Siemens 2008 Annual Report Download - page 208

112 Management’s discussion and analysis
Significant agreements which take effect, alter or terminate upon a change of control of
the Company following a takeover bid
Siemens AG holds a minority interest in an entity active in the nuclear power business that is majority-owned by
a French company engaged in nuclear power generation. Under the Shareholders’ Agreement for this entity, the
majority shareholder has the right to acquire the equity interest held by Siemens in the event of a change of
control at Siemens AG. A change of control within the meaning of the Shareholders’ Agreement is deemed to
occur if more than 50 percent of the interests owned by one of the shareholders are acquired and held by a third
party, and the acquisition materially reduces the market value of the entity or such third party is a major com-
petitor of the entity or one of its shareholders in the areas of power generation, power transmission and power
distribution or automation. Therefore, a change-of-control transaction following the exercise of the correspond-
ing right would result in the French majority shareholder acquiring the minority interest formerly held by
Siemens AG. From the transaction, Siemens AG would receive income that basically corresponds to the fair mar-
ket price of the equity interest at the time of exercising the right. On the other hand, Siemens AG would no
long er be entitled to receive a share in the net income derived from the entity’s nuclear power business.
Siemens AG maintains lines of credit in an aggregate amount of U.S.$9 billion which provide its lenders with
a right of termination in the event that (i) Siemens AG becomes a subsidiary of another company or (ii) an indi-
vidual or a group of individuals acting in concert acquires effective control over Siemens AG by being able to
exercise signicant inuence over its activities. In addition, Siemens AG has a credit line at its disposal in the
amount of €450 million which may be terminated by the lender if major changes in Siemens AG’s corporate
legal situation occur that jeopardize the orderly repayment of the credit.
Agreements concluded by Siemens AG under the International Swaps and Derivatives Association Inc. frame-
work ("ISDA agreements") each give Siemens AG's contractual party a right of termination if (i) Siemens AG is
merged into a third party, or (ii) all or substantially all of the assets of Siemens AG are transferred to a third
party. In the event that the third party does not assume the obligations of Siemens AG, all outstanding transac-
tions under the respective agreements may be terminated. If the third party chooses to assume the obligations
of Siemens AG under such agreement and its creditworthiness is materially weaker than that of Siemens AG, the
affected transactions under the respective agreements may be terminated. In either situation, the outstanding
payment claims under such agreement are to be netted.
Compensation agreements with members of the Managing Board or employees in the event of a takeover bid
In the event of a change of control – i.e. if one or several shareholders acting jointly or in concert acquire
a majority of the voting rights in Siemens AG and exercise a controlling inuence, or if Siemens AG becomes
a dependent enterprise as a result of entering into an enterprise contract within the meaning of §291 of the
German Stock Corporation Act, or if Siemens AG is to be merged into another company – any member of the
Managing Board has the right to terminate the contract of employment if such change of control results in
a substantial change in position (e.g. due to a change in corporate strategy or a change in the Managing Board
member’s duties and responsibilities). If this right of termination is exercised, the Managing Board member
will receive a severance payment which amounts to the target annual compensation applicable at the time of
contract termination for the remaining contractual term of ofce, but at least for a period of three years. In addi-
tion, non-monetary benets are settled by a cash payment equal to ve percent of the severance payment. The
stock-based compensation components awarded remain unaffected. Stock options may, alternatively, also be
exercised upon termination of the contract of employment. No severance payments are made if the Managing
Board member receives benets from third parties in connection with a change of control. A right of termina-
tion does not exist if the change of control occurs within a period of twelve (12) months prior to a Managing
Board member’s retirement. It is the Company’s intention when entering into or extending Managing Board
members’ employment contracts to limit severance payments in the event of a change of control to the amount
recommended by the German Corporate Governance Code.