantly affected the Oil & Gas
segment or had a material adverse effect on BASF's financial condition or
results of operations.
Wherever possible, Wintershall arranges capital investment guarantees by
the German government to protect its investments. Covered risks include
political risks, such as the risk of war, revolution and expropriation. German
government guarantees currently cover a total investment volume by Wintershall
of approximately E260 million, including inventory of raw materials and
supplies. Wintershall would receive approximately E200 million if any of the
covered risks were to materialize.
Wintershall's oil and gas production in Argentina has become a major
contributor to the company's total worldwide production. Privatization of former
state-owned companies in Argentina has created growth opportunities and
competition in the private sector. Wintershall intends to exploit its
substantial gas reserves in Argentina by increasing its share of the Argentine
gas market and by exporting Argentine natural gas, partly through integrated
projects.
General uncertainties are inherent in estimating quantities of proved
reserves and in projecting future rates of production and timing of development
expenditures. The accuracy of any reserve estimate is a function of the quality
of available data and engineering and geological interpretation and judgment.
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Results of drilling, testing and production after the date of the estimate may
require substantial upward or downward revisions. In addition, changes in oil
and natural gas prices could have an effect on the economically recoverable
reserves. Accordingly, reserve estimates could be materially different from the
quantities of oil and natural gas that are ultimately recovered.
NATURAL GAS DISTRIBUTION AND TRADING
BASF conducts its natural gas distribution and trading activities pursuant
to an extensive agreement with OOO Gazexport, a subsidiary of OAO Gazprom of
Russia. To promote the joint marketing of mainly Russian, as well as British
North Sea and German, natural gas in Germany, Wintershall and Gazprom
established two joint ventures:
- WINGAS GmbH (WINGAS) of Kassel, Germany, in which Wintershall has a
65% ownership interest; and
- Wintershall Erdgas Handelshaus GmbH (WIEH), of Berlin, Germany, in
which Wintershall has a 50% ownership interest.
WINGAS owns and operates a large pipeline system in Germany for the
distribution of natural gas and also owns and operates one underground natural
gas storage site. WIEH acts exclusively as a trading company, purchasing Russian
natural gas and marketing it to WINGAS and other natural gas providers in
Germany. WIEH also markets Russian natural gas in Central Europe through its
wholly owned Swiss subsidiary, Wintershall Erdgas Handelshaus AG (WIEE), of Zug,
Switzerland.
The natural gas distribution and trading business is driven by margins and
represents a source of noncyclical income for BASF. In addition, this business
ensures a reliable and cost efficient source of natural gas for BASF's Verbund
site in Ludwigshafen, Germany.
In 1999, the consolidated sales volume of WINGAS, WIEH and WIEE totaled
501.6 billion cubic feet, representing a 6% increase over the previous year's
sales of 473.0 billion cubic feet.
WINGAS
WINGAS engages in three primary activities in Germany:
- buying and selling natural gas,
- constructing and operating natural gas pipelines and underground
storage sites, and
- providing third parties with natural gas transportation and storage
services.
Since 1991, WINGAS has invested approximately E2.6 billion (of which
Wintershall's share was E1.7 billion) in its natural gas high pressure pipeline
system in Germany, which currently spans approximately 1,800 kilometers (km).
The pipeline system presently consists of four primary legs:
- MIDAL (Mitte-Deutschland-Anbindungs-Leitung), which is the longest
pipeline of the WINGAS network, extending over 702 km from the North
Sea to southern Germany. To supply the metropolitan area of Hamburg,
Germany, RHG (Rehden-Hamburg-Gasleitung) branches from MIDAL north of
Bielefeld, Germany, forming a 132 km-long branch-pipe.
- STEGAL (Sachsen-Thuringen-Erdgas-Leitung), which is a 344 km pipeline
that comes from the east and meets MIDAL south of Kassel, Germany.
STEGAL supplies eastern Germany with natural gas and connects the
WINGAS pipeline system with Czech and Slovakian pipeline systems that
transport Russian natural gas.
- WEDAL (West-Deutschland-Anbindungs-Leitung), which is a 319 km
pipeline that establishes a direct connection between the WINGAS
pipeline system and the British natural gas grid, ensuring a link to
the Western European natural gas network. WEDAL runs between Aachen,
Germany, and Bielefeld, Germany.
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<PAGE> 79
- JAGAL (Jamal-Gas-Anbindungs-Leitung) pipeline, which is a 336 km
pipeline completed in October 1999 that links the large YAMAL gas
field in Russia to WINGAS's pipeline network system. JAGAL links up
with STEGAL just south of Leipzig, Germany.
The following illustration depicts WINGAS's existing pipeline system:
[MAP DEPICTING WINGAS PIPELINE]
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In addition to its natural gas pipeline network, WINGAS also owns and
operates a natural gas storage site in Rehden, Germany. It is the largest
underground gas storage site in Western Europe, with a capacity of 157 billion
cubic feet.
WINGAS buys from WIEH more than 81% of the natural gas that it distributes,
which in turn purchases all of its gas from Gazprom and its subsidiary,
Gazexport. In 1999, WINGAS purchased approximately 349 billion cubic feet of
natural gas from these suppliers. WINGAS also buys significant amounts of
natural gas from North Sea suppliers, including Wintershall, BG plc and Conoco.
WINGAS purchased approximately 51 billion cubic feet of North Sea gas from
Wintershall in 1999 and expects to purchase approximately 75 billion cubic feet
from Wintershall and additional suppliers in 2000.
The biggest customer for WINGAS's natural gas is BASF's own Verbund site in
Ludwigshafen, Germany. The site purchases most of its natural gas energy
requirements from WINGAS - approximately 76 billion cubic feet per year, or
approximately 25% of WINGAS's distribution volume in 1998. Starting in
2002/2003, WINGAS will also supply natural gas to BASF's Verbund site in
Antwerp.
WINGAS distributes the remaining 75% of its natural gas in Germany through
long-term natural gas supply agreements with more than 30 customers. Regional
distributors purchase approximately 50% of WINGAS's annual distribution volume,
and municipalities, local distributors and industrial companies, transmission
companies and industrial companies purchase approximately 25%.
With an actual market share of 9%, WINGAS is currently the third largest
natural gas transmission and distribution company in Germany. WINGAS aims to
obtain by 2001 long-term contracts covering 15% of the anticipated German market
in 2010.
WINGAS's capital expenditures in 1999 totaled approximately E270 million.
These investments focused mainly on:
- the completion of WEDAL,
- the completion of JAGAL, and
- the expansion of the Rehden natural gas storage facility.
The ongoing deregulation of the European natural gas market will
significantly affect the business environment of the Oil & Gas segment's natural
gas activities. Deregulation could require natural gas distributors, including
WINGAS, to give third parties access to their pipelines. This access could also
create significant growth opportunities for WINGAS because WINGAS could
transport natural gas through the extensive transmission networks of its larger
competitors and increase its customer base.
WIEH AND WIEE
WIEH acts exclusively as a natural gas trading company, purchasing Russian
natural gas and marketing it to WINGAS, Verbundnetz Gas AG and to the BASF
production site in Schwarzheide, Germany. WIEH also markets Russian natural gas
in Central Europe, primarily in Romania and Bulgaria, through its wholly owned
Swiss subsidiary, WIEE. In Romania, WIEE is the main importer of Russian natural
gas.
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EMPLOYEES
As of December 31, 1999, BASF employed a workforce of 104,628 people
worldwide, which represented a decline of approximately 1% from the end of 1998.
About 56% of the workforce is based in Germany. Expenditures for salaries and
wages totaled E4.94 billion in 1999, up from E4.84 billion in 1998. For further
information, see Note 10 to the Consolidated Financial Statements included in
Item 19.
The following table details BASF's workforce on a regional basis as of
December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Europe............................................... 78,044 75,738 73,789
thereof Germany.................................... 61,509 60,021 58,158
North America........................................ 15,727 15,908 15,685
South America........................................ 6,389 6,512 6,688
Asia, Pacific Area, Africa........................... 4,819 7,787 8,466
TOTAL................................................ 104,979 105,945 104,628
</TABLE>
As of December 31, 1999, BASF Aktiengesellschaft employed 42,789 people at
its headquarters in Ludwigshafen, Germany, compared with 43,956 as of December
31, 1998.
Many of BASF's employees who are not considered management in Germany are
members of labor unions. Almost all of these union members belong to the Mining,
Chemical and Energy Workers' Union (Industriegewerkschaft Bergbau, Chemie,
Energie). None of BASF's sites in Germany is operated on a "closed shop" basis,
meaning that employees are not required to join a union. In Germany, collective
bargaining agreements for employees below management level are generally
negotiated between the regional association of employers within a particular
industry and the respective unions.
In addition, under German law, employees elect a works council
(Betriebsrat) that participates in determining company policy, especially with
regard to certain voluntary compensation matters and benefits.
The most recent collective bargaining agreement for employees in Germany
represented by labor unions, which covers most of BASF's employees in Germany,
was signed in March 2000 and expires February 28, 2002. In addition,
approximately 45% of BASF's European workforce outside of Germany, 10% of its
workforce in the United States and Canada, 30% of its workforce in Mexico, 70%
of its workforce in South America and 40% of its workforce in the Asia, Pacific
Area, Africa region is represented by labor unions and/or company-specific
collective bargaining organizations.
BASF considers its labor relations to be positive and anticipates reaching
future agreements with its labor unions on terms satisfactory to all parties.
There can be no assurances, however, that new agreements will be reached without
a work stoppage or strike or on terms satisfactory to BASF. A prolonged work
stoppage or strike at any of BASF's major manufacturing sites could have a
material adverse effect on the company's results of operations. BASF has not
experienced any material strikes during the last 10 years.
AGREEMENT 2000/AGREEMENT 2003
In the "Agreement 2000" signed in October 1997, BASF management and the
works councils of BASF's Ludwigshafen site agreed to achieve by the end of 2000
a personnel level, excluding trainees, of between 39,000 and 41,000 employees.
This workforce reduction will be achieved for the most part through socially
responsible measures, including voluntary part-time working conditions for those
nearing retirement, voluntary termination agreements for other employees wishing
to leave the company and modest loans to those wanting to start their own
businesses. The definition of the workforce under Agreement 2000 included 40,297
people at the Ludwigshafen site as of March 31, 2000, down from 42,470 in
October 1997 when the program was started.
In the "Agreement 2003" signed in April 2000, BASF management and the works
councils of BASF's Ludwigshafen site reached a new agreement based on the
original October 1997 agreement. The new pact calls for continued workforce
reductions that will be achieved through socially responsible
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measures. The total number of employees at the Ludwigshafen site as of March 31,
2000, was 42,157. By the end of 2000, BASF expects to have a total of
approximately 41,000 employees at the site; about 800 positions are expected to
be eliminated through the divestiture of operations to other companies. For the
period between 2001 and the end of 2003, BASF expects an additional annual
workforce reduction of approximately 1,300 positions.
EXECUTIVE STOCK OPTION PROGRAM
BASF offers its stock option program ("BOP") to approximately 1,200 of its
senior executives, including members of the Board of Executive Directors, in
some 50 countries. More than 80% of the eligible senior executives opted to
participate in the program in 1999. For further information, see "Item 12.
Compensation of Directors and Officers."
EMPLOYEE STOCK PURCHASE PROGRAM
In January 1999, BASF launched a stock purchase program for employees of
its companies in Germany. The program, known as "plus," allows employees to use
a portion of their annual company bonus to purchase blocks of 10 shares of BASF
Aktiengesellschaft and provides for the award of incentive shares to employees
who hold their blocks for certain time periods. Beginning in 2000, this stock
purchase program will be offered gradually to BASF employees outside of Germany.
For further information, see "Item 12. Compensation of Directors and Officers."
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<PAGE> 83
ENVIRONMENTAL MATTERS
BASF is subject to numerous national and local environmental laws and
regulations throughout the world concerning its operations and products in
countries in which it operates. These laws and regulations govern, among other
things, the handling, manufacture, transport and disposal of materials and the
discharge of pollutants into the environment, practices and procedures
applicable to construction and operation of sites, and the restoration and
preservation of natural resources.
BASF's operations are subject to increasingly stringent laws and government
regulations related to environmental protection and remediation. In Germany
alone, some 3,000 laws regarding environment, safety and health affect BASF's
operations. In Germany, the primary environmental laws currently affecting
BASF's operations are:
- the Chemicals Act (Chemikaliengesetz), which provides for the
protection of humans and the environment from the harmful effects of
dangerous chemical substances;
- the Ordinance on Large Combustion Plants
(Grossfeuerungsanlagen-Verordnung), which establishes emissions limits
for different types of plants for all major air pollutants, including
sulfur dioxide, nitrogen oxides and dust;
- the Recycling Act (Kreislaufwirtschafts- und Abfallgesetz), which
regulates waste management, focusing on waste avoidance and reuse of
waste;
- the Water Resources Management Act (Wasserhaushaltsgesetz), which
establishes principles for the responsible use of water resources,
including the purification of waste water;
- the Waste Water Charges Act (Abwasserabgabengesetz), which establishes
charges for waste water emissions based on the content of harmful
substances and other parameters, such as nitrogen content;
- the Federal Pollution Control Act (Bundes-Immissionsschutzgesetz),
which regulates emissions from a variety of sources, including
downstream refineries;
- the Act on Transportation of Dangerous Goods (Gesetz zur Beforderung
gefahrlicher Guter), which sets standards for transportation safety
and the avoidance of accidents due to the release of dangerous
substances;
- the Control of Major Accident Hazard Directive of the European Union
(Storfall-Verordnung), which classifies the accident potential of
installations and sets corresponding standards for safety management;
and
- the Federal Mining Act (Bundesberggesetz), which regulates the
exploration and production of oil and gas.
Although BASF believes that its production sites and operations are
currently in material compliance with all applicable laws and regulations, these
laws and regulations have required and in the future could require BASF to take
action to remediate the effects on the environment of the prior disposal or
release of chemicals or petroleum substances or waste. Such laws and regulations
have applied and in the future could apply to various sites, including BASF's
chemical plants, oil fields, waste disposal sites, chemical warehouses and
natural gas storage site. In addition, such laws and regulations have required
and in the future could require BASF to install additional controls for certain
of its emission sources, undertake changes in its operations in future years and
remediate soil or groundwater contamination at sites.
BASF's operating costs for environmental protection totaled E802 million in
1999. These costs are recurring or one-time costs associated with sites or
measures that are incurred in the avoidance, reduction or elimination of
deleterious effects on the environment. They include the costs of centralized
disposal sites, such as waste-water treatment plants, as well as decentralized
sites, such as residue incinerators. They also comprise different levies such as
effluent levies, water levies, costs for disposal services by third parties,
costs of monitoring, analysis and surveillance carried out by mobile and
stationary measuring as
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well as research and development costs for reducing the incidence of residues.
The operating costs are net of all credits. BASF also spent approximately E129
million in 1999 on capital expenditures for pollution control units and
equipment.
BASF also incurs costs to remediate the impact of the current and prior
disposal or release of chemicals or petroleum substances or waste, both at its
own sites and at third-party sites to which BASF has sent waste for disposal.
Worldwide, BASF had established reserves of E260 million for anticipated
investigation and clean-up costs at such sites as of December 31, 1999, and E319
million as of December 31, 1998. In the United States, liability for remediation
of contamination is imposed generally pursuant to the federal Comprehensive
Environmental Response Compensation and Liability Act (Superfund) and analogous
state laws. Although such U.S. laws generally allow the recovery of the total
cost of cleanup from any single responsible party, cleanup costs typically are
shared among several responsible parties at third-party sites where multiple
parties sent waste to the site for disposal, and sometimes at owned or operated
sites where a predecessor or other third-party disposed of waste on-site. BASF
has been notified that it may be a potentially responsible party at such sites.
The proceedings related to these sites are in various stages. The cleanup
process has not been completed at most sites; the number, potential liability
and financial viability of other parties is typically not fully resolved and the
status of the insurance coverage for most of these proceedings is uncertain.
Consequently, BASF cannot accurately determine the ultimate liability for
investigation or cleanup costs at these sites. As events progress at each site
for which BASF has been named a potentially responsible party or is otherwise
involved in remediation of contamination, BASF accrues, as appropriate, a
liability for site cleanup. Such liabilities include all costs that are probable
and can be reasonably estimated. In establishing these liabilities, BASF
considers its shipments of waste to a site and its percentage of total waste
shipped to the site (in the case of third-party sites); the types of waste
involved; the conclusions of any studies; the magnitude of any remedial actions
which may be necessary; and the number and viability of other potentially
responsible parties. Although the ultimate liability may differ from estimates,
BASF routinely reviews the liabilities and revised estimates, as appropriate,
based on the most current information available.
BASF has established and continues to establish reserves for environmental
remediation liabilities where it is probable that a remediation liability will
be incurred and the amount of such liability can be reasonably estimated. The
provisions made are considered to be materially in accordance with U.S. GAAP for
known requirements. BASF adjusts accrual as new remediation commitments are made
and as information becomes available which changes estimates previously made.
For further information, see Note 22 to the Consolidated Financial Statements.
BASF does not establish reserves for potential soil contamination at sites
still under operation in Germany. German law does not currently require
contamination at a site to be remedied until the site is closed and dismantled,
unless the authorities otherwise direct. If operations at certain of BASF's
present or former sites were terminated or if German law were changed to require
such removal or cleanup before termination, the cost could be material to BASF.
BASF cannot accurately determine the ultimate potential liability for
investigation and cleanup at such sites.
In connection with the onshore and offshore oil and gas activities
conducted by BASF's subsidiary, Wintershall, BASF is subject to an increasing
number of national laws, regulations and directives governing the protection of
the environment. In connection with the exploration, drilling, production,
storage, transportation and distribution of oil and gas, these regulations may,
among other things:
- require permits;
- restrict the types, quantities and concentration of substances that
may be released into the environment;
- limit or prohibit such activities on land within environmentally
protected areas; and
- impose criminal or civil liability for pollution of soil, water and
air as a result of such activities.
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Wintershall performs environmental impact studies where new oil and gas
activities are planned and complies with environmental protection principles
when onshore and offshore sites are abandoned. Environmental laws and
regulations have an increasing impact on the oil and gas industries, and
therefore on Wintershall. It is impossible to predict accurately the effect of
future developments in such laws and regulations on Wintershall's future
earnings and operations. Some risk of environmental costs and liabilities is
inherent in Wintershall's oil and gas activities, as it is with other companies
engaged in similar businesses. BASF can make no assurance that Wintershall will
not incur material costs and liabilities relating to environmental matters.
It is difficult to estimate the extent and cost of future environmental
restoration and remediation programs because of uncertainties relating to
applicable laws, regulations and information concerning individual locations and
sites, changes in BASF's production processes, the development or discovery of
facts or conditions at properties involved, and BASF's potential share of
liability. In addition, in recent years the operations of all chemical companies
have become subject to increasingly stringent legislation and regulation related
to occupational safety and health, product registration and environmental
protection. Such legislation and regulations are complex and constantly
changing, and there can be no assurance that future changes in laws or
regulations would not require BASF to install additional controls for certain of
its emission sources, to undertake changes in its manufacturing processes or to
remediate soil or groundwater contamination at sites where such cleanup is not
currently required. Subject to the foregoing, but taking into account BASF's
experience to date regarding environmental matters of a similar nature and facts
currently known, BASF believes that capital expenditures and remedial actions
necessary to comply with existing laws governing environmental protection will
not have a material effect on BASF's consolidated financial condition or results
of operations.
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RESEARCH AND DEVELOPMENT
BASF's research and development activities are aimed at developing new and
improved products, finding new applications for existing products and developing
cost-efficient and environmentally responsible manufacturing processes.
BASF spent E1.33 billion on research and development activities in 1999
compared with El.31 billion in 1998 and El.30 billion in 1997. The company
spends approximately 55% of its research budget on developing innovative
products, and another 15% on improving existing products. Developing new and
improved processes accounts for about 25% of spending, while the remaining 5% is
spent on discovering new production methods and technologies. BASF spends 73% of
its annual research budget in Germany, 17% in North America, 7% in other
European countries and 3% in Asia.
BASF employs about 10,000 people worldwide in various research and
development activities. About 7,000 employees are involved in research and
development work in Ludwigshafen, making the city one of the world's largest
research centers in the chemical industry.
The center in Ludwigshafen and a number of decentralized research sites
worldwide form an efficient network that makes an important contribution to
BASF's Verbund approach to integration. BASF's four main research divisions in
Ludwigshafen support the company's global activities. BASF carries out product
and market-related development worldwide in close cooperation with customers and
joint-venture partners.
Almost half of BASF's research spending is devoted to the area of health
and nutrition, where BASF is expanding its activities. The Limburgerhof
Agricultural Center in Germany and agricultural research stations around the
world develop crop protection products, while BASF Pharma develops new
pharmaceuticals products. BASF conducts its own biotechnology research and is
also involved in various biotechnology research joint ventures.
BASF conducts its research activities through more than 860 cooperation
agreements with universities, research institutes and industrial partners in
many countries worldwide and through various research joint ventures.
PATENTS
BASF puts great emphasis on obtaining patents, trademarks, copyrights and
designs to protect its investment in research and development. The company seeks
the optimum protection for significant product and process developments. BASF's
patents are protected in 14 countries on average and, at a minimum, in those
countries that are most relevant to the product or process involved. This
protection is crucial in the chemicals industry because profit margins often
depend on implementing state-of-the-art technology protected by patents. BASF
vigorously enforces its patents and trademarks.
A number of major products and manufacturing processes no longer have
patent protection. BASF believes that the expiration of patent protection for
these established products and processes generally has not had a significant
adverse impact on the company.
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SUPPLIES AND RAW MATERIALS
Through its Verbund strategy, BASF operates in an integrated manufacturing
environment that processes basic raw materials to produce thousands of products
for sale as finished goods at various points in these manufacturing processes.
The major raw materials that feed BASF's Verbund production sites are
hydrocarbon-based raw materials such as naphtha, LPG (liquefied petroleum
gases), natural gas, benzene, propylene and derivatives of these products. Other
important raw materials include ammonia, titanium dioxide and potash. BASF has a
long-term natural gas supply contract with Gazprom of Russia through its WINGAS
joint venture.
BASF takes advantage of its purchasing power by centrally purchasing raw
materials around the world for many of its operating divisions, both on the
basis of long-term contracts and in spot markets. In addition, BASF will
increase its purchasing efficiencies by taking advantage of the opportunities
offered by e-commerce.
BASF has a policy of maintaining, when possible, multiple sources of supply
for materials and is not dependent on a limited number of suppliers for
essential raw materials.
BASF has not experienced any difficulty in obtaining sufficient supplies of
raw materials in recent years and believes it will be able to obtain them at
competitive market prices in the future. BASF, however, cannot give any
assurance that its ability to obtain sufficient raw materials at any time will
not be adversely affected by unforeseen developments. In addition, the prices of
raw materials may vary, perhaps significantly, from year to year.
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E-COMMERCE
E-commerce is rapidly changing the way that the chemical industry conducts
business. BASF is taking advantage of the opportunities offered by electronic
commerce to improve customer relationships, to enhance its supply chain
productivity and to increase its purchasing efficiencies. BASF expects to
conduct about 40 percent of its business online by the end of 2001, and this
level is expected to rise to more than 50 percent by 2005. BASF wants to secure
a European leadership position in e-commerce, and plans to invest about E75
million during the next two years to expand its activities.
BASF's e-commerce strategy is focused on three major areas:
- System-to-system solutions:
System-to-system solutions refers to the direct link between the
information technology (IT) systems of companies or business partners.
This category will continue to account for the majority of electronic
marketing activities in the coming years. An example of this is vendor-
managed inventory, which is an electronic-based supplier concept that
is individually tailored to the customer's needs. It allows BASF to
monitor the customer's inventory level and a new order is automatically
placed when the inventory level of the product drops below a pre-
specified amount. This eliminates the need for time-consuming routine
purchase orders and allows BASF to ensure that the customer always has
an adequate supply of BASF products without any additional action
having been taken by the customer.
- Electronic marketplaces:
In addition to participating in external marketplaces, BASF is building
its own specific procurement marketplaces. Some examples of electronic
marketplaces in which BASF has an interest include its venture with
other chemical companies to launch a marketplace for transactions,
logistics and supply chain management; its equity stake in ChemConnect
of the United States and its joint venture with various German chemical
companies and SAP AG of Germany.
- Extranet:
The third category involves BASF selling products and services online
through its own Extranet or similar portals.
Strategic partnerships will play an important role in BASF's e-commerce
strategy. The following is a list of BASF principal partnerships in the area of
e-commerce:
- Project Newco
BASF is one of 12 companies that announced in May 2000 that they agreed
in principle to create a new, independent business-to-business
e-commerce company that will offer integrated solutions and services
for buying and selling basic, intermediate, specialty and fine
chemicals. The focus of this venture is to remove costs from the supply
chain, benefiting both buyers and sellers, by developing a marketplace
for contract and negotiated transactions, logistics and supply chain
management of chemicals worldwide. The new marketplace is expected to
enable deep connectivity between the different Enterprise Resource
Planning (ERP) systems of suppliers and buyers. The company, which is
expected to be established in July 2000 and have operational business
services in place by the end of 2000, will be an independent entity
with its own management team and a board of directors. Its initial
capitalization plan will be more than $150 million. The companies
participating in the venture include ATOFINA, Bayer AG, BP Amoco, The
Dow Chemical Company, E.I. du Pont de Nemours, Mitsui Chemicals
Corporation, Mitsubishi Chemicals Corporation, Rhodia S.A., Rohm and
Haas Company, Sumitomo Chemical Corporation and Van Waters & Rogers
Inc.
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- mySAP.com:
BASF has joined a group of chemical companies and SAP AG to form an
independent joint venture that will use mySAP.com e-business and
marketplace technology. The other companies in the venture are Degussa
AG, Henkel KGaA and mg technologies. The new venture will take over
responsibility for the continued development and ongoing expansion of
the mySAP.com chemical and pharmaceutical marketplace announced in
December 1999. It will initially focus on indirect procurement and is
expected to be expanded to encompass technical services, direct
procurement and additional value-added services such as transportation
and financial services. This venture is expected to offer the partners
significant purchasing savings by creating an innovative virtual
marketplace with efficient processes and systems and by offering
suppliers the chance to reach a wider base of potential customers. The
new marketplace will provide significant benefits to its members,
including increased transparency and aggregated buying power, reduced
costs for product evaluation, increased efficiency and faster
innovation.
- ChemConnect:
BASF has acquired an equity stake in ChemConnect, which claims to have
the world's biggest Internet marketplace for chemical products through
its World Chemical Exchange(R). The World Chemical Exchange(R) is the
largest global chemical exchange, providing an open neutral market for
chemical and plastics manufacturers, buyers and intermediaries to
conduct real-time online transactions for a wide range of products.
- Plastics marketplace:
BASF together with Bayer AG of Germany, The Dow Chemical Company, E.I.
du Pont de Nemours and Celanese AG signed a Letter of Intent in April
2000 to form an independent business-to-business online marketplace
focused on delivering products and related services to plastics
injection molders around the world. The potential size of this market
is estimated to be approximately $50 billion annually. This electronic
marketplace is intended to enable customers worldwide to purchase high
quality thermoplastic resins, other plastic-related materials, molding
equipment, tooling, maintenance supplies, packaging materials and other
related services. This new company will initially serve customers in
North America and Europe and will expand quickly to Asia and the rest
of the world. The new marketplace will significantly simplify business
transactions, allowing customers to choose from a wide range of
products and services from participating resin manufacturers,
additional suppliers and distributors on a common platform, with the
goal of reducing transaction costs in the purchasing and selling
process.
- yet2.com:
BASF is a member of the www.yet2.com consortium for marketing
technologies via the Internet. This first global marketplace for
technology intellectual property has been established by the U.S.
company yet2.com Inc. of Cambridge, Massachusetts. Members of the
consortium, as well as other companies, offer their technologies to
yet2.com for marketing on the Internet. BASF expects technologies that
it has developed but has not yet exploited commercially to be better
used as a result of this new marketing method.
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ITEM 2. DESCRIPTION OF PROPERTY
BASF owns and operates numerous production and manufacturing sites
throughout the world. The principal offices of BASF Aktiengesellschaft are
located in Ludwigshafen, Germany. In addition, BASF operates regional
headquarters, sales offices, distribution centers and research and development
sites worldwide.
At the heart of BASF's integration strategy are its Verbund production
sites. The following is a description of these sites including the number of
production sites:
<TABLE>
<CAPTION>
PRODUCTION
LOCATION ACREAGE SITES
-------- -------- ----------
<S> <C> <C>
Ludwigshafen, Germany....................................... 1,760 350
Antwerp, Belgium............................................ 1,470 50
Tarragona, Spain............................................ 240 15
Geismar, Louisiana.......................................... 2,290 10
Freeport, Texas............................................. 510 18
</TABLE>
A Verbund site is currently under construction in Kuantan, Malaysia, with
the joint venture partner Petronas. BASF also plans to build a Verbund site in
Nanjing, China, with its joint venture partner, SINOPEC.
BASF believes that its current sites are adequate to meet its requirements
for present and foreseeable future operations.
See "Item 1. Description of Business - Environmental Matters" for
information on environmental issues related to BASF's properties. Additional
information regarding BASF's property, plant and equipment is contained in Note
12 to the Consolidated Financial Statements included in Item 19.
For information on BASF's oil and natural gas exploration and production
activities, see "Item 1. Description of Business - Oil & Gas" and "Supplementary
information concerning oil and gas producing activities (unaudited)" on pages
F-56 to F-64.
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The following is a list of BASF's significant production sites, all of
which BASF owns, except as indicated below:
<TABLE>
<CAPTION>
REGION/COUNTRY PRODUCTION SITE LOCATION DIVISION ACTIVITIES
-------------- ------------------------ -------------------
<S> <C> <C>
Europe
- - - - - - ------
Germany Ludwigshafen(1) Petrochemicals & Inorganics
Fertilizers
Industrial Chemicals
Intermediates
Specialty Chemicals
Styrenic Polymers
Engineering Plastics
Fiber Products
Colorants
Dispersions
Fine Chemicals
Crop Protection
Besigheim Colorants
Cologne Colorants
Cologne-Knapsack Polyolefins
Frankenthal Styrenic Polymers
Frankfurt Polyolefins
Lemforde Polyurethanes
Ludwigshafen Pharmaceuticals
Minden Pharmaceuticals
Munchsmunster Polyolefins
Munster-Hiltrup Coatings
Schwarzheide Intermediates
Styrenic Polymers
Dispersions
Engineering Plastics
Polyurethanes
Coatings
Crop Protection
Stuttgart-Feuerbach Colorants
Uetersen Pharmaceuticals
Wesseling Polyolefins
Styrenic Polymers
Willstatt Colorants
Belgium Antwerp(1) Petrochemicals and Inorganics
Fertilizers
Industrial Chemicals
Intermediates
Specialty Chemicals
Styrenic Polymers
Polyurethanes
Fiber Products
Dispersions
</TABLE>
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<TABLE>
<CAPTION>
REGION/COUNTRY PRODUCTION SITE LOCATION DIVISION ACTIVITIES
-------------- ------------------------ -------------------
<S> <C> <C>
Denmark Ballerup Fine Chemicals
Grenaa Fine Chemicals
France Berre(4) Polyolefins
Clermont de l'Oise Coatings
Colorants
Fos(4) Polyolefins
Lillebonne Polyolefins
Mitry-Mory Polyurethanes
Notre-Dame-de-Grevenchon(4) Polyolefins
Italy Bibbiano Styrenic Polymers
Burago Coatings
Cesano Maderno Coatings
Colorants
Dispersions
Cinisello Balsamo Colorants
Liscate Pharmaceuticals
Villanova d'Asti Polyurethanes
Zingonia Polyurethanes
The Netherlands Apeldoorn Dispersions
Moerdijk(2) Polyurethanes
Rozenburg Polyolefins
Spain Guadalajara Coatings
Hospitalet Colorants
Madrid Pharmaceuticals
Rubi Polyurethanes
Tarragona(1) Crop Protection
Industrial Chemicals
Intermediates
Styrenic Polymers
Engineering Plastics
Polyolefins
Dispersions
Switzerland Liestal Pharmaceuticals
San Antonino Pharmaceuticals
United Kingdom Alfreton Polyurethanes
Ashbourne Fine Chemicals
Carrington Polyolefins
Cramlington Pharmaceuticals
Seal Sands Fiber Products
Slinfold Colorants
Wilton Polyolefins
</TABLE>
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<PAGE> 93
<TABLE>
<CAPTION>
REGION/COUNTRY PRODUCTION SITE LOCATION DIVISION ACTIVITIES
-------------- ------------------------ -------------------
<S> <C> <C>
North America
Canada Arnprior, Ontario Fiber Products
Toronto, Ontario Polyurethanes
Windsor, Ontario Coatings
Mexico Altamira Styrenic Polymers
Engineering Plastics
Colorants
Dispersions
Lerma Polyurethanes
Specialty Chemicals
Mexico City Pharmaceuticals
Tultitlan Coatings
United States Anderson, South Carolina Fiber Products
Beaumont, Texas Crop Protection
Bishop, Texas Pharmaceuticals
Carrolton, Texas(4) Polyurethanes
Clemson, South Carolina Fiber Products
Polyurethanes
Freeport, Texas(1) Industrial Chemicals
Intermediates
Engineering Plastics
Fiber Products
Dispersions
Geismar, Louisiana(1) Petrochemicals & Inorganics
Industrial Chemicals
Intermediates
Polyurethanes
Speciality Chemicals
Fine Chemicals
Joliet, Illinois Styrenic Polymers
Monaca, Pennsylvania Dispersions
Morganton, North Carolina Coatings
Port Arthur, Texas(2) Petrochemicals & Inorganics
Shreveport, Louisiana Pharmaceuticals
South Brunswick, New Jersey Styrenic Polymers
Whippany, New Jersey Pharmaceuticals
Wyandotte, Michigan Styrenic Polymers
Polyurethanes
Engineering Plastics
Fine Chemicals
Pharmaceuticals
Puerto Rico Jayuya Pharmaceuticals
</TABLE>
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<PAGE> 94
<TABLE>
<CAPTION>
REGION/COUNTRY PRODUCTION SITE LOCATION DIVISION ACTIVITIES
-------------- ------------------------ -------------------
<S> <C> <C>
South America
Argentina Buenos Aires Polyurethanes
General Lagos Rosario Styrenic Polymers
Colorants
Dispersions
Specialty Chemicals
Tortuguitas Coatings
Brazil Camacari Industrial Chemicals
Intermediates
Guaratingueta Industrial Chemicals
Intermediates
Styrenic Polymers
Colorants
Dispersions
Crop Protection
Specialty Chemicals
Jacarepagua/Rio de Janeiro Pharmaceuticals
Sao Bernardo do Campo Coatings
Polyurethanes
Sao Jose dos Campos Styrenic Polymers
Chile Concon Industrial Chemicals
Styrenic Polymers
Dispersions
Santiago Styrenic Polymers
Asia-Pacific
China Caojing(3) (4) Polyurethanes
Nanjing (YBS)(4) Styrenic Polymers
Nanjing(1)(3)(4) Petrochemicals & Inorganics
Industrial Chemicals
Polyolefins
Dispersions
Specialty Chemicals
Intermediates
Shanghai(4) Colorants
Fiber Products
Coatings
Dispersions
Shenyang Fine Chemicals
</TABLE>
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<PAGE> 95
<TABLE>
<CAPTION>
REGION/COUNTRY PRODUCTION SITE LOCATION DIVISION ACTIVITIES
-------------- ------------------------ -------------------
<S> <C> <C>
India Jejuri(4) Pharmaceuticals
Goa(4) Pharmaceuticals
Mangalore(4) Colorants
Dispersions
Mumbai (Bombay)(4) Colorants
Thane(4) Styrenic Polymers
Colorants
Specialty Chemicals
Crop Protection
Indonesia Ceng Kareng(2)(3) Dispersions
Japan Katsuyama Pharmaceuticals
Shinshiro Polyurethanes
Totsuka(3)(4) Coatings
Yokkaichi(4) Intermediates
Dispersions
Fine Chemicals
Korea Kunsan Fine Chemicals
Ulsan Intermediates
Styrenic Polymers
Engineering Plastics
Polyurethanes
Yeochun Polyurethanes
Malaysia Kuantan(1)(2)(4) Industrial Chemicals
Intermediates
Dispersions
Petrochemicals & Inorganics
Pasir Gudang(4) Styrenic Polymers
Engineering Plastics
Shah Alam(4) Polyurethanes
Pakistan Karachi Pharmaceuticals
</TABLE>
- - - - - - ---------------
(1) Verbund site.
(2) Under construction.
(3) Planned.
(4) Plant is owned; land is leased.
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<PAGE> 96
ITEM 3. LEGAL PROCEEDINGS
BASF is involved in a number of legal proceedings and claims incidental to
the normal conduct of its businesses, relating to such matters as product
liability, patent infringement, licensing, tax assessments, competition, past
waste disposal practices and release of chemicals into the environment,
including, among others, those discussed below.
ANTITRUST CLAIMS RELATING TO VITAMINS
On May 20, 1999, BASF Aktiengesellschaft entered into an agreement with the
United States Department of Justice, Antitrust Division, by which BASF
Aktiengesellschaft agreed to plead guilty to certain offenses relating to the
sale of vitamin products in the United States. Under the plea agreement, BASF
Aktiengesellschaft agreed: (i) to enter a plea of guilty in the United States
District Court for the Northern District of Texas to a one count information
charging conspiracy to allocate the markets for and fix the prices of specified
vitamin products in violation of the Sherman Antitrust Act, and (ii) to
cooperate in the government's ongoing investigation. On September 17, 1999, the
United States District Court for the Northern District of Texas accepted the
guilty plea and the recommended fine of $225 million and sentenced BASF
Aktiengesellschaft accordingly.
On September 22, 1999, in accordance with a plea agreement, a Canadian
Federal Court imposed a fine of C$19 million on BASF Aktiengesellschaft or a
subsidiary for violations of Canadian antitrust laws. Government investigations
against the respective local subsidiaries of BASF continue in the EU, Japan,
Australia, Mexico and Brazil.
BASF Aktiengesellschaft or a subsidiary and other vitamin producers have
also been named as defendants in numerous civil lawsuits, including class action
lawsuits and actions on behalf of individual plaintiffs, alleging violations of
the Sherman Antitrust Act and state antitrust statutes. On June 22, 1998, the
lawsuits filed in the federal courts were consolidated for pretrial purposes in
the United States District Court for the District of Columbia, In re: Vitamin
Antitrust Litigation, Misc. No. 99-197 (TFH). The federal actions principally
allege violations of the Sherman Antitrust Act and seek damages of three times
the losses caused to persons who purchased vitamins directly from the
defendants. BASF has agreed to settle the class action lawsuits with plaintiffs
that purchased products directly from vitamin manufacturers. Terms of the
settlement agreement call for seven vitamin manufacturers to contribute $1.17
billion, including plaintiff's legal costs. BASF Aktiengesellschaft will
contribute $287 million of the total amount. The United States District Court
for the District of Columbia granted preliminary approval of the proposed
settlement on November 23, 1999 and final approval (except with regard to
attorney's fees) on March 28, 2000. Plaintiffs representing approximately 80% of
relevant BASF sales have elected to opt out of the proposed settlement. Many of
such opt-out plaintiffs have filed complaints in various federal courts alleging
violations of the Sherman Act substantially similar to those alleged in the
class actions. Under the class settlement agreement, BASF Aktiengesellschaft's
payment to the class will be reduced proportionally to the volume of opt-out
sales. Individual settlements at class action settlement conditions have been
reached with customers representing approximately 15% of the relevant BASF
sales.
State court actions are proceeding separately in approximately 20 states.
These actions principally allege violations of state law and seek damages based
on losses suffered by persons who were indirect purchasers of vitamins from the
defendants, including in some cases treble damages, injunctions, punitive
damages, statutory penalties and restitution. In addition, beginning in June and
July of 1999, civil lawsuits relating to antitrust issues were initiated in
Canada and Australia. Because all of these actions are in the early procedural
stages, BASF cannot predict their outcome.
Although the final resolution of the civil actions and the continuing
government investigations mentioned above could in the aggregate have a material
effect on BASF's consolidated operating results for a particular reporting
period, BASF believes that the matters should not have a material adverse effect
on BASF's financial condition and cash flows.
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<PAGE> 97
SYNTHROID-RELATED CLAIMS
On October 30, 1997, Knoll Pharmaceutical Company (Knoll), a subsidiary of
BASF Corporation, announced that a United States district court in Chicago gave
preliminary approval of a proposed settlement of a series of class action
lawsuits involving its thyroid medication Synthroid(R). The lawsuits challenged
Knoll's delaying publication of a study conducted by Dong et al. that compared
Synthroid to certain branded and generic products. The study concluded that
Synthroid and some competing products are bioequivalent. Although Knoll believes
the study was flawed and the conclusion incorrect, Knoll agreed to the proposed
settlement to avoid burdensome and expensive litigation which would have drained
valuable resources necessary to continue building its leadership position in
thyroid treatment.
Under the terms of the proposed settlement, consumers who bought Synthroid
between January 1, 1990 and October 30, 1997 would have been eligible to receive
a pro rata share of a settlement fund consisting of $98 million in cash. If as
many as five million claimants had participated, eligible claimants would have
received payment in the amount of $19.60, less a proportionate share of court
awarded attorneys' fees and related costs. If the number of eligible claimants
had exceeded five million, Knoll would have contributed additional payments to
the settlement fund until the fund reached a maximum of $135 million.
For various reasons, including the unclear position of third-party payors,
final approval of the proposed settlement was not granted. Knoll subsequently
negotiated a new proposed settlement with consumers and third-party payors
providing for a payment of $25.5 million in addition to the $98 million paid
into escrow in late 1997 (plus the accrued interest thereon). The United States
District Court of Chicago granted preliminary approval of the new proposed
settlement on October 8, 1999. A fairness hearing on final approval was held on
April 27, 2000, and a final decision is pending.
Although the outcome of these proceedings and claims cannot be predicted
with certainty, BASF Aktiengesellschaft believes that, except for liabilities
resulting from the antitrust claims relating to vitamins, any resulting
liabilities, net of amounts recoverable from insurance or otherwise, will not,
in the aggregate, have a material adverse effect on BASF's consolidated results
of operations, financial condition and cash flows.
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<PAGE> 98
ITEM 4. CONTROL OF REGISTRANT
The capital stock of BASF Aktiengesellschaft consists of ordinary shares
with no par value (Stuckaktien) that are issued only in bearer form ("BASF
Shares"). As of May 1, 2000, BASF Aktiengesellschaft had an aggregate of
620,991,200 BASF Shares outstanding. Because the holders of BASF Shares are not
registered with BASF Aktiengesellschaft or any other organization, BASF
Aktiengesellschaft generally cannot determine who its shareholders are or how
many shares a particular shareholder owns.
The German Securities Trading Act (Wertpapierhandelsgesetz) requires any
investor who holds voting securities of a German corporation listed on a stock
exchange within the European Union or European Economic Area to promptly notify
the corporation and the German Federal Supervisory Authority for Securities
Trading (Bundesaufsichtsamt fur den Wertpapierhandel) whenever its holdings
reach, exceed or fall below 5%, 10%, 25%, 50% or 75% of the corporation's
outstanding voting rights. In addition, any investor holding 5% or more of the
voting rights of a listed German corporation was required to provide the
corporation with an initial notification of the level of its holdings prior to
the first Annual Meeting of the corporation held after April 1, 1995.
If an investor fails to provide the notices described above, the investor
will forfeit any rights that are attached to its securities during the period of
such failure.
Allianz Aktiengesellschaft and several of its subsidiaries have notified
BASF that they directly or indirectly hold more than 10% of the BASF Shares.
Allianz Aktiengesellschaft's annual report for the year ended December 31, 1999,
which provides the most current information available regarding Allianz's
holdings in BASF, indicates that, as of such date, Allianz Aktiengesellschaft
and its subsidiaries held an aggregate of 11.3% of the BASF Shares.
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<PAGE> 99
ITEM 5. NATURE OF TRADING MARKET
PRINCIPAL MARKET FOR BASF SHARES
The principal trading market for BASF Shares is the Frankfurt Stock
Exchange. BASF Shares are also traded on the other German stock exchanges,
namely Berlin, Bremen, Dusseldorf, Hamburg, Hanover, Munich and Stuttgart. BASF
Shares are also traded on the London and Swiss stock exchanges as well as on the
stock exchange in Paris.
Options on BASF Shares are traded on Eurex, the German-Swiss derivatives
market jointly owned and operated by Deutsche Borse AG and the Swiss Stock
Exchange.
BASF Shares are held in bearer form. BASF Aktiengesellschaft does not have
access to the identity of its shareholders in the ordinary course; however, BASF
Aktiengesellschaft periodically commissions surveys to determine the
distribution of BASF Shares. BASF Aktiengesellschaft believes that, as of
January 14, 2000, it had approximately 397,000 shareholders. BASF's 2000 survey
indicated that approximately 8.5% of BASF Shares were held by shareholders in
the United States.
TRADING ON THE FRANKFURT STOCK EXCHANGE
The Frankfurt Stock Exchange, which is operated by Deutsche Borse AG, is
the largest of the eight German stock exchanges. The aggregate annual turnover
of the Frankfurt Stock Exchange in 1999 amounted to E4.01 billion (based on the
exchange's practice of separately recording the sale and purchase components
involved in any trade) for both equity and debt instruments. The Frankfurt Stock
Exchange is, in terms of turnover, the third largest stock exchange in the
world, after the New York Stock Exchange (NYSE) and the Nasdaq National Market.
In 1999, trading on the Frankfurt Stock Exchange accounted for
approximately 80% of the turnover in exchange-traded securities in Germany. As
of December 31, 1999, the equity securities of 3,265 companies, of which 2,554
were non-German, were traded on the Frankfurt Stock Exchange.
Trading on the floor of the Frankfurt Stock Exchange starts each business
day at 9:00 a.m. and continues until 5:30 p.m., Central European Time. As of
June 2, 2000, trading will be extended until 8:00 p.m. Markets in listed
securities are generally of the auction type, but listed securities also change
hands in interbank dealer markets off the Frankfurt Stock Exchange. Price
formation is by open outcry, as determined by state appointed specialists
(Amtliche Kursmakler), who are themselves exchange members but are not permitted
to deal with the public. Prices for active stocks are quoted continuously during
stock exchange hours. For all stocks whose prices are officially determined, an
official daily quote for odd-lot trades (Kassakurs) is determined by auction
around mid-session of each trading day. For some less actively traded shares,
this official daily quotation is the only price determined.
BASF Shares are also traded on Xetra(R) (Exchange Electronic Trading), an
integrated computerized trading system operated by the Frankfurt Stock Exchange.
Xetra(R) is available during the operating hours of the Frankfurt Stock Exchange
to brokers and banks that are members of a German stock exchange. Xetra(R) is
integrated into the Frankfurt Stock Exchange and is subject to its rules and
regulations.
Transactions on the Frankfurt Stock Exchange (including transactions within
the Xetra(R) system) settle on the second business day following trading.
Transactions off the Frankfurt Stock Exchange, which may occur when one of the
parties to the transaction is foreign, are generally settled on the second
business day following trading. The parties, however, may agree upon a different
settlement period. German banks' standard terms and conditions for securities
transactions require that all customer orders to buy or sell listed securities
be executed on a stock exchange unless a customer gives specific instructions to
the contrary.
The Hessian Exchange Supervisory Authority and the Trading Monitors of the
Frankfurt Stock Exchange both monitor trading on the Frankfurt Stock Exchange.
The exchange may suspend a quotation if orderly stock exchange trading is
temporarily endangered or if a suspension is necessary to protect the
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<PAGE> 100
public interest. Trading activities are also monitored by the Federal
Supervisory Authority for Securities Trading (Bundesaufsichtsamt fur den
Wertpapierhandel).
BASF Shares are included in the Deutsche Aktienindex (DAX), the leading
index of trading on the Frankfurt Stock Exchange. The DAX is a continuously
updated, capital-weighted performance index of 30 highly capitalized German
companies. The shares included in the DAX are selected on the basis of share
turnover and market capitalization.
As of September 20, 1999, BASF Shares are also included in the Dow Jones
EURO STOXX 50(SM) Index comprised of the 50 companies with the highest market
capitalization in countries participating in the European Monetary Union (EMU).
BASF Shares are also included in the Dow Jones STOXX(SM) Index comprised of
some 594 companies located in Europe. This index is identical, in terms of
countries and companies, to the Dow Jones Global Indexes - Europe. BASF Shares
are also included in the Dow Jones EURO STOXX(SM) Index comprised of some 297
companies in 10 of the 11 countries that are members of the EMU. This index is a
component of the 16-country Dow Jones STOXX(SM) Index. STOXX Limited is the
operating company of the Dow Jones STOXX(SM) Indexes. BASF Shares are also part
of the newly established S&P Global 100 Index, which is comprised of 100 large
companies with global businesses from around the world. The S&P Global 100 Index
is sponsored by Standard & Poor's and the New York Stock Exchange.
According to statistics provided by the Frankfurt Stock Exchange, the
average daily volume of BASF Shares traded on the exchange in 1999 was 6,962,406
shares.
The table below shows for the periods indicated the high and low closing
sales prices for BASF Shares on the Frankfurt Stock Exchange as reported by
Deutsche Borse AG and also the high and low of the DAX. See "Item 8. Selected
Financial Data" for information on exchange rates between the U.S. dollar,
German mark and the euro during the periods in this table.
<TABLE>
<CAPTION>
PRICE PER BASF SHARE DAX
---------------------------------------- -------------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
1997
First Quarter.................... DM66.80 (E33.47) DM56.15 (E28.13) 3,460.59 2,848.77
Second Quarter................... DM69.10 (E34.62) DM60.70 (E30.41) 3,805.29 3,215.24
Third Quarter.................... DM73.65 (E36.90) DM60.45 (E30.91) 4,438.93 3,819.85
Fourth Quarter................... DM67.40 (E34.46) DM55.90 (E28.58) 4,347.24 3,567.22
1998
First Quarter.................... DM81.80 (E41.82) DM59.75 (E30.55) 5,102.35 4,087.28
Second Quarter................... DM86.85 (E44.41) DM76.75 (E39.24) 5,915.13 5,018.67
Third Quarter.................... DM92.90 (E47.50) DM61.00 (E31.19) 6,171.43 4,433.87
Fourth Quarter................... DM70.90 (E36.25) DM58.30 (E29.81) 5,121.48 3,896.08
1999
First Quarter.................... E34.35(1) E30.19 5,443.62 4,678.72
Second Quarter................... E42.60 E34.50 5,492.36 4,845.45
Third Quarter.................... E45.00 E39.70 5,655.30 4,999.24
Fourth Quarter................... E52.20 E39.50 6,958.14 5,156.28
2000
First Quarter.................... E51.80 E42.15 8,064.97 6,474.92
</TABLE>
- - - - - - ---------------
(1) As of January 4, 1999, the first day the euro was traded, all stocks on the
Frankfurt Stock Exchange were quoted in euros. The fixed conversion rate of
the German mark to the euro is DM1.95583 = E1.00.
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<PAGE> 101
AMERICAN DEPOSITARY RECEIPTS
BASF Aktiengesellschaft entered into a deposit agreement with The Bank of
New York, as depositary, for the issuance of American Depositary Receipts
evidencing American Depositary Shares (ADSs). Each ADS represents one BASF Share
or evidence of the right to receive one BASF Share. For further information, see
"Item 14. Description of Securities To Be Registered."
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<PAGE> 102
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
As of January 1, 1999, Germany and 10 other member states of the European
Union (Austria, Belgium, Finland, France, Ireland, Italy, Luxembourg, the
Netherlands, Portugal and Spain) introduced the euro as their single currency.
The former national currencies of these countries are being used as
denominations of the euro for an interim period ending by December 31, 2001.
During this interim period, the former national currencies are converted into
euros at fixed conversion rates that were established prior to the introduction
of the euro. The euro and, as a denomination thereof, the German mark are fully
convertible currencies.
There are, except in limited embargo circumstances pursuant to resolutions
adopted by the United Nations or the European Union, 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), subject only to certain immaterial exceptions, any payment received
from or made to or on account of an individual or corporation residing outside
Germany (a "Nonresident") if such payment exceeds DM5,000 (approximately E2,556)
or the equivalent in a foreign currency. In addition, Residents must report any
claims against or any liabilities payable to Nonresidents if such claims or
liabilities in the aggregate exceed DM3,000,000 (approximately E1,533,875) or
the equivalent in a foreign currency during any one month. Residents must also
report any direct investment outside Germany if such investment exceeds
DM100,000 (approximately E51,129), or the equivalent in a foreign currency.
Neither German Law nor the Articles of Association (Satzung) of BASF
Aktiengesellschaft impose any limitations on the rights of Nonresident or
foreign owners to hold or vote BASF Shares, including those represented by
American Depository Receipts (ADRs).
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<PAGE> 103
ITEM 7. TAXATION
The following is a summary of material United States federal income and
German tax considerations relating to the ownership of American Depositary
Shares ("ADSs"), as more specifically described in Item 14, or BASF Shares, by
an Eligible U.S. Holder (as defined below).
The discussion is based on tax laws of the United States and Germany as in
effect on the date of this Registration Statement, including the Convention
between the United States of America and the Federal Republic of Germany for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect
to Taxes on Income and Capital and to Certain Other Taxes (the "Income Tax
Treaty"), and the Convention Between the United States of America and the
Federal Republic of Germany for the Avoidance of Double Taxation with respect to
Taxes on Estates, Inheritances, and Gifts (the "Estate Tax Treaty"). All such
laws are subject to change, possibly with retroactive effect, and to different
interpretations. The discussion also is based in part upon the representations
of the Depositary and the assumption that each obligation in the Deposit
Agreement and any related agreement will be performed in accordance with its
terms.
The discussion does not purport to be a comprehensive description of all
the tax considerations that may be relevant to the ownership of ADSs or BASF
Shares. In particular, it does not address any aspect of United States federal
tax law other than income taxation, or any aspect of German tax law other than
income, gift, inheritance and wealth taxation, and it does not cover the tax
laws of any state or municipality, or any jurisdiction outside the United States
and Germany. Moreover, the discussion does not consider any specific facts or
circumstances that may apply to a particular Eligible U.S. Holder, and does not
take into account any special tax rules to which certain holders (including,
without limitation, tax-exempt organizations, persons subject to the alternative
minimum tax, securities broker-dealers, financial institutions, persons holding
ADSs or BASF Shares in a hedging transaction or as part of a straddle or
conversion transaction, persons having a functional currency other than the U.S.
dollar, persons that own, or that are treated as owning, 10% or more of the
voting power of our stock and persons that received ADSs or BASF Shares pursuant
to the exercise of employee stock options or otherwise as compensation) may be
subject.
OWNERS OF ADSS OR BASF SHARES ARE URGED TO CONSULT THEIR TAX ADVISERS
REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL, GERMAN AND OTHER TAX
CONSEQUENCES OF OWNING AND DISPOSING OF ADSS OR BASF SHARES. IN PARTICULAR,
OWNERS OF ADSS OR BASF SHARES ARE URGED TO CONSULT THEIR TAX ADVISERS TO CONFIRM
THEIR STATUS AS ELIGIBLE U.S. HOLDERS AND THE CONSEQUENCE TO THEM IF THEY DO NOT
SO QUALIFY.
For purposes of the discussion that follows, an "Eligible U.S. Holder" is
any beneficial owner of ADSs or BASF Shares who or which (i) is a resident of
the United States for the purposes of the Income Tax Treaty, such as a U.S.
citizen or U.S. corporation, (ii) is not also a resident of the Federal Republic
of Germany for the purposes of the Income Tax Treaty, (iii) owns the ADSs or
BASF Shares as capital assets, (iv) does not hold ADSs or BASF 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, (v) is entitled to benefits under the Income
Tax Treaty with respect to income and gain derived in connection with the ADSs
or BASF Shares, and (vi) if not an individual, is not subject to the limitation
on benefits restrictions in the Income Tax Treaty.
In general, for United States federal income tax purposes, holders of ADRs
(as defined below) evidencing ADSs will be treated as the owners of the BASF
Shares represented by those ADSs.
TAXATION OF DIVIDENDS
Under United States federal income tax law, Eligible U.S. Holders generally
will be required to include in their gross income, as ordinary dividend income,
the gross amount of any distribution paid by us out of our current or
accumulated earnings and profits (as determined under United States federal
income tax principles). An Eligible U.S. Holder's dividend income for United
States federal income tax purposes will not be reduced by the amount of German
withholding taxes imposed on a distribution made by us in
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respect of the ADSs or BASF Shares. Eligible U.S. Holders that are corporations
will not be entitled to the dividends-received deduction with respect to such
distributions.
Under German tax law, German corporations are required to withhold tax on
dividends in an amount equal to 25% of the gross amount paid to resident and
nonresident stockholders plus the solidarity surcharge of 5.5% thereon (equal to
1.375% of the gross amount.) In the case of an Eligible U.S. Holder, the German
withholding tax is partially refunded under the Income Tax Treaty to reduce 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 for corporate taxes with respect to dividends paid by German
corporations, the Income Tax Treaty provides that Eligible U.S. Holders are
entitled to a further refund equal to 5% of the gross amount of the dividend.
For United States federal income tax purposes, the benefit resulting from this
refund is treated as a dividend received by the Eligible U.S. Holder with
respect to German corporate taxes.
Subject to applicable limitations and conditions under United States
federal income tax law, German income taxes withheld from dividends received in
respect of ADSs or BASF Shares may be claimed by Eligible U.S. Holders either as
credits against their U.S. federal income tax liability, or as deductions in
computing their taxable income. For United States foreign tax credit purposes,
dividends received in respect of the ADSs or BASF Shares generally will be
treated as passive (or, in some circumstances, financial services) income
derived from sources outside the United States. The rules relating to foreign
tax credits are complex, and Eligible U.S. holders should consult with their own
tax advisors regarding the availability of foreign tax credits and the
application of the foreign tax credit limitations to their particular
situations.
To illustrate the foregoing, for each $100 gross amount of dividend paid by
BASF to an Eligible U.S. Holder, the dividend after partial refund of the 25%
withholding tax (plus the solidarity surcharge of 5.5% thereon) under the Income
Tax Treaty would be subject to a German withholding tax of $15. If the Eligible
U.S. Holder also applied for the additional 5% refund, German withholding tax
effectively would be reduced to $10, and the cash received per $100 gross amount
of dividend would be $90. For United States federal income tax purposes, the
U.S. Holder would be treated as receiving total dividend income of $105.88 (to
the extent paid out of our current and accumulated earnings and profits, as
determined under United States federal income tax principles), consisting of the
$100 gross amount of dividend and the deemed refund of German corporate tax of
$5.88. The notional $105.88 dividend would be deemed to have been subject to
German withholding tax of $15.88. Thus, for each $100 gross amount of dividend,
the Eligible U.S. Holder would include $105.88 in gross income, and would be
entitled to claim a foreign tax credit (or, alternatively, a deduction) of
$15.88, subject to the generally applicable limitations and conditions under
United States federal income tax law.
For United States federal income tax purposes, dividends paid by us in
German marks or euros will be included in the gross income of an Eligible U.S.
Holder in a U.S. dollar amount calculated by reference to the exchange rate in
effect on the date the dividends (including the deemed refund of German
corporate tax) are received by such Eligible U.S. Holder or, in the case of
ADSs, by the Depositary. If a dividend paid in German marks or euros is
converted into U.S. dollars on the date received, Eligible U.S. Holders
generally should not be required to recognize foreign currency gain or loss in
respect of the dividend.
GENERAL REFUND PROCEDURES REGARDING GERMAN WITHHOLDING TAX
Pursuant to administrative procedures, claims for refunds under the Income
Tax Treaty generally must be submitted to the German Federal Tax Authority
(Bundesamt fur Finanzen) either individually by an Eligible U.S. Holder, or
collectively (introduced on a trial basis) by the Depositary (or a custodian as
its designated agent) on behalf of all Eligible U.S. Holders owning ADSs. Claims
must be filed within four years of the end of the calendar year in which the
dividend was received.
The collective refund procedure may not be available for Eligible U.S.
Holders entitled to refunds in excess of DM300 for the calendar year. In such
event, those holders must file separate claims or may
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qualify for the simplified refund procedure described below. Details of the
collective refund procedure will be available from the Depositary.
Individual claims for refund have to be made on a special German claim form
that must be filed with the German Federal Tax Authority at Bundesamt fur
Finanzen, FriedhofstraSSe 1, 53221 Bonn, Germany. The German
claim-for-refund-form may be obtained from the German Federal Tax Authority at
the same address where applications are filed, or from the Embassy of the
Federal Republic of Germany at 4645 Reservoir Road, N.W., Washington, D.C.
20007-1998. Forms can also be obtained from the Office of the Assistant
Commissioner (International), Internal Revenue Service, 950 L'Enfant Plaza
South, S.W., Washington, D.C. 20024, Attention: Taxpayer Service Division.
As part of the individual refund claim, an Eligible U.S. Holder must submit
to the German Federal Tax Authority the original bank voucher (or certified copy
thereof) issued by the paying entity documenting the tax withheld, and an
official certification on IRS Form 6166 of such Eligible U.S. Holder's last
filed United States federal income tax return. IRS Form 6166 may be obtained by
sending a request to the Internal Revenue Service Center, Foreign Certificate
Request, P.O. Box 16347, Philadelphia, PA 19114-0447. Requests for certification
are to be made in writing and must include the Eligible U.S. Holder's name and
social security or employer identification number, the form number for the
relevant United States federal income tax return and the tax period for which
the certification is requested.
The Internal Revenue Service will send the certification directly to the
German Federal Tax Authority if requested by the Eligible U.S. Holder. If no
such request is made, the Internal Revenue Service will send a certificate on
IRS Form 6166 to the Eligible U.S. Holder, which then must submit the
certification with its claim for refund. The Internal Revenue Service
certification is valid for three years and need only be resubmitted in a fourth
year in the event of a subsequent application for refund.
SIMPLIFIED REFUND PROCEDURE REGARDING GERMAN WITHHOLDING TAX IN RESPECT OF ADSS
OR BASF SHARES DEPOSITED WITH THE DEPOSITORY TRUST COMPANY IN NEW YORK
As of May 7, 1999, Eligible U.S. Holders may make applications for refunds
payable under the Income Tax Treaty by using a simplified refund procedure
instead of the general refund procedures described above. Eligible U.S. Holders
may use the simplified refund procedure only with respect to taxes withheld on
dividends in respect of ADSs or BASF Shares deposited with The Depository Trust
Company in New York. Under the simplified refund procedure, refund applications
will be filed in a special (simplified) collective procedure with the aid of the
"Elective Dividend Service" (the "EDS") installed at The Depository Trust
Company.
In the EDS system, the participants maintaining accounts at The Depository
Trust Company report the positions held by them at the relevant cutoff date that
qualify for share dividends subject to withholding tax at the appropriate rates
under the Income Tax Treaty. The reports of the individual participants will be
compiled by The Depository Trust Company into a collective application and
submitted to the German Federal Tax Authority (Bundesamt fur Finanzen) for
conditional refund. After initially checking only arithmetical correctness, the
German Federal Tax Authority (Bundesamt fur Finanzen) will make a refund as
required to The Depository Trust Company. The refund will be made at the
earliest on the due date of the withholding tax pursuant to German tax law.
The Depository Trust Company will distribute the refund amounts in
accordance with EDS data to the participants to be passed on to the beneficial
owners.
TAXATION OF CAPITAL GAINS
Upon a sale or other taxable disposition of ADSs or BASF Shares, an
Eligible U.S. Holder will recognize gain or loss for United States federal
income tax purposes in an amount equal to the difference between the amount
realized from the sale or other disposition, and the Eligible U.S. Holder's tax
basis in the ADSs or BASF Shares. Such gain or loss generally will be treated as
capital gain or loss derived from
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United States sources, and will be long-term capital gain or loss if the
Eligible U.S. Holder's holding period for the ADSs or BASF Shares exceeds one
year. In the case of certain Eligible U.S. Holders (including individuals),
long-term capital gains are taxable at preferential United States federal income
tax rates. The deduction of capital losses is subject to certain limitations
under United States federal income tax law.
Deposits and withdrawals of BASF Shares in exchange for ADSs generally will
not be considered a taxable event for United States federal income tax purposes.
Under the Income Tax Treaty, an Eligible U.S. Holder will not be liable for
German tax on capital gains realized or accrued on the sale or other disposition
of ADSs or BASF Shares.
GIFT AND INHERITANCE TAXES - GERMAN TAXATION
An Eligible U.S. Holder who is an individual and whose domicile is
determined to be in the United States for purposes of the Estate Tax Treaty will
not be subject to German inheritance and gift tax (the equivalent of the United
States federal estate and gift tax) upon the individual's death or upon the
making of a gift unless the ADSs or BASF Shares (i) are part of the business
property of a permanent establishment located in Germany or (ii) 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 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 to
Germany, subject to certain limitations, in a case where the ADSs or BASF Shares
are subject to German inheritance or gift tax and United States federal estate
or gift tax.
OTHER GERMAN TAXES
There are no German transfer, stamp or other similar taxes that would apply
to Eligible U.S. Holders that purchase or sell ADSs or BASF Shares. The wealth
tax is no longer levied in respect of any taxation periods that start on or
after January 1, 1997. For collection periods from 1998 on, the trade capital
tax has been abrogated.
PLANNED REFORM OF CORPORATE TAXATION IN GERMANY
In February 2000, the Government of the Federal Republic of Germany
released a draft bill for the reform of corporate tax and the reduction of tax
rates. According to the present stage of the legislative procedure, the planned
amendments are expected to be effective as of January 1, 2001 at the earliest.
Save for possible significant changes within the course of the legislative
procedure, the proposed tax reform would abolish the imputation system
(corporation tax credit system). As a result, at the shareholder's level, a
credit of the corporation tax paid by the corporation, and the 5% refund of
corporate taxes to Eligible U.S. Holders under the Income Tax Treaty, would no
longer take place. In addition, the tax rates of the withholding tax on income
from capital investment would be reduced by 5 p.c. points.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Dividends on ADSs or BASF Shares, and payments of the proceeds of a sale of
ADSs or BASF Shares, paid within the United States or through certain
U.S.-related intermediaries are subject to Internal Revenue Service information
reporting, and may be subject to backup withholding at a 31% rate unless the
holder (i) is a corporation or other exempt recipient or (ii) provides a correct
taxpayer identification number, certifies that no loss of exemption from backup
withholding has occurred and otherwise complies with the backup withholding
requirements.
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ITEM 8. SELECTED FINANCIAL DATA
The following selected financial data for each of the years in the
five-year period ended December 31, 1999, are excerpted from the Consolidated
Financial Statements of BASF, which have been audited by Deloitte & Touche GmbH,
independent accountants during this period. This data is set forth in accordance
with generally accepted accounting principles in Germany (German GAAP) and,
where indicated, U.S. GAAP for all periods presented.
As of January 1, 1998, BASF adjusted its accounting and valuation methods
to U.S. GAAP to the extent permissible under the German Commercial Code, which
represents German GAAP. See Notes 2 and 3 to the Consolidated Financial
Statements for further information. As a result, the selected financial data
presented below in accordance with German GAAP for 1995, 1996 and 1997 are not
directly comparable to the German GAAP data for 1998 and 1999. The selected
financial data presented below in accordance with U.S. GAAP for the years 1998
and 1999 have been derived from the Consolidated Financial Statements included
in Item 19. The reconciliation of the remaining deviations to U.S. GAAP is
described in Note 3 to the Consolidated Financial Statements.
As of January 1, 1999, the Consolidated Financial Statements have been
prepared in euros. All amounts in the tables below have been converted into
euros at the official fixed conversion rate as of January 1, 1999 of
DM1.95583 = E1.00. The restated data depict the same trends and relationships
among BASF accounts as those previously reported prior to the introduction of
the euro.
The translation of euros into dollars for 1999 has been made solely for the
convenience of the reader at the noon buying rate of the Federal Reserve Bank of
New York (the "Noon Buying Rate") on December 31, 1999, which was
E0.9930 = $1.00. No representation is made that such euro amounts could have
been or could be converted into dollars at that or any other exchange rate on
such date or any other dates.
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<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 1999
-------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA AND CERTAIN OTHER DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
GERMAN GAAP
Sales, net of petroleum and natural gas
taxes................................. E23,637 E24,939 E28,520 E27,643 E29,473 $29,681
Gross profit on sales................... 8,417 9,047 10,359 10,368 11,081 11,160
Income from operations.................. 2,057 2,195 2,731(1) 2,624(2) 2,009(3) 2,023(4)
Income before taxes and minority
interests............................. 2,111 2,257 2,726 2,771 2,606 2,624
Income before minority interests........ 1,239 1,452 1,639 1,664 1,245 1,254
Net income.............................. 1,263 1,427 1,654 1,699 1,237 1,246
Basic earnings per share................ 2.07 2.32 2.67 2.73 2.00 2.01
BALANCE SHEET DATA
GERMAN GAAP
Fixed assets............................ 10,095 11,607 12,705 14,546 16,070 16,183
Current assets including deferred taxes
and prepaid expenses.................. 11,397 10,746 11,831 12,156 13,939 14,038
Total assets............................ 21,492 22,353 24,536 26,702 30,009 30,221
Stockholders' equity.................... 9,166 10,476 12,031 13,250 14,145 14,245
Provisions/Liabilities.................. 12,326 11,877 12,505 13,452 15,674 15,784
Thereof long-term..................... 6,614 6,223 6,094 6,898 7,529 7,582
Total stockholders' equity and
liabilities........................... 21,492 22,353 24,536 26,702 30,009 30,221
CAPITAL EXPENDITURES AND DEPRECIATION
Additions to fixed assets............... 2,742 3,510 2,964 4,131 3,800 3,827
Depreciation of fixed assets............ 1,885 1,874 2,048 2,280 2,681 2,700
U.S. GAAP RECONCILIATION
Net income.............................. N/A N/A N/A 1,771 1,325 1,334
Basic earnings per share................ N/A N/A N/A 2.84 2.14 2.16
Diluted earnings per share.............. N/A N/A N/A 2.79 2.12 2.13
Stockholders' equity.................... N/A N/A N/A 13,905 14,753 14,857
KEY RATIOS
Return on sales before income taxes and
interest expenses (%)(5).............. 9.9 10.0 10.4 11.0 8.8
Return on assets before income taxes and
interest expenses (%)(6).............. 11.2 11.4 12.6(7) 11.9(8) 10.2(9)
Return on equity after taxes (%)(10).... 14.3 14.8 14.6 13.2 9.1
</TABLE>
- - - - - - ---------------
(1) Including special charges of E243.
(2) Including special income of E71.
(3) Including special charges of E941.
(4) Including special charges of $948.
(5) Return on sales before income taxes and interest expenses (%) is calculated
by dividing the total of profit (loss) before taxes and interest expense by
net sales.
(6) Return on assets before income taxes and interest expenses (%) is
calculated by dividing the profit (loss) before taxes and interest expense
by the average amount of assets of the current period and previous year.
(7) Comparable excluding special items - 1997: 13.8%
(8) Comparable excluding special items - 1998: 11.1%
(9) Comparable excluding special items - 1999: 10.9%
(10) Return on equity after taxes (%) is calculated by dividing profit (loss)
after taxes by the average amount of stockholders' capital of the current
period and the previous year.
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REPORTABLE OPERATING SEGMENT DATA
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CHEMICALS
Sales........................................ E 3,710 E 3,733 E 4,471 E 4,255 E 4,393
Income from operations....................... 1,050 886 1,089 922 698
Assets....................................... 2,355 2,329 3,142 3,354 4,050
PLASTICS & FIBERS
Sales........................................ 6,369 6,176 7,395 7,573 8,533
Income from operations(1).................... 766 498 368 539 640
Assets....................................... 3,061 3,162 4,397 4,957 6,811
COLORANTS & FINISHING PRODUCTS
Sales........................................ 5,505 5,770 6,540 6,189 6,395
Income from operations(2).................... 149 289 480 642 608
Assets....................................... 3,344 3,489 4,052 3,981 4,343
PHARMACEUTICALS
Sales........................................ 1,267 1,552 1,792 2,092 2,483
Income from operations(3).................... (144) 70 (35) 66 11
Assets....................................... 1,335 1,486 1,701 1,949 2,145
FINE CHEMICALS
Sales........................................ 926 983 1,154 1,256 1,374
Income from operations(4).................... 155 135 182 114 (794)
Assets....................................... 439 496 700 1,203 1,080
CROP PROTECTION
Sales........................................ 1,012 1,152 1,641 1,750 1,745
Income from operations....................... 86 135 201 203 195
Assets....................................... 779 804 1,605 1,730 1,949
OIL & GAS
Sales........................................ 2,151 2,663 3,198 2,685 3,051
Income from operations(5).................... 103 380 473 276 741
Assets....................................... 2,114 2,155 2,503 2,622 3,003
OTHERS
Sales........................................ 2,697 2,910 2,329 1,843 1,499
Income from operations....................... (108) (198) (27) (138) (90)
Assets....................................... 8,065 8,432 6,436 6,906 6,628
BASF GROUP
Sales........................................ 22,637 24,939 28,520 27,643 29,473
Income from operations(6).................... 2,057 2,195 2,731 2,624 2,009
Assets....................................... 21,492 22,353 24,536 26,702 30,009
</TABLE>
- - - - - - ---------------
(1) Includes special items in 1997: E(82); in 1998: E19; and in 1999: E2.
(2) Includes special items in 1997: E(48); in 1998: E19; and in 1999: E(74).
(3) Includes special items in 1997: E(22); in 1998: E(4); and in 1999: E(164).
(4) Includes special items in 1997: E(37); in 1998: E2; and in 1999: E(829).
(5) Includes special items in 1999: E138.
(6) Includes special items in 1997: E(243); in 1998: E71; and in 1999: E(941).
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DIVIDENDS
The Board of Executive Directors and the Supervisory Board of BASF
Aktiengesellschaft propose dividends based on BASF Aktiengesellschaft's year-end
unconsolidated financial statements. The proposal is then voted on at BASF's
Annual Meeting. The Annual Meeting is usually convened during the second quarter
of each year.
Since all BASF Shares are in bearer form, dividends are either remitted to
the custodian bank on behalf of the stockholder, generally within two days
following the Annual Meeting, or, in the case of stockholders personally
possessing certificates, available immediately following the Annual Meeting upon
submission of the dividend coupon therefor at the offices of BASF
Aktiengesellschaft in Ludwigshafen, Germany, or the offices of BASF
Aktiengesellschaft's appointed paying agents. See "Item 14. Description of
Securities to be Registered" for further information. Record holders of BASF's
American Depositary Receipts (ADRs) on the dividend record date will be entitled
to receive payment in full of the declared dividend in respect of the year for
which it is declared. Cash dividends payable to ADR holders will be paid to The
Bank of New York, as depositary, in German marks or euros and, subject to
certain exceptions, will be converted by the depositary into U.S. dollars. The
amount of dividends received by holders of ADRs may be affected by fluctuations
in exchange rates. See "Exchange Rate Information" for further information.
The following table lists the annual dividends paid per BASF Share in
German marks and the U.S. dollar equivalent in each of the years indicated. The
table does not reflect the related tax credits available to eligible taxpayers.
See "Item 7. Taxation - Taxation of Dividends" for further information.
<TABLE>
<CAPTION>
DIVIDEND PAID FOR EACH
BASF SHARE
YEAR ENDED ----------------------
DECEMBER 31, DM E $
------------ ---- ---- ----
<S> <C> <C> <C>
1995.................................................. 1.40 0.71 0.92
1996.................................................. 1.70 0.87 1.00
1997.................................................. 2.00 1.02 1.13
1998.................................................. 2.20 1.12 1.19
1999.................................................. 1.13 1.03
</TABLE>
The German mark dividend amounts are translated solely for the convenience
of the reader into U.S. dollars (rounded to the nearest cent) at the Noon Buying
Rate on the dividend payment date. For the dividend paid in 2000 for the year
ended December 31, 1999, the euro amount is translated into U.S. dollars
(rounded to the nearest cent) on the basis of the Noon Buying Rate for the
conversion from U.S. dollars into euros at the Noon Buying Rate on the dividend
payment date.
EXCHANGE RATE INFORMATION
On January 1, 1999, the new single European currency, the euro, was
established alongside the national currencies of the 11 participating countries.
The euro is a fully convertible currency. There are, except in limited embargo
circumstances, no legal restrictions in Germany on international capital
movements and foreign exchange transactions.
Since January 4, 1999, BASF Shares have been quoted in euros on the
Frankfurt Stock Exchange. Fluctuations in the exchange rate between the euro and
the U.S. dollar will affect, among other things, the U.S. dollar amount received
by holders of BASF's ADRs upon conversion by the Depositary of any cash
dividends paid in euros on BASF Shares. It will also affect the U.S. dollar
equivalent of the euro price of BASF Shares on the Frankfurt Stock Exchange,
which will affect the market price of the ADRs on the New York Stock Exchange.
The table below sets forth, for the periods and dates indicated, the high,
low, period-average and period-end Noon Buying Rates for the German mark or
euros expressed in German marks or euro per U.S. dollar. No representation is
made that the German mark, euro or U.S. dollar amounts referred to
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<PAGE> 111
herein could have been or could be converted into U.S. dollars, euros or German
marks, as the case may be, at any particular rate.
<TABLE>
<CAPTION>
YEAR HIGH LOW PERIOD AVERAGE(1) PERIOD END
---- ---- --- ----------------- ----------
<S> <C> <C> <C> <C>
1994 DM1.7627 (E0.9012) DM1.4920 (E0.7628) DM1.6119 (E0.8241) DM1.5495 (E0.7922)
1995 DM1.5612 (E0.7982) DM1.3565 (E0.6935) DM1.4261 (E0.7291) DM1.4345 (E0.7334)
1996 DM1.5655 (E0.8004) DM1.4354 (E0.7339) DM1.5070 (E0.7705) DM1.5387 (E0.7867)
1997 DM1.8810 (E0.9617) DM1.5413 (E0.7880) DM1.7394 (E0.8893) DM1.7991 (E0.9198)
1998 DM1.8542 (E0.9480) DM1.6060 (E0.8211) DM1.7587 (E0.8992) DM1.6670 (E0.8523)
1999 E0.8466 E0.9984 E0.9445 E0.9930
</TABLE>
- - - - - - ---------------
(1) The average of the Noon Buying Rates on the last business day of each full
month during the relevant period.
As of January 4, 1999, the commencement date of euro trading, the Noon
Buying Rate for the U.S. dollar was quoted at $1.1812 = E1.00.
Because a substantial portion of the BASF Group's revenues and expenses are
denominated in currencies other than the euro, results of operations and cash
flows may be materially affected by movements in the exchange rate between the
euro and the respective currencies to which the Group is exposed. For a
discussion of the effect exchange rate fluctuations have on the BASF Group's
business and operations, the effect of the adoption of the euro on the Group's
operations and also the hedging techniques used to manage the Group's exposure
to such fluctuations, see "Item 9. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Exchange Rate Exposure and Risk
Management."
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ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
BASF is a return-focused global company generating long-term growth and
profitability from its chemical businesses, positioning itself for continuing
growth in health and nutrition and strengthening its presence in European and
other oil and gas markets. The company offers a wide range of products,
including high-value chemicals, plastics, colorants, automotive coatings, crop
protection products, pharmaceuticals, fine chemicals, petrochemicals, crude oil
and natural gas.
BASF's strategy is to be globally competitive. BASF has expanded its
worldwide presence in response to the needs of its customers and presently
maintains business ties with customers in more than 170 countries and operates
sites in 39 countries. This globalization also exposes BASF to different
economic cycles in various regions and has had a stabilizing effect on BASF's
profitability.
BASF conducts its worldwide operations through five business segments which
encompass 15 operating divisions. These operating divisions have been aggregated
into seven reportable operating segments based on the nature of the products and
production processes, on the type of customers, on the channels of distribution
and on the nature of regulatory environment.
The reportable operating segments are:
- Chemicals
- Plastics & Fibers
- Colorants & Finishing Products
- Pharmaceuticals
- Fine Chemicals
- Crop Protection
- Oil & Gas
CHEMICALS
In the Chemicals segment, profitability is determined by the margins
between prices for raw materials, particularly steamcracker feedstocks, and
prices for end-products, which are set on the world commodity markets, as well
as by the cost of production, which is influenced by the level of capacity
utilization. The Chemicals segment's long-term profitability also depends on its
ability to compete globally.
Because cost efficiency and a global presence are critical to the
profitability of this segment, BASF's capital expenditures are focused on
constantly improving processes and achieving technological and cost leadership
as well as expanding the worldwide presence of its chemicals business. BASF has
achieved industry leadership in many sectors of the chemical industry, operating
world-scale plants with modern technology that incorporate BASF's Verbund
approach to integration. This enhances the benefits achieved through economies
of scale. The Verbund is based on the creation of company-wide value-adding
chains, beginning with a favorable cost position for the most basic starting
materials and capitalizing on this cost advantage as basic materials are
processed to form more complex compounds. High captive use ensures high capacity
utilization rates of production plants, making the Chemicals segment less
dependent on fluctuations in external demand. This also means that new
capacities being brought on stream by BASF have a less disruptive effect on the
market. The Verbund approach gives BASF cost leadership with respect to many
products. BASF is currently expanding existing Verbund sites and building new
ones in emerging markets.
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The Chemicals segment sells approximately 30% of its products, mostly from
the Petrochemicals & Inorganics division, to other segments. The transfer prices
for these sales are based on market prices, but offer the internal buyer
advantages through savings in logistics, including transportation and
purchasing, and in energy and infrastructure costs. Many of the raw materials
that this segment consumes are produced within BASF. For other raw materials
that are not produced by BASF or where BASF's demand exceeds its own production,
BASF takes advantage of its size through centralized purchasing of raw materials
around the world for many of its operating divisions, both on the basis of
long-term contracts and in spot markets. In addition, BASF is taking advantage
of the opportunities offered by e-commerce to increase its purchasing
efficiencies for the Chemicals segment.
The Chemicals segment is sensitive to economic cycles because many of the
segment's products are used as starting materials for end-products in cyclical
industries.
PLASTICS & FIBERS
The Plastics & Fibers segment produces both commodities and specialty
products. The profitability of commodity products is determined by the spread
between the prices of monomer raw materials, particularly products manufactured
in steamcrackers, such as ethylene and propylene, and the prices of the polymer
end-products.
Due to increasing price competition and the resulting margin pressure, low
production costs and high sales volume are critical to achieving profitability.
The strategy of the segment focuses on achieving economies of scale through
world-scale production and using advanced technologies and backward integration
within the Verbund. In addition, restructuring programs aimed at replacing
smaller, less efficient plants will continue to drive the margins in this
segment.
The Plastics & Fibers segment's specialty products are relatively resilient
to economic cycles. A key success factor in the markets for these products is
the ability to maintain long-term relationships with customers. To strengthen
these relationships, BASF offers customized products and systems to meet the
specific needs of its customers. In addition, BASF is expanding its global
presence as key customers also globalize. To this end, BASF will continue to
develop its worldwide network of application centers to work closely with
customers to provide specially formulated products.
COLORANTS & FINISHING PRODUCTS
The profitability of the Colorants & Finishing Products segment is
determined both by prices in value-adding chains based on acrylic acid and by
BASF's ability to offer its customers innovative solutions. BASF is one of the
world's largest producers of acrylic acid and its derivative products.
The profitability of commodity and commodity-like products in this segment
is determined mainly by the segment's production technology and costs. Through
production in world-scale plants and the use of advanced technology, BASF
maintains its status as a low-cost, global producer.
The segment also produces a number of specialty products which are
relatively insensitive to economic cycles. The critical success factors for
these products are application technology, product innovation and strong
customer relationships.
HEALTH & NUTRITION: PHARMACEUTICALS, FINE CHEMICALS AND CROP PROTECTION
In the Health & Nutrition business segment, which is generally
non-cyclical, profitability depends on BASF's ability to successfully bring new
products to market as quickly as possible, to produce these products in a
cost-efficient manner, and to achieve a solid market position in specific
application areas. To achieve ongoing product innovation in the segment, BASF
has substantially increased its research spending in recent years and has
entered into cooperations, partnerships and licensing agreements for the
development and use of new product technologies. BASF is investing in new
state-of-the-art plants, both on its own and with partners, to achieve economies
of scale.
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OIL & GAS
In the Oil & Gas segment, crude oil prices are subject to international
supply and demand and other factors that are beyond BASF's control. Such factors
can also affect the price of natural gas because in many countries, including
Germany, natural gas prices are tied to the prices of refined products.
In BASF's activities relating to the exploration and production of oil and
natural gas, profitability is dependent on BASF's use of its prospecting
expertise to increase and focus its exploration and production activities on
sites where there is a high probability of discovering and extracting oil and
gas deposits.
In BASF's former oil marketing and refinery business, profitability was
determined by the margins between crude oil prices and the prices for refinery
products, which are set on world markets. Low production costs and high capacity
utilization were therefore critical to profitability.
Key factors affecting the profitability of the natural gas distribution and
trading business are BASF's access to large gas reserves, the timely expansion
of its pipeline grid in Germany, the potential deregulation of the natural gas
industry in Germany, the adequacy of its natural gas storage site and its
ability to procure long-term contracts covering an increasing volume of natural
gas.
The profitability of BASF and its operating segments can be affected by
changes in currency exchange rates. See "- Exchange Rate Exposure and Risk
Management."
BASIS OF PRESENTATION
The Consolidated Financial Statements of BASF included in Item 19 of this
report have been prepared based on BASF's accounting and valuation principles in
accordance with German GAAP as required by the German Commercial Code
(Handelsgesetzbuch) and the German Stock Corporation Act (Aktiengesetz). In
connection with the continued internationalization of BASF's accounting and
disclosure policies, some of BASF's accounting and valuation principles were
adjusted as of January 1, 1998 to comply with U.S. GAAP to the extent
permissible under the German Commercial Code.
The adjustments to BASF's accounting and valuation principles relate
primarily to:
- a revaluation of BASF's pension commitments using the projected unit
credit method required by SFAS (Statement of Financial Accounting
Standards) No. 87, "Employers' Accounting for Pensions"; and
- the capitalization of deferred tax assets.
The adjustments also include:
- the elimination of the effects of any accounting and valuation methods
allowed exclusively for tax purposes;
- the conversion of short-term foreign currency receivables and
liabilities at year-end exchange rates;
- the accrual of provisions for the overhauling of large manufacturing
plants within prescribed intervals; and
- the recording of deferred taxes arising from the above accounting
changes.
These adjustments reflect the primary differences between German GAAP and
U.S. GAAP that affected the BASF financial statements. There are certain other
differences relating to valuation methods that are required under U.S. GAAP but
are not allowed under German GAAP. The effects of the U.S. GAAP adjustments as
of January 1, 1998, and of BASF's reconciliation of the remaining differences
between German GAAP and U.S. GAAP for the years ended December 31, 1999 and 1998
are described in Notes 2 and 3 to the Consolidated Financial Statements included
in Item 19.
110
<PAGE> 115
BASF has calculated the effect of the valuation changes described above on
a pro forma basis as of January 1, 1997 to permit a comparison between the year
ended December 31, 1997, and the two years ended December 31, 1999 and 1998. The
effect of the pro forma implementation on income for the year ended December 31,
1997, however, was immaterial.
The segment information presented in this report reflects the
implementation of SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." Transfers between operating segments are generally valued
at market-based prices, and the revenues generated by these transfers are shown
in the tables below as "intersegmental transfers."
RESULTS OF OPERATIONS
GROUP
This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the Consolidated
Financial Statements and the Notes to the Consolidated Financial Statements as
well as with "Item 8. Selected Financial Data" included in this Registration
Statement.
The following table sets forth sales and income for BASF. Sales are net of
petroleum and natural gas taxes.
<TABLE>
<CAPTION>
SALES AND INCOME
-------------------------------------------------------
% %
CHANGE CHANGE
FROM FROM
PREVIOUS PREVIOUS
1997 1998 YEAR 1999 YEAR
--------- --------- -------- --------- --------
(EUROS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Sales................................. E28,520.0 E27,642.9 (3.1) E29,472.7 6.6
Gross profit.......................... 10,358.6 10,368.4 0.1 11,081.4 6.9
Gross profit as a percentage of
sales(%)............................ 36.3 37.5 3.3 37.6 0.3
Income from operations................ E 2,731.1 E 2,623.7 (3.9) E 2,008.7 (23.4)
Income from operations as a percentage
of sales(%)......................... 9.6 9.5 (1.0) 6.8 (28.4)
Special items......................... E (243) E 71 E (941)
Income before taxes and minority
interests........................... 2,725.7 2,770.8 1.7 2,605.5 (6.0)
Net income............................ 1,654.4 1,699.4 2.7 1,236.8 (27.2)
Net income as a percentage of
sales(%)............................ 5.8 6.1 5.2 4.2 (31.1)
Basic earnings per share.............. E 2.67 E 2.73 2.2 E 2.00 (9.1)
Net income in accordance with U.S.
GAAP................................ N/A 1,771.0 1,324.8 (25.2)
Basic earnings per share in accordance
with U.S. GAAP...................... N/A 2.84 2.14 (24.6)
Diluted earnings per share in
accordance with U.S. GAAP........... N/A 2.79 2.12 (24.0)
</TABLE>
In 1999, special items recorded in other operating expenses and in other
operating income had a negative effect on income from operations of E941
million. Of this amount, E815 million relate to provisions for litigations,
settlements and related matters for vitamins in the Fine Chemicals segment and
for Synthroid(R) in the Pharmaceuticals segment. A further E310 million relate
to asset impairments, primarily in the Fine Chemicals, Colorants & Finishing
Products and Chemicals segments, and to charges for restructuring in the
Pharmaceuticals, Colorants & Finishing Products and Plastics & Fibers segments.
In addition, an expense of E51 million was recorded for BASF's participation in
the initiative, "Remembrance, Responsibility and the Future," to provide
compensation to those who suffered injustice as forced laborers under the
National Socialist regime. Special income of E235 million was generated by the
disposal of fixed assets due to divestitures, primarily in the Oil & Gas segment
and in the Fertilizers
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<PAGE> 116
operations. For further information see the segment information below and Notes
5, 6, 11, 22 and 24 to the Consolidated Financial Statements.
In 1998, special items recorded in other operating expense and other
operating income were E71 million. They primarily refer to E169 million gains
from divestitures in the Colorants & Finishing Products segment and in the
Plastics & Fibers segment. They also include additional income of E86 million
from adjustment in the salary and pension benefit systems. This special income
was partially offset by E90 million in charges from restructuring in the
Plastics & Fibers segment and in the Colorants & Finishing Products segment and
a loss of E94 million from impairments and other asset write-downs. For further
information, see the segment information below and Notes 5, 6 and 22 to the
Consolidated Financial Statements.
In 1997, special items recorded in other operating income and in other
operating expenses had a negative effect on income from operations of E243
million. These special items comprised E72 million for provisions for
litigations, settlements and related matters, in particular the Synthroid(R)
litigation in the Pharmaceuticals segment, and E185 million for restructuring
measures, impairments and other asset write downs, primarily in the Plastics &
Fibers segment as well as in the Colorants & Finishing Products segment. They
further relate to a E33 million loss on divestitures in the Plastics & Fibers
segment. Special income in 1997 of E47 million resulted from adjustments to
salary and pension benefit systems. For further information, see the segment
information below and Notes 6, 22 and 24 to the Consolidated Financial
Statements.
1999 COMPARED WITH 1998
Sales
Sales (net of petroleum and natural gas taxes) rose 6.6% in 1999 to E29,473
million from E27,643 million in 1998.
The following table sets forth the various factors affecting the change in
sales:
<TABLE>
<CAPTION>
1999
---------------------------
IN MILLIONS AS % OF SALES
----------- -------------
<S> <C> <C>
Volume...................................................... E1,597 5.8
Prices...................................................... (1,078) (3.9)
Currency exchange........................................... 442 1.6
Acquisitions and additions to scope of consolidation........ 1,288 4.7
Divestitures and deconsolidations........................... (419) (1.6)
------ ----
E1,830 6.6
</TABLE>
Sales volumes, which rose 5.8% in 1999, were the primary cause for the
increase in sales. Sales volumes rose particularly in the Plastics & Fibers
segment, reflecting improved worldwide business conditions.
The increase in volumes was partially offset by a 3.9% decrease in prices.
This decrease started in the second half of 1998 and continued during the first
half of 1999. All reportable segments, except the Oil & Gas segment and the
Pharmaceuticals segment, were affected. In the Oil & Gas segment, sharply higher
crude oil prices, particularly in the second half of 1999, increased sales. This
segment contributed 1.3% to the overall improvement of BASF sales.
The combined effect of acquisitions, divestitures and changes in the scope
of consolidation contributed 3.1 percentage points to the increase in sales.
Currency translation effects, mainly resulting from the strength of the
U.S. dollar and from the appreciation of the Japanese yen and the Korean won but
partially offset by the depreciation of the Brazilian real, added E442 million
to sales.
112
<PAGE> 117
Acquisitions contributed E627 million to sales in 1999. The acquisitions
included the purchasing of:
- the Hostalen polyethylene business of Hoechst AG through Elenac, a
50-50 joint venture with Shell Petroleum N.V.;
- the superabsorbents business of Clariant International Ltd.;
- the ABS plastics business of DSM N.V.;
- the chelating agents business of CIBA Specialty Chemicals;
- the paracetamol business of Celanese AG;
- a majority interest in the generic crop protection products supplier,
Micro Flo Co.;
- the animal nutrition business of Takeda Kagaku Shiryo;
- the lysine business of Daesang; and
- the polyol business of Dongsung Chemical.
Divestitures reduced sales by E331 million in 1999. The divestitures
included selling:
- a 35% stake in Comparex Informationssysteme GmbH, including four
subsidiaries;
- the glass-mat-reinforced thermoplastic business to Symalit;
- the container coatings business of BASF Coatings BV to PPG.
Additions to the scope of consolidation contributed E573 million to sales.
See Note 1(b) to the Consolidated Financial Statements for further information
on the companies that were consolidated for the first time in 1999 and the
effects thereof on the Consolidated Financial Statements.
Gross Profit
Gross profit rose 6.9% in 1999 to E11,081 million from E10,368 million in
1998. Gross profit as a percentage of sales remained substantially unchanged at
37.6%. The 6.5% increase in costs of goods sold was primarily due to higher raw
material costs, but it was more than offset by the higher sales in 1999.
Income from Operations
Income from operations fell 23.4% in 1999 to E2,009 million from E2,624
million in 1998, due to higher other operating expenses, which were partially
offset by other operating income. Other operating expenses reduced by other
operating income increased 154.7% in 1999 to E1,783 million from E700 million in
1998. This increase was primarily due to special items included in other
operating expenses as well as in other operating income. Total special items
resulted in a charge of E941 million to income from operations in 1999, as
previously discussed.
Excluding the effect of special items of E71 million in 1998 and E(941)
million in 1999, income from operations increased primarily due to the large
increase in income from operations in the Oil & Gas segment from E276 million in
1998 to E741 million in 1999. As a result of sharply higher crude oil prices,
income from operations increased in both the oil and gas exploration and
production business as well as in the oil marketing and refinery business.
Income before Taxes
Income before taxes fell 6.0% in 1999 to E2,606 million from E2,771 million
in 1998. This decrease was due to the decline in income from operations that was
partially offset by an improvement in the 1999 financial result to E597 million
from E147 million in 1998. The 1999 financial result included income from the
sale of BASF's stake in the German gasoline station network, ARAL AG, which was
part of the sale of BASF's oil marketing and refinery business to VEBA Oel AG of
Germany, as well as its stake in IVAX Corporation of the United States. These
effects were partially offset by a decline of the interest
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<PAGE> 118
result in 1999 from a gain of E108 million in 1998 to a loss of E108 million in
1999. This decline was due to the absence of E122 million in one-time gains from
the sale of securities and swaps that were realized in 1998 and also due to
higher interest expense from increased financial indebtedness during 1999.
Net Income/Earnings Per Share
The effective tax rate for 1999 rose to 52.2% in 1999 from 39.9% in 1998,
and led to a 22.9% increase in income tax expense in 1999 to E1,360.8 million
from E1,106.8 million in 1998. This increase was primarily due to higher taxes
on the increased income from BASF's oil producing operations that are not fully
deductible from German corporation taxes. Further increases resulted from the
reduction in the deferred tax rates for German group companies to 52% compared
with 56% in 1998. Deferred tax assets were reduced accordingly, resulting in
higher income tax expense.
Net income in 1999 declined 27.2% to E1,236.8 million from E1,699 million
in 1998. Basic earnings per share fell 26.7% to E2.00 in 1999 from E2.73 in
1998. See Note 3 to the Consolidated Financial Statements for a summary of the
principal adjustments that would be required if U.S. GAAP, rather than German
GAAP, had been fully applied. Net income under U.S. GAAP in 1999 was E1,324.8
million, or E2.14 per share.
1998 COMPARED WITH 1997
Sales
Sales (net of petroleum and natural gas taxes) fell 3.1% in 1998 to E27,643
million from E28,520 million in 1997.
The following table sets forth the various factors affecting the change in
sales:
<TABLE>
<CAPTION>
1998
---------------------------
IN MILLIONS AS % OF SALES
----------- -------------
<S> <C> <C>
Volume................................................... E 497 1.7
Prices................................................... (1,723) (6.0)
Currency exchange........................................ (134) (0.5)
Acquisitions and additions to scope of consolidation..... 1,242 4.4
Divestitures and deconsolidations........................ (759) (2.7)
------- ----
TOTAL.................................................... E (877) (3.1)
</TABLE>
Prices, which declined 6.0% in 1998, were the primary cause for the
decrease in sales. The price decline occurred particularly in the second half of
1998 and affected all segments, although to varying degrees. The Oil & Gas
segment was most significantly affected, due to a 33% decrease in the average
price of crude oil in 1998.
The decrease in prices was partially offset by a 1.7% increase in sales
volumes and by the combined effects of acquisitions, divestitures and other
factors, which contributed 1.7% to sales.
The translation effect of the sharp decline of various currencies in Asia
and South America, which was partially offset by positive effects from the U.S.
dollar, reduced sales in 1998 by E134 million.
Acquisitions contributed E963 million to sales in 1998. This included the
acquisition of:
- the polyethylene operations of Montell and Hoechst AG by Elenac, a
50-50 joint venture with Shell Petroleum N.V. of the Netherlands;
- the surfactants businesses of the U.S. companies Olin Corporation and
PPG Industries, Inc.;
- the lysine business of Daesang Group of Korea;
- the worldwide superabsorbents business of Clariant International Ltd.;
and
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<PAGE> 119
- a 50% stake in BASF Styrenics Korea Ltd. from former partner Hyosung
Group, which is now known as BASF Company Ltd. (Korea).
Divestitures reduced sales by E628 million. The divestitures included:
- selling a 35% stake in Comparex Informationssysteme GmbH of Germany;
- selling Chemag AG, a trading company based in Frankfurt, Germany; and
- making various divestitures in the Coatings division of the Colorants
& Finishing Products segment.
Gross Profit
Gross profit remained substantially unchanged in 1998, rising 0.1% to
E10,368 million from E10,359 million in 1997. Gross profit as a percentage of
sales increased to 37.5% in 1998 from 36.3% in 1997. Lower raw material costs,
primarily due to a 33% decline in the average selling price for crude oil in
1998, contributed favorably to this increase.
Income from Operations
Income from operations decreased 3.9% in 1998 to E2,624 million from E2,731
million in 1997. This decrease was primarily due to higher selling and general
administrative expenses. Selling expenses rose 3.8% in 1998 to E4,963 million
from E4,783 million mainly due to the launch costs for new pharmaceutical
products in the United States. General administrative expenses increased 8.1% in
1998 to E772 million from E714 million in 1997 primarily due to the introduction
of global information systems in finance and logistics and Year 2000 compliance
programs for existing information technology systems.
The decline in income from operations was partially offset by a El69
million net gain from divestitures in 1998 compared with a E57.2 million net
loss from divestitures in 1997. The gains from divestitures in 1998 were
generated by the transactions discussed above, as well as from the sale of
BASF's operations in semi-finished sheets of glass-mat-reinforced thermoplastics
to Symalit of Switzerland and the transfer at fair value of BASF's polyethylene
business to Elenac, a joint venture with Shell Petroleum N.V. of the
Netherlands.
BASF continuously reviews its operations and takes steps to improve their
efficiency. These ongoing efforts include the closure, reorganization or
rationalization of sites, severance payments and other related personnel costs.
Expenses related to such measures, primarily in the Colorants & Finishing
Products and the Plastics & Fibers segments, were E180.5 million in 1997 and
E92.0 million in 1998.
Income before Taxes
Despite the decline in income from operations, income before taxes rose
1.7% to E2,771 million in 1998 from E2,726 million in 1997. The increase was
primarily due to an improvement in the financial result in 1998 to a gain of
E147.1 million from a loss of E5.4 million in 1997. The sale of marketable
securities and the early termination of DAX-LIBOR swaps as well as interest rate
swaps contributed E121.7 million to the improvement in the financial result. The
positive market values of the swaps allowed BASF to realize gains which, in
accordance with German GAAP, were fully recognized in 1998.
Net Income/Earnings Per Share
The effective tax rate for 1998 remained unchanged at 39.9%, resulting in
substantially unchanged income taxes. Net income in 1998 rose 2.7% to E1,699
million from E1,654 million in 1997. Basic earnings per share rose 2.2% to E2.73
per share in 1998 from E2.67 per share in 1997. See Note 3 to the Consolidated
Financial Statements for a summary of the principal adjustments that would have
been required if U.S. GAAP, rather than German GAAP, had been fully applied
throughout 1998. Net income under U.S. GAAP in 1998 was E1,771 million.
115
<PAGE> 120
RECENT DEVELOPMENTS
The following table sets forth sales and income for BASF for the three
months ended March 31, 1999 and 2000. Sales are net of petroleum and natural gas
taxes.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, % CHANGE
--------------------- FROM PREVIOUS
1999 2000 YEAR
------- ------- --------------
(EUROS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Sales............................................. E6,773 E8,470 25.1
Gross profit...................................... 2,654 3,059 15.3
Gross profit as a percentage of sales (%)......... 39.1 36.1 (7.7)
Income from operations............................ E 571 E 967 69.4
Income from operations as a percentage of sales
(%)............................................. 8.4 11.4 35.7
Income before taxes and minority interests........ E 552 E 932 68.8
Net income........................................ 323 464 43.7
Net income as a percentage of sales (%)........... 4.8 5.5 14.6
Basic earnings per share.......................... E 0.52 E 0.75 44.2
</TABLE>
Sales for the first quarter of 2000 increased 25.1% to E8,470 million from
E6,773 million for the first quarter of 1999. Sales increased in all segments
and in all regions and were the highest quarterly sales in BASF's history. Sales
in the first quarter of 2000 also increased 3.1% from the already strong sales
of the last quarter of 1999. Higher volumes, as a result of increased demand
reflecting improved general economic conditions, contributed 11.1% to the
increase in sales for the first quarter of 2000 as compared to the same period
in 1999. Prices continued to recover and contributed 9.6% to the increase.
Positive currency effects, resulting in particular from the strength of the U.S.
dollar and the appreciation of the Japanese yen, contributed 6.3% to the sales
increase. The increase in sales was partially offset by a loss of sales from the
sale of the oil marketing and refinery business in the Oil & Gas segment at the
end of 1999. BASF expects the positive trends to continue, resulting in similar
growth rates in the second quarter of 2000 as compared to the second quarter of
1999.
Income from operations increased 69.4% for the first quarter of 2000 to
E967 million compared with E571 million for the first quarter of 1999 due to the
higher sales. The Oil & Gas and the Plastics & Fibers segments, in particular,
contributed to this increase. The positive development that started in the
second half of 1999 continued into the first quarter of 2000 and resulted in an
increase in income from operations of 8.3% as compared to the last quarter of
1999. Income from operations in the period ending March 31, 2000 included income
from the sale by Elenac, BASF's polyolefins joint-venture with Shell, of the
non-core activities of thermoplastic elastomers and resins to Shell Chemicals
U.K. of the United Kingdom, and from the transfer within the Pharmaceuticals
segment of the marketing and sales of the wound care medication, collagenase, to
Smith & Nephew plc of the United Kingdom. This additional income was partially
offset by provisions for restructuring in the Pharmaceuticals segment, as
discussed below. BASF expects that in the second quarter of 2000 income from
operations will be significantly higher compared with the second quarter of
1999.
Net income for the first quarter of 2000 increased 43.7% to E464 million
compared with E323 million for the first quarter of 1999. Basic earnings per
share increased 44.2% to E0.75 compared with E0.52 for the same period in 1999.
116
<PAGE> 121
Segment Data
The following table sets forth sales and income from operations for BASF's
segments for the periods ended March 31, 1999 and 2000.
<TABLE>
<CAPTION>
INCOME FROM OPERATIONS
SALES --------------------------
------------------------------ THREE MONTHS
THREE MONTHS ENDED ENDED
MARCH 31, MARCH 31,
------------------ CHANGE -------------- CHANGE
1999 2000 IN % 1999 2000 IN %
------ ------ ------ ---- ---- ------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Chemicals...................... E 948 E1,290 36.1 E166 E151 (9.0)
Plastics & Fibers.............. 1,849 2,723 47.3 100 263 163.0
Colorants & Finishing
Products..................... 1,516 1,689 11.4 137 171 24.8
Pharmaceuticals................ 543 614 13.1 18 40 122.2
Fine Chemicals................. 314 354 12.7 14 8 (42.9)
Crop Protection................ 530 542 2.3 111 103 (7.2)
Oil & Gas...................... 626 854 36.4 47 240 410.6
Other.......................... 447 404 (9.6) (22) (9) 59.1
------ ------ ---- ---- ---- -----
TOTAL.......................... E6,773 E8,470 25.1 E571 E967 69.4
</TABLE>
In the Chemicals segment, sales for the first quarter of 2000 increased
36.1% to E1,290 million compared with E948 million for the first quarter of
1999. Intersegmental transfers increased 32%. Sales increased in all regions,
with the strongest growth in Asia. Sales of the Chemicals segment's operating
divisions for the first quarter of 2000 and the percentage change from the first
quarter of 1999 are shown in the following table:
<TABLE>
<CAPTION>
CHANGE
2000 IN %
----- -------
(EUROS IN MILLIONS)
<S> <C> <C>
Petrochemicals & Inorganics................................. E272 90.2
Industrial Chemicals........................................ 228 39.9
Intermediates............................................... 407 17.6
Specialty Chemicals......................................... 383 29.0
</TABLE>
In the Petrochemicals & Inorganics division, sales almost doubled due to
higher volumes and increasing sales prices.
Income from operations in the Chemicals segment for the first quarter of
2000 decreased 9.0% to E151 compared with E166 for the first quarter of 1999,
primarily due to continuing pressure on margins, especially for the segment's
products at the beginning of value-adding chains, as a result of higher raw
materials costs that could only be passed on to customers to a limited extent.
In the Plastics & Fibers segment, sales for the first quarter of 2000
increased 47.3% to E2,723 million compared with E1,849 million for the first
quarter of 1999. Sales increased in all regions, but particularly in Europe and
Asia, Pacific Area, Africa. Sales of the Plastics & Fibers segment's operating
divisions for the first quarter of 2000 and the percentage change from the first
quarter of 1999 are shown in the following table:
<TABLE>
<CAPTION>
CHANGE
2000 IN %
----- -------
(EUROS IN MILLIONS)
<S> <C> <C>
Styrenic Polymers........................................... E635 73.0
Engineering Plastics........................................ 406 53.2
Polyurethanes............................................... 630 24.8
Fiber Products.............................................. 376 40.8
Polyolefins................................................. 676 51.9
</TABLE>
117
<PAGE> 122
Sales were particularly strong in the Styrenic Polymers division,
increasing 15% for the first quarter of 2000 from the already strong sales for
the fourth quarter of 1999 due to growing demand and improved prices.
Income from operations in the Plastics & Fibers segment increased
substantially for the first quarter of 2000 to E263 million from E100 million
for the first quarter of 1999. Income from operations included gains from
Elenac's sale to Shell of the non-core activities of thermoplastic elastomers
and resins. Excluding these gains, income from operations in the Plastics &
Fibers segment almost doubled for the first quarter of 2000 to E220 million
compared to E112 million for the first quarter of 1999, primarily due to higher
sales.
In the Colorants & Finishing Products segment, sales for the first quarter
of 2000 increased 11.4% to E1,689 million compared to E1,516 million for the
first quarter of 1999. Sales increased particularly in Asia and in South
America. Sales of the Colorants & Finishing Products segment's operating
divisions for the first quarter of 2000 and the percentage change from the first
quarter of 1999 are shown in the following table:
<TABLE>
<CAPTION>
CHANGE
2000 IN %
----- -------
(EUROS IN MILLIONS)
<S> <C> <C>
Colorants................................................... E580 9.2
Coatings.................................................... 511 13.3
Dispersions................................................. 598 12.0
</TABLE>
Sales of the Coatings division include sales from the coil coatings
businesses acquired from Rohm & Haas at the end of 1999 and from Hydro Coatings
Group of the United Kingdom acquired in the third quarter of 1999. Excluding
these acquisitions, sales of the Coatings division for the first quarter of 2000
increased 9.1% compared with the first quarter of 1999.
Income from operations for the Colorants & Finishing Products segment
increased 24.8% to E171 million compared with E137 million for the first quarter
of 1999 primarily due to significantly higher income from operations in the
Colorants division.
In the Pharmaceuticals segment, sales for the first quarter of 2000
increased 13.1% to E614 million compared with E543 million for the same period
in 1999 due to various factors including higher sales of Rytmonorm(R) and
Synthroid(R). Sales increased in all regions, but especially in Asia. Income
from operations improved significantly to E40 million due to the higher sales.
Income from operations included gains from the transfer of the marketing and
sales activities for the collagenase business to Smith & Nephew plc of the
United Kingdom. These gains were completely offset by provisions for
restructuring measures resulting from BASF's strategy to make its worldwide
pharmaceutical business more efficient, faster and more flexible. BASF will
adjust its portfolio and restructure its organization. For this restructuring,
BASF made provisions in the first quarter totaling E40 million, primarily for
personnel related matters.
In the Fine Chemicals segment, sales rose 12.7% to E354 million for the
first quarter of 2000 compared to E314 million for the first quarter of 1999.
Sales increased in the human nutrition, cosmetics and carotenoids product lines.
Income from operations for the first quarter of 2000 fell 42.9% from the same
period in 1999 to E8 million primarily as a result of continuing price
competition for vitamins.
In the Crop Protection segment, sales for the first quarter of 2000 were
E542 million and were substantially unchanged from 1999. Income from operations
for the first quarter of 2000 decreased by 7.2% to E103 million from E111
million for the first quarter of 1999 due to lower agriculture commodity prices
that influenced the markets for crop protection products.
In the Oil & Gas segment, sales for the first quarter of 2000 increased
36.4% to E854 million compared to E626 million for the first quarter of 1999
primarily due to the higher crude oil prices in the first quarter of 2000 as
compared to the same period in 1999. These higher crude oil prices also
triggered
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<PAGE> 123
price increases for natural gas. Sales also increased due to the expansion of
BASF's gas business in Argentina. Sales in 1999 included sales from the oil
marketing and refinery business, which was sold at the end of the year. In the
first quarter of 2000, income from operations increased substantially to E240
million compared to E47 million in the same period in 1999, primarily due to the
effects of higher crude oil prices.
Sales in Other decreased primarily as a result of the sale of BASF's
COMPO(R) specialty fertilizers business to K+S Aktiengesellschaft of Germany.
119
<PAGE> 124
CHEMICALS
SEGMENT DATA
(EUROS IN MILLIONS)
<TABLE>
<CAPTION>
% %
CHANGE CHANGE
FROM FROM
PREVIOUS PREVIOUS
1997 1998 YEAR 1999 YEAR
------ ------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
Sales to third parties..................... E4,471 E4,255 (4.8) E4,393 3.2
Intersegmental transfers................... 2,101 1,935 (7.9) 1,848 (4.5)
Sales incl. intersegmental transfers....... 6,572 6,190 (5.8) 6,241 0.8
Income from operations..................... 1,089 922 (15.3) 698 (24.3)
Operating margin (%)....................... 24.4 21.7 (11.1) 15.9 (26.7)
Assets..................................... E3,142 E3,354 6.7 E4,050 20.7
Return on operational assets (%)........... 39.6 28.4 (28.3) 18.9 (33.4)
Research and development expenses.......... E 135 E 148 9.6 E 149 0.7
</TABLE>
1999 COMPARED WITH 1998
Segment Overview
In the Chemicals segment, sales to third parties rose 3.2% in 1999 to
E4,393 million from E4,255 million in 1998 due to higher sales in all operating
divisions. This increase in sales was attributable to higher sales volumes
resulting from improved business conditions worldwide in the second half of the
year, especially in the last quarter. The effect of higher sales volumes was
partially offset by a drop in prices during first half of 1999, mainly due to
industry-wide oversupply caused by weak global demand. The Specialty Chemicals
division was the major contributor to the segment's increase in sales.
Intersegmental transfers fell 4.5% in 1999 to E1,848 million from E1,935 million
in 1998. Operating margins including intersegmental transfers were 11.2% in 1999
compared to 14.9% in 1998. These decreases were primarily due to lower
intersegmental transfer prices in the Petrochemicals & Inorganics division as a
result of lower market prices for products manufactured in steamcrackers,
especially in the first half of the year.
Income from operations decreased 24.3% in 1999 to E698 million from E922
million in 1998. Income from operations remained substantially unchanged in the
Specialty Chemicals division, but income from operations decreased in 1999 in
all other divisions of the Chemicals segment. These decreases were due to a drop
in sales prices for the divisions' products during the first half of 1999 and to
substantially higher raw material costs in the second half of 1999. These higher
raw material costs, especially for steamcracker feedstock, eroded margins, since
market conditions enabled BASF to increase product prices only in the fourth
quarter of 1999, and then only to a limited extent. Further improvements in the
Chemicals segment's margins in 2000 will depend on the development of crude oil
prices and BASF's ability to pass raw material prices on to customers.
Additional uncertainties may result from temporary surplus production capacity
associated with the start-up of world-scale plants. BASF believes that it is in
a good position to cope with such uncertainties because of its strong global
market position and the high rate of captive use for its chemical products,
which assures high capacity utilization rates.
Assets of the Chemicals segment rose 20.7% in 1999 to E4,050 million from
E3,354 million in 1998 primarily due to significant additions to tangible fixed
assets in the Petrochemicals & Inorganics and Intermediates divisions, as
discussed below.
Research and development expenses remained substantially unchanged in 1999.
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Petrochemicals & Inorganics
In the Petrochemicals & Inorganics division, sales to third parties rose
1.8% in 1999 to E747 million from E734 million in 1998. Sales to other BASF
operations, which accounted for more than 70% of the division's sales in 1999,
fell 1.3%. Total sales in 1999 remained at the same level as in the prior year.
After the decline in prices for the division's products in 1998, prices for
products manufactured in steamcrackers increased at a constant rate, especially
in the third and fourth quarters of 1999. Prices for steamcracker feedstock,
however, rose at a significantly higher rate, resulting in lower steamcracker
operating margins. As discussed in the segment overview, margins have begun to
recover since the fourth quarter of 1999.
The Petrochemicals & Inorganics division was a substantial contributor to
the segment's decrease in income from operations in 1999. This decrease was due
to the erosion of steamcracker margins.
In the Petrochemicals & Inorganics division, capital expenditures on fixed
assets increased 15.9% in 1999. This increase was due to the start-up of a new
acetylene plant in Geismar, Louisiana, and the ongoing construction of a
steamcracker with BASF's partner, TotalFinaElf S.A., in Port Arthur, Texas, as
well as the completion of the aromatics extraction unit within BASF's
steamcracker in Antwerp, Belgium.
Industrial Chemicals
In the Industrial Chemicals division, sales to third parties rose 1.7% in
1999 to E765 million from E752 million in 1998, primarily due to an
approximately 12% increase in volumes offset by an approximately 10% decrease in
prices. Sales volumes increased particularly for the division's key products in
Asia and North America. Price and margin pressure resulted from excess
manufacturing capacity industry-wide and from continued price competition for
almost all the division's products. Sales to other BASF divisions, which
contributed approximately 40% to the division's sales, fell 5.9% in 1999. The
reduced sales to other divisions were due to lower transfer prices reflecting
lower market prices.
The Industrial Chemicals division was a major contributor to the Chemicals
segment's decrease in income for operations in 1999. The decrease in the
division's income from operations was due to ongoing margin pressure resulting
from price competition and increased raw material costs. The decline in income
was partially offset by price increases in the second half of the year,
especially for plasticizers. BASF expects continuing competitive pressure
primarily due to industry-wide overcapacity. Nevertheless, BASF expects sales
and income to rise due to its favorable cost position as a result of production
in world-scale plants based on leading-edge technology and backward integration.
Capital expenditures on tangible fixed assets in the Industrial Chemicals
division related to the expansion of the production site for formaldehyde in
Ludwigshafen, Germany.
Intermediates
In the Intermediates division, sales to third parties in 1999 increased
2.2% to E1,472 million from E1,441 million in 1998. This increase was primarily
due to higher demand for amines and higher sales of diols in a growing market.
The Intermediates division was a substantial contributor to the Chemicals
segment's decline in income from operations, primarily because of price
competition, which decreased prices for the division's products, and because of
higher costs for the division's raw materials. Due to increasing demand, BASF
expects margins to improve in 2000. Income from operations in 1999 included a
special depreciation charge for the impairment of tangible fixed assets. This
special depreciation charge resulted from a re-appraisal of BASF's property
adjacent to its production site in Yokkaichi, Japan, which reflected lower
market prices.
The division's capital expenditures rose 53.5% in 1999, primarily due to
the start-up of a new butanediol/tetrahydrofuran plant in Ulsan, Korea. Further
additions to tangible fixed assets included expanding capacities of alkylamines
in Ludwigshafen, Germany; ethylamines in Antwerp, Belgium; and
polytetrahydrofuran in Geismar, Louisiana.
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Specialty Chemicals
Sales to third parties in the Specialty Chemicals rose 6.1% in 1999 to
E1,409 million from E1,328 million in 1998. This increase was mainly due to
higher sales volumes, especially for surfactants, as well as to higher prices
for ethylene glycol resulting from improved market conditions. Sales in 1999
included additional sales from the chelating agents business in North America,
which was acquired from CIBA in the second half of 1998, and from additions to
the scope of consolidation. These additional sales were offset by the transfer
of superabsorbents sales at the end of 1998 from the Specialty Chemicals
division to the Dispersions division of the Colorants & Finishing Products
segment. Excluding these effects, sales to third parties increased approximately
6% in 1999. The effects of the higher sales on income from operations in the
Specialty Chemicals division was partially offset by lower income from the
lubricant additives business as a result of intense competition, especially in
the United States.
Capital expenditures in the Specialty Chemicals division rose 59.5% in
1999. Important additions to the tangible fixed assets included the ongoing
expansion of ethylene oxide and ethylene glycol production sites in Geismar,
Louisiana.
1998 COMPARED WITH 1997
Segment Overview
In the Chemicals segment, sales to third parties fell 4.8% in 1998 to
E4,255 million from E4,471 million in 1997. Strong sales in the first half of
1998 partially mitigated the sales decline in the second half of the year. The
main reasons for the lower sales were regional economic crises, particularly
those in Russia and Asia, that led to falling demand and lower prices for some
of the segment's products. Sales were particularly strong in 1997, primarily due
to healthy demand and a strong U.S. dollar. These exceptional results in 1997
exacerbated the decrease in sales from 1997 to 1998.
Intersegmental transfers fell 7.9% in 1998 to E1,935 million from E2,101
million in 1997. This decrease was primarily due to lower intersegmental
transfer prices in the Petrochemicals & Inorganics division due to a 25% fall in
prices for products manufactured in steamcrackers. Operating margins including
intersegmental transfers were 14.9% in 1998 compared to 16.6% in 1997.
Income from operations decreased 15.3% in 1998 to E922 million from E1,089
million in 1997, primarily due to lower contributions from the Petrochemicals &
Inorganics and Industrial Chemicals divisions. The decline was primarily the
result of lower steamcracker operating margins and a drop in prices for the key
products of the Industrial Chemicals division.
Assets of the Chemicals segment rose 6.7% in 1998 to E3,354 million from
E3,142 million in 1997, primarily due to significant additions to tangible fixed
assets in the Petrochemicals & Inorganics and the Intermediates divisions, as
discussed below.
Research and development expenses as a percentage of sales remained
substantially unchanged, although research spending increased by almost 9.6% in
1998.
Petrochemicals & Inorganics
In the Petrochemicals & Inorganics division, sales to third parties fell
14.3% in 1998 to E734 million from E856 million in 1997. Sales to other BASF
operations, which accounted for more than 70% of the division's sales in 1998,
fell 13.7%. The lower sales were primarily due to an approximately 25% decline
in prices for products manufactured in steamcrackers. Prices for steamcracker
feedstock, however, declined at a significantly lower rate than those for
steamcracker products in 1998, resulting in lower steamcracker operating
margins.
Assets of the Petrochemicals & Inorganics division increased 16.4% in 1998.
This increase was due to the expansion of the capacity of the steamcracker at
BASF's headquarters in Ludwigshafen, Germany, the construction of a steamcracker
in Port Arthur, Texas, with partner TotalFinaElf S.A. of France, and the
construction of an acetylene plant in Geismar, Louisiana.
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Industrial Chemicals
In the Industrial Chemicals division, sales to third parties fell 15.7% in
1998 to E752 million from E893 million in 1997, primarily due to an
approximately 5% drop in demand and an approximately 10% drop in prices. The
decrease in demand, particularly for the division's key plasticizer and solvent
products, was due to the economic crisis in Asia. Additional price and margin
pressure resulted from excess manufacturing capacity for these key products.
Increased volume and prices for glues and impregnating resins helped reduce the
decline in divisional sales. This increase was due to higher demand from the
European furniture and woodworking industries and a short supply of melamine, an
important starting material for glues and impregnating resins.
Transfers to other BASF operations, which contributed approximately 40% to
the division's sales, fell 11.8% in 1998. The decreased transfers to other
divisions resulted from the same factors that caused the decline in sales to
third parties.
Intermediates
Intermediates division sales remained substantially unchanged in 1998,
falling 1.7% in 1998 to E1,441 million from E1,466 million in 1997. Due to the
large number of high-value chemicals that the division produces, the impact of
the economic crisis in Asia was small and was largely offset by sales in other
regions.
Assets of the Intermediates division rose 9.7% in 1998 primarily due to the
start-up of a new polytetrahydrofuran plant in Ulsan, Korea. A further addition
to tangible fixed assets was a new aniline plant in Antwerp, Belgium.
Specialty Chemicals
In the Specialty Chemicals division, sales to third parties rose 5.7% in
1998 to E1,328 million from E1,256 million in 1997 due to higher sales volumes
for surfactants.
The increase in surfactant sales was a result of the inclusion of the U.S.
specialty surfactants businesses of PPG Industries, Inc. and Olin of the United
States, which BASF acquired in 1997. This increase in sales was partially offset
by a decline in prices for ethylene glycol, which was primarily due to the
negative effect of the economic crisis in Asia on the polyester industry.
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<PAGE> 128
PLASTICS & FIBERS
SEGMENT DATA
(EUROS IN MILLIONS)
<TABLE>
<CAPTION>
% %
CHANGE CHANGE
FROM FROM
PREVIOUS PREVIOUS
1997 1998 YEAR 1999 YEAR
------ ------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
Sales to third parties......................... E7,395 E7,573 2.4 E8,533 12.7
Intersegmental transfers....................... 450 414 (8.0) 421 1.7
Sales incl. intersegmental transfers........... 7,845 7,987 1.8 8,954 12.1
Income from operations......................... 368 539 46.5 640 18.7
Special Items.................................. (82) 19 - 2 (89.5)
Operating margin (%)........................... 5.0 7.1 42.0 7.5 5.6
Assets......................................... E4,397 E4,957 12.7 E6,811 37.4
Return on operational assets (%)............... 9.7 11.5 18.6 10.9 (5.2)
Research and development expenses.............. E 189 E 188 (0.5) E 180 (4.3)
</TABLE>
1999 COMPARED WITH 1998
Segment Overview
In the Plastics & Fibers segment, sales to third parties rose 12.7% in 1999
to E8,533 million from E7,573 million in 1998. Sales in all of the segment's
operating divisions rose due to higher sales volumes in 1999 due to higher
demand resulting from improved worldwide business conditions. The impact of
increasing volumes was partially offset by lower prices in the first half of the
year. The polyolefins operations and the Engineering Plastics and Polyurethanes
divisions in particular contributed to this increase. The sales of these three
divisions increased in 1999 primarily due to the addition to BASF's polyolefins
operations of the Hostalen business acquired from Hoechst, the addition to the
Engineering Plastics division of the ABS business acquired from DSM and the
addition to the Polyurethanes division of the polyol business acquired from
Dongsung Chemical and the rigid foam business acquired from ARCO. Excluding
these acquisitions, sales of the Plastic & Fibers segment increased
approximately 9%.
Income from operations rose 18.7% in 1999 to E640 million from E539 million
in 1998 due to increased income from operations in four of the five operating
divisions within the Plastics & Fibers segment. These increases were
attributable to stronger sales and to savings from cost-cutting measures. A
slight decline in income from operations in the Styrenic Polymers division
partially offset the increases in the Plastics & Fibers segment's other
operating divisions. The decline in the Styrenic Polymers division's income from
operations was due to higher depreciation on production plants and to the
absence of gains from divestitures, that were included in the division's income
from operations in 1998. BASF expects demand for the products of the Plastics &
Fibers segment to rise in 2000 due to improving general economic conditions.
Assets of the Plastics & Fibers segment rose 37.4% in 1999 to E6,810
million from E4,957 million in 1998 due to additions to tangible fixed assets in
all regions in which the segment operates and to additions to the scope of
consolidation. Additions to tangible and intangible assets rose in 1999 to E998
from E746 million in 1998. Major capital expenditures on fixed assets included
the following:
Europe
- Construction of a new TDI (toluene diisocyanate) plant in
Schwarzheide, Germany, for the Polyurethanes division.
- Expansion of production capacity for PBT (polybutylene terephthalate)
in Schwarzheide, Germany, for BASF's joint venture with GE Plastics in
the Engineering Plastics division.
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- Streamlining polyethylene production and constructing a new plant for
PE-HD (high-density polyethylene) in Wesseling, Germany, for BASF's
polyolefins operations (through the Elenac joint venture).
- Construction of a new plant for PE-LD (low-density polyethylene) in
Berre, France, for BASF's polyolefins operations (through the Elenac
joint venture).
- Expansion of the production capacities of the polyether polyols plant
in Antwerp, Belgium, for the Polyurethanes division.
- Expansion of the nylon 6 polymerization unit in Antwerp, Belgium, for
the Fiber Products division.
- Modernization of the nylon 6 production and compounding plants in
Ludwigshafen, Germany.
North and South America
- Expansion of compounding sites in Wyandotte, Michigan, for the
Engineering Plastics division.
- Expansion of the caprolactam plant in Freeport, Texas, for the Fiber
Products division.
- Construction of an additional plant to manufacture MDI
(diphenylmethane diisocyanate) in Geismar, Louisiana, for the
Polyurethanes division.
- Construction of a new styrene copolymers plant in Altamira, Mexico,
for the Engineering Plastics division.
- Expansion of EPS (expandable polystyrene) production capacity in
Guaratingueta, Brazil.
- Additional capacity for the production of HIPS (high-impact
polystyrene) in Sao Jose dos Campos, Brazil.
Asia
- Construction of new compounding sites in Pasir Gudang, Malaysia, for
the Engineering Plastics division.
- Expansion of the polystyrene plant in Nanjing, China, for BASF's joint
venture, Yangzi-BASF Styrenics, for the Styrenic Polymers division.
- Capital contributions made to BASELL Eastern, Singapore, a joint
venture between BASF and Shell, for the construction a plant to
manufacture styrene and propylene oxide in the Engineering Plastics
division.
- Construction of a new plant for TDI in Yosu, Korea.
- Additional capacity for the production of MDI in Yosu, Korea.
- Additional capacity for the production of polyether polyols in Ulsan,
Korea.
Styrenic Polymers
In the Styrenic Polymers division, sales to third parties rose 9.7% in 1999
to E1,827 million from E1,666 million in 1998, primarily due to increased sales
volumes, especially for styrene, polystyrene and EPS (expandable polystyrene)
resulting from higher demand. Sales increased in all regions, especially in
North and South America. Sales to third parties in South America increased in
part due to the inclusion of sales of BASF Poliestireno of Brazil, which was
consolidated for the first time in 1999 and contributed approximately 4% to the
sales increase in 1999. The increase in the division's sales to third parties
was partially offset by a loss of sales resulting from the Styrenic Polymers
division's divestiture of its glass-mat-reinforced thermoplastics business.
Excluding the effects of the new consolidation and the divestiture, sales of the
Styrenic Polymers division increased approximately 7% in 1999.
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<PAGE> 130
Income from operations in 1999 fell due to higher depreciation on new
production plants in the United States and Brazil and due to the absence of
gains from divestitures, which were included in the division's income from
operations in 1998. The decrease in income from operations was partially offset
by lower unit costs resulting from higher capacity utilization, cost-cutting
measures and improved margins in the second half of the year.
Engineering Plastics
In the Engineering Plastics division, sales to third parties rose 20.2% in
1999 to E1,276 million from E1,062 million in 1998. Sales increased in all
regions, primarily due to an approximately 26% increase in sales volumes,
particularly from products sold to the automotive and electrical industries. The
increase in sales volumes was partially offset by an approximately 6% decrease
in sales prices for all products.
The division's 1999 sales to third parties included sales of the ABS
(acrylonitrile-butadiene-styrene) copolymer business acquired in 1999 from DSM
of the Netherlands and sales of the POM (polyoxymethylene) business of Ultraform
Corporation, a former joint venture between BASF and Degussa-Huls. BASF acquired
a 100% ownership interest in this company in 1999. Excluding the effects of
these acquisitions, sales of the Engineering Plastics division rose
approximately 14% in 1999.
The Engineering Plastics division contributed significantly to the
increased income from operations of the Plastics & Fibers segment in 1999,
primarily because of the division's improved operating margins. These improved
margins resulted from higher sales, reduced fixed costs and higher utilization
rates at production plants, including the full utilization of BASF's world-scale
ABS plant in Korea that started operations in 1998.
Polyurethanes
In the Polyurethanes division, sales to third parties rose 10.8% in 1999 to
E2,157 million from E1,996 million in 1998, primarily due to increased sales
volumes in Europe and Asia. Demand was particularly strong for polyurethane
basic materials and polyurethane systems. Increased sales volumes and, to a
lesser extent, positive currency effects from the Korean won contributed 15.4%
to the increase in sales in 1999. These effects, however, were partially offset
by lower sales prices of approximately 4.6%. Sales to third parties included the
sales of four subsidiaries that were consolidated for the first time in 1999.
These sales contributed approximately 3% to the increase. Sales to third parties
also included sales of the European rigid foam business acquired from Arco in
1999 and from the polyol business acquired from Dongsung Chemical. Excluding the
effects of the new consolidations and the acquisition, sales of the
Polyurethanes division increased approximately 5% in 1999.
The Polyurethanes division contributed significantly to the increased
income from operations of the Plastics & Fibers segment in 1999 due to the
division's higher sales and lower raw material costs during the first half of
the year, especially for propylene, benzene and toluene. Despite expected
increases in raw material costs that may be difficult to pass on to customers,
BASF expects further increases in sales and income in the Polyurethanes division
in 2000.
Fiber Products
In the Fiber Products division, sales to third parties remained
substantially unchanged in 1999, rising 1.1% in 1999 to E1,193 million from
E1,180 million in 1998. The recovery in the second half of 1999, first of the
Asian markets and then of the European fiber markets, especially for nylon 6
intermediates, led to higher demand and higher prices, especially in the last
quarter of the year. The increase in sales in the last half of the year,
particularly in the fourth quarter more than offset the decline in the first
half of 1999.
The Fiber Products division contributed significantly to the increased
income from operations of the Plastics & Fibers segment in 1999 due to higher
sales in Asia and Europe as well as reduced fixed costs, especially in North
America. BASF expects rising caprolactam prices to contribute to a further
improvement in income from operations in the Fiber Products division.
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Polyolefins
Polyolefins sales to third parties rose by 21.0% to E2,080 million in 1999
from E1,719 million in 1998. The increase in sales was due to higher sales
volumes resulting from market growth and to higher prices for polyethylene
products. Sales to third parties in 1999 included sales of the Hostalen
polyethylene business acquired from Hoechst AG of Germany at the end of 1998.
Excluding the effects of this acquisition, sales rose approximately 8%.
Polyolefins activities contributed significantly to the increased income
from operations of the Plastics & Fibers segment in 1999 due to improved margins
in the second half of the year.
1998 COMPARED WITH 1997
Segment Overview
In the Plastics & Fibers segment, sales to third parties rose 2.4% in 1998
to E7,573 million from E7,395 million in 1997. This increase was due primarily
to additional sales from polyolefins operations. The increase in sales was
partially offset by lower sales in the Fiber Products division due to price
decreases resulting from weak demand due to the Asian economic crisis. When
sales from acquisitions are excluded, sales to third parties in 1998 fell 4.5%
as compared to 1997.
Income from operations rose 46.5% in 1998 to E539 million from E368 million
in 1997, primarily due to a substantial increase in income from operations in
the Styrenic Polymers division. The Polyurethane and Engineering Plastics
divisions also contributed to the segment's improvement in income from
operations. However, lower income from operations due to lower sales in the
Fiber Products division partially offset the increase.
Assets of the Plastics & Fibers segment increased 12.7% in 1998 to E4,957
million from E4,397 million in 1997 primarily due to additions to tangible fixed
assets. Some of these projects included:
- constructing a polystyrene plant in Joliet, Illinois;
- adding capacity for polypropylene in Wesseling, Germany;
- constructing ABS plastic plants in Altamira, Mexico, and Ulsan, Korea;
and
- bringing production plants for ethylbenzene, styrene and polystyrene
on stream in Nanjing, China.
Research and development expenses as a percentage of sales remained
substantially unchanged.
Styrenic Polymers
In the Styrenic Polymers division, sales to third parties remained
generally unchanged in 1998, decreasing 1.3% in 1998 to E1,666 million from
E1,687 million in 1997. Sales volumes rose 17% but were offset by an
approximately equal decline in the prices for the division's major products in
all regions. Sales in 1998 reflected the acquisition of the remaining 50%
interest in Hyosung BASF Co. Ltd., which is now known as BASF Company Ltd.,
Korea. The joint venture had previously been consolidated on a pro rata basis.
The Styrenic Polymers division contributed substantially to the increase in
income from operations of the Plastics & Fibers segment in 1998. The division's
income from operations improved significantly due to higher capacity
utilization, lowered costs and gains from the sale of the glass-mat-reinforced
thermoplastics business to Symalit of Switzerland. The reduction in costs
resulted from continued cost cutting, which included closing two polystyrene
plants in the United States, as well as from cost advantages from bringing new
world-scale plants in Altamira, Mexico; Joliet, Illinois; Ulsan, Korea; and
Nanjing, China on stream in 1997 and 1998. The division's foam plastics,
particularly XPS (extruded polystyrene), made a significant contribution to
profitability due to increased sales and reduced production costs per unit.
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<PAGE> 132
Engineering Plastics
In the Engineering Plastics division, sales to third parties rose 1.7% in
1998 to El,062 million from El,045 million in 1997. Higher sales were due
primarily to increased sales volumes, particularly to the automotive and
electrical industries. The increase in sales was partially offset by lower
prices across all product groups.
The Engineering Plastics division contributed substantially to the increase
in income from operations of the Plastics & Fibers segment in 1998 through the
divestiture in 1997 of unprofitable PMMA (polymethyl methacrylate) production
sites and improved operating margins in other product lines, reflecting both
increased sales and reduced fixed costs.
Polyurethanes
In the Polyurethanes division, sales to third parties rose 1.6% in 1998 to
E1,946 million from E1,914 million in 1997, primarily due to a 4% increase in
demand. The higher demand, however, was partially offset by a decline in the
value of the Korean won and a more than 10% drop in PVC prices due to the Asian
economic crisis. The crisis in Asia led to a redirection of exports for Asia to
Europe. Demand for polyurethane basic materials and polyurethane systems
increased, while demand for polyurethane specialty elastomers remained
unchanged.
The Polyurethanes division contributed substantially to the increase in
income from operations of the Plastic & Fiber segment in 1998 because of higher
sales in 1998 and the limited impact of the Asian economic crisis on its
activities.
Fiber Products
In the Fiber Products division, sales to third parties fell 10.8% in 1998
to E1,181 million from El,324 million in 1997 due to weak demand for nylons in
Asia during the second half of the year, which resulted in lower prices. The
European fibers markets, especially the market for nylon 6, suffered from lower
prices and oversupply due to weak Asian demand that prompted a redirection of
Asian exports to Europe.
Polyolefins
Polyolefins sales to third parties rose 20.7% in 1998 to E1,719 million
from E1,424 million in 1997. The increase in sales resulted from the inclusion
of Targor sales for its first full calendar year and the expansion of activities
in the Elenac joint venture beginning in March 1998. On a comparable basis,
sales declined about 12%, due to falling prices for almost all of the division's
products. The strong overall sales growth in 1998 was partially offset by lower
prices due to intense competition in Europe and reduced demand in Asia.
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<PAGE> 133
COLORANTS & FINISHING PRODUCTS
SEGMENT DATA
(EUROS IN MILLIONS)
<TABLE>
<CAPTION>
% %
CHANGE CHANGE
FROM FROM
PREVIOUS PREVIOUS
1997 1998 YEAR 1999 YEAR
------ ------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
Sales to third parties......................... E6,540 E6,188 (5.4) E6,395 3.3
Intersegmental transfers....................... 371 291 (21.6) 259 (11.0)
Sales incl. intersegmental transfers........... 6,911 6,479 (6.2) 6,654 2.7
Income from operations......................... 480 642 33.8 608 (5.3)
Special Items.................................. (48) 19 - (74) -
Operating margin (%)........................... 7.3 10.4 42.5 9.5 (8.7)
Assets......................................... E4,052 E3,981 (1.8) E4,343 9.1
Return on operational assets (%)............... 12.7 16.0 26.0 14.6 (8.8)
Research and development expenses.............. E 183 E 158 (13.7) E 160 1.3
</TABLE>
1999 COMPARED WITH 1998
Segment Overview
In the Colorants & Finishing products segment, sales to third parties rose
3.3% in 1999 to E6,395 million from E6,188 million in 1998. Sales increased in
all divisions, especially in the Dispersions division as a result of additional
sales from the acquisition of the superabsorbents business of Clariant
International Ltd. of Switzerland in the fourth quarter of 1998.
Income from operations fell 5.3% to E608 million in 1999 from E642 million
in 1998. Special items of E74 million were charged to income from operations in
1999. These special items resulted from restructuring measures in the Colorants
division and from the closure of BASF's multi-divisional production site in
Medellin, Colombia, which particularly affected income from operations in the
Coatings division. For further information, see Note 22 to the Consolidated
Financial Statements.
To improve the cost structure of the Colorants division, BASF closed
production sites and relocated production capacity to Asia. The most significant
restructuring measure was the closure of the division's site in Ellesmere Port,
England. The decision to close the site was announced in the second quarter of
1999. Completion of the closure is expected at the end of 2000. Charges from the
closure of the Ellesmere Port site consist primarily of personnel-related costs
for approximately 70 employees and write-offs of tangible fixed assets.
The decision to close the Coatings division's production site in Medellin,
Colombia, was announced in the third quarter of 1999. Completion of the closure
is expected at the end of the first half of 2000. Charges from the closure of
the production site in Medellin consist primarily of personnel related cost for
approximately 70 employees and write-offs of tangible fixed assets. For further
information, see Note 22 to the Consolidated Financial Statements.
Assets of the Colorants & Finishing Products segment increased in 1999 by
9.1% to E4,343 million from E3,981 million in 1998 due to additions to tangible
and intangible fixed assets totaling E324 million, especially in the Dispersions
division. Major capital expenditures included the following:
Europe
- Construction of new plants to manufacture polymer dispersions in
Ludwigshafen, Germany, for the Dispersions division.
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<PAGE> 134
- Construction of new plants to manufacture vinylformamide and
polyvinylamines for paper chemicals in Ludwigshafen, Germany, for the
Dispersions division.
- Expansion of capacities to manufacture yellow pigments in
Ludwigshafen, Germany, for the Colorants division.
North and South America
- Expansion of production capacity for manufacturing acrylate and
styrene/butadiene dispersions in Monaca, Pennsylvania, for the
Dispersions division.
- Construction of a new powder coatings manufacturing plant in
Morganton, North Carolina, for the Coatings division.
- Construction of a new plant to manufacture paper dyes in Altamira,
Mexico, for the Colorants division.
- Construction of a new plant to manufacture butyl acrylate in
Guaratingueta, Brazil, for the Dispersions division.
Asia
- Construction of a new plant to manufacture acrylate dispersions in
Shanghai, China.
Research and development costs in the Colorants & Finishing Products
segment remained substantially unchanged.
Colorants
In the Colorants division, sales to third parties increased slightly in
1999 to E2,217 million from E2,201 million in 1998. Sales rose in Asia due to
increased demand as the region recovered from its economic crisis. These
positive effects were offset by lower sales in Europe due to continuing low
demand and strong price pressure on textile dyes.
Without giving effect to the special items resulting from the restructuring
measures in the Colorants division, this division contributed substantially to
the increase in income from operations of the Colorants & Finishing Products
segment in 1999 as a result of the recovery of the division's business in Asia
and the ongoing improvement of the division's cost structure in all operations.
BASF intends to reorganize the textile dyes business within the Colorants
division by combining its operations with those of DyStar, a joint venture
between Bayer AG of Germany and Hoechst AG of Germany. In addition, BASF intends
to sell the division's masterbatch business, which produces pigment preparations
used to color plastics.
Coatings
In the Coatings division, sales to third parties increased slightly in
1999, by 1.1%, to E1,876 million from E1,855 million in 1998. Sales increased in
all regions other than South America, where sales suffered due to the 21%
devaluation of the Brazilian real against the German mark in 1999. Sales
increases, particularly in automotive coatings, offset entirely the decline in
sales in decorative paints, which was primarily due to the depreciation of the
Brazilian real.
The division's 1999 sales included sales of Salchi Spa, Italy, now known as
BASF Coatings Spa., which was acquired and accounted for under the equity method
in 1998 but was fully consolidated for the first time in 1999. Excluding the
effect of this consolidation, the division's sales decreased by approximately 2%
primarily due to the depreciation of the Brazilian real.
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<PAGE> 135
Income from operations in the Coatings division decreased as a result of
the effects of the depreciation of the Brazilian real. Income from operations
included special items of approximately E7 million resulting from the closure of
the production site in Medellin, Colombia.
Dispersions
In the Dispersions division, sales to third parties in 1999 rose 8.0% to
E2,302 million from E2,132 million in 1998 due to sales from the superabsorbents
business of Clariant International Ltd. of Switzerland, which was acquired in
the fourth quarter of 1998. Sales rose in all regions.
Despite higher sales, income from operations remained substantially
unchanged because higher raw material prices put pressure on margins. In the
fourth quarter of 1999, margins in the Dispersions division began to improve
when it became possible to pass on higher raw material prices to customers.
Income from operations in 1999 included special items totaling E24 million.
These special items included an impairment loss on tangible fixed assets of the
polymin plant in Freeport, Texas, for the production of paper chemicals and
special charges from the closure of the multi-divisional site in Medellin,
Colombia. BASF expects the improvement in margins to continue into 2000 as price
increases take effect.
1998 COMPARED WITH 1997
Segment Overview
In the Colorants & Finishing Products segment, sales to third parties
decreased 5.4% in 1998 to E6,188 million from E6,540 million in 1997 primarily
due to the economic crises in Asia and Russia. The crises led to weaker demand
and lower prices for Colorants division products marketed to the textile and
leather industries. Sales in the Dispersions division declined as reductions in
raw material costs had to be partially passed on to customers. In the Coatings
division, sales declined in part due to the divestiture of the container
coatings business to PPG Industries, Inc. of the United States and the sale of
its business in electrical insulation systems to Schenectady International Corp.
of the United States.
Income from operations rose 33.8% in 1998 to E642 million from E480 million
in 1997. All three divisions in the Colorants & Finishing Products segment
contributed to the increase to varying degrees. Improved profitability of the
automotive paints business in the Coatings division and to improved margins as a
result of lower raw material costs in the Dispersions division were the primary
reasons for the increase.
Assets of the Colorants & Finishing Products segment decreased 1.8% to
E3,981 million in 1998 from E4,052 million in 1997, mainly as a result of the
divestitures in the Coatings division and plant closures in the Colorants
division.
Research and development expenses as a percentage of sales remained
substantially unchanged.
Colorants
In the Colorants division, sales to third parties fell 7.8% in 1998 to
E2,201 million from E2,387 million in 1997, due mainly to a decrease of about 6%
in sales volumes and a decline in prices of about 1%.
Income from operations in the Colorants division rose in 1998 primarily due
to a favorable sales mix as well as a substantial reduction in fixed costs as a
result of previous restructuring measures, including the relocation of
production sites from Europe to South America and Asia.
Coatings
In the Coatings division, sales to third parties fell 6.3% in 1998 to
E1,855 million from E1,980 million in 1997 due to the divestiture of various
activities. On a comparable basis, the Coatings division achieved a slight
increase in sales.
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<PAGE> 136
The Coatings division made the largest contribution among the three
divisions to the segment's increase in income from operations. The division's
improvement resulted from higher productivity, streamlined core processes,
reduced fixed costs and divestitures, which accounted for approximately one-
third of the improvement.
Dispersions
In the Dispersions division, sales to third parties fell 1.9% in 1998 to
E2,132 million from E2,173 million in 1997 primarily due to a decline in prices
across all the division's products. The lower prices resulted from a decrease in
raw material costs, especially for propylene used to manufacture acrylic acid,
that had to be partially passed on to customers. The decrease was partially
offset by additional sales from the superabsorbents business acquired from
Clariant International Ltd. of Switzerland in the fourth quarter of 1998.
The Dispersions division contributed substantially to the Colorants &
Finishing Products segment's higher income from operations. The increase was due
primarily to lower raw material costs and the effect of ongoing restructuring
measures that were implemented in 1997.
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HEALTH & NUTRITION: PHARMACEUTICALS
SEGMENT DATA
(EUROS IN MILLIONS)
<TABLE>
<CAPTION>
% %
CHANGE CHANGE
FROM FROM
PREVIOUS PREVIOUS
1997 1998 YEAR 1999 YEAR
------ ------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
Sales to third parties........................ E1,792 E2,091 16.7 E2,483 18.7
Intersegmental transfers...................... 2 13 550.0 55 323.1
Sales incl. intersegmental transfers.......... 1,794 2,104 17.3 2,538 20.6
Income from operations........................ (35) 66 - 11 (83.3)
Special Items................................. (22) (4) 81.2 (164) -
Operating margin (%).......................... - 3.2 - 0.4 -
Assets........................................ E1,701 E1,949 14.6 E2,145 10.1
Return on operational assets (%).............. - 3.6 - 0.5 -
Research and development expenses............. E 319 E 375 17.6 E 404 7.7
</TABLE>
1999 COMPARED WITH 1998
In the Pharmaceuticals segment, sales to third parties in 1999 rose 18.7%
to E2,483 million from E2,091 million in 1998. Sales to third parties increased
in part due to the first-time consolidation of 12 BASF subsidiaries. Almost all
of these subsidiaries were accounted for under the equity method in previous
years. Excluding the effect of the new consolidations, sales to third parties in
1999 rose 8.9% as a result of sales increases in all major markets, especially
in the segment's most important markets, the United States and Japan. Sales to
third parties, based on local currency amounts, increased by 17% in Japan and by
9% in the United States.
Sales of ethical drugs, which BASF defines as drugs that require
prescriptions from physicians and that are sold under individual brand names,
rose 17.8% in 1999 to E2,140 million from E1,817 million in 1998.
Synthroid(R), a thyroid medication that is BASF Phama's top selling drug,
contributed the most to the increase in total ethical drug sales in 1999 with an
increase in sales of 27%. In 1999, Synthroid(R) was the second most dispensed
prescription medication in the United States. Sales of the recently launched
products Meridia(R)/Reductil(R), Vicoprofen(R), Tarka(R), Ganaton(R) (Japan) and
Hokunalin patch(R) (Japan) increased overall by 17% to E279 million in 1999.
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<PAGE> 138
The following table lists BASF's top selling drugs in 1998 and 1999:
<TABLE>
<CAPTION>
SALES SALES CHANGE
BRAND NAME ACTIVE INGREDIENT INDICATION 1998 1999 IN %
---------- ----------------- ---------- ----- ----- ------
(EUROS IN MILLIONS)
<C> <S> <C> <C> <C> <C> <C>
1 Synthroid(R) Thyroxine Hypothyroidism E 313 E 397 27
2 Isoptin(R) Verapamil Coronary heart disease, 214 204 (5)
hypertension, arrhythmia
3 Rytmonorm(R)/Rythmol(R) Propafenone Arrhythmia 141 167 18
4 Meridia(R)/Reductil(R)/ Sibutramine Obesity 141 137 (2)
Raductil(R)
5 Vicodin(R)/Vicoprofen(R) Hydrocodone and Moderate to severe pain 106 115 9
acetaminophen/
ibuprofen
6 Brufen(R) Ibuprofen Mild pain 76 86 14
7 Iruxol(R) Collagenase Wound healing 64 67 5
8 Gopten(R) Trandolapril Hypertension/post 56 64 15
myocardial infarction
9 Tarka(R) Verapamil/ Hypertension 33 39 20
Trandolapril
10 Dilaudid(R) Hydromorphone Severe Pain 37 38 3
------ ------ --
TOTAL................................................................ E1,182 E1,314 11
====== ====== ==
</TABLE>
Exceptional Synthroid(R) sales growth in 1999 resulted primarily from price
increases, as well as from growth in prescriptions and from wholesaler
stockpiling. Sales of Meridia(R)/Reductil(R)/Raductil(R) declined slightly in
1999, despite a 9% increase in the number of Meridia(R) prescriptions issued in
the United States in 1999. Sales for this drug in 1998 were driven by high
initial demand, which typically accompanies novel treatments entering the
consumer-driven antiobesity market. The decrease also resulted from initial
wholesaler stockpiling in the United States in 1998.
Meridia(R)/Reductil(R)/Raductil(R) was approved and launched in 16 additional
countries in 1999.
Intersegmental transfers in the Pharmaceuticals segment increased
substantially in 1999 to E55 million from E13 million due to higher transfers to
the Fine Chemicals segment, especially for the U.S. human nutrition market,
where the Fine Chemicals segment markets the nutraceutical SAMe
(S-adenosylmethionine).
Income from operations in the Pharmaceuticals segment decreased 83.3% to
E11 million in 1999 from E66 million in 1998 due to special charges of E164
million. Special charges in 1999 relate primarily to the settlement of U.S.
class action lawsuits concerning Synthroid(R). Additional compensation payments
were committed to State Attorneys General in the United States and to the
Institute for the Advancement of Community Pharmacy. See Note 24 to the
Consolidated Financial Statements for further information on the lawsuits
involving Synthroid(R).
Further special charges resulted from provisions for several restructuring
measures. The charges consist primarily of write-downs and personnel related
costs for approximately 270 employees resulting from the closure of the
production site in Beeston, England. See Note 22 to the Consolidated Financial
Statements for further information on the site closure.
An increase in sales of high margin products, such as Synthroid(R) and
Rytmonorm(R)/Rythmol(R), and decreasing launch costs for Meridia(R)/Reductil(R)
and Vicoprofen(R) had a significant positive effect on income from operations.
Tight cost management in research and development as well as in marketing and
sales also contributed positively to income from operations. The addition of 12
subsidiaries to the scope of consolidation contributed approximately E14 million
to income from operations.
Research and development costs increased in 1999 by 7.7% to E404 million
from E375 million in 1998, which represents 16.3% of the segment's sales in 1999
as compared to 18.0% of sales in 1998.
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<PAGE> 139
Assets of the Pharmaceuticals segment increased in 1999 by 10.1% to E2,145
million from E1,949 million in 1998 due to additions to tangible and intangible
assets from several capacity expansion projects for pharmaceutical manufacturing
plants and from the additions to the scope of consolidation. These capital
expenditures were E115 million in 1999 as compared to E169 million in 1998.
1998 COMPARED WITH 1997
In the Pharmaceuticals segment, sales to third parties rose 16.7% in 1998
to E2,091 million from E1,792 million in 1997. The increase was primarily a
result of the E141 million in sales from the product launch of Meridia(R), which
is used for the treatment of obesity, in the United States and four other
countries where it is marketed under the brand names Reductil(R) and
Raductil(R). The first-time consolidation of Hokuriku Seiyaku also contributed
significantly to the sales increase.
Sales of ethical drugs, which BASF defines as drugs that require a
prescription from a physician and which are sold under an individual brand name,
rose 17.7% in 1998 to E1,817 million from E1,544 million in 1997.
The largest contributor to the increase in total ethical drug sales in 1998
was the antiobesity product Meridia(R)/Reductil(R)/Raductil(R). Vicoprofen(R), a
medication for treating severe pain that was first launched in November 1997,
also contributed substantially to sales growth in 1998.
The following table lists BASF's top-selling drugs in 1997 and 1998:
<TABLE>
<CAPTION>
SALES SALES CHANGE
BRAND NAME ACTIVE INGREDIENT INDICATION 1997 1998 IN %
---------- ----------------- ---------- ----- ----- ------
(EUROS IN MILLIONS)
<C> <S> <C> <C> <C> <C> <C>
1 Synthroid(R) Thyroxine Hypothyroidism E 318 E 313 (2)
2 Isoptin(R) Verapamil Coronary heart disease, 240 214 (11)
hypertension, arrhythmia
3 Rytmonorm(R)/Rythmol(R) Propafenone Arrhythmia 130 141 9
4 Meridia(R)/Reductil(R)/ Sibutramine Obesity 0 141 N/A
Raductil(R)
5 Vicodin(R)/Vicoprofen(R) Hydrocodone and Moderate to severe pain 70 106 51
acetaminophen/
ibuprofen
6 Brufen(R) Ibuprofen Mild pain 81 76 (6)
7 Iruxol(R) Collagenase Wound healing 58 64 11
8 Gopten(R) Trandolapril Hypertension/post 44 56 27
myocardial infarction
9 Dilaudid(R) Hydromorphone Severe pain 34 37 10
10 Akineton(R) Biperiden Parkinson's Disease 33 34 4
------ ------ ----
TOTAL................................................................ E1,008 E1,182 17
====== ====== ====
</TABLE>
The 1998 decrease of Synthroid(R) sales resulted primarily from an
inventory build-up by wholesalers at the end of 1997 due to the announcement of
a price increase for 1998.
The launch of Meridia(R)/Reductil(R)/Raductil(R) was highly successful and
the antiobesity drug became the Pharmaceuticals segment's fourth best-selling
product in its first year on the market.
In 1998, the Pharmaceuticals segment's income from operations rose E101
million to E66 million. The most significant contributing factor was the absence
of one-time charges for Synthroid(R) associated with class-action lawsuits in
the United States. See Note 24 to the Consolidated Financial Statements for
further information on the lawsuits involving Synthroid(R). When the charge
related to Synthroid(R) is excluded, income from operations remained virtually
unchanged in 1998 compared with 1997. The positive contribution of strong sales
growth in income from operations in 1998 was offset by higher marketing and
sales costs for the launches of Meridia(R) and Vicoprofen(R), as well as higher
research and development
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<PAGE> 140
costs. In addition, the amortization of goodwill increased as a result of the
first time consolidation of Hokuriku Seiyaku.
The cost of the Pharmaceuticals segment's research and development
activities was 18.0% of sales in 1998 as compared to 17.7% of sales in 1997.
Assets of the Pharmaceuticals segment rose 14.6% to E1,949 million from
E1,701 million in 1997 primarily due to the first-time consolidation of Hokuriku
Seiyaku and the start-up of a new plant in Wyandotte, Michigan for the
manufacture of the active ingredient for Synthroid(R).
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HEALTH & NUTRITION: FINE CHEMICALS
SEGMENT DATA
(EUROS IN MILLIONS)
<TABLE>
<CAPTION>
% %
CHANGE CHANGE
FROM FROM
PREVIOUS PREVIOUS
1997 1998 YEAR 1999 YEAR
------ ------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
Sales to third parties......................... E1,154 E1,256 8.8 E1,374 9.4
Intersegmental transfers....................... 40 31 (22.5) 32 3.2
Sales incl. intersegmental transfers........... 1,194 1,287 7.8 1,406 9.2
Income from operations......................... 182 114 (37.4) (794) -
Special Items.................................. (37) 2 - (829) -
Operating margin (%)........................... 15.8 9.1 (42.4) (57.8) -
Assets......................................... E 700 E1,203 71.9 E1,080 (10.2)
Return on operational assets (%)............... 30.6 12.0 (60.8) (69.6) -
Research and development expenses.............. E 58 E 65 12.1 E 70 7.7
</TABLE>
1999 COMPARED WITH 1998
In the Fine Chemicals segment, sales to third parties rose 9.4% in 1999 to
E1,374 million from E1,256 million in 1998 due to an increase in sales volumes
of approximately 24%, partially offset by a decline in prices of approximately
15%. Sales increased in all markets, especially in human nutrition. Prices
declined for vitamins, especially for vitamins E, A and B(2) due to increased
competition from Chinese producers, and for lysine, especially in the first half
of the year.
Sales to third parties in 1999 included sales attributable to the lysine
business acquired from the Korean Daesang Group, to the animal nutrition
business acquired from Takeda Kagaku Shiryo, Japan, and to the worldwide
Z-Cote(R) inorganic UVA (ultraviolet light) absorber business acquired from
sunSmart Incorporated of the United States. Excluding the effects of these
acquisitions, sales to third parties increased by approximately 6% in 1999.
Transfers to other segments remained substantially unchanged.
The Fine Chemicals segment incurred a loss of E794 million in 1999 compared
to a positive income from operations of E114 million in 1998. The loss was due
to special charges of E829 million primarily related to the violation of
antitrust laws in the vitamin business in the United States and other countries.
See Note 24 to the Consolidated Financial Statements for further information on
the antitrust violations.
Special charges also included an unscheduled write-down on intangible
assets of the lysine business acquired in 1998 from the Daesang Group, Korea.
The write-down resulted from the reassessment of the recoverability of the
recorded intangible assets through future earnings. These are expected to be
lower as a result of the sharp decline in the market price for lysine.
The aforementioned price declines for vitamins and lysine also had a
significant negative effect on income from operations.
Assets in the Fine Chemicals segment decreased in 1999 by 10.2% to E1,080
million from E1,203 million in 1998 due to the aforementioned write-down of
intangible assets of the lysine business.
In 1999 additions to tangible and intangible assets included:
- a new plant for the production of astaxanthin in Ludwigshafen,
Germany,
- the ongoing expansion of production capacity for carotenoids in
Ludwigshafen, and
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<PAGE> 142
- the acquisition of the worldwide UV absorbers business from sunSmart
Incorporated of the United States.
In both 1999 and 1998, the cost of the Fine Chemicals segment's research
and development was approximately 5% of sales.
1998 COMPARED WITH 1997
In the Fine Chemicals segment, sales to third parties rose 8.8% in 1998 to
E1,256 million from E1,154 million in 1997 as a result of increased sales in all
market segments, especially in animal nutrition, and in all regions, especially
North and South America. A major contributor to the sales increase was the
acquisition of the lysine business of the Korean Daesang Group. The sales
increase from the acquisition was partially offset by the sale of the segment's
feed phosphates marketing operations to Kemira AB of Sweden. In the human
nutrition and pharmaceutical ingredients markets, sales rose primarily due to an
increase in sales volumes for vitamin E, especially in the United States, and
for polymers. In the cosmetics and aroma chemicals markets, sales rose primarily
as a result of increasing demand for new intermediates for hair and skin care
products.
Income from operations of the Fine Chemicals segment decreased 37.4% in
1998 to E114 million from E182 million in 1997. This decrease resulted from a
loss attributable to the lysine business acquired from Daesang, as a result of
the depreciation of tangible assets and the amortization of intangible assets
and of lower prices.
In both 1997 and 1998, the cost of the Fine Chemicals segment's research
and development activities was approximately 5% of sales.
Assets increased in 1998 by 71.9% to E1,203 million from E700 million in
1997 primarily due to additions to tangible and intangible assets resulting from
the acquisition of the lysine business of Daesang and to the expansion of the
production of carotenoids at BASF's production site in Ludwigshafen, Germany.
138
<PAGE> 143
HEALTH & NUTRITION: CROP PROTECTION
SEGMENT DATA
(EUROS IN MILLIONS)
<TABLE>
<CAPTION>
% %
CHANGE CHANGE
FROM FROM
PREVIOUS PREVIOUS
1997 1998 YEAR 1999 YEAR
------ ------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
Sales to third parties......................... E1,641 E1,750 6.6 E1,745 (0.3)
Intersegmental transfers....................... 35 49 40.0 36 (26.5)
Sales incl. intersegmental transfers........... 1,676 1,799 7.3 1,781 (1.0)
Income from operations......................... 201 203 1.0 195 (3.9)
Operating margin (%)........................... 12.2 11.6 (4.9) 11.2 (3.4)
Assets......................................... E1,605 E1,730 7.8 E1,949 12.7
Return on operational assets (%)............... 16.7 12.2 (26.9) 10.6 (13.1)
Research and development expenses.............. E 184 E 194 5.4 E 190 (2.1)
</TABLE>
1999 COMPARED WITH 1998
In the Crop Protection segment, sales to third parties remained
substantially unchanged in 1999, totaling E1,745 million, despite a drop in
demand, particularly in North America and Western Europe. Fungicide sales
increased 4% to E549 million, although the global fungicide market decreased by
approximately 5%. Herbicide sales fell 6% to E900 million in line with the
global herbicide market decrease of 7%.
In North America, low agricultural commodity prices and increased planting
of genetically modified crops in 1999 increased price competition for crop
protection products and the preference of farmers for low-priced, off-patent
products. Despite the increase in price competition, sales of the Crop
Protection segment in North America increased 5% in 1999 to E609 million. This
increase was mainly due to the contribution to sales of Micro Flo, a leading
supplier of generic products in the United States. BASF acquired a majority
stake in Micro Flo in mid-1998. More than 70% of Micro Flo's sales are currently
in the field of insecticides, growth regulators and fungicides.
In Western and Central Europe, lower commodity prices, deteriorating
economic conditions for farmers, an increase in the rate of land left
uncultivated and reduced fungal diseases as a result of weather conditions in
1999 adversely affected the market for crop protection products. Due to these
factors, sales of the Crop Protection segment in Western Europe and Central
Europe decreased 4% in 1999 to E736 million.
Despite a significant decrease in the South American market for crop
protection products in 1999, sales in South America remained relatively stable
as a result of growing fungicide sales. Sales in 1999 were E249 million as
compared to E252 million in 1998.
Income from operations decreased slightly in 1999 to E195 million from E203
million in 1998. Expenditures for research and development decreased slightly to
E190 million in 1999 from E194 million in 1998 and remained approximately 11% of
the Crop Protection segment's sales. As a result of research and development
efforts in previous years, the Crop Protection segment launched three new
herbicides in time for the 1999 growing seasons. The segment's assets increased
12.7% in 1999 to E1,949 million from E1,730 million in 1998 primarily due to an
increase in current assets and to the following additions to tangible assets:
- the start-up of a new production plant for the formulation of
fungicides in Tarragona, Spain;
- the start-up of a production plant to manufacture a precursor for a
new grass herbicide in Ludwigshafen, Germany;
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<PAGE> 144
- the construction of production sites to manufacture a new rice
herbicide in Ludwigshafen, Germany; and
- the construction of a production plant to manufacture a precursor for
strobilurin fungicides in Ludwigshafen, Germany.
Low agricultural commodity prices will influence the markets for crop
protection products in the year 2000. In Europe, ongoing restructuring of the
European Union's agricultural policies will lead to declining incomes for
farmers. Therefore, price pressure will continue and might lower income from
operations of the Crop Protection segment. Despite this short-term market
outlook, BASF expects that its focus on competitive advantages and key markets
for its continuously renewed fungicide and herbicide portfolio will enable it to
maintain or even strengthen its market position and serve as a starting point
for further growth through promising products in development.
1998 COMPARED WITH 1997
In the Crop Protection segment, sales to third parties rose 6.7% in 1998 to
E1,750 million from E1,641 million in 1997. The increase in sales in 1998
resulted mainly from an 18.4% increase in sales volumes of fungicides to E529
million, reflecting strong demand for products based on the active ingredient
kresoxim-methyl. Herbicide sales fell 2.2% to E958 million in 1998. Sales of
selective soybean herbicides declined as a result of increased use of
genetically modified crops that are resistant to total herbicides. The sales
decline was partially offset by growth in corn herbicide products. As of June
1998, the segment included sales from the acquisition of Micro Flo Co., which is
the second-largest supplier of generic agricultural chemicals in the United
States based on sales.
The Crop Protection segment's sales increased 16.8% to E767 million in 1998
in Western and Central Europe. Strong sales for the fungicide brand Allegro(R)
(active ingredient: kresoxim-methyl) contributed substantially to this increase.
Sales in the Asia, Pacific Area, Africa region rose 2.7% primarily due to higher
sales volumes resulting from successful fungicide product launches.
Income from operations rose 1.0% in 1998 to E203 million from E201 million
in 1997. The favorable impact from higher sales, especially in Europe, was
substantially offset by currency losses from the devaluation of the Brazilian
real, for which a provision was made in 1998.
Expenditures for research and development rose 5.4% in 1998 to E194 million
from E184 million in 1997. In both 1997 and 1998, research and development
expenditures amounted to approximately 11% of the segment's sales.
Assets of the Crop Protection segment increased 7.8% in 1998 to E1,730
million from E1,605 million in 1997 primarily due to additions to tangible and
intangible assets from the acquisition of Micro Flo as well as from the
construction of new production plants. In Tarragona, Spain, a plant to
manufacture kresoxim-methyl, the active ingredient in a new class of strobilurin
fungicides, went on stream in February 1998. In Beaumont, Texas, a plant to
manufacture the new corn herbicide diflufenzopyr started operations in 1998. At
BASF's Ludwigshafen, Germany, site, the production of the new selective cereal
herbicide cinidon-ethyl also began in 1998.
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<PAGE> 145
OIL & GAS
SEGMENT DATA
(EUROS IN MILLIONS)
<TABLE>
<CAPTION>
% %
CHANGE CHANGE
FROM FROM
PREVIOUS PREVIOUS
1997 1998 YEAR 1999 YEAR
------ ------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
Sales to third parties......................... E3,198 E2,685 (16.0) E3,051 13.6
Intersegmental transfers....................... 247 235 (4.9) 177 (24.7)
Sales incl. intersegmental transfers........... 3,445 2,920 (15.2) 3,228 10.6
Royalties...................................... 176 204 15.9 214 4.9
Sales incl. intersegmental transfers, less
royalties.................................... 3,269 2,716 (16.9) 3,014 11.0
Income from operations......................... 473 276 (41.7) 741 168.5
Operating margin (%)........................... 14.8 10.3 (30.4) 24.3 135.9
Assets......................................... E2,503 E2,622 4.8 E3,003 14.5
Return on operational assets (%)............... 20.3 10.8 (46.8) 26.3 143.5
Research and development expenses.............. E 69 E 50 (27.5) E 47 (6.0)
</TABLE>
1999 COMPARED WITH 1998
In the Oil & Gas segment, sales to third parties rose 13.6% in 1999 to
E3,051 from E2,685 in 1998, primarily due to the 41.4% increase in average crude
oil prices in 1999 compared to 1998. In 1999, the average crude oil price for
U.K. Brent quality crude oil per barrel was $17.99 compared to $12.72 in 1998.
Other factors contributing to increased sales were the strength of the U.S.
dollar and the first time consolidation of Wintershall Energia, Argentina, which
contributed E168 million to the increase in sales. Due to this first-time
consolidation, production increased by 19.4% to 77.5 million barrels of oil
equivalent. Excluding the new consolidation, sales of the Oil & Gas segment
increased 7.4% in 1999, and production declined by almost 7% to 60.5 million
barrels of oil equivalent, mainly resulting from the imposition of strict OPEC
production quotas. Sales to third parties in the oil and natural gas exploration
and production business increased by 40.3% in 1999 to E1,044 from E744 in 1998,
due to the aforementioned reasons. Sales to third parties in the oil marketing
and refinery business increased 20.1% in 1999 to E1,152 from E959 million in
1998, due to the higher crude oil prices and a higher utilization rate at the
refinery in Lingen, Germany, which had a scheduled major shutdown in 1998.
In December 1999, BASF exited the oil marketing and refinery business by
selling for cash to VEBA Oel AG, a subsidiary of VEBA AG, its Emsland refinery
in Lingen, Germany together with its 15% share in ARAL AG, a retail gasoline
station network in Germany. The gains from the sale of BASF's stake in ARAL are
included in BASF's financial result for 1999. The gains from the sale of the
refinery are included in the Oil & Gas segment's income from operations for
1999.
Sales from natural gas distribution and trading decreased 11.6% in 1999 to
E808 million from E914 million in 1998. This decrease was primarily due to lower
sales in Central Europe.
Intersegmental transfers decreased in 1999 to E177 million from E235
million in 1998 due to lower volumes of gas supplies.
Income from operations in the Oil & Gas segment increased by 168.5% in 1999
to E741 million from E276 million in 1998. Income from operations in 1999
included gains from the sale of the refinery in Lingen, Germany, and the sale of
Wintershall's operations in Canada. Income from operations in 1998 included
gains from the sale of a natural gas reservoir. The increase in income from
operations was also due to significantly higher income in the exploration and
production business and the oil marketing and refinery business as result of the
higher crude oil prices. Income from operations is before income taxes on
oil-producing operations that are non-compensable with German corporate tax. See
Note 8 to the Consolidated Financial Statements and "-Group-1999 Compared with
1998-Net Income/Earnings Per Share."
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Assets in the Oil & Gas segment increased 14.5% in 1999 to E3,003 million
from E2,622 million in 1998 due to additions to tangible fixed assets, which
offset the effects of the divestitures. The additions included assets from the
first time consolidation of Wintershall Energia, Argentina. Capital expenditures
rose 3.8% in 1999 to E524 million from E505 million in 1998. The Oil and Gas
segment's major projects in 1999 were as follows:
- Completion of the JAGAL gas connection line that links Russian gas
reserves from the Yamal peninsula in Siberia to WINGAS's pipeline
network system in Western Europe.
- Expenditures for oil and gas exploration and development projects in
Germany, North Africa/ Middle East and Argentina.
1998 COMPARED WITH 1997
In the Oil & Gas segment, sales to third parties fell 16.0% in 1998 to
E2,685 million from E3,198 million in 1997. This decrease was almost entirely
attributable to the 33% drop in average crude oil prices in 1998 as compared to
1997. In 1998, the average crude oil price for U.K. Brent quality crude oil per
barrel was $12.72 as compared to $19.09 in 1997.
A further decline in sales to third parties was due to a scheduled overhaul
of BASF's refinery in Lingen, Germany. These effects, however, were partially
offset by increased oil production and by slightly higher revenues in the
natural gas distribution and trading activities.
Sales in the oil and natural gas exploration and production business
declined 27.1% in 1998 to E774 million from E1,062 million in 1997, almost
entirely due to the drop in crude oil prices, which was partially offset by
higher volumes of oil production. Volumes increased 9.6% in 1998 to 64.9 million
barrels of oil equivalent from 59.2 million barrels of oil equivalent in 1997.
The drop in crude oil prices in 1998 was triggered by a world-wide increase
in oil inventory levels, resulting from high production levels, coupled with a
decrease in demand for oil due to the economic crises in Asia, Russia and to a
lesser extent, South America.
In 1998 Wintershall and its joint venture partners in Deminex - VEBA Oel AG
and RWE-DEA Aktiengesellschaft fur Mineraloel und Chemie of Germany - agreed to
terminate the Deminex joint venture and to divide the constituent parts among
the partners. The principal reason for the dissolution was to allow the partners
in the joint venture to control their own exploration and production operations
and to manage costs more effectively in the increasingly competitive exploration
and production business. By taking over Deminex's gas operations in Argentina,
Wintershall added 746 BSCF to its total natural gas reserves.
Sales in the oil marketing and refinery business decreased by 16.2% in 1998
to E959 million from E1,144 million in 1997. This decrease was due to an
approximately 10% decrease in prices for the refinery products and a scheduled
overhaul of BASF's refinery in Lingen, Germany.
Sales from natural gas distribution and trading increased 1.5% in 1998 to
E914 million from E900 million, reflecting an increase in sales volume of 19.8%
in 1998 to 473.4 billion cubic feet from 395.0 billion cubic feet in 1997. This
increase was almost entirely offset by a decline in prices linked to the drop in
crude oil prices.
Royalties increased 15.9% in 1998 to E204 million from E176 million in 1997
due to the higher production level. Income from operations in the Oil & Gas
segment decreased by 41.7% in 1998 to E276 million from E473 million in 1997,
primarily as a result of the sharp decline of crude oil prices in 1998.
Assets in the Oil & Gas segment increased by 4.8% in 1998 to E2,622 million
from E2,503 million in 1997 primarily due to the expansion of the natural gas
pipeline system and capital expenditures for oil and gas exploration and
development activities in the key areas of Germany and North Africa/Middle East.
Further additions resulted from the expansion of the underground natural gas
storage in Rehden, Germany
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and from projects that improved the efficiency of the refinery in Lingen,
Germany. See "Item 1. Oil & Gas" for more information about BASF's natural gas
distribution and trading operations, oil and gas exploration, production and
refining activities.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth the summarized cash flows of BASF in each of
the last three fiscal years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
STATEMENTS OF CASH FLOW -------- -------- --------
<S> <C> <C> <C>
Net income.............................................. E 1,654 E 1,699 E 1,237
Depreciation of fixed assets............................ 2,057 2,289 2,690
Changes in net current assets........................... (412) 181 172
Miscellaneous items..................................... (8) (425) (844)
------- ------- -------
CASH PROVIDED BY OPERATING ACTIVITIES................... E 3,291 E 3,744 E 3,255
Additions to tangible and intangible fixed assets....... (2,480) (2,722) (2,939)
Acquisitions and divestitures, net...................... (363) (760) 696
Financial investments and other items................... 223 255 144
------- ------- -------
CASH USED IN INVESTING ACTIVITIES....................... E(2,620) E(3,227) E(2,099)
Proceeds from capital increases......................... 63 27 (176)
Changes in financial indebtedness....................... 2 (95) (95)
Dividends paid.......................................... (519) (630) (697)
------- ------- -------
CASH USED IN FINANCING ACTIVITIES....................... E (454) E (698) E (968)
Changes in cash assets affecting liquidity.............. 217 (181) 188
Initial cash assets and other changes................... 626 938 802
------- ------- -------
CASH AND CASH EQUIVALENTS AT YEAR END................... E 843 E 757 E 990
</TABLE>
1999 COMPARED WITH 1998
Cash from Operating Activities
The primary source of liquidity for BASF in 1999 and 1998 was cash provided
by operating activities. Cash from operations decreased 13.1% in 1999 to E3,255
million from E3,744 million in 1998. The cash outflow in 1999 from the change in
receivables and inventories was E1,545 million, while in 1998 there was a cash
inflow from the change in receivables and inventories of E430 million. The cash
outflow in 1999 was more than offset by cash inflows from an increase of E1,717
million in accounts payable, trade and other accrued liabilities. In 1999, cash
generated from operating activities included E299.1 million from the sale of
accounts receivable.
Investing Activities
Total capital investments, including acquisitions and investments in
financial assets, decreased 13.4% in 1999 to E4,214 million from E4,868 million
in 1998.
Cash used for investing activities, after deducting income from
divestitures, decreased 35.0% to E2,099 million from E3,227 million in 1998. As
discussed below, this decrease was primarily due to higher proceeds from
divestitures and significantly lower spending for acquisitions, partially offset
by the higher capital expenditures on tangible and intangible fixed assets. The
additions to tangible and intangible assets included:
- plant construction in the Chemicals segment,
- plant construction and acquisitions in the Plastics & Fibers segment,
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- plant construction in the Colorants & Finishing Products segment,
- plant construction in the Crop Protection segment, and
- natural gas pipeline expansions and expenditures on oil and gas
exploration in the Oil & Gas segment.
Capital expenditures on tangible and intangible fixed assets rose 8.0% in
1999 to E2,939 million from E2,722 million in 1998. Further additions of E397
million were the result of acquisitions in 1999 as compared to E969 million in
1998.
Spending in Europe in 1999 accounted for 60% of total spending compared
with 56% in 1998. In North America, spending rose to 34% of total capital
expenditures compared with 29% in 1998. In the Asia, Pacific Area, Africa
region, spending declined to 4% of total capital expenditures compared with 6%
in 1998. Spending in South America remained generally unchanged at 2%.
In the Chemicals segment, capital expenditures rose 30.0% to E763 million
in 1999 compared with E587 million in 1998. Capital expenditures included:
- the start-up of a new acetylene plant in Geismar, Louisiana;
- the ongoing construction of a steamcracker with BASF's partner,
TotalFinaElf S.A., in Port Arthur, Texas;
- the completion of the aromatics extraction unit within BASF's
steamcracker in Antwerp, Belgium;
- the expansion of production sites for formaldehyde, butanediols and
optically active intermediates in Ludwigshafen, Germany;
- the start-up of a new butanediol/tetrahydrofurane plant in Ulsan,
Korea;
- expanding capacities of methylamines and butylamines in Ludwigshafen,
Germany;
- expanding capacities of ethylamines in Antwerp, Belgium; and
- expanding capacities of polytetrahydrofurane in Geismar, Louisiana.
Capital contributions made for the construction of production plants to
manufacture syngas, oxo alcohols, phtalic anhydride and plasticizers at the
Verbund site in Kuantan, Malaysia are not included in these capital
expenditures.
In the Plastics & Fibers segment, capital expenditures rose 33.8% to E998
million in 1999 compared with E746 million in 1998. The main additions to
tangible assets in 1999 were as follows:
Europe
- Construction of a new TDI (toluene diisocyanate) plant in
Schwarzheide, Germany.
- Expansion of production capacity for PBT (polybutylene terephthalate)
in Schwarzheide, Germany for BASF's joint venture with GE Plastics.
- Streamlining polyethylene production and construction of a new plant
for PE-HD (high-density polyethylene) in Wesseling, Germany, for the
BASF's polyolefins operations (through the Elenac joint venture).
- Construction of a new plant for PE-LD (low-density polyethylene) in
Berre, France (through the Elenac joint venture).
- Expansion of the production capacities of the polyether polyols plant
in Antwerp, Belgium.
- Expansion of the nylon 6 polymerization unit in Antwerp, Belgium.
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North and South America
- Expansion of production sites for compounding engineering plastics in
Wyandotte, Michigan.
- Expansion of the caprolactam plant in Freeport, Texas.
- Construction of an additional plant to manufacture MDI
(diphenylmethane diisocyanate) in Geismar, Louisiana.
- Construction of a new styrene copolymers plant in Altamira, Mexico
Asia
- Construction of new compounding sites in Pasir Gudang, Malaysia.
- Expansion of the polystyrene plant in Nanjing, China for BASF's joint
venture, Yangzi-BASF Styrenics.
Not included are the capital contributions made to BASELL Eastern,
Singapore, a joint venture between BASF and Shell, for the construction of
production sites to manufacture styrene and propylene oxide in the Engineering
Plastics division.
In the Colorants & Finishing Products segment, capital expenditures
decreased by 6.9% in 1999 to E324 million from E348 million in 1998. The major
projects concluded or initiated were as follows:
Europe
- Construction of new plants for the manufacture of polymer dispersions
in Ludwigshafen, Germany.
- Construction of new plants for the manufacture of vinylformamide and
polyvinylamines for paper chemicals in Ludwigshafen, Germany.
- Expansion of capacities to manufacture yellow pigments in
Ludwigshafen, Germany.
North and South America
- Expansion of the production capacity to manufacture acrylate and
styrene/butadiene dispersions in Monaca, Pennsylvania.
- Construction of a new powder coatings production plant in Morganton,
North Carolina.
- Construction of a new plant to manufacture paper dyes in Altamira,
Mexico.
- Construction of a new plant to manufacture butyl acrylate in
Guaratingueta, Brazil.
Asia
- Construction of a new plant to manufacture acrylate dispersions in
Shanghai, China.
Not included are the capital contributions of E153 million made to BASF
Petronas for the construction of the acrylate complex at the Verbund site in
Kuantan, Malaysia.
In the Pharmaceuticals segment, capital expenditures decreased to E115
million from E169 million in 1998. Capital expenditures consisted of modernizing
and expanding pharmaceutical manufacturing plants.
In the Fine Chemicals segment, capital expenditures decreased to E73
million from E586 million in 1998. Capital expenditures included expanding
production capacities for the citral and Lysmeral(R) fragrances, the expansion
of the production capacity for cartenoids and the construction of a new plant
for the ultraviolet light absorber, Uvinul(R).
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In the Crop Protection segment, capital expenditures decreased to E93
million from E247 million in 1998. The major capital expenditures included:
- the start-up of a new production plant for the formulation of
fungicides in Tarragona, Spain;
- the start-up of a production plant to manufacture a precursor for a
new grass herbicide in Ludwigshafen, Germany;
- the construction of production facilities to manufacture a new rice
herbicide in Ludwigshafen, Germany; and
- the construction of a production plant to manufacture a precursor for
strobilurin fungicides in Ludgwigshafen, Germany.
In the Oil & Gas segment, capital expenditures rose 3.8% to E524 million
from E505 million in 1998, primarily due to the completion of the JAGAL gas
connection line that links Russian gas reserves from the Yamal peninsula in
Siberia to WINGAS's pipeline network system in Western Europe and to
expenditures for oil and gas exploration in Germany, North Africa/Middle East
and Argentina.
See "Item 1. Description of Business" and "Item 9. Management's Discussion
and Analysis of Financial Condition and Results of Operations - Results of
Operations" for more information on individual projects.
In 1999, proceeds from divestitures were E1,094 million resulting primarily
from the sale of the oil marketing and refinery business and the sale of the
COMPO(R) specialty fertilizers business.
See "Item 1. Description of Business" and "Item 9. Management's Discussion
and Analysis of Financial Condition and Results of Operations - Results of
Operations" for more information on these divestitures.
Proceeds from the sale of financial assets and securities amounted to E980
million in 1999. Cash used for investments in financial assets and securities
was E878 million, resulting in an excess cash inflow in 1999 of E102 million.
The investments in financial assets included the acquisition of a 40% ownership
stake in the Swedish seed company Svalof Weibull AB, within the Crop Protection
segment as well as capital contributions of E153 million to the joint venture
BASF Petronas Chemicals Sdn. Bhd Malaysia/ BASF Services Malaysia for the
Verbund site in Kuantan, Malaysia.
Further proceeds were realized from the sale of tangible and intangible
fixed assets of E42 million compared to E92 million in 1998.
Financing Activities
Financing activities resulted in a cash outflow of E968 million in 1999, an
increase of E270 million compared to 1998. The increase was primarily
attributable to BASF's share buy back program which accounted for E256 million
of this amount. The exercise of warrants from the 3% U.S. Dollar Option Bonds of
BASF Finance Europe 1986/2001 led to a cash inflow of E80 million. Dividend
payments to BASF shareholders amounted to E693 million as compared to E537
million in 1998. Dividends per share in 1999 were E1.13, compared with E1.12 in
1998.
The cash outflow from the repayment of financial indebtedness exceeded the
cash inflow from additional financial indebtedness by E95 million in 1999. A
major component of the repayment was the redemption of the 7% U.S. Dollar Bonds
of BASF Finance Europe 1992/1999 with a value of $200 million.
Total financial indebtedness for 1999 amounted to E1,294 million, a
decrease of 1.7% compared to 1998. Approximately 55.4% of the financial
indebtedness was denominated in U.S. dollars in 1999, compared to 59% in 1998.
Approximately 14.2% was denominated in Chinese renminbi, compared to 12.2% in
1998. Approximately 9.3% was denominated in euros, compared to 15.2% in 1998.
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Short-term borrowing accounted for 27.8% of total liabilities and equity in
1999 compared with 24.6% in 1998.
At the end of 1999, BASF had E497 million in unused credit lines. The
credit lines are cancelable at the option of either the bank or BASF. In
addition, to support BASF's anticipated level of commercial paper issuances,
various banks have committed backup lines of credit in the amount of E719
million for BASF's global commercial paper program, which was established in
July 1999 and allows BASF to issue commercial paper in an amount up to US$2.3
billion. BASF can also draw on these lines when there is no commercial paper
outstanding.
Cash and Cash Equivalents
The decrease of cash used in investing activities, which was partially
offset by a decrease in cash from operating activities and an increase of each
used for financing activities, led to an increase of E188 million in cash and
cash equivalents.
Marketable securities decreased to E518 million in 1999 from E745 million
in 1998. Total liquid funds increased to E1,508 million in 1999 from E1,503
million in 1998. Their share of total assets was 5.0% in 1999, compared to 5.6%
in 1998.
Commitments for Investments
At the end of 1999, BASF planned to spend about E2.5 billion on investments
during 2000. BASF plans to maintain spending at 2000 levels during 2001. Funds
are to be used to build new production plants and to expand existing production
sites. See "Item 1. Description of Business" for further information on these
projects. The Chemicals segment accounts for the largest share of capital
expenditures.
Major commitments for capital expenditures by segment in 2000 are as
follows:
Chemicals
- Ongoing construction of a steamcracker in Port Arthur, Texas.
- Construction of a new propylene plant in Tarragona, Spain.
- Construction of new plants to manufacture hexanediol and caprolactone
in Freeport, Texas.
- Ongoing construction of new oxo alcohols and plasticizers production
sites in Kuantan, Malaysia.
- Additional capacity for the production of surfactants in Geismar,
Louisiana.
- Additional capacity for butanediol in Ludwigshafen, Germany.
- Additional capacity for neopentylglycol in Freeport, Texas.
- Additional capacity for ethylene oxide and glycols in Geismar,
Louisiana.
Colorants & Finishing Products
- Ongoing construction of plants for acrylic acid in Kuantan, Malaysia.
- Construction of a new plant for superabsorbents in Antwerp, Belgium.
- Construction of a new plant for vinylformamid in Ludwigshafen,
Germany.
- Ongoing activities to add capacity for dispersions in Ludwigshafen,
Germany.
Plastics & Fibers
- Additional capacity for the production of MDI in Geismar, Louisiana.
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- Construction of a new plant for polyethylene in Berre, France.
- Construction of a new plant for polyethylene in Wesseling, Germany.
- Construction of a new plant for polypropylene in Tarragona, Spain.
- Ongoing construction of a new plant for propylene oxide and styrene in
Singapore.
- Additional capacity for the production of TDI in Schwarzheide,
Germany.
- Construction of a new plant for the production of TDI in Geismar,
Louisiana.
- Construction of new plants to manufacture ethylbenzene and styrene in
Ludwigshafen, Germany.
- Additional capacity for ethylbenzene in Antwerp, Belgium.
- Construction of new plants for nylon 6 in Ludwigshafen, Germany.
- Expansion of EPS (expandable polystyrene) production capacity in
Guaratingueta, Brazil.
- Additional capacity for the production of HIPS in Sao Jose dos Campos,
Brazil.
- Construction of a new plant for TDI in Yosu, Korea.
- Additional capacity for the production of MDI in Yosu, Korea.
- Additional capacity for the production of polyether polyols in Ulsan,
Korea.
Crop Protection
- Construction of new production sites to manufacture a new fungicide
from the strobilurin class of active ingredients in Schwarzheide,
Germany.
Oil & Gas
- Expansion of pipelines, especially the JAGAL gas connection line, that
links Russian gas reserves from the Yamal peninsula in Siberia to
WINGAS's pipeline network system in Western Europe.
- Participation in the construction of the Cruz del Sur pipelines,
connecting Buenos Aires, Argentina to Montevideo, Uruguay.
- Participation in the exploration of the first German offshore gas
field in the German sector of the North Sea.
In addition to the above described projects, further commitments include
the replacement of tangible assets, the restructuring of related investments and
additions to existing capacities in the normal course of BASF's businesses.
On March 31, 2000, BASF announced that it signed an agreement to acquire
the crop protection business of American Home Products Corporation for about
$3.8 billion. BASF estimates that goodwill related to this acquisition will be
in excess of $2 billion, which will be amortized over a period not longer than
20 years. This estimate may change after the final allocation of the purchase
price. See further discussion on the acquisition of the crop protection business
in "Item 1. Description of Business - Health & Nutrition: Crop Protection."
BASF expects that cash flow from operations will continue to be the primary
source of funds for capital expenditures and working capital requirements. BASF
believes that its cash flow and available liquid assets will be sufficient to
meet its anticipated cash needs. BASF would meet any temporary additional
funding needs by issuing commercial paper or utilizing other short-term funding
sources. In this respect, a global commercial paper program has been established
in July 1999 which allows BASF to issue commercial paper in an amount up to $2.3
billion. BASF would meet additional long-term funding needs
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by utilizing long-term funding sources such as the issuance of corporate bonds.
In addition, at the Annual Meeting on April 29, 1999, BASF shareholders
authorized the Board of Executive Directors to increase the subscribed capital
of BASF by up to E500 million with the issuance of new shares. See Note 18 to
Consolidated Financial Statements for further information. BASF has no current
plans to issue new shares. On March 8, 2000, BASF Aktiengesellschaft announced
its intention to buy back BASF Shares over the course of the following months
for a total purchase price of up to E2 billion, which could result in a buy-
back of approximately 7% of the outstanding BASF Shares based on a purchase
price of E44.30 per share.
1998 COMPARED WITH 1997
Cash from Operating Activities
The primary source of liquidity for BASF in 1998 and in 1997 was cash
provided by operating activities. Cash from operations rose 13.8% in 1998 to
E3,744 million from E3,291 million in 1997. The cash inflow in 1998 from the
change in receivables and inventories was E430 million, while the cash outflow
from changes in receivables and inventories was E837 million in 1997. The cash
inflows in 1998 were partially offset by cash outflows from a reduction of
accounts payable, trade, and other accrued liabilities.
Investing Activities
Total capital investments, including acquisitions and investments in
financial assets, rose 25.0% in 1998 to E4,868 million from E3,895 million in
1997.
Cash used for investing activities increased 23.2% in 1998 to E3,227
million from E2,620 million in 1997. As discussed below, this increase was
principally due to additions to financial assets and securities and to tangible
and intangible fixed assets, including:
- plant construction in the Chemicals segment,
- plant construction and acquisitions in the Plastics & Fibers segment,
- plant construction and acquisitions in the Colorants & Finishing
Products segment,
- acquisitions in the Fine Chemicals and Crop Protection segments, and
- natural gas pipeline and storage site expansions in the Oil & Gas
segment.
Capital expenditures on tangible and intangible fixed assets rose 9.8% in
1998 to E2,722 million from E2,480 million in 1997. Further additions of E969
million were the result of acquisitions.
Spending in Europe in 1998 accounted for 56% of total spending compared
with 59% in 1997. Spending in the NAFTA region remained steady at 33%, but
spending in the Asia-Pacific/Africa region rose to 9% of total capital
expenditures compared with 6% in 1997. Spending in South America remained
unchanged at 2%.
BASF increased capital expenditures in 1998 for all segments.
In the Chemicals segment, capital expenditures rose 19.8% to E587 million
in 1998 compared with E490 million in 1997. Major projects in 1998 included:
- the construction of a steamcracker in Port Arthur, Texas, with BASF's
partner TotalFinaElf;
- the construction of an acetylene production plant in Geismar,
Louisiana;
- the construction of a new site for the production of
polytetrahydrofuran and butanediol in Ulsan, Korea; and
- the expansion of oxo alcohol production in Freeport, Texas.
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In the Plastics & Fibers segment, capital expenditures rose 10.8% to E746
million in 1998 compared with E673 million in 1997. The additions to tangible
assets in 1998 included:
- plants for the production of styrenic polymers and engineering
plastics in Joliet, Illinois, and Ulsan, Korea;
- the start-up of a complete styrene value-added chain in Nanjing,
China, with BASF's joint venture partner Yangzi Petrochemicals;
- the acquisition of Hoechst's polyethylene business by Elenac, the
joint venture with Shell Petroleum N.V., and the acquisition of the
50% holding of Hyosung T&C Co. Ltd. in the joint venture Hyosung BASF
Co. Ltd., which is now known as BASF Company Ltd., Korea; and
- the construction of a new production plant for the production of
ABS/ASA (acrylonitrile-
butadiene-styrene/acrylonitrile-styrene-acrylate) in Altamira, Mexico.
In the Colorants & Finishing Products segment, capital expenditures rose
35.9% to E348 million from E256 million in 1997. The main capital expenditures
in 1998 included:
- the expansion of the production of dispersions in Ludwigshafen,
Germany;
- the start-up of a new plant for 2-ethylhexyl acrylate in Freeport,
Texas; and
- the acquisition of Clariant's superabsorbents business.
In the Health & Nutrition business segment, capital expenditures rose
151.8% to E1,002 million from E398 million in 1997. This large increase was
primarily due to the Fine Chemicals segment's acquisition of the lysine business
of Daesang and the Crop Protection segment's acquisition of a majority interest
in Micro Flo Co., Florida. Further expenditures in 1998 included those for the
expansion of the production of carotinoides in Ludwigshafen, Germany.
In the Oil & Gas segment, capital expenditures rose 56.8% to E505 million
from E322 million in 1997, primarily as a consequence of the enlargement of the
natural gas pipeline system and storage sites in Rehden, Germany. In 1998, the
second section of the west German connection line (WEDAL) from Soest to Aachen
became operational. The extension of the gas line connecting the Yamal peninsula
in Siberia to Western Europe went ahead.
See "Item 1. Description of Business" and "Item 9. Management's Discussion
and Analysis of Financial Condition and Results of Operations - Results of
Operations" for more information on individual projects.
After deducting the proceeds from divestitures primarily in the Colorants &
Finishing Products segment and the sale of a 35% stake in Comparex
Informationssysteme GmbH, BASF spent about E760 million on acquisitions in 1998
compared to E364 million in 1997.
Proceeds from the sales of financial assets and securities amounted to
E1,341 million in 1998. Cash used for investments in financial assets and
securities was E1,177 million, resulting in an excess cash inflow in 1998 of
E164 million. The investments in financial assets included the acquisition in
the Colorants & Finishing Products segment of the Italian industrial coatings
manufacturers Salchi Spa and capital contributions to the joint venture BASF
Petronas Chemicals Sdn. Bhd., Malaysia, with Petronas to finance the
construction of the acrylic acid and acrylate complex in Kuantan, Malaysia. They
further relate to the Explorations- und Produktionsbeteiligungsgesellschaft of
Wintershall mbH, which was established in connection with the split-up of
Deminex and which took over Deminex's former operations in Argentina
(Wintershall Energia S.A.). In 1997, cash used for investments in financial
assets and securities was E954 million and cash generated from the sale of such
items was E1,067 million, resulting in an excess cash inflow of E114 million.
Further proceeds were realized from the sale of tangible and intangible fixed
assets of E92 million in 1998 and E109 million in 1997.
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Financing Activities
Financing activities resulted in an outflow of E698 million in 1998, an
increase of E244 million from 1997. The increase was primarily attributable to
dividend payments to shareholders, which amounted to E636 million in 1998
compared to E537 million in 1997. Dividends per share in 1998 were E1.12, an
increase for the fifth consecutive year, compared with E1.02 in 1997.
The cash outflow from the repayment of financial indebtedness exceeded the
cash inflow from additional financial indebtedness by E95 million in 1998. A
major component of the repayment was the redemption of Eurobonds by BASF S.A.
Brazil.
Total financial indebtedness for 1998 amounted to E1,316 million, an
increase of E190 million compared to 1997. The increase resulted from the
inclusion of additional companies domiciled in China and Korea in the scope of
consolidation. Approximately 59% of the financial indebtedness was denominated
in U.S. dollars in 1998 compared to 68% in 1997. Short-term borrowing accounted
for 24.6% of total liabilities and equity in 1998 compared with 26.1% in 1997.
At the end of 1998, BASF had E670 million in unused credit lines. The
credit lines are cancelable at the option of either the bank or BASF.
Cash and Cash Equivalents
The 1998 increase in cash outflows from operating and financing activities
led to a decline in cash and cash equivalents. Additional cash resulted from the
addition to consolidations mentioned above. Cash equivalents at the end of 1998
were E85 million lower than in 1997.
Marketable securities decreased to E745 million in 1998 from E1,003 million
in 1997. Total liquid funds decreased E343 million to E1,503 million. Their
share of total assets was 5.6% in 1998 compared to 7.5% in 1997.
Commitments for Investments
At the end of 1998, BASF planned to spend about E2.7 billion on investments
during 1999. BASF plans to maintain spending at 1999 levels during 2000. Funds
are to be used to build new production plants and to expand existing production
sites. See "Item 1. Description of Business" for further information on these
projects. The Chemicals segment accounts for the largest share of capital
expenditures.
Major commitments for capital expenditures by segment in 1999 are as
follows:
Chemicals
- Ongoing construction of a steamcracker in Port Arthur, Texas.
- Construction of a new propylene plant in Tarragona, Spain.
- Ongoing construction of a new acetylene production plant in Geismar,
Louisiana.
- Construction of new oxo alcohols and plasticizers production sites in
Kuantan, Malaysia.
- Ongoing construction of a new butanediol production plant in Ulsan,
Korea.
- Additional capacity for butanediol in Ludwigshafen, Germany, and
Ulsan, Korea.
- Construction of new production sites for MDI-precursors in Geismar,
Louisiana.
- Additional capacity for ethylene oxide and glycols in Geismar,
Louisiana and in Antwerp, Belgium.
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Colorants & Finishing Products
- Ongoing construction of plants for acrylic acid in Kuantan, Malaysia.
- Ongoing activities to add capacity for dispersions in Ludwigshafen,
Germany.
Plastics & Fibers
- Ongoing construction of a production plant for ABS in Altamira,
Mexico.
- Additional capacity for the production of MDI in Geismar, Louisiana.
- Ongoing construction of a propylene oxide plant in Moerdijk, the
Netherlands.
Oil & Gas
- Expansion of pipelines, especially the JAGAL gas connection line, that
links Russian gas reserves from the Yamal peninsula in Siberia to
WINGAS's pipeline network system in Western Europe.
In addition to the above described projects, further commitments include
the replacement of tangible assets, the restructuring of related investments and
additions to existing capacities in the normal course of BASF's businesses.
BASF expects that cash flow from operations will continue to be the primary
source of funds for capital expenditures and working capital requirements. BASF
believes that its cash flow and available liquid assets will be sufficient to
meet its anticipated cash needs. BASF would meet any temporary additional
funding needs by issuing commercial paper or utilizing other short-term funding
sources. BASF would meet additional long-term funding needs by utilizing
long-term funding sources such as the issuance of corporate bonds. In addition,
at the Annual Shareholders Meeting on April 29, 1999, BASF shareholders
authorized the Board of Executive Directors to increase the subscribed capital
of BASF by up to E500 million with the issuance of new shares. See Note 18 to
Consolidated Financial Statements for further information. BASF has no current
plans to issue new shares.
EXCHANGE RATE EXPOSURE AND RISK MANAGEMENT
BASF transacts its business in many currencies other than the German mark
and the euro. Although about 24% BASF's 1999 sales, about 25% of 1998 sales and
about 26% of 1997 sales were to customers in Germany, about 42% of 1999 sales,
about 40% of 1998 sales and 39% of 1997 sales were to customers outside Europe.
Moreover, about 35% of BASF's 1999 sales, about 33% of 1998 sales and about 30%
of 1997 sales were attributable to BASF operations conducted outside Europe.
As a result of BASF's foreign currency exposure, exchange rate fluctuations
have a significant impact in the form of both translation risk and transaction
risk on BASF's Consolidated Financial Statements. Translation risk is the risk
that BASF's Consolidated Financial Statements for a particular period or as of a
certain date may be affected by changes in the prevailing rates of the various
currencies of the reporting subsidiaries against the German mark and the euro.
Transaction risk is the risk that the currency structure of BASF's costs and
liabilities deviates to some extent from the currency structure of BASF's sales
proceeds and assets.
The effect of exchange rate fluctuations on BASF's income from operations
for 1999, 1998 and 1997 is shown in BASF's Consolidated Financial Statements
under the line items "other operating income" and "other operating expense." See
Note 5 to the Consolidated Financial Statements for further information. The net
effect of exchange rate fluctuations on BASF's income from operations amounted
to a net gain of E36.7 million in 1999, a net loss of E164.1 million in 1998 and
a gain of E50.1 million in 1997, of which a gain of E20.7 million in 1999, a
loss of E153.1 million in 1998 and a gain of E7.8 million in 1997 relate to
fluctuations. The difference between 1999 and 1998 was primarily due to the
higher U.S. dollar in comparison to the German mark. The difference between 1998
and 1997 was due primarily to a sharp
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decline in 1998 of various currencies in South America, especially the Brazilian
real, for which a provision was made in 1998, and in Asia, especially the Korean
won. The weakening of the U.S. dollar in 1998 as compared to 1997 also
contributed to the change in the effect of exchange rate fluctuations on BASF's
income from operations.
Foreign currency translation adjustments had a positive effect of E509.8
million on stockholders' equity in 1999 primarily due to the strengthening of
the U.S. dollar and the Japanese yen in 1999 compared to 1998. Foreign currency
translation adjustments had a negative effect of E160.8 million on stockholders'
equity in 1998 primarily due to the weakening U.S. dollar in 1998.
Exchange rate risk management is centralized at BASF Aktiengesellschaft and
is conducted by BASF divisions designated for this purpose. BASF bases its
foreign exchange risk management generally on exposures derived from receivables
and payables already accounted for. Planned sales revenues or expenses are only
considered if such data is based on fixed contracts. To calculate the exchange
rate exposure in a particular currency, receivables and payables are netted
first. Generally receivables exceed payables resulting in substantial net
exposures in U.S. dollars, the British pound and the Japanese yen.
To mitigate the impact of currency exchange rate fluctuations, the
remaining exposure to currency risk is assessed on a daily basis. BASF applies a
selective hedging strategy in that a varying portion of the exposure in each
currency is hedged based on forecasts of the exchange rate development versus
the euro. In this respect, forward exchange contracts with a term of several
weeks to six months or currency options with a term of usually one month are
concluded to match the term of the hedging instruments with the term of the
underlying positions.
In 1999, BASF's hedging transactions have been aimed primarily at
minimizing exchange rate risks against the U.S. dollar, the British pound, the
Japanese yen, the Singapore dollar and the Mexican peso. See "Item 9A.
Quantitative and Qualitative Disclosure About Market Risk" and Note 26 to the
Consolidated Financial Statements for further information.
EURO INTRODUCTION
On January 1, 1999, the euro was introduced in 11 member states of the
European Union (including Germany) participating in the European Monetary Union
as a common legal currency alongside the national currencies (so-called "legacy
currencies") of the participating countries.
The conversion rates between the euro and the legacy currencies are
irrevocably fixed. From January 1, 1999 through January 1, 2002, the
participating countries are also scheduled to maintain their legacy currencies
as legal tender for goods and services. Beginning January 1, 2002, new
euro-denominated bills and coins will be issued, and legacy currencies must be
withdrawn from circulation no later than July 1, 2002.
In the second half of 1995, BASF began coordinating preparations for the
introduction of the euro. To this end, a European Steering Committee was
established and several company task forces examined the planning, coordination
and implementation of all measures that would be necessary for a successful
change from the legacy currencies to the euro.
The multi-currency capability of BASF's financial accounting systems
enabled euro-denominated transactions as of January 1, 1999, giving BASF the
flexibility to conduct business transactions with customers and suppliers in
euros, if requested. All BASF transactions in money and capital markets as well
as foreign exchange transactions have been effected in euros as of January 4,
1999. During this parallel currency phase, the euro is treated as if it were a
foreign currency in BASF's financial accounting systems. BASF began presenting
its financial statements in euros with effect from January 1, 1999.
BASF's transition from the German mark to the euro in all accounting
systems and records took place in April 2000 with retroactive application as of
January 1, 2000. As of that date and until June 30, 2002, at the latest, the
German mark will be treated like a foreign currency within BASF's financial
accounting systems.
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BASF believes that the introduction of the euro will reduce its cost of
bearing foreign currency exchange risk and will diminish the uncertainties
relating to currency fluctuations from export sales within the European Monetary
Union.
The foreign currency exposure from transactions in U.S. dollar or Japanese
yen or other currencies outside the European Monetary Union will not be changed
by the introduction of the euro and will depend on actual exposure at the time
of risk assessment.
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ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
BASF is exposed to foreign currency and interest rate risks during the
normal course of business. In cases where BASF intends to hedge against these
risks, financial derivatives are used, including forward exchange contracts,
currency options, interest rate/currency swaps or combined instruments. In
addition, derivative instruments are used to replace transactions in original
financial instruments, such as shares or fixed-interest securities.
Exclusive use is made of commonly used instruments with sufficient market
liquidity. Derivative financial instruments are only used if they have
corresponding underlying positions arising from the operating business, cash
investments and financing. The leverage effect that can be achieved with
derivatives is deliberately not used. The derivative instruments held by BASF
are solely held for purposes other than trading.
Where financial derivatives have a positive market value, BASF is exposed
to credit risks in the event of non-performance of their counterparts. The
credit risk is minimized by exclusively trading contracts with major
creditworthy financial institutions.
To ensure efficient risk management, market risks are centralized at BASF
Aktiengesellschaft and BASF Group companies designated for this purpose. BASF
has developed and implemented internal guidelines based on the principles of
separation of functions for the completion and execution of derivative
instruments.
The risks arising from changes in exchange rates and interest rates as a
result of the underlying transactions and the derivative transactions concluded
to secure them are monitored constantly. For this purpose, market quotations or
computer or mathematical models are used to determine the current market values
not only of the underlying transactions but also of the derivative transactions
and these are compared with each other. Where derivative instruments are
completed as replacement for original financial instruments, market trends are
also monitored constantly.
INTEREST RATE RISK MANAGEMENT
BASF holds a variety of interest rate sensitive financial instruments to
manage the liquidity and cash needs of its operations. Financial liabilities
mostly consist of bank loans (60% of financial liabilities), which BASF group
companies worldwide took up from numerous local banks in their various home
currencies. Additionally fixed-rate U.S. dollar bonds are outstanding (18% of
financial liabilities) as well as a number of variable and fixed-rate U.S.
dollar-denominated industry and environmental bonds with a preferred tax status
in the United States (17% of total liabilities). The remaining debt consists of
a number of other bonds or commercial paper (5% of financial liabilities).
In addition to the interest rate risk exposure resulting from financial
liabilities described above, BASF entered into a number of interest derivatives,
combined interest/currency derivatives or combined interest/ equity derivatives
with banks. In most cases BASF is obliged to pay a fixed rate in a foreign
currency and receives a variable rate in German marks. Such swaps were concluded
to optimize the internal financing of group companies worldwide and to offer the
internal parties the desired credit terms and cash flows. BASF also entered into
swap contracts for which BASF pays a quarterly variable rate and receives a
positive Equity Index performance. Such instruments are described in greater
detail under "Other Derivatives."
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<PAGE> 160
The following information on debt is presented in euro (E) equivalents,
which is BASF's reporting currency.
INTEREST RATE RISK MANAGEMENT
PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY
INTEREST RATE -- DECEMBER 31, 1998
<TABLE>
<CAPTION>
FAIR VALUE
1999 2000-2003 THEREAFTER TOTAL DECEMBER 31, 1998
----- --------- ---------- ------- -----------------
<S> <C> <C> <C> <C> <C>
DEBT, INCLUDING CURRENT PORTION
U.S. DOLLAR (USD)
Fixed rate...................................... 156.3 200.1 14.4 370.7 362.4
Weighted avg. interest rate (fixed)............. 7.0% 3.1% 7.3%
Variable rate................................... 142.9 89.5 174.1 406.5 406.5
Interest rate (variable)........................ 5.4% 6.9% 4.7%
SUBTOTAL........................................ 777.2 768.9
EURO (EUR)
Variable rate................................... 116.3 42.6 40.8 199.8 199.8
Interest rate (variable)........................ 3.4% 3.2% 8%
SUBTOTAL........................................ 199.8 199.8
CHINESE RENMINBI (CNY)
Variable rate................................... 114.5 14.1 31.0 159.6 159.6
Interest rate (variable)........................ 7.7% 7.6% 9.3%
SUBTOTAL........................................ 159.6 159.6
OTHER CURRENCIES
Fixed rate...................................... 12.1 12.1 12.1
Weighted avg. interest rate (fixed)............. 11.2%
Variable rate................................... 110.0 55.0 2.1 167.1 167.1
Interest rate (variable)........................ 7.0% 10.6% 13.0%
SUBTOTAL........................................ 179.2 179.2
----- ----- ----- ------- -------
TOTAL........................................... 652.1 401.3 262.4 1,315.8 1,307.5
</TABLE>
Fixed rate U.S. dollar debt with a remaining term of more than one to five
years of E200.1 million includes the 3% U.S. Dollar Option Bond 1986/2001 of
BASF Finance Europe N.V. with an amount of E196.8 million due in 2001.
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<PAGE> 161
PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY
INTEREST RATE -- DECEMBER 31, 1999
<TABLE>
<CAPTION>
FAIR VALUE
2000 2001 2002 2003 2004 THEREAFTER TOTAL DECEMBER 31, 1999
----- ----- ----- ---- ---- ---------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEBT, INCLUDING CURRENT PORTION
U.S. DOLLAR (USD)
Fixed rate..................... 101.1 284.1 18.9 13.8 13.6 23.5 455.0 444.3
Weighted avg. interest rate
(fixed)...................... 7.0% 3.8% 7.3% 7.2% 7.1% 6.8%
Variable rate.................. 50.4 4.7 2.3 - - 204.2 261.6 261.6
Interest rate (variable)....... 6.9% 6.6% 6.6% - - 4.8%
SUBTOTAL....................... 716.6 705.9
EURO (EUR)
Fixed rate..................... 45.4 6.1 4.7 4.5 14.6 3.1 78.4 78.4
Weighted avg. interest rate
(fixed)...................... 3.4% 4.8% 4.7% 3.8% 3.9% 1.5%
Variable rate.................. 31.7 4.9 2.0 1.8 1.6 0.6 42.6 42.6
Interest rate (variable)....... 3.3% 3.1% 3.1% 3.1% 3.1% 1.7%
SUBTOTAL....................... 121.0 121.0
CHINESE RENMINBI (CNY)
Fixed rate..................... 141.9 141.9 141.9
Weighted avg. interest rate
(fixed)...................... 6.1%
Variable rate.................. 4.7 26.4 10.9 - - - 42.0 42.0
Interest rate (variable)....... 6.6% 6.3% 6.4%
SUBTOTAL....................... 183.9 183.9
OTHER CURRENCIES
Fixed rate..................... 167.1 43.0 16.4 4.2 0.1 - 230.8 230.8
Weighted avg. interest rate
(fixed)...................... 7.9% 9.6% 12.5% 9.5% 5.5% -
Variable rate.................. 34.9 4.6 - - 2.6 - 42.1 42.1
Interest rate (variable)....... 9.4% 10.6% 2.1%
SUBTOTAL....................... 272.9 272.9
----- ----- ----- ---- ---- ----- ------- -------
TOTAL.......................... 577.2 373.8 55.2 24.3 32.5 231.4 1,294.4 1,283.7
</TABLE>
Fixed rate U.S. dollar debt with a remaining term of more than one to five
years of E330.4 million includes the 3% U.S. Dollar Option Bond 1986/2001 of
BASF Finance Europe N.V. with an amount of E229.2 million due in 2001.
Other currencies at December 31, 1999, in which BASF has issued debt are
primarily the Korean won, the Malaysian ringgit, the Singapore dollar, the
Argentinian peso and the Japanese yen.
The following information on derivatives is presented in euro equivalents,
which is BASF's reporting currency. The instruments' actual cash flows are
denominated in the currencies noted parenthetically.
INTEREST RATE SWAPS -- DECEMBER 31, 1998
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
--------------------------------------------- TOTAL AMOUNT FAIR VALUE
1999 2000 2001 2002 2003 THEREAFTER (EUROS IN MILLIONS) (EUROS IN MILLIONS)
---- ---- ---- ---- ---- ---------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CANADIAN DOLLAR (CAD)
Payer Swap (variable to fixed)..... 6 6 12 (0.2)
Weighted to average pay rate
(fixed).......................... 6.3% 6.7%
Weighted average receive rate
(variable)....................... 5.1% 5.1%
</TABLE>
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INTEREST RATE SWAPS -- DECEMBER 31, 1999
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
--------------------------------------------- TOTAL AMOUNT FAIR VALUE
2000 2001 2002 2003 2004 THEREAFTER (EUROS IN MILLIONS) (EUROS IN MILLIONS)
---- ---- ---- ---- ---- ---------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. DOLLAR (USD)
Payer Swap (variable to fixed)..... 7 141 148 2.03
Weighted to average pay rate
(fixed).......................... 6.7% 7.0%
Weighted average receive rate
(variable)....................... 6.4% 7.2%
</TABLE>
The total volume of interest rate swaps went up from E12 million to E148
million. This was due to a number of new long-term swaps for U.S. dollars with
maturity dates in the years 2009 and 2029.
INTEREST RATE AND CROSS CURRENCY SWAPS -- DECEMBER 31, 1998
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
--------------------------------------------- TOTAL AMOUNT FAIR VALUE
1999 2000 2001 2002 2003 THEREAFTER (EUROS IN MILLIONS) (EUROS IN MILLIONS)
---- ---- ---- ---- ---- ---------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. DOLLAR (USD)/GERMAN MARK (DEM)
Amount payable on maturity (USD)...... 171 171
Amount receivable on maturity (DEM)... 143 143 (2.1)
Weighted average pay rate (fixed,
USD)................................ 7.3%
Weighted average receive rate (fixed,
DEM)................................ 6.8%
Amount payable on maturity (USD)...... 171 171 342 684
Amount receivable on maturity (DEM)... 141 159 308 608 (71.5)
Weighted average pay rate (fixed,
USD)................................ 7.6% 6.7% 5.3%
Weighted average receive rate
(variable, DEM)..................... 3.4% 3.6% 5.1%
Amount payable on maturity (USD)...... 54 68 122
Amount receivable on maturity (DEM)... 59 76 135 11.3
Weighted average pay rate (variable,
USD)................................ 5.6% 5.7%
Weighted average receive rate
(variable, DEM)..................... 3.7% 3.9%
DUTCH GUILDER (NLG)/GERMAN MARK (DEM)
Amount payable on maturity (NLG)...... 5 5
Amount receivable on maturity (DEM)... 6 6 0.5
Weighted average pay rate (fixed,
NLG)................................ 6.2%
Weighted average receive rate (fixed,
DEM)................................ 5.8%
Amount payable on maturity (NLG)...... 5 3 8
Amount receivable on maturity (DEM)... 5 3 8 (0.4)
Weighted average pay rate (fixed,
NLG)................................ 4.8% 6.0%
Weighted average receive rate
(variable, DEM)..................... 3.2% 3.4%
JAPANESE YEN (JPY)/GERMAN MARK (DEM)
Amount payable on maturity (JPY)...... 34 6 40
Amount receivable on maturity (DEM)... 33 6 39 3.0
Weighted average pay rate (fixed,
JPY)................................ 1.8% 2.5%
Weighted average receive rate
(variable, DEM)..................... 3.2% 3.3%
CANADIAN DOLLAR (CAD)/GERMAN MARK
(DEM)
Amount payable on maturity (CAD)...... 11 11
Amount receivable on maturity (DEM)... 11 11 (0.8)
Weighted average pay rate (fixed,
CAD)................................ 6.9%
Weighted average receive rate
(variable, DEM)..................... 3.3%
BRAZILIAN REAL (BRL)/U.S. DOLLAR (USD)
Amount payable on maturity (BRL)...... 33 33
Amount receivable on maturity (USD)... 33 33 0.02
Weighted average pay rate (fixed,
BRL)................................ 16.8%
Weighted average receive rate (fixed,
USD)................................ 10.0%
</TABLE>
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<PAGE> 163
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
--------------------------------------------- TOTAL AMOUNT FAIR VALUE
1999 2000 2001 2002 2003 THEREAFTER (EUROS IN MILLIONS) (EUROS IN MILLIONS)
---- ---- ---- ---- ---- ---------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SPANISH PESETA (ESP)/GERMAN MARK (DEM)
Amount payable on maturity (ESP)...... 6 6
Amount receivable on maturity (DEM)... 6 6 0.5
Weighted average pay rate (fixed,
ESP)................................ 7.7%
Weighted average receive rate (fixed,
DEM)................................ 5.6%
Amount payable on maturity (DEM)...... 24 24
Amount receivable on maturity (DEM)... 24 24 1.6
Weighted average pay rate (fixed,
ESP)................................ 5.5%
Weighted average receive rate
(variable, DEM)..................... 3.5%
</TABLE>
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<PAGE> 164
INTEREST RATE AND CROSS CURRENCY SWAPS -- DECEMBER 31, 1999
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
--------------------------------------------- TOTAL AMOUNT FAIR VALUE
2000 2001 2002 2003 2004 THEREAFTER (EUROS IN MILLIONS) (EUROS IN MILLIONS)
---- ---- ---- ---- ---- ---------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. DOLLAR (USD)/GERMAN MARK (DEM)
Amount payable on maturity (USD)...... 199 64 263
Amount receivable on maturity (DEM)... 143 61 204 (60.63)
Weighted average pay rate (fixed,
USD)................................ 7.3% n.a.
Weighted average receive rate (fixed,
DEM)................................ 6.8% n.a.
Amount payable on maturity (USD)...... 199 199 199 538 1,135
Amount receivable on maturity (DEM)... 141 159 184 494 978 (148.43)
Weighted average pay rate (fixed,
USD)................................ 7.6% 6.7% 5.8% 7.4%
Weighted average receive rate
(variable, DEM)..................... 4.5% 5.0% 5.1% 5.3%
Amount payable on maturity (USD)...... 37 62 99
Amount receivable on maturity (DEM)... 35 59 93 (6.75)
Weighted average pay rate (variable,
USD)................................ 6.6% 6.8%
Weighted average receive rate
(variable, DEM)..................... 4.1% 4.6%
DUTCH GUILDER(NLG)/GERMAN MARK (DEM)
Amount payable on maturity (NLG)...... 4 4
Amount receivable on maturity (DEM)... 4 4 0.04
Weighted average pay rate (fixed,
NLG)................................ 6.2%
Weighted average receive rate (fixed,
DEM)................................ 5.8%
Amount payable on maturity (NLG)...... 3 3
Amount receivable on maturity (DEM)... 3 3 (0.02)
Weighted average pay rate (fixed,
NLG)................................ 6.0%
Weighted average receive rate
(variable, DEM)..................... 4.5%
JAPANESE YEN (JPY)/GERMAN MARK (DEM)
Amount payable on maturity (JPY)...... 4 4 9
Amount receivable on maturity (DEM)... 3 3 7 (1.92)
Weighted average pay rate (fixed,
JPY)................................ 2.5% 0.7%
Weighted average receive rate
(variable, DEM)..................... 4.1% 5.1%
CANADIAN DOLLAR (CAD)/GERMAN MARK
(DEM)
Amount payable on maturity (CAD)...... 14 14
Amount receivable on maturity (DEM)... 11 11 (2.68)
Weighted average pay rate (fixed,
CAD)................................ 6.9%
Weighted average receive rate
(variable, DEM)..................... 4.3%
BRAZILIAN REAL (BRL)/U.S. DOLLAR (USD)
Amount payable on maturity (BRL)...... 74 10 84
Amount receivable on maturity (USD)... 70 10 80 (5.11)
Weighted average pay rate (fixed,
BRL)................................ 9.5% 10.1%
Weighted average receive rate (fixed,
USD)................................ 0% 0%
SPANISH PESETA (ESP)/GERMAN MARK (DEM)
Amount payable on maturity (ESP)...... 24 24
Amount receivable on maturity (DEM)... 24 24 (0.64)
Weighted average pay rate (fixed,
ESP)................................ 5.5%
Weighted average receive rate (fixed,
DEM)................................ 4.6%
</TABLE>
- - - - - - ---------------
(1) Amounts stated under USD/DEM-fixed/fixed in column "Thereafter" represent
two swaps with predefined cashflows. Respective interest rates have not been
agreed between the parties. Total Amount of USD/DEM-fixed/variable includes
a swap of USD80 million with ascending interest rate from 2%-19.5% p.a.
The total volume of interest rate and cross currency swaps went up from
E1,012.3 million to E1,409 million. This was due to a number of new U.S.
dollar/German mark swaps that BASF entered into to optimize the internal
financing of group companies worldwide. The total fair value of the swaps
changed from E(58.3) million to E(227.9) million mainly due to rising U.S.
dollar and Japanese yen exchange rates versus the German mark and to overall
increased volumes.
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OTHER DERIVATIVES - DECEMBER 31, 1998
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
--------------------------------------------- TOTAL AMOUNT FAIR VALUE
1999 2000 2001 2002 2003 THEREAFTER (EUROS IN MILLIONS) (EUROS IN MILLIONS)
---- ---- ---- ---- ---- ---------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity index swap (1).............. 51 51 12.20
Weighted average pay rate
(variable)....................... 3.5%
Weighted average receive rate
(variable)....................... N/A
Bond index swap (2)................ 153 153 2.60
Weighted average pay rate
(variable)....................... 3.1%
Weighted average receive rate
(variable)....................... N/A
Interest rate cap (3).............. 43 43 0
</TABLE>
- - - - - - ---------------
(1) Represents an index swap to create synthetic share investments with a
guarantee of the capital invested.
(2) Represents an index swap to create synthetic fixed income investments.
(3) Represents an interest rate cap contract of 30 million British pounds and a
strike rate of 7.5% (3-month British pound LIBOR) to protect an anticipated
borrowing position.
OTHER DERIVATIVES - DECEMBER 31, 1999
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
--------------------------------------------- TOTAL AMOUNT FAIR VALUE
1999 2000 2001 2002 2003 THEREAFTER (EUROS IN MILLIONS) (EUROS IN MILLIONS)
---- ---- ---- ---- ---- ---------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity index swap (1).............. 51 51 26.02
Weighted average pay rate
(variable)....................... 4.8%
Weighted average receive rate
(variable)....................... N/A
</TABLE>
- - - - - - ---------------
(1) Represents an index swap to create synthetic share investments with a
guarantee of the capital invested.
FOREIGN EXCHANGE RISK MANAGEMENT
The principal derivative financial instruments used by BASF to cover
foreign currency exposures resulting from trade receivables and payables are
foreign exchange contracts and currency options. In 1999, transactions were
primarily aimed at hedging the exchange rate risk against the U.S. dollar, the
British pound, the Japanese yen, the Singapore dollar and the Mexican peso.
The tables below provide information about significant derivative financial
instruments that are sensitive to changes in foreign currency exchange rates.
161
<PAGE> 166
FOREIGN CURRENCY FORWARD CONTRACTS -- DECEMBER 31, 1998 (ALL MATURING IN 1999)
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
CONTRACT AMOUNT FORWARD FAIR VALUE
(EUROS IN MILLIONS) EXCHANGE RATE (EUROS IN MILLIONS)
------------------- ---------------- -------------------
<S> <C> <C> <C>
GERMAN MARK (DEM)
Purchase Swiss franc (CHF).................................. 8.2 123.03 (0.05)
Purchase Spanish peseta (ESP)............................... 12.3 1.18 0.01
Purchase British pound (GBP)................................ 30.2 2.81 (0.11)
Purchase Japanese yen (JPY)................................. 26.6 1.41 0.75
Purchase U.S. dollar (USD).................................. 192.2 1.77 (7.22)
Sale Austrian schilling (ATS)............................... 4.6 14.21 0.00
Sale British pound (GBP).................................... 108.4 2.79 0.07
Sale Japanese yen (JPY)..................................... 73.1 1.36 (5.76)
Sale Portuguese escudo (PTX)................................ 215.3 0.97 (1.11)
Sale U.S. dollar (USD)...................................... 1,643.3 1.69 10.21
Sale Australian dollar (AUD)................................ 28.6 1.03 0.04
Sale New Zealand dollar (NZD)............................... 2.0 .87 0.03
Sale Swedish krona (SEK).................................... 2.0 21.51 0.00
Sale Canadian dollar (CAD).................................. 11.2 1.09 0.02
Sale Danish krone (DKK)..................................... 5.6 26.22 0.00
Sale Singapore dollar (SGD)................................. 3.6 1.02 0.01
U.S. DOLLAR (USD)
Purchase Dutch guilder (NLG)................................ 2.0 2.00 0.13
Sale Mexican peso (MXP)..................................... 5.1 10.09 (0.05)
Sale UF (1)................................................. 9.2 0.032 (0.14)
</TABLE>
- - - - - - ---------------
(1) UF = Unidad de Fomento equals 14.685 Chilean pesos.
162
<PAGE> 167
FOREIGN CURRENCY FORWARD CONTRACTS -- DECEMBER 31, 1999 (1)
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
CONTRACT AMOUNT FORWARD FAIR VALUE
(EUROS IN MILLIONS) EXCHANGE RATE (EUROS IN MILLIONS)
------------------- ---------------- -------------------
<S> <C> <C> <C>
EURO (EUR)
Sale Australian dollar (AUD)................................ 27.8 1.63 (0.97)
Sale Canadian dollar (CAD).................................. 6.8 1.49 (0.10)
Sale Danish krone (DKK)..................................... 13.5 7.44 (0.00)
Sale British pound (GBP).................................... 168.7 0.64 (3.87)
Sale Hongkong dollar (HKD).................................. 0.7 7.81 (0.01)
Sale Japanes yen (JPY)...................................... 64.2 109.05 (4.17)
Sale New Zealand dollar (NZD)............................... 2.5 2.06 (0.15)
Sale Swedish krona (SEK).................................... 2.1 8.79 (0.05)
Sale Singapore dollar (SGD)................................. 67.1 2.01 (12.51)
Sale Thai bath (THB)........................................ 0.6 41.80 (0.06)
Sale U.S. dollar (USD)...................................... 1,676.0 1.04 (35.45)
Purchase Singapore dollar (SGD)............................. 8.2 1.71 (0.14)
Purchase U.S. dollar (USD).................................. 183.7 1.03 3.01
U.S. DOLLAR (USD)
Sale Australian dollar (AUD)................................ 12.5 1.54 (0.05)
Sale Chinese renminbi (CNY)................................. 5.7 8.31 (0.30)
Sale Mexican peso (MXP)..................................... 90.5 11.42 (13.04)
Sale British pound (GBP).................................... 0.5 0.62 (0.00)
Sale Indonesian rupia (IDR)................................. 6.0 7,236.00 (0.10)
Sale Malaysian ringgit (MYR)................................ 3.6 3.77 0.03
Sale Brazilian real (BRL)................................... 6.1 2.03 (0.64)
Sale UF (2)................................................. 3.0 0.03 (0.06)
Sale Argentinian peso (ARS)................................. 19.9 1.00 (0.07)
Sale Taiwan dollar (TWD).................................... 11.4 31.60 (0.12)
Sale Thai bath (THB)........................................ 4.2 38.52 (0.09)
Purchase Danish krona (DKK)................................. 18.9 7.41 (0.95)
Purchase Columbian peso (COP)............................... 8.1 2,175.41 (1.10)
BRITISH POUND (GBP)
Sale Australian dollar (AUD)................................ 2.0 2.53 (0.04)
Purchase Japanese yen (JPY)................................. 0.1 163.75 0.00
Purchase Danish krona (DKK)................................. 0.4 11.98 (0.02)
JAPANESE YEN (JPY)
Purchase Danish krona (DKK)................................. 0.8 7.26 (0.14)
AUSTRALIAN DOLLAR (AUD)
Purchase Danish krona (DKK)................................. 0.3 4.83 (0.02)
NEW ZEALAND DOLLAR (NZD)
Purchase Danish krona (DKK)................................. 0.1 3.86 (0.01)
</TABLE>
- - - - - - ---------------
(1) All maturing in 2000 except E12 million in 2001-2003 and E67 million in
2004.
(2) UF = Unidad de Fomento equals 15.066 Chilean pesos.
The total volume of forward currency contracts remained stable at a level
of E2.416 million for 1999. The total fair value of foreign currency forward
contracts changed from E(3.9) million to E(71.1) million mainly due to negative
market values resulting from the sale of U.S. dollars, Singapore dollars and
Mexican pesos.
163
<PAGE> 168
FOREIGN CURRENCY OPTIONS -- DECEMBER 31, 1998 (ALL MATURING IN 1999)
<TABLE>
<CAPTION>
CONTRACT AMOUNT WEIGHTED AVERAGE FAIR VALUE
(EUROS IN MILLIONS) OPTION STRIKE PRICE (EUROS IN MILLIONS)
------------------- ------------------- -------------------
<S> <C> <C> <C>
U.S. dollar (USD) put (sell)/German mark (DEM) call (buy)... 252.1 1.64 0.8
U.S. dollar (USD) call (buy)/German mark (DEM) put (sell)... 207.1 1.69 (1.4)
U.S. dollar (USD) call (buy)/Brazilian real (BRL) put
(sell).................................................... 77.2 1.30 0.8
</TABLE>
FOREIGN CURRENCY OPTIONS -- DECEMBER 31, 1998 (ALL MATURING IN 2000)
<TABLE>
<CAPTION>
CONTRACT AMOUNT WEIGHTED AVERAGE FAIR VALUE
(EUROS IN MILLIONS) OPTION STRIKE PRICE (EUROS IN MILLIONS)
------------------- ------------------- -------------------
<S> <C> <C> <C>
Euro (EUR) call (sell)/Japanese yen (JPY) put (buy)......... 73 109.03 1.5
Euro (EUR) put (buy)/Japanese yen (JPY) call (sell)......... 79 101.82 (5.0)
U.S. dollar (USD) call (sell)/Brazilian real (BRL) put
(buy)(1).................................................. 41 1.89 1.0
</TABLE>
- - - - - - ---------------
(1) This position includes the purchase of USD calls in an aggregate amount of
E30 million for which the final strike price is dependent on an variable
interbank interest rate (CD). Therefore the strike price can only be
estimated.
The total volume of foreign currency options went down from E536.1 million
to E193.4 million. Instead of hedging U.S. dollar receivables with collars, such
instruments were used to hedge Japanese yen receivables. The total fair value of
foreign currency options changed from E0.3 million to E(2.5) million.
164
<PAGE> 169
CROSS CURRENCY SWAPS --DECEMBER 31, 1998
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
------------------------------------------------ TOTAL AMOUNT FAIR VALUE
1999 2000 2001 2002 2003 THEREAFTER (EUROS IN MILLIONS) (EUROS IN MILLIONS)
----- ---- ----- ----- ---- ---------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PAYMENT OF U.S. DOLLAR (USD)
Notional amount.................. 171 54 239 171 342 977 (62.3)
Average contract rate German mark
(DEM)/U.S. dollar (USD)........ 1.40 1.83 1.51 1.56 1.51 1.52
PAYMENT OF DUTCH GUILDER (NLG)
Notional amount.................. 5 9 14 (0.35)
Average contract rate German mark
(DEM)/Dutch guilder (NLG)...... 90.00 89.47 89.66
PAYMENT OF JAPANESE YEN (JPY)
Notional amount.................. 34 6 39.6 3.0
Average contract rate German mark
(DEM)/Japanese yen (JPY)....... 1.41 1.47 1.42
PAYMENT OF CANADIAN DOLLAR (CAD)
Notional amount.................. 11 11 (0.8)
Average contract rate German mark
(DEM)/Canadian dollar (CAD).... 1.10 1.10
PAYMENT SPANISH PESETA (ESP)
Notional amount.................. 6 24 30 2.1
Average contract rate German mark
(DEM)/Spanish peseta (ESP)..... 1.20 1.18 1.18
PAYMENT OF BRAZILIAN REAL (BRL)
Notional amount.................. 33 33 0.02
Average contract rate U.S. dollar
(USD)/Brazilian real (BRL)..... 1.21 1.21
</TABLE>
CROSS CURRENCY SWAPS --DECEMBER 31, 1999
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
------------------------------------------------ TOTAL AMOUNT FAIR VALUE
2000 2001 2002 2003 2004 THEREAFTER (EUROS IN MILLIONS) (EUROS IN MILLIONS)
----- ---- ----- ----- ---- ---------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PAYMENT OF U.S. DOLLAR (USD)
Notional amount.................. 199 37 261 199 199 601 1,497 (215.82)
Average contract rate German mark
(DEM)/U.S. dollar (USD)........ 1.40 1.80 1.49 1.56 1.80 1.80 1.66
PAYMENT OF DUTCH GUILDER (NLG)
Notional amount.................. 7 7 0.02
Average contract rate German mark
(DEM)/Dutch guilder (NLG)...... 89.17 89.17
PAYMENT OF JAPANESE YEN (JPY)
Notional amount.................. 4 4 9 (1.92)
Average contract rate German mark
(DEM)/Japanese yen (JPY)....... 1.47 1.51 1.49
PAYMENT OF CANADIAN DOLLAR (CAD)
Notional amount.................. 14 14 (2.68)
Average contract rate German mark
(DEM)/Canadian dollar (CAD).... 1.08 1.08
PAYMENT SPANISH PESETA (ESP)
Notional amount.................. 24 24 (0.64)
Average contract rate German mark
(DEM)/Spanish peseta (ESP)..... 1.19 1.19
PAYMENT OF BRAZILIAN REAL (BRL)
Notional amount.................. 74 10 84 (5.11)
Average contract rate U.S. dollar
(USD)/Brazilian real (BRL)..... 1.90 1.85 1.89
</TABLE>
165
<PAGE> 170
OTHER DERIVATIVES -- DECEMBER 31, 1998
None.
OTHER DERIVATIVES -- DECEMBER 31, 1999
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
--------------------------------------------- TOTAL AMOUNT FAIR VALUE
2000 2001 2002 2003 2004 THEREAFTER (EUROS IN MILLIONS) (EUROS IN MILLIONS)
---- ---- ---- ---- ---- ---------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Break forward(1)................... 12 12 (1.11)
Average contractual forward
exchange rate.................... 2.07
</TABLE>
- - - - - - ---------------
(1) Represents a Foreign Currency Forward Contract (purchase of U.S. dollar,
sale of Brazilian real at a forward rate of 2.07 BRL/USD) combined with the
purchase of a put option at a strike price of 1.87 BRL/USD in order to hedge
a U.S. dollar liability. The additional put will reduce the purchase cost
for the notional U.S. dollar amount if the exchange rate falls below 1.87
BRL/USD.
MARKETABLE SECURITIES
As of December 31, 1999, BASF owns debt and equity securities as well as
mutual funds which are exposed to price changes. These financial instruments are
used as profitable investments of BASF's cash surplus and are not held for
trading purposes. All securities are quoted by stock exchanges, and the funds
have readily determinable market prices. The securities are reflected in the
U.S. GAAP reconciliation at their fair value of E536.9 million, which includes
unrealized gains of E19.5 million. See Note 16 to the Consolidated Financial
Statements for further information. BASF carefully monitors developments in the
financial markets.
In addition, BASF entered into swap contracts for which BASF pays a
quarterly variable rate and receives a positive Equity Index performance (for
details see table "Other Derivatives"). Such swaps were concluded to
synthetically create an equity investment using the variable interest payments
from liquid funds. While BASF is obliged to pay on a quarterly basis a variable
interest rate, the payments of the counterparties are dependent on the DAX-Index
development during the stipulated term. However, a special provision secures
that a negative DAX-Index performance must not be reimbursed. Therefore the
maximum equity exposure is a zero payment from the counterparties. The fair
value of the DAX-Libor-Swaps were E26 million as of December 31, 1999.
A 10% change in overall equity prices would not materially impact BASF's
operations, financial position or cash flows.
COMMODITY PRICE RISKS
Certain BASF divisions are exposed to fluctuations in prices for raw
materials and commodities. BASF operates in markets where raw material and
products prices are commonly affected by cyclical movements of the economy.
In order to secure the supply of raw materials, BASF has signed long-term
supply contracts and is buying additional quantities on spot markets. Some of
the most important raw materials involved are:
- Propylene
- Benzene
- Titanium dioxide
- Cyclohexene
- Methanole
- Alpha olefins
166
<PAGE> 171
The following measures are taken to avoid and manage risks in the purchase
of raw materials:
- BASF avoids supply problems by entering into long-term contracts with
at least two suppliers. The quantities contracted are divided by the
suppliers considering their capability to ensure supply security. BASF
only enters into long-term contracts after a restrictive supplier
evaluation regarding financial and technical conditions as well as
environmental safety aspects, so that supply problems and quality
problems are reduced to a minimum.
- Price risks are managed by several measures. The allocation of supply
to long-term contracts and purchase on spot markets allows BASF to
contract a certain portion of raw material supply at favorable prices,
if for example excess quantities on the spot markets lead to a
short-term price reduction. Within the long-term contracts, price
conditions are based on published raw material price quotations and
lead to the permanent adjustment of prices (price gliding clauses) or
are at least adjusted on a quarterly basis.
167
<PAGE> 172
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
In accordance with the German Stock Corporation Act (Aktiengesetz), BASF
Aktiengesellschaft has a Board of Executive Directors (Vorstand) and a
Supervisory Board (Aufsichtsrat). The two Boards are separate, and no individual
may simultaneously be a member of both Boards.
The Board of Executive Directors is responsible for managing the business
of BASF Aktiengesellschaft in accordance with the German Stock Corporation Act
and BASF Aktiengesellschaft's Articles of Association. It also represents the
company in its dealings with third parties and in court.
The principal function of the Supervisory Board is to appoint and supervise
the Board of Executive Directors. The Supervisory Board may not make management
decisions, but BASF's Articles of Association or the Supervisory Board itself
may require the prior consent of the Supervisory Board for certain types of
transactions.
Members of both the Board of Executive Directors and the Supervisory Board
owe a duty of loyalty and care to BASF Aktiengesellschaft. In exercising these
duties, the applicable standard of care is that of a diligent and prudent
businessperson. Members of both Boards must take into account a broad range of
considerations when making decisions, including the interests of BASF
Aktiengesellschaft, its shareholders, employees and creditors and, to a certain
extent, the interests of society. The members of the Board of Executive
Directors and the Supervisory Board are personally liable to BASF
Aktiengesellschaft for breaches of their duties of loyalty and care.
BOARD OF EXECUTIVE DIRECTORS
The number of members of the Board of Executive Directors is determined by
the Supervisory Board, subject to a minimum number of two members. BASF
Aktiengesellschaft's Board of Executive Directors currently has eight members.
Pursuant to the Memorandum and Articles of Association of BASF
Aktiengesellschaft, any two members of the Board of Executive Directors or one
member and the holder of a special power of attorney (Prokura) may bind the
company.
The Board of Executive Directors must report regularly to the Supervisory
Board on the current business of BASF Aktiengesellschaft, on the company's
business policies and other fundamental matters regarding the future conduct of
the company's business, on the company's profitability, particularly on its
return on equity, as well as on any exceptional matters that may arise from time
to time. The Supervisory Board is also entitled to request special reports at
any time.
The Supervisory Board appoints members to the Board of Executive Directors
for a maximum term of five years. Members of the Board of Executive Directors
may be re-appointed or have their terms extended for one or more terms of no
more than five years.
Under certain circumstances, such as a serious breach of duty or a bona
fide vote of no confidence by a majority of votes at a shareholders' meeting, a
member of the Board of Executive Directors may be removed by the Supervisory
Board prior to the expiration of his or her term. A member of the Board of
Executive Directors may not deal with or vote on matters relating to proposals,
arrangements or contracts between that member and the company.
The Articles of Association of BASF Aktiengesellschaft require decisions of
the Board of Executive Directors to be made by a simple majority unless the law
requires a larger majority. In case of a tie, a second vote is held and the
chairman of the Board may cast a deciding vote.
168
<PAGE> 173
The following table lists the current members of the Board of Executive
Directors, their ages as of May 1, 2000, and the years in which they were first
appointed to the Board:
<TABLE>
<CAPTION>
YEAR FIRST YEAR TERM
NAME POSITION; MAIN AREAS OF RESPONSIBILITY AGE APPOINTED EXPIRES
---- -------------------------------------- --- ---------- ---------
<S> <C> <C> <C> <C>
Dr. Jurgen F. Strube Chairman of the Board of Executive 60 1985 2003
Directors
Max Dietrich Kley Deputy Chairman and Chief Financial 60 1990 2003
Officer -
Finance
Oil & Gas
Coatings
Raw Material Purchasing
Helmut Becks Director and Personnel Director 55 1996 2001
(Arbeitsdirektor) -
Human Resources
Engineering
Logistics
Environment
Safety
Energy
Dr. John Feldmann Director - 51 2000 2004
Styrenic Polymers
Polyurethanes
Engineering Plastics
Dr. Jurgen Hambrecht Director - 53 1997 2002
Industrial Chemicals
Intermediates
Petrochemicals & Inorganics
Asian regional divisions
Dr. Stefan Marcinowski Director and Research Executive Director - 47 1997 2002
Dispersions
Colorants
Specialty Chemicals
Peter Oakley Director - 47 1998 2003
Fiber Products
North and South America regional divisions
Eggert Voscherau Director - 56 1996 2001
Pharmaceuticals
Crop Protection
Fine Chemicals
Fertilizers
European regional divisions
</TABLE>
169
<PAGE> 174
SUPERVISORY BOARD
The Supervisory Board consists of 20 members, 10 of whom are elected by
shareholders at the Annual Meeting and 10 of whom are elected by employees as
required by the German Co-determination Act (Mitbestimmungsgesetz).
Aside from Dr. Marcus Bierich, all current shareholder representatives on
the Supervisory Board were elected in 1999. Dr. Bierich was appointed by the
lower court of Ludwigshafen on October 15, 1999, as a replacement for Dr. Hans
Albers, who died on October 14, 1999. Any Supervisory Board member elected by
the shareholders at BASF Aktiengesellschaft's Annual Meeting may be removed by a
majority of the votes cast at a subsequent meeting of shareholders. Any Board
member elected by the employees may be removed by three-quarters of the votes
cast by the class of employees that the member represents.
The Supervisory Board appoints a chairman and a deputy chairman from among
its members. The chairman of the Supervisory Board must be elected by a majority
of two-thirds of the Board members. If a majority is not reached in the first
vote, the members of the Supervisory Board who were elected by the shareholders
elect the chairman.
At least half of the total required number of members of the Supervisory
Board must be present or participate in decision-making to constitute a quorum.
Unless otherwise provided for by law or BASF Aktiengesellschaft's Articles of
Association, resolutions are passed by a simple majority of the votes cast. In
the event of a tie, a second vote is held, and the chairman may cast a deciding
vote.
Supervisory Board members are elected to terms of approximately five years.
The terms expire at the end of the Annual Meeting after the fourth fiscal year
following the year in which the members were elected. The current term expires
at the end of the Annual Meeting in 2004. Compensation for Board members is
determined by BASF Aktiengesellschaft's Articles of Association.
170
<PAGE> 175
The following table lists the members of BASF Aktiengesellschaft's
Supervisory Board, their respective ages as of May 1, 2000, their principal
occupation and the year in which they were first elected or appointed to the
Supervisory Board:
<TABLE>
<CAPTION>
YEAR
NAME AGE PRINCIPAL OCCUPATION FIRST ELECTED
---- --- -------------------- -------------
<S> <C> <C> <C>
Dr. Berthold Leibinger 69 Managing Director of TRUMPF GmbH + Co 1998
Chairman
Volker Obenauer (1) 57 Chairman of the works council of the Ludwigshafen 1993
Deputy Chairman site of BASF Aktiengesellschaft
Dr. Marcus Bierich 68 Chairman of the Supervisory Board of Robert Bosch 1999
GmbH
Wolfgang Daniel (1) 42 Deputy Chairman of the works council of the 1996
Ludwigshafen site of BASF Aktiengellschaft
Etienne Graf Davignon 67 President of Societe Generale de Belgique 1993
Dr. Francois Diederich 47 Professor at Zurich Technical University 1998
Dr. Tessen von Heydebreck 55 Member of the Board of Executive Directors of 1998
Deutsche Bank AG
Dr. Wolfgang Jentzsch 67 Retired member of the Board of Executive 1995
Directors of BASF Aktiengesellschaft
Rolf Kleffmann (1) 50 Chairman of the works council of Wintershall AG's 1998
Barnstorf oil plant
Gunter Klein 60 Member of the works council of the Ludwigshafen 1999
site of BASF Aktiengesellschaft
Ulrich Kuppers (1) 44 Manager of the Ludwigshafen branch of the Mining, 1994
Chemical and Energy Workers' Union
(Industriegewerkschaft Bergbau, Chemie, Energie)
Konrad Manteuffel (1) 48 Member of the works council of the Ludwigshafen 1999
site of BASF Aktiengesellschaft
Dr. Karlheinz Messmer (1) 55 Plant Manager at the Ludwigshafen site of BASF 1993
Aktiengesellschaft
Ellen Schneider (1) 50 Chairwoman of the joint works council of 1993
Elastogran GmbH
Dr. Hermann Scholl 64 Managing Director of Robert Bosch GmbH 1998
Dr. Henning Schulte-Noelle 57 Chairman of the Board of Executive Directors of 1992
Allianz AG
</TABLE>
171
<PAGE> 176
<TABLE>
<CAPTION>
YEAR
NAME AGE PRINCIPAL OCCUPATION FIRST ELECTED
---- --- -------------------- -------------
<S> <C> <C> <C>
Robert Studer 61 Retired Chairman of Union Bank of Switzerland 1993
Jurgen Walter (1) 55 Member of the Central Board of Executive 1998
Directors of Industriegewerkschaft Bergbau,
Chemie, Energie (Mining, Chemicals and Energy
Industrial Union)
Helmut Werner 63 Retired Chairman of the Board of Executive 1993
Directors of Mercedes-Benz AG
Gerhard Zibell (1) 49 Regional Manager of the Mining, Chemicals and 1998
Energy Workers' Union (Industriegewerkschaft
Bergbau, Chemie, Energie)
Rhineland-Palatinate/Saar region
</TABLE>
- - - - - - ---------------
(1) Employee representative.
172
<PAGE> 177
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
The aggregate amount of compensation BASF Aktiengesellschaft and its
subsidiaries paid during the year ended December 31, 1999, to all members of the
Board of Executive Directors and the Supervisory Board, as a group, was E10.8
million. Of this amount, members of the Board of Executive Directors received
E9.2 million and members of the Supervisory Board received E1.6 million. These
sums include accrued performance-related bonuses for 1999. Additionally, the pro
rata value of stock options granted to the members of the Board of Executive
Directors in 1999 amounts to E0.9 million.
The total compensation BASF Aktiengesellschaft and its subsidiaries paid
during the year ended December 31, 1999, to former members of the Board of
Executive Directors and their beneficiaries was, E5.7 million. Pension
provisions for members of the Board of Executive Directors totaled E50.2 million
in 1999. No commitments were assumed in favor of the members of the Supervisory
Board or the Board of Executive Directors.
Pursuant to its Articles of Association, BASF Aktiengesellschaft reimburses
each Supervisory Board member for out-of-pocket expenses. BASF
Aktiengesellschaft also grants each Supervisory Board member a fixed annual
payment of E5,000 and additional compensation based on dividends paid to BASF
Aktiengesellschaft shareholders. This latter amount is E1,750 for each
percentage point that aggregate dividends in a given year exceed four percent of
BASF Aktiengesellschaft's subscribed capital. The chairman of the Supervisory
Board receives a payment of twice and the deputy chairman receives a payment of
1.5 times this amount. For the year ended December 31, 1999, approximately 93%
of the total compensation paid to members of the Supervisory Board consisted of
dividend-based compensation.
Pursuant to BASF's stock option program, each member of the Board of
Executive Directors is entitled to receive options on BASF Shares by investing
part of his individual performance-related bonus in BASF Shares. In 1999,
members of the Board of Executive Directors were granted a total of 166,616
options with rights to subscribe to up to 333,232 BASF Shares at a preferential
price. In 2000, a total of 126,228 options with up to 252,456 subscription
rights were granted to members of the Board of Executive Directors. See "Item
12. Options to Purchase Securities from Registrant or Subsidiaries - BASF Stock
Option Program (BOP)" for further details on the terms and conditions of the
options' rights.
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ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
In 1986, BASF Finance Europe N.V., a Dutch subsidiary of BASF
Aktiengesellschaft, issued 3% U.S. Dollar Bonds due 2001 in an aggregate
principal amount of US$235,000,000 with options to purchase BASF Shares at a
price of DM308.00 for 10 Shares (originally one Share with a nominal value of
DM50.00). The warrants may be exercised on or prior to April 9, 2001. The
warrants are separately listed and traded on the Frankfurt Stock Exchange and
Luxembourg Stock Exchange. As of May 1, 2000, options for the subscription of
9,079,190 BASF Shares are outstanding.
In addition, as of May 1, 2000, former shareholders of Wintershall AG are
entitled to receive a total of 2,739 BASF Shares as consideration for their
former shares in Wintershall AG that were transferred to BASF by operation of
law as the result of the integration (Eingliederung) of Wintershall AG into BASF
Aktiengesellschaft in 1974. The rights to receive these shares expire in 2004.
The Board of Executive Directors received approval at the Annual Meeting on
May 9, 1996, to issue bonds with warrants attached for the subscription of
40,000,000 new BASF Shares. Bonds may be issued on or prior to April 1, 2001. To
date, no bonds or subscription rights have been issued.
BASF STOCK OPTION PROGRAM (BOP)
The BASF Stock Option Program (BOP) is offered to the Board of Executive
Directors and approximately 1,200 of BASF's senior executives. It became
effective on April 30, 1999, after BASF's shareholders approved a conditional
capital increase for the program at the Annual Meeting on April 29, 1999.
An executive participating in the BOP may invest between 10% and 30% of his
or her annual variable compensation in BASF Shares. Annual variable compensation
for a member of the Board of Executive Directors is determined by the
Supervisory Board pursuant to the terms of the executive director's employment
agreement with BASF. Annual variable compensation for any other senior executive
is determined by such senior executive's superiors pursuant to rules established
by the Board of Executive Directors. For each BASF Share purchased under the BOP
(the "BOP Shares"), the participant automatically receives four option rights on
the day after an Annual Meeting, known as the "date of issue." The purchase
price for BOP Shares is based on a "market price," which is the volume weighted
average of the prices quoted in the Xetra(R) electronic trading system of
Deutsche Borse AG on the date of issue (the "BOP Share Price"). In 1999, the BOP
Share Price was E41.60 and in 2000 the BOP Share Price was E47.7956. Pursuant to
the BOP, more than 900 executives have received option rights allowing them to
purchase BASF Shares.
Option rights may not be exercised prior to three years after the date of
issue. They expire 15 days after the sixth Annual Meeting of BASF
Aktiengesellschaft following the date of issue.
Each option right entitles the holder to two subscription rights. The first
subscription right permits participants to purchase one BASF Share at the BOP
Share Price provided that the market price of BASF Shares on the exercise date
is more than 30% higher than the BOP Share Price. The second subscription right
permits participants to purchase one BASF Share at a discount, provided that the
performance of BASF Shares exceeds the performance of the Dow Jones EURO
STOXX(SM) Total Return Index (the "EURO STOXX"). The discount is equal to twice
the percentage by which BASF Shares have outperformed the EURO STOXX since the
date of issue of the relevant right.
An option right may be exercised if the exercise criteria for one or both
of the underlying subscription rights have been satisfied. If an option right is
exercised based on the exercisability of only one subscription right, then the
other unexercisable subscription right terminates. The monetary benefit
resulting from the exercise of option rights being granted for one BOP Share may
not exceed 10 times the BOP Share Price.
In 1999, approximately 900 senior executives eligible for the BOP purchased
an aggregate of 294,610 BOP Shares under the program at a BOP Share Price of
E41.60. This aggregate number includes 41,654
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BOP Shares bought by members of the Board of Executive Directors. According to
the BOP conditions and based on the number of BOP Shares purchased, a total of
1,178,440 option rights have been granted to participants, of which 166,616 have
been granted to members of the Board of Executive Directors. These option rights
entitle participants to purchase up to 2,356,880 BASF Shares on the terms
described above.
As of May 1, 2000, a total of 16,236 of the option rights granted in 1999
had lapsed because the option holders no longer worked for BASF or had sold some
of their shares. Overall, a total of 1,162,204 option rights of the 1999 BOP
still exist.
In 2000, approximately 900 senior executives eligible for the BOP purchased
an aggregate of 226,790 BOP Shares under the program at a BOP Share Price of
E47.7956. This aggregate number includes 31,557 BOP Shares bought by members of
the Board of Executive Directors. According to the BOP conditions and based on
the number of BOP Shares purchased, a total of 907,160 option rights have been
granted to participants, of which 126,228 have been granted to members of the
Board of Executive Directors. These option rights entitle participants to
purchase up to 1,814,320 BASF Shares on the terms described above.
EMPLOYEE STOCK PURCHASE PROGRAM
In 1999, BASF Aktiengesellschaft and several other German subsidiaries of
BASF launched a stock purchase program for their employees. The program allows
an employee to purchase BASF Shares at market prices by using all or part of the
annual variable salary that the employee receives from the employing company.
For every block of ten BASF Shares so purchased, the employee will be granted
one additional BASF Share after one, three, five, seven and 10 years without
further payment, provided that the BASF Shares purchased under the program are
still held by the employee.
In 1999, approximately 12,000 employees of BASF companies in Germany
purchased 222,900 BASF Shares under the program, entitling them to receive up to
111,450 additional BASF Shares. As of December 31, 1999, a total of 18,338 of
these shares holding the right to receive free shares had expired so the total
amount of shares qualifying under the "plus" program is 204,562.
In 2000, approximately 14,000 employees of BASF companies in Germany and
several other European countries purchased 543,450 BASF Shares under the
program, entitling them to receive up to 271,725 additional BASF Shares.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Not applicable.
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PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Set forth below is a summary of the material rights and restrictions that
apply to the BASF Shares and to BASF's American Depositary Shares including a
brief description of certain provisions contained in the Articles of Association
of BASF Aktiengesellschaft (the "Articles of Association") and German law. This
description is a summary and does not purport to be complete.
DESCRIPTION OF BASF SHARES
SHARE CAPITAL AND FORM OF BASF SHARES
At May 1, 2000, the subscribed and outstanding share capital (Grundkapital)
of BASF Aktiengesellschaft amounted to E1,589,737,472.00 consisting of
620,991,200 BASF Shares, no par value (the "BASF Shares"), all of which are
issued in bearer form. The BASF Shares are represented by global certificates
deposited with Clearstream Banking Frankfurt Aktiengesellschaft, formerly
Deutsche Borse Clearing AG ("Clearstream"), in Frankfurt/Main or by individual
share certificates. As of May 1, 2000, the Articles of Association have excluded
the right of shareholders to certificated evidence of their shareholdings. All
shares are freely transferrable.
The share capital of BASF Aktiengesellschaft may be increased in three
different ways:
(1) by means of a shareholder resolution for the issuance of new shares
and concurrent increase of share capital,
(2) by means of a shareholder resolution for the creation of "authorized
capital" (Genehmigtes Kapital), and
(3) by means of a shareholder resolution for a "conditional capital
increase" (Bedingte Kapitalerhohung).
At a General Shareholders' Meeting, the shareholders of BASF
Aktiengesellschaft may direct the Board of Executive Directors to issue new
shares against contributions in cash or in kind and concurrently increase the
share capital of BASF Aktiengesellschaft. The shareholder resolution directing
the issuance of shares and increase of share capital must be passed by a
combined majority of the votes cast and the share capital taking part in the
vote. As discussed below, all BASF Aktiengesellschaft shareholders generally
have pre-emptive rights entitling them to subscribe to any new issue of BASF
Shares. To exclude any such pre-emptive rights in connection with a particular
increase in share capital and issuance of BASF Shares, the shareholders must
pass a resolution providing for such exclusion by a combined majority of the
votes cast and three quarters of the share capital taking part in the vote.
At a General Shareholders' Meeting, the shareholders of BASF
Aktiengesellschaft, by a resolution passed by a combined majority of the votes
cast and three quarters of the share capital taking part in the vote, may also
create authorized capital (Genehmigtes Kapital) or provide for a conditional
capital increase (Bedingte Kapitalerhohung). These measures do not immediately
increase BASF's share capital, but rather provide for future increases.
The creation of authorized capital permits the Board of Executive
Directors, with the approval of the Supervisory Board, to increase the share
capital of BASF Aktiengesellschaft at a later date in the aggregate amount
specified in the shareholder resolution creating such authorized capital. Any
such increase in share capital must be made by issuing new shares against
contributions in cash or in kind within five years after the date of
registration of the resolution for the creation of authorized capital.
A conditional capital increase provides for an increase in BASF
Aktiengesellschaft's share capital upon the exercise of conversion or
subscription rights in respect of BASF Shares. The shareholders of BASF
Aktiengesellschaft may create a conditional capital increase only for certain
limited purposes, such
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as granting conversion or subscription rights to holders of convertible bonds or
bonds with warrants attached, issuing shares as consideration in a merger with
another company or offering stock options to the management and employees of
BASF Aktiengesellschaft or its affiliates.
The nominal amount of authorized capital or conditional capital increase
may not exceed 50% of the share capital outstanding at the time that such
authorized capital or conditional capital increase was created. Notwithstanding
the foregoing, the nominal amount of authorized capital for the issuance of
stock options to the management and employees of BASF Aktiengesellschaft may not
exceed 10% of the share capital outstanding at the time such authorized capital
was created.
BASF Aktiengesellschaft currently has authorized but unissued capital of
E500,000,000.00. The Board of Executive Directors may issue such authorized
capital until May 1, 2004.
The shareholders of BASF Aktiengesellschaft have created the following
conditional capital increases for the following purposes:
(1) E23,242,726.40 consisting of 9,079,190 BASF Shares for issuance upon
the exercise of warrants attached to BASF Finance Europe N.V. bonds
that were issued in 1986 and are due in 2001;
(2) El02,400,000.00 consisting of 40,000,000 BASF Shares for issuance
upon the exercise of option rights attached to bonds that the Board
of Executive Directors may issue on or before April 1, 2001 pursuant
to shareholder authorization granted on May 9, 1996;
(3) E38,400,000.00 consisting of 15,000,000 BASF Shares for issuance
upon the exercise of option rights granted under the BASF stock
option program to members of the Board of Executive Directors and
employees of BASF Group companies; and
(4) E7,011.84 consisting of 2,739 BASF Shares for issuance to former
Wintershall AG shareholders who may exercise conversion rights in
connection with the integration (Eingliederung) of Wintershall AG
into BASF Aktiengesellschaft.
VOTING RIGHTS AND SHAREHOLDERS' MEETINGS
Each BASF Share entitles the holder thereof to cast one vote at a General
Shareholders' Meetings of BASF Aktiengesellschaft. According to the German Stock
Corporation Act and the Articles of Association, resolutions at a General
Shareholders' Meeting, including those for the amendment of the Articles of
Association, must be adopted by a simple majority of the votes cast, or, if a
majority of the share capital is required, by a simple majority of the share
capital represented with respect to the vote taken, unless another majority is
required by law. Under the German Stock Corporation Act, the following
significant resolutions must be passed by a majority of the votes cast and at
least three quarters of the share capital represented with respect to the vote
taken on such resolution:
- share capital increases that exclude shareholder pre-emptive rights;
- the creation of authorized capital or conditional capital increases;
- changes in the Articles of Association that modify the corporate
purpose of BASF Aktiengesellschaft;
- capital decreases;
- the dissolution of BASF Aktiengesellschaft;
- a merger of BASF Aktiengesellschaft into or a consolidation of BASF
Aktiengesellschaft with another stock corporation;
- a split, spin-off, or transfer of all or substantially all of BASF
Aktiengesellschaft's assets;
- a change in BASF Aktiengesellschaft's corporate form; and
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- the execution of certain enterprise agreements (Unternehmensvertrage),
including, in particular, corporate control and profit and loss
absorption agreements and agreements for the integration
(Eingliederung) of another company into BASF Aktiengesellschaft.
Under the German Stock Corporation Act the Board of Executive Directors
must call, within the first eight months of each fiscal year, an Ordinary
General Shareholders' Meeting of BASF Aktiengesellschaft for the purpose of
providing the shareholders with the annual financial statements and the
management report and deciding on the appropriation of the balance sheet
profits. Furthermore, a General Shareholders' Meeting may be called by the Board
of Executive Directors, by the Supervisory Board or by the holders of BASF
Shares representing, in the aggregate, at least 5% of the issued share capital
of BASF Aktiengesellschaft. Notice of a General Shareholders' Meeting must be
published in the German Federal Gazette (Bundesanzeiger) and in one other major
daily German newspaper at least one month prior to the last day on which shares
must be deposited as described below. The notice must state the time, place and
agenda of the meeting and the conditions for shareholder participation.
To be eligible to attend and vote at a General Shareholders' Meeting, a
shareholder must deposit his shares (or certificates of deposit of a bank
serving as a depositary for such shares) not later than the end of the eighth
day prior to the date of the meeting (or, if that day is a Saturday, Sunday or a
legal holiday, the next business day) with BASF Aktiengesellschaft, a German
Notary, a securities depositary bank (Wertpapiersammelbank) or a bank specified
in the notice calling the General Shareholders' Meeting. Shares are also deemed
to have been deposited if, with the consent of one of the aforementioned
depositees, they are locked in the bank account in which they are held until the
end of the General Shareholders' Meeting. To exercise the right to attend and
vote at a General Shareholders' Meeting, a shareholder must, at such meeting,
provide BASF Aktiengesellschaft with appropriate documentation evidencing a
deposit of shares as described above. If, following such deposit of shares or
locking of the account in which they are held, a shareholder sells or otherwise
disposes of his shares, any voting instructions that such shareholder may have
given with respect to such shares will be invalidated and any admission cards
that such shareholder may have received entitling him to attend and vote at a
General Shareholders' Meeting must be returned to the deposit bank or BASF
Aktiengesellschaft. Neither the German Stock Corporation Act nor the Articles of
Association requires any minimum quorum for a General Shareholders' Meeting.
DIVIDEND AND LIQUIDATION RIGHTS
BASF Aktiengesellschaft shareholders may declare dividends at an Ordinary
General Shareholders' Meeting, which must be held within the first eight months
of each fiscal year.
Under German law, the shareholders of BASF Aktiengesellschaft may declare
and pay dividends only from balance sheet profits reflected in the
unconsolidated annual financial statements of BASF Aktiengesellschaft (as
opposed to the consolidated annual financial statements of BASF Group), as
adopted and approved by resolutions of the Board of Executive Directors and the
Supervisory Board. In determining the balance sheet profits that may be
distributed as dividends, the Board of Executive Directors may allocate to
profit reserves up to 50% of the net income of the fiscal year
(JahresuberschuSS) that remains after deducting amounts to be allocated to legal
and statutory reserves and losses carried forward. The Board of Executive
Directors may also increase balance sheet profits when preparing the financial
statements with funds withdrawn from profit reserves. The shareholders of BASF
Aktiengesellschaft in their resolution on the appropriation of balance sheet
profits may carry forward balance sheet profits in part or in full and may
allocate additional amounts to profit reserves. Profits carried forward will be
automatically incorporated in the balance sheet profits of the next fiscal year
and may be used in their entirety to pay dividends in the next fiscal year.
Amounts allocated to the profit reserves are available for dividends only if and
to the extent the profit reserves have been dissolved by the Board of Executive
Directors when preparing the financial statements, thereby increasing the
balance sheet profits.
Dividends approved at an Ordinary General Shareholders' Meeting are payable
promptly after such meeting, unless otherwise decided at the meeting. In the
case of shareholders holding physical certificates,
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a paying agent appointed by BASF Aktiengesellschaft pays dividends against
presentation of the appropriate dividend coupon. The dividend coupon must be
presented within the four-year period commencing on the last day of the year in
which the dividend became due. Details regarding paying agents are published in
the German Federal Gazette. Shareholders holding shares through Clearstream
receive dividends by credit to their respective accounts.
In accordance with the German Stock Corporation Act, upon a liquidation of
BASF Aktiengesellschaft, any liquidation proceeds remaining after paying off all
of BASF Aktiengesellschaft's liabilities would be distributed to the holders of
BASF Shares in proportion to the total nominal value of the shares held by each
holder.
PRE-EMPTIVE RIGHTS
Under the German Stock Corporation Act, a shareholder of a corporation has
a preferential right to subscribe to any issue by such corporation of new
shares, bonds convertible into shares, bonds with warrants to purchase shares or
instruments granting a profit participation right. The proportional share of the
issue to which the shareholder may subscribe is equal to the proportional share
of existing capital of the corporation that such shareholder holds. Pre-emptive
rights may be transferred during the exercise period of the pre-emptive rights
and generally are traded on the German Stock Exchanges.
When authorizing an increase in share capital of BASF Aktiengesellschaft
and a new issue of shares, the shareholders of BASF Aktiengesellschaft, by means
of a resolution passed by a majority of three quarters of the share capital
taking part in the vote, may exclude in whole or in part any pre-emptive rights
attaching to the new issue. In addition, when creating authorized capital, the
shareholders of BASF Aktiengesellschaft, also by a resolution passed by a
majority of three quarters of the share capital taking part in the vote, may
authorize the Board of Executive Directors to exclude the pre-emptive rights
attaching to any BASF Shares issued pursuant to such authorized capital. With
respect to the existing authorized capital of E500,000,000.00 the Board of
Executive Directors, subject to the consent of the Supervisory Board, is
authorized to exclude shareholder pre-emptive rights to the extent necessary (a)
to grant subscription rights to holders of warrants and to holders of options
issued under BASF's stock option program, (b) to acquire, where appropriate,
business enterprises, parts of business enterprises or shares in business
enterprises against the issuance of shares, and (c) to introduce the BASF Shares
on a non-German stock exchange. The Board of Executive Directors is further
authorized to exclude shareholder pre-emptive rights in the event of a capital
increase against cash contributions of up to a maximum nominal amount of
E150,000,000.00 if the issue price of the new shares is not substantially lower
than the stock exchange quotation at the time of issuance.
ACQUISITION OF BASF SHARES BY BASF AKTIENGESELLSCHAFT
Under the German Stock Corporation Act, a stock corporation may acquire its
own shares in a limited number of exceptional cases, including if so authorized
by a shareholder resolution adopted at a General Shareholders' Meeting. At the
General Shareholders' Meeting of BASF Aktiengesellschaft held on April 27, 2000,
the shareholders authorized the Board of Executive Directors to buy back BASF
Shares representing up to 10% of BASF Aktiengesellschaft's outstanding share
capital. The Board of Executive Directors may either cancel the shares
re-bought, reducing the company's outstanding share capital, or re-sell the
shares subject to a further resolution adopted at a General Shareholders'
Meeting. On March 8, 2000, BASF Aktiengesellschaft announced its intention to
buy back BASF Shares over the course of the following months for a total
purchase price of up to E2 billion, which could result in a buy-back of
approximately 7% of the outstanding BASF Shares based on a purchase price of
E44.30 per share. As of May 1, 2000, BASF Aktiengesellschaft had bought
6,215,000 BASF Shares, approximately 1% of the outstanding BASF Shares.
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DESCRIPTION OF AMERICAN DEPOSITARY SHARES
The following is a summary of certain provisions of the Deposit Agreement
(the "Deposit Agreement"), to be entered into among BASF Aktiengesellschaft, The
Bank of New York, as depositary (the "Depositary"), and the registered holders
(the "Holders") of American Depositary Receipts (ADRs) and the owners of a
beneficial interest in book-entry ADRs (the "Beneficial Owners"), pursuant to
which the ADRs are to be issued.
This summary does not purport to be complete and is subject to and
qualified in its entirety by reference to the Deposit Agreement, including the
form of ADRs. Terms used herein and not otherwise defined will have the meanings
set forth in the Deposit Agreement. Copies of the Deposit Agreement and the
Articles of Association of BASF Aktiengesellschaft will be available for
inspection at the Corporate Trust Office of the Depositary, currently located at
101 Barclay Street, New York, New York 10286, and at the principal office of the
agent of the Depositary (the "Custodian"), currently located at each of the
Frankfurt am Main offices of Dresdner Bank AG and Deutsche Bank AG. The
Depositary's principal executive office is located at One Wall Street, New York,
New York 10286.
AMERICAN DEPOSITARY RECEIPTS
ADRs evidencing American Depositary Shares are issuable by the Depositary
pursuant to the Deposit Agreement. Each ADS will represent one BASF Share or
evidence of the right to receive one BASF Share (together with any additional
BASF Shares at any time deposited or deemed deposited under the Deposit
Agreement and any and all other securities, cash and property received by the
Depositary or the Custodian in respect thereof and at such time held under the
Deposit Agreement ("Deposited Securities"). Only persons in whose names ADRs are
registered on the books of the Depositary will be treated by the Depositary and
BASF Aktiengesellschaft as Holders.
DEPOSIT, TRANSFER AND WITHDRAWAL
Subject to the terms of the Deposit Agreement, the Depositary has agreed
that upon deposit with the Custodian of BASF Shares by delivery thereof to the
account of such Custodian, accompanied by all existing dividend coupons in
respect of dividends to be paid in the future on such BASF Shares or appropriate
evidence thereof (or evidence of rights to receive such BASF Shares and dividend
coupons), it will, upon payment of all taxes, charges and fees provided in the
Deposit Agreement, execute and deliver at its Corporate Trust Office to, or upon
the order of, the person or persons named in the notice of the Custodian
delivered to the Depositary or requested by the person depositing such BASF
Shares with the Depositary, an ADR or ADRs registered in the name or names of
such person or persons, and evidencing any authorized number of ADSs requested
by such person or persons.
Subject to the terms and conditions of the Deposit Agreement and any
limitations established by the Depositary, unless requested in writing by BASF
Aktiengesellschaft to cease doing so, the Depositary may deliver ADRs prior to
the receipt of BASF Shares (a "Pre-Release"), may deliver BASF Shares upon the
receipt and cancellation of ADRs that have been Pre-Released, whether or not
such cancellation is prior to the termination of such Pre-Release or the
Depositary knows that such ADR has been Pre-Released, and may receive ADRs in
lieu of BASF Shares in satisfaction of a Pre-Release. Each Pre-Release must be
(a) preceded or accompanied by a written representation and agreement from the
person to whom the ADRs are to be delivered (the "Pre-Releasee") that such
Pre-Releasee, or its customer, (i) owns the BASF Shares or ADRs, to be remitted,
as the case may be, (ii) assigns all beneficial rights, title and interest in
such BASF Shares or ADRs, as the case may be, to the Depositary for the benefit
of the Holders, and (iii) will not take any action with respect to such BASF
Shares or ADRs, as the case may be, that is inconsistent with the transfer of
beneficial ownership (including, without the consent of the Depositary,
disposing of such BASF Shares or ADRs, as the case may be), other than in
satisfaction of such Pre-Release, (b) at all times fully collateralized with
cash, U.S. government securities or such other collateral as the Depositary
determines, in good faith, will provide substantially similar liquidity or
security, (c) terminable by the Depositary on not more than five business days'
notice and (d) subject to such
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further indemnities and credit regulations as the Depositary deems appropriate.
The Depositary will also set Dollar limits with respect to Pre-Release
transactions to be entered into under the Deposit Agreement with any particular
Pre-Releasee on a case-by-case basis as it deems appropriate. The collateral
referred to in clause (b) above shall be held by the Depositary as security for
the performance of the Pre-Releasee's obligations to the Depositary in
connection with a Pre-Release transaction, including the Pre-Releasee's
obligations to deliver BASF Shares or ADRs upon termination of a Pre-Release
transaction. The number of BASF Shares not deposited but represented by ADRs
outstanding at any time as a result of Pre-Releases will generally not exceed
30% of the BASF Shares deposited under the Deposit Agreement; provided, however,
that the Depositary may disregard such limit from time to time as it deems
reasonably appropriate and may, with prior written consent of BASF
Aktiengesellschaft, change such limit for purposes of general application.
Upon surrender at the Corporate Trust Office of the Depositary of an ADR
for the purpose of withdrawal of the Deposited Securities represented by the
ADSs evidenced by such ADR, payment of the fees of the Depositary for the
surrender of Receipts, governmental charges and taxes provided in the Deposit
Agreement and delivery of written instructions in accordance with the Deposit
Agreement, and subject to the terms and conditions of the Deposit Agreement, the
Holder of such ADR will be entitled to delivery, to him or upon his order, of
the amount of Deposited Securities at the time represented by the ADS or ADSs
evidenced by such ADR. See "Description of BASF Shares," above. The forwarding
of share certificates, other securities, property, cash and other documents of
title for such delivery will be at the risk and expense of the Holder.
DIVIDENDS, OTHER DISTRIBUTIONS AND RIGHTS
Subject to any restrictions imposed by German law, regulations or
applicable permits, the Depositary is required to convert or cause to be
converted into U.S. dollars in the manner provided in the Deposit Agreement, to
the extent that in its reasonable judgment it can do so on a reasonable basis
and can transfer the resulting U.S. dollars to the United States, all cash
dividends and other cash distributions denominated in a currency other than U.S.
dollars, including euros ("Foreign Currency"), that it receives in respect of
the deposited BASF Shares, and to distribute the resulting U.S. dollar amount
(net of any expenses incurred by the Depositary in converting such Foreign
Currency) to the Holders entitled thereto, in proportion to the number of ADSs
representing such Deposited Securities evidenced by ADRs held by them,
respectively. The amount distributed to the Holders of ADRs will be reduced by
any amount on account of taxes or other governmental charges to be withheld by
BASF Aktiengesellschaft, the Depositary or the Custodian. See "Liability of
Holder for Taxes" below.
If the Depositary determines, after consultation with BASF
Aktiengesellschaft, that in its judgment any Foreign Currency received by the
Depositary or the Custodian cannot be converted on a reasonable basis into
Dollars transferrable to the United States, or if any approval or license of any
government or agency thereof that is required for such conversion is denied or
in the opinion of the Depositary is not obtainable, or if any such approval or
license is not obtained within a reasonable period as determined by the
Depositary, the Depositary may distribute the Foreign Currency received by the
Depositary of the Custodian to, or in its discretion may hold such Foreign
Currency uninvested and without liability for interest thereon for the
respective accounts of, the Holders entitled to receive the same. If any such
conversion of Foreign Currency, in whole or in part, cannot be effected for
distribution to some of the Holders entitled thereto, the Depositary may in its
discretion make such conversion and distribution in U.S. dollars to the extent
permissible to the Holders entitled thereto, and may distribute the balance of
the Foreign Currency received by the Depositary to, or hold such balance
uninvested and without liability for interest thereon for, the respective
accounts of, the Holders entitled thereto.
If BASF Aktiengesellschaft declares a dividend in, or free distribution of,
BASF Shares, the Depositary may, and shall if BASF Aktiengesellschaft so
requests, distribute to the Holders of outstanding ADRs entitled thereto, in
proportion to the number of ADSs evidenced by the ADRs held by them,
respectively, additional ADRs evidencing an aggregate number of ADSs that
represents the amount of BASF Shares received as such dividend or free
distribution, subject to the terms and conditions of the
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Deposit Agreement with respect to the deposit of BASF Shares and the issuance of
ADSs evidenced by ADRs, including the withholding of any tax or other
governmental charge and the payment of fees of the Depositary. If the
Depositary, after consultation with BASF Aktiengesellschaft, determines that
such distribution is not feasible or may not be legally made to some or all
Holders, the Depositary may adopt such method as it may deem equitable and
practicable for the purpose of effecting such distribution. In lieu of
delivering ADRs for fractional ADSs in the event of any such dividend or free
distribution, if the Depositary elects to sell the amount of BASF Shares
represented by the aggregate of such fractions, it will distribute the net
proceeds in accordance with the Deposit Agreement.
If BASF Aktiengesellschaft offers or causes to be offered to the holders of
Deposited Securities any rights to subscribe for additional BASF Shares or any
rights of any other nature, the Depositary will, following consultation with
BASF Aktiengesellschaft: (a) make such rights available to all or certain
Holders by means of warrants or otherwise, if lawful and feasible, or (b) if
making such rights available is not lawful or not feasible, or if the rights
represented by such warrants or other instruments are not exercised and appear
to be about to lapse, use its reasonable efforts to sell such rights or warrants
or other instruments at a public or private sale, at such place or places and
upon such terms as the Depositary may deem reasonably proper, and allocate the
net proceeds of such sales (net of all taxes and governmental charges payable in
connection with such rights and the fees of Depositary) for the account of the
Holders otherwise entitled thereto upon an averaged or other practicable basis
without regard to any distinctions among such Holders because of the application
of exchange restrictions with regard to a particular Holder or otherwise and
distribute such net proceeds as in the case of distribution received in cash.
The Depositary will not offer rights to Holders unless both the rights and
the securities to which such rights relate are either exempt from registration
under the Securities Act with respect to a distribution to all Holders or are
registered under the provisions of such Act; provided that nothing in the
Deposit Agreement will create, or be construed to create, any obligation on the
part of BASF Aktiengesellschaft to file a Registration Statement with respect to
such rights or underlying securities or to endeavor to have such a Registration
Statement declared effective. The Depositary will not be responsible for any
failure to determine that it may be lawful or feasible to make such rights
available to Holders in general or any Holder in particular. If the Depositary
can neither make such rights available to such Holders nor dispose of such
rights and make the net proceeds available to such Holders, then the Depositary
will allow the rights to lapse.
Whenever the Custodian or the Depositary receives any distribution other
than cash, BASF Shares or rights in respect of the Deposited Securities, the
Depositary will, as promptly as practicable, after consultation with BASF
Aktiengesellschaft, cause the securities or property received by it or by the
Custodian to be distributed to the Holders entitled thereto, after deduction or
upon payment of any fees and expenses of the Depositary or any taxes or other
governmental charges, in proportion to their holdings, respectively, in any
manner that the Depositary deems equitable and practicable for accomplishing
such distribution; provided, however, that if BASF Aktiengesellschaft shall so
direct, or if in the opinion of the Depositary, such distribution cannot be made
or cannot be made proportionately among the Holders entitled thereto, or if for
any other reason (including, but not limited to, any requirement that BASF
Aktiengesellschaft, the Custodian or the Depositary withhold an amount on
account of taxes or other governmental charges or that such securities must be
registered under the Securities Act in order to be distributed to Holders) the
Depositary deems such distribution not to be feasible or may not be legally made
to some or all Holders, the Depositary may adopt such method as it may deem
lawful, equitable and practicable for the purpose of effecting such
distribution, including, but not limited to, the public or private sale of the
securities of property thus received, or any part thereof, and the net proceeds
of any such sale will be distributed by the Depositary to the Holders entitled
thereto as in the case of a distribution received in cash.
If the Depositary determines that any distribution of property (including
BASF Shares and rights to subscribe therefor) is subject to any taxes or other
governmental charges that the Depositary is obligated to withhold, the
Depositary may, by public or private sale, dispose of all or a portion of such
property in such amount and in such manner as the Depositary deems necessary and
practicable to pay such taxes or
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charges, and the Depositary will distribute the net proceeds of any such sale
after deduction of such taxes or charges to the Holders entitled thereto in
proportion to the number of ADSs held by them, respectively.
Upon any change in nominal value or any reclassification of Deposited
Securities, or upon any recapitalization, reorganization, merger or
consolidation or sale of assets affecting BASF Aktiengesellschaft or to which it
is a party, any securities that shall be received by the Depositary or Custodian
in exchange for, in conversion of, or in conversion, replacement or otherwise in
respect of Deposited Securities will be treated as Deposited Securities under
the Deposit Agreement, and the ADSs will, subject to the Deposit Agreement and
applicable laws, thenceforth represent the Deposited Securities so received,
unless and until additional or new ADRs are delivered pursuant to the following
sentence. In any such case the Depositary may and will, if BASF
Aktiengesellschaft so requests, at no cost to Holders execute and deliver
additional ADRs as in the case of a distribution in BASF Shares, or call for the
surrender of outstanding ADRs to be exchanged for new ADRs specifically
describing such new Deposited Securities.
RECORD DATES
Whenever any cash dividend or other cash distribution is to be declared and
paid or any distribution other than cash is to be declared and made, or whenever
rights are issued with respect to the Deposited Securities, or whenever, for any
reason, the Depositary causes a change in the number of BASF Shares that are
represented by each ADS, or whenever the Depositary receives notice of any
meeting of or solicitation of consents or proxies from holders of Deposited
Securities, or whenever BASF Aktiengesellschaft or the Depositary find it
necessary or convenient in respect of any matter, the Depositary will, after
consultation with BASF Aktiengesellschaft, to the extent practicable, fix a
record date (which will, to the extent practicable, be the same date that
holders of BASF Shares will be entitled to such rights) (a) for the
determination of the Holders who shall be entitled to (i) receive such dividend,
distribution or rights, or the net proceeds of the sale thereof, (ii) give
instructions for the exercise of voting rights, if any, at any such meeting or
to receive information as to such meeting, or (iii) to receive information as to
such meeting or (b) on or after which each ADS will represent the changed number
of BASF Shares, subject in each case to the provisions of the Deposit Agreement.
VOTING OF THE UNDERLYING BASF SHARES
As promptly as practicable after receipt of notice from BASF
Aktiengesellschaft of any meeting or solicitation of consents or proxies of
holders of BASF Shares or other Deposited Securities, the Depositary shall mail
to the Holders a notice (a) containing the information in BASF's notice or
solicitation to the Depositary, (b) stating that each Holder on the record date
set by the Depositary therefore will be entitled subject to all applicable
provisions of law, including any laws of Germany, the Articles of Association
(Satzung) of BASF Aktiengesellschaft and the Deposit Agreement, to instruct the
Depositary as to the exercise of the voting rights, if any, pertaining to the
whole number of Deposited Securities underlying such Holder's ADSs, (c)
specifying how and when such instructions may be given, and (d) stating that if
no voting instructions are received from a Holder on or before the date
established by the Depositary for such purpose, such Holder shall be deemed to
have instructed the Depositary not to vote the Deposited Securities underlying
such Holder's ADSs. Upon receipt of instructions of a Holder on such record date
in the manner and on or before the date established by the Depositary for such
purpose, the Depositary shall endeavor, insofar as practicable and permitted
under applicable law, the Articles of Association (Satzung) of BASF
Aktiengesellschaft and the provisions of or governing Deposited Securities, to
vote or cause to be voted the Deposited Securities underlying such Holder's ADSs
in accordance with such instructions. Upon the request of a Holder who has not
previously given instructions to the Depositary after receipt of the Notice as
to the exercise of voting rights pertaining to the Deposited Securities
underlying such Holder's ADSs, and subject to compliance with any reasonable
regulations the Depositary may establish, the Depositary will endeavor to
provide such Holder (or a person designated by such Holder) with the
documentation necessary to attend a meeting of holders of Deposited Securities.
The Depositary shall not vote or cause to be voted Deposited Securities,
other than in accordance with such instructions received from Holder of ADSs.
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The Depositary will endeavor to ensure that on any date on which it votes
or causes to be voted Deposited Securities, it will have on deposit under the
Deposit Agreement the number of Deposited Securities with respect to which it
has received voting instructions from Holders. In the event that, on any such
date, the number of Deposited Securities on deposit under the Deposit Agreement
is less than the number of Deposited Securities with respect to which the
Depositary has received voting instructions, the Depositary shall vote or cause
to be voted such Deposited Securities in accordance with such instructions
adjusting the number of Deposited Securities voted on a pro-rated basis.
The Depositary shall use its best efforts to vote or cause to be voted
Shares or other Deposited Securities underlying ADRs in accordance with
instructions received from Holders, provided, however, that the Depositary shall
not be responsible for any failure to carry out any instructions to vote any of
the Deposited Securities, or for the manner in which any such vote is cast or
the effect of any such vote, provided that any such action or nonaction is in
good faith.
Nothing in the Deposit Agreement shall be construed to grant to a Holder
any voting rights with respect to Deposited Securities to which, by their terms,
voting rights do not otherwise attach.
NOTICES AND REPORTS
The Depositary will make available for inspection by Holders at its
Corporate Trust Office any notices, reports and communications, including any
proxy soliciting materials, received from BASF Aktiengesellschaft that are both
(a) received by the Depositary as holder of the Deposited Securities and (b)
made generally available to the holders of such Deposited Securities by BASF
Aktiengesellschaft. The Depositary will also send to Holders copies of such
reports and communications and of certain notices when furnished by BASF
Aktiengesellschaft as provided in the Deposit Agreement. Any such notices,
reports and communications, including any proxy soliciting material, furnished
to the Depositary by BASF Aktiengesellschaft will be furnished in English.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of the ADRs and any provisions of the Deposit Agreement may at any
time be amended without the consent of the Holders by agreement between BASF
Aktiengesellschaft and the Depositary. Any amendment that imposes or increases
any fees or charges (other than taxes and other governmental charges), or that
otherwise prejudices any substantial existing right of Holders, will not become
effective as to outstanding ADRs until the expiration of 30 days after written
notice of such amendment has been given by the Depositary to the Holders of
outstanding ADRs. Every Holder at the expiration of such 30-day period will be
deemed, by continuing to hold such ADR, to consent and agree to such amendment
and to be bound by the Deposit Agreement, as amended. In no event may any
amendment impair the right of any Holder to surrender his ADR and receive
therefor the Deposited Securities represented thereby, except in order to comply
with mandatory provisions of applicable law.
Whenever so directed by BASF Aktiengesellschaft, the Depositary will
terminate the Deposit Agreement by mailing notice of such termination to the
Holders of all ADRs then outstanding at least 30 days prior to the date fixed in
such notice for such termination. The Depositary may likewise terminate the
Deposit Agreement if (upon 30 days' prior written notice to the Holders) 60 days
shall have expired after the Depositary shall have delivered to BASF
Aktiengesellschaft (receipt thereof confirmed by BASF Aktiengesellschaft) a
written notice of its election to resign and a successor Depositary shall not
have been appointed and accepted its appointment within such 60-day period. On
and after the date of termination, a Holder will, upon (a) surrender of his ADRs
at the Depositary's Corporate Trust Office, (b) payment of the Depositary's fees
for such surrender and (c) payment of any applicable taxes or other government
charges, be entitled to delivery, to him or upon his order, of the amount of
Deposited Securities represented thereby. If any ADRs remain outstanding after
the date of termination, the Depositary thereafter will discontinue the
registration of transfers of ADRs, will suspend the distribution of dividends to
the Holders thereof, will not accept deposits of BASF Shares (and will instruct
each Custodian to act accordingly) and will not give any further notices or
perform any further acts under the Deposit
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Agreement, except that the Depositary will continue to collect dividends and
other distributions pertaining to Deposited Securities, will sell property and
rights and convert Deposited Securities into cash as provided in the Deposit
Agreement and will continue to deliver Deposited Securities together with any
dividends or other distributions received with respect thereto and the net
proceeds of the sale of any rights or other property, in exchange for
surrendered ADRs. At any time after the expiration of one year from the date of
termination, the Depositary has the right under the Deposit Agreement to sell
the underlying BASF Shares and may hold uninvested the net proceeds, together
with any other cash then held, without liability for interest, for the pro rata
benefit of the Holders of ADRs that have not therefore been surrendered.
CHARGES OF DEPOSITARY
The Depositary will charge any party depositing or withdrawing BASF Shares
or any party surrendering ADRs or to whom ADRs are issued (including, without
limitation, issuance pursuant to a stock dividend or stock split declared by
BASF Aktiengesellschaft or an exchange of stock regarding the ADRs or Deposited
Securities or a distribution of ADRs pursuant to the Deposit Agreement) where
applicable: (1) taxes and other governmental charges; (2) such registration fees
as may be in effect for the registrations of BASF Shares; (3) such cable, telex
and facsimile transmission expenses as are expressly provided in the Deposit
Agreement; (4) such expenses as are incurred by the Depositary in the conversion
of Foreign Currency pursuant to the Deposit Agreement; (5) a fee of $5.00 or
less per 100 ADSs (or portion thereof) for the execution, delivery and
surrender, respectively, of ADRs pursuant to the Deposit Agreement; (6) a fee of
$0.02 or less per ADS (or any portion thereof) for certain cash distributions
pursuant to the Deposit Agreement; (7) a fee of $1.50 or less per certificate
for a Receipt for transfers made pursuant to Section 2.5 of the Deposit
Agreement and (8) a fee for the distribution of securities pursuant to Section
4.2 of the Deposit Agreement, such fee being in an amount equal to the fee for
the execution and delivery referred to above which would have been charged as a
result of the deposit of such securities (for purposes hereof treating all such
securities as if they were BASF Shares) but which securities are instead
distributed by the Depositary to Holders.
The Depositary, pursuant to the Deposit Agreement, may own and deal in any
class of securities of BASF Aktiengesellschaft and its affiliates and in ADRs.
LIABILITY OF HOLDER FOR TAXES OR OTHER GOVERNMENTAL CHARGES
If any tax or other governmental charge shall become payable with respect
to any ADR or any Deposited Securities represented by the ADSs evidenced by such
ADR, such tax or other governmental charge will be payable by the Holder of such
ADR to the Depositary. The Depositary may refuse, and BASF Aktiengesellschaft
shall be under no obligation, to effect any transfer of such ADR to issue any
new ADR or to permit any deposit or withdrawal of Deposited Securities
underlying such ADR until such payment is made, and BASF Aktiengesellschaft and
the Depositary may withhold any dividends or other distributions, or may sell
for the account of the Holder thereof any part or all of the Deposited
Securities underlying such ADR and may apply such dividends, distributions or
the proceeds of any such sale to pay any such tax or other governmental charge
and the Holder of such ADR will remain liable for any deficiency.
DISCLOSURE OF HOLDINGS
Each Holder is bound by and subject to the Articles of Association of BASF
Aktiengesellschaft as if such Holder were a holder of BASF Shares, and each
Holder must comply with all applicable provisions of German law as in effect
from time to time and the Articles of Association of BASF Aktiengesellschaft
with regard to notification to BASF Aktiengesellschaft and any governmental
authorities of such Holder's interest in BASF Shares (including those BASF
Shares represented by ADSs). Sections 21 and 22 of the German Securities Trading
Act (Wertpapierhandelsgesetz) as currently in effect require any person who,
either directly or by way of imputation, reaches, exceeds or falls below 5%,
10%, 25%, 50% or 75% of the voting rights in BASF Aktiengesellschaft, whether by
acquiring or disposing of BASF Shares or otherwise, forthwith, and at the latest
within seven calendar days, to inform BASF Aktiengesellschaft and the
185
<PAGE> 190
German Federal Supervisory Authority for Securities Trading (Bundesaufsichtsamt
fur den Wertpapierhandel) in writing that he has reached, exceeded or fallen
below the aforesaid thresholds, disclose the extent of his voting rights, and
notify the Federal Supervisory Authority for Securities Trading of his address.
Failure to notify BASF Aktiengesellschaft will, for so long as such failure
continues, result in the loss of any rights attached to the BASF Shares (e.g.,
voting rights and the right to receive dividends). In order to facilitate
compliance with these notification requirements, a Holder may deliver any such
notification with respect to American Depositary Shares representing BASF Shares
to the Depositary, and the Depositary shall, as soon as practicable thereafter,
forward such notification to BASF Aktiengesellschaft. Such notification will
not, however, be deemed to be effected until such time as BASF
Aktiengesellschaft receives it. Each Holder acknowledges that for as long as the
failure by such Holder promptly to provide any such required notification of
such interest in BASF Shares to BASF Aktiengesellschaft continues, such failure
will result in the suspension of certain rights in respect of such American
Depositary Shares of such Holder and the BASF Shares underlying such American
Depositary Shares owned by such Holder including, without limitation, voting
rights and the right to receive dividends.
GENERAL
None of the Depositary, the Custodian, BASF Aktiengesellschaft or any of
their respective officers, directors, employees, agents or affiliates will be
liable to any Holder or any other person, if by reason of any provision of any
present or future law or order of any government or agency thereof, or any
court, decree or regulation of the United States, Germany or any other country,
including any regulatory authority or stocks exchange or by reason of any
provision, present or future, of the Articles of Association of BASF
Aktiengesellschaft, or by reason of any provision of any securities issued or
distributed by BASF Aktiengesellschaft, or any offering or distribution thereof,
or by reason of any act of God or war or other circumstances beyond its control,
the Depositary or BASF Aktiengesellschaft or any of their respective officers,
directors, employees, agents or affiliates shall be prevented, delayed or
forbidden from, or be subject to any civil or criminal penalty on account of,
doing or performing any act or thing that by the terms of the Deposit Agreement
or the Deposited Securities it is provided will be done or performed; nor will
the Depositary or BASF Aktiengesellschaft or any of their respective officers,
directors, employees, agents, or affiliates incur any liability to any Holder of
any ADR by reason of any nonperformance or delay, caused as aforesaid, in the
performance of any act or thing that by the terms of the Deposit Agreement it is
provided will or may be done or performed or by reason of any exercise of, or
failure to exercise, any discretion provided for under the Deposit Agreement.
Where, by the terms of a distribution pursuant to the Deposit Agreement, or for
any other reason, such distribution may not be made available to Holders, and
the Depositary may not dispose of such distribution or offering on behalf of
such Holders and make the net proceeds available to such Holders, then the
Depositary will not make such distribution or offering, and will allow the
rights, if applicable, to lapse.
BASF Aktiengesellschaft and the Depositary assume no obligation nor will
they be subject to any liability under the Deposit Agreement to Holders or
Beneficial Owners of ADRs, except that they agree to perform their respective
obligations specifically set forth under the Deposit Agreement without
negligence or bad faith.
The ADRs are transferable on the books of the Depositary, provided that the
Depositary may close the transfer books at any time or from time to time when
deemed expedient by it in connection with the performance of its duties. As a
condition precedent to the execution and delivery, registration of transfer or
surrender of any ADR or withdrawal of any Deposited Securities, the Depositary,
the Custodian or BASF Aktiengesellschaft may require payment from the person
presenting the ADR or the depositor of the BASF Shares of a sum sufficient to
reimburse it for any tax or other governmental charge and any stock transfer or
registration fee with respect thereto (including any such tax or charge and fee
with respect to BASF Shares being deposited or withdrawn) and payment of any
applicable charges of the Depositary. The delivery, transfer, registration of
transfer of outstanding ADRs and surrender of ADRs generally may be suspended or
refused during any period when the transfer books of the Depositary are closed
or if any
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such action is deemed necessary or advisable by the Depositary or BASF
Aktiengesellschaft, at any time or from time to time. Notwithstanding any other
provision of the Deposit Agreement or the ADRs, the surrender of outstanding
ADRs and withdrawal of Deposited Securities may not be suspended, except as
required in connection with (i) temporary delays caused by closing the transfer
books of the Depositary or the deposit of BASF Shares in connection with voting
at a shareholders' meeting, or the payment of dividends, (ii) the payment of
fees, taxes and similar charges, and (iii) compliance with any United States or
foreign laws or governmental regulations relating to the ADRs or to the
withdrawal of Deposited Securities.
The Depositary will keep books, at its Corporate Trust Office, for the
registration and transfer of ADRs, which at all reasonable times will be open
for inspection by the Holders, provided that such inspection will not be for the
purpose of communication with Holders in the interest of a business or object
other than the business of BASF Aktiengesellschaft or a matter related to the
Deposit Agreement or the ADRs.
The Depositary, upon the written request of BASF Aktiengesellschaft or
after the approval of BASF Aktiengesellschaft, may appoint one or more
co-transfer agents for the purpose of effecting transfers and issuing new ADRs
at designated transfer offices on behalf of the Depositary. In carrying out its
functions, a co-transfer agent may require evidence of authority and compliance
with applicable laws and other requirements by Holders or persons entitled to
ADRs and will be entitled to protection and indemnity to the same extent as the
Depositary.
GOVERNING LAW
The Deposit Agreement and the ADRs will be governed by the laws of the
State of New York.
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PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES
None.
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PART IV
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
Reference is made to Item 19 for a list of all financial statements filed
as part of this Registration Statement.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) The following consolidated financial statements, together with the
report of Deloitte & Touche GmbH thereon, are filed as part of this Registration
Statement.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Index to Consolidated Financial Statements.................. F-i
Report of Independent Accountants........................... F-1
Consolidated Financial Statements
Consolidated Statements of Income for the years ended
December 31, 1997, 1998 and 1999....................... F-2
Consolidated Balance Sheets at December 31, 1998 and
1999................................................... F-3
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999....................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1998 and 1999........... F-5
Notes to the Consolidated Financial Statements.............. F-7
</TABLE>
All schedules are omitted because they are not applicable or because the
required information is contained in the Consolidated Financial Statements or
Notes.
(b) Documents filed as exhibits to this Registration Statement:
1.1 Articles of Association (Satzung) of BASF Aktiengesellschaft as amended to
date (English translation included).
2.1 Form of Deposit Agreement among BASF Aktiengesellschaft, The Bank of New
York as depositary, and all holders and beneficial owners from time to time
of American Depositary Receipts issued thereunder, including the form of
American Depositary Receipts.
3.1 Purchase Agreement dated March 20, 2000 by and among American Cyanamid
Company, American Home Products Corporation and BASF Aktiengesellschaft.*
5.1 List of subsidiaries of BASF Aktiengesellschaft.
* Confidential portions have been redacted and filed separately with the
Securities and Exchange Commission.
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BASF GROUP
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-1
Consolidated Financial Statements
Consolidated Statements of Income for the years ended
December 31, 1997, 1998 and 1999...................... F-2
Consolidated Balance Sheets at December 31, 1998 and
1999.................................................. F-3
Consolidated Statements of Cash Flows for the years
ended
December 31, 1997, 1998 and 1999..................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1998 and 1999.......... F-5
Notes to the Consolidated Financial Statements.............. F-7
</TABLE>
F-i
<PAGE> 195
REPORT OF INDEPENDENT ACCOUNTANTS
We have audited the accompanying consolidated balance sheets of BASF
Aktiengesellschaft and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity, 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 conducted our audits in accordance with generally accepted auditing
standards in Germany which, as applied by us, are substantially the same as
those followed in the United States of America. 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 provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of BASF Aktiengesellschaft and its
subsidiaries as of 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 in
Germany.
As discussed in Note 2 to the consolidated financial statements, the
Company changed certain accounting and valuation methods as of January 1, 1998.
Application of accounting principles generally accepted in the United
States of America would have affected stockholders' equity as of December 31,
1999 and 1998 and net income for each of the years then ended to the extent
summarized in Note 3 to the consolidated financial statements.
Frankfurt am Main,
March 1, 2000
Deloitte & Touche GmbH
Wirtschaftsprufungsgesellschaft
<TABLE>
<S> <C>
/s/ EMMERICH /s/ KOMPENHANS
Professor Dr. Emmerich Kompenhans
Wirtschaftsprufer Wirtschaftsprufer
</TABLE>
F-1
<PAGE> 196
BASF GROUP
CONSOLIDATED STATEMENTS OF INCOME
(EUROS AND DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
NOTE 1997 1998 1999 1999
---- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Sales.................................. E 30,117.3 E 29,245.6 E 31,318.2 $ 31,539.0
Petroleum and natural gas taxes........ (1,597.4) (1,602.7) (1,845.5) (1,858.5)
---------- ---------- ---------- ----------
SALES, NET OF PETROLEUM AND NATURAL GAS
TAXES................................ 4 28,519.9 27,642.9 29,472.7 29,680.5
Cost of sales.......................... (18,161.3) (17,274.5) (18,391.3) (18,520.9)
---------- ---------- ---------- ----------
GROSS PROFIT ON SALES.................. 10,358.6 10,368.4 11,081.4 11,159.6
Selling expenses....................... (4,783.2) (4,963.2) (5,279.9) (5,317.1)
General and administrative expenses.... (714.0) (772.5) (677.0) (681.8)
Research and development expenses...... (1,303.2) (1,309.3) (1,333.0) (1,342.4)
Other operating income................. 5 1,093.9 1,136.9 978.2 985.1
Other operating expenses............... 6 (1,921.0) (1,836.6) (2,761.0) (2,780.5)
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS................. 2,731.1 2,623.7 2,008.7 2,022.9
---------- ---------- ---------- ----------
Expense/income from financial assets... (24.4) 87.7 727.4 732.5
Write-downs of, and losses from,
retirement of financial assets as
well as securities held as current
assets............................... (32.4) (48.4) (22.2) (22.4)
Interest result........................ 51.4 107.8 (108.4) (109.2)
---------- ---------- ---------- ----------
FINANCIAL RESULT....................... 7 (5.4) 147.1 596.8 600.9
---------- ---------- ---------- ----------
INCOME BEFORE TAXES AND MINORITY
INTERESTS............................ 2,725.7 2,770.8 2,605.5 2,623.8
---------- ---------- ---------- ----------
Income taxes........................... 8 (1,086.8) (1,106.8) (1,360.8) (1,370.4)
---------- ---------- ---------- ----------
INCOME BEFORE MINORITY INTERESTS....... 1,638.9 1,664.0 1,244.7 1,253.4
Minority interests..................... 9 (15.5) (35.4) 7.9 7.9
---------- ---------- ---------- ----------
NET INCOME............................. E 1,654.4 E 1,699.4 E 1,236.8 $ 1,245.5
---------- ---------- ---------- ----------
EARNINGS PER SHARE..................... E 2.67 E 2.73 E 2.00 $ 2.01
</TABLE>
- - - - - - ---------------
Solely for the convenience of the reader, the 1999 financial information has
been translated into United States dollars using the December 31, 1999 noon
buying rate of the Federal Reserve Bank of New York of $1.00 = E0.9930.
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-2
<PAGE> 197
BASF GROUP
CONSOLIDATED BALANCE SHEETS
(EUROS AND DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------
NOTE 1998 1999 1999
---- --------- --------- ---------
<S> <C> <C> <C> <C>
ASSETS
Intangible assets..................................... 11 E 1,964.9 E 2,146.8 $ 2,161.9
Property, plant and equipment......................... 12 10,754.5 12,416.3 12,503.8
Financial assets...................................... 13 1,826.1 1,506.6 1,517.2
--------- --------- ---------
FIXED ASSETS.......................................... 14,545.5 16,069.7 16,182.9
--------- --------- ---------
Inventories........................................... 14 3,703.4 4,027.7 4,056.1
Accounts receivable, trade............................ 4,017.4 4,966.7 5,001.7
Receivables from affiliated companies................. 646.8 724.5 729.6
Miscellaneous receivables and other assets............ 1,073.6 1,357.2 1,366.8
--------- --------- ---------
Receivables and other assets.......................... 15 5,737.8 7,048.4 7,098.1
--------- --------- ---------
Marketable securities................................. 745.7 517.4 521.0
Cash and cash equivalents............................. 756.9 990.2 997.2
--------- --------- ---------
Liquid funds.......................................... 1,502.6 1,507.6 1,518.2
--------- --------- ---------
CURRENT ASSETS........................................ 10,943.8 12,583.7 12,672.4
--------- --------- ---------
DEFERRED TAXES........................................ 8 1,077.3 1,225.4 1,234.0
PREPAID EXPENSES...................................... 17 135.1 130.2 131.2
--------- --------- ---------
TOTAL ASSETS.......................................... 26,701.7 30,009.0 30,220.5
--------- --------- ---------
STOCKHOLDERS' EQUITY AND LIABILITIES
Subscribed capital.................................... 18 1,594.7 1,589.7 1,600.9
Capital surplus....................................... 18 2,590.1 2,675.2 2,694.1
Retained earnings..................................... 19 8,695.1 9,001.7 9,065.2
Currency translation adjustment....................... 39.5 549.3 553.2
Minority interests.................................... 20 330.7 329.3 331.6
--------- --------- ---------
STOCKHOLDERS' EQUITY.................................. 13,250.1 14,145.2 14,245.0
--------- --------- ---------
Provisions for pensions and similar obligations....... 21 4,062.5 4,170.0 4,199.4
Provisions for taxes.................................. 487.3 662.6 667.3
Other provisions...................................... 22 3,196.1 3,805.1 3,831.9
--------- --------- ---------
PROVISIONS............................................ 7,745.9 8,637.7 8,698.6
--------- --------- ---------
Bonds and other liabilities to capital market......... 23 590.5 516.7 520.3
Liabilities to credit institutions.................... 23 725.3 777.7 783.2
Accounts payable, trade............................... 1,871.2 2,316.0 2,332.3
Liabilities to affiliated companies................... 202.8 208.0 209.5
Miscellaneous liabilities............................. 23 2,115.1 3,217.4 3,240.1
--------- --------- ---------
LIABILITIES........................................... 5,504.9 7,035.8 7,085.4
--------- --------- ---------
DEFERRED INCOME....................................... 200.8 190.3 191.5
--------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES............ E26,701.7 E30,009.0 $30,220.5
--------- --------- ---------
</TABLE>
- - - - - - ---------------
Solely for the convenience of the reader, the 1999 financial information has
been translated into United States dollars using the December 31, 1999 noon
buying rate of the Federal Reserve Bank of New York of $1.00 = E0.9930.
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-3
<PAGE> 198
BASF GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EUROS AND DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1998 1999 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income....................................... E 1,654.4 E 1,699.4 E 1,236.8 $ 1,245.5
Depreciation of fixed assets..................... 2,056.9 2,288.7 2,690.0 2,709.0
Changes in long-term provisions.................. (61.0) (229.7) 204.5 205.9
Other non-cash items............................. 43.9 (47.4) (41.9) (42.2)
(Gains) losses from disposal of fixed assets and
securities..................................... 9.4 (148.4) (1,006.6) (1,013.7)
Changes in inventories........................... (19.9) 93.1 (218.5) (220.0)
Changes in receivables........................... (817.5) 336.8 (1,326.6) (1,336.0)
Changes in other operating liabilities........... 425.1 (248.0) 1,717.3 1,729.4
--------- --------- --------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES............ 3,291.3 3,744.5 3,255.0 3,277.9
--------- --------- --------- ---------
Additions to tangible and intangible fixed
assets......................................... (2,479.5) (2,722.2) (2,938.7) (2,959.4)
Additions to financial assets and securities..... (953.9) (1,177.0) (877.7) (883.9)
Payments related to acquisitions................. (461.1) (968.9) (397.3) (400.1)
Proceeds from divestitures....................... 97.6 208.6 1,093.5 1,101.2
Proceeds from the disposal of fixed assets and
securities..................................... 1,177.1 1,432.4 1,021.7 1,028.9
--------- --------- --------- ---------
CASH USED IN INVESTING ACTIVITIES................ (2,619.8) (3,227.1) (2,098.5) (2,113.3)
--------- --------- --------- ---------
Proceeds from capital increases.................. 63.2 27.3 80.1 80.7
Share repurchase................................. - - (255.6) (257.4)
Proceeds from the addition of financial
indebtedness................................... 127.0 336.9 2,350.9 2,367.5
Repayment of financial indebtedness.............. (125.2) (431.6) (2,446.2) (2,463.4)
Dividends paid
- - - - - - - To shareholders of BASF Aktiengesellschaft..... (537.2) (636.1) (692.8) (697.7)
- - - - - - - To minority shareholders....................... 18.0 5.7 (4.7) (4.7)
--------- --------- --------- ---------
CASH USED IN FINANCING ACTIVITIES................ (454.2) (697.8) (968.3) (975.0)
--------- --------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS.......... 217.3 (180.4) 188.2 189.6
--------- --------- --------- ---------
Effects on cash and cash equivalents
- - - - - - - From foreign exchange rates.................... 6.8 (17.1) 19.6 19.7
- - - - - - - From changes in scope of consolidation......... 27.6 111.6 25.5 25.7
Cash and cash equivalents as of beginning of
year........................................... 591.1 842.8 756.9 762.2
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AS OF END OF YEAR...... 842.8 756.9 990.2 997.2
--------- --------- --------- ---------
Marketable securities............................ 1,003.0 745.7 517.4 521.0
--------- --------- --------- ---------
LIQUID FUNDS AS SHOWN ON THE BALANCE SHEET....... E 1,845.8 E 1,502.6 E 1,507.6 $ 1,518.2
--------- --------- --------- ---------
</TABLE>
- - - - - - ---------------
Solely for the convenience of the reader, the 1999 financial information has
been translated into United States dollars using the December 31, 1999 noon
buying rate of the Federal Reserve Bank of New York of $1.00 = E0.9930.
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-4
<PAGE> 199
BASF GROUP
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(EUROS IN MILLIONS)
<TABLE>
<CAPTION>
NUMBER OF
SUBSCRIBED CURRENCY TOTAL
SHARES SUBSCRIBED CAPITAL RETAINED TRANSLATION MINORITY STOCKHOLDERS'
OUTSTANDING CAPITAL SURPLUS EARNINGS ADJUSTMENT INTERESTS EQUITY
1997 ----------- ---------- -------- -------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1997..................... 618,052,330 E1,580.0 E2,514.3 E6,262.4 E(129.1) E248.4 E10,476.0
Issuance of new shares from
conditional capital through the
exercise of warrants attached to
the 1986/2001 3% U.S. Dollar
Option Bond....................... 4,010,310 10.2 52.9 - - - 63.1
Issuance of new shares from
conditional capital to former
Wintershall shareholders as
compensation for Wintershall
shares outstanding from the tender
offer in 1968(1).................. 40 - - - - - -
Dividends paid...................... - - - (537.2) - 18.0* (519.2)
Net income.......................... - - - 1,654.4 - (15.5) 1,638.9
Increase of foreign currency
translation adjustments........... - - - - 329.4 - 329.4
Changes in scope of consolidation
and other changes................. - - - 38.3 - 3.9 42.2
----------- -------- -------- -------- ------- ------ ---------
December 31, 1997................... 622,062,680 E1,590.2 E2,567.2 E7,417.9 E 200.3 E254.8 E12,030.4
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SUBSCRIBED CURRENCY TOTAL
SHARES SUBSCRIBED CAPITAL RETAINED TRANSLATION MINORITY STOCKHOLDERS'
OUTSTANDING CAPITAL SURPLUS EARNINGS ADJUSTMENT INTERESTS EQUITY
1998 ----------- ---------- -------- -------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997, as previously
reported.......................... 622,062,680 E1,590.2 E2,567.2 E7,417.9 E200.3 E254.8 E12,030.4
Changes in accounting methods to
U.S. GAAP to the extent permitted
under the German Commercial
Code.............................. - - - 238.1 - (43.3) 194.8
----------- -------- -------- -------- ------ ------ ---------
January 1, 1998, restated........... 622,062,680 1,590.2 2,567.2 7,656.0 200.3 211.5 12,225.2
Issuance of new shares from
conditional capital through the
exercise of warrants attached to
the 1986/2001 3% U.S. Dollar
Option Bond....................... 1,731,460 4.5 22.9 - - - 27.4
Issuance of new shares from
conditional capital to former
Wintershall shareholders as
compensation for Wintershall
shares outstanding from the tender
offer in 1968(1).................. 10 - - - - - -
Dividends paid...................... - - - (636.1) - 5.7* (630.4)
Net income.......................... - - - 1,699.4 - (35.4) 1,664.0
(Decrease)/increase of foreign
currency translation
adjustments....................... - - - - (160.8) 5.4 (155.4)
Changes in scope of consolidation
and other changes................. - - - (24.2) - 143.5 119.3
----------- -------- -------- -------- ------ ------ ---------
December 31, 1998................... 623,794,150 E1,594.7 E2,590.1 E8,695.1 E 39.5 E330.7 E13,250.1
</TABLE>
- - - - - - ---------------
(1) Amount is less than E100,000.
* Profit and loss transfers to minority interests
F-5
<PAGE> 200
BASF GROUP
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- CONTINUED
(EUROS IN MILLIONS)
<TABLE>
<CAPTION>
NUMBER OF
SUBSCRIBED CURRENCY TOTAL
SHARES SUBSCRIBED CAPITAL RETAINED TRANSLATION MINORITY STOCKHOLDERS'
OUTSTANDING CAPITAL SURPLUS EARNINGS ADJUSTMENT INTERESTS EQUITY
1999 ----------- ---------- -------- -------- ----------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1999.................... 623,794,150 E1,594.7 E2,590.1 E8,695.1 E 39.5 E330.7 E13,250.1
Issuance of new shares from
conditional capital through the
exercise of warrants attached to
the 1986/2001 3% U.S. Dollar
Option Bond...................... 5,086,690 13.0 67.1 - - - 80.1
Share buy-back and cancellation of
own shares....................... (7,896,200) (20.2) 20.2 (255.6) - - (255.6)
Capital increase in BASF
Aktiengesellschaft to reconcile
nominal value of BASF shares to
E2.56 per share.................. - 2.2 (2.2) - - - -
Dividends paid..................... - - - (692.8) - (4.7)* (697.5)
Net income......................... - - - 1,236.8 - 7.9 1,244.7
Increase of foreign currency
translation adjustments.......... - - - - 509.8 32.3 542.1
Changes in scope of consolidation
and other changes................ - - - 18.2 - (36.9) (18.7)
----------- -------- -------- -------- ------ ------ ---------
December 31, 1999.................. 620,984,640 E1,589.7 E2,675.2 E9,001.7 E549.3 E329.3 E14,145.2
</TABLE>
- - - - - - ---------------
* Profit and loss transfers to minority interests
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-6
<PAGE> 201
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
The Consolidated Financial Statements of BASF Aktiengesellschaft ("BASF" or
"BASF Aktiengesellschaft") are based on the accounting and valuation principles
of the German Commercial Code (Handelsgesetzbuch) and the German Stock
Corporation Act (Aktiengesetz).
As of January 1, 1998, certain accounting and valuation methods have been
adjusted to generally accepted accounting principles in the United States (U.S.
GAAP) to the extent permissible under the German Commercial Code. The effects of
these changes and the reconciliation of remaining significant deviations to U.S.
GAAP are described in Notes 2 and 3 to these Consolidated Financial Statements.
Insignificant deviations from U.S. GAAP have not been reconciled to U.S. GAAP
because the impact on net income and stockholders' equity is immaterial.
On January 1, 1999, the euro was introduced as the common legal currency of
11 member states of the European Economic and Monetary Union, including Germany.
BASF has adopted the euro as its reporting currency in its Consolidated
Financial Statements and translated all German marks (DM) amounts at the fixed
exchange rate for German marks to euro. Although these statements depict the
same trends as would have been shown had they been presented in German marks,
they may not be directly comparable to the financial statements of other
companies that have also been restated in euros. The euro did not exist prior to
January, 1999, and accordingly historical exchange rates for the euro are not
available. A comparison of the Consolidated Financial Statements and those of
another company that had historically used a reporting currency other than the
German mark that takes into account actual fluctuations in exchange rates could
give a much different impression than a comparison of the Consolidated Financial
Statements and those of another company as translated into euros. Note 1 (c) to
the Consolidated Financial Statements explains how the amounts in these
statements were translated. All monetary amounts shown in the Consolidated
Financial Statements are expressed in millions of euros, except per share
amounts.
The translation of euros into U.S. dollars ($) has been made solely for the
convenience of the reader at the noon buying rate of the Federal Reserve Bank of
New York on December 31, 1999, which was $1.00 = E0.9930. No representation is
made that such euro amounts could have been or could be converted into dollars
at that or any other exchange rate on such date or any other dates.
(b) SCOPE OF CONSOLIDATION
The Consolidated Financial Statements include BASF Aktiengesellschaft, the
parent company, and all material subsidiaries in which BASF Aktiengesellschaft
directly or indirectly exercises a majority of the voting rights or which are
otherwise controlled by BASF Aktiengesellschaft (collectively, the "Company").
Furthermore, all material 50% joint ventures are included on a proportional
consolidation basis. Subsidiaries and joint ventures whose impact on the net
worth, financial position and results of the Company that are immaterial,
individually and in the aggregate, are excluded from the scope of consolidation.
F-7
<PAGE> 202
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The number of consolidated companies and changes to the scope of
consolidation are listed below:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Consolidated companies as of beginning of year.............. 108 124 132
- - - - - - - Thereof proportional consolidation........................ 10 9 17
First-time consolidations................................... 21 19 26
- - - - - - - Thereof proportional consolidation........................ - 8 2
Deconsolidations............................................ 5 11 8
- - - - - - - Thereof proportional consolidation........................ 1 - 3
--- --- ---
Consolidated as of December 31.............................. 124 132 150
- - - - - - - Thereof proportional consolidation........................ 9 17 16
</TABLE>
Generally, affiliated companies and associated companies in which the
Company holds an equity interest of at least 20% are accounted for using the
equity method. Affiliated companies represent subsidiary companies which have
been excluded from the scope of consolidation on materiality grounds, while
associated companies represent those entities where the Company, through a
participation of at least 20%, exercises significant influence over the
operating and financial policies thereof. In 1999, a total of 25 (1997: 36,
1998: 32) affiliated companies and 10 (1997: 12, 1998: 9) associated companies
were accounted for using the equity method.
Major changes to the scope of consolidation, other than those relating to
corporate structure, relate to the following:
1997:
First-time consolidations comprise:
- Targor Group of Mainz, Germany, which consists of five companies, a joint
venture between BASF and Celanese AG that combined their European
polypropylene business as of July 1, 1997.
- A total of five companies headquartered in the United Kingdom, South
Africa, Mexico and Singapore that were included due to their increased
importance.
Deconsolidations comprise:
- Kali und Salz Beteiligungs AG of Kassel, Germany, a potash company in
which the Company reduced its shareholding to below 50%.
- The divestiture of Resart GmbH of Mainz, Germany, a company engaged in
the polymethyl methacrylate plastics business.
1998:
First-time consolidations comprise:
- Elenac Group of Kehl, Germany, and Strasbourg, France (which consists of
eight companies), a joint venture that combined the European polyethylene
businesses of BASF and Shell as of March 1, 1998. The Company has a 50%
ownership interest in this venture. Elenac acquired the polyethylene
business of Montell Polyolefine Company of the Netherlands effective
March 1, 1998, as well as the Hostalen business of Hoechst AG effective
December 31, 1998. The former joint venture company, Rheinische
Olefinwerke GmbH, became part of Elenac.
- Micro Flo Co. of Lakeland, Florida, a supplier of generic crop protection
products in the United States, which was acquired on June 30, 1998.
F-8
<PAGE> 203
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- A total of six companies headquartered in Korea, Japan, China and
Singapore that were included due to their increased importance.
Deconsolidations comprise:
- The divestiture of Chemag AG of Frankfurt, Germany, a trading company.
- The divestiture of Comparex Informationssysteme GmbH of Mannheim,
Germany, an information technology company (including four subsidiaries).
1999:
First-time consolidations comprise:
- BASELL C.V. of Rotterdam, the Netherlands, a joint venture with Shell
that has been consolidated since the start-up of the styrene and
propylene oxide plant.
- Salchi Spa of Italy, an industrial coatings manufacturer acquired in 1998
and now known as BASF Coatings Spa of Burago Molgora, Milan, Italy.
- Wintershall Energia S.A. of Buenos Aires, Argentina. The operation was
taken over in 1998 when Deminex was split between the partners.
- Another 23 subsidiaries previously not consolidated, mainly in the
Pharmaceuticals segment and Polyurethanes division.
Deconsolidations comprise:
- The divestiture of BASF Horticulture et Jardin S.A. of Levallois, France.
- The divestiture of Wintershall Canada Ltd. of Calgary, Alberta, Canada.
- The divestiture of the former joint venture Ultrasorb Chemikalien GmbH of
Ludwigshafen, Germany.
EFFECTS ON FINANCIAL STATEMENTS
Changes in the scope of consolidation, acquisitions and divestitures had
the following effects on the changes in the Consolidated Financial Statements:
<TABLE>
<CAPTION>
1997 1998 1999
------------------- ------------------- -------------------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Fixed assets........................................ E 231.3 2.0% E1,363.2 10.7% E 505.9 3.5%
- - - - - - - Thereof property, plant and equipment............. 246.3 3.0 796.0 8.8 343.0 3.2
Inventories and receivables......................... 139.7 1.6 189.7 1.9 (318.7) (3.0)
Liquid funds........................................ (282.9) (14.5) (645.2) (35.0) 711.1 47.3
------- -------- -------
Assets.............................................. 88.1 0.4 907.7 3.7 898.3 3.4
------- -------- -------
Stockholders' equity................................ (48.9) (0.5) 260.6 2.2 400.3 3.0
Financial liabilities............................... 149.9 14.4 338.7 30.1 107.6 8.2
Other liabilities................................... (12.9) (0.1) 308.4 2.7 390.4 3.2
------- ----- -------- ----- ------- ----
Stockholders' equity and liabilities................ E 88.1 0.4% E 907.7 3.7% E 898.3 3.4%
------- -------- -------
Sales............................................... 26 0.1% 483 1.7% 869 3.1%
- - - - - - - Thereof:
- Acquisitions.................................... 595 963 627
- Divestitures.................................... (618) (627) (331)
- Changes in scope of consolidation............... 49 147 573
</TABLE>
F-9
<PAGE> 204
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On a pro forma basis, if the 1997, 1998 and 1999 acquisitions had taken
place at the beginning of 1997, 1998 and 1999 respectively, the impact on net
sales, net income and basic and diluted earnings per share would not have been
material.
PROPORTIONAL CONSOLIDATION
The Company accounts for its investments in 16 joint ventures (1997: 9,
1998: 17) using the proportional consolidation method. This involves the
combination of the Company's pro rata interest in such ventures on a
line-by-line basis with the Company's Consolidated Financial Statements. The
Company believes that this consolidation method, which is permitted under German
GAAP, best illustrates its consolidated financial position and results of
operations.
Under U.S. GAAP, the investments in these joint ventures are required to be
accounted for using the equity method. The differences in accounting treatment
between proportional consolidation and the equity method of accounting have no
impact on reported stockholders' equity or net income. Rather, they relate
solely to matters of classification and display. The United States Securities
and Exchange Commission (SEC) permits the omission of such differences in
classification and display in the reconciliation to U.S. GAAP appearing in Note
3.
Condensed financial information relating to the Company's pro rata interest
in joint ventures accounted for using the proportional consolidation method is
as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
BALANCE SHEET INFORMATION 1998 1999
------------------------- -------- --------
(EUROS IN MILLIONS)
<S> <C> <C>
Fixed assets................................................ E 566.2 E 860.4
Current assets.............................................. 511.9 658.7
-------- --------
Total assets................................................ 1,078.1 1,519.1
Stockholders' equity........................................ 430.6 441.9
Provisions.................................................. 104.9 233.5
Liabilities................................................. 542.6 843.7
-------- --------
Total liabilities and stockholders' equity.................. E1,078.1 E1,519.1
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
STATEMENT OF INCOME INFORMATION 1997 1998 1999
------------------------------- -------- -------- --------
(EUROS IN MILLIONS)
<S> <C> <C> <C>
Sales................................................. E1,668.3 E1,716.6 E1,885.7
Income from operations................................ 137.3 108.2 156.8
Net income............................................ 93.8 87.0 113.7
CASH FLOW INFORMATION
Cash generated from operating activities.............. 64.6 201.9 120.5
Cash used for investing activities.................... (13.4) (347.2) (85.6)
Cash used for financing activities.................... (56.4) 163.4 (60.3)
Liquid funds.......................................... 2.3 21.1 19.4
</TABLE>
LIST OF SHAREHOLDINGS: A list of companies included in the Consolidated
Financial Statements as well as a list of all companies in which BASF has a
participation, have been deposited at the Commercial Registry HRB 3000 in
Ludwigshafen, Germany, as required by the German Commercial Code, Section
313(2).
F-10
<PAGE> 205
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BALANCE SHEET DATE: The Consolidated Financial Statements are generally
prepared using the individual financial statements of the companies forming part
of the group (hereinafter referred to as "consolidated companies"). Such
financial statements are generally prepared as of the balance sheet date of the
Consolidated Financial Statements. In certain cases, interim financial
statements or adjusted statements as of the balance sheet date of the
Consolidated Financial Statements are prepared and used.
UNIFORM VALUATION: Assets and liabilities of consolidated companies are
accounted for and valued uniformly in accordance with the principles described
herein. Where the accounting and valuation methods applied in the financial
statements of the consolidated companies differ from these principles,
appropriate adjustments are made to the relevant items. For companies accounted
for under the equity method, significant deviations in the valuation methods are
adjusted.
ELIMINATIONS: Transactions between consolidated companies are eliminated
in full and those for joint ventures, on a pro rata basis. Intercompany profits
resulting from sales between consolidated companies are eliminated unless they
originate from the construction of plants on customary market conditions and are
of minor importance. With regard to the companies accounted for under the equity
method, intercompany profits resulting from sales on customary market conditions
are not eliminated because the amounts are insignificant or because determining
them would involve a disproportionate amount of effort.
CAPITAL CONSOLIDATION: Capital consolidation is based on a method
equivalent to the purchase method required under U.S. GAAP. At the time of
acquisition, the acquisition cost of participations is offset against the
proportionate share of equity acquired. Differences arising are allocated to the
assets or liabilities of the acquired company up to their fair values or
capitalized as intangible fixed assets. Differences not allocated to individual
assets are capitalized as goodwill and amortized within the expected useful
life, generally within a period of seven to 15 years. For acquisitions prior to
December 31, 1997, goodwill is generally amortized within five years.
REVENUE RECOGNITION: Revenues from product sales and the performance of
services are recognized upon shipment to customers or performance of services.
Revenues on long-term natural gas contracts are recognized when the gas is
delivered. The terms of such contracts do not fix price. Provisions for
discounts, sales returns, rebates to customers, estimated future warranty
obligations and other claims are provided for in the same period the related
sales are recorded.
INTANGIBLE ASSETS: Intangible assets are stated valued at acquisition cost
less scheduled straight-line amortization. The weighted average amortization
period for the intangible assets for 1998 and 1999 is eight years based on the
following expected useful lives:
<TABLE>
<CAPTION>
ESTIMATED
LIVES
---------
<S> <C>
Goodwill.................................................... 5-15
Product rights and licenses................................. 3-15
Marketing, supply and similar rights........................ 4-20
Know-how and patents........................................ 5-15
Concessions, explorations rights and similar rights......... 3-25
Software.................................................... 3-5
Other rights and values..................................... 5-25
</TABLE>
Periodically, the Company evaluates goodwill and other intangible assets
whenever significant events or changes in circumstances occur which might impair
recovery of recorded asset costs.
F-11
<PAGE> 206
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
acquisition or production cost less scheduled depreciation over their estimated
useful lives. Low-value assets are fully depreciated in the year of acquisition
and are shown as retirements. Movable depreciable fixed assets that are
functionally integrated are treated as a single asset item. The cost of
self-constructed plants includes direct costs and an appropriate proportion of
the production overhead, but excludes financing costs for the period of
construction. Movable fixed assets are mostly depreciated by the declining
balance method, with a change to straight-line depreciation if this results in
higher depreciation rates. Long-distance natural gas pipelines and immovable
fixed assets are depreciated using the straight-line method.
The weighted average periods of depreciation are as follows:
<TABLE>
<CAPTION>
ESTIMATED
LIVES
---------
<S> <C>
Building and structural installations....................... 22
Industrial plant and machinery.............................. 9
Long-distance natural gas pipelines......................... 25
Working and office equipment and other facilities........... 8
</TABLE>
Property, plant and equipment are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying value of an asset may not
be recoverable. In performing this review of recoverability, the Company
estimates the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying value of
the asset, an impairment loss is recognized. Measurement of an impairment loss
for long-lived assets that the Company expects to hold and use is based on the
fair value of the asset, which is usually based on the expected future
discounted cash flows. Generally, long-lived assets to be disposed of are
reported at the lower of carrying amount or fair value less cost to sell.
The Company follows the successful efforts method of accounting for its oil
and gas activities. Under this method, costs of successful oil and gas drilling
operations are capitalized as tangible assets. They are depreciated on the
declining balance method over the estimated useful lives of eight years (for
drilling operations in old fields) or 15 years. In certain regions, they are
depreciated on the unit-of-production basis. Geophysical expenditures, including
exploratory and dry-hole costs, are charged against income.
FINANCIAL ASSETS: Shares in affiliated and associated companies not
accounted for by the equity method and other participations and securities held
as fixed assets are shown at acquisition cost or, where an other-than-temporary
impairment of value occurs, at the appropriate lower values.
Investments in affiliated and associated companies accounted for by the
equity method are carried at cost of acquisition, plus the Company's equity in
undistributed earnings.
Goodwill associated with such investments is amortized over a period
between five and 10 years. Goodwill related to acquisitions prior to December
31, 1997, is mostly amortized over a period of five years.
Loans are stated at cost or, in the case of non-interest-bearing loans or
loans at below market interest rates, at their present value. Loans are
considered impaired when, based on current information and events, it is
probable that the Company will be unable to collect all amounts due. In such
circumstances, the Company recognizes an impairment loss based on the estimated
fair value of the loan.
INVENTORIES: Inventories are carried at the lower of acquisition or
production costs or market values, as appropriate. These lower values are the
replacement costs of raw materials and factory supplies and merchandise and, in
the case of work in process and finished products, the expected sales proceeds
less
F-12
<PAGE> 207
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
costs to be incurred prior to sale and an average profit margin or costs of
reproduction. Production costs include, in addition to direct costs, an
appropriate allocation of production overhead using normal utilization rates of
the production plants. Financing costs are not included.
Construction-in-progress relates mainly to plants under construction for third
parties. Expected profits are not recognized until the final billing and
surrendering of a project; expected losses are recognized by write-downs to the
lower attributable values.
RECEIVABLES AND OTHER ASSETS: Receivables are generally carried at their
nominal value; notes receivable and loans generating no or a low-interest income
are discounted to their present values. Risks of collectibility and
transferability are covered by appropriate valuation allowances.
SECURITIES: Securities held as fixed assets as well as marketable
securities are valued individually at cost or at lower quoted or market values.
DEFERRED TAX ASSETS: Deferred tax assets are recorded for taxable
temporary differences between the valuation of assets and liabilities in the
financial statements of the consolidated companies and the carrying amounts for
tax purposes using the tax rates applicable in the individual countries. If
expected future earnings of a company make it seem more likely than not that the
tax benefits will not be realized, appropriate valuation allowances are made.
PROVISIONS: Provisions for pensions of German and foreign subsidiaries are
based on actuarial computations according to the projected unit credit method.
Similar obligations, especially those arising from promises made by North
American group companies to pay the healthcare costs and life insurance premiums
of retired staff and their dependents, are included in pension provisions.
Tax provisions are recognized for income taxes and other taxes in the
amount necessary to meet the expected payment obligations, less any prepayments
which have been made. Provisions for deferred taxes are recognized for a net
liability from taxable temporary differences between the valuation of assets and
liabilities in the financial statements of the consolidated companies and the
carrying amounts for tax purposes, using the tax rates applicable in the
individual countries.
Other provisions are recorded for the expected amounts of liabilities and
probable losses from pending transactions. Maintenance provisions are
established to cover omitted maintenance procedures as of end of the year,
expected to be incurred within the first three months of the following year. The
amount provided is based on reasonable commercial judgement.
Environmental expenditures are expensed or capitalized as appropriate,
depending upon their future economic benefit. Expenditures that relate to an
existing condition caused by past operations and prescribed by current legal
requirements that do not have future economic benefit, are expensed. Liabilities
for these expenditures are recorded on an undiscounted basis when environmental
assessments or clean-ups are probable and the costs can be reasonably estimated.
Recoveries of environmental remediation costs from other parties are recorded as
assets when their receipt is deemed probable.
Provisions for required recultivation associated with oil and gas
operations, especially the filling of wells and clearance of oilfields, or the
operation of landfill sites are built up in installments over their expected
service lives. In addition, provisions are accrued in installments for regular
shutdowns within prescribed intervals of certain large-scale plants as required
by technical surveillance authorities.
Provisions for restructuring measures are recorded when a commitment from
management exists and a detailed plan has been established. Such provisions
include severance payments and other personnel-related costs as well as specific
site restructuring costs such as the costs for demolition and closure.
Provisions for long-service and anniversary bonuses are actuarially
calculated using an interest rate predominantly of 5.5%. For short-time working
programs for those nearing retirement, the present value of
F-13
<PAGE> 208
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
promised top-up payments are set aside in full and the wage and salary payments
due during the passive phase of agreements are accrued through installments.
CONVERSION OF FOREIGN CURRENCY ITEMS AND TRANSLATION OF FOREIGN CURRENCY
FINANCIAL STATEMENTS: The cost of assets acquired in foreign currencies and
revenues from sales in foreign currencies are recorded at current rates on
transaction dates. Short-term foreign currency receivables and liabilities are
valued at the rate on the balance sheet date. Long-term foreign currency
receivables are recorded at the rate prevailing on the acquisition date or at
the lower rate on the balance sheet date. Long-term foreign currency liabilities
are recorded at the rate prevailing on the acquisition date or at the higher
rate on the balance sheet date.
Foreign-currency receivables or liabilities that are hedged are recognized
at hedge rates. Profits from currency derivatives which cannot be allocated to a
particular underlying transaction are realized upon maturity. Unrealized losses
from forward exchange transactions and currency options are recognized in
earnings.
The translation of foreign currency financial statements conforms with
Statement of Financial Accounting Standard (SFAS) No. 52, "Foreign Currency
Translation." Where the local currency is the functional currency, balance sheet
items are translated to euros at year-end rates, expenses and income at
quarterly average rates and equity accounts at historical rates. The effects of
rate changes are shown as currency "translation adjustment" and reported as a
separate component of equity.
Where the euro is the functional currency, non-monetary assets and
liabilities carried at historical values are translated using historical rates,
monetary assets and liabilities (and any non-monetary assets and liabilities
carried at fair value) are translated using the year-end rates and expenses and
income are converted at quarterly average rates, except for those items derived
from balance sheet items converted at historical rates, which are also
translated at historical rates. Foreign exchange gains or losses resulting from
the remeasurement process are included in other operating expenses or income.
DERIVATIVE FINANCIAL INSTRUMENTS: The Company uses derivative financial
instruments to manage foreign currency, interest rate and commodity price risks
arising from booked, pending and planned underlying activities. Foreign currency
receivables or liabilities that are hedged are recognized at forward rates and
option strike prices. Profits from foreign currency derivatives that cannot be
allocated to a particular underlying transaction are realized upon maturity.
Unrealized losses associated with currency rate changes on forward foreign
exchange contracts and currency options are recorded in income and included in
provisions. For interest rate and interest rate/cross currency swaps, cash
values of interest exchange amounts are accrued and recognized in interest
income.
EARNINGS PER SHARE: The calculation of earnings per share under German
GAAP is based on the average number of common shares outstanding during the
applicable period and the net income of the period.
USE OF ESTIMATES IN FINANCIAL STATEMENT PREPARATION: The preparation of
financial statements in conformity with GAAP requires the use of 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 the reported amounts of revenues and expenses during the
reporting periods. In the preparation of these Consolidated Financial
Statements, estimates and assumptions have been made by management concerning
the selection of useful lives of property, plant and equipment and other
intangible assets, provisions necessary for environmental protection and
remediation costs, personnel costs, shutdown and restructuring costs and
contingent liabilities, the carrying value of investments, deferred tax and
trade receivable valuation allowances and other similar evaluations. Actual
results could differ from those estimates.
F-14
<PAGE> 209
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTRODUCTION OF THE EURO: The Consolidated Financial Statements,
previously presented in German marks, are now presented in euros. The financial
statements denominated in German marks have been translated into euros using the
fixed exchange rate applicable since January 1, 1999 (E1 = DM 1.95583) for all
periods presented.
2. CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING AND VALUATION METHODS
As explained in Note 1(a) Basis of presentation, certain accounting and
valuation methods have been adjusted to U.S. GAAP to the extent permissible
under the German Commercial Code as of January 1, 1998.
The cumulative effects of these changes as of January 1, 1998, have been
debited or credited directly to retained earnings in the Consolidated Financial
Statements as follows:
<TABLE>
<CAPTION>
(EUROS IN MILLIONS)
<S> <C>
Valuation of pension obligations in accordance with the
projected unit credit method (SFAS No. 87, "Employers'
Accounting for Pensions")................................. E (961.8)
Elimination of special tax valuation measures............... 210.4
Other adjustments........................................... (107.1)
Deferred tax assets/liabilities for above adjustments and
for temporary differences between the carrying value of
assets/liabilities for book and tax purposes.............. 1,053.3
Minority interests.......................................... 43.3
--------
Total credit to retained earnings as of January 1, 1998..... E 238.1
</TABLE>
Until December 31, 1997, pension obligations were accounted for by adopting
"the entry age normal method" in accordance with German tax regulation and other
statutory accounting regulations. Obligations arising from pension commitments
were revalued as of January 1, 1998, using the projected unit credit method
required by SFAS No. 87 considering the revised 1998 mortality tables of Dr.
Heubeck, which are generally applicable for German companies.
The effects of any accounting and valuation methods allowed exclusively for
tax purposes, such as depreciation allowances or the deferral of gains from the
disposal of fixed assets, have been fully eliminated from the Consolidated
Financial Statements.
Other adjustments related mainly to the change of the valuation methods of
short-term foreign currency receivables and liabilities. They are converted at
year-end exchange rates instead of using lower (receivables) or higher
(payables) exchange rates at the inception of the receivable or payable.
Furthermore, provisions for the overhauling of certain large scale plants
within prescribed intervals are now accrued in installments instead of being
charged to income as incurred. The Company accrues for overhaul costs related to
its steamcrackers, and other major production plants in the Petrochemicals and
Inorganics division, all of which are located either in Germany, Belgium or
France. The Company is required by law in those countries to meet specific
technical standards established for such plants. The expected cost of the
overhauls is accrued on a straight-line basis during the period between
overhauls, which is generally three to five years. Overhaul accruals encompass
those costs expected to be incurred based upon internal engineering studies and
past experience. The accruals comprise the costs of removing and replacing or
reconditioning worn plant components.
The SEC has referred the issue of accounting for overhauls to the
Accounting Standards Executive Committee (AcSEC) of the American Institute of
Certified Public Accountants. It is possible that the
F-15
<PAGE> 210
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company will be required to change its accounting for overhauls once AcSEC has
provided final guidance on this issue.
Deferred tax assets were recognized for taxable temporary differences
between the valuation of assets and liabilities in the commercial and tax
balance sheets of the consolidated companies. Furthermore, deferred taxes
arising from the above mentioned accounting changes are included.
These adjustments resulted in the following increases (decreases) of
balance sheet items as of January 1, 1998:
<TABLE>
<CAPTION>
(EUROS IN MILLIONS)
<S> <C>
Property, plant and equipment............................... E 192.3
Inventories/receivables..................................... (46.1)
Deferred tax assets......................................... 1,053.3
Prepaid expenses............................................ (44.0)
---------
TOTAL ASSETS................................................ E 1,155.5
---------
Retained earnings........................................... 238.1
Minority interests.......................................... (43.3)
Special reserves............................................ (18.1)
Provisions for pensions and similar obligations............. 917.8
Other provisions/liabilities................................ 61.0
---------
TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES.................. E 1,155.5
---------
</TABLE>
3. RECONCILIATION TO U.S. GAAP
The Consolidated Financial Statements comply with U.S. GAAP as far as
permissible under German GAAP. The remaining differences between German and U.S.
GAAP relate to valuation methods which are required under U.S. GAAP but not
allowed under German GAAP.
F-16
<PAGE> 211
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the significant adjustments to net income and
stockholders' equity for the years ended December 31, 1998 and 1999 which would
be required if U.S. GAAP had been fully applied rather than German GAAP.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
NOTE 1998 1999 1999
RECONCILIATION OF NET INCOME TO U.S. GAAP ---- -------- -------- --------
(EUROS AND DOLLARS IN MILLIONS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net income as reported in the Consolidated Financial
Statements of income under German GAAP................. E1,699.4 E1,236.8 $1,245.5
Adjustments required to conform with U.S. GAAP:
Capitalization of interest............................... (a) 35.4 26.1 26.3
Capitalization of software developed for internal use.... (b) - 50.1 50.4
Valuation of pension funds............................... (c) (33.6) 70.9 71.4
Valuation of long-term foreign currency items and swap
contracts.............................................. (d) 52.6 (36.0) (36.3)
Valuation of securities.................................. (e) (1.4) (0.7) (0.7)
U.S. GAAP adjustments relating to companies accounted for
under the equity method................................ (f) 23.1 8.3 8.4
Other adjustments........................................ (g) (20.0) (27.1) (27.3)
Deferred taxes........................................... (h) 27.8 3.1 3.1
Minority interests....................................... (i) (12.3) (6.7) (6.7)
-------- -------- --------
NET INCOME IN ACCORDANCE WITH U.S. GAAP.................. 1,771.0 1,324.8 1,334.1
Basic earnings per share in accordance with U.S. GAAP.... E 2.84 E 2.14 $ 2.16
Diluted earnings per share in accordance with U.S.
GAAP................................................... E 2.79 E 2.12 $ 2.13
</TABLE>
EARNINGS PER SHARE
The calculation of earnings per common share is based on the
weighted-average number of common shares outstanding during the applicable
period. The calculation of diluted earnings per common share reflects the effect
of all dilutive potential common shares that were outstanding during the
respective period. For computing diluted earnings per share, interest expense of
E4.2 (1998: E2.1) on convertible bonds (net of taxes) has been added to net
income.
In 1999, the Company introduced the BASF stock option program (BOP) for
senior management. See Note 25 for further information. Such options were not
included in the computation of diluted earnings per share for 1999 because the
options exercise hurdles as described in Note 25 were not fulfilled and
therefore there were no potentially dilutive shares or equivalents resulting
from the BOP as of December 31, 1999.
The determination of weighted average common stock and common stock
equivalents is as follows:
<TABLE>
<CAPTION>
1998 1999
WEIGHTED AVERAGE COMMON STOCK AND COMMON STOCK EQUIVALENTS ----------- -----------
<S> <C> <C>
Common stock................................................ 622,476,129 618,073,268
Common stock equivalents.................................... 14,175,180 9,088,490
----------- -----------
Total common stock and common stock equivalents
outstanding............................................... 636,651,309 627,161,758
----------- -----------
</TABLE>
F-17
<PAGE> 212
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
NOTE 1998 1999 1999
RECONCILIATION OF STOCKHOLDERS' EQUITY TO U.S. GAAP ---- --------- --------- ---------
(EUROS AND DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Stockholders' equity as reported in the consolidated
balance sheets under German GAAP.................... E13,250.1 E14,145.2 $14,245.0
Minority interests.................................... (330.7) (329.3) (331.6)
--------- --------- ---------
Stockholders' equity excluding minority interests..... 12,919.4 13,815.9 13,913.4
--------- --------- ---------
Adjustments required to conform with U.S. GAAP:
Capitalization of interest............................ (a) 450.3 476.4 479.8
Capitalization of software developed for internal
use................................................. (b) 50.1 50.4
Valuation of pension funds............................ (c) 629.3 700.2 705.1
Valuation of long-term foreign currency and swap
contracts........................................... (d) 69.3 33.3 33.5
Valuation of securities............................... (e) 88.6 95.9 96.6
U.S. GAAP adjustments relating to companies accounted
for under the equity method......................... (f) 107.0 115.3 116.1
Other adjustments..................................... (g) 57.4 30.6 30.8
Deferred taxes........................................ (h) (377.3) (546.4) (550.3)
Minority interests.................................... (i) (39.1) (18.5) (18.6)
--------- --------- ---------
STOCKHOLDERS' EQUITY IN ACCORDANCE WITH U.S. GAAP..... 13,904.9 14,752.8 14,856.8
</TABLE>
(a) CAPITALIZATION OF INTEREST
The capitalization of interest relating to capital projects is not
permissible under German GAAP.
For U.S. GAAP purposes, the Company capitalizes interest on borrowings
during the active construction period of major capital projects. Capitalized
interest is added to the cost of the underlying assets and is amortized over the
useful lives of the asset.
In calculating capitalized interest, the Company has made assumptions with
respect to (i) the capitalization rate and (ii) the average amount of
accumulated expenditures. For the Company's European subsidiaries, the weighted
average annual borrowing rate of the Company has been used as the capitalization
rate. This rate was 6.5% in 1998 and 1999. Non-European subsidiaries generally
use the entity specific weighted average borrowing rate. Generally, the Company
has assumed standard construction periods based on an extensive study of actual
historical projects. Where separate project specific records are maintained,
actual construction periods have been used.
Interest capitalized, net of amortization was E35.4 million in 1998 and
E26.1 million in 1999.
(b) CAPITALIZATION OF SOFTWARE DEVELOPED FOR INTERNAL USE
In March 1998 the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The SOP provides
guidance with respect to accounting for the various types of costs incurred for
computer software developed or obtained for the Company is use. The Company
adopted SOP 98-1 as of January 1, 1999 resulting in the subsequent
capitalization and depreciation of certain costs.
(c) VALUATION OF PENSION FUNDS
Pension benefits under company pension schemes are partly funded in a
legally independent fund "BASF Pensionskasse VVaG" ("BASF Pensionskasse") which
is managed similar to a defined contribution plan and is subject to Germany's
Law on the Supervision of Private Insurance Companies.
F-18
<PAGE> 213
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For U.S. GAAP purposes, BASF Pensionskasse would be classified as a defined
benefit plan. The valuation of the pension obligations and of the fund assets of
BASF Pensionskasse results in a prepaid pension asset according to U.S. GAAP
which is not recorded in the Consolidated Financial Statements under German
GAAP. The effect of this reconciling item on the Company's net income is to
record less pension expense under U.S. GAAP as the actuarially calculated net
periodic pension cost is less than the pension contributions charged to income
under German GAAP. In 1998, however, this item also includes the reversal of an
E86.3 million gain recorded under German GAAP for the transfer to the BASF
Pensionskasse of the legal liability relating to the adjustment of retiree
pensions every three years for inflation.
Information about the funded status of the BASF Pensionskasse is provided
in the following table:
<TABLE>
<CAPTION>
1998 1999
-------- --------
(EUROS IN MILLIONS)
<S> <C> <C>
Plan assets as of December 31,.............................. E3,568.0 E4,280.5
Projected benefit obligation as of December 31,............. 3,029.7 3,205.9
-------- --------
Funded status............................................... 538.3 1,074.6
Unrecognized actuarial gains................................ (28.4) (545.5)
-------- --------
Prepaid pension asset....................................... E 509.9 E 529.1
</TABLE>
In addition to the BASF Pensionskasse, there are some foreign plans for
which the valuation according to SFAS No. 87 results in a prepaid pension asset
that is reported as part of the reconciliation. See Note 21 for further
information.
(D) VALUATION OF LONG-TERM FOREIGN CURRENCY AND SWAP CONTRACTS
Long-term receivables and liabilities denominated in a foreign currency are
converted into euros at the exchange rates of the date when the transactions
took place or the lower exchange rates at the end of the year for receivables,
and the higher exchange rates for liabilities. U.S. GAAP requires the conversion
of such items into the reporting currency at the exchange rates in effect at the
end of the year into the reporting currency. Included in this reconciling item
are unrealized gains on unsettled forward exchange transactions and currency
options, which are recognized currently in earnings under U.S. GAAP, but not
German GAAP.
A provision of E48.6 million was recorded for the overvaluation of the
Brazilian real as of December 31, 1998. Since the expected exchange losses from
U.S.-dollar-denominated liabilities of the Company's Brazilian subsidiary became
effective only in the first quarter of 1999, after the real was allowed to float
against other currencies, the exchange loss would be charged to 1999 net income
under U.S. GAAP.
In 1997 the Company entered into a number of swap transactions with various
banks. Under German GAAP, unrealized gains on these swap contracts were deferred
until settlement or termination while unrealized losses were recognized as of
each period end. Under U.S. GAAP, these swap contracts are marked to market. The
amounts included in the reconciliation of net income were E12.4 million in 1999
and E(0.1) million in 1998 and in the reconciliation of shareholders equity,
E22.6 million in 1999 and E10.2 million in 1998.
(E) VALUATION OF SECURITIES
Under U.S. GAAP, available-for-sale securities are recorded at market
values on the balance sheet date. The effect of the change in valuation is
immediately recognized in shareholders' equity. Realized profits and losses are
credited or charged to income, as are other than temporary impairments of value.
F-19
<PAGE> 214
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The major part of securities and other investments are considered to be
available-for-sale. Under German GAAP, such securities and other investments are
valued at the lower of acquisition costs or market value at the balance sheet
date.
(F) U.S. GAAP ADJUSTMENTS RELATING TO COMPANIES ACCOUNTED FOR UNDER THE EQUITY
METHOD
For purposes of the reconciliation to U.S. GAAP, the earnings of companies
accounted for using the equity method have been determined using valuation
principles prescribed by U.S. GAAP.
(G) OTHER ADJUSTMENTS
This caption includes the reversal of maintenance provisions, the
reclassification of the provision for stock compensation, and other items.
German GAAP requires companies to accrue for omitted maintenance procedures as
of the end of the year, expected to be incurred within the first three months of
the following year. Such costs would be expensed as incurred under U.S. GAAP.
The amounts included in the reconciliation of net income related to the
maintenance provision were E2.8 million in 1999 and E(19.6) million in 1998 and
in the reconciliation of shareholders' equity were E34.3 million in 1999 and
E31.5 million in 1998. For purposes of reconciliation to U.S. GAAP, the
recording of stock compensation expense results in a credit to stockholders'
equity rather than a balance sheet provision.
(H) DEFERRED TAXES
The adjustments for deferred taxes primarily relate to the aforementioned
U.S. GAAP reconciling items. Furthermore, German GAAP does not allow companies
to recognize deferred tax assets on tax loss carryforwards. Such deferred tax
assets of E162.6 million (1998: E114.1 million) have been included in the
reconciliation to U.S. GAAP. In addition, this item contains deferred taxes
related to foreign currency translation adjustments.
(I) MINORITY INTERESTS
The share of minority shareholders' in the aforementioned reconciliation
items to U.S. GAAP of net income and stockholders' equity are reported
separately.
(J) CONSOLIDATION OF MAJORITY-OWNED SUBSIDIARIES
U.S. GAAP requires the consolidation of majority-owned subsidiaries. Under
German GAAP, the Company does not consolidate certain subsidiaries, because
their combined effect on financial position, results of operations and cash
flows is not material. The effect of non-consolidated subsidiaries for 1998 and
1999, the years for which German GAAP is reconciled to U.S. GAAP, on total
assets, total liabilities, shareholders' equity, net sales and net income was
less than 3%.
Additionally, under German GAAP, the Company accounts on a prospective
basis for previously unconsolidated subsidiaries that are added to the scope of
consolidation. U.S. GAAP requires consolidation for all periods that a
subsidiary is controlled. Had the previously unconsolidated companies that were
newly consolidated in 1999 been consolidated in 1998, net sales for the year
ended December 31, 1998 would have been E28,178.3 million. Additionally, had the
companies that were newly consolidated in 1999 been consolidated in 1998, total
assets and total liabilities under U.S. GAAP as of December 31, 1998 would have
been greater in amount by E415.0 million and E402.4 million, respectively. The
effect on the Company's U.S. GAAP net income for the year ended December 31,
1998, would have been immaterial.
F-20
<PAGE> 215
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NEW U.S. GAAP ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1999, the Financial Accounting Standards Board (FASB) issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133" which
defers the effective date of SFAS No. 133 to all fiscal quarters of all fiscal
years beginning after June 15, 2000. SFAS No. 133, "Accounting for Derivative
Instruments and Hedging activities," (SFAS No. 133), issued in June 1998,
requires that all derivative financial instruments be reflected on the balance
sheet at fair value, with changes in fair value recognized periodically in
earnings or as a component of other comprehensive income, depending on the
nature of the underlying item being hedged. In the event that an entity does not
effectively hedge against an underlying item, changes in the fair value of the
derivative will be recognized currently in the statement of operations. The
Company is currently in the process of evaluating the impact of adopting this
statement on the Consolidated Financial Statements.
REPORTING OF COMPREHENSIVE INCOME
Comprehensive income in accordance with SFAS No. 130, "Reporting
Comprehensive Income", includes the impact of other comprehensive income. These
are revenues, gains, expenses and losses that under U.S. GAAP are not included
in net income.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1999
---------- ----------
COMPREHENSIVE INCOME (EUROS IN MILLIONS)
<S> <C> <C>
Net income in accordance with U.S. GAAP..................... E 1,771.0 E 1,324.8
Other comprehensive income, net of tax:
Foreign currency translation adjustments.................. (160.8) 529.8
Unrealized holding gains on securities.................... 42.9 8.0
Deferred taxes............................................ (4.3) (171.1)
---------- ----------
Other comprehensive income (loss), net of tax............... (122.2) 366.7
---------- ----------
Comprehensive income, net of tax............................ E 1,648.8 E 1,691.5
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1999
STATEMENT OF STOCKHOLDERS' EQUITY ---------- ----------
(EUROS IN MILLIONS)
<S> <C> <C>
Stockholders' equity according to U.S. GAAP before
accumulated other comprehensive income.................... E 13,805.3 E 14,286.5
Accumulated other comprehensive income:
Foreign currency translation adjustments.................. 39.4 569.2
Unrealized holding gains on securities.................... 88.8 96.8
Deferred taxes............................................ (28.6) (199.7)
---------- ----------
Accumulated other comprehensive income...................... 99.6 466.3
---------- ----------
Total stockholders' equity according to U.S. GAAP including
comprehensive income...................................... E 13,904.9 E 14,752.8
---------- ----------
</TABLE>
F-21
<PAGE> 216
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SEGMENT REPORTING
The Company is a worldwide manufacturer and supplier of more than 8,000
products. The Company offers a wide range of products, including high-value
chemicals, plastics, dyestuffs, automotive coatings, crop protection products,
pharmaceuticals, fine chemicals, petrochemicals, crude oil and natural gas.
Industries served by the Company include chemical processing, automotive,
agriculture, packaging, construction, textiles, electronics, paper and health
and nutrition.
The Company conducts its worldwide operations through 15 operating
divisions, which have been aggregated into seven reportable operating segments
based on the nature of the products and production processes, on the type of
customers, on the channels of distribution and on the nature of the regulatory
environment. The operating divisions Pharmaceuticals, Fine Chemicals and Crop
Protection are included in the business segment Heath & Nutrition.
The reportable operating segments are:
- Chemicals,
- Plastics & Fibers,
- Colorants & Finishing Products,
- Pharmaceuticals
- Fine Chemicals
- Crop Protection, and
- Oil & Gas.
See "Item 1. Description of Business" for further information about the
Company's segment activities.
Transfers between the operating segments are generally valued at
market-based prices and the revenues generated by these transfers are shown in
the table below as "Intersegment transfers."
At the end of 1999, BASF sold its COMPO(R) business in specialty
fertilizers for the home and garden to K+S Aktiengesellschaft of Kassel,
Germany, which also took over the marketing and sales of agricultural
fertilizers manufactured by the Company. As a result, the Company has
transferred the sales, earnings and assets of the Fertilizers division to
"Other" for 1999 and has adjusted the 1997 and 1998 results. Sales of the
fertilizers operation were E987 million in 1997 as compared to E930 million in
1998, and E921 million in 1999.
The income from operations recorded as "Other" includes mainly costs of
exploratory research of E124 million in 1999 (1998: E121 million; 1997: E128
million) and other corporate costs, which cannot be allocated to the segments.
It also includes the results of the fertilizer activities as well as of the
information systems business sold in 1998 to Persetel of South Africa.
F-22
<PAGE> 217
SEGMENT DATA
1997
<TABLE>
<CAPTION>
COLORANTS HEALTH & NUTRITION
PLASTICS & ------------------------------------
& FINISHING PHARMA- FINE CROP
CHEMICALS FIBERS PRODUCTS CEUTICALS CHEMICALS PROTECTION
--------- -------- --------- --------- --------- ----------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales..................................... E4,471 E7,395 E6,540 E1,792 E1,154 E1,641
Change (%).................................. 19.8 19.8 13.3 15.5 17.5 42.4
Intersegment transfers........................ 2,101 450 371 2 40 35
------ ------ ------ ------ ------ ------
Sales including intersegment transfers........ 6,572 7,845 6,911 1,794 1,194 1,676
Income from operations........................ 1,089 368 480 (35) 182 201
Change (%).................................. 22.9 (26.1) 66.2 - 26.4 48.9
Assets........................................ 3,142 4,397 4,052 1,701 700 1,605
Return on operational assets (%).............. 39.6 9.7 12.7 - 30.6 16.7
Research and development expense.............. 135 189 183 319 58 184
Additions to tangible and intangible fixed
assets........................................ 490 673 256 203 99 96
Depreciation of tangible and intangible fixed
assets........................................ 394 476 424 217 72 138
<CAPTION>
OIL &
GAS OTHER TOTAL
------ ------ -------
<S> <C> <C> <C>
Net sales..................................... E3,198 E2,329 E28,520
Change (%).................................. 20.1 (30.8) 14.4
Intersegment transfers........................ 247 317 3,563
------ ------ -------
Sales including intersegment transfers........ 3,445 2,646 32,083
Income from operations........................ 473 (27) 2,731
Change (%).................................. 24.5 - 24.4
Assets........................................ 2,503 6,436 24,536
Return on operational assets (%).............. 20.3 - 14.6
Research and development expense.............. 69 166 1,303
Additions to tangible and intangible fixed
assets........................................ 322 425 2,564
Depreciation of tangible and intangible fixed
assets........................................ 213 94 2,028
</TABLE>
F-23
<PAGE> 218
SEGMENT DATA
1998
<TABLE>
<CAPTION>
COLORANTS HEALTH & NUTRITION
PLASTICS & ------------------------------------
& FINISHING PHARMA- FINE CROP
CHEMICALS FIBERS PRODUCTS CEUTICALS CHEMICALS PROTECTION
--------- -------- --------- --------- --------- ----------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales..................................... E4,255 E7,573 E6,188 E2,091 E1,256 E1,750
Change (%).................................. (4.8) 2.4 (5.4) 16.7 8.8 6.7
Intersegment transfers........................ 1,935 414 291 13 31 49
------- -------- -------- ------ ------ ----------
Sales including intersegment transfers........ 6,190 7,987 6,479 2,104 1,287 1,799
Income from operations........................ 922 539 642 66 114 203
Change (%).................................. (15.3) 46.5 33.8 - (37.4) 1.0
Assets........................................ 3,354 4,957 3,981 1,949 1,203 1,730
Return on operational assets (%).............. 28.4 11.5 16.0 3.6 12 12.2
Research and development expense.............. 148 188 158 375 65 194
Additions to tangible and intangible fixed
assets........................................ 587 746 348 169 586 247
Depreciation of tangible and intangible fixed
assets........................................ 452 562 382 247 129 158
<CAPTION>
OIL &
GAS OTHER TOTAL
------ ------ -------
<S> <C> <C> <C>
Net sales..................................... E2,685 E1,845 E27,643
Change (%).................................. (16.0) (20.8) (3.1)
Intersegment transfers........................ 235 270 3,238
------ -------- --------
Sales including intersegment transfers........ 2,920 2,115 30,881
Income from operations........................ 276 (138) 2,624
Change (%).................................. (41.7) - (3.9)
Assets........................................ 2,622 6,906 26,702
Return on operational assets (%).............. 10.8 - 12.7
Research and development expense.............. 50 131 1,309
Additions to tangible and intangible fixed
assets........................................ 505 534 3,722
Depreciation of tangible and intangible fixed
assets........................................ 238 92 2,260
</TABLE>
F-24
<PAGE> 219
SEGMENT DATA
1999
<TABLE>
<CAPTION>
COLORANTS HEALTH & NUTRITION
PLASTICS & ------------------------------------
& FINISHING PHARMA- FINE CROP
CHEMICALS FIBERS PRODUCTS CEUTICALS CHEMICALS PROTECTION
--------- -------- --------- --------- --------- ----------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales..................................... E4,393 E8,533 E6,395 E2,483 E1,374 E1,745
Change (%).................................. 3.2 12.6 3.3 18.7 9.4 (0.3)
Intersegment transfers........................ 1,848 421 259 55 32 36
Sales including intersegment transfers........ 6,241 8,954 6,654 2,538 1,406 1,781
Income from operations........................ 698 640 608 11 (794) 195
Change (%).................................. (24.3) 18.7 (5.3) (83.3) - (3.9)
Assets........................................ 4,050 6,811 4,343 2,145 1,080 1,949
Return on operational assets (%).............. 18.9 10.9 14.6 0.5 (69.6) 10.6
Research and development expense.............. 149 180 160 404 70 190
Additions to tangible and intangible fixed
assets...................................... 763 998 324 115 73 93
Depreciation of tangible and intangible fixed
assets........................................ 482 595 423 282 327 175
<CAPTION>
OIL &
GAS OTHER TOTAL
------ ------ -------
<S> <C> <C> <C>
Net sales..................................... E3,051 E1,499 E29,473
Change (%).................................. 13.6 (18.7) 6.6
Intersegment transfers........................ 177 296 3,124
Sales including intersegment transfers........ 3,228 1,795 32,597
Income from operations........................ 741 (90) 2,009
Change (%).................................. 168.5 (23.4)
Assets........................................ 3,003 6,628 30,009
Return on operational assets (%).............. 26.3 8.6
Research and development expense.............. 47 133 1,333
Additions to tangible and intangible fixed
assets...................................... 524 363 3,253
Depreciation of tangible and intangible fixed
assets........................................ 281 97 2,662
</TABLE>
F-25
<PAGE> 220
GEOGRAPHICAL SEGMENT DATA
Sales, sales including interregional transfers and income from operations
for the years ended December 31, are as follows:
<TABLE>
<CAPTION>
NORTH ASIA
THEREOF AMERICA SOUTH PACIFIC AREA,
EUROPE GERMANY (NAFTA) AMERICA AFRICA TOTAL
------- ------- ------- ------- ------------- -------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
1997
Location of customers
Sales............................. E17,441 E 7,352 E5,966 E1,676 E3,437 E28,520
Change (%)........................ 10.6 10.9 22.2 21.8 17.8 14.4
Share (%)......................... 61 26 21 6 12 100
Location of companies
Sales............................. 19,897 13,558 5,940 1,275 1,408 28,520
Sales including interregional
transfers...................... 21,601 - 6,227 1,353 1,442 30,623
Income from operations............ 2,302 1,555 350 72 7 2,731
Additions to tangible and
intangible fixed assets........ 1.447 1.073 888 56 173 2,564
Assets............................ 17,005 12,062 5,309 1,045 1,177 24,536
1998
Location of customers
Sales............................. E16,672 E 7,011 E6,249 E1,640 E3,082 E27,643
Change (%)........................ (4.4) (4.6) 4.7 (2.1) (10.3) (3.1)
Share (%)......................... 60 25 23 6 11 100
Location of companies
Sales............................. 18,508 12,188 6,210 1,305 1,620 27,643
Sales including interregional
transfers...................... 20,102 - 6,516 1,398 1,809 29,825
Income from operations............ 2,033 1,301 515 16 60 2,624
Additions to tangible and
intangible fixed assets........ 2,214 1,840 1,092 69 347 3,722
Assets............................ 17,842 12,313 5,478 1,065 2,317 26,702
1999
Location of customers
Sales............................. E17,041 E 7,147 E6,765 E1,837 E3,830 E29,473
Change (%)........................ 2.2 1.9 8.2 12.0 24.2 6.6
Share (%)......................... 58 24 23 6 13 100
Location of companies
Sales............................. 19,119 12,718 6,783 1,484 2,087 29,473
Sales including interregional
transfers...................... 20,853 - 7,156 1,556 2,329 31,894
Income from operations............ 1,258 542 481 126 144 2,009
Additions to tangible and
intangible fixed assets........ 1,950 1,595 1,105 83 115 3,253
Assets............................ 18,744 12,959 7,062 1,438 2,765 30,009
</TABLE>
F-26
<PAGE> 221
5. OTHER OPERATING INCOME
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- ------
(EUROS IN MILLIONS)
<S> <C> <C> <C>
Release of provisions....................................... E 446.3 E 389.3 E142.1
Income from miscellaneous revenue-generating activities..... 122.5 154.8 74.8
Gains from foreign currency transactions and conversion..... 244.3 193.1 323.8
Gains from disposal of assets............................... 48.7 153.7 266.9
Other....................................................... 232.1 246.0 170.6
-------- -------- ------
E1,093.9 E1,136.9 E978.2
</TABLE>
RELEASE OF PROVISIONS
Use of provisions of E161 million in 1997 and E149 million in 1998 is
included in the release of provisions because prior to 1999 the corresponding
expenditures were recorded directly as expenses. Provision releases relate
principally to the environmental protection and remediation provision, sales and
purchase provisions, litigations and claims provision, shutdown and
restructuring provision, maintenance provision and the reserve for income tax
audit liabilities. Provision releases arise because present circumstances
indicate that they are no longer probable and estimable or that the probable
amount has been reduced.
INCOME FROM MISCELLANEOUS REVENUE-GENERATING ACTIVITIES
Income from miscellaneous revenue-generating activities primarily
represents revenues from energy sales, sales of raw materials and income from
rentals.
GAINS FROM DISPOSAL OF ASSETS
The gains in 1998 from the disposal of assets include amounts relating to
the divestiture of certain lines of business of the Coatings division within the
Colorants & Finishing Products segment, the disposal of a 35% stake in Comparex
GmbH, which was deconsolidated, the divestiture of the thermoplastics business
of the Styrene Polymer division of the Plastics & Fibers segment and to the
contribution in kind of the polyethylene business of BASF Aktiengesellschaft to
the Elenac joint venture.
Gains from the disposal of assets which arose in 1999 related primarily to
the sale of the Company's COMPO(R) business in specialty fertilizers and the
marketing and sales of the Company's agricultural fertilizers operations; the
sale of the Company's oil refining business, including a refinery in Lingen,
Germany, and the divestiture of the Canadian oil and gas production activities
of the Oil & Gas segment.
OTHER
Includes income from the adjustment of valuation allowances of accounts
receivables, income from management and marketing services, income from
divestitures other than the disposal of fixed assets and various other items.
F-27
<PAGE> 222
6. OTHER OPERATING EXPENSES
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
(EUROS IN MILLIONS)
<S> <C> <C> <C>
Costs of reorganization, shutdowns, severance packages and
other personnel obligations............................... E 360.7 E 290.1 E 248.6
Environmental protection and safety measures, costs of
demolition of fixed assets and costs related to the
preparation of capital expenditure projects............... 190.9 212.3 263.2
Losses from foreign currency transactions and conversion.... 194.2 357.2 287.1
Costs from miscellaneous revenue generating activities...... 128.6 150.8 65.3
Goodwill amortization....................................... 72.8 170.9 260.3
Losses from disposal of assets.............................. 61.2 33.0 30.0
Other....................................................... 912.6 622.3 1,606.5
-------- -------- --------
TOTAL....................................................... E1,921.0 E1,836.6 E2,761.0
</TABLE>
COSTS OF REORGANIZATION, SHUTDOWNS, SEVERANCE PACKAGES AND OTHER PERSONNEL
OBLIGATIONS
In 1997, charges resulted from the shutdown of two polystyrene sites in
North America, restructuring measures at the Company's Colorants division at the
Ludwigshafen site and the formation of Targor GmbH, which combined the
polypropylene activities of the Company and Hoechst AG into a 50-50 joint
venture.
In 1998, the charges consisted mainly of expected shutdown expenses for two
North American sites in the Colorants & Finishing Products segment and for
production sites in the Plastic & Fibers segment at the Company's sites in
Ludwigshafen and Antwerp.
In 1999, charges included current expenses of E123.1 million for
temporarily unutilized production plants. Additional charges related to the
permanent shutdown of the following sites: the Company's multi-division site in
Medellin, Colombia; the Colorants division's site in Ellesmere Port, England;
the pharmaceutical production site in Beeston, England; and the fertilizer
production site in Ostend, Belgium.
COSTS FROM MISCELLANEOUS REVENUE-GENERATING ACTIVITIES
Cost from miscellaneous revenue-generating activities represents costs
related to other miscellaneous revenue-generating activities as shown in Note 5.
OTHER
Other is comprised of several items including valuation allowances on
doubtful accounts, liquidation of inventories and provisions for litigations and
claims.
In 1999, expenses for litigations and claims relate primarily to sanctions
and compensation payments associated with the vitamins antitrust proceedings in
the United States and various other countries along with payments resulting from
lawsuits involving the drug Synthroid(R).
F-28
<PAGE> 223
7. FINANCIAL RESULT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998 1999
------ ------ ------
(EUROS IN MILLIONS)
<S> <C> <C> <C>
Income from participating interests and similar income...... E 32.5 E 61.3 E731.2
- - - - - - - Thereof from affiliated companies......................... 20.4 36.4 16.8
Income from profit transfer agreements...................... 51.7 11.2 6.1
Losses from loss transfer agreements........................ (56.3) (21.5) (11.3)
(Losses)/income from companies accounted for under the
equity method............................................. (52.3) 36.7 1.4
------ ------ ------
Net income from financial assets............................ (24.4) 87.7 727.4
------ ------ ------
Write-down of, and losses from, retirement of financial
assets as well as securities held as current assets......... (32.4) (48.4) (22.2)
------ ------ ------
Income from other securities and financial assets........... 51.2 69.5 64.6
- - - - - - - Thereof from affiliated companies......................... 20.1 20.6 14.0
Other interest, income from sale of marketable securities
and similar income........................................ 232.9 310.1 123.0
- - - - - - - Thereof from affiliated companies......................... 9.8 14.7 4.7
Interest and similar expenses............................... (232.7) (271.8) (296.0)
- - - - - - - Thereof to affiliated companies........................... 10.1 6.6 5.0
------ ------ ------
Interest result............................................. 51.4 107.8 (108.4)
------ ------ ------
Financial result............................................ E (5.4) E147.1 E596.8
------ ------ ------
</TABLE>
In 1999, income from participating interests and similar income included a
gain from the sale of BASF's interest in the IVAX Corporation and Aral AG as
part of the marketing and refinery business sold to Veba Oel AG. The divestiture
of the holdings in ARAL AG together with the disposal of the refinery business,
shown in income from operations, increased net income by E373 million.
Amortization of goodwill of companies accounted for under the equity method
totaling E21 million (1997: E26 million, 1998: E41 million) as well as income
from the release of negative goodwill (1997: E70 million) are included in
(losses) income from companies accounted for under the equity method.
Interest income for 1998 includes gains of E122 million from the sale of
securities and swaps.
According to German GAAP, no interest expense has been capitalized for the
construction of fixed assets. The capitalization of interest cost for qualifying
assets is part of the reconciliation to U.S. GAAP.
8. INCOME TAXES
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
(EUROS IN MILLIONS)
<S> <C> <C> <C>
German corporation tax...................................... E 432.2 E 421.8 E 591.3
German trade income tax..................................... 219.2 168.3 178.1
Foreign income tax.......................................... 326.7 401.6 460.4
Taxes on oil-producing operations non-compensable with
German corporation tax.................................... 141.9 62.8 165.0
Refunds/loss carry back..................................... (56.6) (33.9) (14.1)
-------- -------- --------
Current taxes............................................... 1,063.4 1,020.6 1,380.7
Deferred taxes.............................................. 23.4 86.2 (19.9)
-------- -------- --------
Income taxes................................................ E1,086.8 E1,106.8 E1,360.8
-------- -------- --------
</TABLE>
F-29
<PAGE> 224
The regional breakdown of income before taxes was as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
(EUROS IN MILLIONS)
<S> <C> <C> <C>
Germany..................................................... E1,686.0 E1,579.3 E1,211.5
Foreign..................................................... 1,039.7 1,191.5 1,394.0
-------- -------- --------
E2,725.7 E2,770.8 E2,605.5
</TABLE>
Retained corporate income in Germany is subject to a federal corporation
income tax of 40 percent as of January 1, 1999. Income in 1997 and 1998 was
subject to a 45 percent income tax rate. Additionally, a solidarity surcharge is
levied on the federal corporate tax rate. The solidarity tax rate was 7.5
percent in 1997 and 5.5 percent in 1998 and 1999.
Upon distribution of retained earnings to shareholders, the corporate tax
rate on the distributed earnings that have been subject to the statutory tax
rate is reduced to 30 percent through a release of the income tax provision on
current years' income or by a refund of taxes previously paid in excess of 30
percent on income.
Upon distribution of a dividend, shareholders resident in Germany are
entitled to a tax credit in the amount of federal income taxes paid by the
corporation.
German trade income tax is levied at a weighted average rate of 16.2
percent, which varies by the municipalities where the industrial undertakings
take place. This tax can be deducted from the corporation tax.
Deferred tax assets and liabilities are calculated using the tax rate
applicable in the individual foreign countries. Such rate averaged 36.0 percent
in 1999 and 31.2 percent in 1998. For German companies, the provision was based
on a tax rate of 52 percent in 1999 (1997: 56 percent, 1998: 56 percent). The
1999 reduction of federal corporation income tax resulted in a E45 million
charge shown below under "Other".
Foreign income tax rates in 1999 (1998) averaged 36.0 percent (31.2
percent), but varied between 4.5 percent (4.5 percent) and 42 percent (48
percent). Income from foreign sources which is distributed in the form of a
dividend to the parent company is generally exempt from additional German
corporation taxes through double taxation treaties. Income taxes on
oil-producing operations in certain regions, which can amount to up to 85
percent, may be compensated up to an equivalent level with German corporation
tax. The non-compensable amount is shown separately in the analysis of income
taxes and the effective rate reconciliation.
F-30
<PAGE> 225
The differences between the statutory tax rate in Germany and the effective
tax rate of 39.9 percent in 1997 and 1998 and 52.2 percent in 1999 is summarized
as follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------------- -------------------- ---------------
AMOUNT % AMOUNT % AMOUNT %
-------- ---- ----------- ------ -------- ----
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Corporate income tax........................ E1,226.6 45.0% E1,246.9 45.0% E1,042.2 40.0%
Credit for dividend distributions........... (136.3) (5.0) (148.5) (5.4) (150.4) (5.8)
German trade income tax net of corporate
income tax................................ 120.5 4.4 92.6 3.3 106.9 4.1
Solidarity surcharge (7.5% in 1997 and 5.5%
in 1998 and 1999)......................... 34.1 1.3 28.4 1.0 38.0 1.5
Foreign tax-rate differential............... (106.2) (3.9) (138.1) (5.0) (104.4) (4.0)
Non-taxable income.......................... (54.4) (2.0) (121.7) (4.4) (65.0) (2.5)
Non-deductible expenses, including
amortization of goodwill.................. 46.9 1.7 84.6 3.1 328.7 12.6
Income from companies accounted for under
the equity method......................... 23.5 0.9 (16.6) (0.6) (0.6) -
Utilization of tax-loss carryforwards and
refund of taxes........................... (113.8) (4.2) (44.5) (1.6) (20.4) (0.8)
Non-creditable taxes on oil-producing
operations.................................. 141.9 5.2 62.8 2.3 165.0 6.3
Other....................................... (96.0) (3.5) 60.9 2.2 20.8 0.8
-------- ---- --------- ---- -------- ----
Income taxes/effective tax rate............. E1,086.8 39.9% E1,106.8 39.9% E1,360.8 52.2%
</TABLE>
Deferred income tax assets and liabilities, calculated in accordance with
U.S. GAAP - except for deferred tax assets on tax loss carryforwards which may
not be set-up under German GAAP - are summarized as follows:
<TABLE>
<CAPTION>
1998 1999
-------- ---------
DEFERRED TAX ASSETS (EUROS IN MILLIONS)
<S> <C> <C>
Intangible assets........................................... E 104.3 E 225.3
Property, plant and equipment............................... (235.8) (164.3)
Financial assets............................................ 53.7 (67.0)
Inventories and accounts receivable......................... 173.0 160.3
Provisions for pensions and similar obligations............. 601.8 507.6
Other provisions............................................ 396.9 550.9
Other....................................................... (16.6) 12.6
-------- --------
TOTAL....................................................... E1,077.3 E 1,225.4
-------- --------
- - - - - - - Thereof short-term........................................ 333.7 390.6
-------- --------
DEFERRED TAX LIABILITIES
Property, plant and equipment............................... 101.5 164.0
Other....................................................... 52.4 68.0
-------- --------
TOTAL....................................................... E 153.9 E 232.0
-------- --------
- - - - - - - Thereof short-term........................................ 58.0 110.4
-------- --------
</TABLE>
Deferred tax liabilities are included in "provisions for taxes" in the
consolidated balance sheets.
F-31
<PAGE> 226
RECONCILIATION OF DEFERRED TAX ASSETS/LIABILITIES TO U.S. GAAP
Under U.S. GAAP, deferred tax liabilities would increase, or deferred tax
assets decrease, under U.S. GAAP by E491.4 million in 1998 and E709.1 million in
1999 due to the following U.S. GAAP balance sheet differences:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
(EUROS IN MILLIONS)
<S> <C> <C>
Property, plant and equipment............................... E188.7 E202.4
Financial assets and marketable securities.................. 86.9 106.1
Prepaid pension expense..................................... 322.5 331.4
Other....................................................... (106.7) 69.2
------ ------
TOTAL....................................................... E491.4 E709.1
------ ------
</TABLE>
Deferred tax assets according to U.S. GAAP would be higher by E114.1
million in 1998 (net of valuation allowance of E35.4 million) and E162.7 million
in 1999 (net of a valuation allowance of E8.9 million) based on the following
tax-loss carryforwards.
<TABLE>
<CAPTION>
1998 1999
-------- --------
(EUROS IN MILLIONS)
<S> <C> <C>
German loss carryforwards:
Corporation tax........................................... E181.2 E185.2
Trade income tax.......................................... 13.2 18.8
Foreign loss carryforwards.................................. 95.6 266.0
</TABLE>
Under U.S. GAAP, valuation allowances are established if, based on the
weight of evidence, it is more likely than not that deferred tax assets will not
be realized through the future taxable income of these subsidiaries or
affiliated companies.
German tax losses may generally be carried forward indefinitely with
certain limitations to the annual amount deductible from future taxable income.
Foreign loss carryforwards have varying expiration periods and are subject
to limitations with regard to offsetting against future taxable incomes.
Deferred tax liabilities have not been provided for withholding taxes or
additional corporate income taxes due in Germany in the absence of double
taxation treaties for unremitted earnings of foreign subsidiaries or affiliated
companies or investments accounted for under the equity method.
9. MINORITY INTERESTS
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ -----
(EUROS IN MILLIONS)
<S> <C> <C> <C>
Minority interests in profits............................... E 25.6 E 32.4 E43.2
Minority interests in losses................................ 41.1 67.8 35.3
------ ------ -----
E(15.5) E(35.4) E 7.9
</TABLE>
See Note 20 for a detailed analysis of consolidated subsidiaries with
minority shareholdings.
F-32
<PAGE> 227
10. OTHER INFORMATION
PERSONNEL COSTS
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
(EUROS IN MILLIONS)
<S> <C> <C> <C>
Wages and salaries.......................................... E4,687.0 E4,840.3 E4,934.7
Social security contributions and expenses for pensions and
assistance................................................ 1,103.0 1,169.7 1,244.8
- - - - - - - Thereof for pensions...................................... 266.7 308.6 388.7
-------- -------- --------
TOTAL....................................................... E5,790.0 E6,010.0 E6,179.5
</TABLE>
Pension costs for 1998 include a credit of E86.3 million resulting from an
agreement between BASF Aktiengesellschaft and other German subsidiaries with
BASF Pensionskasse. As part of the agreement, BASF Pensionskasse accepted the
legal liability resulting from adjusting pensions granted every third year to
the general development of net wages in Germany. BASF Aktiengesellschaft and
other subsidiaries in Germany previously carried this liability on their balance
sheets for the portion of pension benefits granted by BASF Pensionskasse.
Pension costs for 1998 do not include the additional pension provisions
resulting from the change of the valuation methods to conform with SFAS No. 87
totaling E961.8 million. (See Note 2 for further information.)
AVERAGE NUMBER OF EMPLOYEES
<TABLE>
<CAPTION>
PROPORTIONALLY
CONSOLIDATED
FULLY CONSOLIDATED COMPANIES COMPANIES
------------------------------ ---------------------
1997 1998 1999 1997 1998 1999
-------- -------- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Europe............................................... 77,414 75,314 73,957 2,700 2,975 3,456
- - - - - - - Thereof Germany.................................... 60,332 59,215 58,083 2,443 2,596 2,962
North America (NAFTA)................................ 15,232 15,438 15,668 799 807 744
South America........................................ 6,703 6,449 6,902 - - -
Asia, Pacific Area, Africa........................... 4,417 7,656 8,453 739 360 166
------- ------- ------- ----- ----- -----
TOTAL................................................ 103,766 104,857 104,980 4,238 4,142 4,366
------- ------- ------- ----- ----- -----
- - - - - - - Thereof with trainee contracts..................... 2,913 3,060 3,208 144 148 150
- - - - - - - Thereof with limited-term contracts................ 2,871 3,107 3,198 20 23 72
</TABLE>
The above number of employees of proportionally consolidated companies are
given in full; if they are taken into account at 50%, the average number of
personnel for the Company is 105,885 in 1997, 106,928 in 1998 and 107,163 in
1999.
The number of trainee contracts mainly concern vocational trainees. Most of
these trainee contracts are within the Company's Germany operations.
INFORMATION RELATING TO THE BOARD OF EXECUTIVE DIRECTORS AND SUPERVISORY BOARD
OF BASF AKTIENGESELLSCHAFT
<TABLE>
<CAPTION>
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Supervisory Board emoluments................................ E 1.4 E 1.6 E 1.6
Board of Executive Directors emoluments..................... 11.0 12.5 9.2
Pension for former members of the Board of Executive
Directors and their surviving dependents.................. 4.0 4.4 5.7
Pension provisions for former members of the Board of
Executive Directors and their surviving dependents........ 33.9 41.6 50.2
</TABLE>
In 1999, the members of the Board of Executive Directors were granted
166,616 option rights under the BASF stock option program (BOP). These options
rights entitle such directors to purchase, if certain
F-33
<PAGE> 228
objectives are achieved, of a maximum of 333,232 shares at a preferential price.
Personnel costs in 1999 related to the issuance of these options totaled E0.9
million. See Note 25 for further information.
TAXES OTHER THAN ON INCOME
Taxes other than on income totaled E154.9 million in 1997, E121.9 million
in 1998 and E149.3 million in 1999 and resulted primarily from property and real
estate taxes. Such taxes are allocated to operational costs.
ADDITIONAL INFORMATION ON STATEMENTS OF CASH FLOWS
Cash generated from operating activities in 1997 of E3,291 million, in 1998
of E3,745 million and in 1999 of E3,255 million exceeded cash used for investing
activities of E2,620 million in 1997, E3,227 million in 1998 and E2,099 million
in 1999. The excess cash was used, in large part, to pay dividends of E537
million in 1997, of E636 million in 1998 and of E693 million in 1999.
Cash generated from operating activities was derived after interest
payments of E230.6 million in 1997, E255.6 million in 1998 and E237.5 in 1999.
Income taxes paid totaled E1,008.9 million in 1997, E977.7 million in 1998 and
E592.7 million in 1999.
In 1999, cash generated from operating activities included E299.1 million
from the sale of accounts receivable.
F-34
<PAGE> 229
11. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
PATENTS, LICENSES,
TRADEMARKS AND ADVANCE
SIMILAR RIGHTS GOODWILL PAYMENTS TOTAL
------------------ -------- -------- --------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C>
ACQUISITION COSTS
Balance as of January 1, 1998...................... E1,665.4 E 511.6 E 81.2 E2,258.2
Change in scope of consolidation................... 95.7 47.3 0.1 143.1
Additions.......................................... 496.8 321.8 4.2 822.8
Disposals.......................................... 32.0 17.3 - 49.3
Transfers, including exchange rate changes......... 23.6 (25.2) (78.1) (79.7)
-------- -------- ------- --------
Balance as of December 31, 1998.................... 2,249.5 838.2 7.4 3,095.1
-------- -------- ------- --------
ACCUMULATED AMORTIZATION
Balance as of January 1, 1998...................... 621.5 138.7 0.9 761.1
Change in scope of consolidation................... 18.6 7.2 - 25.8
Additions.......................................... 245.7 170.8 0.2 416.7
Disposals.......................................... 29.5 25.5 - 55.0
Transfers, including exchange rate changes......... (13.4) (5.0) - (18.4)
-------- -------- ------- --------
Balance as of December 31, 1998.................... 842.9 286.2 1.1 1,130.2
-------- -------- ------- --------
NET BOOK VALUE AS OF DECEMBER 31, 1998............. E1,406.6 E 552.0 E 6.3 E1,964.9
======== ======== ======= ========
ACQUISITION COSTS
Balance as of January 1, 1999...................... E2,249.5 E 838.2 E 7.4 E3,095.1
Change in scope of consolidation................... 72.8 139.9 0.4 213.1
Additions.......................................... 218.3 265.7 5.5 489.5
Disposals.......................................... 81.0 12.0 1.3 94.3
Transfers, including exchange rate changes......... 130.3 125.9 (4.2) 252.0
-------- -------- ------- --------
Balance as of December 31, 1999.................... 2,589.9 1,357.7 7.8 3,955.4
-------- -------- ------- --------
ACCUMULATED AMORTIZATION
Balance as of January 1, 1999...................... 842.9 286.2 1.1 1,130.2
Change in scope of consolidation................... 9.5 52.4 - 61.9
Additions.......................................... 383.5 260.3 0.2 644.0
Disposals.......................................... 72.2 12.7 - 84.9
Write-backs........................................ 1.1 - - 1.1
Transfers, including exchange rate changes......... 36.7 21.8 - 58.5
-------- -------- ------- --------
Balance as of December 31, 1999.................... 1,199.3 608.0 1.3 1,808.6
-------- -------- ------- --------
NET BOOK VALUE AS OF DECEMBER 31, 1999............. E1,390.6 E 749.7 E 6.5 E2,146.8
======== ======== ======= ========
</TABLE>
Changes in the scope of consolidation in 1998 resulted primarily from
Hokuriku Seiyaku Co. Ltd. of Japan in the Pharmaceuticals segment. Additions
included the acquisition of the lysine business of the Daesang Group of Korea,
the acquisition of Hoechst's polyethylene business through Elenac and the
acquisition of the remaining 50 percent ownership stake in BASF Styrenics Korea
Ltd. (merged into BASF Company Ltd. Korea as of December 31, 1998).
Changes in the scope of consolidation, in 1999 are related primarily to (i)
gas concessions of Wintershall Energia S.A. of Argentina. Such concessions were
taken over through the September 1998 dissolution of Deminex and were
consolidated for the first time in 1999, and (ii) the first-time consolidation
of subsidiaries in the Pharmaceuticals segment and the Coatings division.
Additions included the acquisition of rights to purchase propylene oxide from
Lyondell Chemical Company of Houston, Texas, and the acquisition of the
remaining 50 percent ownership stake in Targor from Hoechst/Celanese.
F-35
<PAGE> 230
Unscheduled write-downs recorded under the item "other operating expenses"
were made for expected long-term value impairments of E161.1 million in 1999 on
intangible assets. The most significant charge was recorded for the impairment
of know-how, goodwill and other intangible assets related to the lysine business
of the fine chemicals segment. This business suffered from a dramatic decline in
lysine sales prices, due primarily to the pressures of worldwide overcapacity
and record harvests of soybeans, which are an alternative to lysines as a source
of protein for animal feed. Because these market conditions are expected to
continue to exert downward pressure on lysine prices for the foreseeable future,
management of the Company determined that the future undiscounted cash flows
associated with the assets of the lysine business were insufficient to recover
their carrying value. Accordingly, such assets were written down to fair value,
which was determined on the basis of discounted cash flows.
F-36
<PAGE> 231
12. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
LAND, LAND RIGHTS
AND BUILDINGS
INCLUDING BUILDINGS MACHINERY AND MISCELLANEOUS ADVANCE PAYMENTS
ON LAND TECHNICAL EQUIPMENT AND CONSTRUCTION
OWNED BY OTHERS EQUIPMENT AND FIXTURES IN PROGRESS TOTAL
------------------- ------------- ------------- ---------------- ---------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
ACQUISITION COSTS
Balance as of January 1,
1998........................ E5,738.3 E22,242.1 E3,056.4 E 1,387.4 E32,424.2
Change in scope of
consolidation............. 293.5 410.9 40.8 205.4 950.6
Additions................... 81.8 781.7 188.7 1,847.1 2,899.3
Disposals................... 105.4 617.5 291.9 19.2 1,034.0
Transfers, including
exchange rate changes..... 208.7 1,113.9 126.9 (1,739.1) (289.6)
-------- --------- -------- --------- ---------
Balance as of December 31,
1998...................... 6,216.9 23,931.1 3,120.9 1,681.6 34,950.5
-------- --------- -------- --------- ---------
ACCUMULATED DEPRECIATION
Balance as of January 1,
1998...................... 3,590.7 17,289.5 2,431.5 36.8 23,348.5
Change in scope of
consolidation............. 58.5 210.3 25.3 - 294.1
Additions................... 192.7 1,341.2 308.8 0.6 1,843.3
Disposals................... 68.8 567.4 260.9 - 897.1
Write-backs................. 0.3 0.4 - 0.1 0.8
Transfers, including
exchange rate changes..... (184.0) (155.8) (15.5) (36.7) (392.0)
-------- --------- -------- --------- ---------
Balance as of December 31,
1998...................... 3,588.8 18,117.4 2,489.2 0.6 24,196.0
-------- --------- -------- --------- ---------
NET BOOK VALUE AS OF
DECEMBER 31, 1998......... E2,628.1 E 5,813.7 E 631.7 E 1,681.0 E10,754.5
======== ========= ======== ========= =========
ACQUISITION COSTS
Balance as of January 1,
1999........................ E6,216.9 E23,931.1 E3,120.9 E 1,681.6 E34,950.5
Change in scope of
consolidation............. 46.1 529.4 31.7 229.0 836.2
Additions................... 76.5 701.4 157.1 1,828.6 2,763.6
Disposals................... 158.0 1,344.3 283.9 11.4 1,797.6
Transfers, including
exchange rate changes..... 523.2 2,135.1 300.2 (1,450.9) 1,507.6
-------- --------- -------- --------- ---------
Balance as of December 31,
1999...................... 6,704.7 25,952.7 3,326.0 2,276.9 38,260.3
-------- --------- -------- --------- ---------
ACCUMULATED DEPRECIATION
Balance as of January 1,
1999...................... 3,588.8 18,117.4 2,489.2 0.6 24,196.0
Change in scope of
consolidation............. 13.7 419.1 21.0 - 453.8
Additions................... 207.9 1,495.8 311.8 2.7 2,018.2
Disposals................... 110.5 1,214.3 265.8 - 1,590.6
Write-backs................. 0.6 3.8 - - 4.4
Transfers, including
exchange rate changes..... 140.1 519.0 112.5 (0.6) 771.0
-------- --------- -------- --------- ---------
Balance as of December 31,
1999...................... 3,839.4 19,333.2 2,668.7 2.7 25,844.0
-------- --------- -------- --------- ---------
NET BOOK VALUE AS OF
DECEMBER 31, 1999......... E2,865.3 E 6,619.5 E 657.3 E 2,274.2 E12,416.3
======== ========= ======== ========= =========
</TABLE>
F-37
<PAGE> 232
Impairment losses of E46.1 million were recorded in 1999 related to
production sites in Medellin, Colombia; Ellesmere Port, England; Freeport,
United States; and Yokkaichi, Japan and E28.3 million in 1998 related primarily
to measures taken at two BASF Corporation sites in North America.
These actions were necessary primarily because of excess production
capacity, coupled with insufficient demand for certain products. Management of
the Company determined that the future undiscounted cash flows associated with
the production sites were insufficient to recover their carrying value.
Accordingly, such assets were written down to their discounted cash values,
using appropriate discount rates.
13. FINANCIAL ASSETS
<TABLE>
<CAPTION>
PARTICIPATIONS
SHARES IN SHARES IN SHARES IN SECURITIES AND SECURITIES HELD AS
AFFILIATED ASSOCIATED PARTICIPATING HELD AS FIXED ASSETS
COMPANIES COMPANIES INTERESTS FIXED ASSETS (SUBTOTAL)
---------- ---------- ------------- ------------------ ----------------------
(EUROS IN MILLION)
<S> <C> <C> <C> <C> <C>
ACQUISITION COSTS
Balance as of January 1, 1998... E 958.7 E334.7 E258.3 E26.8 E1,578.5
Change in scope of
consolidation................. (346.9) (13.9) - 7.2 (353.6)
Additions....................... 279.6 22.8 20.1 8.4 330.9
Disposals....................... 36.2 120.9 14.7 1.1 172.9
Transfers, including exchange
rate changes.................. (58.4) (25.6) (3.0) 0.4 (86.6)
-------- ------ ------ ----- --------
Balance as of December 31,
1998.......................... 796.8 197.1 260.7 41.7 1,296.3
-------- ------ ------ ----- --------
ACCUMULATED DEPRECIATION
Balance as of January 1, 1998... 61.0 28.4 86.7 1.3 177.4
Change in scope of
consolidation................. 0.2 - - 0.9 1.1
Additions....................... 4.7 13.4 - 1.2 19.3
Disposals....................... 0.9 1.1 - - 2.0
Transfers, including exchange
rate changes.................. (47.6) (19.8) - 0.1 (67.3)
-------- ------ ------ ----- --------
Balance as of December 31,
1998.......................... 17.4 20.9 86.7 3.5 128.5
-------- ------ ------ ----- --------
NET BOOK VALUE AS OF
DECEMBER 31, 1998............. E 779.4 E176.2 E174.0 E38.2 E1,167.8
======== ====== ====== ===== ========
</TABLE>
F-38
<PAGE> 233
<TABLE>
<CAPTION>
LOANS TO
ASSOCIATED
LOANS COMPANIES
TO AND OTHER LOANS LOANS AND OTHER TOTAL
AFFILIATED PARTICIPATING AND INVESTMENTS FINANCIAL
COMPANIES INTERESTS INVESTMENTS (SUBTOTAL) ASSETS
---------- ------------- --------------- --------------- ---------------
(EUROS IN MILLION)
<S> <C> <C> <C> <C> <C>
ACQUISITION COSTS
Balance as of January 1, 1998...... E536.4 E42.8 E155.1 E734.3 E2,312.8
Change in scope of consolidation... - (3.1) (2.1) (5.2) (358.8)
Additions.......................... 2.3 60.5 14.8 77.6 408.5
Disposals.......................... 106.6 8.2 15.9 130.7 303.6
Transfers, including exchange rate
changes.......................... 3.3 (2.0) (14.6) (13.3) (99.9)
------ ----- ------ ------ --------
Balance as of December 31, 1998.... 435.4 90.0 137.3 662.7 1,959.0
------ ----- ------ ------ --------
ACCUMULATED DEPRECIATION
Balance as of January 1, 1998...... - - 3.5 3.5 180.9
Change in scope of consolidation... - - - - 1.1
Additions.......................... 0.2 0.4 0.8 1.4 20.7
Disposals.......................... - - 0.5 0.5 2.5
Transfers, including exchange rate
changes.......................... - - - - (67.3)
------ ----- ------ ------ --------
Balance as of December 31, 1998.... 0.2 0.4 3.8 4.4 132.9
------ ----- ------ ------ --------
NET BOOK VALUE AS OF DECEMBER 31,
1998............................. E435.2 E89.6 E133.5 E658.3 E1,826.1
====== ===== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
PARTICIPATIONS
SHARES IN SHARES IN SHARES IN SECURITIES AND SECURITIES HELD AS
AFFILIATED ASSOCIATED PARTICIPATING HELD AS FIXED ASSETS
COMPANIES COMPANIES INTERESTS FIXED ASSETS (SUBTOTAL)
---------- ---------- ------------- ------------ ----------------------
(EUROS IN MILLION)
<S> <C> <C> <C> <C> <C>
ACQUISITION COSTS
Balance as of January 1, 1999....... E 796.8 E197.1 E260.7 E41.7 E1,296.3
Change in scope of consolidation.... (103.3) 2.1 1.7 0.5 (99.0)
Additions........................... 252.4 191.9 47.8 3.4 495.5
Disposals........................... 22.0 81.4 152.1 7.7 263.2
Transfers, including exchange rate
changes........................... (13.1) (158.7) 34.8 (6.7) (143.7)
-------- ------ ------ ----- --------
Balance as of December 31, 1999..... 910.8 151.0 192.9 31.2 1,285.9
-------- ------ ------ ----- --------
ACCUMULATED DEPRECIATION
Balance as of January 1, 1999....... 17.4 20.9 86.7 3.5 128.5
Change in scope of consolidation.... (2.3) - - - (2.3)
Additions........................... 1.8 3.4 12.3 0.3 17.8
Disposals........................... 3.8 6.7 85.8 1.8 98.1
Write-backs......................... - - - - -
Transfers, including exchange rate
changes........................... 0.5 - (1.2) 0.1 (0.6)
-------- ------ ------ ----- --------
Balance as of December 31, 1999..... 13.6 17.6 12.0 2.1 45.3
-------- ------ ------ ----- --------
NET BOOK VALUE AS OF DECEMBER 31,
1999.............................. E 897.2 E133.4 E180.9 E29.1 E1,240.6
======== ====== ====== ===== ========
</TABLE>
F-39
<PAGE> 234
<TABLE>
<CAPTION>
LOANS TO
ASSOCIATED
COMPANIES LOANS AND
LOANS TO AND OTHER LOANS OTHER TOTAL
AFFILIATED PARTICIPATING AND INVESTMENTS FINANCIAL
COMPANIES INTERESTS INVESTMENTS (SUBTOTAL) ASSETS
---------- ------------- --------------- --------------- ---------------
(EUROS IN MILLION)
<S> <C> <C> <C> <C> <C>
ACQUISITION COSTS
Balance as of January 1, 1999..... E435.4 E 90.0 E137.3 E662.7 E1,959.0
Change in scope of
consolidation................... - (28.5) 0.7 (27.8) (126.8)
Additions......................... 3.5 24.3 23.1 50.9 546.4
Disposals......................... 415.9 1.2 19.9 437.0 700.2
Transfers, including exchange rate
changes......................... (0.3) 0.6 21.5 21.8 (121.9)
------ ------ ------ ------ --------
Balance as of December 31, 1999... 22.7 85.2 162.7 270.6 1,556.5
------ ------ ------ ------ --------
ACCUMULATED DEPRECIATION
Balance as of January 1, 1999..... 0.2 0.4 3.8 4.4 132.9
Change in scope of
consolidation................... - - - - (2.3)
Additions......................... - - 1.4 1.4 19.2
Disposals......................... - - 0.7 0.7 98.8
Write-backs....................... - 0.4 0.1 0.5 0.5
Transfers, including exchange rate
changes......................... - - - - (0.6)
------ ------ ------ ------ --------
Balance as of December 31, 1999... 0.2 - 4.4 4.6 49.9
------ ------ ------ ------ --------
NET BOOK VALUE AS OF DECEMBER 31,
1999............................ E 22.5 E 85.2 E158.3 E266.0 E1,506.6
====== ====== ====== ====== ========
</TABLE>
In 1998, additions to "Shares in affiliated companies" of E279.6 million
include the acquisitions of both the Italian industrial coatings manufacturer
Salchi Spa, which is now known as BASF Coatings Spa. and to Explorations- und
Produktionsbeteiligungsgesellschaft der Wintershall mbH, a company created after
the dissolution of the Deminex joint venture and took over the former joint
venture operations in Argentina (Wintershall Energia S.A.) and some smaller
operations in eastern Europe. Further increases resulted from the establishment
of BASF Petronas Chemicals Sdn. Bhd. in Malaysia.
In 1999, additions to "Shares in affiliated companies" of E252.4 million
related primarily to capital increases for construction projects at BASF's
Verbund site in Kuantan, Malaysia. The Kuantan site is operated by BASF Petronas
Chemicals Sdn. Bhd, a joint venture in which BASF holds a 60 percent ownership
stake, and BASF Services (Malaysia), a company in which BASF holds a 100 percent
ownership stake. These enterprises have not yet been consolidated. Additions to
"Shares in associated companies" included the acquisition of a 40 percent
ownership stake in Svalof Weibull, a seed breeding company based in Svalov,
Sweden. Goodwill of E156.9 million related to the acquisition of shares in
affiliated and associated companies.
OTHER FINANCIAL ASSETS
The book and market values of available-for-sale securities held as fixed
assets and shares in participating interests is summarized below:
<TABLE>
<CAPTION>
1998 1999
AVAILABLE-FOR-SALE SECURITIES ---------------------------- ----------------------------
BOOK MARKET UNREALIZED BOOK MARKET UNREALIZED
VALUES VALUES GAINS VALUES VALUES GAINS
------ ------ ---------- ------ ------ ----------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Fixed-term securities.................... E 20.7 E 20.8 E 0.1 E 21.1 E 21.4 E0.3
Mutual funds............................. 3.7 3.8 0.1 3.0 3.0 -
Other shareholdings and securities....... 187.8 224.1 36.3 185.9 186.0 0.1
------ ------ ----- ------ ------ ----
TOTAL.................................... E212.2 E248.7 E36.5 E210.0 E210.4 E0.4
</TABLE>
F-40
<PAGE> 235
The disposal of available-for-sale securities generated proceeds of E0.3
million in 1998 and E3.1 million in 1999 and a gain of E0.1 million in 1998 and
a loss of E0.3 million in 1999.
<TABLE>
<CAPTION>
1998 1999
MATURITIES OF FIXED-TERM SECURITIES AS OF DECEMBER 31 -------------- --------------
BOOK MARKET BOOK MARKET
VALUE VALUE VALUE VALUE
----- ------ ----- ------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C>
Less than 1 year............................................ E0.9 E0.9 E- E -
Between 1 and 5 years....................................... 0.1 0.1 - -
More than 5 years........................................... 0.7 0.7 - -
---- ---- -- ----
TOTAL....................................................... E1.7 E1.7 E- E -
---- ---- -- ----
</TABLE>
14. INVENTORIES
<TABLE>
<CAPTION>
1998 1999
-------- --------
(EUROS IN MILLIONS)
<S> <C> <C>
Raw materials and factory supplies.......................... E 834.6 E 943.4
Work-in-process, finished goods and merchandise............. 2,808.8 3,029.6
Construction in progress.................................... 46.8 47.4
Advance payments............................................ 13.2 7.3
-------- --------
TOTAL....................................................... E3,703.4 E4,027.7
</TABLE>
"Work-in-process" and "Finished goods and merchandise" are combined into
one item due to the production conditions in the chemical industry.
The acquisition or production cost of raw materials, work in process,
finished goods and merchandise is mainly determined by the last-in-first-out
(LIFO) method. Factory supplies are carried predominantly at average cost.
Inventories of E2,356.7 million, or 64% of total inventories, in 1998 and
E2,441.7 million or 61% of total inventories in 1999 are valued according to the
LIFO method. The difference between the carrying value determined according to
the LIFO method and higher average cost is E122 million in 1998 and E148 million
in 1999. The dissolution of LIFO layers led to income of E95.6 million in 1998.
15. RECEIVABLES AND OTHER ASSETS
<TABLE>
<CAPTION>
1998 1999
---------------------- ----------------------
THEREOF THEREOF
NON-CURRENT NON-CURRENT
----------- -----------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C>
Accounts receivable, trade........................... E4,017.4 E 21.7 E4,966.7 E 47.4
Receivables from affiliated companies................ 646.8 3.8 724.5 3.6
Receivables from associated companies and
other participating interests...................... 205.1 - 389.4 -
Other assets......................................... 868.5 118.8 967.8 123.8
-------- ------ -------- ------
Miscellaneous receivables and other assets........... 1,073.6 118.8 1,357.2 123.8
-------- ------ -------- ------
TOTAL................................................ E5,737.8 E144.3 E7,048.8 E174.8
</TABLE>
<TABLE>
<CAPTION>
1998 1999
COMPOSITION OF OTHER ASSETS -------- --------
(EUROS IN MILLIONS)
<S> <C> <C>
Tax refund claims........................................... E119.2 E282.2
Interest receivables........................................ 39.8 33.0
Receivables from commission sales........................... 48.9 53.9
Receivables from the sale of non-trade assets............... 70.6 47.4
Employee receivables........................................ 30.7 32.4
Rent and deposits........................................... 70.7 71.7
Insurance claims............................................ 33.2 10.9
Other....................................................... 455.4 436.3
------ ------
TOTAL....................................................... E868.5 E967.8
</TABLE>
F-41
<PAGE> 236
VALUATION ALLOWANCES FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE BALANCE
AS OF ADDITIONS RELEASES ADDITIONS RELEASES AS OF
JANUARY 1, --------- -------- --------- -------- DECEMBER 31,
1997 AFFECTING INCOME NOT AFFECTING INCOME 1997
---------- -------------------- -------------------- ------------
1997 (EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Accounts receivables, trade........... E278.0 E63.3 E32.7 E21.1 E 6.4 E323.3
Miscellaneous receivables and other
assets.............................. 67.0 10.9 1.6 4.0 - 80.3
------ ----- ----- ----- ----- ------
TOTAL................................. E345.0 E74.2 E34.3 E25.1 E 6.4 E403.6
<CAPTION>
BALANCE BALANCE
AS OF ADDITIONS RELEASES ADDITIONS RELEASES AS OF
JANUARY 1, --------- -------- --------- -------- DECEMBER 31,
1998 AFFECTING INCOME NOT AFFECTING INCOME 1998
1998 ---------- -------------------- -------------------- ------------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Accounts receivables, trade........... E323.3 E44.5 E45.4 E 5.8 E 7.4 E320.8
Miscellaneous receivables and other
assets.............................. 80.3 16.4 4.0 3.6 17.6 78.7
------ ----- ----- ----- ----- ------
TOTAL................................. E403.6 E60.9 E49.4 E 9.4 E25.0 E399.5
<CAPTION>
BALANCE BALANCE
AS OF ADDITIONS RELEASES ADDITIONS RELEASES AS OF
JANUARY 1, --------- -------- --------- -------- DECEMBER 31,
1999 AFFECTING INCOME NOT AFFECTING INCOME 1999
1999 ---------- -------------------- -------------------- ------------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Accounts receivables, trade........... E320.8 E46.7 E 5.0 E15.6 E 9.9 E368.2
Miscellaneous receivables and other
assets.............................. 78.7 6.8 7.6 6.6 10.4 74.1
------ ----- ----- ----- ----- ------
TOTAL................................. E399.5 E53.5 E12.6 E22.2 E20.3 E442.3
</TABLE>
Additions and releases not affecting income relate primarily to translation
adjustments and write-offs of receivables previously provided for. Valuation
allowances for trade accounts receivables take into consideration probable
losses associated with the political and economic conditions in certain
countries, especially with regard to the availability of foreign exchange for
the remittance of the owed amounts.
16. MARKETABLE SECURITIES
The securities book and market values are as follows:
<TABLE>
<CAPTION>
1998 1999
AVAILABLE-FOR-SALE SECURITIES ------------------------------ ------------------------------
BOOK MARKET UNREALIZED BOOK MARKET UNREALIZED
VALUES VALUES GAINS VALUES VALUES GAINS
------ -------- ---------- ------ -------- ----------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Fixed-term securities.................... E259.7 E260.2 E 0.5 E 74.9 E 74.9 E -
Shares................................... 387.4 437.1 49.7 388.2 402.9 14.7
Mutual funds............................. 93.8 95.4 1.6 38.4 43.2 4.8
Other securities......................... 4.8 6.1 1.3 15.9 15.9 -
------ ------ ----- ------ ------ -----
TOTAL.................................... E745.7 E798.8 E53.1 E517.4 E536.9 E19.5
</TABLE>
The disposal of available-for-sale securities generated proceeds of
E1,041.7 million in 1998 and E744.2 million in 1999 and gains of E57.3 million
in 1998 and E27.7 million in 1999.
<TABLE>
<CAPTION>
1998 1999
-------------------------- --------------------------
BOOK VALUES MARKET VALUE BOOK VALUES MARKET VALUE
----------- ------------ ----------- ------------
MATURITIES OF FIXED-TERM SECURITIES AS OF DECEMBER 31, (EUROS IN MILLIONS)
<S> <C> <C> <C> <C>
Less than 1 year................................... E242.0 E242.0 E62.6 E62.6
Between 1 and 5 years.............................. 17.7 18.2 12.3 12.3
------ ------ ----- -----
TOTAL.............................................. E259.7 E260.2 E74.9 E74.9
</TABLE>
F-42
<PAGE> 237
17. PREPAID EXPENSES
<TABLE>
<CAPTION>
THEREOF THEREOF
1998 CURRENT 1999 CURRENT
------ ------- ------ -------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C>
Discount.................................................... E 17.4 E 7.9 E 9.8 E 7.8
Miscellaneous............................................... 117.7 37.7 120.4 85.9
------ ------ ------ -----
TOTAL....................................................... E135.1 E 45.6 E130.2 E93.7
</TABLE>
"Discount" arising primarily from the 3% U.S. Dollar Option Bond 1986/2001
is capitalized and amortized as interest expense over the term of the underlying
obligations.
18. SUBSCRIBED AND ADDITIONAL PAID-IN CAPITAL
<TABLE>
<CAPTION>
SUBSCRIBED CONDITIONAL AUTHORIZED
CAPITAL CAPITAL CAPITAL
---------- ----------- ----------
(EUROS IN MILLIONS)
<S> <C> <C> <C>
JANUARY 1, 1998............................................. E1,590.2 E143.2 E306.8
Exercise of subscription rights connected to the 3% U.S.
Dollar Option Bond 1986/2001.............................. 4.5 (4.5) -
-------- ------ ------
DECEMBER 31, 1998........................................... 1,594.7 138.7 306.8
BASF Stock Option Program (BOP)............................. - 38.4 -
Suspension of old authorizations through the Annual
Shareholder Meeting on April 29, 1999..................... - - (306.8)
Authorizations through the Annual Shareholder Meeting on
April 29, 1999............................................ - - 500.0
Issuance of new shares from conditional capital through the
exercise of warrants attached to the 1986/2001 3% U.S.
Dollar Option Bond of BASF Finance Europe N.V............. 13.0 (13.0) -
Repurchase of shares........................................ (20.2) - -
Capital increase in BASF Aktiengesellschaft to reconcile
nominal value of BASF shares to E2.56 per share........... 2.2 - -
-------- ------ ------
DECEMBER 31, 1999........................................... E1,589.7 E164.1 E500.0
</TABLE>
SUBSCRIBED CAPITAL
The total number of outstanding BASF shares as of December 31, 1998 was
623,794,150 and as of December 31, 1999 stood at 620,984,640. Until 1998, the
par value of BASF shares was DM5. According to a resolution in the Annual
Shareholder Meeting on May 19, 1998, par value BASF shares were replaced by unit
shares, but the equivalent amount of subscribed capital per share must remain at
least at DM5 per share.
The exercising of warrants related to the 3% U.S. Dollar Option Bond
1986/2001 resulted in the issue of 1,731,460 shares in 1998 and 5,086,690 shares
in 1999. As a result, the share capital rose E4.5 million in 1998 and E13.0
million in 1999. A total of E22.9 million was transferred to capital surplus in
1998 and E67.1 million in 1999.
The Annual Shareholder Meeting on April 29, 1999, approved an increase of
E2.2 million in the subscribed capital through a transfer from capital surplus.
The objective of this increase was to keep the equivalent amount of subscribed
capital per share as a two-digit cent figure of E2.56 after the conversion of
the subscribed capital to euros from German marks.
SHARE REPURCHASE
The Board of Executive Directors received approval at the Annual
Shareholder Meeting on May 19, 1998, to repurchase BASF shares to a maximum
amount of 10% of subscribed capital. If BASF shares are purchased on a stock
exchange, the price paid for the shares may not be higher than the highest
market price at the Frankfurt Stock Exchange on the buying day and it may not be
lower than 75% of that market price. In the case of a public purchase offer, the
price offered by BASF may be a maximum of
F-43
<PAGE> 238
25% higher than the highest market price on the third trading day prior to the
publishing of the public purchase offer.
The Board of Executive Directors is authorized to cancel repurchased shares
without further shareholder approval. As a result, BASF repurchased between
January 13 and February 19, 1999, a total of 7,896,200 shares, or 1.3 percent of
the issued shares, at an average price of E32.37 per share and then canceled the
repurchased shares as authorized. This resulted in reduction to subscribed
capital of E20.2 million. Acquisition costs of E255.6 million were charged
against retained earnings. The Annual Meeting on April 29, 1999, approved a new
resolution authorizing the Board of Executive Directors to repurchase a maximum
10 percent of the issued shares until October 1, 2000, under the same price
limits outlined in the resolution approved in 1998, which is otherwise replaced
by the new resolution.
CONDITIONAL CAPITAL
As of December 31, 1999, the share capital can be conditionally increased
by up to E23.3 million compared with E36.2 million as of December 31, 1998, due
to the exercising of warrants related to the 3% U.S. Dollar Bond 1986/2001. Less
than E100,000 is related to the conversion rights of former shareholders of
Wintershall AG as of December 31, 1998, and December 31, 1999.
The Annual Meeting on May 9, 1996, gave the Board of Executive Directors
power for an additional conditional increase in the subscribed capital of up to
E102.4 million to fulfil the exercising of warrants related to the option bonds.
In addition, the Annual Meeting on April 29, 1999, approved an increase in
the conditional capital of up to E38.4 million to fulfil stock options granted
to the members of the Board of Executive Directors and other senior executives
of BASF and its subsidiaries.
AUTHORIZED CAPITAL
At the Annual Meeting of April 29, 1999, shareholders authorized the Board
of Executive Directors, with the approval of the Supervisory Board, to increase
subscribed capital by issuing new shares in the amount of up to E500.0 million
against cash or contribution in kind until May 1, 2004. The Board of Executive
Directors is empowered to decide on the exclusion of shareholders' subscription
rights for these new shares.
CAPITAL SURPLUS
Capital surplus includes premiums from the issues of shares, the fair value
of warrants attached to option bonds as well as negative goodwill from the
capital consolidation resulting from pre-1986 acquisitions of subsidiaries
against issue of BASF shares at par value.
19. RETAINED EARNINGS
<TABLE>
<CAPTION>
1997 1998 1999
---------------- ---------------- ----------------
(EUROS IN MILLIONS, EXCLUDING PER SHARE INFORMATION)
<S> <C> <C> <C>
Legal reserves.............................................. E 178.6 E 228.3 E 233.8
Other retained earnings and profit retained................. 6,603.2 7,774.0 8,066.2
Proposed dividend........................................... 636.1 692.8 701.7
-------- -------- --------
TOTAL....................................................... E7,417.9 E8,695.1 E9,001.7
Proposed dividend per share................................. E 1.02 E 1.12 E 1.13
</TABLE>
In 1999, the legal reserves rose by E4.9 million compared to an increase in
1998 of E47.1 million due to transfers from other retained earnings and profit
retained and in 1999 by E0.6 million compared with E2.6 million in 1998 due to
changes in the scope of consolidation.
The dividend proposed by the Board of Executive Directors, after approval
by the Supervisory Board, must be approved by the Annual Shareholder Meeting and
becomes payable on the first business day following that meeting.
F-44
<PAGE> 239
20. MINORITY INTEREST
Minority interests in stockholders' equity of consolidated subsidiaries is
primarily attributable to the following companies:
<TABLE>
<CAPTION>
MINORITY INTEREST AMOUNT
-----------------------------------------
COMPANY PARTNER % 1998 % 1999
- - - - - - ------------------------------- ------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Wingas GmbH, Kassel, Germany Zarubezhgaz Erdgashandel GmbH,
Berlin, Germany 35.0 E 78.2 35.0 E 80.2
Targor GmbH, Mainz, Germany and Hoechst AG (Celanese AG),
subsidiaries Germany 50.0 58.5 - -
Hokuriku Seiyaku Co. Ltd., Publicly traded shares 35.9 111.5 35.9 145.3
Katsuyama-Shi, Fukui, Japan
Yangzi-BASF Styrenics Co. Ltd., Yangzi Petrochem. Corp.,
Nanjing, China Nanjing, China 40.0 36.5 40.0 48.8
Knoll Pharmaceuticals Ltd., Publicly traded shares 49.0 15.5 49.0 20.9
Mumbai (Bombay), India
BASF India Ltd., Mumbai Publicly traded shares 50.0 15.1 50.0 15.0
(Bombay), India
Others 15.4 19.1
------ ------
E330.7 E329.3
</TABLE>
On December 17, 1999, BASF acquired the remaining 50 percent ownership
stake in Targor GmbH.
21. PROVISIONS FOR PENSIONS AND SIMILAR OBLIGATIONS
Most employees are entitled to Company pension benefits resulting from
defined contribution and defined benefit plans. The benefits granted vary
according to the legal, fiscal and economic conditions of the countries where
subsidiaries and affiliated companies are located. Pension obligations comprise
pensions payable after retirement, in case of disability or for surviving
dependents. Benefits generally depend on years of service and compensation
during the final years of employment. Other obligations consist primarily of
health care benefits for retired employees and eligible dependents of the North
American subsidiaries as well as statutory severance payments in various
countries.
The pension plans for BASF Aktiengesellschaft and most German subsidiaries
include a funded plan, BASF Pensionskasse, which is maintained as a legally
independent fund and is subject to Germany's Law on the Supervision of Private
Insurance Companies. Contributions to this fund are made equally by employees
and the Company. The fund grants annual pensions of 40% of the accumulated
contributions made by the employee.
For German Group subsidiaries, additional Company pension commitments are
financed primarily by pension provisions. In the case of non-German
subsidiaries, pension entitlements are covered in some cases by pension
provisions, but mainly by external life insurances or pension funds.
Pension plans and their respective costs are predominantly determined using
the "projected unit credit method" as defined by SFAS No. 87. The weighted
average rates used for calculating the principal retirement plans are as
follows:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Interest rate............................................... 5.9% 6.4%
Projected increase of wages and salaries.................... 3.1 3.4
Projected pension increase.................................. 1.1 1.4
Expected return on plan assets.............................. 8.5 8.4
</TABLE>
F-45
<PAGE> 240
The change in the projected benefit obligation is as follows:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Projected benefit obligation as of January 1................ E5,860.5 E5,942.6
Service cost................................................ 120.0 136.6
Interest cost............................................... 363.2 354.7
Benefits paid............................................... (331.5) (353.2)
Participants' contributions................................. 6.3 6.6
Change in actuarial assumptions............................. 192.6 (175.4)
Settlements and other changes............................... (146.1) (86.7)
Currency exchange........................................... (122.4) 373.1
-------- --------
Projected benefit obligation as of December 31.............. E5,942.6 E6,198.3
</TABLE>
The change in plan assets is as follows:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Plan assets as of January 1................................. E2,089.5 E2,263.2
Actual return on plan assets................................ 269.0 368.0
Employer contributions...................................... 126.2 18.2
Participants' contributions................................. 6.3 6.6
Benefits paid............................................... (119.0) (150.0)
Currency exchange........................................... (118.0) 342.6
Other changes............................................... 9.2 (14.1)
-------- --------
Plan assets as of December 31............................... 2,263.2 2,834.5
Prepaid pension assets of foreign plans..................... (119.4) (282.3)
-------- --------
Plan assets as of December 31 excluding prepaid pension
assets.................................................... E2,143.8 E2,552.2
</TABLE>
The valuation of certain pension plans of foreign subsidiaries, according
to SFAS No. 87 resulted in prepaid pension assets, after consideration of
unrecognized actuarial gains and losses, of E119.4 million in 1998 and E171.1
million in 1999. It is not permissible to recognize this prepaid pension asset
under German GAAP. This is included in the reconciliation to U.S. GAAP. See Note
3(c) for further information.
The funded status, excluding prepaid pension assets, is as follows:
<TABLE>
<CAPTION>
1998 1999
-------- --------
(EUROS IN MILLIONS)
<S> <C> <C>
Funded status............................................... E3,798.8 E3,646.1
Unrecognized actuarial gains and losses..................... 3.0 204.7
-------- --------
Provisions for pensions..................................... 3,801.8 3,850.8
Provisions for health care benefits......................... 260.7 319.2
-------- --------
Provisions for pensions and similar obligations............. E4,062.5 E4,170.0
</TABLE>
F-46
<PAGE> 241
The components of the net periodic pension cost are presented in the
following table:
<TABLE>
<CAPTION>
1998 1999
-------- --------
(EUROS IN MILLIONS)
<S> <C> <C>
Service cost................................................ E 120.0 E 136.6
Interest cost............................................... 363.2 354.7
Expected return on plan assets.............................. (149.5) (182.4)
Amortization amounts........................................ 0.1
Settlement gains............................................ (145.7) (26.0)
------- -------
Expenses for defined benefit plans.......................... 188.0 283.0
Expenses for defined contribution plans..................... 97.6 82.3
Expenses for health care benefits........................... 23.0 23.4
------- -------
Net periodic pension cost................................... E 308.6 E 388.7
</TABLE>
The 1998 settlement gain includes E86.3 million as explained in Note 10.
Other settlement gains are primarily related to early retirement programs
offered by German subsidiaries. See Note 22 for further information on the early
retirement benefits granted by these programs.
22. OTHER PROVISIONS
<TABLE>
<CAPTION>
THEREOF THEREOF
1998 CURRENT 1999 CURRENT
-------- -------- -------- --------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C>
Oil and gas production............................... E 326.3 E 3.1 E 350.2 E -
Environmental protection and remediation costs....... 318.7 145.9 260.0 130.7
Personnel costs...................................... 990.9 607.3 1,135.2 711.0
Sales and purchase risks............................. 419.9 401.1 533.7 526.8
Shutdown and restructuring costs..................... 158.7 120.3 180.9 145.1
Legal, damage claims and related commitments......... 453.9 101.0 733.7 272.8
Maintenance and repair costs......................... 172.6 107.8 125.5 61.1
Other................................................ 355.1 306.7 485.9 437.5
-------- -------- -------- --------
E3,196.1 E1,793.2 E3,805.1 E2,285.0
</TABLE>
OIL AND GAS PRODUCTION: Accrued costs for filling of wells and removal of
production equipment after the end of production are accumulated by installments
during the expected production period.
ENVIRONMENTAL PROTECTION AND REMEDIATION COSTS: Expected costs for
rehabilitating contaminated sites, water protection, recultivating landfills and
other current or future measures necessary to comply with currently existing
legal requirements or currently existing agreements with supervisory
authorities.
PERSONNEL COSTS: Personnel cost provision includes long-time service
bonuses and anniversary payments, vacation pay, variable compensation, social
security contributions and other personnel related accruals. Most German
subsidiaries have various programs that entitle employees who are at least 55
years old to reduce their working hours to 50 percent for up to five years.
Under this arrangement, employees generally work full time during the first half
of the transition period and leave the company at the start of the second
period. Employees receive a minimum 85 percent of their net salary throughout
the transition period.
SALES AND PURCHASE RISKS: The sales and purchase risks provision is
specific in nature and includes (i) for sales, discounts, rebates, contractual
customer bonuses, product liability, warranties and compensation claims of
commercial agents, and (ii) for purchases, sundry accruals for purchases and
provisions for losses on committed purchases/other obligations. The provision
does not include any general risk reserves.
F-47
<PAGE> 242
SHUTDOWN AND RESTRUCTURING COSTS: Various group companies are involved in
different kinds of restructuring plans. The existing plans are focused on the
reduction of costs, divestiture of non-strategic business units and the
integration of acquisitions. Provisions for restructuring include primary costs
for severance programs and other costs related to assets.
The movement in shutdown and restructuring provisions is as follows:
<TABLE>
<CAPTION>
AMOUNT AMOUNT
ACCRUED AS OF AMOUNT OTHER ACCRUED AS OF
DECEMBER 31, PAID IN CHANGES DECEMBER 31,
1997 1998 1998 1998
------------- -------- -------- -------------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C>
Severance.......................................... E100.6 E (30.1) E27.5 E 98.0
Plant closure and demolition....................... 63.6 (31.7) 15.8 47.7
Other.............................................. 41.9 (39.1) 10.2 13.0
------ ------- ----- ------
TOTAL.............................................. E206.1 E(100.9) E53.5 E158.7
------ ------- ----- ------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT AMOUNT
ACCRUED AS OF AMOUNT OTHER ACCRUED AS OF
DECEMBER 31, PAID IN CHANGES DECEMBER 31,
1998 1999 1999 1999
------------- -------- -------- -------------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C>
Severance........................................... E 98.0 E(42.9) E 56.2 E111.3
Plant closure and demolition........................ 47.7 (36.4) 41.3 52.6
Other............................................... 13.0 (4.6) 8.6 17.0
------ ------ ------ ------
TOTAL............................................... E158.7 E(83.9) E106.1 E180.9
------ ------ ------ ------
</TABLE>
Amounts accrued as of December 31, 1997 relate mainly to the restructuring
of BASF Coatings AG and a staff reduction plan at BASFIN UK, of the United
Kingdom.
In 1998, a U.S. subsidiary approved restructuring programs that would
result in the consolidation and realignment of certain manufacturing processes
with its North American paper dyes and solvent borne base coats and clear-coat
businesses. The anticipated closure and realignment plans include the
recognition of pre-tax charge of E25.6 million including demolition costs as
well as severance and outplacement costs for employees associated with the two
affected sites. The majority of costs related to such programs were expected to
be incurred in 1999; however due to construction delays on the replacement
plants, only E6.4 million was expended in 1999.
In 1999, BASF approved plans to close the multi-divisional site in
Medellin, Colombia, the Colorants and Finishing Products site in Ellesmere Port,
England, the Pharmaceuticals production site in Beeston, England, and the
Fertilizers site in Ostend, Belgium. These plans representing primarily
severance costs for employees associated with these sites as well as demolition
costs and the cost of fulfilling contractual obligations after the sites have
been closed. Pretax charges of E123.9 million were recorded for these measures,
which are expected to be substantially completed in the year 2000.
LEGAL, DAMAGE CLAIMS AND RELATED COMMITMENTS: Provisions are recorded for
the excepted cost of outstanding litigation and claims of third parties,
including regulatory authorities. The significant proceedings are described in
Note 24.
MAINTENANCE AND REPAIR COSTS: Provision for maintenance and repair costs
covers omitted maintenance procedures as of the end of the year, expected to be
incurred within the first three months of the following year and certain
provisions for the overhauling of large scale plants within prescribed
intervals.
OTHER: Other provisions relate in particular to amounts not yet invoiced
from suppliers for products and services received.
F-48
<PAGE> 243
23. LIABILITIES
<TABLE>
<CAPTION>
1998 1999
-------- --------
(EUROS IN MILLIONS)
<S> <C> <C>
3% U.S. Dollar Option Bond 1986/2001........................ E 196.8 E 229.2
Other bonds................................................. 327.0 221.6
Commercial paper............................................ 66.7 65.9
-------- --------
Bonds and other liabilities to the capital market........... 590.5 516.7
Liabilities to credit institutions.......................... 725.3 777.7
-------- --------
Financial liabilities....................................... E1,315.8 E1,294.4
</TABLE>
Financial liabilities are denominated predominantly in the following
currencies:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
U.S. dollar................................................. E 777.2 E 716.6
Euros....................................................... 199.8 121.0
Chinese renminbi............................................ 159.6 183.9
Other....................................................... 179.2 272.9
-------- --------
TOTAL....................................................... E1,315.8 E1,294.4
</TABLE>
The weighted average interest rate on short-term borrowings was 6.4% as of
December 31, 1999, compared with 5.6% in 1998.
Financial liabilities have the following maturities as of December 31,
1999:
<TABLE>
<CAPTION>
(EUROS
IN
MILLIONS)
<S> <C>
2000........................................................ E 577.2
2001........................................................ 373.8
2002........................................................ 55.2
2003........................................................ 24.3
2004........................................................ 32.5
Thereafter.................................................. 231.4
--------
TOTAL....................................................... E1,294.4
</TABLE>
3% U.S. DOLLAR OPTION BOND 1986/2001 OF BASF FINANCE EUROPE N.V.
The bonds of 1986 consist of 235,000 bonds of U.S. $1,000 each. BASF
Finance Europe N.V., a company incorporated under the laws of the Netherlands,
is a subsidiary of BASF Aktiengesellschaft, which has issued an unconditional
and irrevocable guarantee for the due payment in U.S. dollars of the amounts
corresponding to the principal of and the interest on the bonds in accordance
with the terms of the issue. The bonds are listed on the Luxembourg Stock
Exchange.
The bond allows for 10 BASF shares to be issued upon the exercise of one
warrant against payment of the exercise price of E157.48. This subscription
right may be exercised between May 5, 1986, and April 9, 2001, with the
exception of certain periods.
OTHER BONDS
Other bonds include (i) in 1998, 7% U.S. Dollar Bonds issued by BASF
Finance Europe N.V. 1992/1999 of U.S. $200 million, represented by a total
amount of 40,000 bonds of U.S. $1,000 each and 16,000 bonds of U.S. $10,000
each. Such bonds matured on August 19, 1999; and (ii) in 1998 and 1999, demand
reserve and pollution control bonds issued by BASF Corporation, due between 2002
and 2032 and bearing interest rates at rates of between 3.61% and 6.25%.
F-49
<PAGE> 244
LIABILITIES TO, AND FACILITIES WITH, CREDIT INSTITUTIONS
Liabilities to credit institutions relate to a large number of different
credit institutions in various countries. Liabilities to credit institutions
denominated in Chinese renminbi result from the local financing of Chinese joint
ventures.
At the end of 1999, the Company had committed and unused credit lines of
E719.4 million with variable interest rates. In addition, the Company had E497.0
in credit lines cancellable at the option of either the credit institution
involved or the Company.
MISCELLANEOUS LIABILITIES AND DEFERRED INCOME
<TABLE>
<CAPTION>
THEREOF THEREOF
1998 CURRENT 1999 CURRENT
-------- -------- -------- --------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C>
Advances received on account of orders............... E 78.5 E 70.3 E 91.8 E 81.1
Liabilities on bills of exchange..................... 41.0 27.9 41.6 31.3
Liabilities to companies in which participations are
held............................................... 132.9 131.6 170.3 170.2
Tax liabilities...................................... 632.5 632.5 621.6 619.9
Liabilities relating to social security.............. 159.3 159.0 103.6 103.2
Non-trade liabilities to joint venture partners...... 459.1 - 662.8 -
Other miscellaneous liabilities...................... 611.8 477.2 1,525.7 1,424.4
-------- -------- -------- --------
Total miscellaneous liabilities...................... 2,115.1 1,498.5 3,217.4 2,430.1
Deferred income...................................... 200.8 27.0 190.3 66.4
-------- -------- -------- --------
Total miscellaneous liabilities and deferred
income............................................. E2,315.9 E1,525.5 E3,407.7 E2,496.5
</TABLE>
Liabilities to companies in which participations are held include
liabilities to joint ventures accounted for using the proportional consolidation
method of E136.3 million as of December 31, 1999 and of E102.6 million as of
December 31, 1998 and liabilities relating to associated companies accounted for
under the equity or costs method of E34.0 million as of December 1999 and E30.3
million of December 31, 1998.
Generally, non-trade liabilities to companies in which participations are
held, bear interest at market rates plus a mark-up of less than 1%.
Non-trade liabilities to joint venture partners are related to the
financing of fixed asset projects. In 1999, liabilities of E332 million carry
interest at rates of between 4.23% to 6.2% and mature as follows: 2000 (E71
million), 2002 (E63 million), 2004 (E172 million) and 2008 (E26 million). The
remaining liabilities have interest rates that vary with the London Inter-Bank
Offered Rate.
The 1999 increase in other miscellaneous liabilities includes payables of
E510 million in sanctions and settlements related to the vitamin antitrust
proceedings and an increase of E174 million associated with fair value
accounting for foreign currency derivatives.
The following liabilities are secured by mortgages, land charges or
securities. In addition, for some liabilities the adherence to certain balance
sheet ratios has been guaranteed, otherwise mortgaging has to be made:
<TABLE>
<CAPTION>
1998 1999
------ ------
(EUROS IN MILLIONS)
<S> <C> <C>
Liabilities to credit institutions.......................... E27.6 E22.7
Miscellaneous liabilities................................... 44.1 17.4
----- -----
E71.7 E40.1
</TABLE>
F-50
<PAGE> 245
CONTINGENT LIABILITIES
Contingent liabilities, as listed below, have not been accrued as the risk
of loss is not considered probable.
<TABLE>
<CAPTION>
1998 1999
-------- --------
(EUROS IN MILLIONS)
<S> <C> <C>
Bills of exchange........................................... E 89.2 E120.1
- - - - - - - Thereof to affiliated companies........................... 1.0 3.2
Guarantees.................................................. 137.6 245.5
Warranties.................................................. 26.1 62.5
Granting collateral on behalf of third-parties.............. 4.4 4.7
------ ------
E257.3 E432.8
</TABLE>
OTHER FINANCIAL OBLIGATIONS
<TABLE>
<CAPTION>
1998 1999
-------- --------
(EUROS IN MILLIONS)
<S> <C> <C>
Remaining cost of construction in progress.................. E3,185.9 E3,104.0
- - - - - - - Thereof purchase commitment............................... 1,112.9 1,098.1
Commitments from long-term rental and leasing contracts..... 950.0 653.8
- - - - - - - Thereof payable during the following year................. 205.1 166.5
- - - - - - - Thereof payable during the 2nd to 5th year................ 407.3 275.2
- - - - - - - Thereof payable during 5 years or longer.................. 337.6 212.1
Repurchase and other commitments............................ 2.2 573.1
-------- --------
TOTAL....................................................... E4,138.1 E4,330.9
</TABLE>
Repurchase commitments are related to accounts receivables and securities.
Obligations from rental and lease contracts are due as follows:
<TABLE>
<CAPTION>
(EUROS IN MILLIONS)
<S> <C>
2000........................................................ E166.5
2001........................................................ 102.1
2002........................................................ 74.2
2003........................................................ 52.4
2004........................................................ 46.5
2005 and later residual periods............................. 212.1
------
TOTAL....................................................... E653.8
</TABLE>
PURCHASE COMMITMENTS FOR RAW MATERIALS AND NATURAL GAS FROM LONG-TERM CONTRACTS
The Company has entered into long-term purchase contracts for natural gas,
the vast majority of which are coupled with long-term supply contracts to
customers.
The Company purchases raw materials globally, both on the basis of
long-term contracts and in spot markets. In general, such commitments were at
prices that are regularly adjusted to market conditions. The fixed and
determinable portions of long-term supply agreements with a remaining term of
more than one year as of December 31, 1999, were as follows:
<TABLE>
<CAPTION>
(EUROS IN MILLIONS)
<S> <C>
2000........................................................ E 1,718
2001........................................................ 1,740
2002........................................................ 1,433
2003........................................................ 1,292
2004........................................................ 1,370
2005 and later residual periods............................. 12,128
-------
TOTAL....................................................... E19,681
</TABLE>
F-51
<PAGE> 246
24. LITIGATION AND CLAIMS
In the context of its ordinary business operations, BASF is a defendant in
class-action lawsuits brought before United States federal courts and individual
actions before labor courts and civil courts or comparable institutions in
Germany and abroad. Significant proceedings are discussed below.
VITAMIN ANTITRUST PROCEEDINGS: On May 20, 1999, in a settlement with the
United States District Court for the Northern District of Texas, BASF
Aktiengesellschaft agreed to plead guilty to certain violations of antitrust
laws involving the sale of vitamins in the United States and to cooperate with
the investigation led by the U.S. Department of Justice. On September 17, 1999 a
federal court approved the plea agreement and imposed the agreed-upon sanction
on the Company of $225 million.
In accordance with an agreement reached with the Canadian Attorney General,
BASF Aktiengesellschaft paid a sanction of C$19 million for violating Canadian
antitrust laws. Government investigations continue in the European Union,
Australia, Mexico and Brazil.
Various class-action lawsuits have been filed against the Company and other
vitamin producers in the United States demanding compensation for violations of
antitrust laws. As part of a settlement, which has not yet been approved by a
court, seven vitamin manufacturers agreed to pay $1.17 billion, including
attorneys' fees, to pay compensation to customers who had purchased vitamins
directly from the manufacturers. The Company's share of this settlement is $287
million. In addition to the above, a number of indirect purchasers of vitamins
have filed claims for damages in courts in various states throughout the United
States. Similar civil suits have been filed in courts in Canada and Australia.
The Company has established provisions for the costs that they can currently
anticipate. Management does not believe that the additional charges relating to
unsettled vitamin antitrust proceedings will have a substantial impact on the
profitability of the Company.
CLASS-ACTION LAWSUITS INVOLVING SYNTHROID(R): On October 30, 1997, Knoll
Pharmaceutical Company announced that a United States district court in Chicago
gave preliminary approval of a proposed settlement of a series of class-action
lawsuits involving its thyroid medication Synthroid(R). The lawsuits challenged
Knoll's delaying publication of the Dong et al. study, which compared
Synthroid(R) to certain branded and generic products. The study concluded that
Synthroid(R) and some competing products are bioequivalent. Although Knoll
believes the study was flawed and the conclusion incorrect, Knoll agreed to the
proposed settlement to avoid burdensome and expensive litigation.
Under terms of the proposed settlement, consumers who bought Synthroid(R)
between January 1, 1990, and October 30, 1997, would have been eligible to
receive a proportionate share of a settlement fund consisting of $98 million in
cash. If as many as five million claimants had participated, eligible claimants
would have received a payment of $19.60, less a proportionate share of
court-awarded attorneys' fees and related costs. If the number of eligible
claimants had exceeded five million, Knoll would have contributed additional
payments to the settlement fund until the fund reached a maximum of $135
million.
For various reasons, including the unclear position of third-party payors,
final approval of the proposed settlement was not granted. Knoll subsequently
negotiated a new proposed settlement with consumers and third-party payors
providing for a payment of $26 million in addition to the $98 million paid into
escrow in 1997 (plus the accrued interest thereon). The United States district
court in Chicago granted preliminary approval of the new proposed settlement on
October 8, 1999.
In 1999, additional payments were made in a new settlement with a coalition
of the state attorneys generals in the United States. In addition, a provision
was made to pay for a settlement with the Institute for Advancement of Community
Pharmacy (IACP).
25. STOCK-BASED COMPENSATION
BASF STOCK OPTION PROGRAM: The Annual Meeting of April 29, 1999, approved
the BOP for senior executives of the Company worldwide and also approved an
increase in conditional capital to provide shares to fulfill the execution of
eligible option rights. Approximately 1,200 senior executives, including the
Board of Executive Directors, are authorized to participate in this program.
F-52
<PAGE> 247
To participate in the BOP program, each participant must make an individual
investment in BASF shares in the amount of 10 to 30 percent of their individual
variable compensation. The invested amount is used to purchase BASF shares at
the market price of the first business day after the Annual Meeting, which was
E41.60 on April 30, 1999. For each BASF share purchased, a participant receives
four options, each of which entitles a holder to purchase a maximum of two BASF
shares (Share A and Share B) at a price lower than the market price if, on the
exercise date of the option, the performance targets described below have been
met.
Options to purchase Share A may be exercised if the market price of BASF
shares exceeds 30 percent of the market price on April 30, 1999. The exercise
price of Share A will be the market price at the exercise date less the share
price increase since granting the option (this reduction is limited to 100
percent of the grant price). Options to purchase Share B may be exercised if the
cumulative percentage performance of BASF shares exceeds the percentage
performance of the Dow Jones EURO STOXX(sm). The exercise price of Share B will
be the market price at the exercise date of the option minus twice the
percentage outperformance of BASF shares compared to the EURO STOXX(sm) index.
Each option right may only be exercised if the performance targets are
achieved and may only be exercised once, meaning that if only one performance
target is met, the other option right expires. The maximum gain for a
participant from the BOP program is limited to 10 times the original individual
investment.
The options granted under the 1999 BOP program may be exercised between the
day after the Annual Meeting in 2002 and the 15th day after the Annual Meeting
in 2005 except in the four-week periods prior to the announcement of BASF's
quarterly and annual financial results and the six-week periods prior to the
Annual Meeting. The options granted are not transferable and lapse if the
participants sell the shares from their investment or leave BASF.
As of April 30, 1999, a total of 1,178,440 option rights were granted,
enabling senior executives to buy up to 2,356,880 shares, conditional on the
performance targets being achieved. As of December 31, 1999, a total of 5,712
option rights were forfeited because the holders no longer worked for BASF or
had sold some of their shares. Overall, a total of 1,172,728 option rights still
exist.
On April 30, 1999, the market value of the options granted at this date was
E25.04 per option. The fair value of the option was determined by using a
risk-free interest rate of 3.59%, a BASF dividend yield of 3.11%, a volatility
factor for BASF shares of 30%, a volatility of 20% for the EURO STOXX(sm) and a
correlation between the BASF share price and EURO STOXX(sm) Total Return Index
of 60%. The exercise period for the options is assumed to be continuous during
the three years the options are exercisable.
Total compensation cost of E29.5 million for the BOP is determined by
valuing the number of outstanding options with the fair value of the options at
the grant date. This total compensation cost will be recognized by a charge to
income over the three-year period in which the related employees' services are
rendered. Compensation cost of E6.5 million has been provided as of December 31,
1999.
BASF "PLUS" INCENTIVE SHARE PROGRAM: In 1999, BASF started an incentive
share program called "plus" for all eligible employees except the senior
executives entitled to participate in the BOP.
Employees of BASF companies in Germany are currently authorized to
participate in "plus," and further subsidiaries outside of Germany are planning
to join the program in 2000.
Each participant must make an individual investment in BASF shares from
their variable compensation. For each 10 BASF shares purchased in the program, a
participant receives one BASF share at no cost after one, three, five, seven and
10 years of holding the BASF shares. The right to receive free BASF shares
expires if a participant sells their individual investment in BASF shares, if
the participant stops working for the Company or one year after the participant
retires.
On April 30, 1999, employees of BASF companies in Germany bought 222,900
BASF shares with the right to receive free shares. As of December 31, 1999, a
total of 18,338 of these shares holding the right to receive free shares had
been sold, so the total amount of shares qualifying under the "plus" program is
204,562. The Company provides for the value of the free shares over the period
until the shares are to be
F-53
<PAGE> 248
issued based on the year-end price of BASF shares. Compensation cost of E1.1
million has been provided as of December 31, 1999.
26. FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
(a) DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company is exposed to foreign currency, interest rate and commodity
risks during the normal course of business. In cases where the Company intends
to hedge against these risks, financial derivatives are used, including forward
exchange contracts, currency options, interest rate/currency swaps or combined
instruments. In addition, derivative instruments are used to replace
transactions in original financial instruments, such as shares or fixed-interest
securities. Exclusive use is made of commonly used instruments with sufficient
market liquidity. Derivative financial instruments are only used if they have a
corresponding underlying position arising from the operating business, cash
investments and financing. The leverage effect that can be achieved with
derivatives is deliberately not used. The derivative instruments held by the
Company are solely held for purposes other than trading.
Where financial derivatives have a positive market value, the Company is
exposed to credit risks in the event of non-performance of their counterparts.
The credit risk is minimized by exclusively trading contracts with major
creditworthy financial institutions.
To ensure efficient risk management, market risks are centralized at BASF
Aktiengesellschaft and other subsidiaries designated for this purpose. The
Company has developed and implemented internal guidelines based on the
principles of separation of functions for completion and execution of derivative
instruments.
The risks arising from changes in exchange rates and interest rates as a
result of the underlying transactions and the derivative transactions concluded
to secure them are monitored constantly. For this purpose, market quotations or
computer or mathematical models are used to determine the current market values
not only of the underlying transactions but also of the derivative transactions
and these are compared with each other. Where derivative instruments are
completed as replacement for original financial instruments, market trends are
also monitored constantly.
FOREIGN EXCHANGE AND INTEREST RATE RISK MANAGEMENT: Foreign currency
derivatives are primarily aimed at hedging the exchange rate risk against the
U.S. dollar, the British pound and the Japanese yen.
Interest derivatives or combined interest/currency derivatives were
concluded to secure credits extended to group companies. As far as other
derivatives are concerned, index swaps were used to create synthetic share
investments with a guarantee of the capital invested.
(b) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the price at which the
instrument could be exchanged between willing parties. Fair value amounts are
estimated by the Company management based on available market information and
appropriate valuation techniques. These estimates do not necessarily reflect the
amount that could be realized or would be paid in the current market.
F-54
<PAGE> 249
Book and estimated fair values of financial instruments, for which it is
practicable to estimate the fair value, were as follows:
<TABLE>
<CAPTION>
DEC. 31, 1998 DEC. 31, 1999
----------------------- -----------------------
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
---------- ---------- ---------- ----------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS:
Financial assets (details see Note 13).... E1,826.1 E1,862.6 E1,506.6 E1,507.0
Accounts receivable and other assets...... 5,737.8 5,789.4 7,048.4 7,080.2
Marketable securities (details see Note
16).................................... 745.7 798.8 517.4 536.9
Cash and cash equivalents................. 756.9 756.9 990.2 990.2
LIABILITIES:
Financial liabilities..................... 1,315.8 1,307.5 1,294.4 1,283.7
Accounts payable and other liabilities.... 4,189.1 4,185.5 5,741.4 5,739.9
</TABLE>
ACCOUNTS RECEIVABLE AND OTHER ASSETS, ACCOUNTS PAYABLE AND OTHER
LIABILITIES: For current items the book value approximates the fair value. For
non-current amounts, the difference between book value and fair value represents
primarily unrecognized gains from foreign currency balances.
FINANCIAL ASSETS, MARKETABLE SECURITIES, AND FINANCIAL LIABILITIES: The
fair value of financial assets and marketable securities represents market
values from securities exchanges at the balance sheet date. The market value of
financial liabilities represents a valuation of bonds at inter bank rates.
The fair values of derivative financial instruments are as follows:
<TABLE>
<CAPTION>
NOMINAL AMOUNTS FAIR VALUE
DECEMBER 31, DECEMBER 31,
------------------- ----------------
1998 1999 1998 1999
-------- -------- ------ -------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C>
Forward exchange contracts..................... E2,402.3 E2,416.0 E(3.8) E(71.1)
Currency options............................... 536.1 193.4 0.3 (2.5)
-------- -------- ------ -------
FOREIGN CURRENCY DERIVATIVES................... 2,938.4 2,609.4 (3.5) (73.6)
Interest rate swaps............................ 11.1 147.7 (0.2) 2.0
Interest rate/cross currency swaps............. 1,012.3 1,409.0 (58.3) (227.9)
-------- -------- ------ -------
INTEREST RATE DERIVATIVES...................... 1,023.4 1,556.7 (58.5) (225.9)
OTHER DERIVATIVES.............................. 247.4 62.6 14.8 24.9
</TABLE>
DERIVATIVES: The nominal values are the totals of the purchases and sales
of the particular derivatives on a gross basis. The fair market values
correspond to the difference between the cost and resale value, which is
determined from market quotations or by the use of option pricing models or, in
the case of unlisted contracts, the yield in the event of premature
cancellation. Offsetting valuation developments from the underlying transactions
are not taken into account.
The negative market value of interest rate derivatives relates primarily to
the financing of the Company's North American business with inter-company loans
hedged by interest rate/foreign currency swaps. The Company's net assets in
North America increased accordingly due to the rise in the U.S. dollar exchange
rate after the loans were taken up.
F-55
<PAGE> 250
SUPPLEMENTARY INFORMATION CONCERNING OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)
OIL AND GAS PRODUCING ACTIVITIES
"Additional Petroleum Data" disclosures are presented in accordance with
the provision of SFAS No. 69, "Disclosure of Oil and Gas Producing Activities."
Accordingly, volumes of reserves and production exclude royalty interests of
third parties, and royalty payments are shown as reductions in revenues.
RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES
Results of operation from oil and gas producing activities represent only
those revenues and expenses directly associated with Wintershall's oil and gas
production. These amounts do not include any allocation of interest expenses or
corporate overheads and are therefore not necessarily indicative of
contributions to consolidated net earnings of the Company. Estimated income
taxes were computed by applying the statutory income tax rates to the pretax
income from producing activities.
<TABLE>
<CAPTION>
NORTH AFRICA/
GERMANY MIDDLE EAST ARGENTINA REST OF WORLD TOTAL
------- ------------- --------- ------------- -----
1997 (EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
- - - - - - - Sales to consolidated companies.......... E 38 E - E- E 4 E 42
- - - - - - - Sales to third parties................... 136 653 - 62 851
- - - - - - - Other sales.............................. - - - 8 8
- - - - - - - Royalties................................ 12 162 - 2 176
---- ---- -- --- ----
Total sales................................ 162 491 - 72 725
- - - - - - - Production costs......................... 51 92 - 22 165
- - - - - - - Exploration expensed..................... 24 12 - 19 55
- - - - - - - Depreciation, depletion, amortization and
valuation................................ 24 40 - 26 90
- - - - - - - Others................................... - - - (2) (2)
---- ---- -- --- ----
Total costs................................ 99 144 - 65 308
---- ---- -- --- ----
Result before taxes........................ 63 347 - 7 417
- - - - - - - Income taxes............................. 35 286 - 2 323
---- ---- -- --- ----
Result after taxes......................... E 28 E 61 E- E 5 E 94
</TABLE>
<TABLE>
<CAPTION>
NORTH AFRICA/
GERMANY MIDDLE EAST ARGENTINA REST OF WORLD TOTAL
1998 ------- ------------- --------- ------------- -----
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
- - - - - - - Sales to consolidated companies......... E 32 E - E- E 2 E 34
- - - - - - - Sales to third parties.................. 123 516 - 59 698
- - - - - - - Other sales............................. - - - 1 1
- - - - - - - Royalties............................... 14 188 - 2 204
---- ---- -- --- -----
Total sales............................... 141 328 - 60 529
- - - - - - - Production costs........................ 60 117 - 23 200
- - - - - - - Exploration expensed.................... 2 18 - 10 30
- - - - - - - Depreciation, depletion, amortization
and valuation........................... 31 61 - 21 113
- - - - - - - Others.................................. - - - 1 1
---- ---- -- --- -----
Total costs............................... 93 196 - 55 344
---- ---- -- --- -----
Result before taxes....................... 48 132 - 5 185
- - - - - - - Income taxes............................ 27 110 - 5 142
---- ---- -- --- -----
Result after taxes........................ E 21 E 22 E- E - E 43
</TABLE>
F-56
<PAGE> 251
<TABLE>
<CAPTION>
NORTH AFRICA/
GERMANY MIDDLE EAST ARGENTINA REST OF WORLD TOTAL
1999 ------- ------------- --------- ------------- -----
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
- - - - - - - Sales to consolidated companies......... E 40 E - E - E 2 E 42
- - - - - - - Sales to third parties.................. 117 726 169 48 1,060
- - - - - - - Other sales............................. - - - - -
- - - - - - - Royalties............................... 9 183 19 3 214
---- ---- ---- --- -----
Total sales............................... 148 543 150 47 888
- - - - - - - Production costs........................ 40 110 38 22 210
- - - - - - - Exploration expensed.................... 9 12 11 8 40
- - - - - - - Depreciation, depletion, amortization
and valuation........................... 43 55 28 20 146
- - - - - - - Others.................................. - - 4 (1) 3
---- ---- ---- --- -----
Total costs............................... 92 177 81 49 399
---- ---- ---- --- -----
Result before taxes....................... 56 366 69 (2) 489
- - - - - - - Income taxes............................ 31 304 15 (2) 348
---- ---- ---- --- -----
Result after taxes........................ E 25 E 62 E 54 E - E 141
</TABLE>
COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT
ACTIVITIES
Costs incurred represent amounts capitalized or charged against income as
incurred in connection with oil and gas property acquisition, exploration and
development activities. Exploration and development costs include applicable
depreciation of support equipment and sites used in such activities.
<TABLE>
<CAPTION>
NORTH AFRICA/
GERMANY MIDDLE EAST ARGENTINA REST OF WORLD TOTAL
------- ------------- --------- ------------- -----
1997 (EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
COSTS INCURRED
Property acquisitions:
- - - - - - - Proved................................... E - E - E- E - E -
- - - - - - - Unproved................................. - - - 1 1
Exploration................................ 38 12 - 29 79
Development................................ 27 81 - 21 129
--- --- -- --- ----
Total Costs................................ E65 E93 E- E51 E209
</TABLE>
<TABLE>
<CAPTION>
NORTH AFRICA/
GERMANY MIDDLE EAST ARGENTINA REST OF WORLD TOTAL
1998 ------- ------------- --------- ------------- -----
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
COSTS INCURRED
Property acquisitions:
- - - - - - - Proved................................... E - E - E- E 1 E 1
- - - - - - - Unproved................................. - - - 3 3
Exploration................................ 16 39 - 14 69
Development................................ 26 42 - 11 79
--- --- -- --- ----
Total Costs................................ E42 E81 E- E29 E152
</TABLE>
F-57
<PAGE> 252
<TABLE>
<CAPTION>
NORTH AFRICA/
GERMANY MIDDLE EAST ARGENTINA REST OF WORLD TOTAL
1999 ------- ------------- --------- ------------- -----
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
COSTS INCURRED
Property acquisitions:
- - - - - - - Proved................................... E - E - E - E - E -
- - - - - - - Unproved................................. - - - 2 2
Exploration................................ 7 11 11 10 39
Development................................ 81 15 36 11 143
--- --- --- --- ----
Total Costs................................ E88 E26 E47 E23 E184
</TABLE>
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
Capitalized costs represent total expenditures on proved and unproved oil
and gas properties with related accumulated depreciation, depletion and
amortization.
<TABLE>
<CAPTION>
NORTH AFRICA/
GERMANY MIDDLE EAST ARGENTINA REST OF WORLD TOTAL
------- ------------- --------- ------------- -----
1997 (EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CAPITALIZED COSTS
Gross costs:
- - - - - - - Proved properties........................ E274 E388 E- E130 E792
- - - - - - - Unproved properties...................... - - - 4 4
- - - - - - - Other equipment.......................... 351 164 - 106 621
Accumulated depreciation, depletion,
amortization and valuation allowances:
- - - - - - - Proved properties........................ 247 268 - 55 570
- - - - - - - Unproved properties...................... - - - 1 1
- - - - - - - Other equipment.......................... 325 157 - 93 575
---- ---- -- ---- ----
Total net costs............................ E 53 E127 E- E 91 E271
</TABLE>
<TABLE>
<CAPTION>
NORTH AFRICA/
GERMANY MIDDLE EAST ARGENTINA REST OF WORLD TOTAL
1998 ------- ------------- --------- ------------- -----
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CAPITALIZED COSTS
Gross costs:
- - - - - - - Proved properties........................ E309 E451 E- E129 E889
- - - - - - - Unproved properties...................... 5 - - 7 12
- - - - - - - Other equipment.......................... 355 167 - 112 634
Accumulated depreciation, depletion,
amortization and valuation allowances:
- - - - - - - Proved properties........................ 258 322 - 66 646
- - - - - - - Unproved properties...................... - - - 1 1
- - - - - - - Other equipment.......................... 327 162 - 96 585
---- ---- -- ---- ----
Total net costs............................ E 84 E134 E- E 85 E303
</TABLE>
<TABLE>
<CAPTION>
NORTH AFRICA/
GERMANY MIDDLE EAST ARGENTINA REST OF WORLD TOTAL
1999 ------- ------------- --------- ------------- ------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CAPITALIZED COSTS
Gross costs:
- - - - - - - Proved properties....................... E328 E412 E582 E 71 E1,393
- - - - - - - Unproved properties..................... 5 1 7 13
- - - - - - - Other equipment......................... 380 169 - 116 665
Accumulated depreciation, depletion,
amortization and valuation allowances:
- - - - - - - Proved properties....................... 264 320 424 39 1,047
- - - - - - - Unproved properties..................... - - - 4 4
- - - - - - - Other equipment......................... 311 164 - 99 574
---- ---- ---- ---- ------
Total net costs........................... E138 E 97 E159 E 52 E 446
</TABLE>
F-58
<PAGE> 253
OIL AND NATURAL GAS RESERVES
Proved oil and gas reserves are the estimated volumes of crude oil, natural
gas and natural gas liquids that are shown by geological and engineering data
with reasonable certainty to be recoverable in future years from known reserves
under existing economic and operating conditions, i.e., prices and costs as of
the date the estimates are made. Prices only reflect changes in existing prices
resulting from contractual arrangements, not escalation based on future
conditions. Proved reserves exclude royalties and interests of third parties.
Proved developed reserves are reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods. Additional
oil and gas expected to be obtained through the application of fluid injection
or other improved recovery techniques for supplementing natural forces and
mechanisms of primary recovery are included as proved developed reserves only
after testing in the form of a pilot project or after the operation of an
installed program has confirmed through production response that increased
recovery will be achieved.
Numerous uncertainties are inherent in estimating quantities of proved
reserves and in projecting future rates of production and timing development
expenditures. The accuracy of any reserve estimate is a function of the quality
of available data and engineering and geological interpretation and judgement.
Results of drilling, testing and production after the date of the estimate may
necessitate substantial upward or downward revisions. In addition, changes in
oil and natural gas prices could have an effect on the quantities of proved
reserves because the estimates of reserves are based on prices and costs at the
date when such estimates are made.
The tables below show the estimated net quantities, calculated in
compliance with Regulation S-X, Rule 4-10(a), as of December 31, 1997, 1998 and
1999 of the Company's proved oil and gas reserves and proved developed oil and
gas reserves, as well as changes in estimated proved reserves as a result of
production and other factors. The Company's reserves for 1997, 1998 and 1999
include reserves owned directly by the Company and its consolidated
subsidiaries. Reserve figures and the standardized measure of discounted cash
flows for 1998 also include amounts related to Wintershall Energia, Argentina,
which was transferred to the Company in 1998 following the split-up of Deminex.
Due to the immaterial impact on the results of operations and financial position
of the Company, the investment in Wintershall Energia was accounted for in
accordance with the equity method for the last three months of 1998. It has been
fully consolidated beginning January 1, 1999.
F-59
<PAGE> 254
NET PROVED RESERVES OF CRUDE OIL AND NATURAL GAS
<TABLE>
<CAPTION>
NORTH AFRICA/
GERMANY MIDDLE EAST ARGENTINA REST OF WORLD TOTAL
1997 ------- ------------- --------- ------------- -----
<S> <C> <C> <C> <C> <C>
ESTIMATED PROVED OIL RESERVES
(MILLIONS OF BARRELS)
Proved developed and undeveloped reserves,
beginning of year........................ 42 406 - 6 454
- - - - - - - Revisions and other changes.............. 1 45 - 1 47
- - - - - - - Extensions and discoveries............... - - - - -
- - - - - - - Reserves added from split-up of
Deminex.................................. - - - - -
- - - - - - - Improved recovery........................ - - - - -
- - - - - - - Purchase of reserves..................... - - - - -
- - - - - - - Sale of reserves......................... - - - - -
- - - - - - - Production............................... 5 41 - 1 47
---- ---- -- ---- ----
End of year................................ 38 410 - 6 454
Proved developed reserves, beginning of
year..................................... 40 404 - 6 450
End of year................................ 36 408 - 6 450
ESTIMATED PROVED GAS RESERVES
(BSCF)
Proved developed and undeveloped reserves,
beginning of year........................ 449 - - 233 682
- - - - - - - Revision and other changes............... 60 - - 22 82
- - - - - - - Extensions and discoveries............... - - - 3 3
- - - - - - - Reserves added from split-up of
Deminex.................................. - - - - -
- - - - - - - Improved recovery........................ - - - - -
- - - - - - - Purchase of reserves..................... - - - - -
- - - - - - - Sale of reserves......................... - - - 24 24
- - - - - - - Production............................... 45 - - 28 73
---- ---- -- ---- ----
End of year................................ 464 - - 206 670
Proved developed reserves, beginning of
year..................................... 343 - - 197 540
End of year................................ 333 - - 140 473
</TABLE>
<TABLE>
<CAPTION>
NORTH AFRICA/
GERMANY MIDDLE EAST ARGENTINA REST OF WORLD TOTAL
1998 ------- ------------- --------- ------------- ------
<S> <C> <C> <C> <C> <C>
ESTIMATED PROVED OIL RESERVES
(MILLIONS OF BARRELS)
Proved developed and undeveloped reserves,
beginning of year....................... 38 410 - 6 454
- - - - - - - Revisions and other changes............. 4 182 - 1 187
- - - - - - - Extensions and discoveries.............. - - - - -
- - - - - - - Reserves added from split-up of
Deminex................................. - - 27 - 27
- - - - - - - Improved recovery....................... - - - - -
- - - - - - - Purchase of reserves.................... - - - - -
- - - - - - - Sale of reserves........................ - - - - -
- - - - - - - Production.............................. 5 47 - 1 53
---- ---- ---- ---- ------
End of year............................... 37 545 27 6 615
Proved developed reserves, beginning of
year.................................... 36 408 - 6 450
End of year............................... 34 509 14 5 562
ESTIMATED PROVED GAS RESERVES
(BSCF)
Proved developed and undeveloped reserves,
beginning of year......................... 464 - - 206 670
- - - - - - - Revision and other changes.............. 34 247 - (18) 263
- - - - - - - Extensions and discoveries.............. 15 - - 35 50
- - - - - - - Reserves added from split-up of
Deminex................................. - - 746 - 746
- - - - - - - Improved recovery....................... - - - - -
- - - - - - - Purchase of reserves.................... - - - - -
- - - - - - - Sale of reserves........................ - - - - -
- - - - - - - Production.............................. 43 - - 28 71
---- ---- ---- ---- ------
End of year............................... 470 247 746 195 1,658
Proved developed reserves, beginning of
year.................................... 333 - - 140 473
End of year............................... 343 - 400 142 885
</TABLE>
F-60
<PAGE> 255
<TABLE>
<CAPTION>
NORTH AFRICA/
GERMANY MIDDLE EAST ARGENTINA REST OF WORLD TOTAL
1999 ------- ------------- --------- ------------- ------
<S> <C> <C> <C> <C> <C>
ESTIMATED PROVED OIL RESERVES
(MILLIONS OF BARRELS)
Proved developed and undeveloped reserves,
beginning of year....................... 37 545 27 6 615
- - - - - - - Revisions and other changes............. 55 8 4 - 67
- - - - - - - Extensions and discoveries.............. - - - - -
- - - - - - - Reserves added from split-up of
Deminex................................. - - - - -
- - - - - - - Improved recovery....................... - - - - -
- - - - - - - Purchase of reserves.................... - - - - -
- - - - - - - Sale of reserves........................ - - - 6 6
- - - - - - - Production.............................. 6 44 5 - 55
---- ---- ---- --- ------
End of year............................... 86 509 26 - 621
Proved developed reserves, beginning of
year.................................... 34 509 14 5 562
End of year............................... 66 465 18 - 549
ESTIMATED PROVED GAS RESERVES
(BSCF)
Proved developed and undeveloped reserves,
beginning of year....................... 470 247 746 195 1,658
- - - - - - - Revision and other changes.............. 3 - 108 (7) 104
- - - - - - - Extensions and discoveries.............. - - - - -
- - - - - - - Reserves added from split-up of
Deminex................................. - - - - -
- - - - - - - Improved recovery....................... - - - - -
- - - - - - - Purchase of reserves.................... - - 4 - 4
- - - - - - - Sale of reserves........................ - - - 45 45
- - - - - - - Production.............................. 41 - 70 24 135
---- ---- ---- --- ------
End of year............................... 432 247 788 119 1,586
Proved developed reserves, beginning of
year.................................... 343 - 400 142 885
End of year............................... 301 - 476 73 850
</TABLE>
Note: Revisions and other changes in estimated proved gas reserves for
North Africa/Middle East in 1998 consists of reserves which, as a result of
changes in economic factors relating to marketability, became proved gas
reserves.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES
The information presented below has been prepared in accordance with SFAS
No. 69, which requires the standardized measure of discounted future net cash
flows to be based on year-end sales prices, costs and statutory income tax rates
and a 10% annual discount rate. Because prices used in the calculation are as of
December, the standardized measure could vary significantly from year to year
depending on market conditions at that specific date.
The projection should not be viewed as realistic estimates of future cash
flows nor should the "standardized measure" be interpreted as representing
current value to the company. Material revisions of estimates of proved reserves
may occur in the future, development and production of the reserves may not
occur in the period assumed, actual prices realized are expected to vary
significantly from those used and actual costs may also vary. The company's
investment and operating decisions are not based on the information presented
below, but on a wide range of reserves, and on different price and cost
assumptions from those reflected in this information.
Beyond the above considerations, the "standardized measure" is also not
directly comparable with asset balances appearing elsewhere in the Consolidated
Financial Statements because any such comparison would require a reconciling
adjustment.
F-61
<PAGE> 256
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES
<TABLE>
<CAPTION>
NORTH AFRICA/
GERMANY MIDDLE EAST ARGENTINA REST OF WORLD TOTAL
------- ------------- --------- ------------- ------
1997 (EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
DISCOUNTED FUTURE NET CASH FLOW
Revenues................................ E1,339 E4,563 E- E468 E6,370
Production/Development costs............ 882 1,251 - 215 2,348
Income taxes............................ 376 2,777 - 59 3,212
Future net cash flows................... 81 535 - 194 810
Discounted to present value at a 10%
annual rate.......................... (13) 194 - 64 245
------ ------ -- ---- ------
TOTAL................................... E 94 E 341 E- E130 E 565
</TABLE>
<TABLE>
<CAPTION>
NORTH AFRICA/
GERMANY MIDDLE EAST ARGENTINA REST OF WORLD TOTAL
1998 ------- ------------- --------- ------------- ------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
DISCOUNTED FUTURE NET CASH FLOW
Revenues................................ E1,254 E2,504 E907 E330 E4,995
Production/Development costs............ 1,098 1,691 426 212 3,427
Income taxes............................ 210 478 135 27 850
Future net cash flows................... (54) 335 346 91 718
Discounted to present value at a 10%
annual rate.......................... (40) 117 162 31 270
------ ------ ---- ---- ------
TOTAL................................... E (14) E 218 E184 E 60 E 448
</TABLE>
<TABLE>
<CAPTION>
NORTH AFRICA/
GERMANY MIDDLE EAST ARGENTINA REST OF WORLD TOTAL
1999 ------- ------------- --------- ------------- -------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
DISCOUNTED FUTURE NET CASH FLOW
Revenues............................... E2,483 E10,651 E1,443 E229 E14,806
Production/Development costs........... 1,068 1,778 508 151 3,505
Income taxes........................... 904 7,774 194 29 8,901
Future net cash flows.................. 511 1,099 741 49 2,400
Discounted to present value at a 10%
annual rate......................... 133 405 287 10 835
------ ------- ------ ---- -------
TOTAL.................................. E 378 E 694 E 454 E 39 E 1,565
</TABLE>
F-62
<PAGE> 257
SUMMARY OF CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES
<TABLE>
<CAPTION>
NORTH AFRICA/
GERMANY MIDDLE EAST ARGENTINA REST OF WORLD TOTAL
------- ------------- --------- ------------- -------
1997 (EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF CHANGES
Balance as of January 1.................. E 43 E 348 E- E101 E 492
Sales and transfers of oil and gas
produced, net of production............ (103) (409) - (27) (539)
Net changes in prices and in development
and production cost.................... (129) (885) - (25) (1,039)
Extension, discoveries and improved
recovery, less related costs........... - - - 57 57
Revisions of previous quantity
estimates.............................. 531 591 - (3) 1,119
Development costs incurred during the
period................................. 27 72 - 3 102
Changes in estimated future development
cost................................... (176) 15 - 2 (159)
Accretion of discount.................... 16 270 - 14 300
Net changes in income taxes.............. (115) 882 - 8 775
Others................................... - (543) - - (543)
Balance as of December 31................ 94 341 - 130 565
</TABLE>
<TABLE>
<CAPTION>
NORTH AFRICA/
GERMANY MIDDLE EAST ARGENTINA REST OF WORLD TOTAL
1998 ------- ------------- --------- ------------- -------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF CHANGES
Balance as of January 1.................. E 94 E 341 E - E130 E 565
Sales and transfers of oil and gas
produced, net of production............ (78) (196) - (33) (307)
Net changes in prices and in development
and production cost.................... (271) (1,722) - (82) (2,075)
Extension, discoveries and improved
recovery, less related costs........... (9) - 184 - 175
Revisions of previous quantity
estimates.............................. 55 140 - 11 206
Development costs incurred during the
period................................. 26 70 - 10 106
Changes in estimated future development
cost................................... 17 (131) - (12) (126)
Accretion of discount.................... 31 188 - 15 234
Net changes in income taxes.............. 121 1,397 - 21 1,539
Others................................... - 131 - - 131
Balance as of December 31................ (14) 218 184 60 448
</TABLE>
F-63
<PAGE> 258
<TABLE>
<CAPTION>
NORTH AFRICA/
GERMANY MIDDLE EAST ARGENTINA REST OF WORLD TOTAL
1999 ------- ------------- --------- ------------- -------
(EUROS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF CHANGES
Balance as of January 1.................. E (14) E 218 E 184 E 60 E 448
Sales and transfers of oil and gas
produced, net of production............ (103) (428) (118) (16) (665)
Net changes in prices and in development
and production cost.................... 383 4,572 293 19 5,267
Extension, discoveries and improved
recovery, less related costs........... - - - - -
Revisions of previous quantity
estimates.............................. 327 40 83 (3) 447
Development costs incurred during the
period................................. 81 16 38 7 142
Changes in estimated future development
cost................................... 87 78 (15) (9) 141
Purchase................................. - - - (20) (20)
Accretion of discount.................... 12 53 24 5 94
Net changes in income taxes.............. (395) (4,306) (35) (5) (4,741)
Others................................... - 451 - 1 452
Balance as of December 31................ 378 694 454 39 1,565
</TABLE>
F-64
<PAGE> 259
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 amendment to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: May 25, 2000 BASF AKTIENGESELLSCHAFT
By: /s/ Jurgen F. Strube
----------------------------------
Name: Dr. Jurgen F. Strube
Title: Chairman of the Board
of Executive Directors
By: /s/ Max Dietrich Kley
----------------------------------
Name: Max Dietrich Kley
Title: Deputy Chairman of the
Board of Executive
Directors
<PAGE> 260
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - - - - - ------- -----------
<C> <S>
1.1 Articles of Association (Satzung) of BASF Aktiengesellschaft
as amended to date (English translation included).
2.1 Form of Deposit Agreement among BASF Aktiengesellschaft, The
Bank of New York as depositary, and all holders and
beneficial owners from time to time of American Depositary
Receipts issued thereunder, including the form of American
Depositary Receipts.
3.1 Purchase Agreement dated March 20, 2000 by and among
American Cyanamid Company, American Home Products
Corporation and BASF Aktiengesellschaft.*
5.1 List of subsidiaries of BASF Aktiengesellschaft.
</TABLE>
- - - - - - ---------------
* Confidential portions have been redacted and filed separately with the
Securities and Exchange Commission.
<PAGE> 1
Exhibit 1.1
BASF AKTIENGESELLSCHAFT
Articles of Association
as amended May 1999
<PAGE> 2
Page 2
CHAPTER 1 GENERAL PROVISIONS
Article 1 Name and Registered Office
1. The name of the Company is BASF Aktiengesellschaft.
2. The registered office of the Company is at Ludwigshafen am
Rhein.
Article 2 Purposes of the Company
1. Purposes for which the Company is established are:
- activity in the field of chemistry and related branches
of science and industry,
- the production, processing, sale of and dealing in
chemical products of all kinds, in particular
petrochemicals and inorganics, fertilizers, industrial
and special chemicals, intermediates, plastics,
synthetic fibers and fiber intermediates, dyestuffs and
finishing products,
- the provision of services in the field of health and
nutrition, in particular the production, sale of and
dealing in pharmaceuticals, crop protection agents,
seeds, vitamins, biotechnological products,
pharmachemicals and products for animal nutrition and
health,
- the extraction, production, sale of and dealing in oil,
natural gas, mineral oil products and energies,
- the development, production and sale of products and the
provision of services in the area of environmental
technology, in particular in the field of waste and
sewage treatment and disposal,
- the design, production and sale of technological
equipment and plant and the provision of other
engineering and design services,
<PAGE> 3
Page 3
and the carrying out of any other tasks incidental to
the activity in said fields or conducive to promoting
the same.
2. The Company is authorized to establish branches both in
Germany and abroad, to set up and acquire business
undertakings the objectives of which are consistent with,
related to or conducive to promoting those under para. 1
hereof, both in Germany and abroad, or to acquire interests
therein.
Article 3 Share Capital and Shares
1. The share capital of the Company amounts to 1,596,916,992.00
euros (in words: one thousand five hundred and ninety-six
million nine hundred and sixteen thousand nine hundred and
ninety-two euros).
2. The shares of the Company are shares without denomination. The
share capital of the Company is divided into 623,795,700
shares.
3. The shares shall be made out to bearer. This provision shall,
unless a resolution to the contrary is passed, also apply in
the event of any capital increase.
4. The shares of the Company shall be evidenced in individual or
collective certificates in accordance with the stipulation of
the Board of Executive Directors. The form and content of the
share certificates and of the dividend coupons and talons
shall be determined by the Board of Executive Directors with
the consent of the Supervisory Board.
5. The shareholder's right to certificated evidence of his
holding is excluded.
<PAGE> 4
Page 4
6. In the event of a capital increase, the rate at which new
shares shall participate in profits may be determined in a
manner other than provided for in Article 60, Stock
Corporation Law.
7. The Board of Executive Directors is, with the approval of the
Supervisory Board, authorized to increase once or in partial
amounts the share capital of the Company by the issue of new
shares in the amount of up to 500,000,000.00 euros against
contributions in cash or in kind (authorized capital) until
May 1, 2004. The new shares may be subscribed by a credit
institution determined by the Board of Executive Directors,
the former undertaking to offer them to the shareholders for
subscription (consequential subscription right).
The Board of Executive Directors is authorized, with the
consent of the Supervisory Board, to exclude the legal
subscription right of the shareholders,
a) as far as is necessary to grant subscription rights to
the bearers of warrants from the bonds indicated in
article 3 paragraphs 10 and 11 and to the bearers of
options issued within the share option program for
executives as presented to the Annual Meeting on April
29, 1999, to the extent to which they would be entitled
upon exercising their options,
b) to acquire, where appropriate, business undertakings,
parts of business undertakings or shares in business
undertakings against relinquishment of shares,
c) to introduce the Company's shares on a foreign stock
exchange, and
<PAGE> 5
Page 5
d) for residual amounts.
In the event of capital increases against cash
contributions up to a maximum amount of 150,000,000.00
euros, the Board of Executive Directors is further
authorized to exclude the shareholders' legal
subscription right if the issue price of the new shares
is not substantially lower than the stock exchange
quotation.
The Board of Executive Directors is authorized to issue
up to 15,000,000 new shares to employees of the Company
and to business undertakings associated with the
Company. To this extent, the shareholders' legal
subscription right is excluded.
8. The share capital shall be conditionally increased in the
amount of up to 7,014.40 euros, divided into 2,740 shares. The
increase in the conditional capital shall be limited to the
extent to which the former shareholders of Wintershall
Aktiengesellschaft make use of their conversion rights in
connection with the integration of Wintershall
Aktiengesellschaft into BASF Aktiengesellschaft. The shares
shall be issued at the ratio of 94.5 shares of the Company for
10 shares of Wintershall Aktiengesellschaft with a nominal
value of DM 50.--each. The new shares are entitled to dividend
as of the beginning of the financial year in which the
conversion is effected.
9. The share capital shall be conditionally increased in the
amount of up to 102,400,000.00 euros, divided into 40,000,000
shares. The increase in the conditional capital shall be
limited to the extent to which the holders of warrants from
bonds issued by April 1, 2001 by the Company, pursuant to the
authorizations given to the Board of Executive Directors on
May 9, 1996, exercise their options. The new shares will rank
for dividend as from the beginning of the financial year in
which the declaration of option is effective.
<PAGE> 6
Page 6
10. The share capital shall be conditionally increased in the
amount of up to 36,277,478.40 euros, divided into 14,170,890
shares. The increase in the conditional capital shall be
limited to the extent to which the bearers of warrants from
the 3% U.S. Dollar Bonds of 1986/2001 of BASF Finance Europe
N.V. exercise their options. The new shares are entitled to
dividend as from the beginning of the financial year in which
the conversion is effected.
11. The share capital of the Company shall be conditionally
increased in the amount of up to 38,400,000.00 euros, divided
into 15,000,000 shares. The increase in the conditional
capital shall be limited to the extent to which the bearers of
options granted by the Company under the authorization
approved by the Annual Meeting on April 29, 1999 to members of
the Board of Executive Directors and employees of the Company,
and to members of the management and employees of affiliated
companies as a component of success-dependent remuneration,
exercise their options on the new shares. The new shares will
rank for dividend as from the beginning of the financial year
for which, at the time the option right is exercised, the
Annual Meeting has not passed any resolution on the
distribution of retained profit.
Article 4 Duration of the Company, Financial Year
1. The duration of the Company is not limited to a definite
period.
2. The financial year is the calendar year.
<PAGE> 7
Page 7
CHAPTER II ORGANIZATION
A. BOARD OF EXECUTIVE DIRECTORS
Article 5 Composition, Rules of Procedure
1. The Board of Executive Directors shall consist of at least two
members.
2. The Supervisory Board shall appoint the members of the Board
of Executive Directors and determine the number of members.
The Supervisory Board may appoint a member of the Board of
Executive Directors to chairman of the Board of Executive
Directors.
3. Resolutions of the Board of Executive Directors shall be
passed by a simple majority, unless the law explicitly
stipulates a larger majority. In cases where resolutions are
to be passed by a simple majority and there is an equality of
votes the chairman shall have a second or casting vote if the
Board of Executive Directors consists of more than two
persons.
Article 6 Representation
1. The Company is legally represented by two members of the Board of
Executive Directors or by one member of the Board of Executive
Directors together with a "Prokurist".
2. Authorization to act and sign should be conferred on a Prokurist as
a joint representation power only.
<PAGE> 8
Page 8
B. SUPERVISORY BOARD
Article 7 Function and Responsibility
The Supervisory Board shall exercise its function in accordance with
the laws and the Articles of Association as well as with its Rules
of Procedure. Its members are under equal rights and obligations,
bound to act in the interests of the Company and are not subject to
any orders or directions.
Article 8 Composition, Elections, Term of Office
1. The Supervisory Board shall consist of 20 members, 10 of whom
shall be elected by the Annual Meeting. Simultaneously with
the members of the Supervisory Board to be elected by the
Annual Meeting, substitute members may be elected who take the
place of any prematurely retired members in the order fixed in
the election.
2. The electoral period shall end upon the termination of the
Annual Meeting that formally discharges the Supervisory Board
for the fourth financial year after the beginning of the term
of office. The financial year in which the term of office
begins shall not be taken into account.
3. By-elections for retired members not followed by a substitute
member shall be effective for the remainder of the term of
office of the member retired.
4. A retiring member shall be eligible for re-election.
5. Any member of the Supervisory Board may, upon giving one
month's notice in writing, resign from office at any time. Any
<PAGE> 9
Page 9
member elected by the Annual Meeting can, by a resolution
passed by a simple majority of the Annual Meeting, be removed
from his office prior to the end of the term for which he or
she has been elected.
Article 9 Chairmanship, Committee according to Article 27 para. 3 of the
Co-determination Act
1. The Supervisory Board shall elect a chairman and one deputy
chairman. Election and removal from office shall be governed
by the provisions of article 27 paras. 1 and 2 of the
Co-determination Act. In the event any of these offices become
vacant, a by-election shall take place. The deputy chairman
shall have the rights and obligations of the chairman only if
the latter is prevented from exercising such rights and
fulfilling such obligations and unless otherwise provided for
in the laws or the Articles of Association.
2. Immediately after the chairman and his deputy chairman have
been elected, the Supervisory Board shall appoint the
committee provided for in Article 27, para. 3, sentence 1 of
the Co-determination Act.
Article 10 Notices, Conduct of Business, Quorum, Voting
1. The Supervisory Board shall establish its own rules of
procedure. The notices for calling meetings, the quorum and
voting shall be governed by the following provisions which may
be supplemented by additional provisions in the rules of
procedure.
2. The Supervisory Board must meet twice every half calendar
year. The Supervisory Board shall as a rule meet at
three-month intervals. A meeting of the Supervisory Board
shall furthermore be called whenever business so requires.
<PAGE> 10
Page 10
3. The members of the Board of Executive Directors may, unless
personal matters of such members are being discussed which
necessitate an exception, attend meetings of the Supervisory
Board in an advisory capacity.
4. Meetings of the Supervisory Board shall be convened and the
place of such meetings determined by the chairman or, if
impeded, by the deputy chairman. All meetings shall be
convened by at least a fortnight's notice in writing. The
individual items on the agenda shall be specified so that it
is possible to vote by correspondence. In urgent cases, the
length of notice may be shortened.
5. The Supervisory Board shall only constitute a quorum if, after
all members have been notified of the meeting, at least one
half of its total members participate in the resolution.
Unless the law provides otherwise, resolutions shall be passed
by a majority of votes. In the event that a member of the
Supervisory Board abstains from voting he participates in the
resolution; the abstention, however, shall not count as a vote
cast. If a Supervisory Board vote results in an equality of
votes, and a second vote on the same subject also results in
an equality of votes, the chairman shall have two votes.
6. The members of the Supervisory Board may, if prevented from
attending a meeting, arrange for their written votes to be
given at the meeting of the Supervisory Board by other members
of the Supervisory Board. The same applies to the chairman
with respect to his second vote. The chairman or, if impeded,
his deputy may cause a resolution of the Supervisory Board to
be passed by obtaining declarations in writing or by cable or
telephone provided that such procedure shall not be objected
to by any member within a reasonable period of not more than
one week set by the chairman or, if impeded, his deputy.
<PAGE> 11
Page 11
7. Announcements shall be made by the chairman or, if impeded, by
his deputy on behalf of the Supervisory Board.
Article 11 Special Powers
1. The Board of Executive Directors shall require the consent of
the Supervisory Board for the following transactions by the
Company if they are outside the scope of ordinary business or
if they are of outstanding economical importance:
(a) The acquisition, disposal or mortgaging of real estate,
rights similar to real estate, and rights to real
estate,
(b) the commencement of operations in new manufacturing and
commercial fields, and cessation of operations in
existing manufacturing and commercial fields,
(c) the issuing of loans and the taking of long-term credits
in the form of debentures,
(d) the admission of sureties, guarantees and similar
liabilities,
(e) the establishment and dissolution of branch agencies,
(f) the acquisition of interests in other companies and the
disposal of such interests, provided that the
acquisition or disposal price of the interest in
question does not exceed 100,000,000.00 euros and it is
not a reallocation within the BASF Group.
2. The consent of the Supervisory Board required under para. 1
hereof may be given in the form of a general authorization
covering certain
<PAGE> 12
Page 12
kinds of transactions specified. Such authorizations shall
give full details of the transactions contemplated and also
their purpose and the period within which they shall be
carried out.
Article 12 Remuneration of the Supervisory Board
A member of the Supervisory Board shall receive, in addition to
reimbursement for expenses and in addition to reimbursement of
turnover tax levied on him on account of his activity, a fixed
annual remuneration amounting to 5,000.00 euros; he shall
furthermore receive a remuneration of 1,750.00 euros for each
percent by which the dividend paid to the shareholders shall exceed
four percent of the share capital; the chairman of the Supervisory
Board shall receive twice that amount, a deputy chairman shall
receive one and a half times that amount.
Article 13 Confidentiality
1. The members of the Supervisory Board shall keep secret all
confidential details and secrets of the Company, particularly
trade or commercial secrets, disclosed to them during their
activity as members of the Supervisory Board.
2. Upon retirement, every member of the Supervisory Board shall
return to the Company all confidential documents still held by
him.
<PAGE> 13
Page 13
C. ANNUAL MEETING
Article 14 Place
Annual Meetings shall take place at the registered office of the
Company or in a city of the Federal Republic located not farther
than 120 km therefrom.
Article 15 Notice of Annual Meetings, Right of Attendance
1. An Annual Meeting shall be called with at least one month's
notice prior to the day by the end of which the shares are to
be deposited (cf. para. 2 hereof). This shall not include the
day on which the notice is served and the final day for
depositing shares.
2. The right to attend and vote at an Annual Meeting shall be
restricted to those shareholders who deposit their shares
during the usual hours of business at one of the depositories
specified below. Depositories shall be those specified in the
notice calling the Annual Meeting and also any German notary
public and any bank serving as central depository for
securities. Deposit shall also be deemed to have been effected
at one of the above depositories if the shares have been
blocked at any bank with the consent of any of the
depositories named above. Deposit shall be effected not later
than by the end of the eighth day prior to the date of the
Meeting. In the event that that day is a Saturday, Sunday or
legal holiday, deposit may be effected up to the end of the
following working day.
3. If deposit is effected with a notary public, such notary
public shall issue a certificate showing the numbers of the
items deposited and such certificate shall be filed with any
of the other depositories not later than one day after expiry
of the period of deposit.
<PAGE> 14
Page 14
4. The shareholders shall be furnished with receipts
evidencing the deposit of the shares or the filing of
certificates of deposit under para. 3 hereof. Such
receipts shall be made out in the name of the
shareholder and specify the total of the shares
deposited and shall entitle the person designated
therein, or his duly accredited representative, to be
admitted to the Annual Meeting.
5. The shares deposited and also the certificates of
deposit filed shall remain in the custody of the
depositories specified under paras. 2 and 3 hereof until
the end of the Annual Meeting.
6. As long as share certificates have not been issued,
attendance at the Annual Meeting and the exercise of the
right to vote shall depend on the shareholders' giving
notice to attend. The Board of Executive Directors shall
specify details in the notice.
Article 16 Chairman of the Annual Meeting
1. The chairman of the Supervisory Board shall preside as
chairman at Annual Meetings. If he or she is absent, the
members of the Supervisory Board elected by the Annual Meeting
shall agree on a member selected from their ranks to take the
chair. If no member of the Supervisory Board having been
elected by the Annual Meeting takes the chair, the chairman of
the Meeting shall be elected by the Annual Meeting.
2. The chairman of the Meeting may determine a different sequence
of the items on the agenda from the sequence announced in the
agenda. He shall determine the course of the proceedings at
the Annual Meeting, especially the mode, form and sequence of
the voting, in accordance with legal requirements.
<PAGE> 15
Page 15
Article 17 Resolutions and Elections
1. Each share shall, at an Annual Meeting, entitle the holder to
one vote.
2. Resolutions of the Annual Meeting shall require a majority of
the votes cast and, where a majority of the capital is
necessary, a simple majority of the capital, unless a larger
majority or further requirements are specifically stipulated
by law. The Supervisory Board shall be entitled to make such
alterations to the Articles involving only the wording.
CHAPTER III FINANCIAL STATEMENTS, ANNUAL MEETING,
ANNOUNCEMENTS
Article 18 Financial Statements
1. The Board of Executive Directors shall, in the first three
months of the financial year, prepare the financial statements
and Management's analysis for the preceding year and promptly
submit the same to the Supervisory Board and to the auditor.
At the same time, the Board of Executive Directors shall
submit to the Supervisory Board the proposal for the
distribution of retained profits which it wishes to put to the
General Meeting.
2. The Board of Executive Directors shall, in the first five
months of the financial year, prepare the Group financial
statements and the Group Management's analysis for the
preceding year and promptly submit the same to the Supervisory
Board and to the auditor.
<PAGE> 16
Page 16
Article 19 Annual Meeting
1. An Annual Meeting shall be held within the first eight months
of each financial year.
2. The Meeting shall decide in particular on the distribution of
retained profit, on the appointment of the auditor, on the
discharge from responsibility of the members of the Board of
Executive Directors and the Supervisory Board, on appointment
of the members of the Supervisory Board, unless otherwise
provided for by the law, and on the approval of the financial
statements where required by the law.
Article 20 Distribution of Retained Profit
The retained profit resulting from the financial statements after
depreciation, deferred items, provisions and reserves shall be
distributed among the shareholders, unless the Meeting decides
otherwise.
Article 21 Announcements
Announcements by the Company shall be made in the German Federal
Gazette.
<PAGE> 1
Exhibit 2.1
================================================================================
BASF AKTIENGESELLSCHAFT
and
THE BANK OF NEW YORK
As Depositary
and
HOLDERS OF
AMERICAN DEPOSITARY RECEIPTS
------------------------------
DEPOSIT AGREEMENT
------------------------------
Dated as of December 1, 1999
As Amended and Restated as of ____________, 2000
================================================================================
<PAGE> 2
ARTICLE 1. DEFINITIONS......................................................1
SECTION 1.1. AMERICAN DEPOSITARY SHARES.....................................1
SECTION 1.2. COMMISSION.....................................................2
SECTION 1.3. COMPANY........................................................2
SECTION 1.4. CONSULTATION...................................................2
SECTION 1.5. CUSTODIAN......................................................2
SECTION 1.6. DELIVER, DELIVERY..............................................2
SECTION 1.7. DEPOSIT AGREEMENT..............................................2
SECTION 1.8. DEPOSITARY.....................................................2
SECTION 1.9. DEPOSITED SECURITIES...........................................3
SECTION 1.10. DOLLARS, EUROS..............................................3
SECTION 1.11. FOREIGN CURRENCY............................................3
SECTION 1.12. GERMANY.....................................................3
SECTION 1.13. HOLDER......................................................3
SECTION 1.14. PRINCIPAL OFFICE............................................3
SECTION 1.15. RECEIPTS....................................................3
SECTION 1.16. REGISTRAR...................................................4
SECTION 1.17. RESTRICTED SECURITIES.......................................4
SECTION 1.18. SECURITIES ACT OF 1933......................................4
SECTION 1.19. SECURITIES EXCHANGE ACT OF 1934.............................4
SECTION 1.20. SHARES......................................................4
SECTION 1.21. UNITED STATES...............................................5
ARTICLE 2. FORM OF RECEIPTS, DEPOSIT OF SHARES, EXECUTION AND DELIVERY,
TRANSFER AND SURRENDER OF RECEIPTS.............................................5
SECTION 2.1. FORM AND TRANSFERABILITY OF RECEIPTS...........................5
SECTION 2.2. DEPOSIT OF SHARES..............................................6
SECTION 2.3. WARRANTIES ON DEPOSIT OF SHARES................................7
SECTION 2.4. EXECUTION AND DELIVERY OF RECEIPTS.............................7
SECTION 2.5. REGISTRATION OF TRANSFER, ISSUANCE OF NEW RECEIPTS.............8
SECTION 2.6. SURRENDER OF RECEIPTS AND WITHDRAWAL OF DEPOSITED SECURITIES...8
SECTION 2.7. LIMITATIONS ON EXECUTION AND DELIVERY, TRANSFER AND
SURRENDER OF RECEIPTS.........................................10
SECTION 2.8. LOST RECEIPTS, ETC............................................11
SECTION 2.9. CANCELLATION AND DESTRUCTION OF SURRENDERED RECEIPTS..........11
SECTION 2.10. EXCHANGE OF OLD RECEIPTS...................................11
SECTION 2.11. MAINTENANCE OF RECORDS.....................................11
ARTICLE 3. CERTAIN OBLIGATIONS OF HOLDERS OF RECEIPTS......................12
SECTION 3.1. FILING PROOFS, CERTIFICATES AND OTHER INFORMATION.............12
SECTION 3.2. LIABILITY OF HOLDERS FOR TAXES AND OTHER CHARGES..............12
SECTION 3.3. COMPLIANCE WITH LAW...........................................13
SECTION 3.4. DISCLOSURE OF BENEFICIAL OWNERSHIP OF RECEIPTS................13
ARTICLE 4. THE DEPOSITED SECURITIES........................................14
SECTION 4.1. CASH DISTRIBUTIONS; WITHHOLDING...............................14
SECTION 4.2. DISTRIBUTIONS OTHER THAN CASH, SHARES OR RIGHTS...............14
SECTION 4.3. DISTRIBUTIONS IN SHARES.......................................15
SECTION 4.4. RIGHTS DISTRIBUTIONS..........................................16
SECTION 4.5. DIVIDENDS AND DISTRIBUTIONS REQUIRING REGISTRATION............17
SECTION 4.6. CONVERSION OF FOREIGN CURRENCY................................18
SECTION 4.7. FIXING OF RECORD DATE.........................................19
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<PAGE> 3
SECTION 4.8. VOTING OF DEPOSITED SECURITIES................................19
SECTION 4.9. CHANGES AFFECTING DEPOSITED SECURITIES........................21
SECTION 4.10. REPORTS....................................................21
SECTION 4.11. LISTS OF RECEIPT HOLDERS...................................22
SECTION 4.12. TAXATION...................................................22
SECTION 4.13. MONITORING OF DIVIDENDS AND OTHER DISTRIBUTIONS............23
ARTICLE 5. THE DEPOSITARY, THE CUSTODIAN AND THE COMPANY...................23
SECTION 5.1. MAINTENANCE OF OFFICE AND TRANSFER BOOKS BY THE DEPOSITARY....23
SECTION 5.2. OBLIGATIONS OF THE DEPOSITARY, THE CUSTODIAN AND THE COMPANY..24
SECTION 5.3. PREVENTION OR DELAY IN PERFORMANCE BY THE DEPOSITARY, THE
CUSTODIAN OR THE COMPANY......................................24
SECTION 5.4. RESIGNATION AND REMOVAL OF THE DEPOSITARY; APPOINTMENT OF
SUCCESSOR DEPOSITARY..........................................25
SECTION 5.5. THE CUSTODIAN.................................................26
SECTION 5.6. NOTICES AND REPORTS TO HOLDERS................................27
SECTION 5.7. INDEMNIFICATION...............................................27
SECTION 5.8. CHARGES OF DEPOSITARY.........................................29
SECTION 5.9. PRE-RELEASE OF RECEIPTS.......................................30
SECTION 5.10. RETENTION OF DEPOSITARY DOCUMENTS..........................31
SECTION 5.11. LIST OF RESTRICTED SECURITIES HOLDERS......................31
SECTION 5.12. EXCLUSIVITY................................................31
ARTICLE 6. AMENDMENT AND TERMINATION.......................................31
SECTION 6.1. AMENDMENT.....................................................31
SECTION 6.2. TERMINATION...................................................32
ARTICLE 7. MISCELLANEOUS...................................................33
SECTION 7.1. COUNTERPARTS..................................................33
SECTION 7.2. NO THIRD PARTY BENEFICIARIES..................................33
SECTION 7.3. SEVERABILITY..................................................33
SECTION 7.4. HOLDERS AS PARTIES, BINDING EFFECT............................33
SECTION 7.5. NOTICES.......................................................33
SECTION 7.6. GOVERNING LAW.................................................34
SECTION 7.7. ASSIGNMENT....................................................34
SECTION 7.8. COMPLIANCE WITH U.S. SECURITIES LAWS..........................34
-ii-
<PAGE> 4
DEPOSIT AGREEMENT
DEPOSIT AGREEMENT, dated as of December 1, 1999, as amended and
restated as of ____________, 2000 among BASF AKTIENGESELLSCHAFT, a stock
corporation organized and existing under the laws of the Federal Republic of
Germany and its successors (the "Company"), THE BANK OF NEW YORK, a New York
banking corporation and any successor as depositary hereunder (the
"Depositary"), and all holders (including beneficial owners) from time to time
of American Depositary Receipts (as hereinafter defined) issued hereunder.
WITNESSETH:
WHEREAS, the parties hereto desire through the Depositary to provide
for the deposit of Shares (as hereinafter defined) of the Company from time to
time with the Custodian (as hereinafter defined) for the creation of American
Depositary Shares (as hereinafter defined) representing the Shares so deposited
and for the execution and delivery of American Depositary Receipts evidencing
such American Depositary Shares, and for such other purposes set forth in this
Deposit Agreement; and
WHEREAS, The American Depositary Receipts are to be substantially in
the form of Exhibit A annexed hereto, with appropriate insertions, modifications
and omissions, as hereinafter provided in this Deposit Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE 1. DEFINITIONS
The following definitions shall for all purposes, unless otherwise
expressly indicated herein, apply to the following respective terms used in this
Deposit Agreement:
SECTION 1.1. American Depositary Shares.
The term "American Depositary Shares" shall mean the
securities and all rights of ownership associated therewith evidenced by the
Receipts issued hereunder, including the interests in the Deposited Securities
granted to the Holders of Receipts pursuant to the terms and conditions of this
Deposit Agreement. Each American Depositary Share shall represent one (1) Share;
provided, however, that if there shall occur a distribution upon Deposited
Securities contemplated by Section 4.3 or a change in Deposited Securities
contemplated by Section 4.9 with respect to which additional Receipts are not
executed and delivered, the term "American Depositary Shares" shall thereafter
represent the number of Shares or other Deposited Securities determined in
accordance with such Sections.
1
<PAGE> 5
SECTION 1.2. Commission.
The term "Commission" shall mean the Securities and Exchange
Commission of the United States or any successor governmental agency in the
United States.
SECTION 1.3. Company.
The term "Company" shall have the meaning set forth in the
first paragraph of this Deposit Agreement.
SECTION 1.4. Consultation.
The term "Consultation" shall mean the good faith attempt by
the Depositary to discuss, if practicable, the relevant issue in a timely manner
with a person employed by the Company reasonably believed by the Depositary to
be empowered by the Company to engage in such discussion on behalf of the
Company.
SECTION 1.5. Custodian.
The term "Custodian" shall mean, as of the date hereof, the
Frankfurt/Main offices of Dresdner Bank AG and Deutsche Bank AG, each as
custodian and agent of the Depositary for purposes of this Deposit Agreement,
and any other firm or corporation which may hereafter be appointed by the
Depositary, with the prior written consent of the Company, pursuant to the terms
of Section 5.5, as substitute or additional custodian hereunder, as the context
shall require, and the term "Custodians" shall mean all such persons,
collectively.
SECTION 1.6. Deliver, Delivery.
The term "deliver" and "delivery" shall mean, when used in
respect of Deposited Securities and Shares, electronic delivery of such security
by means of book-entry transfer. The term "deliver" and "delivery" shall mean,
when used in respect of American Depositary Shares or Receipts, either the
physical delivery of the certificate representing such security or electronic
delivery of such security by means of book-entry transfer.
SECTION 1.7. Deposit Agreement.
The term "Deposit Agreement" shall mean this Agreement, as the
same may be amended from time to time in accordance with the provisions hereof.
SECTION 1.8. Depositary.
The term "Depositary" shall have the meaning set forth in the
first paragraph of this Deposit Agreement.
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<PAGE> 6
SECTION 1.9. Deposited Securities.
The term "Deposited Securities" as of any time shall mean all
Shares at such time deposited under this Deposit Agreement and any and all other
securities, property and cash received by the Depositary or the Custodian on
behalf of the Holders in respect or in lieu of Shares and at such time held
hereunder, subject as to cash to the provisions of Section 4.6.
SECTION 1.10. Dollars, Euros.
The term "Dollars" shall refer to the lawful currency of the
United States. The term "Euros" shall refer to the lawful currency of the
participating member states of the European Monetary Union (including Germany)
as defined in Council Regulation (EC) No. 974/98 of May 3, 1998 of the Counsel
of the European Union on the replacement by the Euro, as of January 1, 1999, of
the national currencies of the participating member states at the conversion
rates defined in such Counsel Regulation.
SECTION 1.11. Foreign Currency.
The term "Foreign Currency" shall mean any currency other than
Dollars.
SECTION 1.12. Germany.
The term "Germany" shall mean the Federal Republic of Germany.
SECTION 1.13. Holder.
The term "Holder" shall mean any person in whose name a
Receipt is registered on the books of the Depositary maintained for such
purpose.
SECTION 1.14. Principal Office.
The term "Principal Office", when used with respect to the
Depositary, shall mean the principal corporate trust office of the Depositary,
which at the date of this Deposit Agreement is located at 101 Barclay Street,
New York, New York 10286, and when used with respect to the Custodian, shall
mean the principal office of the Custodian, which (i) with respect to Dresdner
Bank AG is located at Jurgen-Ponto-Platz 1, 60329 Frankfurt/Main, Germany, and
(ii) with respect to Deutsche Bank AG is located at Taunusanlage 12, 60292
Frankfurt/Main, Germany.
SECTION 1.15. Receipts.
The term "Receipts" shall mean the American Depositary
Receipts, substantially in the form of Exhibit A, issued hereunder evidencing
American Depositary Shares. A Receipt may evidence any whole number of American
Depositary Shares.
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<PAGE> 7
SECTION 1.16. Registrar.
The term "Registrar" shall mean, subject to any applicable
rule or regulation of any securities market upon which the American Depositary
Shares may be traded, any bank or trust company having an office in the Borough
of Manhattan, The City of New York, which shall be appointed by the Depositary
upon the request or with the approval of the Company, to register Receipts and
transfers of Receipts as herein provided and shall include the Depositary and
any co-Registrar appointed by the Depositary upon the request or with the
approval of the Company, for such purposes.
SECTION 1.17. Restricted Securities.
The term "Restricted Securities" shall mean Shares, or
Receipts representing such Shares, which are acquired directly or indirectly
from the Company or its affiliates (as defined in Rule 144 under the Securities
Act of 1933) in a transaction or chain of transactions not involving any public
offering or which are subject to resale limitations under Regulation D under
that Act or both, or which are held by an officer, director (or persons
performing similar functions) or other affiliate of the Company, or which are
subject to other restrictions on sale or deposit under the laws of the United
States or Germany, or under a shareholder agreement or the Articles of
Association (Satzung) and Bylaws of the Company.
SECTION 1.18. Securities Act of 1933.
The term "Securities Act of 1933" shall mean the United States
Securities Act of 1933, as from time to time amended.
SECTION 1.19. Securities Exchange Act of 1934.
The term "Securities Exchange Act of 1934" shall mean the
United States Securities Exchange Act of 1934, as from time to time amended.
SECTION 1.20. Shares.
The term "Shares" shall mean ordinary shares, no par value, of
the Company or evidence of the right to receive such Shares; provided, however,
that if there shall occur any change in nominal value or any reclassification
or, upon the occurrence of an event described in Section 4.9 an exchange or
conversion in respect of the Shares of the Company, the term "Shares" shall
thereafter mean the successor securities resulting from such change in nominal
value or such other reclassification or such exchange or conversion.
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<PAGE> 8
SECTION 1.21. United States.
The term "United States" shall have the meaning assigned to it
under Regulation S under the Securities Act of 1933.
ARTICLE 2. FORM OF RECEIPTS, DEPOSIT OF SHARES, EXECUTION AND DELIVERY, TRANSFER
AND SURRENDER OF RECEIPTS
SECTION 2.1. Form and Transferability of Receipts.
Subject to the requirements of any applicable rule or
regulation of any securities market upon which the American Depositary Shares
may be traded, the definitive Receipts shall be in such form as may be agreed
upon by the Company and the Depositary, and in any event shall be substantially
in the form set forth in Exhibit A annexed to this Deposit Agreement, with
appropriate insertions, modifications and omissions, as hereinafter provided. No
Receipt shall be entitled to any benefits under this Deposit Agreement or be
valid or enforceable for any purpose, unless such Receipt shall have been
issued, dated and executed by the Depositary by the manual or facsimile
signature of a duly authorized signatory of the Depositary, and if a Registrar
for the Receipts shall have been appointed, countersigned by the manual or
facsimile signature of a duly authorized signatory of the Registrar and dated by
such signatory. The Depositary shall maintain books on which each Receipt so
executed and delivered as hereinafter provided and the transfer of each such
Receipt shall be registered; provided, however, if a Registrar has been
appointed then such books shall be maintained by the Registrar. Receipts bearing
the manual or facsimile signature of anyone who was at the time of signature a
duly authorized signatory of the Depositary or Registrar shall bind the
Depositary or Registrar, as the case may be, notwithstanding that such signatory
has ceased to hold such office prior to or after the delivery of such Receipts.
The Receipts may, with the prior written consent of the
Company, and upon request of the Company shall, be endorsed with or have
incorporated in the text thereof such other legends or recitals or changes not
inconsistent with the provisions of this Deposit Agreement as may be required by
the Depositary in respect of its obligations hereunder, or as may be required by
the Depositary or the Company to comply with any applicable law or regulation or
with the rules and regulations of any market upon which the American Depositary
Shares may be traded or to conform with any usage with respect thereto, or to
indicate any special limitations or restrictions to which any particular
Receipts are subject by reason of the date or manner of issuance of the
underlying Deposited Securities or otherwise.
Subject to any limitations set forth in the Receipts, title to
a Receipt and to the American Depositary Shares evidenced thereby, when such
Receipt is properly endorsed or accompanied by proper instruments of transfer
(including signature guarantees in accordance with standard industry practice),
shall be transferable by delivery with the same effect as in the case of a
negotiable instrument; provided,
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<PAGE> 9
however, that the Company and the Depositary may deem and treat the Holder of a
Receipt as the absolute owner thereof for all purposes, including but not
limited to the purpose of determining the person entitled to distribution of
dividends or other distributions or to any notice provided for in this Deposit
Agreement and for all other purposes, and neither the Depositary nor the Company
shall have any obligation or be subject to any liability under this Deposit
Agreement to any holder of a Receipt unless such holder is the Holder thereof.
SECTION 2.2. Deposit of Shares.
Subject to the terms and conditions of this Deposit Agreement,
Shares may be deposited by any person by delivery thereof to the Custodian
hereunder at the account maintained by the Custodian for such purpose or such
other account as may be agreed to by the Depositary and the Custodian,
accompanied by all dividend coupons for dividends to be paid in the future or
rights to receive such dividend coupons or appropriate evidence thereof and, if
applicable, any appropriate instrument or instruments of transfer, or
endorsement, in form satisfactory to the Custodian, together with all such
certifications as may be required by the Depositary or the Custodian in
accordance with the provisions of this Deposit Agreement. Upon the request of
the Depositary, such person shall also deliver a written order directing the
Depositary to execute and deliver to, or upon the written order of, the person
or persons stated in such order, a Receipt or Receipts for the number of
American Depositary Shares being issued in respect of such deposit. No Shares
shall be accepted for deposit unless accompanied by all dividend coupons for
dividends to be paid in the future (or appropriate evidence thereof) and by
evidence reasonably satisfactory to the Depositary that all necessary approvals,
if any, have been granted by any governmental authority or body in Germany which
is then performing the function of the regulation of currency exchange.
If required by the Depositary and provided that no applicable
German law is violated thereby, Shares presented for deposit in accordance with
this Deposit Agreement at any time shall, subject to the provisions of Article
4, also be accompanied by an agreement, assignment or other instrument
reasonably satisfactory to the Depositary providing the Custodian the right to
receive all dividends, the right to subscribe for additional Shares or any other
securities or the right to receive other property and the right to vote, which
any Holder has in respect of such deposited Shares, or in lieu thereof such
agreement of indemnity or other agreement as shall be reasonably satisfactory to
the Depositary.
At the request, risk and expense of any person proposing to
deposit Shares, and for the account of such person, the Depositary may receive
certificates, if any, for Shares to be deposited, together with the other
orders, instruments and evidence herein specified, for the purpose of forwarding
such certificates to the Custodian for deposit hereunder.
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<PAGE> 10
Deposited Securities shall be held by the Depositary or by the
Custodian for the account and to the order of the Depositary at the Principal
Office of the Depositary or the Custodian or at Deutsche Borse Clearing AG, the
central securities clearing and deposit bank in Germany or at such other place
or places as the Depositary shall determine upon the prior written consent of
the Company. The Depositary agrees to instruct the Custodian to place all Shares
accepted for deposit under this Deposit Agreement into an account or accounts
separate from any shares of the Company that may be held by such Custodian.
SECTION 2.3. Warranties on Deposit of Shares.
Each person depositing Shares under this Deposit Agreement
shall be deemed thereby to represent and warrant that (i) such Shares and each
certificate therefor are free and clear of any lien, encumbrance, security
interest, charge, mortgage, pledge or restriction on transfer, (ii) such Shares
have been validly issued, fully paid and are nonassessable and are free of any
pre-emptive rights of the holders of outstanding Shares, (iii) such Shares are
accompanied by all dividend coupons in respect of dividends to be paid in the
future on such Shares (or appropriate evidence thereof), (iv) the person making
such deposit is duly authorized to do so, and (v) the deposit of such Shares or
sale of Receipts issuable upon such deposit is not restricted under the
Securities Act of 1933. Such representations and warranties shall survive the
deposit of Shares and the issuance or cancellation of Receipts.
SECTION 2.4. Execution and Delivery of Receipts.
Upon receipt by the Custodian of any deposit pursuant to
Section 2.2 hereunder, together with the other documents specified in Section
2.2, the Custodian shall notify the Depositary of such deposit and the person or
persons to whom or upon whose written order a Receipt or Receipts are
deliverable in respect thereof and the number of American Depositary Shares to
be evidenced thereby. Such notification shall be made by letter, or at the
request, risk and expense of the person making the deposit, by air courier,
cable, telex or facsimile transmission. Upon receiving such notice from the
Custodian and payment of the issuance fee specified in Section 5.8 hereof by the
person to whom the Receipt is to be issued, the Depositary shall subject to the
terms and conditions of this Deposit Agreement, execute and deliver at its
Principal Office to or upon the order of the person or persons named in the
notice delivered to the Depositary, a Receipt or Receipts, registered in the
name or names requested by such person or persons and evidencing in the
aggregate the number of American Depositary Shares to which such person or
persons are entitled, but only upon payment to the Depositary or the Custodian
of all taxes, duties and governmental charges and fees payable in connection
with such deposit and the transfer of the deposited Shares.
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<PAGE> 11
SECTION 2.5. Registration of Transfer, Issuance of New Receipts.
The Depositary shall, subject to the terms and conditions of
this Deposit Agreement and any Receipt, register transfers of Receipts on its
transfer books, upon receipt of proper documentation therefor requested by the
Depositary, including without limitation, surrender of such Receipt by the
Holder thereof in person or by duly authorized attorney, properly endorsed or
accompanied by proper instruments of transfer, and duly stamped as may be
required by any applicable law. Upon such surrender the Depositary shall execute
a new Receipt or Receipts evidencing the same aggregate number of American
Depositary Shares as the Receipt or Receipts surrendered for registration of
transfer and deliver the same to or upon the order of the person or persons
entitled thereto, subject to receipt of any certifications, if any, as the
Depositary or the Company may require in order to comply with any applicable
laws.
The Depositary shall, subject to the terms and conditions of
this Deposit Agreement, upon surrender of a Receipt or Receipts for the purpose
of obtaining a lesser or greater number of Receipts, execute and deliver a new
Receipt or Receipts in the name of the same Holder for any authorized whole
number of American Depositary Shares requested; notwithstanding the foregoing,
such new Receipt(s) shall evidence the same aggregate whole number of American
Depositary Shares as the Receipt or Receipts surrendered. The Depositary may
close the transfer books at any time or from time to time, following
Consultation with the Company to the extent practicable, when reasonably deemed
expedient by it in connection with the performance of its duties hereunder, or
at the request of the Company. To the extent that it is not practicable for the
Depositary to consult with the Company before closing the transfer books, the
Depositary will promptly notify the Company after closing the transfer books and
explain its reasons for doing so.
The Depositary, upon the written request of the Company or
with the approval of the Company, may appoint one or more co-transfer agents for
the purpose of effecting transfers and issuing new Receipts at designated
transfer offices on behalf of the Depositary. Such appointment shall not be
effective unless each co-transfer agent appoint under this Section 2.5 accepts
such appointment in writing and agrees to be bound by the applicable terms of
this Deposit Agreement. In carrying out its functions, a co-transfer agent may
require evidence of authority and compliance with applicable laws and other
requirements by Holders or persons entitled to Receipts and will be entitled to
protection and indemnity to the same extent as the Depositary.
SECTION 2.6. Surrender of Receipts and Withdrawal of Deposited
Securities.
Upon (i) delivery of a Receipt to the Depositary for the
purpose of withdrawal of the whole number of Deposited Securities represented by
the American Depositary Shares evidenced by such Receipt, (ii) payment to the
Depositary of the surrender fee specified in Section 5.8 hereof by the person
delivering such Receipt for cancellation thereof and payment of all taxes,
duties and other governmental charges and
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<PAGE> 12
fees payable in connection with the delivery of Deposited Securities against
surrender of Receipts, and (iii) delivery of written instructions of the Holder
directing the Depositary to cause such whole number of Deposited Securities
being withdrawn, together with a new Receipt evidencing any fractional Deposited
Securities, to be delivered to, or upon the written order of, the person or
persons designated in such instructions, the Holder of such Receipt shall be
entitled to delivery, to him or upon his order, of such whole number of
Deposited Securities at the time represented by the American Depositary Shares
evidenced by such Receipt, together with a new Receipt evidencing any fractional
Deposited Securities. Delivery of such Deposited Securities may be made by (a)
delivery or transfer to the account of a German securities bank with Deutsche
Borse Clearing AG or through the facilities of Cedel, S.A., or Morgan Guaranty
Trust of New York, Brussels office, as operator of the Euroclear System, for the
benefit of such Holder or as ordered by it and (b) delivery of any other
securities, property and cash to which such Holder is then entitled in respect
of such Receipts to such Holder or as ordered by it. Such delivery of Deposited
Securities and new Receipt, if any, shall be made without unreasonable delay.
A Receipt surrendered and written instructions received for
such purpose may be required by the Depositary to be properly endorsed in blank
or accompanied by properly executed instruments of transfer. Promptly following
the receipt of complete written instructions and compliance with the terms of
this Section 2.6, the Depositary shall direct the Custodian to deliver, subject
to Sections 2.7, 3.1 and 3.2 and to the other terms and conditions of this
Deposit Agreement, to or upon the written order of the person or persons
designated in such written instructions, the Deposited Securities represented by
the American Depositary Shares evidenced by such surrendered Receipt. The
Depositary may nonetheless in any case make delivery to such person or persons
at its Principal Office of any dividends or distributions with respect to the
Deposited Securities or of any proceeds from the sale of any dividends,
distributions or rights with respect to the Deposited Securities, which may at
the time be held by the Depositary.
At the request, risk and expense of any Holder surrendering a
Receipt, and for the account of such Holder, provided that payment of any
applicable tax or other governmental charge shall have been made in accordance
with Section 3.2, the Depositary shall direct the Custodian to forward any cash
or other property (other than rights), and a certificate or certificates (if
certificated Deposited Securities may be delivered) and other proper documents
of title, if any, for the Deposited Securities to the Depositary for delivery at
the Principal Office of the Depositary. Such direction shall be given by letter
or, at the request, risk and expense of such Holder, by air courier, cable,
telex or facsimile transmission. The Depositary shall not accept for surrender a
Receipt evidencing American Depositary Shares representing a fractional interest
in one Share or one other Deposited Security. In the case of surrender of a
Receipt evidencing any number of American Depositary Shares representing other
than a whole number of Shares or other Deposited Securities, the Depositary
shall cause ownership of the appropriate whole number of Shares or other
Deposited Securities to be recorded in the
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<PAGE> 13
name of the Holder surrendering such Receipt and shall issue and deliver to the
person surrendering such Receipt a new Receipt evidencing American Depositary
Shares representing any remaining fractional interest.
SECTION 2.7. Limitations on Execution and Delivery, Transfer and
Surrender of Receipts.
As a condition precedent to the execution and delivery,
registration of transfer or surrender of any Receipt, the delivery of any
distribution in respect thereof or the withdrawal of any Deposited Securities,
the Company, the Depositary or the Custodian may require from the Holder, the
presenter of a Receipt or the depositor of Shares (i) payment of a sum
sufficient to reimburse it for any tax or other governmental charge and any
stock transfer or registration fee with respect thereto (including any such tax
or charge and fee with respect to Shares being deposited or Deposited Securities
being withdrawn) and payment of any charges of the Depositary upon delivery of
Receipts against deposits of Shares and upon withdrawal of Deposited Securities
against surrender of Receipts as set forth in Section 5.8 hereof; (ii)
compliance with such reasonable regulations, if any, as the Depositary and the
Company may establish consistent with the provisions of this Deposit Agreement;
and (iii) production of proof satisfactory to it as to the identity and
genuineness of any signature appearing on any form, certification or other
document delivered to the Depositary in connection with this Deposit Agreement,
including but not limited to, in the case of Receipts, a signature guarantee in
accordance with industry practice.
The delivery of Receipts against, or adjustments in the
records of the Depositary to reflect, deposits of Shares generally or of
particular Shares may be suspended or withheld, or the registration of transfer
of Receipts in particular instances may be refused, or the registration of
transfer of Receipts generally may be suspended, during any period when the
transfer books of the Depositary are closed, or if any such action is deemed
necessary or advisable by the Depositary or the Company at any time or from time
to time because of any requirement of law or of any government or governmental
or regulatory authority, body or commission or any meeting of shareholders of
the Company or under any provision of this Deposit Agreement or the Articles of
Association (Satzung) of the Company, or for any other reason, subject to the
provisions of the following sentence. Notwithstanding any other provision of
this Deposit Agreement or the Receipts, the surrender of outstanding Receipts
and withdrawal of Deposited Securities may not be suspended, except as required
in connection with (i) temporary delays caused by closing the transfer books of
the Depositary or the deposit of Shares in connection with voting at a
shareholders meeting, or the payment of dividends, (ii) the payment of fees,
taxes and similar charges, and (iii) compliance with any United States or
foreign laws or governmental regulations relating to the Receipts or to the
withdrawal of the Deposited Securities. Without limitation of the foregoing, the
Depositary shall not knowingly accept for deposit under this Deposit Agreement
any shares required to be registered under the provisions of the Securities Act
of 1933 unless
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<PAGE> 14
a registration statement is in effect as to such shares. The Depositary will
comply with written instructions of the Company not to accept for deposit under
this Deposit Agreement any Shares identified in such instructions and under such
circumstances as may reasonably be specified in such instructions in order to
facilitate the Company's compliance with United States securities laws.
SECTION 2.8. Lost Receipts, etc.
In case any Receipt shall be mutilated, destroyed, lost or
stolen, the Depositary shall execute and deliver a new Receipt of like tenor, in
exchange and substitution for such mutilated Receipt upon cancellation thereof,
or in lieu of and in substitution for such destroyed or lost or stolen Receipt,
upon the Holder thereof (i) filing with the Depositary a request for such
exchange, execution and delivery before the Depositary has notice that the
Receipt has been acquired by a bona fide purchaser, (ii) depositing with the
Depositary a sufficient indemnity bond or other indemnification acceptable to
the Depositary, and (iii) satisfying any other reasonable requirements imposed
by the Depositary.
SECTION 2.9. Cancellation and Destruction of Surrendered Receipts.
All Receipts surrendered to the Depositary shall be cancelled
by the Depositary. Cancelled Receipts shall not be entitled to any benefits
under this Deposit Agreement or be valid or enforceable for any purpose. The
Depositary shall destroy Receipts so cancelled.
SECTION 2.10. Exchange of Old Receipts.
Unless previously requested, as soon as practicable after the
date of this Deposit Agreement, the Depositary shall request any depositary that
has created and delivered receipts evidencing American depositary shares
representing Shares theretofore issued ("Old Receipts") to notify the record
holders of all outstanding Old Receipts (i) of the execution of this Deposit
Agreement, (ii) that the Old Receipts held by them shall be exchanged for
Receipts, and (iii) of such other information as the Depositary may deem
appropriate. The Depositary shall exchange such Old Receipts for Receipts. No
fee shall be charged to the holders of Old Receipts for the exchange for
Receipts, except that, in all cases involving a change of ownership, any
required transfer taxes or other such charge shall be paid by such holders.
SECTION 2.11. Maintenance of Records.
The Depositary agrees to maintain records of all Receipts
surrendered and Deposited Securities withdrawn under Section 2.6, of substitute
Receipts delivered under Section 2.8 and of Receipts cancelled or destroyed
under Section 2.9 and Old Receipts exchanged under Section 2.10, in keeping with
procedures ordinarily followed by stock transfer agents located in The City of
New York. Prior to destroying any such records,
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<PAGE> 15
the Depositary will notify the Company and will turn such records over to the
Company upon its request.
ARTICLE 3. CERTAIN OBLIGATIONS OF HOLDERS OF RECEIPTS
SECTION 3.1. Filing Proofs, Certificates and Other Information.
In order to enable the Depositary and the Company to comply
with applicable laws and to perform their respective obligations hereunder, any
person depositing Shares or any Holder may be required from time to time (i) to
file proof of (a) citizenship or residence, (b) exchange control approval and
payment of all taxes and other governmental charges, (c) compliance with all
applicable laws, regulations and provisions of or governing Deposited Securities
and the terms of this Deposit Agreement, and (d) legal or beneficial ownership
of Receipts, Deposited Securities and other securities, and the nature of such
interest and (ii) to execute and deliver such certificates and to make such
representations and warranties in addition to those set forth in Section 2.3 as
the Depositary or the Company may deem necessary or proper. The Depositary may,
and shall if reasonably requested by the Company, withhold the delivery or
registration of transfer of any Receipt or the distribution of any dividend or
sale or distribution of rights or of the proceeds thereof or the delivery of any
Deposited Securities represented by the American Depositary Shares evidenced by
such Receipt until such proof or other information is filed or such certificates
are executed or such representations and warranties are made to the satisfaction
of the Company and the Depositary. The Depositary shall provide the Company in a
timely manner copies of any such proofs and certificates and such written
representations and warranties that it receives. Each Holder agrees to provide
any information requested by the Company or the Depositary pursuant to this
paragraph.
SECTION 3.2. Liability of Holders for Taxes and Other Charges.
If any tax or other governmental charge shall become payable
with respect to any Receipt or any Deposited Securities represented by the
American Depositary Shares evidenced by such Receipt, such tax or other
governmental charge shall be payable by the Holder of such Receipt to the
Depositary. The Depositary may refuse, and the Company shall be under no
obligation, to effect any registration of transfer of all or part of such
Receipt or to issue any new Receipt or Receipts or to permit any deposit or
withdrawal of Deposited Securities represented by the American Depositary Shares
evidenced by such Receipt until such payment is made, and the Company and the
Depositary may withhold or deduct from any dividends or other distributions, or
may sell for the account of the Holder thereof any part or all of the Deposited
Securities represented by the American Depositary Shares evidenced by such
Receipt, and may apply such dividends or other distributions or the proceeds of
any such sale in payment of such tax or other governmental charge; the Holder of
such Receipt remaining liable for any deficiency.
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<PAGE> 16
SECTION 3.3. Compliance with Law.
The Depositary agrees to comply with all applicable laws. Each
Holder agrees that such Holder is bound by and subject to the Articles of
Association (Satzung) of the Company as if such Holder were a holder of Shares,
and each Holder agrees to comply with all applicable provisions of German law
and the Articles of Association (Satzung) of the Company with regard to
notification to the Company of such Holder's interest in Shares (including those
Shares represented by American Depositary Shares), including any provision
requiring such Holder to disclose within a prescribed period of time an interest
in Shares amounting to, exceeding or falling below 5%, 10%, 25%, 50% and 75% of
such Shares outstanding or such other percentage as may be required from time to
time pursuant to any provision of German law or otherwise. Each Holder
acknowledges that failure by a Holder to provide on a timely basis any such
required notification of such Holder's interest in Shares may result in the loss
of certain rights in respect of such Holder's American Depositary Shares
including, without limitation, voting rights and the right to receive dividends
or other payments in respect of the Shares represented by such American
Depositary Shares. Each such Holder required to provide the notification
described above may deliver such notification to the Depositary for forwarding
to the Company. The Depositary agrees to forward to the Company, as soon as
practicable, any such notifications received by the Depositary from any Holder.
Notwithstanding the foregoing, any notification by a Holder to be made under
this Section 3.3 shall only be deemed to be effected and provided to the Company
at the time when the Company has received such notification.
SECTION 3.4. Disclosure of Beneficial Ownership of Receipts.
The Company and the Depositary may from time to time request
Holders or former Holders to provide information as to the capacity in which
they hold or held Receipts and regarding the identity of any other persons then
or previously interested in such Receipts and various other matters. Each such
Holder agrees to provide any such information reasonably requested by the
Company or the Depositary pursuant to this Section 3.4 and such agreement shall
survive any disposition of such Holder's interest in Shares or Receipts. The
Depositary agrees to use its reasonable efforts to comply with written
instructions received from the Company requesting that the Depositary forward
any such requests to such Holders and to the last known address, if any, of such
former Holders and to forward to the Company any responses to such requests
received by the Depositary, and to use its reasonable efforts, at the Company's
request, to assist the Company in obtaining such information with respect to the
American Depositary Shares, provided that nothing herein shall be interpreted as
obligating the Depositary to provide or obtain any such information not provided
to the Depositary by such Holders or former Holders.
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<PAGE> 17
ARTICLE 4. THE DEPOSITED SECURITIES
SECTION 4.1. Cash Distributions; Withholding.
Whenever the Custodian or the Depositary shall receive any
cash dividend or other cash distribution on any Deposited Securities, the
Depositary shall, subject to the provisions of Section 4.6 hereof, convert such
dividend or distribution, if applicable, into Dollars and shall as promptly as
practicable distribute the amount thus received (net of the expenses of the
Custodian or the Depositary, as the case may be, in connection with the
conversion of such Foreign Currency into Dollars and such other fees and
expenses as provided in Section 5.8 hereof) to the Holders entitled thereto, in
proportion to the number of American Depositary Shares representing such
Deposited Securities held by them respectively; provided, however, that in the
event that the Company, the Depositary or the Custodian shall be required to
withhold and does withhold, subject to Section 4.12 hereof from any cash
dividend or other cash distribution in respect of any Deposited Securities an
amount on account of taxes or other governmental charges, the amount distributed
to the Holders of Receipts evidencing American Depositary Shares representing
such Deposited Securities shall be reduced accordingly. The Depositary shall
distribute only such amount, however, as can be distributed without attributing
to any Holder of a Receipt a fraction of one cent. Any such fractional amounts
shall be rounded to the nearest whole cent and so distributed to Holders
entitled thereto. The Company or the Depositary, as appropriate, will remit to
the appropriate governmental authority or agency in Germany or any other
relevant jurisdiction all amounts withheld and owing to such authority or
agency. The Depositary will forward to the Company such information from its
records as the Company may reasonably request to enable the Company to file
necessary reports with governmental authorities or agencies and the Depositary,
the Custodian or the Company may file any such reports necessary to obtain
benefits under applicable tax treaties for the Holders.
SECTION 4.2. Distributions Other Than Cash, Shares or Rights.
Subject to Section 4.12, whenever the Custodian or the
Depositary shall receive any distribution other than distributions described in
Sections 4.1, 4.3 or 4.4 upon any Deposited Securities, the Depositary shall, as
promptly as practicable, after Consultation with the Company, cause the
securities or property received by it or by the Custodian to be distributed to
the Holders entitled thereto, in proportion to the number of American Depositary
Shares representing such Deposited Securities held by them respectively, in any
manner that the Depositary deems equitable and practicable for accomplishing
such distribution; provided, however, that if the Company shall so direct, or if
in the reasonable opinion of the Depositary such distribution cannot be made or
cannot be made proportionately among the Holders entitled thereto, or if for any
other reason (including any requirement that the Company, the Custodian or the
Depositary withhold an amount on account of taxes or other governmental charges
or that such securities must be registered under the Securities Act of 1933 in
order to be distributed to
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<PAGE> 18
Holders) the Depositary determines that such distribution is not feasible or may
not be legally made to some or all Holders, the Depositary may, following
Consultation with the Company, adopt such method as it deems lawful, equitable
and practicable for the purpose of effecting such distribution, including the
sale (either public or private, at such place or places and upon such terms as
it may deem reasonably proper) of the securities or property thus received, or
any part thereof and, in such case, the net proceeds of any such sale shall be
distributed by the Depositary to the Holders entitled thereto as in the case of
a distribution received in cash; provided that any unsold balance of such
securities or property shall be distributed by the Depositary to the Holders
entitled thereto, if such distribution is feasible without withholding for or on
account of any taxes or other governmental charges and without registration
under the Securities Act of 1933, in accordance with such equitable and
practicable method as the Depositary may have adopted; provided, further, that
no distribution to Holders pursuant to this Section shall be unreasonably
delayed by any action of the Depositary or the Custodian. To the extent such
property, or the net proceeds thereof, is not effectively distributed to Holders
as provided herein, the same shall constitute Deposited Securities and each
American Depositary Share shall thereafter also represent its proportionate
interest in such property or net proceeds.
SECTION 4.3. Distributions in Shares.
If any distribution upon any Deposited Securities consists of
a dividend in, or distribution without consideration of, Shares, the Depositary
may, and shall if the Company so requests, distribute to the Holders of
outstanding Receipts entitled thereto, in proportion to the number of American
Depositary Shares representing such Deposited Securities held by them
respectively, additional Receipts evidencing an aggregate number of American
Depositary Shares representing the number of Shares received in such dividend or
distribution. In lieu of delivering Receipts for fractional American Depositary
Shares in any such case, the Depositary shall sell the number of Shares
represented by the aggregate of such fractions and distribute the net proceeds,
in the manner and subject to the conditions described in Section 4.1. Until the
distribution of such Receipts and net proceeds in accordance with the preceding
sentence, each American Depositary Share shall also represent its proportionate
interest in the additional Shares distributed upon the Deposited Securities
represented thereby and such net proceeds. Notwithstanding the foregoing, if for
any reason (including any requirement that the Company, the Custodian or the
Depositary withhold an amount on account for taxes or other governmental charges
or that such Shares must be registered under the Securities Act of 1933 in order
to be distributed to Holders) the Depositary, after Consultation with the
Company, determines that a distribution in Shares is not feasible or may not be
legally made to some or all Holders, the Depositary may adopt such method as it
may deem equitable and practicable for the purpose of effecting such
distribution, including the sale (either public or private, at such place or
places and upon such terms as it may deem reasonably proper) of the Shares thus
received or any part thereof and, in such case, the net proceeds of any such
sale shall be distributed by the Depositary to the
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<PAGE> 19
Holders entitled thereto as in the case of a distribution in cash. No
distribution to Holders pursuant to this Section shall be unreasonably delayed
by any action of the Depositary or the Custodian.
SECTION 4.4. Rights Distributions.
In the event that the Company shall offer or cause to be
offered to the holders of any Deposited Securities any rights to subscribe for
additional Shares or any rights of any other nature, the Depositary shall
following Consultation with the Company as to the procedure to be followed (i)
make such rights available to the Holders entitled thereto as provided in clause
(a) below, (ii) dispose of such rights on behalf of such Holders and make the
net proceeds available in Dollars to such Holders as provided in clause (b)
below or (iii) if by the terms of such rights offering or by reason of
applicable law the Depositary can neither make such rights available to such
Holders nor dispose of such rights and make the net proceeds available to such
Holders, then the Depositary shall allow the rights to lapse.
If at the time of the rights offering the Depositary
determines, following Consultation with the Company:
(a) that it is lawful and feasible to make such rights
available to all or certain Holders by means of warrants or otherwise, the
Depositary shall distribute to every Holder to whom it determines the
distribution to be lawful and feasible, in proportion to the number of American
Depositary Shares held by such Holder, warrants or other instruments therefor in
such form as it deems appropriate, or employ such other method as it may deem
feasible in order to facilitate the exercise, sale or transfer of rights by such
Holders or the sale or resale of securities obtainable upon exercise of such
rights by such Holders; or
(b) that it is not lawful or not feasible to make such rights
available to all or certain Holders by means of warrants or otherwise, or if the
rights represented by such warrants or such other instruments are not exercised
and appear to be about to lapse, the Depositary shall use its reasonable efforts
to sell such rights or warrants or other instruments, at a public or private
sale, at such place or places and upon such terms as it may deem reasonably
proper, and allocate the net proceeds of any such sale (net of all taxes and
governmental charges payable in connection with such rights and the fees of the
Depositary set forth in Section 5.8 hereof) for the account of the Holders
otherwise entitled to such rights, warrants or other instruments upon an
averaged or other practicable basis without regard to any distinctions among
such Holders because of the application of exchange restrictions with regard to
a particular Holder or otherwise and distribute such net proceeds to the extent
practicable as in the case of a distribution of cash pursuant to Section 4.1
hereof.
In circumstances in which rights would otherwise not be
distributed, if a Holder requests the distribution of warrants or other
instruments in order to exercise the
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<PAGE> 20
rights allocable to the American Depositary Shares of such Holder hereunder, the
Depositary will make such rights available to such Holder upon written notice
from the Company to the Depositary that (a) the Company has elected in its sole
discretion to permit such rights to be exercised, and (b) such Holder has
executed such documents as the Company has determined in its sole discretion are
required under applicable law.
If the Depositary has distributed warrants or other
instruments for rights to all or certain Holders, then upon instruction from any
such Holder pursuant to such warrants or other instruments to the Depositary to
exercise such rights, upon payment by such Holder to the Depositary for the
account of such Holder of an amount equal to the purchase price of the Shares to
be received upon the exercise of the rights, and upon payment of the fees of the
Depositary and any other charges as set forth in such warrants or other
instruments, the Depositary shall on behalf of such Holder, exercise the rights
and purchase the Shares, and the Company shall cause the Shares so purchased to
be deposited with the Custodian pursuant to Section 2.2 of this Deposit
Agreement, and the Depositary shall pursuant to Section 2.4 of this Deposit
Agreement, execute and deliver Receipts to such Holder. In the case of certain
distributions pursuant to clause (a) of the second paragraph of this Section or
pursuant to the third paragraph of this Section, such Receipts shall be legended
in accordance with instructions of the Company, and shall be subject to such
restrictions on sale, deposit, cancellation and transfer as the Depositary shall
deem necessary or shall be instructed by the Company.
If registration under the Securities Act of 1933 of the rights
or the securities to which any rights relate is required in order for the
Company to offer such rights to Holders of Receipts and to sell the securities
represented by such rights, the Depositary will not offer such rights unless and
until a registration statement is in effect or such rights and the securities to
which such rights relate are exempt from registration under the Securities Act
of 1933; provided that nothing in this Deposit Agreement shall create, or shall
be construed to create, any obligation on the part of the Company to file such a
registration statement or to endeavor to have such a registration statement
declared effective.
In the event that the rights and the securities to which such
rights relate are not registered under the Securities Act of 1933, the
Depositary shall not be responsible for any failure to determine that it may be
lawful or feasible to make such rights available to any particular Holder.
SECTION 4.5. Dividends and Distributions Requiring Registration.
The Company agrees that in the event of any issuance or
distribution of (1) additional Shares, (2) rights to subscribe for Shares, (3)
securities convertible into Shares, or (4) rights to subscribe for such
securities, (each a "Distribution") the Company will promptly furnish to the
Depositary upon reasonable request a written opinion from U.S. counsel for the
Company, which counsel shall be reasonably satisfactory to the Depositary,
stating whether or not the Distribution requires a registration statement under
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<PAGE> 21
the Securities Act of 1933 to be in effect prior to making such Distribution
available to Holders entitled thereto; provided, however, that no such opinion
shall be required in the event of an issuance of Shares as a bonus, share split
or similar event. If in the opinion of such counsel a registration statement is
required, such counsel shall furnish to the Depositary a written opinion as to
whether or not there is a registration statement in effect which will cover such
Distribution.
The Company agrees with the Depositary that neither the
Company nor any company controlled by, controlling or under common control with
the Company will at any time deposit any Shares, either originally issued or
previously issued and reacquired by the Company or any such affiliate, unless a
registration statement is in effect as to such Shares under the Securities Act
of 1933.
SECTION 4.6. Conversion of Foreign Currency.
Whenever the Depositary or the Custodian shall receive Foreign
Currency, by way of dividends or other distributions or the net proceeds from
the sale of securities, property or rights, and if at the time of the receipt
thereof the Foreign Currency so received can in the reasonable judgment of the
Depositary be converted on a reasonable basis into Dollars and the resulting
Dollars transferred to the United States, the Depositary shall as promptly as
practicable convert or cause to be converted, by sale or in any other manner
that it may determine, such Foreign Currency into Dollars, and such Dollars
shall be distributed to the Holders entitled thereto in proportion to the number
of American Depositary Shares held by them respectively or, if the Depositary
shall have distributed any warrants or other instruments which entitle the
holders thereof to such Dollars, then to the holders of such warrants and/or
instruments upon surrender thereof for cancellation. Such distribution may be
made upon an averaged or other practicable basis without regard to any
distinctions among Holders on account of exchange restrictions, the date of
delivery of any Receipt or otherwise and shall be net of any expenses of
conversion into Dollars incurred by the Depositary as provided in Section 5.8.
The Depositary shall promptly inform the Company of the exchange rate at which
such Foreign Currency conversion has been carried out.
If such conversion or distribution can be effected only with
the approval or license of any government or agency thereof, the Depositary
shall file such application for approval or license, if any, as it may deem
desirable; provided, however, that if such application involves or refers to the
Company or is made on behalf of the Company, the Depositary shall, at the
written request of the Company, provide the Company a reasonable opportunity to
review and comment on such application before it is filed.
If at any time the Depositary shall determine, following
Consultation with the Company, that in its judgment any Foreign Currency
received by the Depositary is not convertible on a reasonable basis into Dollars
transferable to the United States, or if any approval or license of any
government or agency thereof which is required for such conversion is denied or
in the opinion of the Depositary is not obtainable, or if any such
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approval or license is not obtained within a reasonable period as determined by
the Depositary, the Depositary may distribute the Foreign Currency (or an
appropriate document evidencing the right to receive such Foreign Currency)
received by the Depositary to, or in its discretion may hold such Foreign
Currency uninvested and without liability for interest thereon for the
respective accounts of, the Holders entitled to receive the same.
If any such conversion of Foreign Currency, in whole or in
part, cannot be effected for distribution to some of the Holders entitled
thereto, the Depositary may in its discretion make such conversion and
distribution in Dollars to the extent permissible to the Holders entitled
thereto and may distribute the balance of the Foreign Currency received by the
Depositary to, or hold such balance uninvested and without liability for
interest thereon for the respective accounts of, the Holders entitled thereto.
SECTION 4.7. Fixing of Record Date.
Whenever any cash dividend or other cash distribution is to be
declared and paid or any distribution other than cash is to be declared and
made, or whenever rights are to be issued with respect to the Deposited
Securities, or whenever, for any reason, the Depositary causes a change in the
number of Shares that are represented by each American Depositary Share, or
whenever the Depositary receives notice of any meeting of or solicitation of
consents or proxies from holders of Shares or other Deposited Securities, or
whenever the Company or the Depositary finds it necessary or convenient in
respect of any matter, the Depositary shall fix a record date (which shall (i)
to the extent practicable, be the same date that holders of Shares or other
Deposited Securities shall be entitled to receive or exercise such rights, and
(ii) with respect to record dates that are not the same as the corresponding
record date set by the Company, be fixed only after Consultation with the
Company) (i) for the determination of the Holders who shall be entitled (a) to
receive such dividend, distribution or rights, or the net proceeds of the sale
thereof or (b) to give instructions for the exercise of voting rights, if any,
at any such meeting or to receive information as to such meeting, or (ii) on or
after which each American Depositary Share will represent the changed number of
Shares. Subject to the provisions of Sections 4.1 through 4.6 and to the other
terms and conditions of this Deposit Agreement, the Holders on such record date
shall be entitled to receive the amount distributable by the Depositary with
respect to such dividend or other distribution or such rights or the net
proceeds of sale thereof or to exercise the rights of Holders hereunder with
respect to such changed number of Shares represented by each American Depositary
Share in proportion to the number of American Depositary Shares held by them
respectively and to give voting instructions and to act in respect of any other
such matter.
SECTION 4.8. Voting of Deposited Securities.
As promptly as practicable after receipt from the Company of
notice of any meeting or solicitation of consents or proxies of holders of
Deposited Securities, the
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Depositary shall, subject to applicable law and the Company's Articles of
Association, mail to Holders (for forwarding to beneficial owners) a notice (the
"Notice") (a) containing such information as is contained in the notice or
solicitation sent by the Company to the Depositary, (b) stating that each Holder
on the record date set by the Depositary therefore pursuant to Section 4.9
hereof will be entitled subject to all applicable provisions of law, including
any laws of Germany, the Articles of Association (Satzung) of the Company and
this Deposit Agreement, to instruct the Depositary as to the exercise of the
voting rights, if any, pertaining to the whole number of Deposited Securities
underlying such Holder's American Depositary Shares, (c) specifying how and when
such instructions may be given, and (d) stating that if no voting instructions
are received from a Holder on or before the date established by the Depositary
for such purpose, such Holder shall be deemed to have instructed the Depositary
not to vote the Deposited Securities underlying such Holder's American
Depositary Shares. Upon receipt of instructions of a Holder on such record date
in the manner and on or before the date established by the Depositary for such
purpose, the Depositary shall endeavor, insofar as is practicable and permitted
under applicable law, the Company's Articles of Association (Satzung) and the
provisions of or governing Deposited Securities, to vote or cause to be voted
the Deposited Securities underlying such Holder's American Depositary Shares in
accordance with such instructions. Upon the request of a Holder who has not
previously given instructions to the Depositary after receipt of the Notice as
to the exercise of voting rights pertaining to the Deposited Securities
underlying such Holder's American Depositary Shares, and subject to compliance
with any reasonable regulations the Depositary may establish, the Depositary
will endeavor to provide such Holder (or a person designated by such Holder)
with the documentation necessary to attend a meeting of holders of Deposited
Securities.
The Depositary shall not vote or cause to be voted Deposited
Securities other than in accordance with such instructions received from Holders
of American Depositary Shares.
The Depositary will endeavor to ensure that on any date on
which it votes or causes to be voted Deposited Securities pursuant to this
Section 4.8, it will have on deposit under this Agreement the number of
Deposited Securities with respect to which it has received voting instructions
from Holders. In the event that, on any such date, the number of Deposited
Securities on deposit under the Agreement is less than the number of Deposited
Securities with respect to which the Depositary has received voting
instructions, the Depositary shall vote or cause to be voted such Deposited
Securities in accordance with such instructions adjusting the number of
Deposited Securities voted on a pro-rated basis.
The Depositary shall use its best efforts to vote or cause to
be voted Shares or other Deposited Securities underlying Receipts in accordance
with instructions received from Holders in accordance with this Section 4.8;
provided, however, that the Depositary shall not be responsible for any failure
to carry out any instructions to vote
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<PAGE> 24
any of the Deposited Securities, or for the manner in which any such vote is
cast or the effect of any such vote, provided that any such action or nonaction
is in good faith.
Nothing in this Deposit Agreement shall be construed to grant
a holder any voting rights with respect to Deposited Securities to which, by
their terms, voting rights do not otherwise attach.
SECTION 4.9. Changes Affecting Deposited Securities.
In circumstances where the provisions of Section 4.3 do not
apply, upon any change in nominal value or any reclassification of Deposited
Securities or upon any recapitalization, reorganization, merger or consolidation
or sale of assets affecting the Company or to which it is a party, any
securities which shall be received by the Depositary or the Custodian in
exchange for, or in conversion, replacement or otherwise in respect of,
Deposited Securities shall be treated as Deposited Securities under this Deposit
Agreement, and the American Depositary Shares evidenced by the Receipts shall,
subject to the terms of this Deposit Agreement and applicable laws, including
any applicable provisions of the Securities Act of 1933, thenceforth represent
the Deposited Securities so received unless and until additional or new Receipts
are delivered pursuant to the following sentence. In any such case the
Depositary may, and shall if the Company requests, at no cost to Holders,
execute and deliver additional Receipts in the case of a dividend in Shares or
call for the surrender of outstanding Receipts to be exchanged for new Receipts
specifically describing such newly received Deposited Securities.
Immediately upon the occurrence of any such change, conversion
or exchange covered by this Section in respect of the Deposited Securities, the
Depositary shall give notice thereof in writing to all Holders. Notwithstanding
the foregoing, in the event that any security so received may not be lawfully
distributed to some or all Holders, the Depositary may, following Consultation
with the Company, or shall, upon request of the Company, sell such securities at
a public or private sale, at such place or places and upon such terms as it may
deem proper, and may allocate the net proceeds of such sale for the account of
the Holders otherwise entitled to such securities upon an averaged or other
practicable basis without regard to any distinctions among such Holders and
distribute the net proceeds so allocated to the extent practicable as in the
case of a distribution received in cash pursuant to Section 4.1.
SECTION 4.10. Reports.
The Depositary shall make available for inspection by Holders
at its Principal Office copies of this Deposit Agreement and any notices,
reports and communications, including any proxy soliciting materials, received
from the Company which are both (i) received by the Depositary as the holder of
the Deposited Securities and (ii) made generally available to the holders of
such Deposited Securities by the Company. The Depositary shall also send
promptly to Holders of Receipts copies of
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such notices, reports and communications when furnished by the Company to the
Depositary pursuant to Section 5.6. Any such reports and communications,
including any such proxy soliciting material, furnished to the Depositary by the
Company shall be furnished in English to the extent such materials are required
to be translated into English pursuant to any regulation of the Commission
applicable to the Company.
SECTION 4.11. Lists of Receipt Holders.
Promptly upon request by the Company, the Depositary shall
furnish to it a list of the names, addresses and holdings of American Depositary
Shares of all persons in whose names Receipts are registered on the books of the
Depositary and the total number of Shares of the Company deposited at the
account maintained by the Custodian for the purpose of this Deposit Agreement.
SECTION 4.12. Taxation.
The Depositary will forward to the Company or its agent such
information from its records as the Company may reasonably request to enable the
Company or its agent to file necessary reports with governmental authorities or
agencies, and the Depositary, the Custodian or the Company or its agents may
file such reports as are necessary to obtain benefits under the applicable tax
treaties for the Holders following the review and approval of such reports by
the Company and its advisors. Notwithstanding any other provision of this
Deposit Agreement, in the event that the Depositary determines that any
distribution in cash or property (including Shares or rights to subscribe
therefor) is subject to any tax or governmental charges which the Depositary or
the Custodian is obligated to withhold, the Depositary may use such cash or
dispose, including by public or private sale, of all or a portion of such
property (including Shares and rights to subscribe therefor) in such amounts and
in such manner as the Depositary deems reasonably necessary and practicable to
pay such taxes or governmental charges, and the Depositary shall distribute the
net proceeds of any such sale or the balance of any such cash or property after
deduction of such taxes or governmental charges to the Holders entitled thereto
in proportion to the number of American Depositary Shares held by them
respectively and the Depositary shall, if feasible without withholding for or on
account of taxes or other governmental charges, without registration of such
Shares under the Securities Act of 1933 and otherwise in compliance with
applicable law, distribute any unsold balance of such cash or property in
accordance with the provisions of this Deposit Agreement.
The Depositary or the Custodian will take all practicable
administrative actions necessary to obtain all tax refunds and to reduce German
withholding taxes on dividends and other distributions on the Deposited
Securities.
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<PAGE> 26
SECTION 4.13. Monitoring of Dividends and Other Distributions.
Upon receipt of notices from the Company of dividends or any
other distributions, the Depositary shall use all reasonable efforts to insure
that the Custodian takes all necessary actions to receive all such dividends and
distributions on all Deposited Securities.
ARTICLE 5. THE DEPOSITARY, THE CUSTODIAN AND THE COMPANY
SECTION 5.1. Maintenance of Office and Transfer Books by the
Depositary.
Until termination of this Deposit Agreement in accordance with
its terms, the Depositary shall maintain in the Borough of Manhattan, The City
of New York, facilities for the execution and delivery, registration,
registration of transfers and surrender of Receipts in accordance with the
provisions of this Deposit Agreement.
The Depositary shall keep books in such New York City
facilities for the registration of Receipts and transfers of Receipts which at
all reasonable times shall be open for inspection by Holders and the Company,
provided that such inspection shall not be for the purpose of communicating with
Holders in the interest of a business or object other than the business of the
Company or a matter related to this Deposit Agreement or the Receipts.
The Depositary may close the transfer books, at any time or
from time to time, when reasonably deemed expedient by it in connection with the
performance of its duties hereunder or at the request of the Company.
If any Receipts or the American Depositary Shares evidenced
thereby are listed on one or more stock exchanges or automated quotation systems
in the United States, the Depositary shall act as Registrar or, following
Consultation with the Company, appoint a registrar or one or more co-Registrars
for registration of such Receipts in accordance with any requirements of such
exchange or exchanges or system or systems and with the terms of any such
appointment. Such Registrar or co-Registrars may be removed and a substitute or
substitutes appointed by the Depositary upon the request or with the approval of
the Company. Each Registrar (other than the Depositary) or co-Registrar of
Receipts appointed under this Section 5.1 shall give notice in writing within 5
business days of such appointment to the Company and the Depositary accepting
such appointment and agreeing to be bound by the applicable terms of this
Deposit Agreement.
The Company shall have the right to inspect transfer and
registration records of the Depositary, take copies thereof and require the
Depositary, the Registrar and any co-transfer agents or co-Registrars of
Receipts to supply copies of such portions of such records as the Company may
reasonably request.
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SECTION 5.2. Obligations of the Depositary, the Custodian and the
Company.
Each of the Company and its agents assumes no obligation nor
shall it be subject to any liability under this Deposit Agreement or the
Receipts to Holders or other persons, except to perform such obligations as are
specifically set forth in this Deposit Agreement without negligence or bad
faith. Each of the Depositary and its agent and the Custodian and its agents
assumes no obligation and shall be subject to no liability under this Deposit
Agreement or the Receipts to Holders or other persons, except to perform such
obligations as are specifically set forth in this Deposit Agreement without
negligence or bad faith. The Depositary, the Custodian and the Company undertake
to perform such duties and only such duties as are specifically set forth in
this Deposit Agreement, and no implied covenants or obligations shall be read
into this Deposit Agreement against the Depositary, the Custodian or the Company
or their respective agents. Without limitation of the preceding, none of the
Depositary or its agents, the Custodian or its agents or the Company or its
agents shall be under any obligation to appear in, prosecute or defend any
action, suit or other proceeding in respect of any Deposited Securities or in
respect of the Receipts, which in its opinion may involve expense or liability,
unless indemnity satisfactory to it against all expense and liability shall be
furnished as often as may be required, and no Custodian shall be under any
obligation whatsoever with respect to such proceedings, the Custodian being
responsible solely to the Depositary. None of the Depositary or its agents or
the Company or its agents shall be liable for any action or inaction by it or
them in reliance upon the advice of or information from legal counsel,
accountants, any person presenting Shares for deposit, any Holder or any other
person believed by it or them in good faith to be competent to give such advice
or information. Each of the Depositary and its agents, the Custodian and its
agents and the Company and its agents may rely and shall be protected in acting
upon any written notice, request, direction or other document believed by it to
be genuine and to have been signed or presented by the proper party or parties.
The Depositary shall not be responsible for the manner in which any vote is cast
or for the effect of any such vote, provided that the Depositary acted in good
faith.
Subject to compliance with all applicable laws, rules and
regulations, the Depositary and the Custodian may own and deal in any class of
securities of the Company and its affiliates and in Receipts.
No disclaimer of liability under the Securities Act of 1933 is
intended by any provision of this Deposit Agreement.
SECTION 5.3. Prevention or Delay in Performance by the Depositary, the
Custodian or the Company.
None of the Depositary, the Custodian, the Company or any of
their respective officers, directors, employees, agents or affiliates shall
incur any liability to any Holder or any other person if, by reason of any
provision of any present or future law, order of any government or agency
thereof or any court, decree or regulation of
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Germany, the United States or any other country, including any regulatory
authority or stock exchange, or by reason of any provision, present or future,
of the Articles of Association (Satzung) of the Company, any provision of or
governing any Deposited Securities, or by reason of any act of God or war or
other circumstances beyond its control, the Depositary or the Company or any of
their respective officers, directors, employees, agents or affiliates shall be
prevented or forbidden from, or delayed in, or be subject to any civil or
criminal penalty on account of, doing or performing any act or thing which by
the terms of this Deposit Agreement shall or may be done or performed or by
reason of any exercise of, or failure to exercise, any discretion provided for
in this Deposit Agreement.
Where by the terms of a distribution pursuant to Section 4.1,
Section 4.2 or Section 4.3 of this Deposit Agreement, or for any other reason,
such distribution may not be made available to some or all Holders, and the
Depositary may not dispose of such distribution on behalf of such Holders and
make the net proceeds available to such Holders, then the Depositary shall not
make such distribution available and shall allow any rights to such distribution
to lapse.
SECTION 5.4. Resignation and Removal of the Depositary; Appointment of
Successor Depositary.
The Depositary may at any time resign as Depositary hereunder
by giving 60 days' prior written notice of its resignation to the Company, such
resignation to take effect upon the appointment of a successor Depositary and
its acceptance of such appointment as hereinafter provided.
The Depositary may at any time be removed by the Company upon
60 days' prior written notice of such removal delivered to the Depositary, which
removal shall become effective upon the appointment of a successor Depositary
and its acceptance of such appointment as hereinafter provided.
In case at any time the Depositary acting hereunder shall
resign or be removed, the Company shall use its best efforts to appoint a
successor Depositary, which shall be a bank or trust company having an office in
the Borough of Manhattan, The City of New York. Every successor Depositary shall
execute and deliver to its predecessor and to the Company an instrument in
writing accepting its appointment hereunder satisfactory in form and substance
to the Company, and thereupon such successor Depositary, without any further act
or deed, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor; provided, however, such predecessor shall, upon
payment of all sums due to it and upon the written request of the Company,
execute and deliver an instrument satisfactory in form and substance to the
Company transferring to such successor all rights and powers of such predecessor
hereunder, shall duly assign, transfer and deliver all right, title and interest
in the Deposited Securities to such successor, and shall deliver to such
successor a list of the Holders of all outstanding Receipts and such other books
and records maintained by such predecessor and its agents
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with respect to its function as Depositary hereunder. Such predecessor shall
cooperate in good faith with the Company to permit such successor to perform its
obligations hereunder as soon as possible following such successor's appointment
hereunder. Any such successor Depositary shall promptly mail notice of its
appointment to the Holders. Notwithstanding the foregoing, any such resignation
or removal and appointment of a successor Depositary shall not relieve the prior
depositary or the Company from its obligations and liabilities pursuant to
Section 5.7.
Any corporation into or with which the Depositary may be
merged or consolidated shall be the successor of the Depositary for purposes of
this Deposit Agreement without the execution or filing of any document or any
further act.
SECTION 5.5. The Custodian.
The Depositary has appointed the Frankfurt/Main offices of
Dresdner Bank AG and Deutsche Bank AG as custodian and agent of the Depositary
for the purpose of this Deposit Agreement. A Custodian acting hereunder shall be
subject at all times and in all respects to the directions of the Depositary and
shall be responsible solely to it. Any Custodian may resign and be discharged
from its duties hereunder by written notice of such resignation delivered to the
Depositary at least 30 days prior to the date on which such resignation is to
become effective. If upon such resignation there shall be no Custodian acting
hereunder, the Depositary shall with the prior written consent of the Company,
promptly after receiving such notice appoint a substitute custodian that is
organized under the laws of Germany which shall thereafter be the Custodian
hereunder. Whenever the Depositary in its reasonable discretion determines that
it is in the best interest of the Holders to do so, it may discharge any
Custodian hereunder and, with the prior written consent of the Company, appoint
a substitute custodian or appoint one or more additional custodians, each of
which shall thereafter be a Custodian hereunder. Any Custodian ceasing to act as
Custodian hereunder shall deliver all Deposited Securities held by it and all
other books and records maintained by it with respect to its function as a
Custodian hereunder to a Custodian continuing to act upon the instruction of the
Depositary. Each substitute or additional custodian shall deliver to the
Depositary, forthwith upon its appointment, an acceptance of such appointment
satisfactory in form and substance to the Depositary. Immediately upon any such
change, the Depositary shall give notice in writing to the Company, to all
Holders and to each other Custodian of the name, the address and the appointment
of any Custodian not named in the Receipts.
Upon the appointment of any successor Depositary hereunder,
any Custodian then acting hereunder shall forthwith become, without any further
act or writing, the agent hereunder of such successor Depositary and the
appointment of such successor Depositary shall in no way impair the authority of
any Custodian hereunder; but the successor Depositary so appointed shall,
nevertheless, on the written request of any Custodian, execute and deliver to
such Custodian all such instruments as may be
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proper to give such Custodian full and complete power and authority as agent
hereunder of such successor Depositary.
SECTION 5.6. Notices and Reports to Holders.
No later than the date notice is given by the Company, by
publication or otherwise, of any meeting of holder of Shares or other Deposited
Securities, or of any adjourned meeting of such holders, or of the taking of any
action in respect of any cash or other distributions or the offering of any
rights in respect of Deposited Securities, the Company agrees to transmit to the
Depositary and the Custodian a copy of the notice thereof in the form given or
to be given to holders of such Shares or other Deposited Securities. The Company
will arrange for the translation into English, to the extent required pursuant
to any regulations of the Commission applicable to the Company and the prompt
transmittal to the Depositary of a sufficient number of copies of such notices
and of any other notices, reports and communications which are generally made
available by the Company to holders of Shares to enable the Depositary to
promptly mail copies thereof to all Holders of Receipts.
SECTION 5.7. Indemnification.
The Company agrees to indemnify the Depositary, its officers,
directors, employees, agents and affiliates and any Custodian against, and hold
each of them harmless from, any liability or reasonable expense (including, but
not limited to, the reasonable fees and expenses of counsel) which may arise out
of acts performed or omitted, in accordance with the provisions of this Deposit
Agreement and of the Receipts, as the same may be amended, modified or
supplemented from time to time, (i) by either the Depositary or a Custodian or
their respective directors, employees, agents and affiliates, except for any
liability or expense arising out of the negligence or bad faith of either of
them, or (ii) by the Company or any of its officers, directors, employees,
agents and affiliates.
The indemnities contained in the preceding paragraph shall not
extend to any liability or expense which arises solely and exclusively out of a
Pre-Release (as defined in Section 5.9) of a Receipt or Receipts in accordance
with Section 5.9 and which would not otherwise have arisen had such Receipt or
Receipts not been the subject of a Pre-Release pursuant to Section 5.9;
provided, however, that the indemnities provided in the preceding paragraph
shall apply to any such liability or expense (i) to the extent that such
liability or expense would have arisen had a Receipt or Receipts not been the
subject of a Pre-Release, or (ii) which may arise out of any misstatement or
alleged misstatement or omission or alleged omission in any registration
statement, proxy statement, prospectus (or placement memorandum), or preliminary
prospectus (or preliminary placement memorandum) relating to the offer or sale
of American Depositary Shares, except to the extent any such liability or
expense arises out of (i) information relating to the Depositary or any
Custodian (other than the Company), as applicable, furnished in writing by the
Depositary or Custodian and not materially changed or altered by the
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<PAGE> 31
Company expressly for use in any of the foregoing documents, or, (ii) if such
information is provided, the failure to state a material fact necessary to make
the information provided not misleading.
The Depositary agrees to indemnify the Company, its officers,
directors, employees, agents and affiliates and hold each of them harmless from
any liability or reasonable expense (including, but not limited to, the
reasonable fees and expenses of counsel) which may arise out of acts performed
or omitted by the Depositary or its Custodian or their respective directors,
employees, agents and affiliates due to their negligence or bad faith.
If an action, proceeding (including, but not limited to, any
governmental investigation), claim or dispute (collectively, a "Proceeding") in
respect of which indemnity may be sought by either party is brought or asserted
against the other party, the party seeking indemnification (the "Indemnitee")
shall promptly (and in no event more than ten (10) days after receipt of notice
of such Proceeding) notify in writing the party obligated to provide such
indemnification (the "Indemnitor") of such Proceeding. The failure of the
Indemnitee to so notify the Indemnitor shall not impair the Indemnitee's ability
to seek indemnification from the Indemnitor (but only for costs, expenses and
liabilities incurred after such notice) unless such failure adversely affects
the Indemnitor's ability to adequately oppose or defend such Proceeding. Upon
receipt of such notice from the Indemnitee, the Indemnitor shall be entitled to
participate in such Proceeding and, to the extent that it shall so desire and
provided no conflict of interest exists as specified in subparagraph (b) below
or there are no other defenses available to Indemnitee as specified in
subparagraph (d) below, to assume the defense thereof with counsel reasonably
satisfactory to the Indemnitee (in which case all attorney's fees and expenses
shall be borne by the Indemnitor and the Indemnitor shall in good faith defend
the Indemnitee). The Indemnitee shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be borne by the Indemnitee unless (a) the
Indemnitor agrees in writing to pay such fees and expenses, (b) the Indemnitee
shall have reasonably and in good faith concluded that there is a conflict of
interest between the Indemnitor and the Indemnitee in the conduct of the defense
of such action, (c) the Indemnitor fails, within ten (10) days prior to the date
the first response or appearance is required to be made in such Proceeding, to
assume the defense of such Proceeding with counsel reasonably satisfactory to
the Indemnitee or (d) there are legal defenses available to Indemnitee that are
different from or are in addition to those available to the Indemnitor. No
compromise or settlement of such Proceeding may be effected by either party
without the other party's consent unless (i) there is no finding or admission of
any violation of law and no effect on any other claims that may be made against
such other party and (ii) the sole relief provided is monetary damages that are
paid in full by the party seeking the settlement. Neither party shall have any
liability with respect to any compromise or settlement effected without its
consent, which shall not be unreasonably withheld. The Indemnitor shall have no
obligation to indemnify and hold harmless the Indemnitee from any loss,
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<PAGE> 32
expense or liability incurred by the Indemnitee as a result of a default
judgment entered against the Indemnitee unless such judgment was entered after
the Indemnitor agreed, in writing, to assume the defense of such Proceeding.
The obligations set forth in this Section 5.7 shall survive
the termination of this Deposit Agreement and the succession or substitution of
any indemnified person. No Holder shall have any rights under this Section 5.7.
SECTION 5.8. Charges of Depositary.
The Company agrees to pay the fees, reasonable expenses and
out-of-pocket charges of the Depositary and those of any Registrar only in
accordance with agreements in writing entered into between the Depositary and
the Company from time to time. The Depositary shall present its statement for
such charges and expenses to the Company once every three months. The charges
and expenses of the Custodian are for the sole account of the Depositary.
The following charges shall be incurred by any party
depositing or withdrawing Shares or by any party surrendering Receipts or to
whom Receipts are issued (including, without limitation, issuance pursuant to a
stock dividend or stock split declared by the Company or an exchange regarding
the Receipts or Deposited Securities or a distribution of Receipts pursuant to
Section 4.3), whichever applicable: (1) taxes and other governmental charges,
(2) such registration fees as may from time to time be in effect for the
registration of transfers of Shares generally on the Share register of the
Company or Foreign Registrar and applicable to transfers of Shares to the name
of the Depositary or its nominee or the Custodian or its nominee on the making
of deposits or withdrawals hereunder, (3) such cable, telex and facsimile
transmission expenses as are expressly provided in this Deposit Agreement, (4)
such expenses as are incurred by the Depositary in the conversion of Foreign
Currency pursuant to Section 4.5 (5) a fee of $5.00 or less per 100 American
Depositary Shares (or portion thereof) for the execution and delivery of
Receipts pursuant to Section 2.3, 4.3 or 4.4, and the surrender of Receipts
pursuant to Section 2.6 or 6.2, (6) a fee of $.02 or less per American
Depositary Share (or portion thereof) for any cash distribution made pursuant to
the Deposit Agreement including, but not limited to, Sections 4.1 through 4.4
hereof, (7) a fee of $1.50 or less per certificate for a Receipt or Receipts for
transfers made pursuant to Section 2.5, and (8) a fee for the distribution of
securities pursuant to Section 4.2, such fee being in an amount equal to the fee
for the execution and delivery of American Depositary Shares referred to above
which would have been charged as a result of the deposit of such securities (for
purposes of this clause (8) treating all such securities as if they were
Shares), but which securities are instead distributed by the Depositary to
Holders.
The Depositary, subject to Section 5.9 hereof, may own and
deal in any class of securities of the Company and its affiliates and in
Receipts.
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<PAGE> 33
SECTION 5.9. Pre-Release of Receipts.
The Depositary may issue Receipts against the delivery by the
Company (or any agent of the Company recording Share ownership) of rights to
receive Shares from the Company (or any such agent). No such issue of Receipts
will be deemed a "Pre-Release" that is subject to the restrictions of the
following paragraph.
Unless requested in writing by the Company to cease doing so,
the Depositary may, notwithstanding Section 2.4 hereof, execute and deliver
Receipts prior to the receipt of Shares pursuant to Section 2.2 ("Pre-Release").
The Depositary may, pursuant to Section 2.6, deliver Shares upon the receipt and
cancellation of Receipts which have been Pre-Released, whether or not such
cancellation is prior to the termination of such Pre-Release or the Depositary
knows that such Receipt has been Pre-Released. The Depositary may receive
Receipts in lieu of Shares in satisfaction of a Pre-Release. Each Pre-Release
will be (a) preceded or accompanied by a written representation and agreement
from the person to whom Receipts are to be delivered (the "Pre-Releasee") that
the Pre-Releasee, or its customer, (i) owns the Shares or Receipts to be
remitted, as the case may be, (ii) assigns all beneficial rights, title and
interest in such Shares or Receipts, as the case may be, to the Depositary in
its capacity as such and for the benefit of the Holders, and (iii) will not take
any action with respect to such Shares or Receipts, as the case may be, that is
inconsistent with the transfer of beneficial ownership (including, without the
consent of the Depositary, disposing of such Shares or Receipts, as the case may
be), other than in satisfaction of such Pre-Release, (b) at all times fully
collateralized with cash, U.S. government securities or such other collateral as
the Depositary determines, in good faith, will provide substantially similar
liquidity and security, (c) terminable by the Depositary on not more than five
(5) business days notice, and (d) subject to such further indemnities and credit
regulations as the Depositary deems appropriate. The number of Shares not
deposited but represented by American Depositary Shares outstanding at any time
as a result of Pre-Releases will not normally exceed thirty percent (30%) of the
Shares deposited hereunder; provided, however, that the Depositary reserves the
right to disregard such limit from time to time as it deems reasonably
appropriate, and may, with the prior written consent of the Company, change such
limit for purposes of general application. The Depositary will also set Dollar
limits with respect to Pre-Release transactions to be entered into hereunder
with any particular Pre-Releasee on a case-by-case basis as the Depositary deems
appropriate. For purposes of enabling the Depositary to fulfill its obligations
to the Holders under the Deposit Agreement, the collateral referred to in clause
(b) above shall be held by the Depositary as security for the performance of the
Pre-Releasee's obligations to the Depositary in connection with a Pre-Release
transaction, including the Pre-Releasee's obligation to deliver Shares or
Receipts upon termination of a Pre-Release transaction (and shall not, for the
avoidance of doubt, constitute Deposited Securities hereunder).
The Depositary may retain for its own account any compensation
received by it in connection with the foregoing.
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<PAGE> 34
SECTION 5.10. Retention of Depositary Documents.
The Depositary is authorized to destroy those documents,
records, bills and other data compiled during the term of this Deposit Agreement
at the times permitted by the laws or regulations governing the Depositary
unless the Company requests that such papers be retained for a longer period or
turned over to the Company or to a successor Depositary.
SECTION 5.11. List of Restricted Securities Holders.
Upon the written request of the Depositary, the Company shall
provide to the Depositary a list setting forth, to the actual knowledge of the
Company, those persons or entities who beneficially own Restricted Securities.
The Company agrees to advise in writing each of the persons or entities so
listed that such Restricted Securities are ineligible for deposit hereunder. The
Depositary may rely on such a list or update but shall not be liable for any
action or omission made in reliance thereon.
SECTION 5.12. Exclusivity.
The Company agrees not to appoint any other depositary for
issuance of American Depositary Receipts so long as The Bank of New York is
acting as Depositary hereunder.
ARTICLE 6. AMENDMENT AND TERMINATION
SECTION 6.1. Amendment.
The form of the Receipts and any provisions of this Deposit
Agreement may at any time and from time to time be amended without the consent
of the Holders by agreement between the Company and the Depositary in any
respect which they may deem necessary or desirable. Any amendment which shall
impose or increase any fees or charges (other than taxes and other governmental
charges), or which shall otherwise prejudice any substantial existing right of
Holders, shall not, however, become effective as to outstanding Receipts until
the expiration of 30 days after the Depositary shall have given written notice
of such amendment to the Holders of outstanding Receipts. Every Holder at the
expiration of such 30-day period shall be deemed, by continuing to hold such
Receipt, to consent and agree to such amendment and to be bound by the Deposit
Agreement as amended thereby. In no event shall any amendment impair the right
of a Holder to surrender such Receipt and receive therefor the whole number of
Deposited Securities represented thereby, except in order to comply with
mandatory provisions of applicable law.
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<PAGE> 35
SECTION 6.2. Termination.
The Depositary shall at any time at the direction of the
Company terminate this Deposit Agreement by mailing notice of such termination
to the Holders of all Receipts then outstanding at least 30 days prior to the
date fixed in such notice for such termination. The Depositary may likewise
terminate this Deposit Agreement (upon 30 days prior written notice to the
Holders) if 60 days shall have expired after the Depositary shall have delivered
to the Company (receipt thereof confirmed by the Company) a written notice of
its election to resign and a successor Depositary shall not have been appointed
and accepted its appointment as provided in Section 5.4 hereof within such
60-day period. On and after the date of termination, the Holder of a Receipt
will upon (i) surrender of such Receipt at the Principal Office of the
Depositary, (ii) payment of the fee of the Depositary for the surrender of
receipts referred to in Section 2.6, and (iii) payment of any applicable taxes
or governmental charges, be entitled to delivery, to him or upon his order, of
the Deposited Securities represented by the American Depositary Shares evidenced
by such surrendered Receipt. If any Receipts shall remain outstanding after the
date of termination, the Depositary shall thereafter discontinue the
registration of transfers of Receipts, shall suspend the distribution of
dividends to the Holders thereof, shall not accept deposits of Shares (and shall
instruct each Custodian to act accordingly), and shall not give any further
notices or perform any further acts under this Deposit Agreement, except that
the Depositary shall continue to collect dividends and other distributions
pertaining to Deposited Securities, shall sell property and rights and convert
Deposited Securities into cash as provided in this Deposit Agreement, and shall
continue to deliver Deposited Securities, together with any dividends or other
distributions received with respect thereto and the net proceeds of the sale of
any rights or other property, in exchange for Receipts surrendered to the
Depositary (after deducting any applicable taxes or governmental charges). At
any time after the expiration of one year from the date of termination, the
Depositary may sell at public or private sale, at such place or places and upon
such terms as it may deem reasonably proper, the Deposited Securities then held
hereunder and may thereafter hold the net proceeds of any such sale, together
with any other cash then held by it hereunder, uninvested and without liability
for interest, for the pro rata benefit of the Holders of Receipts which have not
theretofore been surrendered. After making such sale, the Depositary shall be
discharged from all obligations under this Deposit Agreement, except to account
for such net proceeds and other cash and for its obligations under Section 5.7
hereof. Upon the termination of this Deposit Agreement, the Company shall be
discharged from all obligations under this Deposit Agreement except for its
obligations to the Depositary under Sections 5.7 and 5.8 hereof.
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<PAGE> 36
ARTICLE 7. MISCELLANEOUS
SECTION 7.1. Counterparts.
This Deposit Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of such
counterparts shall constitute one and the same instrument.
SECTION 7.2. No Third Party Beneficiaries.
This Deposit Agreement is for the exclusive benefit of the
parties hereto and shall not be deemed to give any legal or equitable right,
remedy or claim whatsoever to any other person.
SECTION 7.3. Severability.
In case any one or more of the provisions contained in this
Deposit Agreement or in the Receipts should be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein or therein shall in no way be affected,
prejudiced or disturbed thereby.
SECTION 7.4. Holders as Parties, Binding Effect.
The Holders of Receipts from time to time shall be parties to
this Deposit Agreement and shall be bound by all of the terms and conditions
hereof and of the Receipts by acceptance thereof.
SECTION 7.5. Notices.
Any and all notices to be given to the Company shall be deemed
to have been duly given if personally delivered or sent by courier or cable,
telex or facsimile transmission confirmed by letter, addressed to BASF
Aktiengesellschaft, Attention: ZFK, Carl-Bosch - Strasse 38, D-67056
Ludwigshafen, Germany, or to any other address which the Company may specify in
writing to the Depositary.
Any and all notices to be given to the Depositary shall be
deemed to have been duly given if personally delivered or sent by courier or
cable, telex or facsimile transmission confirmed by letter, addressed to The
Bank of New York, 101 Barclay Street, New York, New York 10286, Attention: ADR
Department; facsimile number: (212) 571-3050, or to any other address which the
Depositary may specify in writing to the Company.
Any and all notices to be given to any Holder shall be deemed
to have been duly given if personally delivered, or sent by first class mail
postage prepaid, if overseas, airmail postage prepaid or sent by air courier or
cable, telex or facsimile
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<PAGE> 37
transmission covered by letter, addressed to such Holder at the address of such
Holder as it appears on the transfer books of Receipts of the Depositary, or, if
such Holder shall have filed with the Depositary a written request that notices
intended for such Holder be mailed to some other address, at the address
designated in such request.
Notice given as aforesaid (i) to the Company or the Depositary
shall be deemed to be effected when received, and (ii) to a Holder by mail or by
air courier, cable, telex or facsimile transmission shall be deemed to be
effected at the time when a duly addressed letter containing the same (or a
confirmation thereof in the case of a cable, telex or facsimile transmission) is
deposited in a post-office letter box. The Depositary or the Company may act
upon any cable, telex or facsimile transmission received by it from the other or
from any Holder of a Receipt, notwithstanding that such cable, telex or
facsimile transmission shall not subsequently be covered by letter as aforesaid.
SECTION 7.6. Governing Law.
This Deposit Agreement and the Receipts shall be interpreted
and all rights hereunder and thereunder and all provisions hereof and thereof
shall be governed by the laws of the State of New York without regard to the
principles of conflicts of laws thereof.
SECTION 7.7. Assignment.
Unless otherwise agreed in writing, the Deposit Agreement may
not be assigned by either the Company or the Depositary.
SECTION 7.8. Compliance with U.S. Securities Laws.
Notwithstanding anything in this Deposit Agreement to the
contrary, the Company and the Depositary each agrees that it will not exercise
any rights it has under this Deposit Agreement to prevent the withdrawal or
delivery of Deposited Securities in a manner which would violate the United
States securities laws, including, but not limited to, Section I.A(l) of the
General Instructions to the Form F-6 Registration Statement, as amended from
time to time, under the Securities Act of 1933.
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<PAGE> 38
IN WITNESS WHEREOF, BASF AKTIENGESELLSCHAFT and THE BANK OF NEW YORK
have duly executed this Deposit Agreement as of the day and year first above set
forth and all Holders of Receipts shall become parties hereto upon acceptance by
them of Receipts issued in accordance with the terms hereof.
BASF AKTIENGESELLSCHAFT
By____________________________
Name:
Title:
By____________________________
Name:
Title:
THE BANK OF NEW YORK
as Depositary
By____________________________
Name:
Title:
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<PAGE> 39
EXHIBIT A
[FORM OF FACE OF RECEIPT]
CERTAIN RIGHTS OF THE HOLDER OF THIS AMERICAN DEPOSITARY RECEIPT MAY BE
WITHHELD IN ACCORDANCE WITH THE PROVISIONS OF PARAGRAPH (11) HEREOF, INCLUDING,
WITHOUT LIMITATION, VOTING RIGHTS AND THE RIGHT TO RECEIVE DIVIDENDS OR OTHER
PAYMENTS
<TABLE>
<S> <C>
Number ___________ (CUSIP [ ])
______________________________________
AMERICAN DEPOSITARY SHARES
(American Depositary Shares
Representing One (1) Deposited Share)
</TABLE>
AMERICAN DEPOSITARY RECEIPT
FOR
AMERICAN DEPOSITARY SHARES
REPRESENTING
DEPOSITED ORDINARY SHARES,
NO PAR VALUE,
OF
BASF AKTIENGESELLSCHAFT
(Organized under the laws of the Federal Republic of Germany)
THE BANK OF NEW YORK, a New York banking corporation organized and
existing under the laws of the United States of America, as Depositary (the
"Depositary"), hereby certifies that __________________ is the Holder of
________________ American Depositary Shares, representing deposited ordinary
shares, no par value, or evidence of the right to receive such shares (the
"Shares"), of BASF Aktiengesellschaft, a stock corporation organized and
existing under the laws of the Federal Republic of Germany (the "Company"). At
the date hereof, each American Depositary Share represents one (1) Share
deposited under the Deposit Agreement (as hereinafter defined) with the
Custodian, which at the date of execution of the Deposit Agreement is the
Frankfurt/Main offices of Dresdner Bank AG and Deutsche Bank AG. The ratio of
Shares to American Depositary Shares is subject to amendment as provided in the
Deposit Agreement.
<PAGE> 40
(1) The Deposit Agreement. This American Depositary Receipt is one of an
issue (herein called the "Receipts"), all issued and to be issued upon the terms
and conditions set forth in the Deposit Agreement, dated as of December 1, 1999,
as amended and restated as ______________, 2000 (herein called the "Deposit
Agreement"), among the Company, the Depositary and all Holders (including
beneficial owners) from time to time of Receipts issued thereunder, each of whom
by accepting a Receipt agrees to become a party thereto and becomes bound by all
the terms and provisions thereof. The Deposit Agreement sets forth the rights of
Holders of the Receipts and the rights and duties of the Depositary in respect
of the Shares deposited thereunder and any and all other securities, property
and cash from time to time received by the Depositary or the Custodian in
respect or in lieu of such Shares and held thereunder (such Shares, securities,
property and cash are herein called "Deposited Securities"). Copies of the
Deposit Agreement are on file at the Depositary's Principal Office and at the
Principal Office of the Custodian. The statements made on the face and the
reverse of this Receipt are summaries of certain provisions of the Deposit
Agreement and are qualified in their entirety by and subject to the detailed
provisions of the Deposit Agreement, to which reference is hereby made. Terms
defined in the Deposit Agreement and not otherwise defined herein have the same
defined meanings set forth in the Deposit Agreement.
(2) Surrender of Receipts and Withdrawal of Deposited Securities. Upon (i)
delivery of this Receipt to the Depositary for the purpose of withdrawal of the
whole number of Deposited Securities represented by the American Depositary
Shares evidenced by this Receipt, (ii) payment to the Depositary of the
surrender fee provided in Paragraph (8) of this Receipt by the person delivering
this Receipt for cancellation and payment of all taxes, duties and other
governmental charges and fees payable in connection with the delivery of
Deposited Securities against the surrender of this Receipt, and (iii) delivery
of written instructions of the Holder directing the Depositary to cause such
whole number of Deposited Securities being withdrawn, together with a new
Receipt evidencing any fractional Deposited Securities, to be delivered to, or
upon the written order of, the person or persons designated in such
instructions, the Holder hereof
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<PAGE> 41
is entitled to delivery, to him or upon his order, of such whole number of
Deposited Securities at the time represented by the American Depositary Shares
evidenced by this Receipt, together with a new Receipt evidencing any fractional
Deposited Securities. Delivery of such Deposited Securities may be made by (a)
delivery or transfer to the account of a German securities bank with Deutsche
Borse Clearing AG or through the facilities of Cedel, S.A., or Morgan Guaranty
Trust of New York, Brussels office, as operator of the Euroclear System, for the
benefit of such Holder or as ordered by it and (b) delivery of any other
securities, property and cash to which such Holder is then entitled in respect
of such Receipts to such Holder or as ordered by it. Such delivery of Deposited
Securities and new Receipt, if any, shall be made without unreasonable delay.
The Depositary shall not accept for surrender a Receipt evidencing
American Depositary Shares representing a fractional interest in one Share or
one other Deposited Security. In the case of surrender of a Receipt evidencing
any number of American Depositary Shares representing other than a whole number
of Shares or other Deposited Securities, the Depositary shall cause ownership of
the appropriate whole number of Shares or other Deposited Securities to be
recorded in the name of the Holder surrendering such Receipt and shall issue and
deliver to the person surrendering such Receipt a new Receipt evidencing
American Depositary Shares representing any remaining fractional interest.
(3) Registration of Transfer; Issuance of New Receipts. The Depositary
shall, subject to the terms and conditions of this Deposit Agreement and any
Receipt, register transfers of Receipts on its transfer books, upon receipt of
proper documentation therefor requested by the Depositary, including without
limitation, surrender of this Receipt by the Holder hereof in person or by duly
authorized attorney, properly endorsed or accompanied by proper instruments of
transfer and duly stamped as may be required by any applicable law; provided,
however, that the Depositary may close the transfer books at any time or from
time to time, following Consultation with the Company to the extent practicable,
when reasonably deemed expedient by it in connection with the performance
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<PAGE> 42
of its duties under the Deposit Agreement, or at the request of the Company. The
Depositary shall, subject to the terms and conditions of the Deposit Agreement,
upon surrender of a Receipt or Receipts for the purpose of obtaining a lesser or
greater number of Receipts, execute and deliver a new Receipt or Receipts in the
name of the same Holder for any authorized whole number of American Depositary
Shares requested. Notwithstanding the foregoing, such new Receipt(s) shall
evidence the same aggregate whole number of American Depositary Shares as the
Receipt or Receipts surrendered.
(4) Limitations on Execution and Delivery, Transfer and Surrender of
Receipts. As a condition precedent to the execution and delivery, registration
of transfer or surrender of any Receipt, the delivery of any distribution in
respect thereof or the withdrawal of any Deposited Securities, the Company, the
Depositary or the Custodian may require from the Holder, the presenter of a
Receipt or the depositor of Shares (i) payment of a sum sufficient to reimburse
it for any tax or other governmental charge and any stock transfer or
registration fee with respect thereto (including any such tax or charge and fee
with respect to Shares being deposited or Deposited Securities being withdrawn)
and payment of any charges of the Depositary upon delivery of Receipts against
deposits of Shares and upon withdrawal of Deposited Securities against surrender
of Receipts as set forth in Section 5.8 of the Deposit Agreement; (ii)
compliance with such reasonable regulations, if any, as the Depositary and the
Company may establish consistent with the provisions of the Deposit Agreement;
and (iii) production of proof satisfactory to it as to the identity and
genuineness of any signature appearing on any form, certification or other
document delivered to the Depositary in connection with the Deposit Agreement,
including but not limited to, in the case of Receipts, a signature guarantee in
accordance with industry practice.
The delivery of Receipts against, or adjustments in the records of
the Depositary to reflect, deposits of Shares generally or of particular Shares
may be suspended or withheld, or the registration of transfer of Receipts in
particular instances may be refused, or the registration of transfer of Receipts
generally may be suspended,
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<PAGE> 43
during any period when the transfer books of the Depositary are closed, or if
any such action is deemed necessary or advisable by the Depositary or the
Company at any time or from time to time because of any requirement of law or of
any government or governmental or regulatory authority, body or commission or
any meeting of shareholders of the Company or under any provision of this
Deposit Agreement or the Articles of Association (Satzung) of the Company, or
for any other reason, subject to the provisions of the following sentence.
Notwithstanding any other provision of the Deposit Agreement or this Receipt,
the surrender of outstanding Receipts and withdrawal of Deposited Securities may
not be suspended, except as required in connection with (i) temporary delays
caused by closing the transfer books of the Depositary or the deposit of Shares
in connection with voting at a shareholders meeting, or the payment of
dividends, (ii) the payment of fees, taxes and similar charges and (iii)
compliance with any United States or foreign laws or governmental regulations
relating to the Receipts or to the withdrawal of the Deposited Securities.
Without limitation of the foregoing, the Depositary shall not knowingly accept
for deposit under the Deposit Agreement any Shares required to be registered
under provisions of the Securities Act of 1933 unless a registration statement
is in effect as to such Shares. The Depositary will comply with written
instructions of the Company not to accept for deposit under the Deposit
Agreement any Shares identified in such instructions at such times and under
such circumstances as may reasonably be specified in such instructions in order
to facilitate the Company's compliance with United States securities laws.
(5) Liability of Holder for Taxes and Other Charges. If any tax or other
governmental charge shall become payable with respect to this Receipt or any
Deposited Securities represented by the American Depositary Shares evidenced
hereby, such tax or other governmental charge shall be payable by the Holder
hereof to the Depositary. The Depositary may refuse, and the Company shall be
under no obligation, to effect any registration of transfer of all or part of
this Receipt or to issue any new Receipt or Receipts or to permit any deposit or
withdrawal of Deposited Securities represented by the American Depositary Shares
evidenced hereby until such payment is made, and the
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<PAGE> 44
Company and the Depositary may withhold or deduct from any dividends or other
distributions, or may sell for the account of the Holder hereof any part or all
of the Deposited Securities represented by the American Depositary Shares
evidenced hereby, and may apply such dividends or other distributions or the
proceeds of any such sale in payment of such tax or other governmental charge;
the Holder hereof remaining liable for any deficiency.
(6) Warranties of Depositors. Each person depositing Shares under the
Deposit Agreement shall be deemed thereby to represent and warrant that (i) such
Shares and each certificate therefor are free and clear of any lien,
encumbrance, security interest, charge, mortgage, pledge or restriction on
transfer, (ii) such Shares have been validly issued, fully paid and are
nonassessable and are free of any pre-emptive rights of the holders of
outstanding Shares, (iii) such Shares are accompanied by all dividend coupons in
respect of dividends to be paid in the future on such Shares (or appropriate
evidence thereof), (iv) the person making such deposit is duly authorized to do
so, and (v) the deposit of such Shares or sale of Receipts issuable upon such
deposit is not restricted under the Securities Act of 1933. Such representations
and warranties shall survive the deposit of Shares and the issuance or
cancellation of Receipts.
(7) Filing Proofs, Certificates and Other Information. In order to enable
the Depositary and the Company to comply with applicable laws and to perform
their respective obligations hereunder, any person depositing Shares or any
Holder may be required from time to time (i) to file proof of (a) citizenship or
residence, (b) exchange control approval and payment of all taxes and other
governmental charges, (c) compliance with all applicable laws, regulations and
provisions of or governing Deposited Securities and the terms of the Deposit
Agreement, and (d) legal or beneficial ownership of Receipts, Deposited
Securities and other securities, and the nature of such interest and (ii) to
execute and deliver such certificates and to make such representations and
warranties in addition to those set forth in Section 2.3 of the Deposit
Agreement as the Depositary or the Company may deem necessary or proper. The
Depositary may, and
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<PAGE> 45
shall if reasonably requested by the Company, withhold the delivery or
registration of transfer of any Receipt or the distribution of any dividend or
sale or distribution of rights or of the proceeds thereof or the delivery of any
Deposited Securities represented by the American Depositary Shares evidenced by
such Receipt until such proof or other information is filed or such certificates
are executed or such representations and warranties are made to the satisfaction
of the Company and the Depositary. The Depositary shall provide the Company in a
timely manner copies of any such proofs and certificates and such written
representations and warranties that it receives. Each Holder agrees to provide
any information requested by the Company or the Depositary pursuant to this
Article.
(8) Charges of Depositary. The Company agrees to pay the fees, reasonable
expenses and out-of-pocket charges of the Depositary and those of any Registrar
only in accordance with agreements in writing entered into between the
Depositary and the Company from time to time. The Depositary shall present its
statement for such charges and expenses to the Company once every three months.
The charges and expenses of the Custodian are for the sole account of the
Depositary.
The following charges shall be incurred by any party depositing or
withdrawing Shares or by any party surrendering Receipts or to whom Receipts are
issued (including, without limitation, issuance pursuant to a stock dividend or
stock split declared by the Company or an exchange regarding the Receipts or
Deposited Securities or a distribution of Receipts pursuant to Section 4.3 of
the Deposit Agreement), whichever applicable: (1) taxes and other governmental
charges, (2) such registration fees as may from time to time be in effect for
the registration of transfers of Shares generally on the Share register of the
Company or Foreign Registrar and applicable to transfers of Shares to the name
of the Depositary or its nominee or the Custodian or its nominee on the making
of deposits or withdrawals under the Deposit Agreement, (3) such cable, telex
and facsimile transmission expenses as are expressly provided in the Deposit
Agreement, (4) such expenses as are incurred by the Depositary in the conversion
of Foreign
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<PAGE> 46
Currency pursuant to Section 4.5 of the Deposit Agreement, (5) a fee of $5.00 or
less per 100 American Depositary Shares (or portion thereof) for the execution
and delivery of Receipts pursuant to Section 2.3, 4.3 or 4.4 of the Deposit
Agreement, and the surrender of Receipts pursuant to Section 2.6 or 6.2 of the
Deposit Agreement, (6) a fee of $.02 or less per American Depositary Share (or
portion thereof) for any cash distribution made pursuant to the Deposit
Agreement including, but not limited to, Sections 4.1 through 4.4 of the Deposit
Agreement, (7) a fee of $1.50 or less per certificate for a Receipt or Receipts
for transfers made pursuant to Section 2.5 of the Deposit Agreement, and (8) a
fee for the distribution of securities pursuant to Section 4.2 of the Deposit
Agreement, such fee being in an amount equal to the fee for the execution and
delivery of American Depositary Shares referred to above which would have been
charged as a result of the deposit of such securities (for purposes of this
clause (8) treating all such securities as if they were Shares), but which
securities are instead distributed by the Depositary to Holders.
The Depositary, subject to Section 5.9 of the Deposit Agreement, may
own and deal in any class of securities of the Company and its affiliates and in
Receipts.
(9) Title to Receipt. Subject to any limitations set forth in this
Receipt, title to this Receipt and to the American Depositary Shares evidenced
hereby, when properly endorsed or accompanied by proper instruments of transfer
(including signature guarantees in accordance with standard industry practice),
is transferable by delivery with the same effect as in the case of a negotiable
instrument; provided, however, that the Company and the Depositary may deem and
treat the Holder of this Receipt as the absolute owner hereof for all purposes,
including but not limited to the purpose of determining the person entitled to
distribution of dividends or other distributions or to any notice provided for
in the Deposit Agreement and for all other purposes, and neither the Depositary
nor the Company shall have any obligation or be subject to any liability under
the Deposit Agreement to any holder of this Receipt unless such holder is the
Holder hereof.
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<PAGE> 47
(10) Validity of Receipt. No Receipt shall be entitled to any benefits
under the Deposit Agreement or be valid or enforceable for any purpose, unless
this Receipt shall have been issued, dated and executed by the Depositary by the
manual or facsimile signature of a duly authorized signatory of the Depositary,
and if a Registrar for the Receipts shall have been appointed, countersigned by
the manual or facsimile signature of a duly authorized signatory of such
Registrar and dated by such signatory.
(11) Compliance with Law. The Depositary agrees to comply with all
applicable laws. Each Holder agrees that such Holder is bound by and subject to
the Articles of Association (Satzung) of the Company as if such Holder were a
holder of Shares, and each Holder agrees to comply with all applicable
provisions of German law and the Articles of Association (Satzung) of the
Company with regard to notification to the Company of such Holder's interest in
Shares (including those Shares represented by American Depositary Shares),
including any provision requiring such Holder to disclose within a prescribed
period of time an interest in Shares amounting to, exceeding or falling below
5%, 10%, 25%, 50% and 75% of such Shares outstanding or such other percentage as
may be required from time to time pursuant to any provision of German law or
otherwise. Each Holder acknowledges that failure by a Holder to provide on a
timely basis any such required notification of such Holder's interest in Shares
may result in the loss of certain rights in respect of such Holder's American
Depositary Shares including, without limitation, voting rights and the right to
receive dividends or other payments in respect of the Shares represented by such
American Depositary Shares. Each such Holder required to provide the
notification described above may deliver such notification to the Depositary for
forwarding to the Company. The Depositary agrees to forward to the Company, as
soon as practicable, any such notifications received by the Depositary from any
Holder. Notwithstanding the foregoing, any notification by a Holder to be made
under Section 3.3 of the Deposit Agreement shall only be deemed to be effected
and provided to the Company at the time when the Company has received such
notification.
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<PAGE> 48
(12) Disclosure of Beneficial Ownership of Receipts. The Company and the
Depositary may from time to time request Holders or former Holders to provide
information as to the capacity in which they hold or held Receipts and regarding
the identity of any other persons then or previously interested in such Receipts
and various other matters. Each such Holder agrees to provide any such
information reasonably requested by the Company or the Depositary pursuant to
Section 3.4 of the Deposit Agreement and such agreement shall survive any
disposition of such Holder's interest in Shares or Receipts. The Depositary
agrees to use its reasonable efforts to comply with written instructions
received from the Company requesting that the Depositary forward any such
requests to such Holders and to the last known address, if any, of such former
Holders and to forward to the Company any responses to such requests received by
the Depositary, and to use its reasonable efforts, at the Company's request, to
assist the Company in obtaining such information with respect to the American
Depositary Shares, provided that nothing herein shall be interpreted as
obligating the Depositary to provide or obtain any such information not provided
to the Depositary by such Holders or former Holders.
Dated:
THE BANK OF NEW YORK,
as Depositary
By: ________________________
The address of the Principal Office of the Depositary is 101 Barclay Street, New
York, New York 10286.
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[FORM OF REVERSE OF RECEIPT]
SUMMARY OF CERTAIN ADDITIONAL PROVISIONS
OF THE DEPOSIT AGREEMENT
(13) Dividends and Distributions; Rights. Whenever the Custodian or the
Depositary shall receive any cash dividend or other cash distribution on any
Deposited Securities, the Depositary shall, subject to the provisions of Section
4.6 of the Deposit Agreement, convert such dividend or distribution, if
applicable, into Dollars and shall as promptly as practicable distribute the
amount thus received (net of the expenses of the Custodian or the Depositary, as
the case may be, in connection with the conversion of such Foreign Currency into
Dollars and such other fees and expenses as provided in Section 5.8 of the
Deposit Agreement) to the Holders entitled thereto, in proportion to the number
of American Depositary Shares representing such Deposited Securities held by
them respectively; provided, however, that in the event that the Company, the
Depositary or the Custodian shall be required to withhold and does withhold,
subject to Section 4.12 of the Deposit Agreement from any cash dividend or other
cash distribution in respect of any Deposited Securities an amount on account of
taxes or other governmental charges, the amount distributed to the Holders of
Receipts evidencing American Depositary Shares representing such Deposited
Securities shall be reduced accordingly.
Whenever the Depositary or the Custodian shall receive Foreign
Currency, by way of dividends or other distributions or the net proceeds from
the sale of securities, property or rights, and if at the time of the receipt
thereof the Foreign Currency so received can in the reasonable judgment of the
Depositary be converted on a reasonable basis into Dollars and the resulting
Dollars transferred to the United States, the Depositary shall as promptly as
practicable convert or cause to be converted, by sale or in any other manner
that it may determine, such Foreign Currency into Dollars, and such Dollars
shall be distributed to the Holders entitled thereto in proportion to the number
of American Depositary Shares held by them respectively or, if the Depositary
shall have distributed any warrants or other instruments which entitle the
holders thereof to such
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<PAGE> 50
Dollars, then to the holders of such warrants and/or instruments upon surrender
thereof for cancellation. Such distribution may be made upon an averaged or
other practicable basis without regard to any distinctions among Holders on
account of exchange restrictions, the date of delivery of any Receipt or
otherwise and shall be net of any expenses of conversion into Dollars incurred
by the Depositary as provided in Section 5.8 of the Deposit Agreement. The
Depositary shall promptly inform the Company of the exchange rate at which such
Foreign Currency conversion has been carried out.
If such conversion or distribution can be effected only with the
approval or license of any government or agency thereof, the Depositary shall
file such application for approval or license, if any, as it may deem desirable;
provided, however, that if such application involves or refers to the Company or
is made on behalf of the Company, the Depositary shall, at the written request
of the Company, provide the Company a reasonable opportunity to review and
comment on such application before it is filed.
If at any time the Depositary shall determine, following
Consultation with the Company, that in its judgment any Foreign Currency
received by the Depositary is not convertible on a reasonable basis into Dollars
transferable to the United States, or if any approval or license of any
government or agency thereof which is required for such conversion is denied or
in the opinion of the Depositary is not obtainable, or if any such approval or
license is not obtained within a reasonable period as determined by the
Depositary, the Depositary may distribute the Foreign Currency (or an
appropriate document evidencing the right to receive such Foreign Currency)
received by the Depositary to, or in its discretion may hold such Foreign
Currency uninvested and without liability for interest thereon for the
respective accounts of, the Holders entitled to receive the same.
If any such conversion of Foreign Currency, in whole or in part,
cannot be effected for distribution to some of the Holders entitled thereto, the
Depositary may in its discretion make such conversion and distribution in
Dollars to the extent permissible to the Holders entitled thereto and may
distribute the balance of the Foreign Currency
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received by the Depositary to, or hold such balance uninvested and without
liability for interest thereon for the respective accounts of, the Holders
entitled thereto.
Subject to Section 4.12 of the Deposit Agreement, whenever the
Custodian or the Depositary shall receive any distribution other than
distributions described in Sections 4.1, 4.3 or 4.4 of the Deposit Agreement
upon any Deposited Securities, the Depositary shall, as promptly as practicable,
after Consultation with the Company, cause the securities or property received
by it or by the Custodian to be distributed to the Holders entitled thereto, in
proportion to the number of American Depositary Shares representing such
Deposited Securities held by them respectively, in any manner that the
Depositary deems equitable and practicable for accomplishing such distribution;
provided, however, that if the Company shall so direct, or if in the reasonable
opinion of the Depositary such distribution cannot be made or cannot be made
proportionately among the Holders entitled thereto, or if for any other reason
(including any requirement that the Company, the Custodian or the Depositary
withhold an amount on account of taxes or other governmental charges or that
such securities must be registered under the Securities Act of 1933 in order to
be distributed to Holders) the Depositary determines that such distribution is
not feasible or may not be legally made to some or all Holders, the Depositary
may, following Consultation with the Company, adopt such method as it deems
lawful, equitable and practicable for the purpose of effecting such
distribution, including the sale (either public or private, at such place or
places and upon such terms as it may deem reasonably proper) of the securities
or property thus received, or any part thereof and, in such case, the net
proceeds of any such sale shall be distributed by the Depositary to the Holders
entitled thereto as in the case of a distribution received in cash; provided
that any unsold balance of such securities or property shall be distributed by
the Depositary to the Holders entitled thereto, if such distribution is feasible
without withholding for or on account of any taxes or other governmental charges
and without registration under the Securities Act of 1933, in accordance with
such equitable and practicable method as the Depositary may have adopted;
provided, further, that no distribution to Holders pursuant to Section 4.2 of
the
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Deposit Agreement shall be unreasonably delayed by any action of the Depositary
or the Custodian. To the extent such property, or the net proceeds thereof, is
not effectively distributed to Holders as provided herein, the same shall
constitute Deposited Securities and each American Depositary Share shall
thereafter also represent its proportionate interest in such property or net
proceeds.
If any distribution upon any Deposited Securities consists of a
dividend in, or distribution without consideration of, Shares, the Depositary
may, and shall, if the Company so requests, distribute to the Holders of
outstanding Receipts entitled thereto, in proportion to the number of American
Depositary Shares representing such Deposited Securities held by them
respectively, additional Receipts evidencing an aggregate number of American
Depositary Shares representing the number of Shares received in such dividend or
distribution. In lieu of delivering Receipts for fractional American Depositary
Shares in any such case, the Depositary shall sell the number of Shares
represented by the aggregate of such fractions and distribute the net proceeds,
in the manner and subject to the conditions described in Section 4.1 of the
Deposit Agreement. Until the distribution of such Receipts and net proceeds in
accordance with the preceding sentence, each American Depositary Share shall
also represent its proportionate interest in the additional Shares distributed
upon the Deposited Securities represented thereby and such net proceeds.
Notwithstanding the foregoing, if for any reason (including any requirement that
the Company, the Custodian or the Depositary withhold an amount on account of
taxes or other governmental charges or that such Shares must be registered under
the Securities Act of 1933 in order to be distributed to Holders) the
Depositary, after Consultation with the Company, determines that a distribution
in Shares is not feasible or may not be legally made to some or all Holders, the
Depositary may adopt such method as it may deem equitable and practicable for
the purpose of effecting such distribution, including the sale (either public or
private, at such place or places and upon such terms as it may deem reasonably
proper) of the Shares thus received or any part thereof and, in such case, the
net proceeds of any such sale shall be distributed by the Depositary to the
Holders entitled thereto as in the case of a distribution in cash. No
distribution to Holders
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<PAGE> 53
pursuant to Section 4.3. of the Deposit Agreement shall be unreasonably delayed
by any action of the Depositary or the Custodian.
In the event that the Company shall offer or cause to be offered to
the holders of any Deposited Securities any rights to subscribe for additional
Shares or any rights of any other nature, the Depositary shall following
Consultation with the Company as to the procedure to be followed (i) make such
rights available to the Holders entitled thereto as provided in clause (a)
below, (ii) dispose of such rights on behalf of such Holders and make the net
proceeds available in Dollars to such Holders as provided in clause (b) below or
(iii) if by the terms of such rights offering or by reason of applicable law the
Depositary can neither make such rights available to such Holders nor dispose of
such rights and make the net proceeds available to such Holders, then the
Depositary shall allow the rights to lapse.
If at the time of the rights offering the Depositary determines,
following Consultation with the Company:
(a) that it is lawful and feasible to make such rights available to
all or certain Holders by means of warrants or otherwise, the Depositary shall
distribute to every Holder to whom it determines the distribution to be lawful
and feasible, in proportion to the number of American Depositary Shares held by
such Holder, warrants or other instruments therefor in such form as it deems
appropriate, or employ such other method as it may deem feasible in order to
facilitate the exercise, sale or transfer of rights by such Holders or the sale
or resale of securities obtainable upon exercise of such rights by such Holders;
or
(b) that it is not lawful or not feasible to make such rights
available to all or certain Holders by means of warrants or otherwise, or if the
rights represented by such warrants or such other instruments are not exercised
and appear to be about to lapse, the Depositary shall use its reasonable efforts
to sell such rights or warrants or other instruments, at a public or private
sale, at such place or places and upon such terms as it
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<PAGE> 54
may deem reasonably proper, and allocate the net proceeds of any such sale (net
of all taxes and governmental charges payable in connection with such rights and
the fees of the Depositary set forth in Section 5.8 of the Deposit Agreement)
for the account of the Holders otherwise entitled to such rights, warrants or
other instruments upon an averaged or other practicable basis without regard to
any distinctions among such Holders because of the application of exchange
restrictions with regard to a particular Holder or otherwise and distribute such
net proceeds to the extent practicable as in the case of a distribution of cash
pursuant to Section 4.1 of the Deposit Agreement.
In circumstances in which rights would otherwise not be distributed,
if a Holder requests the distribution of warrants or other instruments in order
to exercise the rights allocable to the American Depositary Shares of such
Holder under the Deposit Agreement, the Depositary will make such rights
available to such Holder upon written notice from the Company to the Depositary
that (a) the Company has elected in its sole discretion to permit such rights to
be exercised, and (b) such Holder has executed such documents as the Company has
determined in its sole discretion are required under applicable law.
If the Depositary has distributed warrants or other instruments for
rights to all or certain Holders, then upon instruction from any such Holder
pursuant to such warrants or other instruments to the Depositary to exercise
such rights, upon payment by such Holder to the Depositary for the account of
such Holder of an amount equal to the purchase price of the Shares to be
received upon the exercise of the rights, and upon payment of the fees of the
Depositary and any other charges as set forth in such warrants or other
instruments, the Depositary shall on behalf of such Holder, exercise the rights
and purchase the Shares, and the Company shall cause the Shares so purchased to
be deposited with the Custodian pursuant to Section 2.2 of the Deposit
Agreement, and the Depositary shall pursuant to Section 2.4 of the Deposit
Agreement, execute and deliver Receipts to such Holder. In the case of certain
distributions pursuant to clause (a) of the second paragraph of Section 4.4 of
the Deposit Agreement or pursuant to the third
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<PAGE> 55
paragraph of Section 4.4 of the Deposit Agreement, such Receipts shall be
legended in accordance with instructions of the Company, and shall be subject to
such restrictions on sale, deposit, cancellation and transfer as the Depositary
shall deem necessary or shall be instructed by the Company.
If registration under the Securities Act of 1933 of the rights or
the securities to which any rights relate is required in order for the Company
to offer such rights to Holders of Receipts and to sell the securities
represented by such rights, the Depositary will not offer such rights unless and
until a registration statement is in effect or such rights and the securities to
which such rights relate are exempt from registration under the Securities Act
of 1933; provided that nothing in the Deposit Agreement shall create, or shall
be construed to create, any obligation on the part of the Company to file such a
registration statement or to endeavor to have such a registration statement
declared effective.
In the event that the rights and the securities to which such rights
relate are not registered under the Securities Act of 1933, the Depositary shall
not be responsible for any failure to determine that it may be lawful or
feasible to make such rights available to any particular Holder.
(14) Record Dates. Whenever any cash dividend or other cash distribution
is to be declared and paid or any distribution other than cash is to be declared
and made, or whenever rights are to be issued with respect to the Deposited
Securities, or whenever, for any reason, the Depositary causes a change in the
number of Shares that are represented by each American Depositary Share, or
whenever the Depositary receives notice of any meeting of, or solicitation of
consents or proxies from, holders of Shares or other Deposited Securities, or
whenever the Company or the Depositary finds it necessary or convenient in
respect of any matter, the Depositary shall fix a record date (which shall (i)
to the extent practicable, be the same date that holders of Shares or other
Deposited Securities shall be entitled to receive or exercise such rights, and
(ii) with respect to record dates that are not the same as a corresponding
record date set by the
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Company, be fixed only after Consultation with the Company) (a) for the
determination of the Holders who shall be entitled (i) to receive such dividend,
distribution or rights, or the net proceeds of the sale thereof, or (ii) to give
instructions for the exercise of voting rights, if any, at any such meeting, or
to receive information as to such meeting, or (b) on or after which each
American Depositary Share will represent the changed number of Shares. Subject
to the provisions of Sections 4.1 through 4.6 and to the other terms and
conditions of the Deposit Agreement, the Holders on such record date shall be
entitled to receive the amount distributable by the Depositary with respect to
such dividend or other distribution or such rights or the net proceeds of the
sale thereof or to exercise the rights of Holders with respect to such changed
number of Shares represented by each American Depositary Share in proportion to
the number of American Depositary Shares held by them respectively and to give
voting instructions and to act in respect of any other such matter.
(15) Voting of Deposited Securities. As promptly as practicable after
receipt from the Company of notice of any meeting or solicitation of consents or
proxies of holders of Deposited Securities, the Depositary shall, subject to
applicable law and the Company's Articles of Association, mail to Holders (for
forwarding to beneficial owners) a notice (the "Notice") (a) containing such
information as is contained in the notice or solicitation sent by the Company to
the Depositary, (b) stating that each Holder on the record date set by the
Depositary therefore pursuant to Section 4.9 of the Deposit Agreement will be
entitled subject to all applicable provisions of law, including any laws of
Germany, the Articles of Association (Satzung) of the Company and the Deposit
Agreement, to instruct the Depositary as to the exercise of the voting rights,
if any, pertaining to the whole number of Deposited Securities underlying such
Holder's American Depositary Shares, (c) specifying how and when such
instructions may be given, and (d) stating that if no voting instructions are
received from a Holder on or before the date established by the Depositary for
such purpose, such Holder shall be deemed to have instructed the Depositary not
to vote the Deposited Securities underlying such Holder's American Depositary
Shares. Upon receipt of instructions of a Holder on
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such record date in the manner and on or before the date established by the
Depositary for such purpose, the Depositary shall endeavor, insofar as is
practicable and permitted under applicable law, the Company's Articles of
Association (Satzung) and the provisions of or governing Deposited Securities,
to vote or cause to be voted the Deposited Securities underlying such Holder's
American Depositary Shares in accordance with such instructions. Upon the
request of a Holder who has not previously given instructions to the Depositary
after receipt of the Notice as to the exercise of voting rights pertaining to
the Deposited Securities underlying such Holder's American Depositary Shares,
and subject to compliance with any reasonable regulations the Depositary may
establish, the Depositary will endeavor to provide such Holder (or a person
designated by such Holder) with the documentation necessary to attend a meeting
of holders of Deposited Securities.
The Depositary shall not vote or cause to be voted Deposited
Securities, other than in accordance with such instructions received from
Holders of American Depositary Shares.
The Depositary will endeavor to ensure that on any date on which it
votes or causes to be voted Deposited Securities pursuant to Section 4.8 of the
Deposit Agreement, it will have on deposit under this Agreement the number of
Deposited Securities with respect to which it has received voting instructions
from Holders. In the event that, on any such date, the number of Deposited
Securities on deposit under the Agreement is less than the number of Deposited
Securities with respect to which the Depositary has received voting
instructions, the Depositary shall vote or cause to be voted such Deposited
Securities in accordance with such instructions adjusting the number of
Deposited Securities voted on a pro-rated basis.
The Depositary shall use its best efforts to vote or cause to be
voted Shares or other Deposited Securities underlying Receipts in accordance
with instructions received from Holders in accordance with Section 4.8 of the
Deposit Agreement; provided, however, that the Depositary shall not be
responsible for any failure to carry out any instructions to vote any of the
Deposited Securities, or for the manner in which
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any such vote is cast or the effect of any such vote, provided that any such
action or nonaction is in good faith.
Nothing in the Deposit Agreement shall be construed to grant a
holder any voting rights with respect to Deposited Securities to which, by their
terms, voting rights do not otherwise attach.
(16) Changes Affecting Deposited Securities. In circumstances where
the provisions of Section 4.3 of the Deposit Agreement do not apply, upon any
change in nominal value or any reclassification of Deposited Securities or upon
any recapitalization, reorganization, merger or consolidation or sale of assets
affecting the Company or to which it is a party, any securities which shall be
received by the Depositary or the Custodian in exchange for, or in conversion,
replacement or otherwise in respect of, Deposited Securities shall be treated as
Deposited Securities under the Deposit Agreement, and the American Depositary
Shares evidenced by the Receipts shall, subject to the terms of the Deposit
Agreement and applicable laws, including any applicable provisions of the
Securities Act of 1933, thenceforth represent the Deposited Securities so
received unless and until additional or new Receipts are delivered pursuant to
the following sentence. In any such case the Depositary may, and shall if the
Company requests, at no cost to Holders, execute and deliver additional Receipts
in the case of a dividend in Shares or call for the surrender of outstanding
Receipts to be exchanged for new Receipts specifically describing such newly
received Deposited Securities.
Immediately upon the occurrence of any such change, conversion or
exchange covered by Section 4.9 of the Deposit Agreement in respect of the
Deposited Securities, the Depositary shall give notice thereof in writing to all
Holders. Notwithstanding the foregoing, in the event that any security so
received may not be lawfully distributed to some or all Holders, the Depositary
may, following Consultation with the Company, or shall, upon request of the
Company, sell such securities at a public or private sale, at such place or
places and upon such terms as it may deem proper, and
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may allocate the net proceeds of such sale for the account of the Holders
otherwise entitled to such securities upon an averaged or other practicable
basis without regard to any distinctions among such Holders and distribute the
net proceeds so allocated to the extent practicable as in the case of a
distribution received in cash pursuant to Section 4.1 of the Deposit Agreement.
(17) Reports; Inspection of Transfer Books. The Depositary shall make
available for inspection by Holders at its Principal Office copies of the
Deposit Agreement and any notices, reports and communications, including any
proxy soliciting materials, received from the Company which are both (a)
received by the Depositary as the holder of the Deposited Securities and (b)
made generally available to the holders of such Deposited Securities by the
Company. The Depositary shall also send promptly to Holders of Receipts copies
of such notices, reports and communications when furnished by the Company to the
Depositary pursuant to Section 5.6 of the Deposit Agreement. Any such reports
and communications, including any such proxy soliciting material, furnished to
the Depositary by the Company shall be furnished in English to the extent such
materials are required to be translated into English pursuant to any regulation
of the Commission applicable to the Company. The Depositary shall keep books in
such New York City facilities for the registration of Receipts and transfers of
Receipts which at all reasonable times shall be open for inspection by Holders
and the Company, provided that such inspection shall not be for the purpose of
communicating with Holders in the interest of a business or object other than
the business of the Company or a matter related to the Deposit Agreement or the
Receipts.
(18) Taxation. The Depositary will forward to the Company or its agent
such information from its records as the Company may reasonably request to
enable the Company or its agent to file necessary reports with governmental
authorities or agencies, and the Depositary, the Custodian or the Company or its
agents may file such reports as are necessary to obtain benefits under the
applicable tax treaties for the Holders following the review and approval of
such reports by the Company and its advisors.
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Notwithstanding any other provision of the Deposit Agreement, in the event that
the Depositary determines that any distribution in cash or property (including
Shares or rights to subscribe therefor) is subject to any tax or governmental
charges which the Depositary or the Custodian is obligated to withhold, the
Depositary may use such cash or dispose, including by public or private sale, of
all or a portion of such property (including Shares and rights to subscribe
therefor) in such amounts and in such manner as the Depositary deems necessary
and practicable to pay such taxes or governmental charges, and the Depositary
shall distribute the net proceeds of any such sale or the balance of any such
cash or property after deduction of such taxes or governmental charges to the
Holders entitled thereto in proportion to the number of American Depositary
Shares held by them respectively and the Depositary shall, if feasible without
withholding for or on account of taxes or other governmental charges, without
registration of such Shares under the Securities Act of 1933 and otherwise in
compliance with applicable law, distribute any unsold balance of such cash or
property in accordance with the provisions of the Deposit Agreement.
The Depositary or the Custodian will take all practicable
administrative actions necessary to obtain all tax refunds and to reduce German
withholding taxes on dividends and other distributions on the Deposited
Securities.
(19) Pre-Release of Receipts.
The Depositary may issue Receipts against the delivery by the
Company (or any agent of the Company recording Share ownership) of rights to
receive Shares from the Company (or any such agent). No such issue of Receipts
will be deemed a "Pre-Release" that is subject to the restrictions of the
following paragraph.
Unless requested in writing by the Company to cease doing so, the
Depositary may, notwithstanding Section 2.4 of the Deposit Agreement, execute
and deliver Receipts prior to the receipt of Shares pursuant to Section 2.2 of
the Deposit Agreement ("Pre-Release"). The Depositary may, pursuant to Section
2.6 of the Deposit
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Agreement, deliver Shares upon the receipt and cancellation of Receipts which
have been Pre-Released, whether or not such cancellation is prior to the
termination of such Pre-Release or the Depositary knows that such Receipt has
been Pre-Released. The Depositary may receive Receipts in lieu of Shares in
satisfaction of a Pre-Release. Each Pre-Release will be (a) preceded or
accompanied by a written representation and agreement from the person to whom
Receipts are to be delivered (the "Pre-Releasee") that the Pre-Releasee, or its
customer, (i) owns the Shares or Receipts to be remitted, as the case may be,
(ii) assigns all beneficial rights, title and interest in such Shares or
Receipts, as the case may be, to the Depositary in its capacity as such and for
the benefit of the Holders, and (iii) will not take any action with respect to
such Shares or Receipts, as the case may be, that is inconsistent with the
transfer of beneficial ownership (including, without the consent of the
Depositary, disposing of such Shares or Receipts, as the case may be), other
than in satisfaction of such Pre-Release, (b) at all times fully collateralized
with cash, U.S. government securities or such other collateral as the Depositary
determines, in good faith, will provide substantially similar liquidity and
security, (c) terminable by the Depositary on not more than five (5) business
days notice, and (d) subject to such further indemnities and credit regulations
as the Depositary deems appropriate. The number of Shares not deposited but
represented by American Depositary Shares outstanding at any time as a result of
Pre-Releases will not normally exceed thirty percent (30%) of the Shares
deposited hereunder; provided, however, that the Depositary reserves the right
to disregard such limit from time to time as it deems reasonably appropriate,
and may, with the prior written consent of the Company, change such limit for
purposes of general application. The Depositary will also set Dollar limits with
respect to Pre-Release transactions to be entered into hereunder with any
particular Pre-Releasee on a case-by-case basis as the Depositary deems
appropriate. For purposes of enabling the Depositary to fulfill its obligations
to the Holders under the Deposit Agreement, the collateral referred to in clause
(b) above shall be held by the Depositary as security for the performance of the
Pre-Releasee's obligations to the Depositary in connection with a Pre-Release
transaction, including the Pre-Releasee's obligation to
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<PAGE> 62
deliver Shares or Receipts upon termination of a Pre-Release transaction (and
shall not, for the avoidance of doubt, constitute Deposited Securities
hereunder).
The Depositary may retain for its own account any compensation
received by it in connection with the foregoing.
(20) Liability of the Company and the Depositary. None of the Depositary,
the Custodian, the Company or any of their respective officers, directors,
employees, agents or affiliates shall incur any liability to any Holder or any
other person if, by reason of any provision of any present or future law, order
of any government or agency thereof or any court, decree or regulation of
Germany, the United States or any other country, including any regulatory
authority or stock exchange, or by reason of any provision, present or future,
of the Articles of Association (Satzung) of the Company, any provision of or
governing any Deposited Securities, or by reason of any act of God or war or
other circumstance beyond its control, the Depositary or the Company or any of
their respective officers, directors, employees, agents or affiliates shall be
prevented or forbidden from, or delayed in, or be subject to any civil or
criminal penalty on account of, doing or performing any act or thing which by
the terms of the Deposit Agreement shall or may be done or performed or by
reason of any exercise of, or failure to exercise, any discretion provided for
in the Deposit Agreement. Where by the terms of a distribution pursuant to
Section 4.1, Section 4.2 or Section 4.3 of the Deposit Agreement, or for any
other reason, such distribution or may not be made available to some or all
Holders, and the Depositary may not dispose of such distribution on behalf of
the such Holders and make the net proceeds available to such Holders, then the
Depositary shall not make such distribution available and shall allow any rights
to such distribution to lapse. Each of the Company, the Depositary and the
Custodian and their respective agents assumes no obligation nor shall any of
them be subject to any liability under the Deposit Agreement or the Receipts to
Holders or other persons, except that they agree to perform such duties as are
specifically set forth in the Deposit Agreement without negligence or bad faith.
The Depositary, the Custodian and the Company undertake to perform such duties
and
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<PAGE> 63
only such duties as are specifically set forth in the Deposit Agreement, and no
implied covenants or obligations will be read into the Deposit Agreement against
the Depositary, the Custodian or the Company or their respective agents. Without
limitation of the preceding, none of the Depositary or its agents, the Custodian
or its agents or the Company or its agents shall be under any obligation to
appear in, prosecute or defend any action, suit or other proceeding in respect
of any Deposited Securities or in respect of the Receipts, which in its opinion
may involve expense or liability, unless indemnity satisfactory to it against
all expense and liability shall be furnished as often as may be required, and no
Custodian shall be under any obligation whatsoever with respect to such
proceedings, the Custodian being responsible solely to the Depositary. None of
the Depositary or its agents or the Company or its agents shall be liable for
any action or inaction by it or them in reliance upon the advice of or
information from legal counsel, accountants, any person presenting Shares for
deposit, any Holder or any other person believed by it or them in good faith to
be competent to give such advice or information. Subject to compliance with all
applicable laws, rules and regulations, the Depositary and the Custodian may own
and deal in any class of securities of the Company and its affiliates and in
Receipts.
(21) Resignation and Removal of Depositary; Substitution of the Custodian.
The Depositary may at any time resign as Depositary under the Deposit Agreement
by giving 60 days' prior written notice of its resignation to the Company, such
resignation to take effect upon the appointment of a successor Depositary and
its acceptance of such appointment as provided in the Deposit Agreement. The
Depositary may at any time be removed by the Company upon 60 days' prior written
notice of such removal delivered to the Depositary, which removal shall become
effective upon the appointment of a successor Depositary and its acceptance of
such appointment as provided in the Deposit Agreement. The term "Depositary"
shall also refer to any successor depositary appointment pursuant to this
Paragraph (22). The Depositary may at any time, following Consultation with the
Company, appoint substitute or additional Custodians and the term "Custodian"
shall also refer to such substitute.
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<PAGE> 64
(22) Amendment of Deposit Agreement and Receipts. The form of the Receipts
and any provisions of the Deposit Agreement may at any time and from time to
time be amended without the consent of the Holders by agreement between the
Company and the Depositary in any respect which they may deem necessary or
desirable. Any amendment which shall impose or increase any fees or charges
(other than taxes or other governmental charges), or which shall otherwise
prejudice any substantial existing right of Holders, shall not, however, become
effective as to outstanding Receipts until the expiration of 30 days after the
Depositary shall have given written notice of such amendment to the Holders of
outstanding Receipts. Every Holder at the expiration of such 30-day period shall
be deemed, by continuing to hold such Receipt, to consent and agree to such
amendment and to be bound by the Deposit Agreement or the Receipt as amended
thereby. In no event shall any amendment impair the right of the Holder hereof
to surrender this Receipt and receive therefor the whole number of Deposited
Securities represented hereby, except in order to comply with mandatory
provisions of applicable law.
(23) Termination of Deposit Agreement. The Depositary shall at any time at
the direction of the Company terminate the Deposit Agreement by mailing notice
of such termination to the Holders of all Receipts then outstanding at least 30
days prior to the date fixed in such notice for such termination. The Depositary
may likewise terminate the Deposit Agreement (upon 30 days' prior written notice
to the Holders) if 60 days shall have expired after the Depositary shall have
delivered to the Company (receipt thereof confirmed by the Company) a written
notice of its election to resign and a successor Depositary shall not have been
appointed and accepted its appointment as provided in Section 5.4 of the Deposit
Agreement within such 60 days. On and after the date of termination, the Holder
of a Receipt will, upon (a) surrender of such Receipt at the Principal Office of
the Depositary, (b) payment of the fee of the Depositary for the surrender of
receipts referred to in Section 2.6 of the Deposit Agreement, and (c) payment of
any applicable taxes or governmental charges, be entitled to delivery, to him or
upon his order, of the Deposited Securities represented by the American
Depositary
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<PAGE> 65
Shares evidenced by such surrendered Receipt. If any Receipts shall remain
outstanding after the date of termination, the Depositary shall thereafter
discontinue the registration of transfers of Receipts, shall suspend the
distribution of dividends to the Holders thereof, shall not accept deposits of
Shares (and shall instruct each Custodian to act accordingly) and shall not give
any further notices or perform any further acts under the Deposit Agreement,
except the collection of dividends and other distributions pertaining to
Deposited Securities, the sale of property and rights, the conversion of
Deposited Securities into cash as provided in the Deposit Agreement and the
delivery of Deposited Securities, together with any dividends or other
distributions received with respect thereto and the net proceeds of the sale of
any rights or other property, in exchange for Receipts surrendered to the
Depositary (after deducting any applicable taxes or governmental charges). At
any time after the expiration of one year from the date of termination, the
Depositary may sell at public or private sale, at such place or places and upon
such terms as it may deem reasonably proper, the Deposited Securities then held
under the Deposit Agreement and may thereafter hold the net proceeds of any such
sale, together with any other cash then held by it under the Deposit Agreement,
uninvested and without liability for interest, for the pro rata benefit of the
Holders of Receipts which have not theretofore been surrendered. After making
such sale, the Depositary shall be discharged from all obligations under the
Deposit Agreement, except to account for such net proceeds and other cash and
for its obligations under Section 5.7 of the Deposit Agreement.
(24) Compliance with U.S. Securities Laws. Notwithstanding anything in the
Deposit Agreement to the contrary, the Company and the Depositary each agrees
that it will not exercise any rights it has under the Deposit Agreement to
prevent the withdrawal or delivery of Deposited Securities in a manner which
would violate the United States securities laws, including, but not limited to
Section I.A.(l) of the General Instructions to the Form F-6 Registration
Statement, as amended from time to time, under the Securities Act of 1933.
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<PAGE> 1
Exhibit 3.1
CONFIDENTIAL TREATMENT
Note: Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Commission under Rule 24b-2. The omitted
confidential material has been filed separately with the Commission. The
location of the omitted confidential information is indicated herein by
asterisks.
PURCHASE AGREEMENT
by and among
AMERICAN CYANAMID COMPANY
AMERICAN HOME PRODUCTS CORPORATION
and
BASF AKTIENGESELLSCHAFT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE I DEFINITIONS...................................................................................1
ARTICLE II THE ACQUISITION..............................................................................12
2.1 PURCHASE AND SALE............................................................................12
2.2 ASSUMPTION OF LIABILITIES....................................................................12
ARTICLE III CLOSING; PURCHASE PRICE ADJUSTMENT...........................................................12
3.1 THE CLOSING..................................................................................12
3.2 DELIVERIES BY BUYER..........................................................................13
3.3 DELIVERIES BY SELLERS........................................................................13
3.4 FURTHER ASSURANCES AND OTHER JOINT VENTURE INTERESTS.........................................15
3.5 CLOSING STATEMENT............................................................................17
3.6 ADJUSTMENT OF PURCHASE PRICE.................................................................18
3.7 [***]........................................................................................19
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLERS....................................................19
4.1 ORGANIZATION, GOOD STANDING, POWER, ETC......................................................19
4.2 CAPITALIZATION OF THE COMPANIES..............................................................20
4.3 EFFECT OF AGREEMENT..........................................................................21
4.4 FINANCIAL STATEMENTS AND NET ASSET VALUE.....................................................21
4.5 ABSENCE OF CERTAIN CHANGES OR EVENTS.........................................................22
4.6 TAXES........................................................................................23
4.7 REAL PROPERTY................................................................................24
4.8 GOOD TITLE TO AND CONDITION OF ASSETS........................................................24
4.9 CONTRACTS....................................................................................25
4.10 INTELLECTUAL PROPERTY RIGHTS.................................................................26
4.11 LITIGATION AND CLAIMS........................................................................27
4.12 COMPLIANCE WITH LAW; APPLICABLE PERMITS......................................................28
4.13 ENVIRONMENTAL MATTERS........................................................................28
4.14 REGULATORY MATTERS...........................................................................29
4.15 LABOR MATTERS................................................................................29
4.16 BROKER'S FEES................................................................................30
4.17 INTERCOMPANY AGREEMENTS......................................................................30
4.18 NO OTHER REPRESENTATIONS OR WARRANTIES; DISCLOSURE...........................................30
- - - - - - ----------
[***] Confidential treatment requested and the redacted material has been
separately filed with the Commission.
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER......................................................30
5.1 CORPORATE ORGANIZATION.......................................................................30
5.2 AUTHORITY RELATIVE TO THIS AGREEMENT.........................................................31
5.3 BROKER'S FEES................................................................................31
5.4 CONSENTS AND APPROVALS; NO VIOLATIONS........................................................31
5.5 FINANCIAL CAPABILITY.........................................................................32
5.6 SECURITIES ACT...............................................................................32
5.7 NO OTHER REPRESENTATIONS OR WARRANTIES.......................................................32
ARTICLE VI CONDUCT OF BUSINESS PENDING THE CLOSING......................................................32
6.1 CONDUCT OF BUSINESS PENDING THE CLOSING......................................................32
6.2 PERMITTED ACTIONS............................................................................34
6.3 CHANGE OF NAME...............................................................................35
ARTICLE VII ADDITIONAL AGREEMENTS........................................................................35
7.1 EXPENSES.....................................................................................35
7.2 ADDITIONAL AGREEMENTS........................................................................36
7.3 ACCESS TO INFORMATION........................................................................36
7.4 FILINGS AND AUTHORIZATIONS...................................................................36
7.5 TAX MATTERS..................................................................................37
7.6 USE OF CERTAIN NAMES.........................................................................41
7.7 REMOVAL OF INTERNATIONAL ASSETS..............................................................41
7.8 ACCESS TO RECORDS AFTER CLOSING..............................................................41
7.9 REPLACEMENT OF GUARANTY OBLIGATIONS..........................................................42
7.10 NON-SOLICITATION.............................................................................42
7.11 TERMINATION OF INTERCOMPANY AGREEMENTS/ARRANGEMENTS..........................................42
7.12 CERTAIN CONTRACTS............................................................................42
ARTICLE VIII CONDITIONS...................................................................................43
8.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT...............................................................................43
8.2 CONDITIONS TO THE OBLIGATION OF SELLERS......................................................43
8.3 CONDITIONS TO THE OBLIGATION OF BUYER........................................................43
ARTICLE IX AGREEMENTS WITH RESPECT TO EMPLOYEES AND EMPLOYEE BENEFITS...................................44
9.1 U.S. EMPLOYEE PLANS..........................................................................44
9.2 INTERNATIONAL PLANS..........................................................................46
9.3 BUYER'S OBLIGATIONS TO EMPLOYEES.............................................................46
9.4 TREATMENT OF SELLERS' AND BUYER'S U.S. EMPLOYEE PLANS AND U.S. BENEFIT
ARRANGEMENTS.................................................................................48
9.5 INTERNATIONAL EMPLOYEES OF THE EUROPEAN UNION ("EU"). .......................................51
9.6 TREATMENT OF SELLERS' INTERNATIONAL PLANS....................................................51
9.7 STOCK OPTIONS................................................................................54
9.8 NO THIRD PARTY BENEFICIARIES.................................................................54
ARTICLE X TERMINATION, AMENDMENT AND WAIVER............................................................54
10.1 TERMINATION..................................................................................54
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
10.2 EFFECT OF TERMINATION........................................................................55
ARTICLE XI INDEMNIFICATION..............................................................................55
11.1 INDEMNIFICATION..............................................................................55
11.2 PROCEDURES...................................................................................59
11.3 LIMITATIONS..................................................................................61
11.4 INDEMNIFICATION AS SOLE REMEDY...............................................................61
ARTICLE XII GENERAL PROVISIONS...........................................................................62
12.1 PUBLIC STATEMENTS............................................................................62
12.2 NOTICES......................................................................................62
12.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES...................................................63
12.4 AMENDMENT....................................................................................63
12.5 WAIVER.......................................................................................63
12.6 PARTIES IN INTEREST..........................................................................64
12.7 SELLERS' KNOWLEDGE...........................................................................64
12.8 GOVERNING LAW; MISCELLANEOUS.................................................................64
12.9 DISCLOSURE SCHEDULE..........................................................................64
</TABLE>
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<PAGE> 5
PURCHASE AGREEMENT
This PURCHASE AGREEMENT dated as of March 20, 2000 (the
"Agreement") by and among AMERICAN CYANAMID COMPANY, a Maine corporation
("Cyanamid"), AMERICAN HOME PRODUCTS CORPORATION, a Delaware corporation ("AHP";
and AHP together with Cyanamid, being, "Sellers"), and BASF Aktiengesellschaft,
a corporation organized under the laws of Germany ("Buyer").
W I T N E S S E T H:
WHEREAS, Sellers desire to sell to Buyer, and Buyer desires to
acquire from Sellers, certain assets, and to assume certain liabilities, in each
case relating to Sellers' crop protection business, which the parties agree will
be achieved pursuant to the purchase and sale of the Assets (as defined herein)
and the Shares (as defined herein), all on the terms and subject to the
conditions set forth herein;
WHEREAS, the Assets included in the purchase and sale are
owned by Sellers and the Asset Transferor Entities (as defined herein) and
Sellers desire to sell to Buyer, and Buyer desires to purchase from Sellers and
the Asset Transferor Entities, the Assets;
WHEREAS, the Shares included in the purchase and sale are
owned by the Share Transferor Entities (as defined herein) and Sellers desire to
sell to Buyer, and desire that such Share Transferor Entities sell to Buyer, and
Buyer desires to purchase from Sellers and such Share Transferor Entities, the
Shares; and
WHEREAS, in connection with such purchase and sale, Buyer is
willing to assume certain liabilities of Sellers and its Affiliates (as defined
herein) and to assume certain obligations regarding the employment of those
employees of Sellers and such Affiliates primarily engaged in the conduct of the
Business (as defined herein), all on the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the foregoing premises and
the representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the terms defined below shall
have the indicated meanings:
<PAGE> 6
2
1.1 "Access Agreement" shall mean the access agreement to be
executed between a Seller and Buyer, substantially in the form of Exhibit D.
1.2 "Accountant" shall have the meaning set forth in Section
3.5(c).
1.3 "Affiliate" shall mean, with respect to any Person, any
Person which directly or indirectly through stock ownership or through other
arrangements either controls, or is controlled by or is under common control
with, such Person, provided, however, for purposes of this Agreement the term
"Affiliate" shall not include (i) subsidiaries or other entities in which a
Person owns a majority of the ordinary voting power to elect the majority of the
board of directors or other governing board but is restricted from electing such
majority by contract or otherwise, until such time as such restrictions are no
longer in effect and (ii) the Joint Venture Entities
1.4 "Agreement" shall mean this Agreement and any supplements,
amendments, exhibits and schedules hereto.
1.5 "Aggrieved Party" shall have the meaning set forth in
Section 11.2(a).
1.6 "Animal Health Business" shall mean the business of
Sellers and their Affiliates relating to the discovery, research, development,
manufacturing, formulation, licensing, marketing, distribution and sale of
products, including, without limitation, pharmaceuticals, nutritionals,
pesticides and biologicals (including vaccines, antibodies, interleukins,
somatotropins, large molecule therapeutics, proteins and peptides) as each of
the foregoing is used or held for use for the treatment, prevention, correction,
amelioration or diagnosis of disease, illness, injury or any other condition in
non-human animals.
1.7 "Applicable Laws" shall mean all laws, statutes,
regulations and ordinances of any Governmental Authority having jurisdiction
over the Companies or the Assets or the Business, as may be in effect on or
prior to the Closing.
1.8 "Applicable Permits" shall mean any waiver, exemption,
variance, permit, authorization, license or similar approval, required to be
obtained or maintained under Applicable Laws in connection with the Companies,
the Assets or the Business.
1.9 "Asset Transferor Entities" shall mean each Affiliate of
AHP transferring Assets pursuant to this Agreement. The Asset Transferor
Entities are listed in Exhibit A.
1.10 "Assets" shall mean, collectively, all assets of any
kind, nature and description owned by Sellers or the Asset Transferor Entities
and used primarily in the Business, but shall not include the Shares, the Other
Joint Venture Interests, the [***] Agreements and the Excluded Assets.
1.11 "Assumed Contracts" shall mean the Contracts, other than
the [***] Agreements, which are included in the Assets and are being conveyed by
the Asset Transferor Entities.
- - - - - - ----------
[***] Confidential treatment has been requested and the redacted material has
been separately filed with the Commission.
<PAGE> 7
3
1.12 "Assumed Liabilities" shall mean any and all liabilities
of Sellers or the Asset Transferor Entities arising out of the conduct of the
Business which exist on or after the Closing Date, including without limitation,
(i) the obligations of Sellers or the Asset Transferor Entities under the
Assumed Contracts, (ii) the [***] Obligations, and (iii) any and all liabilities
to the Employees except to the extent any such liability is retained by Sellers
or their Affiliates pursuant to Article 9, in each case other than Excluded
Liabilities. For purposes of clarity, it is understood that Assumed Liabilities
shall relate only to the purchase and sale of the Assets and that, by operation
of law, the liabilities of the Companies shall remain with the Companies,
subject to (x) allocation of Taxes set forth in Section 7.5, (y) employee
matters set forth in Article 9, and (z) the indemnification provisions set forth
herein.
1.13 "Base Net Asset Value" shall have the meaning set forth
in Section 3.6.
1.14 "Books and Records" shall mean the books and records of
(i) Sellers and the Asset Transferor Entities, to the extent related primarily
to the Business, and (ii) the Companies.
1.15 "Business" shall mean the business of the Companies
together with the business conducted by the Asset Transferor Entities existing
on the date hereof related primarily to (x) the discovery, research,
development, manufacture, formulation, licensing, marketing and/or selling of
(i) pesticides (such as herbicides, insecticides, acaricides, nematicides,
fungicides and rodenticides); (ii) plant regulators; (iii) oils, crop oils and
surfactants; (iv) plant varieties, lines, hybrids and inbreds, including
mutants, derivatives and parts thereof and genetic material relating thereto;
and (v) biological materials and systems and those biologically derived or
biologically synthesized; as each of the foregoing is used in agriculture (other
than animals), aquaculture, horticulture, forestry (including for protection
during transport or storage of harvested agricultural (other than animals),
aquacultural, horticultural and/or forestry products), turf management and
vegetation control for home and garden, consumer, industrial, commercial and
public health applications, and (y) the research, development and formulation of
biotechnological processes primarily directed to crop protection and seeds, but
in each case specifically excluding (i) the Excluded Assets, and (ii) the
Excluded Liabilities. Pesticides and plant regulators as are defined in 7 U.S.C.
Section 136.
1.16 "Closing" shall have the meaning set forth in Section
3.1.
1.17 "Closing Date" shall have the meaning set forth in
Section 3.1.
1.18 "Closing Net Asset Value" shall have the meaning set
forth in Section 3.5(a).
1.19 "Closing Statement" shall have the meaning set forth in
Section 3.5(a).
1.20 "Code" shall mean the U.S. Internal Revenue Code of 1986,
as amended.
1.21 "Companies" shall mean those entities that are directly
or indirectly wholly-owned by Sellers or their Affiliates that are or will be at
Closing engaged exclusively in the conduct of the Business (or engaged
exclusively in the conduct of the Business and providing
- - - - - - ----------
[***] Confidential treatment has been requested and the redacted material has
been separately filed with the Commission.
<PAGE> 8
4
services to other businesses of Sellers or their Affiliates as provided for in
this Agreement), each of which is listed in Exhibit A.
1.22 "Competition Laws" shall mean all Applicable Laws that
are designed or intended to prohibit, restrict or regulate actions having the
purpose or effect of monopolization or restraint of trade.
1.23 "Constituent Documents" shall mean, with respect to any
company, such company's articles of incorporation and by-laws, or other similar
documents prescribed by the Applicable Laws of such company's jurisdiction of
incorporation.
1.24 "Contracts" shall mean all leases, subleases, rental
agreements, insurance policies, sales orders, licenses, agreements, purchase
orders, instruments of indebtedness, guarantees and any and all other contracts
or binding arrangements of the Sellers, the Asset Transferor Entities and the
Companies, in each case, relating primarily to the Business, but shall not
include any contracts or other binding arrangements related primarily to the
Excluded Assets or Excluded Liabilities.
1.25 "Cyanamid Companies" shall mean Sellers, the Share
Transferor Entities and the Asset Transferor Entities.
1.26 "Costs" shall have the meanings set forth in Section
11.1(a).
1.27 "Delayed Closings" shall have the meaning set forth in
Section 3.4(e).
1.28 "Disclosure Schedule" shall mean that certain schedule
identified as such and delivered by Sellers to Buyer pursuant to the Agreement,
as Section 4.10(a) of the Disclosure Schedule may be supplemented and updated
from time to time; provided, however, that any such supplement shall not
materially change the information previously set forth therein.
1.29 "Employees" shall mean the U.S. Employees and the Ex-U.S.
Employees.
1.30 "Encumbrances" shall mean all claims, security interests,
liens, pledges, charges, escrows, options, proxies, rights of first refusal,
preemptive rights, mortgages, hypothecations, prior assignments, title retention
agreements, indentures, security agreements or any other encumbrances of any
kind.
1.31 "Environmental Laws" shall mean all Applicable Laws,
including any judicial or administrative order, consent decree or judgment to
which order, decree or judgment one or more of the Companies is a party or which
relates to any of the Assets or the Business, relating to the protection or
pollution of the environment, exposure of persons to hazardous materials or
substances, or natural resources, including the Comprehensive Environmental
Response Compensation and Liability Act, as amended (42 U.S.C. Section 9601 et
seq.) ("CERCLA"), the Federal Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act and the Hazardous and Solid Waste
Amendments thereto, the Clean Air Act, the Clean Water Act, the Toxic Substances
Control Act, the Safe Drinking Water Act, and any similar or analogous statutes,
or regulations of any Governmental Authority, as each of the foregoing exists on
the Closing Date.
<PAGE> 9
5
1.32 "Environmental Reports" shall mean the reports listed in
Section 4.13 of the Disclosure Schedule, including the Phase I and Phase II
Environmental Site Assessments prepared in connection with the transactions
contemplated by this Agreement.
1.33 "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
1.34 "ERISA Affiliate" of any entity means any other entity
which, together with such entity, would be treated as a single employer under
Section 414 of the Code.
1.35 "Ex-U.S. Employees" shall mean all (i) individuals who,
on the Closing Date, are actively employed outside of the United States and
Puerto Rico by Sellers and their Affiliates and whose employment and
responsibilities relate primarily to the Business (either directly or indirectly
by providing back office or host support to the Business); and (ii) individuals
outside of the United States and Puerto Rico who would have been included in
subsection (i) above, if they were actively employed on the Closing Date but who
are on short-term (not more than 180 days) disability leave, authorized leave of
absence or military service or lay-off with recall rights from Sellers or their
Affiliates as of the Closing Date; provided that such individuals return to work
within the 180 day period following the Closing, or within such longer period as
the individual has statutory re-employment rights.
1.36 "Excluded Assets" shall mean the assets of Sellers and
certain of their Affiliates (all of which are expressly excluded from the
purchase and sale contemplated hereby) set forth on Exhibit B.
1.37 "Excluded Liabilities" shall mean the following
liabilities of Sellers and the Asset Transferor Entities (all of which are
expressly excluded from the purchase and sale contemplated hereby):
(i) Tax Liabilities;
(ii) intercompany liabilities (other than (x) accounts payable
of the Companies arising from transactions among the Companies and (y)
liabilities and obligations of the Business arising under the Contracts
listed in Section 6.2 of the Disclosure Schedule;
(iii) liabilities retained by Sellers and their Affiliates
pursuant to the provisions of Article 9; and
(iv) liabilities relating to the Excluded Assets. For the
purposes of clarity, it is understood that Excluded Liabilities shall
relate only to the purchase and sale of the Assets and that, by
operation of law, the liabilities of the Companies shall remain with
the Companies, subject to (x) Allocation of Taxes set forth in Section
7.5, (y) employee and employee benefit matters set forth in Article 9,
and (z) the indemnity provisions set forth herein.
1.38 "Final Net Asset Value" shall have the meaning set forth
in Section 3.5(c).
<PAGE> 10
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1.39 "Financial Statements" shall have the meaning set forth
in Section 4.4(a).
1.40 "GAAP" shall mean United States generally accepted
accounting principles.
1.41 "Governmental Authority" shall mean any governmental
department, commission, board, bureau, agency, court or other instrumentality of
the United States or any other country, jurisdiction, municipality or other
political subdivision thereof or any other supranational organization of
sovereign states, where any of the Companies is now operating or has operated or
where any of the Assets are located.
1.42 "HSR Act" shall have the meaning set forth in Section
7.4.
1.43 "Hazardous Substance" shall mean any hazardous substance
as that term is defined in CERCLA and any other substance, material or waste
regulated by any Environmental Law, and shall include, but not be limited to,
petroleum, including crude oil or any fraction thereof, asbestos and chlorinated
organic compounds.
1.44 "Indemnifying Party" shall have the meaning set forth in
Section 11.2(a).
1.45 "Intellectual Property" shall mean (i) Patents, (ii)
Know-how, (iii) Trademarks and (iv) copyrights, copyright registrations and
applications for registration, inventions and all other intellectual property
rights whether registered or not, in the case of subsection (iv) which are
licensed to or owned by (x) Sellers or the Asset Transferor Entities and used
primarily in the Business or (y) any of the Companies, in each case other than
the Excluded Assets.
1.46 "International Plans" shall have the meaning set forth in
Section 9.2(a).
1.47 "Joint Venture Entities" shall mean the entities listed
in Section (c) of Exhibit A in which Sellers or their Affiliates hold less than
all of the outstanding equity interest, which entities have certain assets
primarily related to the Business.
1.48 "Joint Venture Interests" shall mean (a) the equity
interests of the Sellers or their Affiliates in the Joint Venture Entities as
defined and listed in Section (d) of Exhibit A that are not owned by one of the
Companies (the "Transferable Joint Venture Interests") and (b) the equity
interests of the Sellers or their Affiliates in the Joint Venture Entities as
defined and listed in Section (e) of Exhibit A (the "Other Joint Venture
Interests").
1.49 "Know-how" shall mean all product specifications,
processes, product designs, plans, ideas, concepts, manufacturing, engineering
and other manuals and drawings, technical information, trade secrets, data,
research records, all promotional literature, customer and supplier lists and
similar data and information, and all other confidential or proprietary
technical and business information licensed to or owned by (x) Sellers or the
Asset Transferor Entities and used primarily in the Business or (y) any of the
Companies, in each case other than the Excluded Assets.
<PAGE> 11
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1.50 "Leased Real Property" shall mean all real property,
including any buildings, structures, fixtures and improvements thereon or
appurtenances thereto leased by (x) Sellers or the Asset Transferor Entities and
used primarily in the Business or (y) any of the Companies, in each case other
than Excluded Assets.
1.51 [INTENTIONALLY DELETED.]
1.52 "Material Adverse Effect" shall mean any event, change,
circumstance or effect that is materially adverse to the business, assets,
operations, results of operations or financial condition of the Business, taken
as a whole, other than any event, change, circumstance or effect relating (x) to
the economy in general, (y) in general to the industries in which the Business
operates and not specifically relating to the Business; provided that the
Business, taken as a whole, is not materially disproportionately affected as
compared to other Persons engaged in such industry by such event, change,
circumstance or effect or (z) changes, circumstances and effects relating to the
announcement of the transactions contemplated by this Agreement.
1.53 "Minimum Loss" shall have the meaning set forth in
Section 11.3.
1.54 "Multiemployer Plan" means each U.S. Employee Plan that
is a multiemployer plan, as defined in Section 3(37) of ERISA.
1.55 "Net Assets" shall mean the (i) sum of (a) the book value
of the Assets and (b) the book value of the Sellers' interest in the total
assets of the Companies (excluding the Excluded Assets) and the Joint Venture
Entities, to the extent related to the Business, (ii) minus the sum of the book
value of the Assumed Liabilities and the book value of the Sellers' interest in
the total liabilities of the Companies (excluding the Excluded Liabilities) and
the Joint Venture Entities, to the extent related to the Business, all
calculated in accordance with GAAP applied in a manner consistent with the
preparation of the Financial Statements.
1.56 "Notice of Disagreement" shall have the meaning set forth
in Section 3.5(b).
1.57 "Operating Profit" shall mean the amount calculated from
the line items set forth on the Statements of Operating Profit of the Business
included in the Financial Statements as follows: Net Sales less the sum of the
following: Cost of Goods Sold (including royalty payments); Marketing; Selling;
Storage, Packaging & Shipping; Administrative; Research & Development; and
General Expense.
1.58 "Owned Real Property" shall mean all real property,
including any buildings, structures and improvements thereon or appurtenances
thereto owned by (x) Sellers or the Asset Transferor Entities and used primarily
in the Business, or (y) any of the Companies, in each case other than the
Excluded Assets.
1.59 "Patents" shall mean all patents, and patent
applications,(including, without limitation, all reissues, divisions,
continuations, continuations-in-part, renewals and extensions of the foregoing)
licensed to or owned by (x) Sellers or the Asset Transferor Entities
<PAGE> 12
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and used primarily in the Business or (y) any of the Companies, in each case
other than the Excluded Assets.
1.60 "Patent and Data Rights Agreement" shall mean the
Agreement to be executed between Sellers or their Affiliates and Buyer,
substantially in the form of Exhibit C, pursuant to which Sellers or their
Affiliates convey rights to the Buyer with respect to the Business related to
the [***] Agreements and pursuant to which the Buyer assumes the [***]
Obligations.
1.61 "Pension Plan" or "Pension Plans" means an employee
pension benefit plan (as such term is defined in Section 3(2) of ERISA) that is
intended to qualify under Section 401(a) of the Code, is subject to the funding
requirements of Section 412 of the Code and is maintained by Sellers or an ERISA
Affiliate.
1.62 "Permitted Encumbrances" shall mean each of the following
as to which no enforcement, collection, execution or foreclosure proceeding
shall have been commenced: (i) any Encumbrances specifically disclosed in the
Financial Statements; (ii) liens for Taxes, assessments and other governmental
charges not yet due and payable; (iii) immaterial mechanics', workmen's,
repairmen's, warehousemen's, carriers' or other like liens arising or incurred
in the ordinary course of business or other Encumbrances that are a matter of
public record; (iv) with respect to Real Property, (A) easements,
quasi-easements, licenses, covenants, rights-of-way, and other similar
restrictions, including without limitation any other agreements, conditions or
restrictions, in each case, which are a matter of public record and which would
not, individually or in the aggregate, materially adversely affect the use of
such property in the manner currently being utilized by the Business, (B) any
conditions that would be shown by a current survey or physical inspection and
(C) zoning, building and other similar restrictions pursuant to Applicable Laws;
and (v) other Encumbrances which, individually or in the aggregate with such
other Encumbrances, are not material and would not be required to be disclosed
or reflected on a combined balance sheet of the Business prepared in accordance
with GAAP and which would not, individually or in the aggregate, materially
adversely affect the use of such property in the manner currently being utilized
by the Business.
1.63 "Person" shall mean an individual, a corporation, limited
liability company, a partnership, an association, a trust or other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
1.64 "Purchase Price" shall have the meaning set forth in
Section 2.1.
1.65 "Real Property" shall mean the Owned Real Property and
the Leased Real Property.
1.66 "Release" shall mean any release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal or leaching
of Hazardous Substances into the environment.
1.67 [***] Agreement" shall mean that certain Amended and
Restated [***] Agreement, dated [***], between [***] and [***].
- - - - - - ----------
[***] Confidential treatment requested and the redacted material has been
separately filed with the Commission.
<PAGE> 13
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1.68 "Section 3.5(a) Documents" shall have the meaning set
forth in Section 3.5(a).
1.69 "Securities Act" shall mean the Securities Act of 1933,
as amended.
1.70 "Shares" shall mean the outstanding equity interests in
the Companies and the Transferable Joint Venture Interests, in each case
outstanding as of the Closing Date.
1.71 "Share Transferor Entities" shall mean each Affiliate of
AHP transferring Shares pursuant to this Agreement as listed in Exhibit A.
1.72 "[***] Agreements" shall mean the [***] Agreement, dated
[***], between [***] and [***].
1.73 "[***] Obligations" shall mean the obligations of [***]
and its Affiliates related to the Business, the Assets and/or the Companies
under the [***], as such obligations exist under such agreements, taking into
account all provisions thereof including, without limitation, governing law and
dispute resolution.
1.74 "Straddle Period" shall mean any taxable year or period
beginning before and ending after the Closing Date.
1.75 "Subsidiary" shall mean, as to any Person, any
corporation, partnership, limited liability company or joint venture, of which
(or in which) such Person, together with one or more of its subsidiaries, owns
100% of the interest in the capital or profits of such corporation, limited
liability company, partnership or joint venture.
1.76 "Tax Affiliate" of a Person shall mean any Affiliate
(determined without regard to the proviso of Section 1.3 hereof) of said Person
which was included, or includable, in a Tax Return in which such Person was
included as a member.
1.77 "Tax Assets" shall mean all assets comprising receivables
or refunds or prepayments for Taxes relating to the Assets or the Business for
taxable periods or portions thereof ending on or before the Closing Date;
provided, however, that for purposes of determining Net Assets hereunder, Tax
Assets shall include deferred Tax Assets and shall exclude value added taxes and
payroll and employment taxes (including all contributions or premiums pursuant
to industry or governmental social security laws or pursuant to other tax laws
or regulations).
1.78 "Tax Liabilities" shall mean all liabilities for Taxes
imposed on Sellers and their Affiliates or relating to the Assets or the
Business for taxable periods or portions thereof ending on or before the Closing
Date; provided, however, that for purposes of determining Net Assets hereunder,
Tax Liabilities shall exclude value added taxes and payroll and employment taxes
(including all contributions or premiums pursuant to industry or governmental
social security laws or pursuant to other tax laws or regulations).
- - - - - - ----------
[***] Confidential treatment requested and the redacted material has been
separately filed with the Commission.
<PAGE> 14
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1.79 "Tax Returns" shall mean all reports, returns, schedules
and any other documents required to be filed with respect to Taxes and all
claims for refunds of Taxes.
1.80 "Tax Sharing Arrangement" shall mean any written or
unwritten agreement or arrangement for the allocation or payment of Tax
Liabilities or payment for Tax benefits with respect to a consolidated, combined
or unitary Tax Return which Tax Return includes any of the Companies.
1.81 "Taxes" (and with correlative meanings, "Tax" and
"Taxable") shall mean all taxes of any kind imposed by a federal, state, local
or foreign Governmental Authority, and any payments made to another party
pursuant to a Tax Sharing Arrangement, indemnity or other similar arrangement,
including but not limited to those on, or measured by or referred to as income,
gross receipts, financial operation, sales, use, ad valorem, value added,
franchise, profits, license, withholding, payroll (including all contributions
or premiums pursuant to industry or governmental social security laws or
pursuant to other tax laws and regulations), employment, excise, severance,
stamp, occupation, premium, property, transfer or windfall profits taxes,
customs, duties or similar fees, assessments or charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts imposed by such Governmental Authority with respect to such amounts.
1.82 "Trademarks" shall mean (i) trademarks, service marks,
trade names, trade dress, domain names, labels, logos and all other names and
slogans associated with any products or services of the Business, or embodying
associated goodwill of the Business related to such products or services,
whether or not registered, and any applications or registrations therefor; and
(ii) any associated goodwill incident thereto; in each case owned by or licensed
to (x) Sellers and the Asset Transferor Entities and used primarily in the
Business or (y) the Companies; and further in each case other than (A) the
Excluded Assets and (B) the trademarks, service marks, trade names, domain names
and associated trade dress, packaging, logos, and labels containing "American
Home", "AHP", "Wyeth", "Fort Dodge" and "Lederle" or any derivative or anything
imitative thereof or which resembles or is confusingly similar thereto.
1.83 "Transition Services Agreements" shall mean the
transition services agreements to be entered into between Sellers or their
Affiliates and Buyer, its Affiliates or the Companies in a form to be agreed to
in good faith by Buyer and a Seller and which shall include without limitation
the services described on Section 7.10 (B) of the Disclosure Schedule.
1.84 "U.S. Benefit Arrangements" shall have the meaning set
forth in Section 9.1(d).
1.85 "U.S. Employee Plans" shall have the meaning set forth in
Section 9.1(a).
1.86 "U.S. Employees" shall mean (i) all individuals who, on
the Closing Date, are actively employed in the United States, including Puerto
Rico, by Sellers or their Affiliates and whose employment and responsibilities
relate primarily to the Business (except for any employee listed on Section 7.10
(A) of the Disclosure Schedule who does not accept an offer of employment from
Buyer); and (ii) all individuals who would have been included in subsection (i)
<PAGE> 15
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above, if they were actively employed on the Closing Date, but who are on
short-term (not more than 180 days) disability leave, authorized leave of
absence or military service or lay-off with recall rights from Sellers or their
Affiliates as of the Closing Date; provided that such individuals return to work
within the 180 day period following the Closing, or within such longer period as
the individual has statutory re-employment rights.
Additional definitions are set forth in Article 9.
ARTICLE II
THE ACQUISITION
2.1 PURCHASE AND SALE.
Upon the terms and subject to the conditions of this
Agreement, (x) Sellers shall (and shall cause the Share Transferor Entities and
the Asset Transferor Entities to) sell, assign, transfer and deliver to Buyer or
one or more of its wholly-owned subsidiaries designated in writing by Buyer
(unless such designation would lead to further required approvals of third
parties or Governmental Authorities) the Shares and the Assets, and (y) Buyer or
one or more of its wholly-owned subsidiaries designated in writing by Buyer
(unless such designation would lead to further required approvals of third
parties or Governmental Authorities), shall purchase and accept the Shares and
the Assets from Sellers and such Share Transferor Entities and Asset Transferor
Entities, subject to the Assumed Liabilities, for an aggregate purchase price of
$3,800,000,000 (Three Billion Eight Hundred Million Dollars), payable at
Closing, subject to adjustment as provided in Section 3.6 (the price as so
adjusted is herein called the "Purchase Price").
2.2 ASSUMPTION OF LIABILITIES.
With respect to the purchase and sale of the Assets, in
addition to payment of the Purchase Price and pursuant to assumption agreements
to be executed and delivered in accordance with Section 3.2(e), Buyer will
assume at the Closing and subsequently, in due course, pay, honor and discharge
all of the Assumed Liabilities.
ARTICLE III
CLOSING; PURCHASE PRICE ADJUSTMENT
3.1 THE CLOSING.
Unless this Agreement shall have been terminated, on the terms
and subject to the conditions of this Agreement, the closing of the sale and
purchase of the Shares and the Assets and the consummation of the other
transactions contemplated hereby (the "Closing") shall take place at the offices
of American Home Products Corporation, Five Giralda Farms, Madison, New Jersey
07940 on the fifth business day after the date on which the last to be fulfilled
or waived of the conditions set forth in Article 8 shall be fulfilled or waived
in accordance with this Agreement or at such other time, date or place as the
parties may mutually agree upon in writing (the "Closing Date"). At the Closing,
the parties to this Agreement will exchange funds,
<PAGE> 16
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certificates and other documents specified in this Agreement. For purposes of
this Agreement, the Closing will be treated as if it occurred at the open of
business at each location of the Business on the Closing Date.
3.2 DELIVERIES BY BUYER.
At the Closing, Buyer shall deliver, or cause to be delivered,
to Sellers the following:
(a) the amount of the Purchase Price specified in Section 2.1
to be paid at Closing, payable by wire transfer in immediately available funds
on the Closing Date to an account specified in writing by Sellers, with such
notice to be delivered no less than two business days prior to the Closing Date;
(b) the certificate by an officer of Buyer required to be
delivered pursuant to Section 8.2(c);
(c) a certificate, signed by an authorized officer of Buyer,
certifying (i) the due organization and good standing of Buyer, (ii) the
corporate resolutions of Buyer authorizing the transactions contemplated by this
Agreement, and (iii) the incumbency of officers of Buyer executing this
Agreement and the other agreements, instruments or certificates delivered upon
the Closing;
(d) the Transition Services Agreements, duly executed by Buyer
or its Affiliates;
(e) the Patent and Data Rights Agreement, duly executed by
Buyer;
(f) such instruments of assumption and other certificates,
instruments or documents, in form and substance reasonably acceptable to
Sellers, as may be necessary to effect Buyer's assumption under Applicable Laws
of the Assumed Liabilities;
(g) the Access Agreement, duly executed by Buyer; and
(h) such other instruments and documents, in form and
substance reasonably acceptable to Sellers and Buyer, as may be reasonably
necessary to effect the Closing.
3.3 DELIVERIES BY SELLERS.
At the Closing, Sellers shall deliver, or cause to be
delivered by their Affiliates, to Buyer the following:
(a) certificates representing the Shares duly endorsed for
transfer to Buyer or accompanied by stock powers duly executed in blank, or, in
the case of Shares of non-U.S. companies, evidence of the transfer of such
Shares in accordance with the Applicable Laws of the jurisdictions in which such
non-U.S. companies are organized;
<PAGE> 17
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(b) the certificate by officers of Sellers required to be
delivered pursuant to Section 8.3(c);
(c) a certificate, signed by an authorized officer of each of
Sellers, certifying (i) the due organization and good standing of Sellers, (ii)
the corporate resolutions of Sellers authorizing the transactions contemplated
by this Agreement, and (iii) the incumbency of officers of the Sellers executing
this Agreement and the other agreements, instruments or certificates delivered
upon the Closing;
(d) the stock books, stock ledgers, minute books and corporate
seals of each of the Companies;
(e) the Transition Services Agreements, duly executed by AHP
or one of its Affiliates;
(f) bills of sale, deeds and any other appropriate instruments
of sale and conveyance, in form and substance reasonably acceptable to Buyer,
transferring under Applicable Laws all real property or tangible personal
property included in the Assets to Buyer or its Affiliates;
(g) the Patent and Data Rights Agreement, duly executed by
AHP;
(h) bills of sale, assignments and any other appropriate
instruments of sale and conveyance, in form and substance reasonably acceptable
to Buyer, transferring under Applicable Laws all Intellectual Property to Buyer
or its Affiliates (it being understood and agreed that Buyer, at its own expense
shall prepare any and all individual assignment documents required in the
respective countries and record them in Buyer's discretion, to the extent not
required by Applicable Law, in the national patent and trademark and other
government offices, as applicable);
(i) assignments or, where necessary, subleases, in form and
substance reasonably acceptable to Buyer, assigning or subleasing to Buyer or
its Affiliates under Applicable Laws all Assumed Contracts;
(j) except with respect to any loans extended to [***],
such instruments of cancellation and other appropriate documents, in form and
substance reasonably acceptable to Buyer, cancelling all loans or other
obligations for borrowed money owed by any of the Companies to Sellers or any of
their Affiliates (other than the Companies), duly executed by Sellers or such
Affiliates, as the case may be;
(k) such other instruments and documents, in form and
substance reasonably acceptable to Buyer and Sellers, as may be reasonably
necessary to effect the Closing; and
(l) letters of resignation executed by the directors of each
of the Companies and such letters executed by officers of the Companies as shall
be requested by Buyer;
(m) a receipt for the Purchase Price; and
- - - - - - ----------
[***] Confidential treatment requested and the redacted material has been
filed separately with the Commission.
<PAGE> 18
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(n) the Access Agreement, duly executed by Seller.
3.4 FURTHER ASSURANCES AND OTHER JOINT VENTURE INTERESTS.
(a) From time to time, at Buyer's or Sellers' request, and in
accordance with Section 7.2, whether at or after the Closing Date, Buyer or
Sellers, as the case may be, shall, and shall cause their respective Affiliates
to, execute and deliver such further instruments of conveyance, transfer and
assignment, cooperate and assist in providing information for making and
completing regulatory filings, and take such other actions as Buyer or Sellers,
as the case may be, may reasonably require of the other to more effectively
assign, convey and transfer to such party the Shares, the Assets and, subject to
subparagraph (e) below, the interests of Sellers and their Affiliates in the
Business relating to the Other Joint Venture Entities (to the extent related to
the Business), and to assume the Assumed Liabilities, as contemplated by this
Agreement.
(b) To the extent that the assignment of any Assumed Contract
to Buyer hereunder shall require the consent of the other party thereto, this
Agreement shall not constitute an agreement to assign the same if an attempted
assignment would constitute a breach thereof. Sellers will use their diligent
efforts to obtain the consent of the other parties to such Assumed Contracts for
the assignment thereof to Buyer, provided, however, that Sellers shall not be
obligated to make any payment or take any other commercially unreasonable action
to obtain any such consent. If any such consent is not obtained, Sellers shall,
and shall cause their Affiliates to, cooperate with Buyer in any arrangement
reasonably requested by Buyer to provide for Buyer the benefits under any such
Contract, including the enforcement at the cost of and for the benefit of Buyer
of any and all rights thereunder of Sellers or their respective Affiliates
against the other party thereto.
(c) (i) To the extent that any of the Assets or the assets of
the Companies transferred to Buyer as contemplated herein include rights or
assets that (x) are necessary for the operation of any business (other than the
Business) of Sellers or their Affiliates and (y) were used by Sellers or any of
their Affiliates prior to Closing, Buyer agrees, to the extent possible, to
transfer, convey, assign, license, sublicense or enter into another arrangement
with respect to such rights or assets so that Sellers and their Affiliates have
substantially similar benefits (subject to the burdens) of such rights and
assets for such other business as they had prior to the Closing; provided that
the foregoing shall not require Buyer (A) to permit Sellers or their Affiliates
to use such rights or assets in the Business or (B) to transfer, convey, assign,
license, sublicense or enter into such other arrangement if such action
precludes Buyer from using such rights or assets in the Business.
(ii) To the extent that the Assets and the assets of the
Companies transferred to Buyer as contemplated herein do not include any right
or asset, other than Excluded Assets, that (x) was owned by or licensed to
Sellers or their Affiliates at Closing, (y) is necessary for the operation of
the Business and (z) was used by Sellers or their Affiliates in the Business
prior to Closing, Sellers agree, to the extent possible, to transfer, convey,
assign, license, sublicense or enter into another arrangement with respect to
such right or asset so that Buyer has substantially
<PAGE> 19
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similar benefits (subject to the burdens) of such right or asset for the
Business as did Sellers or their Affiliates in conducting the Business prior to
Closing; provided that the foregoing shall not require Sellers or their
Affiliates (A) to permit Buyer to use such right or asset in any business other
than the Business or (B) to transfer, convey, assign, license, sublicense or
enter into such other arrangement if such action precludes Sellers or their
Affiliates from using such right or asset in their businesses (other than the
Business).
(d) It is the intention of the parties hereto for Sellers to
convey to Buyer at or, subject to subsection (e) below, as soon as practicable
after the Closing, the Other Joint Venture Interests or other interests
equivalent thereto as more fully described in Section 3.4(d) of the Disclosure
Schedule.
(e) Notwithstanding anything to the contrary contained in this
Agreement, to the extent that the sale, assignment, transfer or delivery or
attempted sale, assignment, transfer or delivery to Buyer or its designated
Affiliates of any Asset, Shares or Other Joint Venture Interests is prohibited
by any Applicable Law or would require any governmental or third-party
authorizations, approvals, consents or waivers and such authorizations,
approvals, consents or waivers shall not have been obtained prior to the
Closing, this Agreement shall not constitute a sale, assignment, transfer or
delivery, or any attempted sale, assignment, transfer or delivery thereof.
Following the Closing, the parties shall use all reasonable efforts, and
cooperate with each other, to obtain promptly such authorizations, approvals,
consents or waivers; provided, however, that neither Sellers nor Buyer nor any
Affiliates thereof shall be required to pay any consideration therefor, other
than filing, recordation or similar fees payable to any Governmental Entity,
which fees shall be shared equally by Buyer, on the one hand, and Sellers, on
the other (unless specifically treated otherwise herein). Pending such
authorization, approval, consent or waiver, the parties shall cooperate with
each other in any reasonable and lawful arrangements designed to provide to
Buyer the profits and other benefits and liabilities of use or ownership of such
Asset (and related Assumed Liabilities), Shares or Other Joint Venture Interests
(as the case may be) (including liabilities for Taxes relating to such use or
ownership or the profits to Buyer therefrom). Once such authorization, approval,
consent or waiver for the sale, assignment, transfer or delivery of any such
Asset, Shares or Other Joint Venture Interests is obtained, Sellers shall cause
the applicable Share Transferor Entities or Asset Transferor Entities to
promptly sell, assign, transfer and deliver such Asset (and related Assumed
Liabilities), Shares or Joint Venture Interests to Buyer or its designated
Affiliates for no additional consideration at a closing to be held on the
seventh business day after receipt of all such authorizations, approvals,
consents or waivers, or such other time as the Buyer, Sellers may mutually agree
(a "Delayed Closing"). To the extent that Buyer is unable to obtain the benefits
and liabilities of the use or ownership of any Assets, Shares or Joint Venture
Interests, as contemplated by this Section 3.4(e) prior to a Delayed Closing,
Sellers and their Affiliates shall be responsible for all Taxes relating to such
Assets, Shares or Joint Venture Interests for Taxable periods or portion thereof
ending on or prior to the date of the Delayed Closing.
(f) Buyer shall pay the full Purchase Price at the Closing
notwithstanding any requirement for a Delayed Closing pursuant to Section
3.4(e); provided, however, that if any Delayed Closing pursuant to Section
3.4(e) shall not occur within thirty-six (36) months after the Closing either
Sellers or Buyer may by notice in writing to the other party elect to terminate
the parties' obligation to buy and sell the assets of the Business subject to
such Delayed Closing in
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which case Sellers shall pay to Buyer, no later than five business days after
the date of such notice, in immediately available funds, the portion of the
Purchase Price allocable with respect to the assets of the Business not
transferred at a Delayed Closing and, from and after the effective date of such
payment the arrangement of the parties with respect to the benefits and
liabilities of such assets shall also terminate.
3.5 CLOSING STATEMENT.
(a) As promptly as practicable, but no later than 90 days
after the Closing Date, Sellers will cause to be prepared in accordance with
GAAP and delivered to Buyer a draft combined adjusted statement, together with
notes thereto, of the Net Assets (which shall include any cash, cash equivalents
and marketable securities remaining in any of the Companies at the Closing which
are not otherwise transferred pursuant to Section 6.2(a)) as of the close of
business on the Closing Date (the "Closing Statement") including a schedule
based on such Closing Statement setting forth Sellers' calculation of the value
of the Net Assets as of the Closing Date (the "Closing Net Asset Value"). The
Closing Statement shall include line items and notes substantially consistent
with those of the statement of Net Assets as of December 31, 1999 included in
the Financial Statements. Buyer, at its own expense, shall cause the Companies
and Buyer's Affiliates and their respective employees to assist Sellers in the
preparation of the Closing Statement and shall provide Sellers and their
independent auditors, Arthur Andersen LLP ("Andersen"), access at all reasonable
times to the personnel, properties and Books and Records relating to the
Business for such purpose. The Closing Statement shall be accompanied by a draft
audit report from Andersen stating that in its opinion the Closing Statement
presents fairly, in all material respects, the Net Assets as of the Closing Date
in conformity with GAAP, consistently applied, and pursuant to the terms of this
Agreement. The Closing Statement and the accompanying audit report are
collectively referred to as the "Section 3.5(a) Documents".
(b) If Buyer disagrees with Sellers' calculation of Closing
Net Asset Value contained in the Section 3.5(a) Documents, Buyer may, within 45
days after delivery of the Section 3.5(a) Documents, deliver a notice to Sellers
disagreeing with such calculation and setting forth Buyer's calculation of such
amount ("Notice of Disagreement"). Any such Notice of Disagreement shall specify
those items or amounts as to which Buyer disagrees, and Buyer shall be deemed to
have agreed with all other items and amounts contained in the Section 3.5(a)
Documents. If Buyer does not disagree with Sellers' calculation of Closing Net
Asset Value contained in the Section 3.5(a) Documents within said 45 days, then
Sellers shall cause Andersen to issue the draft audit report referred to in
Section 3.5(a) in final form. In connection with its review of the Closing
Statement, Sellers will provide Buyer with reasonable access to the work papers
of Sellers' auditors, subject to execution of customary releases among the
Sellers and Buyer.
(c) If a Notice of Disagreement shall be duly and timely
delivered pursuant to Section 3.5(b), the parties shall, during the 15 days
following such delivery, use their diligent efforts to reach agreement on the
disputed items or amounts in order to determine, as may be required, the amount
of Closing Net Asset Value, which amount shall not be more than the amount
thereof shown in the Section 3.5(a) Documents nor less than the amount thereof
shown in the Notice of Disagreement. If, during such period, the parties are
unable to reach agreement, they shall promptly thereafter cause a mutually
acceptable firm of nationally recognized
<PAGE> 21
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independent public accountants (the "Accountant") promptly to review this
Agreement, the appropriate Books and Records and the disputed items or amounts
for the purpose of calculating Closing Net Asset Value. In making such
determination, the Accountant shall consider only those items or amounts in the
Closing Statement or Sellers' calculation of Closing Net Asset Value as to which
Buyer has disagreed. The Accountant shall deliver to Sellers and Buyer, as
promptly as practicable, a report setting forth such determination. Such report
shall be final and binding upon the parties hereto. The cost of such review and
report shall be borne (i) by the party whose calculation or calculations, taken
together, were furthest from that of the Accountant, or (ii) otherwise equally
by Sellers and Buyer. "Final Net Asset Value" means (A) Closing Net Asset Value
as shown in the Sellers' calculation delivered pursuant to Section 3.5(a) if no
Notice of Disagreement with respect thereto is duly and timely delivered, (B)
the amount agreed upon by the parties pursuant to this Section 3.5(c) or (C) in
the absence of such agreement, the amount as shown in the Accountant's
calculation delivered pursuant to this Section 3.5(c); provided that Final Net
Asset Value shall not in any event be more than Sellers' calculation delivered
pursuant to Section 3.5(a) or less than Buyer's calculation pursuant to Section
3.5(b).
3.6 ADJUSTMENT OF PURCHASE PRICE.
(a) If the amount of [***] ("Base Net Asset Value") exceeds
the Final Net Asset Value, Sellers shall pay to Buyer, as an adjustment to the
Purchase Price, in the manner and with interest as provided in Section 3.6(b),
the amount of such excess. If the Final Net Asset Value exceeds Base Net Asset
Value, Buyer shall pay to Sellers, as an adjustment to the Purchase Price, in
the manner and with interest as provided in Section 3.6(b), the amount of such
excess. Any such payment pursuant to this Section 3.6(a) shall be made (i)
within 45 days after Sellers' delivery of the Section 3.5(a) Documents if no
Notice of Disagreement with respect to Closing Net Asset Value is duly and
timely delivered pursuant to Section 3.5(b) or (ii) if a Notice of Disagreement
with respect to Closing Net Asset Value is duly and timely delivered pursuant to
Section 3.5(b), then within 10 days after the earlier of (A) agreement between
the parties pursuant to Section 3.5(c) with respect to Closing Net Asset Value
or (B) delivery of the Accountant's calculation of Final Net Asset Value
pursuant to Section 3.5(c).
(b) Any payment made pursuant to this Section 3.6 shall be
made by wire transfer or by delivery to the payee of the required amount in
immediately available funds. Payee shall have designated its preferred method of
payment (and wire instructions, if appropriate) for such purpose at least two
(2) days prior to the date of the required payment (or, if not so designated, by
certified or official bank check payable in immediately available funds to the
order of the payee in such amount). The amount to be paid under this Section
shall bear interest from and including the Closing Date to the date one day
prior to payment at a rate per annum equal to the rate publicly announced by The
Chase Manhattan Bank in New York, New York as its 30-day LIBOR rate in effect on
the Closing Date plus 25 basis points. Interest shall
- - - - - - ----------
[***] Confidential treatment requested and the redacted material has been
separately filed with the Commission.
<PAGE> 22
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be calculated daily on the basis of a year of 365 days and the actual number of
days for which interest is due.
3.7 [***] ADJUSTMENT.
(a) In the event Cyanamid is required to sell its interest in
[***] to [***] pursuant to the terms of the [***], Sellers shall promptly
deliver to Buyer the consideration received in respect of its Joint Venture
Interest in lieu of conveying such interest to Buyer.
(b) In the event Cyanamid is required to purchase [***]
interest in [***], such interest shall be conveyed to Buyer, and Buyer shall be
required to promptly deliver to either Sellers or [***], as applicable, the
consideration for the purchase of such interest.
(c) Any adjustments required pursuant to this Section 3.7
shall be considered an adjustment to Purchase Price. Any payments required shall
be wired to the appropriate entity within seven business days of receipt of wire
transfer instructions.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby jointly and severally represent and warrant to
Buyer as follows:
4.1 ORGANIZATION, GOOD STANDING, POWER, ETC
(a) Each of the Companies is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated. Each of the Companies has the requisite corporate power and
authority to own, operate or lease the properties that it purports to own,
operate or lease and to carry on its business as it is now being conducted and
is duly licensed or qualified as a foreign corporation in each domestic or
foreign jurisdiction in which the nature of the business conducted by it or the
character or location of the properties owned or leased by it makes such
licensing or qualification necessary, except where the failure to be so licensed
or qualified would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect. Copies of the Constituent Documents of each
of the Companies heretofore delivered, furnished or made available to Buyer or
its representatives by Sellers, are, as of the date hereof, true and complete in
all material respects and in full force and effect, and none of the Companies is
in violation or breach of any of the provisions of its respective Constituent
Documents in any material respect.
(b) Each of the Cyanamid Companies is a corporation duly
organized and validly existing under the laws of the jurisdiction in which it is
incorporated. Each Seller has the requisite corporate power and authority to
execute and deliver this Agreement and the other
- - - - - - ----------
[***] Confidential treatment requested and the redacted material has been
separately filed with the Commission.
<PAGE> 23
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agreements contemplated hereby, and, except as set forth in Section 4.1(b) of
the Disclosure Schedule, Sellers, the Asset Transferor Entities and the Share
Transferor Entities have all requisite corporate power and authority to
consummate the transactions contemplated hereby and thereby. Except as set forth
in Section 4.1(b) of the Disclosure Schedule, the execution and delivery of this
Agreement by Sellers and the execution and delivery by the Cyanamid Companies of
the other agreements contemplated hereby, and the consummation by Sellers, the
Asset Transferor Entities and the Share Transferor Entities of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of such entities and no other or further corporate
proceedings will be necessary for the execution and delivery of such agreements
by Sellers, the Asset Transferor Entities and the Share Transferor Entities, the
performance by Sellers, the Asset Transferor Entities and the Share Transferor
Entities of their obligations hereunder and thereunder and the consummation by
such entities of the transactions contemplated hereby and thereby. This
Agreement has been duly executed and delivered by each of the Sellers and
constitutes a legal, valid and binding obligation of each of the Sellers
enforceable against Sellers in accordance with its terms, except as the same may
be limited by bankruptcy, insolvency, moratorium, reorganization or other laws
of general applicability relating to or affecting the enforcement of creditors'
rights and general principles of equity.
4.2 CAPITALIZATION OF THE COMPANIES.
(a) As of the date of this Agreement, the authorized and
issued capital stock of each of the Companies is as set forth in Section 4.2(a)
of the Disclosure Schedule and all shares of such capital stock are validly
issued, outstanding, fully paid and non-assessable. None of the Shares have been
issued in violation of any preemptive rights. Except as set forth in Section
4.2(a) of the Disclosure Schedule, none of the Companies owns any interest in
any corporation, partnership, joint venture or similar entity, including
Affiliates of Sellers. Except as set forth in Section 4.2(a) of the Disclosure
Schedule, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character obligating any of the Companies or
the Cyanamid Companies to issue or sell any shares of capital stock of or other
equity interests in any of the Companies, or any securities or obligations
convertible into or exchangeable for any shares of capital stock of any of the
Companies or other equity interests in any of the Companies obligating any of
the Companies or the Cyanamid Companies to grant, extend, or enter into any such
right, agreement, arrangement or commitment.
(b) Except as set forth in Section 4.2(b) of the Disclosure
Schedule, there are no outstanding contractual obligations of any of the
Companies to repurchase, redeem or otherwise acquire any outstanding shares of
capital stock of, or other ownership interests in, any of the Companies, or to
make any investment (in the form of a loan, capital contribution or otherwise)
in any other entity.
(c) Except as set forth in Section 4.2(c) of the Disclosure
Schedule, Sellers or their Affiliates are the holders of record of and have
good, valid and marketable title to all of the Shares, free and clear of any
Encumbrances and any preemptive or subscription rights of any Person. Except as
set forth in Section 4.2(c) of the Disclosure Schedule, there are no material
restrictions with respect to the transferability of the Shares except under
Applicable Law.
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4.3 EFFECT OF AGREEMENT.
The execution, delivery and performance by Sellers of this
Agreement and the other agreements contemplated hereby and the consummation by
Sellers and their Affiliates of the transactions contemplated hereby and thereby
will not require any notice to, filing with, or the consent, approval or
authorization of, any Person or Governmental Authority, except as contemplated
in Section 7.4 hereof or as set forth in Section 4.3 of the Disclosure Schedule,
other than where the failure to obtain such consent, approval or authorization,
or to give or make any such notice or filing, would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Except as
contemplated in Section 7.4 hereof or as set forth in Section 4.3 of the
Disclosure Schedule, neither the execution and delivery of this Agreement or of
the other agreements contemplated hereby nor the consummation of the
transactions contemplated hereby or thereby will (i) violate or result in a
breach or result in the acceleration or termination of, or require any consent
under, or the creation in any third party of the right to accelerate, terminate,
modify or cancel, any indenture, contract, lease, sublease, loan agreement, note
or other obligation or liability to which any of the Companies or the Business
is a party or is bound or to which any of the assets of the Companies or the
Assets are subject, except for such violation, breach, acceleration or
termination which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, (ii) conflict with, violate or
result in a breach of any provision of the Constituent Documents of the Sellers
or any of the Companies in any material respect, or (iii) conflict with or
violate any Applicable Laws or court orders in any material respect.
4.4 FINANCIAL STATEMENTS AND NET ASSET VALUE.
(a) Sellers have delivered to Buyer or its representatives the
following (the "Financial Statements"): an audited combined adjusted statement
of Net Revenues and Expenses for the year ended December 31, 1999 and a combined
statement of adjusted Net Assets as of December 31, 1999 (including notes
thereto) which combined adjusted financial statements contain a report from
Andersen reporting thereon.
(b) The audited combined adjusted statement of adjusted Net
Assets included in the Financial Statements fairly presents, in all material
respects, the Net Assets as of its date and the audited combined adjusted
statement of adjusted Net Revenues and Expenses included in the Financial
Statements fairly presents, in all material respects, the Operating Profit for
the period set forth therein, in each case in accordance with GAAP, except in
each case as set forth in the Notes therein.
(c) To Sellers' knowledge, there exist no liabilities or
obligations of the Companies, the Business or the Cyanamid Companies (with
respect to the Business) whether accrued, absolute, contingent or threatened,
which are required to be reflected, reserved for or disclosed under GAAP in
financial statements of the Business as of and for the period ended on the date
of this representation and warranty, other than (i) liabilities or obligations
which are adequately reflected, reserved for or disclosed in the Financial
Statements or (ii) liabilities or obligations incurred since December 31, 1999
which would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
<PAGE> 25
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4.5 ABSENCE OF CERTAIN CHANGES OR EVENTS.
Except (x) to the extent arising out of or relating to the
transactions contemplated by this Agreement or as otherwise permitted by the
terms of this Agreement (including with respect to the Excluded Assets), (y) for
Contracts entered into since December 31, 1999, that are included in the
Contracts listed on Section 4.9(i) of the Disclosure Schedule, and (z) for
matters listed on Section 4.5 of the Disclosure Schedule, since December 31,
1999, (i) the Business has been operated in the ordinary course in a manner
substantially consistent with past practice and (ii) there has not been, and
there is not reasonably expected to be, any Material Adverse Effect. As
amplification and not limitation of the foregoing, with respect to the Business
and except as disclosed on Section 4.5 of the Disclosure Schedule, since
December 31, 1999, none of the Cyanamid Companies has:
(i) sold, transferred, leased, subleased, licensed or
otherwise disposed of, to a third party, any property or asset, real,
personal or mixed (including, without limitation, leasehold interests
and intangible property), which in each case is, individually or in the
aggregate, material to the Business, other than the sale of inventories
and obsolete equipment and licensing, in each case in the ordinary
course of the Business consistent with past practice;
(ii) merged with, entered into a consolidation with or
acquired an interest of 5% or more in any Person or acquired a
substantial portion of the assets or business of any Person or any
division or line of business thereof, which in any case is,
individually or in the aggregate, material to the Business, other than
in the ordinary course of the Business consistent with past practice;
(iii) made any capital expenditure or commitment for any
capital expenditure in excess of U.S.$5,000,000 in the aggregate, other
than as set forth on the capital expenditure budget for the Business
attached hereto as Exhibit 4.5(iii);
(iv) incurred any interest bearing indebtedness or assumed any
capital lease obligation in excess of U.S.$ 30,000,000 in the
aggregate;
(v) except in the ordinary course of the Business consistent
with past practice (A) granted any increase, or announced any increase,
in the wages, salaries, compensation, bonuses, incentives, pension or
other benefits payable to any of its employees with annual cash
compensation in excess of $75,000, including, without limitation, any
increase or change pursuant to any benefit plan, or (B) established or
increased or promised to increase any benefits under any benefit plan,
in either case except as required by Applicable Law, any benefit plan
identified in Section 9.1(a) or 9.2(a) of the Disclosure Schedules or
any collective bargaining agreement;
(vi) agreed, whether in writing or otherwise, to take any of
the actions specified in this Section 4.5 or granted any options to
purchase, rights of first refusal, rights of first offer or any other
similar rights with respect to any of the actions specified in this
Section 4.5, except as expressly contemplated by this Agreement.
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4.6 TAXES.
(a) Except as disclosed on Section 4.6 of the Disclosure
Schedule, (i) except where failure to file would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, the
Companies have filed or been included in on or before the date hereof (or will
timely file) or be included in) all Tax Returns required to be filed for tax
years or periods ending on or before the Closing Date; (ii) except where the
failure to pay would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, all such Tax Returns are (or will
be) complete and accurate and disclose (or will disclose) all Taxes required to
be paid by or with respect to the Companies for the periods covered thereby and
all Taxes shown to be due on such Tax Returns have been (or will be) timely
paid; (iii) except where the failure to pay would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, all Taxes
(whether or not shown on any Tax Return) owed by the Companies or in respect of
the Assets or the Business and required to be paid with respect to tax years or
periods ending on or before the Closing Date have been (or will be) timely paid
or are being presently contested in good faith; (iv) none of the Companies or
any of their Tax Affiliates have waived or to Sellers' knowledge been requested
to waive any statute of limitations in respect of Taxes; (v) there is no action,
suit, investigation, audit, claim or assessment pending or proposed or to
Sellers' knowledge threatened with respect to Taxes of the Companies or in
respect of the Assets or the Business; (vi) all deficiencies asserted or
assessments made as a result of any examination of the Tax Returns referred to
in clause (i) have been paid in full; (vii) all Tax Sharing Arrangements and Tax
indemnity arrangements will terminate on or prior to the Closing Date and the
Companies will have no liability thereunder on or after the Closing Date; (viii)
there are no liens for Taxes upon any of the assets of the Companies or the
Assets except liens relating to current Taxes not yet due or for which adequate
reserves are not reflected in the books and records of the business; (ix) no
intercompany obligation of the Companies or any Tax Affiliate will remain
outstanding following the Closing; (x) the Companies have no corporate
acquisition indebtedness, as described in Section 279(b) of the Code; (xi) no
consent under section 341(f) of the Code has been filed with respect to any of
the Companies and (xii) none of the Companies has any material amount of income
reportable for a taxable period ending after the Closing Date but attributable
to a transaction occurring in, or a change in accounting method for, a taxable
period ending on or prior to the Closing Date.
(b) As a result of the transactions contemplated by this
Agreement, none of the Companies nor the Buyer will be obligated to make a
payment to an individual that would be an "excess parachute payment" to a
"disqualified individual" as those terms are defined in Section 280G of the
Code.
4.7 REAL PROPERTY.
(a) Section 4.7 of the Disclosure Schedule sets forth a list
of all Owned Real Property. Except as set forth on Section 4.7(a) of the
Disclosure Schedule and, except for Permitted Encumbrances, (i) one of the
Companies, Sellers or the Asset Transferor Entities, as the case may be, has
good, valid and marketable fee simple title to each parcel of Owned Real
Property and (ii) none of the Owned Real Property is subject to any lease.
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(b) Section 4.7(b) of the Disclosure Schedule sets forth a
list of all Leased Real Property that is material to the Business. One of the
Companies, Sellers or the Asset Transferor Entities, as the case may be, has a
valid leasehold interest in each parcel of Leased Real Property and each of such
leases is in full force and effect in accordance with its terms and there exists
no material breach or default thereunder on the part of any of the Companies,
Sellers or the Asset Transferor Entities or, to the knowledge of Sellers, any
other party thereto other than those breaches or defaults which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
4.8 GOOD TITLE TO AND CONDITION OF ASSETS.
(a) The Companies have good title to, or a valid and binding
leasehold interest in, the assets of the Companies, and Sellers and the Asset
Transferor Entities have good title to, or a valid and binding leasehold
interest in, the Assets (other than Real Property and Intellectual Property
which are addressed in Sections 4.7 and 4.10, respectively), in each case free
and clear of all Encumbrances, except (i) as set forth in Section 4.8(a) of the
Disclosure Schedule, or (ii) Permitted Encumbrances. Except (i) as set forth in
Section 4.8 of the Disclosure Schedule and (ii) for the Excluded Assets, the
assets of the Companies and the Assets, together with the rights granted to
Buyer pursuant to this Agreement, the other agreements to be entered into
pursuant hereto and the agreements set forth in Section 6.2 of the Disclosure
Schedule, constitute, and on the Closing Date will constitute, substantially all
of the assets, properties and rights used in or necessary to the conduct of the
Business as currently conducted.
(b) Except as reflected in the Financial Statements or as set
forth in Section 4.8(b) of the Disclosure Schedule, the physical assets of the
Companies and the Assets, taken as a whole, are in good and serviceable
condition (subject to normal wear and tear and immaterial impairments of value
and damage) and are generally suitable for the uses for which they are intended.
4.9 CONTRACTS.
(a) Section 4.9(i) of the Disclosure Schedule sets forth a
list, as of the date hereof, of the following Contracts primarily relating to
the Business (other than (a) purchase orders in the usual and ordinary course of
business, and (b) any Contract terminable by any of the Companies, Sellers or
the Asset Transferor Entities without material penalty upon not more than 90
days' notice):
(i) each Contract for the purchase of inventory, other
materials or personal property with any supplier or for the furnishing
of services to the Business under the terms of which a Company, Seller
or Asset Transferor Entity is obligated to pay or otherwise give
consideration of more than U.S. $500,000 in the aggregate during the
calendar year ended December 31, 2000;
(ii) each Contract for the sale of inventory or other personal
property or for the furnishing of services by the Business which is
likely to involve consideration of more than U.S.$500,000 in the
aggregate during the calendar year ended December 31, 2000;
<PAGE> 28
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(iii) all material (as relates to the amount of sales)
distributor, dealer, agency, sales promotion Contracts to which a
Company, Seller or Asset Transferor Entity is a party;
(iv) all material Contracts relating to any interest bearing
indebtedness of the Business;
(v) all material Contracts with any Governmental Authority to
which a Company or Seller or Asset Transferor Entity is a party;
(vi) all Contracts (it being understood that this is not
intended to include those Contracts relating to Intellectual Property
which contain only customary limitations on rights to use Intellectual
Property) that limit or purport to limit the ability of the Companies
or the Business in any material respect to compete in any line of
business or with any Person or in any geographic area or during any
period of time;
(vii) all Contracts between or among Sellers or any of their
Affiliates (other than the Companies), on the one hand, and a Company
or the Business, on the other hand; and
(viii) all other Contracts, whether or not made in the
ordinary course of the Business, which are material to the conduct of
the Business, or the absence of which would have a Material Adverse
Effect.
(b) Except as set forth in Section 4.9(ii) of the Disclosure
Schedule, each Contract listed in Section 4.9(i) of the Disclosure Schedule or
Section 4.10(a) of the Disclosure Schedule is a valid and binding agreement and
is in full force and effect. Except as otherwise provided in Section 4.9(iii) of
the Disclosure Schedule, Sellers have no knowledge of any default under any
Contract listed in Section 4.9(i) of the Disclosure Schedule which default has
not been cured or waived, except for such defaults as would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
Except as described in Section 4.9(iv) of the Disclosure Schedule, to Sellers'
knowledge, there is no event or circumstance which, with the passage of time or
the giving of notice or both, would constitute a material default or breach by
any of the Companies, the Asset Transferor Entities or Sellers that is a party
thereto under any of the Contracts listed in Section 4.9(i) of the Disclosure
Schedule or would give rise to any right of termination or acceleration
thereunder except for such default, breach, termination or acceleration as would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. To Sellers' knowledge, there is no assertion by any third party
of any claim of material default or breach under any of the Contracts, except
for such claim as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
4.10 INTELLECTUAL PROPERTY RIGHTS.
(a) Section 4.10(a) of the Disclosure Schedule sets forth a
listing of (i) all Patents, registered Trademarks and applications therefor,
registered copyrights and applications for copyright registration, industrial
and utility model registrations and applications therefor, and design
registrations and applications therefor, included in the Intellectual Property,
(ii) all
<PAGE> 29
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Contracts under which any of the Companies, the Asset Transferor Entities or
Sellers is licensed or otherwise uses or is permitted to use Intellectual
Property which has been previously used by Sellers or the Asset Transferor
Entities in the ordinary course of the Business or which is material to the
Business and (iii) all Contracts under which the Companies, the Asset Transferor
Entities or Sellers license or otherwise permit any party to use Intellectual
Property; provided, however, that except as set forth in Section 7.6, the right
to use the trademarks, trade names, domain names and associated trade dress,
packaging, logos and labels containing "American Home", "AHP", "Wyeth", "Fort
Dodge", or "Lederle" or any derivative or anything imitative thereof or which
resembles or is confusingly similar thereto by Buyer is prohibited and such
rights are expressly excluded from the purchase and sale hereunder.
(b) To the knowledge of Sellers, since January 1, 1997, except
as set forth in Section 4.10(b) of the Disclosure Schedule, no Person has
asserted or claimed that the conduct of the Business as currently conducted, or
asserted or claimed that the use of the Intellectual Property in connection
therewith, infringes on or otherwise violates the intellectual property rights
of any other Person and (ii) except as set forth on Section 4.10(b) of the
Disclosure Schedule, no Person is challenging the validity or enforceability of
the Intellectual Property, and (iii) except as set forth on Section 4.10(b) of
the Disclosure Schedule, to the knowledge of Sellers, no Person is infringing or
otherwise violating the Intellectual Property, except, in each case, for
challenges, infringements or violations that would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(c) Except as disclosed on Section 4.10(c) of the Disclosure
Schedule, one or more of the Companies, Sellers or the Asset Transferor Entities
either (i) owns the entire right, title and interest in and to the Intellectual
Property free and clear of any Encumbrances; or (ii) has or have the right to
use the same as currently used in the conduct of the Business.
(d) Except as disclosed on Section 4.10(d) of the Disclosure
Schedule, none of the Companies, the Asset Transferor Entities or Sellers are in
breach of or default under any material provision of any material agreement,
commitment, contractual understanding, license, sublicense, assignment or
indemnification which relates to any of the Intellectual Property and they have
not taken any action which would, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect on their rights in any of the
Intellectual Property.
4.11 LITIGATION AND CLAIMS.
(a) Except as set forth in Section 4.11(a) of the Disclosure
Schedule, and except for matters under Environmental Laws or relating to the
environmental condition of the Real Property (as to which no representation or
warranty is being made except as set forth in Section 4.13) and except for
regulatory matters (as to which no representation and warranty is being made
except as set forth in Section 4.14), there is no civil, criminal or
administrative action, suit, hearing, proceeding or investigation pending or, to
the knowledge of Sellers, threatened against the Companies, the Asset Transferor
Entities or Sellers (to the extent related to the conduct of the Business),
other than those that would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
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(b) Except as set forth in Section 4.11(b) of the Disclosure
Schedule, and except for matters under Environmental Laws or relating to the
environmental condition of the Real Property (as to which no representation or
warranty is being made except as set forth in Section 4.13) and except for
regulatory matters (as to which no representation and warranty is being made
except as set forth in Section 4.14), none of the Sellers, the Companies nor
Asset Transferor Entities is subject to any order, writ, judgment, award,
injunction, or decree of any court or Governmental Authority or any arbitrator
or arbitrators related to the conduct of the Business other than those that
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
4.12 COMPLIANCE WITH LAW; APPLICABLE PERMITS.
Except as set forth in Section 4.11 of the Disclosure Schedule
or Section 4.12 of the Disclosure Schedule, and except for matters relating to
Taxes which are addressed in Section 4.6, and except for matters under
Environmental Laws or relating to the environmental condition of the Real
Property (as to which no representation or warranty is made except as set forth
in Section 4.13), and except for regulatory matters (as to which no
representation and warranty is being made except as set forth in Section 4.14),
the Business has been since December 31, 1998, and is being, conducted in
compliance with all Applicable Laws, except where the failure to have complied,
or to comply, would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. The Companies, the Asset Transferor
Entities and Sellers have all Applicable Permits necessary to conduct the
Business as currently conducted, other than those the absence of which would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. There are no proceedings pending or, to the knowledge of
Sellers, threatened which may result in the revocation, cancellation or
suspension of any such Applicable Permits, except those the absence of which
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
4.13 ENVIRONMENTAL MATTERS.
Except as disclosed in Section 4.13 of the Disclosure
Schedule:
(a) the Companies, the Asset Transferor Entities and/or
Sellers have obtained those material environmental permits, licenses or
approvals required by law and necessary for the conduct of the Business and are
in compliance with such permits, licenses and approvals and other requirements
of applicable Environmental Laws, except where the failure to comply with any of
the foregoing would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect;
(b) none of the Companies, or, to the extent related to the
Business, the Asset Transferor Entities, nor Sellers has received any written
notice from any Governmental Authority or other third party of violation of or
any liability under any Environmental Laws which has not been complied with or
satisfied without remaining obligation, cost or liability, except where the
failure to so comply or satisfy would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect;
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(c) the Real Property does not contain and, to the knowledge
of the Sellers, has never contained, any underground storage tanks, surface
impoundments, pits, sumps, septic tanks or lagoons containing any Hazardous
Substance, the presence of which would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect;
(d) none of the Companies, or, to the extent related to the
Business, the Asset Transferor Entities or Sellers has received any written
notice, claim, or request for information relating to any third-party location
or waste disposal site alleging that any of them is or may be liable to any
Person or Governmental Authority in connection with such location or site;
(e) to the knowledge of Sellers, except as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect, no Hazardous Substance has been released at any of the Real
Property or, during the period of any of their ownership or operation thereof,
at any property formerly owned or operated by the Companies or, to the extent
related to the Business, the Asset Transferor Entities or Sellers;
(f) To the knowledge of Sellers, no Governmental Authority has
proposed any modification of any permit, license or approval issued pursuant to
any Environmental Law, related to the Business that would, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect; and
(g) Neither the execution of this Agreement nor the
consummation of the transactions contemplated herein will require any
investigation, remediation or other action related to Hazardous Substance, or
any notice to or consent of Governmental Authorities or third parties, pursuant
to any applicable Environmental Law or permit, license or approval related
thereto, other than the New Jersey Industrial Site Recovery Act.
4.14 REGULATORY MATTERS.
Except as set forth on Section 4.14 of the Disclosure
Schedule, there are no products included in the assets of the Companies or the
Assets being manufactured or sold by the Companies or Sellers or any Subsidiary
of Sellers which at the date hereof would require any approval of the U.S.
Environmental Protection Agency or any other Governmental Authority for the
purpose for which they are being manufactured or sold (i) for which such
approval has not been obtained, or (ii) for which such approval has been
withdrawn or is no longer in full force and effect, except where the failure to
have such approval would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Except as set forth in Section 4.14
of the Disclosure Schedule, the registrations relating to the products
manufactured or sold primarily relating to the Business are valid and in full
force and effect and no proceeding is pending or to the knowledge of Sellers
threatened looking towards the revocation or limitation of any such Registration
and, to the knowledge of Sellers, there is no basis or ground for any such
revocation or limitation in each such case except for such failures, revocations
or limitations which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
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4.15 LABOR MATTERS.
Except as disclosed in Section 4.15 of the Disclosure
Schedule, none of the Companies or, to the extent related to the Business, the
Asset Transferor Entities or Sellers is a party to any collective bargaining
agreement and there are no unfair labor practice proceedings pending between any
of the Companies or, to the extent related to the Business, the Asset Transferor
Entities or Sellers and any of their Employees or any labor or other collective
bargaining unit representing any Employee that would, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
4.16 BROKER'S FEES.
Except for the retention of Morgan Stanley & Co. Incorporated,
the fees and expenses of which will be paid by Sellers in accordance with
Section 7.1, Sellers and their Affiliates have not employed any broker, finder
or investment banker or incurred any liability for any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement.
4.17 INTERCOMPANY AGREEMENTS.
For a period of three years from Closing, each of the
agreements set forth on Section 4.17 of the Disclosure Schedule are on economic
terms generally consistent with the revenue and cost assumptions for the items
covered thereby contained in the forecast relating to the Business previously
delivered to Buyer.
4.18 NO OTHER REPRESENTATIONS OR WARRANTIES; DISCLOSURE.
Except for the representations and warranties of Sellers
expressly set forth in this Agreement, neither Sellers nor any other Person
makes any other express or implied representation or warranty on behalf of
Sellers or otherwise in respect of the Business. Disclosure in a particular
Section of the Disclosure Schedule shall be deemed to be a disclosure in all
other Sections thereof to the extent that the disclosure in such particular
Section on its face would be reasonably relevant in light of the disclosure
made.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
5.1 CORPORATE ORGANIZATION.
Buyer is a corporation duly organized, validly existing and in
good standing under the laws of Germany. Buyer has the requisite corporate power
and authority to own, operate or lease the properties that it purports to own,
operate or lease and to carry on its business as it is now being conducted and
is duly licensed or qualified as a foreign corporation in each domestic or
foreign jurisdiction in which the nature of the business conducted by it or the
character or location of the properties owned or leased by it makes such
licensing or qualification necessary, except where the failure to be so licensed
or qualified would not reasonably be expected to have a material adverse effect
on the business, operations or financial condition of Buyer and its
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subsidiaries, taken as a whole or on the ability of Buyer to consummate the
transactions contemplated herein.
5.2 AUTHORITY RELATIVE TO THIS AGREEMENT.
Buyer has the requisite corporate power and authority to
execute and deliver this Agreement and the other agreements contemplated hereby
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery by Buyer of this Agreement and the other agreements
contemplated hereby and the consummation by Buyer of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Buyer and no other corporate proceeding is
necessary for the execution and delivery of this Agreement or such other
agreements by Buyer, the performance by Buyer of its obligations hereunder or
thereunder and the consummation by Buyer of the transactions contemplated hereby
and thereby. This Agreement has been duly executed and delivered by Buyer and
constitutes a legal, valid and binding obligation of Buyer, enforceable against
Buyer in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, moratorium, reorganization or other laws of general
applicability relating to or affecting the enforcement of creditors' rights and
general principles of equity.
5.3 BROKER'S FEES.
Except for the retention of Wasserstein Perella & Co., the
fees and expenses of which will be paid by Buyer pursuant to Section 7.1, none
of Buyer or any of its Affiliates has employed any broker, finder or investment
banker or incurred any liability for any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement.
5.4 CONSENTS AND APPROVALS; NO VIOLATIONS.
Except as contemplated by Section 7.4 hereof, no material
filing with, and no material permit, authorization, consent or approval of, any
public body or authority is necessary for the consummation by Buyer of the
transactions contemplated by this Agreement or the other agreements which Buyer
will execute pursuant to the terms of this Agreement. The execution and delivery
of this Agreement and such other agreements and the consummation of the
transactions contemplated hereby and thereby will not (x) conflict with or
result in a breach of any of the provisions of the Certificate of Incorporation
or by-laws or other Constituent Documents of Buyer, or (y) be subject to the
making of the filings and the obtaining of the governmental and other consents
referred to herein, contravene in any material respect any law, rule or
regulation of any state, the United States or any foreign country or any order,
writ, judgment, injunction, decree, determination or award currently in effect
that is binding upon Buyer or any of its subsidiaries or any of their respective
properties.
5.5 FINANCIAL CAPABILITY.
Buyer has sufficient funds to purchase the Assets and the
Shares and to perform its obligations under the Assumed Contracts and Assumed
Liabilities on the terms and subject to the conditions contemplated by this
Agreement.
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5.6 SECURITIES ACT.
Buyer is acquiring the Shares solely for the purpose of
investment and not with a view to, or for sale in connection with, any
distribution thereof in violation of the Securities Act. Buyer acknowledges the
Shares are not registered under the Securities Act or any applicable state
securities law or other Applicable Laws, and that such Shares may not be
transferred or sold except pursuant to the registration provisions of such
Securities Act or pursuant to an applicable exemption therefrom and pursuant to
state securities laws and regulations as applicable.
5.7 NO OTHER REPRESENTATIONS OR WARRANTIES.
Except for the representations and warranties of Buyer
expressly set forth in this Agreement, neither Buyer nor any other Person makes
any other express or implied representation or warranty on behalf of Buyer.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE CLOSING
6.1 CONDUCT OF BUSINESS PENDING THE CLOSING.
Except as disclosed in Section 6.1 of the Disclosure Schedule,
Sellers and Buyer agree that, prior to the Closing, unless Buyer shall otherwise
consent in writing (which consent Buyer shall not unreasonably withhold) or as
otherwise contemplated by this Agreement (including with respect to the Excluded
Assets) the following provisions shall apply:
(a) The Business shall be conducted only in the ordinary
course of business and consistent with past practices. Without limiting the
generality of the foregoing, except as described in Section 6.1 of the
Disclosure Schedule, Sellers will (with respect to the Business), and will cause
the Companies, the Asset Transferor Entities and the Share Transferor Entities
(with respect to the Business) to, (i) continue its advertising and promotional
activities, and purchasing policies, in the ordinary course of business; (ii)
not shorten or lengthen the customary payment cycles for any of its payables or
receivables except in the ordinary course of business; (iii) use diligent
efforts to (A) preserve intact its business organization and the business
organization of the Business, (B) keep available to Buyer the services of the
employees of the Business, and (C) continue in full force and effect without
material modification all existing policies or binders of insurance currently
maintained in respect of the Business;
(b) Except as described in Section 6.1 of the Disclosure
Schedule, Sellers covenant and agree that, prior to the Closing, without the
prior written consent of Buyer, and to the extent not otherwise contemplated by
this Section 6.1, none of the Cyanamid Companies, nor the Companies will do any
of the things enumerated in the second sentence of Section 4.5 (including,
without limitation, clauses (i) through (vii) thereof);
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(c) The Companies, Sellers and the Asset Transferor
Entities shall not pledge, dispose of or encumber any of the Assets or assets of
the Companies (other than Excluded Assets) other than in the ordinary course of
business and consistent with past practice;
(d) Sellers shall cause (x) the Companies and (y) the
Asset Transferor Entities, only to the extent related to or affecting the
Business, not to do any of the following: (i) authorize for issuance, issue,
sell, pledge, deliver, or agree or commit to issue, sell, pledge or deliver
(whether through the issuance or grant of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any capital stock of the
Companies or securities or rights convertible into or exchangeable for, shares
of capital stock or securities convertible into or exchangeable for such shares;
(ii) amend or propose to amend their Constituent Documents; (iii) split, combine
or reclassify any shares of their capital stock; (iv) redeem, purchase or
otherwise acquire or offer to redeem, purchase or otherwise acquire any capital
stock; or (v) authorize or propose any of the foregoing or enter into any
contract, agreement, commitment or arrangement to do any of the foregoing;
provided, however, notwithstanding anything to the contrary contained in this
Agreement, that Sellers and their Affiliates shall continue to have the right
to, at their own expense, withdraw cash from the Companies, either in the form
of a dividend or in the form of a cash advance, and, correspondingly, to provide
cash to the Companies, either in the form of a contribution to capital or an
intercompany loan, in a manner consistent with their past practice and the cash
management programs which they have in place, generally, for their Affiliates.
Buyer acknowledges that Sellers may transfer by way of a dividend or otherwise
cash, cash equivalents, marketable securities and other financial instruments as
well as any other Excluded Assets out of the Companies prior to Closing and, it
is intended that to the extent practicable, the Excluded Assets relating to the
Companies will be transferred out of the Companies by way of dividend or
otherwise prior to Closing as contemplated by Section 6.2(a);
(e) Sellers shall cause the Companies and, as it relates
to the Business, with respect to clauses (ii) and (iii) below, the Asset
Transferor Entities not to (i) acquire (by merger, consolidation or acquisition
of stock or assets) any corporation, partnership or other business organization
or division thereof or make any investment either by purchase of stock or
securities of any other individual or entity; (ii) acquire any assets for an
aggregate value in excess of $5,000,000 other than pursuant to the current
capital expenditure budget (a copy of which is attached hereto as Exhibit
4.5(iii)) of the Business and other than purchases in the ordinary course of
business; (iii) dispose of any assets, other than Excluded Assets, with an
aggregate value in excess of $5,000,000 other than sales of inventory in the
ordinary course of business; (iv) incur any indebtedness for borrowed money or
issue any debt securities or assume or guarantee the obligations of any other
Person or make any loans or advances or enter into any other transaction, except
the occurrence of intercompany loans or the making of intercompany advances in
the ordinary course of business consistent with past practice and except for
advances to Employees for expenses in the ordinary course of business and
consistent with past practice; (v) authorize, recommend or propose any change in
its capitalization; or (vi) insofar as relates to the Business, make, change or
revoke any material Tax election (unless expressly contemplated hereby or
regularly made in connection with the Business) or method of Tax accounting, or
settle or compromise any material Tax deficiency or assessment; or (viii)
authorize or propose any of the foregoing or enter into or modify any contract,
agreement, or commitment or arrangement with respect to any of the foregoing;
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(f) Except as otherwise contemplated by this Agreement,
the Companies and, to the extent related to the Business, the Asset Transferor
Entities and Sellers shall not adopt or amend any U.S. Employee Plan, U.S.
Benefit Arrangement or International Plan or increase or pay any benefit not
required by any existing U.S. Employee Plan, U.S. Benefit Arrangement or
International Plan (as defined in Article 9), or increase any salaries or wages
of Employees, other than in the ordinary course of business consistent with past
practice or as may be required by a Governmental Authority, by Applicable Law or
collective bargaining or other agreements or as previously agreed in writing by
Buyer;
(g) None of the Companies, the Asset Transferor Entities
or Sellers shall waive, release, grant or transfer any rights with respect to
any Intellectual Property, or abandon or allow to lapse any Intellectual
Property material to the Business, or modify or change in any material respect
any existing material license, distribution agreement, lease, or other document
used in the Business, in each case, other than in the ordinary course of
business in a manner consistent with past practice; and
(h) Sellers, the Companies and the Asset Transferor
Entities shall not, except as disclosed in Section 6.1(h) of the Disclosure
Schedule, grant any bonuses, commissions, prizes or similar forms of
remuneration to any Employee, any general increase in the rates of salaries or
compensation or any specific increase to any Employee or enter into any
employment agreement, except such as are (i) in accordance with regularly
scheduled periodic increases or existing bonus plans, policies or programs, (ii)
required under Applicable Law or collective bargaining or labor agreements, or
(iii) previously agreed to in writing by Buyer.
6.2 PERMITTED ACTIONS.
(a) Notwithstanding any other provisions herein to the
contrary, prior to the Closing, Sellers and their Affiliates shall (A) use
diligent efforts to (i) cause each of the Companies to transfer by way of
dividend or otherwise to Sellers or any of their Affiliates, as the case may be,
all Excluded Assets including, but not limited to, any cash, cash equivalents or
marketable securities held by such Company from time to time up to and including
the Closing Date, and (ii) except to the extent otherwise agreed between Sellers
and Buyer including the Contracts set forth in Section 6.2 of the Disclosure
Schedule, settle all intercompany receivables and intercompany payables
(including without limitation all intercompany Tax and equity accounts) and (B)
be permitted but not required to repay obligations for borrowed money, whether
pursuant to the issuance of commercial paper or otherwise. All Taxes arising
from transactions contemplated by this Section 6.2 shall be borne by the
Sellers.
(b) To the extent not completed by Closing, Buyer will
cooperate with Sellers and their Affiliates to transfer to Sellers or their
Affiliates any Excluded Assets and assets of the Companies not used primarily in
the Business remaining in any of the Companies (at Sellers' expense).
6.3 CHANGE OF NAME.
(a) Prior to Closing, (i) Cyanamid shall change its
corporate name and shall omit therefrom the word "Cyanamid" and (ii) Sellers
shall be permitted to change the corporate
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name of any of the Companies to delete any reference to "AHP", "American Home
Products", "Fort Dodge", "Wyeth", "Lederle" or any similar name.
(b) Sellers acknowledge that from and after the Closing,
the name "Cyanamid" and all confusingly similar names, marks and logos (all of
such names, marks and logos being the "Cyanamid Names") shall be owned by Buyer,
and that, subject to the (i) Trademark and License Agreement between the Crop
Protection Division of Cyanamid and the Human Health Division of Cyanamid, dated
February 1, 2000 and (ii) Trademark License Agreement between the Crop
Protection Division of Cyanamid and the Animal Health Division of Cyanamid dated
February 1, 2000, none of Sellers nor any of their Affiliates shall have any
rights in the Cyanamid Names, and that none of Sellers nor any of their
Affiliates will contest the ownership or validity of any rights of Buyer in or
to the Cyanamid Names.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 EXPENSES.
Except as otherwise provided in Section 3.5(c), all expenses,
including the fees of any attorneys, accountants, investment bankers or others
engaged by a party, incurred in connection with this Agreement and the
transactions contemplated hereby, shall be paid by the party incurring such
expenses whether or not the transactions contemplated by this Agreement are
consummated.
7.2 ADDITIONAL AGREEMENTS.
Subject to the terms and conditions herein provided, each of
the parties hereto agrees (i) to use all reasonable efforts to do, or cause to
be done, all things necessary, proper or advisable to consummate the
transactions contemplated by this Agreement and to cooperate with each other in
connection with the foregoing, (ii) to defend all lawsuits or other legal
proceedings challenging this Agreement or the consummation of the transactions
contemplated hereby, (iii) to use all reasonable efforts to lift or rescind any
injunction or restraining order or other order adversely affecting the ability
of the parties to consummate the transactions contemplated hereby, and (iv) to
use all reasonable efforts to effect all necessary registrations and filings and
submissions of information required or requested by Governmental Authorities
with respect to the transactions contemplated hereby.
7.3 ACCESS TO INFORMATION.
Prior to the Closing, Sellers shall, and shall cause their
Affiliates to, afford the officers, employees and agents of Buyer reasonable
access to the facilities and employees of Business and the records of the
Sellers and their Affiliates relating to the Business (but not including
confidential personnel records) during normal business hours and in a manner
that will not unreasonably disrupt the operation of the Business. In connection
therewith, the parties will comply with the terms of the Confidentiality
Agreement, dated September 22, 1999, between Buyer and AHP, which agreement
shall survive the termination of this Agreement.
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7.4 FILINGS AND AUTHORIZATIONS.
Sellers and Buyer have filed or supplied or will, as promptly
as practicable, file or supply, or cause to be filed or supplied, all
notifications and information required to be filed or supplied pursuant to any
merger control or Competition Laws including, without limitation, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
and, if necessary, any other Competition Laws, in connection with the
transactions contemplated by this Agreement. As promptly as practicable, (a)
Sellers and Buyer will make, or cause to be made, all such other filings and
submissions under laws, rules and regulations applicable to them, or to their
Subsidiaries and Affiliates, as may be reasonably required for them to
consummate the transactions contemplated hereby in accordance with the terms of
this Agreement, and (b) Buyer will use reasonable best efforts to obtain, or
cause to be obtained, as promptly as practicable all authorizations, approvals,
consents and waivers from all Governmental Authorities necessary to be obtained
by them, or their Affiliates, in order for them so to consummate such
transactions. [***] Each of the Buyer and the Sellers agrees that it will inform
the other regarding its communications with Governmental Authorities and permit
the other to participate fully in any investigation by Governmental Authorities,
including providing the other with notice of and an opportunity to attend all
meetings between Buyer or the Sellers and any Governmental Authority. [***]
7.5 TAX MATTERS.
(a) Liability for Taxes.
(i) Except as provided in Section 7.5(iv) or for Taxes
included in the Final Net Asset Value, Sellers shall be liable for, and
shall indemnify Buyer against, all (A) Taxes imposed on any of Sellers
or their Tax Affiliates (other than the Companies) for any taxable year
or period that ends on or before the Closing Date, (B) Taxes imposed on
or with respect to the Companies, the Assets or the Business or for
which the Companies, or the Business may otherwise be liable for any
taxable year or period that ends on or before the Closing Date and,
with respect to any Straddle Period, the portion of such Straddle
Period ending on and including the Closing Date (including, without
limitation, any obligation to contribute to the payment of a Tax
determined on a consolidated, combined or unitary basis with respect to
the Companies and any of Sellers' Tax Affiliates) and (C) Taxes
relating to the Companies, the Assets or the Business attributable to
any breach of warranty or misrepresentation under clauses (vii), (ix),
(x), (xi) and (xii) of paragraph (a), and paragraph (b), of Section 4.6
hereof.
- - - - - - ----------
[***] Confidential treatment requested and the redacted material has been
separately filed with the Commission.
<PAGE> 39
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(ii) Buyer shall be liable for, and shall indemnify
Sellers against, Taxes imposed on or with respect to the Companies, the
Assets, the Business or Buyer for any taxable year or period that
begins after the Closing Date and with respect to any Straddle Period,
the portion of such Straddle Period beginning after the Closing Date
(including, without limitation, any obligation to contribute to the
payment of a Tax determined on a consolidated, combined or unitary
basis with respect to Buyer and its Tax Affiliates).
(iii) For purposes of paragraphs (a)(i) and (a)(ii) above,
whenever it is necessary to determine the liability for Taxes relating
to the Companies, the Assets or the Business for a Straddle Period, the
determination of the Taxes relating to the Companies, the Assets or the
Business for the portion of the Straddle Period ending on, and the
portion of the Straddle Period beginning after, the Closing Date shall
be determined by assuming that the Straddle Period consisted of two
taxable years or periods, one which ended on the Closing Date and the
other which began at the beginning of the day following the Closing
Date, and items relating to the Companies, the Assets or the Business
for the Straddle Period shall be allocated between such two taxable
years or periods on a "closing of the books basis" by assuming that the
books of the Companies and the Business were closed at the close of
business on the Closing Date, provided, however, that Taxes imposed on
a periodic basis with respect to the assets of the Companies or the
Assets (or otherwise measured by the level of any item), and any
exemptions, allowances or deductions that are calculated on an annual
basis, such as the deduction for depreciation, shall be apportioned
between such two taxable years or periods on a daily basis.
(iv) Any and all real property transfer or real property
transfer gains Tax, sales Tax, use Tax, stamp Tax, stock transfer Tax,
or other similar Tax imposed on the sale to Buyer of the Shares and the
Assets hereunder shall be paid 50% by Buyer and 50% by Sellers;
provided that any such liability relating to value added taxes shall be
paid by Buyer to the extent Buyer is entitled to recovery thereof.
(v) Buyer shall pay to Seller the amounts of any refund,
abatement or credit of Taxes received related to the Business which are
attributable to (A) any taxable period that ends on or before the
Closing Date, (B) in the case of any taxable period that begins before
and ends after the Closing Date, to the extent such amounts do not
exceed the amount of the refund, abatement or credit of Taxes that
would have been made had the taxable period ended on the Closing Date,
or (C) Taxes for which Seller has previously indemnified Buyer.
Notwithstanding the foregoing, Buyer shall not be obligated to pay
Seller the amount of any refund, abatement or credit of Taxes that was
reflected as an asset on the Closing Statement.
(b) For taxable years or periods ending on or before the
Closing Date, Buyer shall unless otherwise requested by Sellers prepare and file
when due all non-U.S. Tax Returns with respect to the Companies and Sellers
shall reimburse Buyer for costs of any outside services for such preparations
and filings. Buyer shall remit (or cause to be remitted) to the appropriate
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Governmental Authority any taxes due in respect of such Tax Returns. Buyer shall
file or cause to be filed when due all non-U.S. Tax Returns that are required to
be filed by or with respect to the Companies for any Straddle Period taxable
years or periods ending after the Closing Date and Buyer shall remit (or cause
to be remitted) to the appropriate Governmental Authority any Taxes due in
respect of such Tax Returns. At Sellers' request, Buyer shall submit to Sellers
the non-U.S. Tax Returns that have been prepared for filing as required above no
less than thirty (30) days prior to their respective due dates for Sellers'
review and approval (which approval shall not be unreasonably withheld). Sellers
shall prepare and file all U.S. Tax Returns for the Companies for taxable
periods ending on or before the Closing Date. Sellers or Buyer shall reimburse
the other party the Taxes for which Sellers or Buyer is liable pursuant to
paragraph (a) of this Section 7.5 but which are payable with any Tax Return to
be filed by the other party pursuant to this paragraph (b) upon written request
of the party entitled to reimbursement setting forth in detail the computation
of the amount owed by Sellers or Buyer, as the case may be. All Tax Returns
which Sellers are required to file or cause to be filed in accordance with this
paragraph (b) shall be prepared and filed in a manner consistent with past
practice in preparing and filing similar Tax Returns and shall not thereafter
amend any Tax Return to take positions inconsistent with such past practice. The
Buyer agrees that no tax election will be made by Buyer which will affect Taxes
of a year or period ending on or prior to Closing Date unless made with the
prior written consent of Seller. Seller reserves the right to elect (on an
election filed and effective prior to the Closing) the provisions of Reg.
301.7701(4) for certain eligible foreign companies (copies of any such elections
shall be furnished to Buyer).
(c) Contest Provisions. Buyer shall notify Sellers in
writing upon receipt by Buyer or any of its Tax Affiliates of notice of proposed
audit, or any assessment or claim in any Tax audit or any administrative or
judicial proceeding which may materially affect the Tax liabilities of the
Companies for which Sellers would be required to indemnify Buyer pursuant to
paragraph (a) of this Section 7.5; provided, however, that a failure to give
such notice will not affect Buyer's right to indemnification under this Section
7.5 except to the extent that Sellers have been actually prejudiced as a result
of such failure. In the case of a proposed Tax assessment or claim that relates
to taxable periods ending on or before the Closing Date, (A) both Buyer and
Sellers may participate in the conduct of the audit or administrative or
judicial proceeding involving such assessment or claim (at their own expense)
and (B) provided that Sellers have acknowledged in writing their liability to
indemnify Buyer against the full amount of any adjustment which may be made as a
result of such audit or proceeding, Sellers may elect to control (at their
expense) the conduct of such audit or proceeding (but only to the extent that
such audit or proceeding relates solely to a potential adjustment for which
Sellers have acknowledged their liability and the issue underlying the proposed
adjustment does not recur for any taxable period ending after the Closing Date).
With respect to a proposed tax assessment or claim for which either Sellers (as
evidenced by their acknowledgment hereunder) and any Buyer, the Companies or
their Affiliates could be liable, or which involves an issue that recurs for any
period ending after the Closing Date (whether or not the subject of audit at
such time), (A) both Buyer and the Sellers may participate in the audit,
administrative or judicial proceeding involving such assessment or claim (at
their own expense), and (B) the audit or proceeding shall be controlled by that
party which would bear the burden of the greater portion of the sum of the
assessment or claim and any corresponding adjustments that may reasonably be
anticipated for future taxable periods. In the case of any Tax audit or
administrative or judicial proceeding governed by this paragraph (c), the
controlling party shall have the authority to settle or
<PAGE> 41
37
compromise any proposed Tax claim or assessment, provided however that neither
Buyer nor Sellers shall enter into any compromise or agree to settle any claim
or assessment pursuant to any Tax audit or administrative or judicial proceeding
which would adversely affect the other party without the written consent of the
other party, which consent may not be unreasonably withheld.
(d) Cooperation.
(i) Buyer and Sellers agree to cooperate and share all
required information on a timely basis in order to timely file all Tax
Returns and for the preparation of any audit, and for the prosecution
or defense of any claim, suit or proceeding relating to any proposed
adjustment. Buyer and Sellers agree to retain or cause to be retained
all books and records pertinent to the Companies until the applicable
period for assessment under applicable law (giving effect to any and
all extensions or waivers) has expired, and to abide by or cause the
abidance with all record retention agreements entered into with any
Governmental Authority. After the Closing, Buyer will give Sellers
reasonable notice prior to transferring, discarding or destroying any
such books and records relating to Tax matters and, if Sellers so
request and at Sellers' expense, Buyer will allow Sellers to take
possession of such books and records. Buyer and Sellers shall cooperate
with each other in the conduct of any audit or other proceedings
involving the Companies for any Tax purpose and each shall execute and
deliver such powers of attorney and other documents as are necessary
and appropriate to carry out the intent of this subsection.
(ii) Sellers shall provide Buyer with such forms or
certificates as Buyer may reasonably request for purposes of complying
with any withholding tax requirements under Applicable Law, including
under Section 1445 of the Code.
(iii) Prior to Closing, Sellers and Buyer shall meet and
mutually agree to an allocation of the sum of the Purchase Price and
Assumed Liabilities to determine the agreed fair market value of each
item of the Shares and of the Assets to be sold by Sellers and acquired
by Buyer pursuant to this Agreement. A schedule of such allocation
shall be prepared ("Allocation") and Sellers and Buyer agree to file
all Tax Returns in accordance with the Allocation and not to take or
cause to be taken any action that would be inconsistent with or
prejudicial to such Allocation. Sellers and Buyer shall cooperate in
the preparation and filing of Form 8594 (and similar forms) on a
consistent basis.
(e) Straddle Period Adjustment. In the case of any
straddle period, to the extent that Buyer takes any action outside the ordinary
course of business that gives rise to losses, credits or other Tax items
generated in the portion of the Straddle Period that begins on the day after the
Closing Date, and such losses, credits or other tax items are utilized to reduce
an amount of Tax that would have otherwise been owed had the Straddle Period
ended on the Closing Date, Buyer shall pay Seller 50% of the amount of such
reduction in Tax. If the amount of such losses, credits or other Tax items is
reduced or increased as a result of subsequent events (e.g., an adjustment by a
taxing authority), the amount of such reduction in Tax shall be redetermined and
Seller shall make to Buyer or Buyer shall make to Seller, a payment to the
extent 50% of the redetermined amount is less than, or greater than, 50% of the
amount as originally determined.
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38
(f) Adjustment to Purchase Price. Any payment by Buyer or
Sellers under this Section 7.5 or under Section 11.1 hereof will be deemed an
adjustment to the Purchase Price to the fullest extent permitted by applicable
laws, and otherwise such payment shall be made on an after-Tax basis, except to
the extent that a Tax benefit is not available to Sellers in respect of such
payment after reasonable efforts.
(g) Survival of Obligations. Notwithstanding anything to
the contrary in this Agreement, and notwithstanding Section 12.3 of this
Agreement, the obligations of the parties set forth in this Section 7.5 [***].
7.6 USE OF CERTAIN NAMES.
Within 180 days after the Closing, Buyer shall cause the
Companies to revise product literature and labeling (including by way of
stickering), change packaging and stationery, and otherwise discontinue use of
the names or trademarks, service marks trade names, domain names, and associated
trade dress, packaging, logos, and labels "American Home Products," "AHP",
"Lederle", "Wyeth", "Fort Dodge" and or any derivative or anything imitative
thereof or which resembles or is confusingly similar thereto (collectively,
"Names"). In no event shall Buyer or the Companies use any Names after the
Closing in any manner or for any purpose different from the use of such Names by
the Companies during the 90 day period preceding the Closing. With respect to
product inventory manufactured by the Companies or their Affiliates prior to the
Closing, Buyer and the Companies may continue to sell such inventory,
notwithstanding that it bears one or more of the Names, for a reasonable period
of time after the Closing (not to exceed eighteen months).
7.7 REMOVAL OF INTERNATIONAL ASSETS.
As soon as reasonably practicable after the Closing, but in no
event later than 180 days, Buyer shall arrange to have the Assets held by the
Asset Transferor Entities set forth in Section 7.7 of the Disclosure Schedule
removed from the premises of the Asset Transferor Entities holding such Assets,
and the legal ownership transferred to Buyer at Buyer's sole cost.
7.8 ACCESS TO RECORDS AFTER CLOSING.
(a) For a period of six years after the Closing, Sellers
and their representatives shall have reasonable access to all of the books and
records of the Business with respect to periods prior to the Closing Date to the
extent that such access may reasonably be required by such Persons in connection
with matters relating to or affected by the operations of the Business prior to
the Closing Date (including integrated records of other business of Sellers or
their Affiliates). Buyer shall afford such access upon receipt of reasonable
advance notice and during normal business hours, and Sellers shall be solely
responsible for any costs or expenses incurred by them pursuant to this Section
7.8. If Buyer or its Affiliates shall desire to dispose of any of
- - - - - - ----------
[***] Confidential treatment requested and the redacted material has been
separately filed with the Commission.
<PAGE> 43
39
such books and records prior to the expiration of such six-year period, Buyer
shall, prior to such disposition, give Sellers a reasonable opportunity, at
Sellers' expense, to segregate and remove such books and records as Sellers may
elect.
(b) For a period of six years after the Closing Date,
Buyer and its Affiliates and their respective representatives shall have
reasonable access to all of the books and records relating to the Business which
Sellers or any of their Affiliates may retain after the Closing Date. Such
access shall be afforded by Sellers and their Affiliates upon receipt of
reasonable advance notice and during normal business hours. Buyer or its
Affiliates, as the case may be, shall be solely responsible for any costs and
expenses incurred by it pursuant to this Section 7.8. If Sellers or any of their
Affiliates shall desire to dispose of any of such books and records prior to the
expiration of such six-year period, Sellers shall, prior to such disposition,
give Buyer a reasonable opportunity, at Buyer's expense, to segregate and remove
such books and records as Buyer may elect.
7.9 REPLACEMENT OF GUARANTY OBLIGATIONS.
Buyer agrees to use diligent efforts in cooperation with
Sellers to substitute the bonds, guaranties, letters of credit and comfort
letters of Buyer for Sellers' or their Affiliates' bonds, guaranties, letters of
credit and comfort letters under the agreements set forth in Section 7.9 of the
Disclosure Schedule.
7.10 NON-SOLICITATION.
Except for those Employees set forth in Section 7.10 of the
Disclosure Schedule, Sellers will not, and will not permit any of their
Affiliates to, directly or indirectly, solicit the employment of, attempt to
employ, or employ any transferred Employee during the period commencing on the
Closing Date and ending ten months thereafter; provided, however, that the
forgoing will not prohibit hiring pursuant to a general solicitation to the
public or general advertising; provided, further, that the foregoing will also
not prohibit Sellers or one of its Affiliates from employing any transferred
Employee that is terminated by Buyer or one of its Affiliates without cause
following the Closing Date.
7.11 TERMINATION OF INTERCOMPANY AGREEMENTS/ARRANGEMENTS.
Prior to the Closing Date, except for those Contracts listed
in Section 6.2 of the Disclosure Schedule, Sellers shall, upon the written
request of Buyer, cause the termination of any contracts, arrangements or
agreements between or among the Companies or a Seller (with respect to the
Business), on the one hand, and Sellers or any of their Affiliates (other than a
Company) on the other hand, including any intercompany agreements entered into
in the ordinary course of business.
7.12 CERTAIN CONTRACTS.
In the event any of the Contracts set forth in Section 7.12 of
the Disclosure Schedule terminate by operation of law as a result of the
transactions contemplated herein, Buyer
<PAGE> 44
40
agrees to offer the third party(ies) to such Contracts new agreements on
identical terms and conditions.
ARTICLE VIII
CONDITIONS
8.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
The obligation of each party to effect the transactions
contemplated by this Agreement shall be subject to the fulfillment at or prior
to the Closing Date of the following conditions:
(a) any waiting period (and any extension thereof)
applicable to the consummation of the Agreement under the HSR Act or under
Competition Laws of the European Union or member states of the European Union
shall have expired or been terminated; and
(b) no preliminary or permanent injunction or other
order, decree or ruling issued by a court of competent jurisdiction or by a
Governmental Authority nor any Applicable Law shall be in effect that would
prevent the consummation of the transactions contemplated by this Agreement in
the United States of America or the European Union.
8.2 CONDITIONS TO THE OBLIGATION OF SELLERS.
The obligation of Sellers to effect the transactions
contemplated by this Agreement is subject to the fulfillment at or prior to the
Closing Date of the following conditions:
(a) Buyer shall have performed in all material respects
each obligation and agreement and complied in all material respects with each
covenant to be performed and complied with by it hereunder at or prior to the
Closing Date;
(b) the representations and warranties of Buyer in this
Agreement shall be true and correct in all material respects as of the Closing
Date with the same force and effect as though made at such time; and
(c) Buyer shall have furnished to Sellers a certificate,
dated as of the Closing Date, signed by a duly authorized officer of Buyer to
the effect that all conditions set forth in Sections 8.2(a) and (b) have been
satisfied.
8.3 CONDITIONS TO THE OBLIGATION OF BUYER.
The obligation of Buyer to effect the transactions
contemplated by this Agreement is subject to the fulfillment at or prior to the
Closing Date of the following conditions:
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41
(a) Sellers and their Affiliates shall have performed in
all material respects each obligation and agreement and complied in all material
respects with each covenant to be performed and complied with by them hereunder
at or prior to the Closing Date;
(b) the representations and warranties of the Cyanamid
Companies in this Agreement shall be true and correct in all material respects
as of the Closing Date with the same force and effect as though made at such
time;
(c) Sellers shall have furnished to Buyer a certificate,
dated as of the Closing Date, signed by a duly authorized officer of each Seller
to the effect that all conditions set forth in Sections 8.3(a) and (b) have been
satisfied.
ARTICLE IX
AGREEMENTS WITH RESPECT TO EMPLOYEES AND EMPLOYEE BENEFITS
9.1 U.S. EMPLOYEE PLANS.
The Sellers hereby represent and warrant to Buyer that:
(a) Section 9.1(a) of the Disclosure Schedule lists each
employee benefit plan, as such term is defined in Section 3(3) of ERISA, which
(i) is subject to any provision of ERISA, (ii) is maintained by or contributed
to by the Companies, the Asset Transferor Entities or Sellers, and (iii) covers
U.S. Employees (hereinafter referred to collectively as the "U.S. Employee
Plans"). With respect to each U.S. Employee Plan, Sellers have made available to
Buyer a true and complete copy of the applicable plan document or summary plan
description and the most recently filed IRS Form 5500.
(b) Except as disclosed in Section 9.1(b) of the
Disclosure Schedule, neither Sellers nor any of the Companies nor any of their
ERISA Affiliates has incurred any liability under Title IV of ERISA that could
become, after the Closing Date, an obligation of Buyer or any of its Affiliates.
No Pension Plan has incurred any accumulated funding deficiency (within the
meaning of Section 412 of the Code), whether or not waived, and neither the
Companies nor any ERISA Affiliate has failed to make a required installment or
any other payment required under Section 412 of the Code before the applicable
due date. All contributions payable to each defined contribution pension plan,
as defined in Section 3(34) of ERISA, for all benefits earned and other
liabilities arising through the Closing Date, determined in accordance with the
terms and provisions of such plan, ERISA, and the Code, have been paid or
otherwise provided for, and to the extent unpaid are reflected in the books or
financial statements of Sellers.
(c) Each U.S. Employee Plan that is intended to satisfy
Section 401(a) of the Code has received a determination letter from the Internal
Revenue Service and to the knowledge of Sellers nothing has occurred since the
issuance of each such letter which could reasonably affect its qualification.
(d) Section 9.1(d) of the Disclosure Schedule includes a
list of (x) each management, employment, consulting, or other contract with any
individual providing for the retention of personal services involving the
payment of $100,000 or more, per individual, per
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42
annum and (y) each plan or arrangement providing for vacation benefits,
supplemental nonqualified benefits, severance benefits, bonuses, stock options,
stock appreciation or other forms of incentive compensation or post retirement
insurance (including retiree life and medical benefits), compensation or
benefits which (i) is not a U.S. Employee Plan, (ii) is entered into, maintained
or contributed to, as the case may be, by any of the Companies or Sellers, and
(iii) covers U.S. Employees, and dependents or beneficiaries thereof. Such
contracts, plans and arrangements as are described above, copies or descriptions
of all of which have been made available to Buyer, are hereinafter referred to
collectively as the "U.S. Benefit Arrangements".
(e) Except as set forth on Section 9.1(e)(i) of the
Disclosure Schedule, to the knowledge of Sellers, there is no pending or
threatened material claim in respect of any of the U.S. Employee Plans and U.S.
Benefit Arrangements other than routine claims for benefits. Each of the U.S.
Employee Plans and U.S. Benefit Arrangements (i) has been administered in
accordance with its terms in all material respects, and (ii) complies in form,
and has been administered in accordance with the requirements of ERISA and,
where applicable, the Code, in all material respects. Except as disclosed in
Section 9.1(e)(ii) of the Disclosure Schedule, no investigation, audit or
dispute relating to any U.S. Employee Plan is pending or, to the Sellers' or the
Companies' knowledge, threatened before any governmental agency.
(f) Neither Sellers nor any of the Companies nor, to the
knowledge of Sellers, any other "disqualified person" (within the meaning of
Section 4975 of the Code) or "party in interest" (within the meaning of Section
3(14) of ERISA) has taken any action with respect to any of the U.S. Employee
Plans which could subject any such plan (or its related trust) or any of the
Companies or any officer, director or employee of any of the foregoing to any
material penalty or tax under Section 502(i) of ERISA or Section 4975 of the
Code.
(g) Except as disclosed in Section 9.1(g) of the
Disclosure Schedule, none of Sellers (with respect to the U.S. Employees) nor
any of the Companies has been required, or has any obligation, to contribute to
a multiemployer plan, as defined in Section 3(37) of ERISA, or has or expects to
have any withdrawal liability assessed against it with respect to any such
multiemployer plan.
(h) Except as disclosed in Section 9.1(h) of the
Disclosure Schedule or as may be triggered by Buyer's failure to fulfill any of
its obligations to Employees under Sections 9.3 and 9.4, neither Sellers nor any
of the Companies have by reason of the transaction contemplated hereby, any
obligation to make any payment to any U.S. Employee pursuant to any plan or
existing contract or arrangement.
(i) To the knowledge of Sellers, all filings required by
ERISA and the Code as to each U.S. Employee Plan and U.S. Benefit arrangement
have been timely filed and all notices and disclosures to participants required
by either ERISA or the Code have been timely provided.
(j) Sellers have paid all amounts due to the PBGC
pursuant to ERISA section 4007.
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9.2 INTERNATIONAL PLANS.
The Sellers hereby represent and warrant to Buyer that:
(a) Section 9.2(a) of the Disclosure Schedule lists each
material employee benefit plan, program, policy or practice maintained or
contributed to by any of the Companies or Asset Transferor Entities for the
Ex-U.S. Employees (other than Governmental Authority mandated plans or funds
maintained or contributed to by Companies and Asset Transferor Entities pursuant
to Applicable Laws), including, without limitation, vacation, severance,
disability, medical, dental, hospitalization, life insurance and incentive
bonus, savings and retirement plans, employment anniversary awards and deferred
compensation plans ("International Plans"). Summary descriptions of each
International Plan have been or will be made available to Buyer by Sellers.
(b) To the knowledge of Sellers, all International Plans
are in compliance with, and have been administered in compliance with Applicable
Laws, in all material respects and contributions required to be made to each
such plan under the terms of the plan or any contract or labor or collective
bargaining agreement or Applicable Law have been made or reserved.
9.3 BUYER'S OBLIGATIONS TO EMPLOYEES.
(a) Buyer shall be obligated to continue the employment
of the Employees or offer employment to Employees on the following basis:
(i) Buyer shall cause the Companies to continue the
employment of all Employees;
(ii) With respect to Employees employed by the Asset
Transferor Entities, except as set forth in subsection (iii) below,
Buyer shall offer or cause an Affiliate of Buyer to offer to hire each
such Employee on the Closing Date, in a comparable position, at the
same or greater base salary than that enjoyed by such Employee
immediately prior to the Closing Date; and
(iii) Buyer agrees to offer employment to all union, work
council or labor represented Employees and agrees to assume the terms
and conditions of any union, work council or collective bargaining
agreements as in effect as the Closing Date with respect to (i) ex-U.S.
Employees of a Share Transferor Entity and (ii) ex-U.S. Employees of an
Asset Transferor Entity if required by Applicable Law.
(b) Buyer shall make the following payments or provide
the following notification to Employees whom it terminates after the Closing
Date:
(i) After the Closing Date, the Companies or the Buyer,
as the case may be, will have sole responsibility for any obligations
or liabilities to U.S. Employees at all locations under the Worker
Adjustment and Retraining Notification Act or similar Applicable Laws
of any jurisdiction relating to any plant closing or mass layoff or as
otherwise required by any such Applicable Law;
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(ii) Except to the extent Buyer has assumed the Contracts
relating to individual severance obligations set forth in Section
9.3(b)(ii) of the Disclosure Schedule to which such respective
agreements shall apply, Buyer shall make or cause the Companies to make
a lump sum severance payment to each U.S. Employee (other than a U.S.
Employee who is a member of a collective bargaining unit) whose
employment is terminated by the Buyer or the Companies because of a
termination without Cause (as defined herein) or reduction in the
workforce or job elimination at any time within the 24-month period
following the Closing Date pursuant to the terms of the Severance
Policy currently in effect, as described in Section 9.3(b)(ii) of the
Disclosure Schedule, and the severance payments will be in accordance
with the formula set forth therein. No such severance payments shall be
made if an Employee is terminated for "Cause" which for purposes of
this Section shall be defined as (i) fraud or embezzlement against the
Buyer or its Affiliates, falsification of records or similar acts; (ii)
gross neglect of or a gross failure to perform substantial job duties,
(iii) commission of a felony crime, or (iv) demonstrated substance
abuse. Buyer shall or shall cause the Companies to make severance
payments if a U.S. Employee resigns from employment with the Buyer, its
Affiliates or a Company within 24 months after the Closing Date because
(w) there is a reduction in his or her salary (other than for Cause);
(x) there is a substantial diminution in the nature or status of the
Employee's responsibilities excluding a change in title or reporting
relationship; (y) there is a material reduction in employee benefits
made available under Buyer's Plans from and after the Closing; or (z) a
condition of continued employment is a relocation of principal work
place of greater than 100 miles (provided, however, that any relocation
of greater than 25 miles, but less than or equal to 100 miles, will
still constitute Constructive Termination (as defined below) unless the
Employee is provided with relocation benefits that are no less
favorable in the aggregate than those that would have been available
under the AHP Corporate Relocation Policy when AHP relocated its
corporate headquarters from New York City to Madison, New Jersey)
(collectively "Constructive Termination"). Buyer shall also provide
outplacement services as follows: (a) for non-exempt employees, up to
$1,000 per person; (b) for exempt employees earning up to $75,000, up
to $5,000 per person; and (c) for exempt employees earning more than
$75,000, up to 12% of base salary to a maximum of $15,000 per person.
Notwithstanding the foregoing, field sales representatives will receive
outplacement services from Manchester Fast Track Outplacement at a cost
of $1,000 per person;
(iii) In the event the Buyer or its Affiliates terminates
or fails to offer to hire a U.S. Employee who is covered by a
collective bargaining agreement on the Closing Date and such Employee
becomes entitled to severance as a result, Buyer shall be obligated to
pay, or to reimburse Sellers for paying the amount of severance equal
to that which would be required under the terms of such agreements; and
(iv) For a period equal to six months following the
termination of employment of a U.S. Employee (other than a U.S.
Employee who is a member of a collective bargaining unit) which
triggers a severance payment under subsection (ii) or (iii) above;
Buyer will also extend, or cause its Affiliate to extend coverage under
its basic life insurance, medical, dental and prescription drug plans
to such terminated U.S. Employees and will extend or cause its
Affiliates to extend coverage under its educational assistance
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plan to those terminated U.S. Employees who participated in an
educational assistance plan as of their date of termination each as set
forth in the policy described in Section 9.3(b)(ii) of the Disclosure
Schedule.
(v) Buyer shall, or shall cause the Companies or an
Affiliate of Buyer as the case may be, to make a lump-sum severance
payment to each Ex-U.S. Employee whose employment is terminated within
the 24-month period following the Closing Date, or whose employment is
terminated or deemed to be terminated by operation of law as a result
of the transactions contemplated herein, in an amount equal to the
greater of (i) the severance payment due in accordance with the
applicable International Plan as set forth in Section 9.3(b)(v) of the
Disclosure Schedule relating to severance payments and (ii) any greater
or additional severance payments due in accordance with Applicable
Laws. In addition, Buyer shall, or shall cause an Affiliate to make a
severance payment if an Ex-U.S. Employee resigns because of a
Constructive Termination event. Buyer shall promptly reimburse Sellers
for any payments in the nature of severance payments required to be
made by an Asset Transferor Entity to an Ex-U.S. Employee who becomes
an Employee of Buyer or its Affiliates as a result of the transactions
contemplated herein.
9.4 TREATMENT OF SELLERS' AND BUYER'S U.S. EMPLOYEE PLANS
AND U.S. BENEFIT ARRANGEMENTS.
(a)(i) No assets of any defined benefit Pension Plan (except
as may be otherwise provided in this Article 9 or as determined by Sellers),
U.S. Employee Plan or U.S. Benefit Arrangement shall be transferred to Buyer or
any of its Affiliates or to any plan of Buyer or any of its Affiliates and,
except as set forth in this Article 9, the Buyer and its Affiliates shall assume
no liability or obligation of Sellers or any of its Affiliates under any of the
U.S. Employee Plans, the U.S. Benefit Arrangements or the Pension Plans where
assets are not transferred.
(ii) After the Closing Date, Buyer shall provide U.S.
Employees with benefit plans, policies and programs which are the same
as those offered to similarly situated employees of Buyer.
(iii) Buyer or its Affiliates shall recognize each
applicable union as the exclusive designated bargaining representative
for those bargaining-unit represented Employees who become employed by
the Buyer or its Affiliates hereunder, but shall not assume any of the
collective bargaining agreements or the terms or provisions thereof.
Buyer and its Affiliates agree to bargain in good faith with the
relevant collective bargaining representatives of such Employees to
establish new bargaining agreements which are mutually acceptable to
Buyer and its Affiliates and to the applicable unions.
(iv) Buyer and the Companies shall assume all U.S.
Employees' compensation, bonus and vacation liabilities, regardless of
whether such liabilities relate to events which occurred on or prior to
the Closing Date or to actions taken by Sellers or one of the Sellers'
Affiliates or Buyer or one of its Affiliates, or to consequences which
are deemed to have occurred by operation of law as a result of the
transactions contemplated herein.
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(b) Sellers shall amend their Pension Plans in the United
States to provide that all service completed by the U.S. Employees for Buyer or
its Affiliates after the Closing Date shall be recognized for purposes of
vesting and satisfying any requirements for early retirement subsidies for
benefits accrued as of the Closing Date under Sellers' Pension Plans (but not
for benefit accrual purposes); provided, however, that if the cessation of
accruals for the U.S. Employees under any of the Sellers' Pension Plans results
in a partial termination of that Pension Plan, Sellers shall fully vest the
affected U.S. Employees in that Pension Plan. Buyer maintains a Pension Plan for
its employees in the United States ("Buyer's U.S. Pension Plan(s)") Buyer shall
recognize U.S. Employees' service with Sellers or their Affiliates for purposes
of determining retirement plan eligibility to participate, vesting of benefits,
service requirements for disability, subsidized early retirement and
pre-retirement death benefits under the Buyer's U.S. Pension Plan(s), but Buyer
shall not be required to take such service into account for benefit accrual
purposes under such plan or plans.
(c) Sellers shall amend the American Home Products
Corporation Savings Plan - U.S., the American Home Products Corporation Savings
Plan-Puerto Rico and the American Home Products Corporation Union Savings Plan
(the "Sellers' U.S. Savings Plans") to provide that all U.S. Employees are fully
vested in their account balances under the Sellers' U.S. Savings Plans as of the
Closing Date. Buyer maintains a qualified savings plan or plans for the benefit
of its employees (Buyer's U.S. Savings Plan(s)"). Buyer shall recognize U.S.
Employees' service with Sellers or their Affiliates for purposes of determining
eligibility to participate and vesting of benefits in Buyer's U.S. Savings
Plan(s). Sellers shall transfer the assets (in cash) and liabilities
attributable to the U.S. Employees from the AHP Savings Plan-U.S. and the AHP
Savings Plan-Puerto Rico to Buyer's U.S. Savings Plan(s) which meet the
requirements of Section 401(a) of the Code or Section 165 of the Puerto Rico Tax
Act, whichever being applicable, as soon as practicable following the Closing
Date. There shall be no such transfer of assets and liabilities from the AHP
Union Savings Plan to any Buyer plan.
(d) With respect to the U.S. Employees, Sellers shall
retain liability under any group life, accident, worker's compensation, medical,
hospitalization, prescription drug, dental, spending account or short-term or
long-term disability plan, whether or not insured, for any claims incurred on or
prior to the Closing Date, and Buyer shall assume all liability for claims
arising after the Closing Date under its group life, accident, worker's
compensation, medical, hospitalization, prescription drug, dental, spending
account or short-term or long-term disability plans (Buyer's U.S. Welfare
Plans"). For purposes of this Section 9.4(d) claims shall be deemed to have
arisen:
(i) With respect to all death or dismemberment claims, on
the actual date of death or dismemberment;
(ii) With respect to disability or salary continuance
claims, on the day the claimant became disabled or otherwise entitled
to salary continuation;
(iii) With respect to all hospital, medical, drug or dental
claims, on the date the service or supply was purchased or received by
the claimant; and
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(iv) With respect to worker's compensation claims which
are single-accident specific, on the date of the occurrence, and with
respect to all other worker's compensation claims, on the date the
award is made.
(e) As of the Closing Date, all U.S. Employees shall be
eligible to participate in Buyer's U.S. Welfare Plans in accordance with the
terms of such plans, and employment with Sellers or their Affiliates will be
taken into account for purposes of determining eligibility to participate and
benefits under Buyer's U.S. Welfare Plans; provided, however, that
(i) U.S. Employees shall participate under Buyer's U.S.
Welfare Plans as of the day after the Closing Date without any waiting
periods, without evidence of insurability, and without application of
any pre-existing physical or mental condition limitations except to the
extent applicable under similar plans maintained by Sellers; and
(ii) Buyer shall count claims arising during the calendar
year on or prior to the Closing Date for purposes of satisfying
deductibles, out-of pocket maximums, and all other similar limitations.
(f) Sellers maintain a program of medical and life
insurance benefits for certain retired employees ("AHP U.S. Retiree Welfare
Plans"). All U.S. Employees who satisfy the eligibility criteria for benefits
under the AHP U.S. Retiree Welfare Plans as of the Closing Date shall receive
such benefits from the AHP U.S. Retiree Welfare Plans following their
termination from Buyer or its Affiliates in accordance with the terms of the AHP
U.S. Retiree Welfare Plans as of such date. However, U.S. Employees who are
eligible for medical coverage under Buyer's medical plan shall receive primary
coverage under such Buyer's medical plan with the AHP U.S. Retiree Welfare Plans
being responsible for secondary coverage. U.S. Employees shall be eligible to
participate in Buyer's U.S. retiree welfare plans ("Buyer's U.S. Retiree Welfare
Plans") in accordance with the terms of such plans and Buyer shall recognize
service with Sellers or their Affiliates for purposes of determining eligibility
to participate and for benefits.
(g) Buyer shall be responsible for any legally mandated
continuation of health care coverage for all U.S. Employees and/or their covered
dependents who have a loss of health care coverage due to a qualifying event (as
defined in Section 4980B of the Code) that occurs after the Closing Date.
9.5 INTERNATIONAL EMPLOYEES OF THE EUROPEAN UNION ("EU").
(a) Notwithstanding Section 9.3(a)(ii), Sellers and Buyer
accept and agree that the transfer of employment of the Ex-U.S. Employees in the
EU countries (hereinafter referred to as "European Employees") will be effected
and governed by the Transfer Provisions (defined below) and accordingly the
contract of employment of each European Employee shall be assumed by Buyer or
its Affiliate with effect from the Closing Date which shall be the time of
transfer under the Transfer Provisions.
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(b) Buyer shall ensure that its Affiliates (where
necessary) comply with their respective obligations under the Transfer
Provisions and upon request provide Sellers or the relevant Sellers' Affiliate
with such information as will enable either Sellers or its Affiliate as the case
may be to carry out its duties under the Transfer Provisions concerning measures
to effectuate the transfer of the European Employees to Buyer.
(c) "Transfer Provisions" means any legislation
implementing the provisions of Directive 77/187/EEC commonly called the Acquired
Rights Directive or Transfer of Undertakings Directive.
9.6 TREATMENT OF SELLERS' INTERNATIONAL PLANS.
(a) Buyer shall provide, or cause its Affiliates to
provide the Ex-U.S. Employees with plans, programs and benefits which are the
same as those provided to similarly situated employees of Buyer. If Buyer does
not currently have other employees in a particular country, Buyer shall provide
benefit plans, policies or arrangements which are reasonably comparable in the
aggregate to those provided to Ex-U.S. Employees By Seller immediately prior to
the Closing Date.
(b) Except as expressly set forth in this Section 9.6(b),
and as required by Applicable Law or determined by Sellers, no assets of any
International Plan, which is a defined benefit pension plan, shall be
transferred to Buyer or any of its Affiliates or to any plan of Buyer or any of
its Affiliates. Buyer shall assume, or cause its Affiliates to assume through an
appropriate form of plan or trust, the assets and corresponding liabilities of
any defined contribution plan, individual account plan, or fully insured plan
without potential for reversion (fully insured shall mean benefits accrued to
date are purchased and insured by an insurance carrier) maintained by Sellers,
the Companies or any of their Affiliates for the benefit of the Ex-U.S.
Employees, to the extent that any liabilities so assumed are funded and
supported by a transfer of assets or insurance to the appropriate Buyer plan or
trust. The value of fully insured plans shall be determined as of the Closing
Date based on the assumption that the plans will be maintained by Buyer or its
affiliates for the benefit of Ex-U.S. Employees and will not be terminated.
(c) With respect to any defined benefit plan which is
required under Applicable Law to transfer assets and liabilities to the Buyer
and with respect to the International Plans set forth in Section 9.6(b) of the
Disclosure Schedule, the assets and liabilities to be transferred shall be based
on reasonable actuarial assumptions and generally accepted valuation methods as
determined by Sellers' actuary subject to the review of the Buyer's actuary. In
the event the actuaries are unable to agree on the valuation of the assets and
liabilities, an expert shall be appointed by the Institute of Actuaries in
London. The parties shall share the cost arising from the appointment of such
independent third party expert. The calculation of the assets and liabilities by
such appointed actuary as expert shall be final and binding on both parties in
the absence of manifest error.
(d) Sellers shall take whatever action is reasonably
required to ensure that such plans and arrangements and all related plan assets
or reserves are maintained by, and subject to the control of, the Companies on
or prior to the Closing Date.
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(e) Sellers shall, and shall cause its Affiliates, to
fully vest the Ex-U.S. Employees in any accounts maintained under any
International Plans as of the Closing Date which are defined contribution in
nature. Buyer shall recognize each Ex-U.S. Employee's service with Sellers and
Sellers' Affiliates for purposes of determining retirement and savings plan
eligibility for participation, vesting of benefits, and service requirements for
disability, subsidized early retirement and preretirement death benefits under
the appropriate Buyer's International Retirement and Savings Plans, but not
benefit accrual purposes under the appropriate Buyer's International Retirement
Plan.
(f) With respect to all Ex-U.S. Employees, Sellers shall
retain liability under any group life, accident, worker's compensation, medical,
hospitalization, prescription drug, dental or short-term or long-term disability
plan, whether or not insured, for any claims incurred on or prior to the Closing
Date and Buyer shall assume all liability for claims arising after the Closing
Date under any group life, accident, worker's compensation, medical,
hospitalization, prescription drug, dental or short-term or long-term disability
plan ("Buyer's International Welfare Plans"). For purposes of this Section
9.6(f), claims shall be deemed to have arisen:
(i) with respect to all death or dismemberment claims, on
the actual date of death or dismemberment;
(ii) with respect to disability or salary continuance
claims, on the day the claimant became disabled or otherwise entitled
to salary continuation;
(iii) with respect to all hospital, medical, drug or dental
claims, on the date the service or supply was purchased or received by
the claimant; and
(iv) with respect to worker's compensation claims which
are single accident specific, on the date of the occurrence, and with
respect to all other worker's compensation claims, on the date the
award is made.
(g) As of the Closing Date, all Ex-U.S. Employees shall
be eligible to participate in the appropriate Buyer's International Welfare
Plans in accordance with the terms of such plans, and employment with Sellers
and its Affiliates shall be taken into account for purposes of determining
eligibility for participation and benefits under Buyer's International Welfare
Plans; provided, however, that (i) Ex-U.S. Employees shall participate under
Buyer's International Welfare Plans as of the day immediately after the Closing
Date without any waiting periods, without any evidence of insurability, and
without application of any pre-existing physical or mental condition
limitations, except to the extent not permitted under Buyer's International
Plans; provided, however, that Buyer shall make reasonable efforts to adopt any
necessary amendments to such plans to permit participation as described above
and (ii) Buyer shall count claims arising on or prior to the Closing Date for
purposes of satisfying deductibles, out-of-pocket maximums, and other similar
limitations in Buyer's International Welfare Plans.
(h) Buyer and the Companies shall assume all Ex-U.S.
Employees' compensation, bonus and vacation liabilities, regardless of whether
such liabilities relate
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to events which occurred on or prior to the Closing Date, or to actions taken by
Sellers or its Affiliates, or Buyer or its Affiliates, or to consequences which
are deemed to occur by operation of law as a result of the transactions
contemplated herein.
9.7 STOCK OPTIONS.
AHP shall be responsible for and incur any and all costs of
stock option compensation for all Employees with stock options from AHP. This
includes payments, if any, that may be made to Employees in Sellers sole
discretion relating to "in-the-money" non-exercisable stock options as of the
Closing Date. AHP shall be liable for any payments, withholding obligations and
reporting obligations that arise on or after the Closing Date under any
applicable AHP Stock Option or Stock Incentive Plan.
9.8 NO THIRD PARTY BENEFICIARIES.
No provision of this Agreement shall create any third party
beneficiary or other rights in any Employee (including any beneficiary or
dependent thereof) or any persons in respect of continued employment with any of
the Companies, with Sellers, or with any of their Affiliates and no provision of
this Agreement shall create any such rights in any such persons in respect of
any benefits that may be provided, directly or indirectly, under any U.S.
Employee Plan or U.S. Benefit Arrangement, any International Plan or any plan or
arrangement which may be established by Buyer or any of its Affiliates. No
provision of this Agreement shall constitute a limitation on the right of Buyer,
any of the Companies or any Affiliates of Buyer to terminate any Employee at
will.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 TERMINATION.
This Agreement may be terminated at any time prior to the
Closing Date:
(a) by mutual consent of Buyer and Sellers;
(b) by Buyer or Sellers if the Closing shall not have
occurred on or prior to December 31, 2000, provided, however, that the right to
terminate under this Section 10.1(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Closing to occur on or before such date of any
liability of such party to the other party hereunder for such failure; or
(c) subject to Section 7.4, by Buyer or Sellers if a
court of competent jurisdiction or governmental, regulatory or administrative
agency or commission of the United States or political subdivision thereof or
European Union or member state thereof shall have issued an order, decree or
ruling or taken any other action, in each case permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement, and such order, decree, ruling or other action shall have become
final and nonappealable.
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The date on which this Agreement is terminated pursuant to any
of the foregoing subsections of this Section 10.1 is herein referred to as the
"Termination Date."
10.2 EFFECT OF TERMINATION.
(a) Except as set forth in Sections 7.1, 7.3 and 10.2(b),
upon the termination of this Agreement pursuant to Section 10.1, all further
obligations of the parties under this Agreement shall terminate without further
liability of any party to the others, except that nothing herein shall relieve
any party from liability for breach of any provision of, or for any
misrepresentation under this Agreement, or be deemed to constitute a waiver of
any available remedy for any such breach or misrepresentation.
(b) If (i) Buyer shall not have agreed to nor effected
all divestitures, holding separate of businesses or assets or other actions
necessary to obtain, or caused to be obtained, as promptly as practicable all
authorizations, approvals, consents and waivers from Governmental Authorities
necessary to be obtained by Buyer or its Affiliates in order to consummate the
transactions contemplated hereby and (ii) this Agreement shall have been
terminated pursuant to Section 10.1(b) or (c), [***]
ARTICLE XI
INDEMNIFICATION
11.1 INDEMNIFICATION.
(a) Except with respect to any claim related to Taxes,
for which Section 7.5 of this Agreement shall provide the sole and exclusive
remedy, and any claim or liability related to Environmental Law or environmental
matters or the breach of Section 4.13 of this Agreement, for which Sections
11.1(d) through (h), inclusive, shall provide the sole and exclusive remedy of
Buyer, and subject to Section 11.3, Sellers shall indemnify, defend and hold
harmless Buyer and its Affiliates, officers, directors, employees and
controlling Persons from any liability, damage, deficiency, loss, judgments,
assessments, cost or expense, including reasonable attorneys' fees and costs of
investigating and defending against lawsuits, complaints, actions or other
pending or threatened litigation (being hereafter referred to in this Article 11
as "Costs"), arising from or attributable to:
(i) the breach of any representation or warranty made by
the Sellers in this Agreement (it being understood that, for the
purposes of this Article XI, such
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separately filed with the Commission.
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representations and warranties (other than the representations and
warranties set forth in Sections 4.4, 4.5, 4.6 and 4.13) will be
interpreted without giving effect to any qualifications or limitations
as to "Material Adverse Effect");
(ii) any failure of Sellers or their Affiliates to perform
or observe any covenant or agreement to be performed or observed by
such entities pursuant to this Agreement;
(iii) the Excluded Liabilities;
(iv) product liabilities arising out of products shipped
by the Business prior to the Closing Date;
(v) the actions in litigation against the Sellers and/or
their Affiliates listed under the caption "Antitrust Matters" in
Section 4.11(a) of the Disclosure Schedule (or actions claiming
violation of antitrust laws arising out of activities substantially
similar to those alleged in such litigation) and any other litigation
claiming violation by the Business of antitrust or competition laws
pending or, to the knowledge of Sellers, threatened as of the Closing
Date;
(vi) the actions in litigation against the Sellers and/or
their Affiliates listed under the caption "Employee Matters" in Section
4.11(a) of the Disclosure Schedule and any other litigation on behalf
of employees or former employees of the Business pending or, to the
knowledge of Sellers, threatened as of the Closing Date; provided,
however, that, notwithstanding anything to the contrary herein, the
Sellers shall be responsible for all Costs attributable to periods up
to the Closing Date and the Buyer shall be responsible for all Costs
attributable to periods thereafter;
(vii) the actions in litigation against the Sellers and/or
their Affiliates listed under the caption "Intellectual Property
Litigation" in Section 4.11(a) of the Disclosure Schedule claiming
infringement of third party intellectual property rights and Cheapfleet
and Sharp libel actions set forth in Section 4.11 of the Disclosure
Schedule and any other litigation claiming infringement by the Business
of third party intellectual property rights pending or, to the
knowledge of Sellers, threatened as of the Closing Date; provided,
however, that, notwithstanding anything to the contrary herein, the
Sellers shall be responsible for all Costs attributable to sales of
products up to the Closing Date and the Sellers and, subject to Section
11.2(d), the Buyer shall share equally all Costs attributable to sales
of products thereafter;
(viii) any claim or cause of action of any third party
(other than product liability claims and causes of action and any
claims and causes of action subject to indemnification under the
foregoing clauses (v), (vi) and (vii)) to the extent arising out of,
any action, inaction or event of the Companies, the Asset Transferor
Entities, the Sellers (with respect to the Business) or the Business
occurring prior to the Closing except to the extent arising out of any
action, inaction or event of the Buyer and its Affiliates (including
the Companies) occurring after the Closing.
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(b) Except with respect to any claim related to Taxes for
which Section 7.5 of this Agreement shall be the sole and exclusive remedy of
Sellers, Buyer shall indemnify and hold harmless Sellers, their officers,
directors, employees and Affiliates from Costs arising from or attributable to:
(i) the breach of any representation or warranty made by
Buyer in this Agreement;
(ii) any failure of Buyer duly to perform or observe any
covenant or agreement to be performed or observed by Buyer pursuant to
this Agreement;
(iii) the Assumed Liabilities;
(iv) except for the matters for which Sellers would be
obligated to indemnify Buyer under Section 11.1(a) and 7.6, all
liabilities of the Companies arising out of the conduct of the Business
after the Closing;
(v) Sellers' or their Affiliates' obligations under the
guaranties, letters of credit and comfort letters described in Section
7.10 of the Disclosure Schedule; and
(vi) any violation of Environmental Laws arising out of or
relating to any of the Real Property or any premises owned or leased by
Buyer or its Affiliates or at which the Business has been conducted by
the Buyer or its Affiliates, or any Release or threatened Release of
any Hazardous Substance at, on, beneath or from any of the Real
Property or any premises owned or leased by Buyer or its Affiliates or
at which the Business has been conducted by the Buyer or its
Affiliates, or Release or threatened Release of any Hazardous Substance
at, on or beneath any third-party waste disposal site to which any
Hazardous Substance has been sent by the Companies, or to the extent
related to the Business, the Buyer or its Affiliates (or any successor
to the Business) on or after the Closing Date, and for which, in the
case of the foregoing, only to the extent that Buyer is not entitled to
indemnification pursuant to Sections 11.1(d) through 11.1(h),
inclusive.
(vii) any failure of Buyer to assume the union, work
council or collective bargaining agreements as in effect on the Closing
Date applicable to Ex-U.S. Employees of an Asset Transferor Entity.
(c) Sellers and Buyer shall indemnify each other for all
Taxes for the periods and in the manner described in Section 7.5.
(d) Other than with respect to the Real Property located
in Paulinia, Brazil and Genay, France, which are addressed in paragraph 11.1(h),
notwithstanding any time or dollar limitations placed upon Sellers'
indemnification obligations elsewhere in this Agreement, which shall not apply
to this subparagraph (d), Sellers shall indemnify, defend and hold harmless
Buyer, the Companies and their Affiliates, officers, directors, employees and
controlling persons against any and all Costs arising from or attributable to:
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(i) any pre-Closing Date violation of Environmental Laws
by the Sellers, the Asset Transferor Entities or the Companies arising
out of or relating to any of the Real Property or any premises at which
the Business has been conducted of which Sellers have knowledge,
including without limitation, those matters disclosed in Section 4.13
of the Disclosure Schedule or (ii) any investigation and remediation,
if any, required by applicable Environmental Law, to the standard
required by applicable Environmental Law, of those matters disclosed in
the Environmental Reports contained in Section 4.13 of the Disclosure
Schedule or (iii) any Release or threatened Release at, on or beneath
any third-party waste disposal site to which any Hazardous Substance of
which Sellers have knowledge generated prior to the Closing by the
Companies or, to the extent related to the Business, Sellers or the
Asset Transferor Entities has been sent prior to Closing, including,
without limitation, those matters disclosed in Section 4.13 of the
Disclosure Schedule or (iv) any breach of Section 4.13 of this
Agreement
(e) Other than with respect to the Real Property located
in Paulinia, Brazil and Genay, France, which are addressed in paragraph 11.1(h),
Sellers shall indemnify, defend and hold harmless Buyer, the Companies and their
Affiliates, officers, directors, employees and controlling persons against any
and all Costs, arising from or attributable to: (A) any pre-Closing Date
violation of Environmental Laws by Sellers, the Asset Transferor Entities or the
Companies arising out of or relating to any of the Real Property or any premises
at which the Business has been conducted of which Sellers have no knowledge, or
(B) any pre-Closing Date Release or threatened Release of any Hazardous
Substance at, on, beneath or from any of the Real Property or any premises at
which the Business has been conducted of which Sellers have no knowledge; or (C)
any Release or threatened Release at, on or beneath any third-party waste
disposal site to which any Hazardous Substance of which Sellers have no
knowledge generated prior to the Closing Date by the Companies or, to the extent
related to the Business, the Sellers or the Asset Transferor Entities has been
sent prior to Closing.
(f) Sellers indemnification obligations contained in
Section 11.1(e) shall only apply to claims made by Buyer which are tendered to
Sellers within [***] of the Closing Date; provided, however, that any claim
pursuant to Section 11.1(e) for which notice is tendered to Sellers within such
[***] shall be indemnified by Sellers to full completion or satisfaction. In
addition, Buyer, the Companies and their Affiliates, officers, directors,
employees and controlling persons shall not be entitled to receive any Costs for
any individual claim under Section 11.1(e) until [***]. For purposes of this
section, Costs arising out of or resulting from the same event or series of
related events shall constitute an individual claim.
(g) Notwithstanding any other provisions contained in
Section 11.1, (A) Sellers shall have the power and right to direct, manage and
control, and take such actions as are reasonably necessary in connection with,
any defense, remediation, or other resolution of any claim, event or condition
subject to indemnification under Sections 11.1(d) and 11.1(e), and Buyer shall
provide Sellers with access to any Real Property reasonably necessary for
Sellers to exercise their rights under this Section 11.1(g) provided, in the
case of each of the foregoing, that Sellers shall have first notified and
consulted with Buyer with respect thereto; and provided, further, that to the
extent any claim, event or condition subject to indemnification involves or
requires work to be performed at any of the Real Property, Sellers shall (i)
comply with all applicable laws (including, without limitation, Environmental
Laws); (ii) use the Real Property
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in a manner that will not unreasonably interfere with the operations or business
thereon or compromise the safety of the Real Property; (iii) make all reasonable
efforts to restore the Real Property to its condition immediately prior to the
commencement of Sellers' work; and (iv) furnish or cause to be furnished to
Buyer certificates of insurance evidencing coverage maintained by Sellers'
agents, employees, independent contractors, subcontractors, suppliers or
environmental consultants ("Sellers' Representatives") who are performing the
work at the Real Property, which coverage shall be reasonable and customary for
the type of work being performed at the Real Property. With respect to the
Resende, Brazil facility, Sellers have elected to exercise their rights under
this Section 11.1(g)(A), and Buyer agrees to enter into an access agreement at
the Closing in the form attached hereto as Exhibit D. (B) Buyer agrees that, in
exercising its rights under Sections 11.1(d) and 11.1(e), no environmental audit
or other assessment will be undertaken for the purpose of discovering any
conditions that might result in Costs with respect to which Sellers would be
required to provide indemnification pursuant to Sections 11.1(d) or 11.1(e)
unless required to do so by a demand, complaint, order or directive of a
Governmental Authority acting within the scope of its jurisdiction or authority
or by a prospective purchaser, lessee, financial institution or other similar
party as part of a sale, lease, financing or other commercial transaction,
except that Buyer may conduct reasonable environmental inspections and
compliance audits and assessments of the Business and its assets and properties
in the ordinary course as part of a compliance program so long as any inspection
or audit is performed in a manner consistent with the manner in which Buyer
generally conducts such inspections or audits for its other facilities.
(h) With respect to the Real Property and facilities
located at [***] and [***], Sellers shall indemnify, defend and hold harmless
Buyer and its Affiliates, officers, directors, employees and controlling persons
for Costs arising out of or related to indemnification obligations of Sellers
and their Affiliates under the [***] subject to the same limitations, terms and
conditions stated in such agreements.
11.2 PROCEDURES.
(a) Promptly after the receipt by any Person that may be
entitled to indemnity hereunder of notice or otherwise becoming aware of (a) any
claim or (b) the commencement of any action or proceeding which may give rise to
a claim for indemnification hereunder, such Person (the "Aggrieved Party") will,
if a claim with respect thereto is to be made against the party or parties
obligated to provide indemnification pursuant to this Article 11 (the
"Indemnifying Party"), give such Indemnifying Party written notice of such claim
or the commencement of such action or proceeding and, shall permit the
Indemnifying Party to assume, at its own expense, the defense of any such claim,
action or proceeding, or any litigation resulting from such claim, and, upon
such assumption, shall cooperate fully with the Indemnifying Party in the
conduct of such defense. This duty on the part of the Aggrieved Party to
cooperate in such defense shall include, but not be limited to, (i) providing
assistance in compiling and verifying responses to discovery requests, (ii)
providing reasonable access to its employees for purposes of consulting,
performing laboratory testing, providing deposition and
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trial testimony and providing expert opinions at depositions and trials and
(iii) making available to the Indemnifying Party all books and records as may
have relevance to the defense. Failure by the Indemnifying Party to notify the
Aggrieved Party of its election to defend any such action within 15 days after
notice thereof shall have been given to the Indemnifying Party, shall be deemed
a waiver by the Indemnifying Party of its right to defend such action. If the
Indemnifying Party assumes the defense of any such claim or litigation resulting
therefrom, the obligations of the Indemnifying Party as to such claim or
litigation shall be limited to taking all steps reasonably deemed necessary in
the defense or settlement of such claim or litigation resulting therefrom and to
holding the Aggrieved Party harmless from and against any and all Costs caused
by or arising out of any settlement approved by the Indemnifying Party or any
judgment in connection with such claim or litigation resulting therefrom
(subject to Section 11.3). The Aggrieved Party may participate, at its expense,
in the defense of such claim or litigation, provided that the Indemnifying Party
shall direct and control the defense of such claim or litigation; provided,
further, that if there exists or is reasonably likely to exist a conflict of
interest that would make it inappropriate in the reasonable judgement of the
Aggrieved Party for the same counsel to represent both the Indemnifying Party
and the Aggrieved Party, then the Aggrieved Party shall be entitled to retain
its own counsel, in each jurisdiction for which the Aggrieved Party determines
counsel is required, at the Indemnifying Party's expense. Subject to Section
11.3, the Indemnifying Party shall not, in the defense of such claim or any
litigation resulting therefrom, consent to entry of any judgment, except with
the written consent of the Aggrieved Party, or enter into any settlement, except
with the written consent of the Aggrieved Party which, in either case, may not
be unreasonably withheld, which does not include as an unconditional term
thereof the giving by the claimant or the plaintiff to the Aggrieved Party of a
full and complete release from any and all liability in respect of such claim or
litigation, and which judgement or settlement shall not impose any on-going
obligations on the Aggrieved Party.
(b) If the Indemnifying Party shall not assume the
defense of any such claim or litigation resulting therefrom, the Aggrieved Party
may defend against such claim or litigation in such manner as it may deem
appropriate and the Aggrieved Party may settle such claim or litigation on such
terms as it may deem appropriate, and the Indemnifying Party shall promptly
reimburse the Aggrieved Party for the amount of all Costs incurred by the
Aggrieved Party in connection with the defense against or settlement of such
claim or litigation, subject to Section 11.3. If no settlement of such claim or
litigation is made, the Indemnifying Party shall promptly reimburse the
Aggrieved Party for the amount of any Costs incurred by the Aggrieved Party in
the defense against such claim or litigation, subject to Section 11.3.
(c) If there shall be any conflicts between the
provisions of this Section 11.2 and Section 7.6(c) (relating to Tax contests),
the provisions of Section 7.6(c) shall control with respect to Tax contests.
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(d) In the event Seller and Buyer are unable to agree on the
terms of settlement of an infringement claim subject to Section 11.1(a)(vii),
any additional Costs that Seller or Buyer incurs and/or pays to such third party
at a later date based on a Court decision or a settlement above and beyond the
proposed earlier settlement with respect to post closing infringing activities,
which earlier settlement either the Seller or Buyer had rejected, shall be for
the sole account and obligation of the rejecting party if such other party had
advised the rejecting party that it was prepared to accept such earlier
settlement terms.
11.3 LIMITATIONS.
Notwithstanding anything to the contrary contained herein, with
respect to each and every claim for indemnification under [***], the Aggrieved
Party shall not be entitled to seek indemnification unless and until [***] (in
which event, subject to the other provisions of this Section 11.3, the Aggrieved
Party shall be entitled to seek indemnification for the entire amount of such
claim) (it being understood and agreed that only the Costs arising out of a
single event or series of related events shall constitute an individual claim).
An Aggrieved Party shall not be entitled to recover any Costs under [***] until
[***] (the "Minimum Loss"), at which time the indemnification provided under
Section 11.1 shall apply to all Costs in excess of the Minimum Loss and the
maximum liability under [***] for an Indemnifying Party shall not exceed [***]
in the aggregate. Notwithstanding anything to the contrary contained herein, a
party shall not be entitled to indemnification under Article 11 with respect to
any particular matter if and to the extent a Purchase Price adjustment has been
made with respect to such specific matter pursuant to Section 3.6 or Section
7.6(f). It is understood that this Section 11.3 shall not apply to the
environmental indemnification provisions set forth in Sections 11.1(d) through
(h), inclusive.
11.4 INDEMNIFICATION AS SOLE REMEDY.
Absent fraud, the indemnification provided in this Article 11 and
Article 7, subject to the limitations set forth herein, shall be the exclusive
post-Closing remedy for damages available to any Aggrieved Party arising out of
or relating to this Agreement and the purchase and sale of the Business
hereunder.
- - - - - - ----------
[***] Confidential treatment requested and the redacted material has been
separately filed with the Commission.
<PAGE> 62
58
ARTICLE XII
GENERAL PROVISIONS
12.1 PUBLIC STATEMENTS.
Prior to the Closing, or afterward, so long as this Agreement
is in effect, none of the parties hereto shall issue or cause the publication of
any press release or other announcement with respect to this Agreement or the
transactions contemplated hereby without consulting with and obtaining the
consent of the other party, which shall not be unreasonably withheld; provided,
however, that such consent shall not be required where such release or
announcement is required by applicable law.
12.2 NOTICES.
All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally,
mailed by reputable overnight courier or certified mail (return receipt
requested) or sent by telecopier (confirmed thereafter by such certified mail)
to the parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice:
(a) if to Sellers:
c/o American Home Products Corporation
Five Giralda Farms
Madison, New Jersey 07940
Attention: Chief Financial Officer
Telecopier Number: (973) 660-7156
with a copy to:
American Home Products Corporation
Five Giralda Farms
Madison, New Jersey 07940
Attention: General Counsel
Telecopier Number: (973) 660-6030
(b) if to Buyer:
Crop Protection Products Division
BASF Aktiengesellschaft
Carl-Bosch-Strasse 67
67114 Limburgerhof
Germany
Telecopier Number: 011-49-621-60-27144
Attn.: President Crop Protection Division
(AP)
with a copy to:
BASF Aktiengesellschaft
Carl-Bosch-Strasse 38
67056 Ludwigshafen
<PAGE> 63
59
Germany
Telecopier Number: 011-49-621-60-41789
Attn.: Central Legal Department (ZRR)
Notice so given shall (in the case of notice so given by mail)
be deemed received on the third calendar day after mailing or when received if
sent by a reputable overnight courier and (in the case of notice so given by
telecopier or personal delivery) on the date of actual transmission or (as the
case may be) personal delivery.
12.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The respective representations and warranties of the parties
hereto shall survive the Closing and shall remain in full force and effect,
provided, however, that (a) the representations and warranties in Section 4.6
with respect to any Taxes shall survive until the applicable statute of
limitations has run for such Taxes,[***]. If written notice of a claim has been
given prior to the expiration of the applicable representations and warranties
by an Aggrieved Party to the Indemnifying Party, then the relevant
representations and warranties shall survive as to such claim until the claim
has been finally resolved.
12.4 AMENDMENT.
This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
12.5 WAIVER.
At any time prior to the Closing, any term, provision or
condition of this Agreement may be waived in writing (or the time for
performance of any of the obligations or other acts of the parties hereto may be
extended) by the party that is entitled to the benefits thereof. Failure by a
party hereto on one or more occasions to avail itself of a right conferred by
this Agreement shall in no event be construed as a waiver of such party's right
to enforce said right or any other right in the future.
12.6 PARTIES IN INTEREST.
This Agreement may not be assigned by a party without the
prior written consent of the other parties hereto, except that Buyer may assign
all or any portion of its rights and obligations hereunder to any Affiliate of
Buyer; provided, however, that no such assignment shall relieve Buyer of its
obligations hereunder. This Agreement shall not run to the benefit of or be
enforceable by any Person other than a party to this Agreement and, subject to
the first sentence of this Section, its successors and assigns.
- - - - - - ----------
[***] Confidential treatment requested and the redacted material has been
separately filed with the Commission.
<PAGE> 64
60
12.7 SELLERS' KNOWLEDGE.
When "to the knowledge of Sellers" or similar phrase is used
herein it shall refer to the actual knowledge of the President, Executive Vice
President, Sr. Vice President and Vice Presidents of the Global Agricultural
Products Division and the Global Agricultural Products Research Division, in
each case, after due inquiry.
12.8 GOVERNING LAW; MISCELLANEOUS.
This Agreement (including the documents and instruments
referred to herein) constitutes the entire agreement and supersedes all other
prior agreements and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof; is not intended to
confer upon any other Person any rights or remedies hereunder; and shall be
governed in all respects, including validity, interpretation and effect, by the
internal laws of the State of New York. The parties hereto agree that the U.S.
District Court for the Southern District of New York shall have exclusive
jurisdiction over any dispute or controversy arising out of or in relation to
this Agreement and any judgment, determination, arbitration award, finding or
conclusion reached or rendered in any other jurisdiction shall be null and void
between the parties hereto. Each of the parties waives any defense of
inconvenient forum to the maintenance of any action or proceeding so brought and
waives any bond, surety, or other security that might be required of any other
party with respect thereto.
This Agreement may be executed in one or more counterparts
which together shall constitute a single agreement. If any provisions of this
Agreement shall be held to be illegal, invalid or unenforceable under any
applicable law, then such contravention or invalidity shall not invalidate the
entire Agreement. Such provision shall be deemed to be modified to the extent
necessary to render it legal, valid and enforceable, and if no such modification
shall render it legal, valid and enforceable, then this Agreement shall be
construed as if not containing the provision held to be invalid, and the rights
and obligations of the parties shall be construed and enforced accordingly.
12.9 DISCLOSURE SCHEDULE.
The disclosure of any matter in the Disclosure Schedule shall
expressly not be deemed to constitute an admission by Sellers or Buyer of its
requirement to be disclosed or to otherwise imply that any such matter is
material for the purposes of this Agreement.
<PAGE> 65
61
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first written above.
AMERICAN CYANAMID COMPANY
By: /s/ Thomas M. Nee
------------------------------
Name: Thomas M. Nee
Title: Vice President
AMERICAN HOME PRODUCTS CORPORATION
By: /s/ Jack M. O'Connor
------------------------------
Name: Jack M. O'Connor
Title: Vice President and
Treasurer
BASF AKTIENGESELLSCHAFT
By: /s/ Dr. John Feldmann
------------------------------
Name: Dr. John Feldmann
Title: Member of the Board of
Executive Directors
BASF AKTIENGESELLSCHAFT
By: /s/ Friedrich Vogel
------------------------------
Name: Friedrich Vogel
Title: President, Crop Protection
Division
<PAGE> 1
Exhibit 5.1
PAGE 1
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - --------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASF AKTIENGESELLSCHAFT 100.00 100.00 DEUTSCHLAND
67056 LUDWIGSHAFEN AM RHEIN
AMERICAN CASUALTY EXCESS (ACE) LTD. 0.15 0.15 CAYMAN-INS.
C/O MARSCH & MC LENNAN (CAYMAN ISLANDS) LTD.
GEORGE TOWN/GRAND CAYMAN
AUSBILDUNGSPLATZINITIATIVE PFALZ GMBH 96.00 96.00 DEUTSCHLAND
67059 LUDWIGSHAFEN AM RHEIN
BASANIL S.A. 100.00 100.00 ARGENTINIEN
1000 BUENOS AIRES
BASF ARGENTINA S.A. 0.45 0.45 ARGENTINIEN
1043 BUENOS AIRES
BASF POLIURETANOS S.A. 0.29 0.29 ARGENTINIEN
1043-BUENOS AIRES
BASF (CHINA) COMPANY LTD. 100.00 100.00 CHINA VR
BEIJING 100026
BASF (CHINA) CHEMICALS COMPANY LTD. 10.00 10.00 CHINA VR
PUDONG, SHANGHAI 200137, P R CHIN
BASF HEADWAY POLYURETHANES (CHINA) 10.00 10.00 CHINA VR
CO. LTD.
PANYU GUANGDONG 511458
BASF JCIC NEOPENTYLGLYCOL CO LTD. 10.00 10.00 CHINA VR
JILIN CITY 132021, PEOPLES REPUBL
BASF SHANGHAI COATINGS COMPANY LTD. 10.00 10.00 CHINA VR
SHANGHAI 201108, CHINA
SHANGHAI BASF COLORANTS AND AUXILIARIES 10.00 10.00 CHINA VR
CO. LTD.
PUDONG, SHANGHAI 200137
SHANGHAI GAO QIAO-BASF DISPERSIONS CO. 10.00 10.00 CHINA VR
LIMITED
PUDONG, SHANGHAI 200137, P R CHIN
SHANGHAI GAO QIAO-BASF LATEX COMPANY 10.00 10.00 CHINA VR
LIMITED
PUDONG, SHANGHAI 200137, P R CHIN
YANGZI-BASF STYRENICS CO. LTD. 10.00 10.00 CHINA VR
NANJING 210048
BASF (ETHIOPIA) LTD. P.L.C. 100.00 100.00 AETHIOPIEN
ADDIS ABEBA
BASF (GHANA) LTD. 100.00 100.00 GHANA
ACCRA-NORTH
BASF (NIGERIA) LTD. 100.00 100.00 NIGERIA
LAGOS /NIGERIA
BASF (SCHWEIZ) AG 100.00 100.00 SCHWEIZ
CH-8820 WAEDENSWIL/AU
BASCOM AG 100.00 100.00 SCHWEIZ
CH-8820 WaDENSWIL/AU
BASF FRANCE S.A. 0.01 0.01 FRANKREICH
F-92593 LEVALLOIS-PERRET CEDEX
BASF (THAI) LTD. 99.97 99.97 THAILAND
BANGKOK 10500
- - - - - - --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
PAGE 2
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - --------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASF VITA LTD. 10.00 10.00 THAILAND
BANGKOK 10500
BASF A/S 100.00 100.00 DAENEMARK
DK-2300 KOPENHAGEN S
WINTERSHALL DANMARK A/S 100.00 100.00 DAENEMARK
DK-2300 KOPENHAGEN S
BASF SCHOU TRYKSYSTEMER A/S 100.00 100.00 DAENEMARK
DK-6580 VAMDRUP
BASIS KEMI A/S 100.00 100.00 DAENEMARK
DK-2300 KOPENHAGEN S
BASF AB 100.00 100.00 SCHWEDEN
S-413 14 GOETEBORG
BASF AFRIQUE DE L'OUEST S.A.R.L. 100.00 100.00 ELFENBEINK.
ABIDJAN 01
BASF AKQUISITIONS- UND OBJEKTVERWERTUNGS- 100.00 100.00 DEUTSCHLAND
GESELLSCHAFT MBH
67056 LUDWIGSHAFEN AM RHEIN
GAN-GRUNDSTUECKS- UND ANLAGENVERWALTUNGS- 40.00 40.00 DEUTSCHLAND
GESELLSCHAFT NORDWEST MBH
67061 LUDWIGSHAFEN AM RHEIN
BASF ANGOLA PRODUTOS QUIMICOS, LDA. 75.00 75.00 ANGOLA
LUANDA
BASF ARGENTINA S.A. 99.55 99.55 ARGENTINIEN
1043 BUENOS AIRES
BASF PARAGUAYA S.R.L. 1.00 1.00 PARAGUAY
ASUNCION
BASF POLIURETANOS S.A. 99.71 99.71 ARGENTINIEN
1043-BUENOS AIRES
BASF AS 100.00 100.00 NORWEGEN
N-1371 ASKER
BASF ASIATIC COLOURS AND CHEMICALS 49.00 49.00 THAILAND
COMPANY LTD.
BANGKOK 10120
BASF AUSTRALIA LTD. 100.00 100.00 AUSTR.BUND
MELBOURNE VICTORIA 3001
PIGMENT MANUFACTURERS OF AUSTRALIA LTD. I.L 50.00 50.00 AUSTR.BUND
LAVERTON, VIC. 3028
BASF BANGLADESH LTD. 76.41 76.41 BANGLADESH
DHAKA -1000
BASF BELGIUM S.A. 99.99 99.99 BELGIEN
B-1180 BRUESSEL
BASCOM BELGIUM N.V. 100.00 99.99 BELGIEN
B-1180 BRUESSEL
BASF COATINGS REFINISH S.A./N.V. 0.02 0.02 BELGIEN
B-1180 BRUESSEL
BASF COMPUTER SERVICES N.V. 0.01 0.01 BELGIEN
B-2040 ANTWERPEN 4
- - - - - - --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
PAGE 3
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - --------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASF BETEILIGUNGSGESELLSCHAFT MBH 100.00 100.00 DEUTSCHLAND
67056 LUDWIGSHAFEN AM RHEIN
BASF (CHINA) CHEMICALS COMPANY LTD. 90.00 90.00 CHINA VR
PUDONG, SHANGHAI 200137, P R CHIN
BASF (MALAYSIA) SDN BHD 100.00 100.00 MALAYSIA
47400 PETALING JAYA,
BASF POLYURETHANE (MALAYSIA) SDN BHD 100.00 100.00 MALAYSIA
47400 PETALING JAYA
BASF COMPANY LTD. 100.00 100.00 KOREA, REP.
SEOUL 100-743
BASF HEADWAY POLYURETHANES (CHINA) 60.00 60.00 CHINA VR
CO. LTD.
PANYU GUANGDONG 511458
BASF HUA YUAN NYLON COMPANY LTD. 20.00 20.00 CHINA VR
QINPU COUNTY, SHANGHAI 201700
BASF SA. 100.00 100.00 BRASILIEN
09851-550 SAO BERNARDO DO CAMPO,
BASF POLIURETANOS LTDA. 100.00 100.00 BRASILIEN
09370-904 MAUA - S.P.
BASF SISTEMAS GRAFICOS LTDA. 100.00 100.00 BRASILIEN
07700-000 CAIEIRAS/SP
COFADE-SOCIEDADE 50.00 50.00 BRASILIEN
FABRICADORA DE ELASTOMEROS LTDA.
09371-340 MAUA-SP
ISOSEGURO CORRETORA DE SEGUROS LTDA. 99.03 99.03 BRASILIEN
09844-900 SAO BERNARDO DO CAMPO-S
NEGPF-BASF SHENYANG VITAMINS COMPANY LTD. 28.00 28.00 CHINA VR
SHENYANG 110141, PR CHINA
SHANGHAI BASF COLORANTS AND AUXILIARIES 81.00 81.00 CHINA VR
CO. LTD.
PUDONG, SHANGHAI 200137
SHANGHAI BASF AUXILIARIES SALES CO. LTD. 90.00 81.90 CHINA VR
PUDONG, SHANGHAI 200137
TARGOR IBERICA, S.A. 100.00 100.00 SPANIEN
E-08008 BARCELONA
COMPLEJO INDUSTRIAL TAQSA AIE 56.00 56.00 SPANIEN
E-43206 REUS (TARRAGONA)
HISANE 50.00 50.00 SPANIEN
E-43206 REUS (TARRAGONA)
TARGOR PLASTICOS, LDA 100.00 100.00 PORTUGAL
P-2780 OEIRAS (PORTUGAL)
TRANSFORMADORA BE PROPILENO A.I.E. 50.00 50.00 SPANIEN
E-43760 EL MORELL (TARRAGONA)
UNA S.A. 50.00 50.00 SPANIEN
E-08006 BARCELONA
TARGOR S.A. 100.00 100.00 FRANKREICH
F-76170 LILLEBONNE
- - - - - - --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
PAGE 4
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - --------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SOCIETE CIVILE IMMOBILIERE DES 82.76 82.76 FRANKREICH
PLASTIQUES DE NORMANDIE
F-SIEGE A LILLEBONNE (SEINE-MARIT
WINTERSHALL OIL AG 100.00 100.00 SCHWEIZ
CH-6300 ZUG
BASF BIOTECHNOLOGIE BETEILIGUNGS- UND 100.00 100.00 DEUTSCHLAND
VERWERTUNGSGESELLSCHAFT MBH
67056 LUDWIGSHAFEN AM RHEIN
BASF-LYNX BIOSCIENCE AG 51.00 51.00 DEUTSCHLAND
69120 HEIDELBERG
BASF BOLIVIA S.R.L. 99.07 99.07 BOLIVIEN
LA PAZ
BASF CHEMDYES SDN. BHD. 51.00 51.00 MALAYSIA
13600 PERAI
BASF CHEMICALS AND POLYMERS 100.00 100.00 PAKISTAN
PAKISTAN (PRIVATE) LIMITED
KARACHI 75400
BASF CHEMTRADE GESELLSCHAFT MBH 100.00 100.00 DEUTSCHLAND
91593 BURGBERNHEIM
BASF CHILE S.A. 100.00 100.00 CHILE
SANTIAGO DE CHILE
BASF ECUATORIANA S.A. 0.03 0.03 ECUADOR
QUITO
BASF CHINA LIMITED 100.00 100.00 CHINA VR
KOWLOON, HONGKONG
BASF INTERNATIONAL CHEMTRADE 100.00 100.00 CHINA VR
(SHANGHAI) COMPANY LIMITED
SHANGHAI P.R. CHINA 200001
BASF COATINGS AG 100.00 100.00 DEUTSCHLAND
48165 MUENSTER-HILTRUP
ART-AUTOLACK-SYSTEME GMBH 100.00 100.00 DEUTSCHLAND
44147 DORTMUND
BASF COATINGS + INKS HONG KONG, LTD. 100.00 100.00 CHINA VR
FOTAN, SHATIN, N.T. HONG KONG
BASF COATINGS + INKS PHILIPPINES INC. 100.00 100.00 PHILIPPINEN
1254 MAKATI, METRO MANILA
BASF COATINGS HOLDING B.V. 100.00 100.00 NIEDERLANDE
NL-3606 AS MAARSSENBROEK
BASF COATINGS (PTY) LTD. 100.00 100.00 SUEDAFRIKA
GALLO MANOR 2052. RSA
BASF COATINGS INC. 100.00 100.00 PHILIPPINEN
MAKATI CITY
BASF COATINGS LTD. 100.00 100.00 GR.BRIT.N.IR
GB- DEESIDE CH5 2UA
BASF COATINGS LTD. 100.00 100.00 INDIEN
BANGALORE 562 157
HYDRO NABER S.A. 50.00 50.00 SPANIEN
E-46080 VALENCIA
- - - - - - --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 5
PAGE 5
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - --------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASF COATINGS PMB (PTY) LTD. 100.00 100.00 SUEDAFRIKA
GALLO MANOR 2052. RSA
BASF COATINGS S.A. 100.00 100.00 FRANKREICH
F- 60676 CLERMONT DE L'OISE
AUTO MAKE-UP S.A.R.L. 100.00 100.00 FRANKREICH
F-78310 MAUREPAS
BASF AUTOMOTIVE COATINGS SERVICES 100.00 100.00 FRANKREICH
F-60600 CLERMONT
BASF CONTAINER COATINGS
SYSTEMS S.A.S. 99.96 99.96 FRANKREICH
F-60600 CLERMONT-DEL'OISE
BASF DECO FRANCE S.A.S. 100.00 100.00 FRANKREICH
F- 60676 CLERMONT DE L'OISE
BASF SYSTEMES D'IMPRESSION S.A.S. 100.00 100.00 FRANKREICH
F- 60676 CLERMONT DE L'OISE CEDEX
BASF CONTAINER COATINGS
SYSTEMS S.A.S. 0.04 0.04 FRANKREICH
F-60600 CLERMONT-DEL'OISE
COULEURS-PARIS SARL 100.00 100.00 FRANKREICH
F-60600 CLERMONT
R-M AUTOLACKE VERTRIEBS GMBH 100.00 100.00 DEUTSCHLAND
63150 HEUSENSTAMM
BASF COATINGS, S.A. 99.71 99.71 SPANIEN
E-19004 GUADALAJARA
ART AUTOLACK-SYSTEME, S.A. 100.00 99.71 SPANIEN
E-19004 GUADALAJARA
BASF COIL COATINGS SPA 100.00 100.00 ITALIEN
I-121042 CARONNO PERTUSELLA (VA)M
BASF COATINGS NEDERLAND B.V. 100.00 100.00 NIEDERLANDE
NL-3606 AS MAARSSENBROEK
BASF COATINGS REFINISH AG 100.00 100.00 SCHWEIZ
CH-8820 WAEDENSWIL/AU
BASF COATINGS REFINISH GMBH 100.00 100.00 OESTERREICH
A-5301 EUGENDORF
BASF COATINGS REFINISH NORDEN AB 100.00 100.00 SCHWEDEN
S-425 02 HISINGS KAERRA
SVENSKA INMONT AB 100.00 100.00 SCHWEDEN
S-42502 HISINGS KAERRA
BASF COATINGS REFINISH S.A./N.V. 99.98 99.98 BELGIEN
B-1180 BRUESSEL
BASF COATINGS REFINISH SPA 100.00 100.00 ITALIEN
I-20040 BURAGO MOLGORA MI
BASF COATINGS SPA 100.00 100.00 ITALIEN
I-20040 BURAGO MOLGORA (MI)
ECOLOMBARDIA 4 SPA 2.00 2.00 ITALIEN
I-27010 GIUSSAGO (PV)
ECOTECH ITALIA SPA 100.00 100.00 ITALIEN
I-20040 BURAGO MOLGORA (MI)
- - - - - - --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 6
PAGE 6
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - --------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INDUSTRIA ELETTRODOMESTICI ITALIANA SPA 0.30 0.30 ITALIEN
I-10121 TORINO
BASF IMMOBILIEN-GESELLSCHAFT MBH & CO. 95.00 95.00 DEUTSCHLAND
DRUCKSYSTEME KG
67056 LUDWIGSHAFEN AM RHEIN
BASF IMMOBILIEN-GESELLSCHAFT MBH & CO. 95.00 95.00 DEUTSCHLAND
PIGMENT KG
67056 LUDWIGSHAFEN AM RHEIN
BASF NICHIYU COATINGS R+D CO., LTD.(BNC) 50.00 50.00 JAPAN
YOKOHAMA-SHI, KANAGAWA 244-0815
BASF SHANGHAI COATINGS COMPANY LTD. 50.00 50.00 CHINA VR
SHANGHAI 201108, CHINA
BASF WATTYL COATINGS PTY LTD. 51.00 51.00 AUSTR.BUND
WETHERILL PARK NSW 2164, AUSTRALI
GESELLSCHAFT ZUR FOERDERUNG DER LACKKUNST MB 100.00 100.00 DEUTSCHLAND
48143 MUENSTER
GLASURIT GMBH 100.00 100.00 DEUTSCHLAND
48165 MUENSTER-HILTRUP
GLASURIT NORGE A/S 100.00 100.00 NORWEGEN
N-0509 OSLO 5
IMV SONDERABFALL GMBH & CO. KG. 1.27 1.27 DEUTSCHLAND
50667 KOELN
NIPPON R - M CO. LTD. (NRM) 50.00 50.00 JAPAN
YOKOHAMA-SHI, KANAGAWA 223-0057
PEG PERSONALENTWICKLUNGSGESELLSCHAFT MBH 100.00 100.00 DEUTSCHLAND
50825 KOELN
VAERST (AG & CO.) 87.50 87.50 DEUTSCHLAND
48165 MUENSTER-HILTRUP
YASAR BASF AUTOMOTIVE COATINGS COMPANY LTDS. 50.00 50.00 TUERKEI
35100 IZMIR
BASF COLORANTS PTE. LTD. 100.00 100.00 SINGAPUR
SINGAPORE 038987
BASF COLORANTS TRADING S.A. 100.00 100.00 SCHWEIZ
CH-8820 WAEDENSWIL/AU
BASF COMPUTER SERVICES GMBH 100.00 100.00 DEUTSCHLAND
67059 LUDWIGSHAFEN AM RHEIN
BASF COMPUTER SERVICES N.V. 99.99 99.99 BELGIEN
B-2040 ANTWERPEN 4
BASF CROATIA D.O.O. 100.00 100.00 KROATIEN
10000 ZAGREB KROATIEN
BASF DE COSTA RICA, S.A. 100.00 100.00 COSTA RICA
SAN JOSE DE COSTA RICA C.A.,PLZ 1
BASF DE EL SALVADOR, S.A. DE C.V. 99.95 99.95 EL SALVADOR
SAN SALVADOR
BASF DE GUATEMALA S.A. 99.00 99.00 GUATEMALA
CIUDAD DE GUATEMALA
BASF DE NICARAGUA S.A. 99.88 99.88 NICARAGUA
MANAGUA
- - - - - - --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 7
PAGE 7
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - --------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASF DE MEXICO, S.A. DE C.V. 99.99 99.99 MEXICO
11870 MEXICO, D.F.
BASF MEXICANA, S.A. DE C.V. 99.99 99.99 MEXICO
03710 MEXICO, D.F.
BASF PINTURAS, S.A. DE C.V. 100.00 100.00 MEXICO
TULTITLAN, EDO. DE MEXICO CP 5490
POLIOLES, S.A. DE C.V. 50.00 50.00 MEXICO
06140 MEXICO, D.F.
AISLANTES Y ACUSTICOS DE MONTERREY,
S.A. DE SANTA CATARINA, N.L. C.P. 66350 100.00 50.00 MEXICO
BASF DOMINICANA, S.A. 100.00 100.00 DOMINIK.REP.
SANTO DOMINGO
BASF DRUCKSYSTEME GMBH 100.00 100.00 DEUTSCHLAND
70469 STUTTGART
BASF DRUCKSYSTEME SCHWEIZ GMBH 95.00 95.00 SCHWEIZ
CH-8820 WaDENSWIL
BASF DRUKINKT B.V. 100.00 100.00 NIEDERLANDE
NL-7000 AN DOETINCHEM
BASF PLAQUES D'IMPRESSION SARL 100.00 100.00 FRANKREICH
F-69680 CHASSIEU PARC
BASF POLIGRAFIA POLSKA SP. Z.O.O. 50.00 50.00 POLEN
91-203 LODZ
BASF PRINTING SYSTEMS IRELAND LTD. 100.00 100.00 IRLAND
IRL-BLACKROCK, CO. DUBLIN
BASF PRINTING SYSTEMS S.A. 99.94 99.94 BELGIEN
B-1800 VILVOORDE
BASF SISTEMAS DE IMPRESION, S.A. 100.00 100.00 SPANIEN
E-08410 VILANOVA DEL VALLES
BASF VERNICI E INCHIOSTRI SPA 100.00 100.00 ITALIEN
I-20092 CINISELLO BALSAMO MI
BASF INTERSERVICE SPA 50.00 50.00 ITALIEN
I-20031 CESANO MADERNO MI
ECOLOMBARDIA 4 SPA 2.61 2.61 ITALIEN
I-27010 GIUSSAGO (PV)
INK LOGISTIC MANAGEMENT GMBH 100.00 100.00 DEUTSCHLAND
70469 STUTTGART
K + E DRUCKFARBEN VETRIEBSGESELLSCHAFT MBH 100.00 100.00 DEUTSCHLAND
70469 STUTTGART
TINTAS GRAFICAS S.A. 92.45 92.45 CHILE
SANTIAGO DE CHILE
TINTAS GRAFICAS S.A. 100.00 92.45 ARGENTINIEN
SAN LUIS, ARGENTINIEN
TINTAS GRAFICAS VENCEDOR S.A. 50.00 46.23 PERU
SAN JUAN DE LURIGANCHO LIMA
BASF EAST AFRICA LTD. 80.00 80.00 KENIA
NAIROBI
- - - - - - --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 8
PAGE 8
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - --------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASF EAST ASIA REGIONAL 100.00 100.00 CHINA VR
HEADQUARTERS LIMITED
KOWLOON, HONG KONG
BASF ECUATORIANA S.A. 99.87 99.87 ECUADOR
QUITO
BASF EOOD 100.00 100.00 BULGARIEN
1408 SOFIA
BASF FINANZ GMBH 100.00 100.00 DEUTSCHLAND
67056 LUDWIGSHAFEN AM RHEIN
BASF COORDINATION CENTER N.V. 100.00 100.00 BELGIEN
B-2040 ANTWERPEN 4
BASF FINANCE EUROPE N.V. 100.00 100.00 NIEDERLANDE
NL-6811 HD ARNHEM
BASF FRANCE S.A. 99.99 99.99 FRANKREICH
F-92593 LEVALLOIS-PERRET CEDEX
BASCOM FRANCE S.N.C. 100.00 100.00 FRANKREICH
F-92593 LEVALLOIS PERRET CEDEX
COULEURS-PARIS S.A. 100.00 100.00 FRANKREICH
F-92593 LEVALLOIS-PERRET CEDEX
BASF GE SCHWARZHEIDE BETEILIGUNGS GMBH 50.00 50.00 DEUTSCHLAND
01986 SCHWARZHEIDE
BASF GE SCHWARZHEIDE GMBH & CO. KG 50.00 50.00 DEUTSCHLAND
01986 SCHWARZHEIDE
BASF HANDELS- U. EXPORT-GMBH 100.00 100.00 DEUTSCHLAND
67056 LUDWIGSHAFEN AM RHEIN
BASF (THAI) LTD. 0.03 0.03 THAILAND
BANGKOK 10500
BASF ANGOLA PRODUTOS QUIMICOS, LDA. 25.00 25.00 ANGOLA
LUANDA
BASF DE EL SALVADOR, S.A. DE C.V. 0.05 0.05 EL SALVADOR
SAN SALVADOR
BASF DE GUATEMALA S.A. 1.00 1.00 GUATEMALA
CIUDAD DE GUATEMALA
BASF DE NICARAGUA S.A. 0.04 0.04 NICARAGUA
MANAGUA
BASF IRELAND LIMITED 0.01 0.01 IRLAND
IRL-BLACKROCK, CO. DUBLIN
BASF ITALIA SPA 1.22 1.22 ITALIEN
I-20031 CESANO MADERNO MI
BASF PORTUGUESA LDA. 29.54 29.54 PORTUGAL
P-2689-538 PRIOR VELHO
BASF TOVARYSTVO Z OBMEZENOJU 1.00 1.00 UKRAINE
VIDPOVDAL'NISTJU
252042 KIEW
BASF ZAIRE S.P.R.L. 0.67 0.67 ZAIRE
KINSHASA
COMPO AGRICOLTURA SPA 1.22 1.22 ITALIEN
I-CESANO MADERNO
- - - - - - --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 9
PAGE 9
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - --------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TENSID-CHEMIE VERTRIEBSGESELLSCHAFT MBH 100.00 100.00 DEUTSCHLAND
50825 KOELN
BASF HEADWAY POLYURETHANES (TAIWAN) CO. LTD. 70.00 70.00 TAIWAN/ROC
HSINCHU, TAIWAN
BASF HEALTH & NUTRITION A/S 100.00 100.00 DAENEMARK
DK-2750 BALLERUP
BASF HOLDING (MALAYSIA) SDN BHD 100.00 100.00 MALAYSIA
47400 PETALING JAYA
BASF HOLDING ESPANOLA S.L. 100.00 100.00 SPANIEN
E-08008 BARCELONA
BASF ESPANOLA S.A. 100.00 100.00 SPANIEN
E-08008 BARCELONA
AGUAS INDUSTRIALES DE TARRAGONA S.A. 9.90 9.90 SPANIEN
E-43100 BONAVISTA (TARRAGONA)
BASF CURTEX PRODUTOS QUIMICOS LDA. 0.01 0.01 PORTUGAL
P-4102-001 PORTO CODEX
BASF CURTEX S.A. 100.00 100.00 SPANIEN
E-08907 L'HOSPITALET DE LLOBREGAT
BASF CURTEX PRODUTOS QUIMICOS LDA. 99.99 99.99 PORTUGAL
P-4102-001 PORTO CODEX
BASF MANAGEMENT SERVICES S.A.(BMS) 20.00 20.00 SPANIEN
E-08008 BARCELONA
BASF MANAGEMENT SERVICES S.A.(BMS) 40.00 40.00 SPANIEN
E-08008 BARCELONA
BASF SONATRACH PROPANCHEM, S.A. 51.00 51.00 SPANIEN
E-43006 TARRAGONA
COBANE, AGRUPACION DE INTERES ECON 90.00 90.00 SPANIEN
E-43006 TARRAGONA
NORTENA DE DISTRIBUCION S.L. 100.00 100.00 SPANIEN
E-08750 MOLINS DE REI (BARCELONA)
PLANTA D'INCINERACIO DE 9.72 9.72 SPANIEN
RESIDUS ESPECIALS S.A. (PIRE S.A.)
E-43120 CONSTANTI
COMPO AGRICULTURA S.L. 100.00 100.00 SPANIEN
E-08008 BARCELONA
BASF HUA YUAN NYLON COMPANY LTD. 60.00 60.00 CHINA VR
QINPU COUNTY, SHANGHAI 201700
BASF HUNGARIA KFT. 100.00 100.00 UNGARN
H-1034 BUDAPEST
BASF IMMOBILIEN-GESELLSCHAFT MBH 100.00 100.00 DEUTSCHLAND
67056 LUDWIGSHAFEN AM RHEIN
BASF IMMOBILIEN-GESELLSCHAFT MBH & CO. 5.00 5.00 DEUTSCHLAND
DRUCKSYSTEME KG
67056 LUDWIGSHAFEN AM RHEIN
BASF IMMOBILIEN-GESELLSCHAFT MBH & CO. 5.00 5.00 DEUTSCHLAND
PIGMENT KG
67056 LUDWIGSHAFEN AM RHEIN
- - - - - - --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 10
PAGE 10
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - --------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ZWEITE BASF IMMOBILIEN-GESELLSCHAFT MBH 5.00 5.00 DEUTSCHLAND
67056 LUDWIGSHAFEN AM RHEIN
BASF INDIA LIMITED 50.00 50.00 INDIEN
MUMBAI-400 025
BASF INDUSTRIES PRIVATE LTD. 100.00 100.00 INDIEN
MUMBAI 400 025
BASF INNOVATIONSFONDS GMBH 100.00 100.00 DEUTSCHLAND
67056 LUDWIGSHAFEN AM RHEIN
CWK SOFTWARE UND SERVICE GMBH 27.22 27.22 DEUTSCHLAND
68167 MANNHEIM
DATASOUND GESELLSCHAFT ZUR ENTWICKLUNG UND 29.91 29.91 DEUTSCHLAND
VERMARKTUNG DIGITALER AUDIO- UND INFORMATION
67059 LUDWIGSHAFEN AM RHEIN
BASF INTERTRADE AG 100.00 100.00 SCHWEIZ
CH-6300 ZUG
BASF IRAN AG 100.00 100.00 IRAN
TEHERAN 15579
BASF IRELAND LIMITED 99.99 99.99 IRLAND
IRL-BLACKROCK, CO. DUBLIN
BASF ITALIA SPA 98.78 98.78 ITALIEN
I-20031 CESANO MADERNO MI
BASF INTERSERVICE SPA 50.00 50.00 ITALIEN
I- 20031 CESANO MADERNO MI
BASF TRADING CHEMICALS SPA 100.00 100.00 ITALIEN
I-20031 CESANO MADERNO MI
CONSORZIO DEPURATORE SANTA CROZE SPA 0.01 0.01 ITALIEN
I-SANTA CROCE - PISA
CONSORZIO NAZIONALE IMBALLAGGI 0.01 0.01 ITALIEN
I-20121 MILANO
CONSORZIO RECUPERO CROMO SPA 0.01 0.01 ITALIEN
I-SANTA CROCE - PISA
COOP FIDI SRL 0.01 0.01 ITALIEN
I- REGGIO EMILLIA
3 R ASSOCIATI SPA 0.60 0.60 ITALIEN
I-20153 MILANO
BASF JAPAN LTD. (BJL) 100.00 100.00 JAPAN
TOKYO 102-8570
BASF DISPERSIONS CO., LTD. (PDC) 65.00 65.00 JAPAN
TOKYO 102-8570
BASF INOAC POLYURETHANES, LTD. (BIP) 50.00 50.00 JAPAN
SHINSHIRO-SHI, AICHI 441-1347
MCB CORPORATION 50.00 50.00 JAPAN
510-0881 YOKKAICHI, MIE
MITSUBISHI CHEMICAL FOAM PLASTIC CORPORATION 10.00 10.00 JAPAN
TOKYO 100-0006
MITSUI BASF DYES LTD. (MBD) 50.00 50.00 JAPAN
OSAKA 540-0001
- - - - - - --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 11
PAGE 11
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - --------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NISSHIN BASF CO., LTD. 50.00 50.00 JAPAN
TOKYO 102-0094
POLYURETHANE ENGINEERING CO., LTD. (PEC) 50.00 50.00 JAPAN
OKAZAKI-SHI, AICHI 444-0871
TAKEDA BADISCHE URETHANE 50.00 50.00 JAPAN
INDUSTRIES, LTD. (TBU)
TOKYO 102-0094
BASF JCIC NEOPENTYLGLYCOL CO LTD. 50.00 50.00 CHINA VR
JILIN CITY 132021, PEOPLES REPUBL
BASF JUGOSLAVIJA D.O.O. 100.00 100.00 JUGOSLAWIEN
YU-11000 BEOGRAD
BASF KANOO GULF LLC 49.00 49.00 VAE DUBAI
DUBAI
BASF KANOO GULF FZE 100.00 49.00 VAE DUBAI
DUBAI
BASF MAROC S.A. 100.00 100.00 MAROKKO
20250 AIN SEBAA-CASABLANCA
BASF MICROCHECK LIMITED 100.00 100.00 GR.BRIT.N.IR
GB-RUDDINGTON NOTTINGHAM NG11 6JS
BASF NEDERLAND B.V. 100.00 100.00 NIEDERLANDE
NL-6801 MC ARNHEM
BASCOM NL B.V. 100.00 100.00 NIEDERLANDE
NL-6811 CA ARNHEM
BASF OPERATIONS B.V. 100.00 100.00 NIEDERLANDE
NL-6801 MV ARNHEM
BASELL B.V. 50.00 50.00 NIEDERLANDE
NL-3196 KK VONDELINGENPLAAT ROTTE
BASELL C.V. 50.00 50.00 NIEDERLANDE
NL-3196 KK VONDELINGENPLAAT ROTTE
REMMERT-HOLLAND B.V. 100.00 100.00 NIEDERLANDE
NL-7332 BD APELDOORN
BASF NEW ZEALAND LTD. 100.00 100.00 NEUSEELAND
AUCKLAND, 1015
BASF OESTERREICH GESELLSCHAFT M.B.H. 100.00 100.00 OESTERREICH
A-1131 WIEN
BASF CHEMTRADE GMBH 100.00 100.00 OESTERREICH
1131 WIEN
ORGANCHEMIE GESELLSCHAFT M.B.H 100.00 100.00 OESTERREICH
A-1130 WIEN
BASF OY 100.00 100.00 FINNLAND
SF-00101 HELSINKI
BASF PAKISTAN (PRIVATE) LTD. 51.00 51.00 PAKISTAN
KARACHI 75400
BASF PANAMA S.A. 100.00 100.00 PANAMA
CIUDAD DE PANAMA
BASF PARAGUAYA S.R.L. 98.00 98.00 PARAGUAY
ASUNCION
- - - - - - --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 12
PAGE 12
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - --------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASF PERUANA S.A. 99.79 99.79 PERU
LIMA 100
BASF BOLIVIA S.R.L. 0.93 0.93 BOLIVIEN
LA PAZ
BASF PETRONAS CHEMICALS SDN. BHD. 60.00 60.00 MALAYSIA
47500 PETALING JAYA
BASF PHILIPPINES, INC. 100.00 100.00 PHILIPPINEN
4028 CANLUBANG, CALAMBA
BASF PIGMENT GMBH 100.00 100.00 DEUTSCHLAND
67056 LUDWIGSHAFEN AM RHEIN
BASF PLANT BIOTECHNOLOGY (HOLDING) GMBH 100.00 100.00 DEUTSCHLAND
67056 LUDWIGSHAFEN AM RHEIN
BASF PLANT SCIENCE GMBH 85.00 85.00 DEUTSCHLAND
67056 LUDWIGSHAFEN
METANOMICS GMBH & CO. KGAA 80.00 80.00 DEUTSCHLAND
10589 BERLIN-CHARLOTTENBURG
METANOMICS VERWALTUNGSGESELLSCHAFT MBH 100.00 100.00 DEUTSCHLAND
10589 BERLIN-CHARLOTTENBURG
SUNGENE GMBH & CO. KGAA 66.00 66.00 DEUTSCHLAND
06466 GATERSLEBEN
SUNGENE VERWALTUNGSGESELLSCHAFT MBH 100.00 100.00 DEUTSCHLAND
06466 GATERSLEBEN
SVALOF WEIBULL AB 40.00 40.00 SCHWEDEN
SE-268 81 SWALOV
BASF PLANT SCIENCE GMBH 15.00 6.00 DEUTSCHLAND
67056 LUDWIGSHAFEN
BASF POLSKA SP.Z O.O. 100.00 100.00 POLEN
PL 02326 WARSZAWA
BASF PORTUGUESA LDA. 70.46 70.46 PORTUGAL
P-2689-538 PRIOR VELHO
BASF PROJEKTENTWICKLUNGS-AKTIENGESELLSCHAFT 100.00 100.00 DEUTSCHLAND
48165 MUENSTER
BASF QUIMICA COLOMBIANA S.A. 100.00 100.00 KOLUMBIEN
MEDELLIN
COLCOLINA LTDA. 100.00 100.00 KOLUMBIEN
SANTAFE DE BOGOTA
BASF RUS GMBH 100.00 100.00 DEUTSCHLAND
67056 LUDWIGSHAFEN AM RHEIN
BASF SCHWARZHEIDE GMBH 100.00 100.00 DEUTSCHLAND
01986 SCHWARZHEIDE
SGS-SCHWARZHEIDER GASTRONOMIE 100.00 100.00 DEUTSCHLAND
UND SERVICE GMBH
01986 SCHWARZHEIDE
BASF SERVICES (MALAYSIA) SDN. BHD 100.00 100.00 MALAYSIA
47400 PETALING JAYA
BASF SINGAPORE PTE. LTD. 100.00 100.00 SINGAPUR
SINGAPORE 038987
- - - - - - --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 13
PAGE 13
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - -------------------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASF SLOVENIJA D.O.O. 100.00 100.00 SLOWENIEN
SLO-lOO0 LJUBLJANA
BASF SLOVENSKO SPOL S R.O. 100.00 100.00 SLOWAKEI
SR-81105 BRATISLAVA
BASF SOUTH AFRICA (PTY.) LTD. 100.00 100.00 SUEDAFRIKA
1685 HALFWAY HOUSE
BASF NEUVET (PTY) LTD. 100.00 100.00 SUEDAFRIKA
KEMTON PARK, SUEDAFRICA
BASF VITAMIX (PTY.) LTD. 100.00 100.00 SUEDAFRIKA
BEACONVALE 7500
BASF SOUTH EAST ASIA PTE. LTD. 100.00 100.00 SINGAPUR
SINGAPORE 038987
BASELL EASTERN (PTE) LTD. 50.00 50.00 SINGAPUR
SINGAPORE 239 920
BASF SPOL. S R.O. 100.00 100.00 TSCHECHIEN
CZ-15500 PRAHA 5
BASF SRL 100.00 100.00 RUMAENIEN
71102 BUCURESTI 1
BASF STRUCTURAL RESINS B.V. 100.00 100.00 NIEDERLANDE
NL-6801 MC ARNHEM
DSM-BASF STRUCTURAL RESINS V.O.F. 40.00 40.00 NIEDERLANDE
NL-8000 AP ZWOLLE
BASF TAIWAN LTD. 100.00 100.00 TAIWAN/ROC
TAIPEI, TAIWAN R.O.C.
BASF TEXTILE AND LEATHER CENTRE ASIA 100.00 100.00 MALAYSIA
SDN. BHD.
47400 PETALING JAYA
BASF TOVARYSTVO Z OBMEZENOJU 99.00 99.00 UKRAINE
VIDPOVDAL'NISTJU
252042 KIEW
BASF TUERK 100.00 100.00 TUERKEI
BOYA VE KIMYA LTD. STI.
80040 TOPHANE-ISTANBUL
BASF TUNISIE S.A. 49.00 49.00 TUNESIEN
2033 MEGRINE
BASF UK HOLDINGS LIMITED 100.00 100.00 GR.BRIT.N.IR
GB-CHEADLE, CHESHIRE, SK8 6QG
BASF PLC 100.00 100.00 GR.BRIT.N.IR
WEMBLEY, MIDDLESEX HA9 0ND
BASF COATINGS REFINISH LTD. 100.00 100.00 GR.BRIT.N.IR
GB-DIDCOT OXON 0X11 7HB
FISHBURN PRINTING INK COMPANY, LTD. 100.00 100.00 GR.BRIT.N.IR
GB-CHEADLE, CHESHIRE SK8 6QK
INMONT LIMITED 100.00 100.00 GR.BRIT.N.IR
GB-CHEADLE, CHESHIRE SK8 6QK
R-M AUTOMOTIVE REFINISH LIMITED 100.00 100.00 GR.BRIT.N.IR
GB-ENFIELD, MIDDX EN2 7JA
- - - - - - -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 14
PAGE 14
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - -----------------------------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
VALENTINE LIMITED 100.00 100.00 GR.BRIT.N.IR
GB-CHEADLE, CHESHIRE SK8 6QK
BASF COMPUTER SERVICES (UK) LTD. 100.00 100.00 GR.BRIT.N.IR
GB-WILMSLOW CHESHIRE SK9 5FP
BASF PRINTING SYSTEMS LTD. 100.00 100.00 GR.BRIT.N.IR
HORSHAM, WEST SUSSEX RH13 7SH
CHEADLE COLOUR & CHEMICALS LIMITED 100.00 100.00 GR.BRIT.N.IR
GB-CHEADLE, CHESHIRE SK8 6QG
COMPAREX INFORMATION SYSTEMS LTD. 100.00 100.00 GR.BRIT.N.IR
GB-CHEADLE, CHESHIRE SK8 6QK
DANOCHEMO (UK) LTD. 100.00 100.00 GR.BRIT.N.IR
GB-CHEADLE, CHESHIRE SK8 6QK
FRANK WRIGHT LIMITED 100.00 100.00 GR.BRIT.N.IR
GB-ASHBOURNE-DERBYSHIRE DE6 1HA
FRANK WRIGHT (FEED SUPPLEMENTS) LIMITED 100.00 100.00 GR.BRIT.N.IR
GB-ASHBOURNE-DERBYSHIRE DE6 1HA
FRANK WRIGHT (TRANSPORT) LIMITED 100.00 100.00 GR.BRIT.N.IR
GB-ASHBOURNE-DERBYSHIRE DE6 1HA
FRANK WRIGHT FEEDS (INTERNATIONAL) LIMITED 100.00 100.00 GR.BRIT.N.IR
GB-ASHBOURNE-DERBYSHIRE DE6 1HA
VALUPLAST LTD. 9.17 9.17 GR.BRIT.N.IR
BUCKINGHAMSHIRE SL9 9UB
BASF URUGUAYA S.A. 100.00 100.00 URUGUAY
11000 MONTEVIDEO
BASF VENEZOLANA, S.A. 100.00 100.00 VENEZUELA
CARACAS 1070
BASF ECUATORIANA S.A. 0.03 0.03 ECUADOR
QUITO
MARAQUIM S.A. I.L. 100.00 100.00 VENEZUELA
CARACAS 1071-A
BASF VITA LTD 30.00 30.00 THAILAND
BANGKOK 10500
BASF WAREN- UND ANLAGENVERTRIEBS- UND- 100.00 100.00 DEUTSCHLAND
LEASING GESELLSCHAFT MBH
67056 LUDWIGSHAFEN AM RHEIN
BASF WOSTOK 000 100.00 100.00 RUSSLAND
MOSKAU
BASF ZAIRE S.P.R.L. 99.33 99.33 ZAIRE
KINSHASA
BASF ZIMBABWE (PRIVATE) LTD. 100.00 100.00 SIMBABWE
HARARE
BASF-FINLAY (PRIVATE) LIMITED 67.00 67.00 SRI LANKA
COLOMBO 2 SRI LANKA 00200
BASF-SUEMERBANK TUERK KIMYA SANAYII A.S. 100.00 100.00 TUERKEI
41455 DILOVASI/GEBZE
BASFIN CORPORATION 100.00 100.00 USA
MOUNT OLIVE, NEW JERSEY 07828-123
- - - - - - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 15
PAGE 15
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - ----------------------------------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASF CORPORATION 100.00 100.00 USA
MOUNT OLIVE, NEW JERSEY 07828-123
BASF BIORESEARCH CORPORATION 100.00 100.00 USA
WORCESTER, MA 01605
BASF CAPITAL CORPORATION 100.00 100.00 USA
MOUNT OLIVE, NEW JERSEY 07828-123
AUTOMOTIVE REFINISH TECHNOLOGY, INC. 100.00 100.00 USA
DEARBORN, MICHIGAN 48124
BASF PLANT SCIENCE HOLDINGS, INC. 100.00 100.00 USA
MOUNT OLIVE, NEW JERSEY 07828-123
BASF PLANT SIENCE LLC 1.00 1.00 USA
MOUNT OLIVE, NEW JERSEY 07828-123
KNOLL PHARMACEUTICAL COMPANY 100.00 100.00 USA
MOUNT OLIVE, NEW JERSEY 07828-123
KNOLL PHARMA INC. 100.00 100.00 KANADA
MARKHAM, ONTARIO L3R 6H3
KNOLL PHARMA MANUFACTURING INC. 100.00 100.00 USA
MOUNT OLIVE, NEW JERSEY 07828-123
TRANSPHARM INC. 100.00 100.00 USA
MOUNT OLIVE, NEW JERSEY 07828-123
MICRO FLO COMPANY 100.00 100.00 USA
LAKELAND, FLORIDA
TRADEWINDS CHEMICAL CORPORATION 100.00 100.00 USA
MOUNT OLIVE, NEW JERSEY 07828-123
BASF-FINA PETROCHEMICALS LTD. 59.00 59.00 USA
MOUNT OLIVE, NEW JERSEY 07828-123
BASF DE MEXICO, S.A. DE C.V. 0.01 0.01 MEXICO
11870 MEXICO, D.F.
BASF INC 100.00 100.00 KANADA
TORONTO, ONTARIO M9W 6N9
BASF CANADA INC. 100.00 100.00 KANADA
TORONTO, ONTARIO M9W 6N9
AUTOMOTIVE REFINISH TECHNOLOGY, INC. (ART) 100.00 100.00 KANADA
TORONTO, ONTARIO CANADA 119W 6N9
BASF INTERNATIONAL CORPORATION 100.00 100.00 USA
CHRISTIANSTED, SAINT CROIX
BASF NICHIYU COATINGS NORTH AMERICA 100.00 100.00 USA
MOUNT OLIVE, NEW JERSEY 07828-123
BASF PLANT SIENCE LLC 99.00 99.00 USA
MOUNT OLIVE, NEW JERSEY 07828-123
BASF-FINA PETROCHEMICALS LTD. 1.00 1.00 USA
MOUNT OLIVE, NEW JERSEY 07828-123
IVAX CORPORATION 5.70 5.70 USA
USA-MIAMI, FLORIDA 33137
SHANGHAI INTERFACE CARPET CO. LTD. 5.00 5.00 CHINA VR
SHANGHAI 201700, P R CHINA
- - - - - - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 16
PAGE 16
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - ----------------------------------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
THE AULT & WIBORG COMPANY (FAR EAST) 100.00 100.00 USA
NEW YORK
THOUSAND SPRINGS TROUT FARMS, INC. 100.00 100.00 USA
WILMINGTON, DELAWARE 19801
ULTRAFORM COMPANY 100.00 100.00 USA
THEODORE, ALABAMA 36590
MITOTIX, INC. 6.54 6.54 USA
CAMBRIDGE, MASSACHUSETTS, 02139
BKV BETEILIGUNGS - UND KUNSTSTOFF- 10.90 10.90 DEUTSCHLAND
VERWERTUNGSGESELLSCHAFT MBH
60329 FRANKFURT
CHEMISCHE FABRIK WIBARCO GMBH 100.00 100.00 DEUTSCHLAND
49466 IBBENBUEREN
COMPO AGRICOLTURA SPA 98.78 98.78 ITALIEN
I-CESANO MADERNO
COMPO HANDELSGESELLSCHAFT MBH 100.00 100.00 OESTERREICH
A-1130 WIEN
CWD CHEMIE-WIRTSCHAFTSDATENBANKEN GMBH 25.00 25.00 DEUTSCHLAND
60329 FRANKFURT AM MAIN
DR. HEINRICH VON BRUNCK GEDAECHTNIS- 95.00 95.00 DEUTSCHLAND
STIFTUNG FUER WERKSANGEHORIGE DER BASF GMBH
67056 LUDWIGSHAFEN AM RHEIN
DR. WOLMAN GMBH 100.00 100.00 DEUTSCHLAND
76545 SINZHEIM
ELASTOGRAN GMBH 100.00 100.00 DEUTSCHLAND
49440 LEMFOERDE
ELASTOGRAN FRANCE S.A. 100.00 100.00 FRANKREICH
F-77292 MITRY-MORY
ELASTOGRAN ITALIA SPA (ELIT) 100.00 100.00 ITALIEN
I-14019 VILLANOVA D'STI
3 R ASSOCIATI SPA 0.12 0.12 ITALIEN
I-20153 MILANO
ELASTOGRAN KEMIPUR POLIURETAN SYSTEM KFT. 90.00 90.00 UNGARN
H-2083 SOLYMAR
ELASTOGRAN S.A. 100.00 100.00 SPANIEN
E-08191 RUBI (BARCELONA)
ELASTOGRAN SCHWARZHEIDE GMBH 100.00 100.00 DEUTSCHLAND
01986 SCHWARZHEIDE
ELASTOGRAN U.K. LTD. (EUK) 100.00 100.00 GR.BRIT.N.IR
GB-ALFRETON DERYSHIRE DE55 4NL
ELENAC GMBH 50.00 50.00 DEUTSCHLAND
77694 KEHL
ELENAC BELGIUM S.A./N.V. 100.00 50.00 BELGIEN
B-1180 BRUESSEL
ELENAC FRANCE S.A. 100.00 50.00 FRANKREICH
F92593 LEVALLOIS PERRET CEDEX
ELENAC IBERICA S.A. 100.00 50.00 SPANIEN
E-08008 BARCELONA
- - - - - - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 17
PAGE 17
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - ----------------------------------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ELENAC ITALIA S.R.L. 100.00 50.00 ITALIEN
I-20031 CESANO MADERNO MI
ELENAC NEDERLAND B.V 100.00 50.00 NIEDERLANDE
NL-6811 CA ARNHEM
ELENAC NORDIC AB 100.00 50.00 SCHWEDEN
S-413 14 GOETEBORG
ELENAC UK LIMITED 100.00 50.00 GR.BRIT.N.IR
GB-CHESHIRE SK8 6FH
IMV SONDERABFALL GMBH & CO. KG. 2.99 1.50 DEUTSCHLAND
50667 KOELN
INFRASERV GMBH & CO. HOECHST KG 3.00 1.50 DEUTSCHLAND
65926 HOECHST
INFRASERV GMBH & CO. KNAPSACK KG 3.00 1.50 DEUTSCHLAND
50354 HURTH
INFRASERV GMBH & CO. MUNCHSMUNSTER KG 21.00 10.50 DEUTSCHLAND
85126 MUNCHSMUNSTER
THERMISCHE RUECKSTANDSVERWERTUNG 60.00 30.00 DEUTSCHLAND
GMBH & CO. KG (TRV)
50380 WESSELING
THERMISCHE RUECKSTANDSVERWERTUNG 60.00 30.00 DEUTSCHLAND
VERWALTUNGS-GMBH
50380 WESSELING
ELENAC S.A. 50.00 50.00 FRANKREICH
F-67088 STRASBOURG CEDEX 2
ELENAC INC. 100.00 50.00 USA
SOUTHGATE, MICHIGAN 48 195
ELENAC MANUFACTURING UK LTD. 100.00 50.00 GR.BRIT.N.IR
GB-MANCHESTER M31 4AJ
ELENAC PRODUCCION IBERICA 100.00 50.00 SPANIEN
E-43206 REUS-TARRAGONA
ELENAC PRODUCCION IBERICA, S.L. 100.00 50.00 SPANIEN
E-08017 BARCELONA
COMPLEJO INDUSTRIAL TAQSA AIE 29.00 14.50 SPANIEN
E-43206 REUS (TARRAGONA)
HISANE 25.00 12.50 SPANIEN
E-43206 REUS (TARRAGONA)
ELENAC PRODUCTION FRANCE S.A. 100.00 50.00 FRANKREICH
F-BERRE
COMPAGNIE INDUSTRIELLE DES 50.00 25.00 FRANKREICH
POLYETHYLENES DE NORMANDIE
F-NOTRE-DAME DE GRAVENCHON
ELENAC FOS S.A. 100.00 50.00 FRANKREICH
F-13771 FOS-SUR-MER CEDEX
SOCIETE DU CRAQUEUR DE L'AUBETTE SAS 50.00 25.00 FRANKREICH
F-13131 BERRE L'ETANG CEDEX
FUNFTE BASF CHEMIE-BETELIGUNGS- 100.00 100.00 DEUTSCHLAND
GESELLSCHAFT MBH
67056 LUDWIGSHAFEN AM RHEIN
- - - - - - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 18
\
PAGE 18
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - ----------------------------------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FUNFTE BASF PROJEKTENTWICKLUNGS- 100.00 100.00 DEUTSCHLAND
GESELLSCHAFT MBH
67056 LUDWIGSHAFEN AM RHEIN
FLUGPLATZ SPEYER/LUDWIGSHAFEN GMBH 20.00 20.00 DEUTSCHLANO
67346 SPEYER
GESELLSCHAFT MIT BESCHRAENKTER HAFTUNG 19.60 19.60 RUSSLAND
HAUS AM KAI 1
MOSKAU 129110
GEWERKSCHAFT DES KONSOLIDIERTEN STEIN- 100.00 100.00 DEUTSCHLAHD
KOHLENBERGWERKS BREITENBACH GMBH
67056 LUDWIGSHAFEN AM RHEIN
GEWOGE WOHNUNGSUNTERNEHMEN DER BASF GMBH 97.00 97.00 DEUTSCHLAND
67063 LUDWIGSHAFEN AM RHEIN
TREUHANDGESELLSCHAFT FUER DIE SUEDWEST- 0.50 0.49 DEUTSCHLAND
DEUTSCHE WOHNUNGSWIRTSCHAFT MBH
6000 FRANKFURT/MAIN
GUANO-WERKE GMBH 100.00 100.00 DEUTSCHLAND
67056 LUDWIGSHAFEN AM RHEIN
"WOHNSTAETTE" GEMEINNUETZIGE WOHNUNGS-AG 0.37 0.37 DEUTSCHLAND
47798 KREFELD
BASF ANTWERPEN N.V. 100.00 100.00 BELGIEN
B-2040 ANTWERPEN 4
CNO N.V. 100.00 100.00 BELGIEN
B-8400 OOSTENDE (ZANDVOORDE)
COMPTOIR BELGE DE L'AZOTE S.A. 7.35 7.35 BELGIEN
B-1060 BRUESSEL 6
INDAVER N.V. 2.83 2.83 BELGIEN
B-2030 ANTWERPEN
SYSTEM FUER ELEKTRONISCHEN 0.36 0.36 BELGIEN
DATENAUSTAUSCH IM HAFEN VON ANTWERPEN C.V.
B-2000 ANTWERPEN
COMPO GMBH PRODUKTIONS- UND VERTRIEBS- 100.00 100.00 DEUTSCHLAND
GESELLSCHAFT
48157 MUENSTER
GUANO-WERKE VERMOEGENSVERWALTUNG AG 99.84 99.84 DEUTSCHLAND
67061 LUDWIGSHAFEN AM RHEIN
GUANO-WERKE PENSIONSVERWALTUNG GMBH 100.00 99.84 DEUTSCKLAND
67061 LUDWIGSHAFEN AM RHEIN
SUPERPHOSPHAT-INDUSTRIE GMBH I.L. 20.00 19.81 DEUTSCHLAND
22362 HAMBURG
K+S AKTIENGESELLSCHAFT 14.98 14.98 DEUTSCHLAND
34119 KASSEL
RIEMKER GRUNDSTUECKS- UND VERMOEGENS- 20.00 20.00 DEUTSCHLAND
VERWALTUNG MBH
44797 BOCHUM
RIEMKER GRUNDSTUECKS- UND VERMOEGENS- 30.60 30.60 DEUTSCHLAND
VERWALTUNG MBH & CO. KG
44797 BOCHUM
HEIDELBERG INNOVATION GMBH 16.50 16.50 DEUTSCHLAND
69120 HEIDELBERG
- - - - - - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 19
PAGE 19
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - ------------------------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HEIDELBERG INNOVATION GMBH & CO. 0.44 0.15 DEUTSCHLAND
BIOSCIENCE VENTURE KG KG
69120 HEIDELBERG
HEIDELBERG INNOVATION GMBH & CO. 1.09 1.09 DEUTSCHLAND
BIOSCIENCE VENTURE KG KG
69120 HEIDELBERG
IDEMITSU BASF COMPANY LIMITED (IBC) 50.00 50.00 JAPAN
TOKYO 105-0014
KGS KETO-GULONSAURE PRODUKTIONSGESELLSCHAFT 33.33 33.33 DEUTSCHLAND
47809 KREFELD
KNOLL AKTIENGESELLSCHAFT 100.00 100.00 DEUTSCHLAND
67061 LUDWIGSHAFEN AM RHEIN
AUSBILDUNGSPLATZINITIATIVE PFALZ GMBH 1.00 1.00 DEUTSCHLAND
67059 LUDWIGSHAFEN AM RHEIN
BASF GENERICS GMBH 100.00 100.00 DEUTSCHLAND
85737 ISMANING
EBEWE ARZNEIMITTEL GES.M.B.H 99.00 99.00 OESTERREICH
A-4866 UNTERACH A. ATTERSEE
HEIDELBERG INNOVATION GMBH 16.50 16.50 DEUTSCHLAND
69120 HEIDELBERG
HOKURIKU SEIYAKU CO., LTD. (HSC) 64.06 64.06 JAPAN
KATSUYAMA-SHI, FUKUI 911-8555
HOKURIKU HANBAI K.K. 100.00 64.06 JAPAN
TOKYO, JAPAN
TOFUKU SHOJI K.K 100.00 64.06 JAPAN
TOKYO 101-0043
INMOBILIARIA CANDELARIA, S.A. 100.00 100.00 MEXICO
CIUDAD DE MEXICO, D.F.
KANOLDT ARZNEIMITTEL GMBH 100.00 100.00 DEUTSCHLAND
85737 ISMANING
KNOLL AG 100.00 100.00 SCHWEIZ
CH-4410 LIESTAL
KNOLL ALMAN ILAC VE ECZA 100.00 100.00 TUERKEI
TIC. LTD. STI.
TR-81190 ALTUNIZADE, UESKUEDAR
KNOLL ARGENTINA S.A. 100.00 100.00 ARGENTINIEN
1000 BUENOS AIRES
KNOLL AUSTRALIA PTY. LTD 100.00 100.00 AUSTR.BUND
LANE COVE NSW 2066
KNOLL B.V. 100.00 100.00 NIEDERLANDE
NL-1322 CA ALMERE
BASF PHARMACEUTICALS 100.00 100.00 PUERTO RICO
PUERTO RICO 00664-0795
SUDCO B.V 100.00 100.00 NIEDERLANDE
6374 AE LANDGRAAF
KNOLL BELGIUM N.V./S.A. 100.00 100.00 BELGIEN
B-1180 BRUSSELS
- - - - - - ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 20
PAGE 20
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - ---------------------------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KNOLL CENTROAMERICANA, S.A. 100.00 100.00 GUATEMALA
CIUDAD DE GUATEMALA
KNOLL COLOMBIANA S.A. 88.25 88.25 KOLUMBIEN
LABORATORIO FARMACEUTICO
SANTAFE DE BOGOTA
KNOLL DEUTSCHLAND GMBH 100.00 100.00 DEUTSCHLAND
67006 LUDWIGSHAFEN AM RHEIN
KNOLL FARMACEUTICI SPA 100.00 100.00 ITALIEN
I-20053 MUGGIO MI
KNOLL INTERNATIONAL PRIVATE LTD 100.00 100.00 INDIEN
MUMBAI 400001
KNOLL JAPAN K.K. (KNJ) 100.00 100.00 JAPAN
TOKYO 151-005
KNOLL LAKEMEDEL AB 100.00 100.00 SCHWEDEN
41314 GOETEBORG
KNOLL LTD 100.00 100.00 GR.BRIT.N.IR
GB-NOTTINGHAM NG7 1FW
KNOLL PHARMA LTD 100.00 100.00 GR.BRIT.N.IR
GB-NOTTINGHAM NG1 7AR
KNOLL PHARMACEUTICALS SOUTH AFRICA 100.00 100.00 SUEDAFRIKA
(PROPRIETARY) LIMITED
1685 HALFWAY HOUSE
KNOLL POLSKA SP.ZO.O 100.00 100.00 POLEN
02-326 WARSZAWA
KNOLL PRODUTOS QUIMICOS E 100.00 100.00 BRASILIEN
FARMACEUTICOS LTDA.
22710-104 RIO DE JANEIRO-RJ
KNOLL REGIONAL HEADQUARTER ASIA LTD. 100.00 100.00 PHILIPPINEN
1657 PASIG CITY, METRO MANILA
KNOLL SPOL. S R.O. 100.00 100.00 TSCHECHIEN
l0 000 PRAG 10 - STRASNICE
KNOLL SPOL. S.R.O. 100.00 100.00 SLOWAKEI
81105 BRATISLAVA
KNOLL-BIORESEARCH S.A. 100.00 100.00 SCHWEIZ
CH-6592 S. ANTONINO
LABORATOIRES KNOLL FRANCE S.A. 100.00 100.00 FRANKREICH
F-92593 LEVALLOIS PERRET CEDEX
KNOLL SANTE ACTIVE S.A. 100.00 100.00 FRANKREICH
F-92300 LEVALLOIS-PERRET
LABORATOIRES GNR-PHARMA S.A. 100.00 100.00 FRANKREICH
F-92593 LEVALLOIS PERRET CEDEX
GNR-DEVELOPMENT LABORATOIRE 100.00 100.00 FRANKREICH
PHARMACETIQUE S.A.S.
F-93300 AUBERSVILLIERS
LABORATORIOS KNOLL, S.A. 100.00 100.00 SPANIEN
E-28080 MADRID
GNR FARMA 100.00 100.00 SPANIEN
E-28050 MADRID
- - - - - - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 21
PAGE 21
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - ------------------------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIADE S.A. 100.00 100.00 SPANIEN
E-28080 MADRID
LATINOAMERICANA DE FARMACOS LTDA. 100.00 100.00 KOLUMBIEN
LATIFARMA LTDA.
SANTAFE DE BOGOTA
LUFARMA ESPANOLA S.L. 100.00 100.00 SPANIEN
E-28050 MADRID
BIORESEARCH S.A. 100.00 100.00 SPANIEN
E-28080 MADRID
KNOLL LUSITANA, LDA. 100.00 100.00 PORTUGAL
P-1303 LISBOA CODEX
MINDEN FARMACEUTICA, LDA. 4.00 4.00 PORTUGAL
P-1303 LISBOA CODEX
LUPHARMA GMBH 100.00 100.00 DEUTSCHLAND
67061 LUDWIGSHAFEN AM RHEIN
BOOTS GALENIKA D.O.O. 51.00 51.00 JUGOSLAWIEN
11070 NOVI BELGRADE
EBEWE ARZNEIMITTEL GES.M.B.H. 1.00 1.00 OESTERREICH
A-4866 UNTERACH A. ATTERSEE
KNOLL PHARMACEUTICAL PTE. LIMITED 100.00 100.00 SINGAPUR
SINGAPUR
KNOLL PHARMACEUTICALS LTD. 51.00 51.00 INDIEN
MUMBAI 400 001
LENBROOK PHARMACEUTICALS LTD. 100.00 51.00 INDIEN
MUMBAI 400 001
ZEST PHARMACEUTICALS PVT. LTD. 24.00 12.24 INDIEN
MUMBAI 400 005
KNOLL PHARMACEUTICALS LTD. 56.46 56.46 PAKISTAN
KARACHI - 31
MINDEN FARMACEUTICA, LDA. 96.00 96.60 PORTUGAL
P-1303 LISBOA CODEX
QUIMICA KNOLL DE MEXICO, S.A. DE C.V. 100.00 100.00 MEXICO
CIUDAD DE MEXICO, D.F.
RAVIZZA FARMACEUTICI SPA 100.00 100.00 ITALIEN
I-20053 MUGGIO MI
GNR SPA 100.00 100.00 ITALIEN
I-20053 MUGGIO MI
3 R ASSOCIATI SPA 0.12 0.12 ITALIEN
I-20153 MILANO
SAGITTA ARZNEIMITTEL GMBH 100.00 100.00 DEUTSCHLAND
67061 LUDWIGSHAFEN AM RHEIN
SCHOENENBERGER PHARMA AG 100.00 100.00 SCHWEIZ
CH-5012 SCHONENWERD
TRANSPHARM GMBH 100.00 100.00 DEUTSCHLAND
67008 LUDWIGSHAFEN AM RHEIN
UNTERSTUETZUNGSKASSE NORDMARK ARZNEIMITTEL 100.00 100.00 DEUTSCHLAND
GMBH
25436 UETERSEN
</TABLE>
<PAGE> 22
PAGE 22
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - ------------------------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LUCARA IMMOBILIENVERWALTUNGS-GMBH 100.00 100.00 DEUTSCHLAND
67061 LUDWIGSHAFEN AM RHEIN
LUCURA RUECKVERSICHERUNGS GMBH 100.00 100.00 DEUTSCHLAND
67063 LUDWIGSHAFEN AM RHEIN
INDURISK RUECKVERSICHERUNGS-GMBH 33.33 33.33 LUXEMBURG
L-2230 LUXEMBOURG
LUWOGE WOHNUNGSUNTERNEHMEN DER BASF GMBH 100.00 100.00 DEUTSCHLAND
67063 LUDWIGSHAFEN AM RHEIN
GESELLSCHAFT FUR WOHNUNGS-, GEWERBE- 30.00 30.00 DEUTSCHLAND
UND STADTEBAU AKTIENGESELLSCHAFT
67061 LUDWIGSHAFEN AM RHEIN
M. DOHMEN GMBH 49.00 49.00 DEUTSCHLAND
41352 KORSCHENBROICH
M. DOHMEN S.A., SAN VITTORE, SCHWEIZ 100.00 49.00 SCHWEIZ
SAN VITTORE
M. DOHMEN HOLDING S.A SCHWEIZ 100.00 49.00 SCHWEIZ
SAN VITTORE
D & G DYES INC. GREER, USA 40.00 19.60 USA
GREER
FARBSTOFFHANDELS GESELLSCHAFT
MBH I.L. HARD 30.00 14.70 OESTERREICH
M.DOHMEN ITALIA S.R.L. 80.00 39.20 ITALIEN
I-20121 MILANO
NEGPF-BASF SHENYANG VITAMINS COMPANY LTD. 60.00 60.00 CHINA VR
SHENYANG 110141, PR CHINA
NISSO BASF AGRO CO., LTD. (NBL) 45.00 45.00 JAPAN
TOKYO 102-0073
P.T. BASF INDONESIA 97.00 97.00 INDONESIEN
JAKARTA 12950
PRODUITS ET ENGRAIS CHIMIQUES DU RHIN 50.00 50.00 FRANKREICH
S.A. (PEC RHIN)
F-68490 OTTMARSHEIM
PROJEKTENTWICKLUNGS-GMBH 100.00 100.00 DEUTSCHLAND
FRIESENHEIMER INSEL
67056 LUDWIGSHAFEN AM RHEIN
RAISION LATEKSI OY 49.00 49.00 FINNLAND
SF-21200 RAISIO
RHEINGAS ERDGASLEITUNGS-GESELLSCHAFT MBH I.L 50.00 50.00 DEUTSCHLAND
30633 HANNOVER
RIGK GESELLSCHAFT ZUR RUCKFUHRUNG INDUSTRIEL 16.00 16.00 DEUTSCHLAND
UND GEWERBLICHER KUNSTSTOFFVERPACKUNGEN MBH
65039 WIESBADEN
SEWOGE SERVICE- UND WOHNUNGSUNTERNEHMEN GMBH 100.00 100.00 DEUTSCHLAND
01987 SCHWARZHEIDE
SHANGHAI GAO QIAO-BASF DISPERSIONS CO. 40.00 40.00 CHINA VR
LIMITED
PUDONG, SHANGHAI 200137, P R CHIN
SHANGHAI GAO QIAO-BASF LATEX COMPANY 40.00 40.00 CHINA VR
LIMITED
PUDONG, SHANGHAI 200137, P R CHIN
</TABLE>
<PAGE> 23
PAGE 23
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - ------------------------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SOLVIN GMBH 25.20 25.20 DEUTSCHLAND
3002 HANNOVER-l
SOLVIN GMBH & CO. KG 25.00 25.00 DEUTSCHLAND
47495 RHEINBERG
STUDIENGESELLSCHAFT KOHLE MBH 1.67 1.67 DEUTSCHLAND
45470 MUELHEIM /RUHR
TARGOR GMBH 100.00 100.00 DEUTSCHLAND
55116 MAINZ
BKV BETEILIGUNGS - UND KUNSTSTOFF- 5.08 5.08 DEUTSCHLAND
VERWERTUNGSGESELLSCHAFT MBH
60329 FRANKFURT
HOECHST POLYPROPYLENE S.A. 100.00 100.00 BELGIEN
B-1060 BRUXELLES (ST. GILLES)
INFRASERV GMBH & CO. KNAPSACK KG 34.00 34.00 DEUTSCHLAND
50354 HURTH
TARGOR B.V. 100.00 100.00 NIEDERLANDE
NL-3180 AA ROZENBURG
TARGOR LIMITED 100.00 100.00 GR.BRIT.N.IR
GB-WILMSLOW CHESHIRE SK9 5FL
TARGOR S.R.L. 20.00 20.00 ITALIEN
I-20031 CESANO MADERNO, MI
TARGOR S.R.L. 40.00 40.00 ITALIEN
I-20031 CESANO MADERNO, MI
ULTRAFORM GMBH & CO. KG 100.00 100.00 DEUTSCHLAND
67056 LUDWIGSHAFEN AM RHEIN
ULTRASORB CHEMIKALIEN GMBH 50.00 50.00 DEUTSCHLAND
67056 LUDWIGSHAFEN AM RHEIN
VIERTE BASF CHEMIE-BETEILIGUNGS- 100.00 100.00 DEUTSCHLAND
GESELLSCHAFT MBH
67056 LUDWIGSHAFEN AM RHEIN
VIERTE BASF ERWERBSGESELLSCHAFT MBH 100.00 100.00 DEUTSCHLAND
67056 LUDWIGSHAFEN AM RHEIN
VITACOLOR INDUSTRIES, INC. 40.00 40.00 PHILIPPINEN
1256 MAKATI, METRO MANILA
VITAMULTINA PHARMAZEUTISCHE UND 100.00 100.00 DEUTSCHLAND
NAHRUNGSERGAENZUNGSPRODUKTE GMBH
67056 LUDWIGSHAFEN AM RHEIN
WINTERSHALL AG 100.00 100.00 DEUTSCHLAND
34119 KASSEL
DEUTSCHE ENERGY ONE GMBH 25.00 25.00 DEUTSCHLAND
60562 FRANKFURT AM MAIN
DEUTSCHE FLUESSIGERDGAS TERMINAL GMBH 2.44 2.44 DEUTSCHLAND
(DFTG)
26382 WILHELMSHAVEN
EMSLAND-ERDOELLEITUNG GMBH 25.00 25.00 DEUTSCHLAND
49828 OSTERWALD
ERDGAS-VERKAUFS-GESELLSCHAFT MBH 28.77 28.77 DEUTSCHLAND
48169 MUENSTER
</TABLE>
<PAGE> 24
PAGE 24
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - ------------------------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GASSPEICHER HANNOVER GMBH 25.10 7.22 DEUTSCHLAND
30021 HANNOVER
GEWERKSCHAFT ROECHLING GMBH 100.00 100.00 DEUTSCHLAND
34119 KASSEL
HAIDKOPF GMBH 100.00 100.00 DEUTSCHLAND
34119 KASSEL
SOCIETE DE PARTICIPATION DANS 27.22 27.22 FRANKREICH
L'INDUSTRIE ET LE TRANSPORT DU PETROLE
F-92521 NEUILLY-SUR-SEINE CEDEX
STUDIENGESELLSCHAFT-ERDGAS-SUED MBH 33.00 33.00 DEUTSCHLAND
70504 STUTTGART
UNTERTAGE-SPEICHER-GESELLSCHAFT MBH 50.00 50.00 DEUTSCHLAND
34119 KASSEL
WINTERSHALL BANK GMBH 100.00 100.00 DEUTSCHLAND
34119 KASSEL
WINTERSHALL ERDGAS BETEILIGUNGS-GMBH 100.00 100.00 DEUTSCHLAND
34119 KASSEL
JAMAL-GAS-ANBINDUNGSLEITUNG GMBH 100.00 100.00 DEUTSCHLAND
34119 KASSEL
SEVEROCESKA PLYNARENSKA A.S. 5.43 5.43 TSCHECHIEN
KLISSKA 940
STREDOCESKA PLYNARENSKA A.S. 15.49 15.49 TSCHECHIEN
PRAHA 1
VNG-VERBUNDNETZ GAS AG 15.79 15.79 DEUTSCHLAND
04347 LEIPZIG
WINGAS GBR 65.00 65.00 DEUTSCHLAND
34119 KASSEL
WINGAS GMBH 65.00 65.00 DEUTSCHLAND
34119 KASSEL
WINTERSHALL ERDGAS HANDELSHAUS GMBH (WIEH) 50.00 50.00 DEUTSCHLAND
10707 BERLIN
GAS-TRADING S.A. 5.00 2.50 POLEN
00683-WARSCHAU
WINTERSHALL ERDGAS HANDELSHAUS AG 100.00 50.00 SCHWEIZ
CH-6300 ZUG
WIROM GAS S.A. 50.00 25.00 RUMAENIEN
BUKAREST 1
WINTERSHALL GAS SPOL. S.R.O. 100.00 100.00 TSCHECHIEN
17000 PRAHA 7
WINTERSHALL EXPLORATIONS- UND PRODUKTIONS- 100.00 100.00 DEUTSCHLAND
BETEILIGUNGSGESELLSCHAFT MBH
34119 KASSEL
GASODUCTO CRUZ DEL SUR S.A. 10.00 10.00 URUGUAY
MONTEVIDEO
UNTERTAGE-SPEICHER-GESELLSCHAFT MBH 50.00 50.00 DEUTSCHLAND
34119 KASSEL
WINTERSHALL ENERGIA S.A. 100.00 100.00 ARGENTINIEN
1006 BUENOS AIRES
</TABLE>
<PAGE> 25
PAGE 25
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - ------------------------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
WINTERSHALL LENKORAN GMBH 100.00 100.00 DEUTSCHLAND
34119 KASSEL
WINTERSHALL WOLGA PETROLEUM GMBH 100.00 100.00 DEUTSCHLAND
34119 KASSEL
WINTERSHALL HOLDING B.V. 100.00 100.00 NIEDERLANDE
NL-2508 EH DEN HAAG
WINTERSHALL (U.K.) LIMITED 100.00 100.00 GR.BRIT.N.IR
GB-LONDON SW19 8YA
WINTERSHALL EXPLORATION (U.K.) LTD. 100.00 100.00 GR.BRIT.N.IR
GB-LONDON SW 19 8YA
WINTERSHALL EXPLORACION S.A. 100.00 100.00 SPANIEN
E-28023 MADRID
WINTERSHALL NEDERLAND B.V. 100.00 100.00 NIEDERLANDE
NL-2508 EC DEN HAAG
DELFZEE OIL AND GAS B.V. 100.00 100.00 NIEDERLANDE
NL-2517 KN DEN HAAG
WINTERSHALL NOORDZEE
CORPORATION 100.00 100.00 NIEDERLANDE
NL-2508 EC DEN HAAG
WINTERSHALL DUBAI PETROLEUM B.V. 100.00 100.00 NIEDERLANDE
NL-2508 EH DEN HAAG
WINTERSHALL NEDERLAND TRANSPORT
AND TRADING 100.00 100.00 NIEDERLANDE
NL-2508 EC DEN HAAG
WINTERSHALL NOORDZEE B.V. 100.00 100.00 NIEDERLANDE
NL-2508 EN DEN HAAG
D12A PRODUCTION B.V. 17.72 17.72 NIEDERLANDE
NL-2517 KN DEN HAAG
K10 B.C PRODUCTION B.V. 10.12 10.12 NIEDERLANDE
NL-2508 EC DEN HAAG
K10A PRODUCTION B.V. 10.46 10.46 NIEDERLANDE
NL-2508 EH DEN HAAG
L5C PRODUCTION B.V. 30.00 30.00 NIEDERLANDE
NL-2517 KN DEN HAAG
L8B PRODUCTION B.V. 25.00 25.00 NIEDERLANDE
NL-2508 EH DEN HAAG
N.V. NOORDWINNING K 13 30.26 30.26 NIEDERLANDE
NL-2508 EH DEN HAAG
NOORDWINNING L8A B.V. DEN HAAG 30.26 30.26 NIEDERLANDE
NL-2508 EH DEN HAAG
P11 PRODUCTION B.V. 17.85 17.85 NIEDERLANDE
NL-2508 DEN HAAG
P14 PRODUCTION B.V. 17.85 17.85 NIEDERLANDE
NL-2508 EH DEN HAAG
WINTERSHALL NEDERLAND PETROLEUM B.V. 100.00 100.00 NIEDERLANDE
NL-2508 EC DEN HAAG
WINTERSHALL NORGE A/S 100.00 100.00 NORWEGEN
N-1371 ASKER
</TABLE>
<PAGE> 26
PAGE 26
PARTICIPATIONS BY PARENT COMPANIES AS OF 29.02.2000
<TABLE>
<CAPTION>
- - - - - - ------------------------------------------------------------------------------------------------------------------
% OWNERSHIP % PARTICI-
IMMEDIATE PATION OF JURISDICTION OF
LISTED BY COMPANY-NAME PARENT REGISTRANT INCORPORATION
- - - - - - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
WINTERSHALL PETROLEUM IBERIA S.A. 100.00 100.00 SPANIEN
E-28023 MADRID
WINTERSHALL OMAN EXPLORATIONS- UND 100.00 100.00 DEUTSCHLAND
PRODUKTIONS GMBH
34119 KASSEL
WINTERSHALL VERMOGENSVERWALTUNGS- 100.00 100.00 DEUTSCHLAND
GESELLSCHAFT MBH
67056 LUDWIGSHAFEN AM RHEIN
WIRTSCHAFTLICHE VEREINIGUNG DEUTSCHER 50.00 50.00 DEUTSCHLAND
VERSORGUNGSUNTERNEHMEN AG
60562 FRANKFURT AM MAIN
"WV UNGARN" HANDELS-UND DIENST- 100.00 50.00 UNGARN
LEISTUNGSGESELLSCHAFT MBH
H-1115 BUDAPEST
DEUTSCHE ENERGY ONE GMBH 25.00 12.50 DEUTSCHLAND
60562 FRANKFURT AM MAIN
KDG KOMMUNALE DIENSTE GMBH 45.00 22.50 DEUTSCHLAND
68165 MANNHEIM
WILHELM WORM GMBH 100.00 50.00 DEUTSCHLAND
60562 FRANKFURT AM MAIN
WIRTSCHAFTLICHE VEREINIGUNG FUER 100.00 50.00 DEUTSCHLAND
KRAFTSTOFFE GMBH
60562 FRANKFURT AM MAIN
WV VERSICHERUNGSMAKLER GMBH 50.00 25.00 DEUTSCHLAND
60562 FRANKFURT AM MAIN
YANGZI-BASF STYRENICS CO. LTD. 50.00 50.00 CHINA VR
NANJING 210048
ZAO BASF 100.00 100.00 RUSSLAND
103 009 MOSKAU
ZWEITE BASF IMMOBILIEN-GESELLSCHAFT MBH 95.00 95.00 DEUTSCHLAND
67056 LUDWIGSHAFEN AM RHEIN
GESELLSCHAFT MIT BESCHRAENKTER HAFTUNG 80.40 80.40 RUSSLAND
HAUS AM KAI 1
MOSKAU 129110
</TABLE>
