OSRAM LICHT AG Convenience translation of the German original
CONTRACT REPORT
Joint report
of the management board of OSRAM Licht AG, Munich, and
the management of
ams Offer GmbH, Ismaning,
pursuant to
section 293a of the German Stock Corporation Act (Aktiengesetz)
on the Domination and Profit and Loss Transfer Agreement
between
OSRAM Licht AG and ams Offer GmbH
dated
22 September 2020
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8. Development of business and earnings situation of the OSRAM
8. Development of business and earnings situation of the ams
7. Financial resources of ams Offer to meet its liabilities under the
Domination and Profit and Loss Transfer Agreement .................... |
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Takeover Offer and potential share acquisitions by ams Offer ....... |
Economic and legal reasons ..................................................................... | |||
Enhancing the strength and integration of the ams Group.............. |
2. Limits and restrictions to cooperation in the current de facto
corporate group ............................................................................... |
3. Establishment of a contractual corporate group by concluding
the Domination and Profit and Loss Transfer Agreement............... | |||
Summary result ............................................................................... | |||
1. Conclusion of an isolated domination agreement and an isolated
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Tax effects on outside OSRAM Shareholders ........................................ | |||
Preliminary remarks ........................................................................ |
2. Taxation of recurring compensation payments at the shareholder
the compensation (Abfindung) pursuant to sections 304, 305 AktG................. | ||
recurring compensation payment pursuant to section 304 AktG ........ |
compensation pursuant to section 305 AktG.......................................... | ||
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LIST OF ANNEXES | |
Annex 1 | List of all subsidiaries and affiliates of OSRAM Licht AG |
Annex 2 | List of all subsidiaries and affiliates of ams AG |
Annex 3 | Domination and Profit and Loss Transfer Agreement between |
OSRAM Licht AG and ams Offer GmbH, and the letter of comfort of | |
ams AG | |
Annex 4: | Expert opinion by PricewaterhouseCoopers GmbH Wirtschafts- |
prüfungsgesellschaft, Friedrich-Ebert-Anlage35-37, 60327 Frankfurt | |
am Main, Germany, of 21 September 2020 on the determination of | |
the business value of OSRAM Licht AG as per the valuation date of | |
3 November 2020 | |
Annex 5: | Decision of the Munich Regional Court (Landgericht) of 19 May |
2020 on the appointment of Ebner Stolz GmbH & Co. KG Wirt- | |
schaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Kronenstra- | |
ße 30, 70174 Stuttgart, Germany, as expert auditor (contract auditor) | |
for the purposes of section 293b(1) AktG |
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The management board of OSRAM Licht AG (hereinafter OSRAM, and together with the companies controlled by OSRAM within the meaning of section 17 of the German Stock Corporation Act (Aktiengesetz - AktG) the OSRAM Group) and the management of ams Offer GmbH (hereinafter ams Offer) have jointly prepared the following report pursuant to section 293a AktG (hereinafter the Contract Report) on the Domination and Profit and Loss Transfer Agreement (hereinafter the Agreement) between ams Offer as the controlling company and OSRAM as the controlled company (together hereinafter the Parties).
-
Introduction
ams Offer, a 100% subsidiary of ams AG, having its corporate address at Tobel- bader Straße 30, 8141 Premstätten, Austria (hereinafter ams and, together with its subsidiaries, the ams Group), on 18 October 2019 published its decision to submit a voluntary public takeover offer to all shareholders of OSRAM (hereinafter, the OSRAM Shareholders).
Prior to this, Luz (C-BC) Bidco GmbH, a company jointly controlled by invest- ment funds advised by or affiliated with Bain Capital Private Equity and The Car- lyle Group, had published a voluntary public takeover offer (the Luz Offer) on 22 July 2019. The Luz Offer failed to achieve the requisite minimum acceptance threshold and therefore was not completed. On 3 September 2019, Opal BidCo GmbH, another 100% subsidiary of ams, published a voluntary public takeover of- fer to OSRAM (the Opal Offer). The Opal Offer also failed to achieve the requisite minimum acceptance threshold and therefore was not completed.
On 7 November 2019, ams Offer published a voluntary public takeover offer (here- inafter the Takeover Offer) to the OSRAM Shareholders for the acquisition of all no-par value registered shares in OSRAM (hereinafter the OSRAM Shares). Among other things, it was a condition for the completion of the Takeover Offer that a minimum acceptance threshold of 55% of all shares issued by OSRAM (in- cluding the OSRAM Shares already held by ams) was achieved.
The acceptance period of the Takeover Offer ended on 5 December 2019 at 24:00 hours (Frankfurt am Main local time). The additional acceptance period be- gan on 11 December 2019 and ended on 24 December 2019 at 24:00 hours (Frank- furt am Main local time). The Takeover Offer was accepted for 36,386,823 OSRAM Shares at the end of the acceptance period and for an additional 549,335 OSRAM Shares at the end of the additional acceptance period, making a total of 36,936,158 OSRAM Shares, which corresponds to approximately 38.14% of the voting rights and share capital in OSRAM. The total quantity of OSRAM Shares for which the Takeover Offer was accepted by the cut-off date, plus the OSRAM Shares already held by ams, amounted to 56,296,087 OSRAM Shares. Including the treasury shares held by OSRAM, this equated to a share of approximately 58.13% of the share capital and the voting rights of OSRAM or, alternatively, de- ducting the 2,796,275 treasury shares held by OSRAM at the time of publication of the offer document, a share of approximately 59.86%. This meant the minimum acceptance threshold of 55% was achieved.
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The Takeover Offer was completed on 9 July 2020. As of the date of the Contract Report, ams Offer holds 66,605,912 OSRAM Shares, which equate to about 68.77% of all OSRAM Shares.
On 10 February 2020, ams announced in an ad hoc notification that it intended to conclude a domination and profit and loss transfer agreement between ams Offer as the controlling company and OSRAM as the controlled company.
At the joint request of the management board of OSRAM and the management of ams Offer, the Munich Regional Court (Landgericht), by decision dated 19 May 2020 appointed Ebner Stolz GmbH & Co. KG, Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Kronenstraße 30, 70174 Stuttgart, Germany, as the joint contract auditor (hereinafter the Contract Auditor or Ebner Stolz) to audit the Agreement.
On 29 July 2020 ams firmed up its intention to have a domination and profit and loss transfer agreement formed between ams Offer and OSRAM by communicating in the context of an ad-hoc announcement on the results of the second quarter of its 2020 fiscal year that, in view of the preparations that had already been made, it was expected that the domination and profit and loss transfer agreement between ams Offer and OSRAM would be implemented on or around the end of 2020.
The Agreement which forms the subject matter of the present joint Contract Report was concluded on 22 September 2020. Before signing the Agreement, the ams supervisory board approved its conclusion by way of a written resolution. Before signing the Agreement, the OSRAM supervisory board in a meeting held on 22 September 2020 resolved to recommend the approval of the Agreement to the OSRAM Shareholders prior to the conclusion of the Agreement. When passing the resolution, the supervisory board of OSRAM had available to it:
- the final draft of the Agreement,
- the final draft of this Contract Report,
- a signed copy of the expert opinion by Wirtschaftsprüfungsgesellschaft, Friedrich-Ebert-Anlage35-37, 60327 Frankfurt am Main, Germany (here- inafter the Valuation Expert or PwC), dated 21 September 2020 (hereinaf- ter the Expert Opinion), and
- e-mailconfirmation by the Contract Auditor that the determination of the recurring compensation payment (Ausgleichszahlung) and the compensa- tion (Abfindung) in the Agreement will be confirmed as being appropriate in the report on the audit of the Agreement to be executed on 23 September 2020 (hereinafter the Audit Report).
Through the Agreement, OSRAM places the management of its company under the control of ams Offer and undertakes to transfer all of its profits to ams Offer. ams Offer undertakes to assume any OSRAM annual net loss and to pay an appropriate recurring compensation payment (Ausgleich) or appropriate compensation (Abfindung) to outside OSRAM Shareholders. On 22 September 2020, the management board of ams approved the Agreement. The ams Offer approval resolution is to be passed on 2 November 2020. The ams Offer approval resolution is to be
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passed on 3 November 2020. Pursuant to section 294(2) AktG, the Agreement will become effective upon registration in the commercial register (Handelsregister) at the registered seat of OSRAM. On 22 September 2020, ams Offer submitted a letter of comfort to OSRAM with regard to performance of the duties of ams Offer under and in conjunction with the Agreement.
- The Parties
- OSRAM and the OSRAM Group
-
Overview
The OSRAM Group is an international light and photonics group. In addition to lighting, its focus is increasingly on the areas of sensors, visualisation and treat- ment using light. In this regard, the mainly semiconductor-based products are used in a wide variety of applications in the fields of mobility, security, networking and health and wellbeing. Example applications range from virtual reality to autono- mous driving or smartphone-related high tech and networked, intelligent lighting solutions in buildings or for growing plants indoors. The OSRAM Group bundles these activities into three business units: Opto Semiconductors, Automotive and Digital.
Strategically, the OSRAM Group continues to concentrate on changing from what was previously purely a manufacturer of lighting products to a leading high-tech photonics company, focused particularly on rapidly growing high-tech markets. Global trends and challenges, such as the progressive automation of personal transport, the growing demand for digital services in increasingly networked sys- tems, and the combined demographic issues of a growing and, in western societies, aging population, are opening up opportunities for light-based applications that go far beyond lighting for people. Intelligent sensors and digital technologies are building blocks of the systems of the future that enable these social issues to be tackled. OSRAM is playing an active part in this regard, for example in the devel- opment of new optical sensors and in the field of intelligent building services (smart buildings).
As of 30 September 2019, the OSRAM Group employed a total of 24,685 "full- time equivalent" employees. In the 2019 fiscal year, the OSRAM Group generated a consolidated revenue (according to IFRS) of EUR 3.464 billion and an adjusted EBIT margin of 8.9%. In the 2019 fiscal year, the Opto Semiconductors segment accounted for approximately 35%, Automotive for approximately 43% and Digital for approximately 22% of consolidated revenue. - History and development of business
The history of OSRAM goes back more than one hundred years. In 1906, the trademark OSRAM, an artificial word combining osmium and wolfram (tungsten), was registered as a word mark by the Deutsche Gasglühlicht-Anstalt (Auer- Gesellschaft) with the Imperial Patent Office in Berlin. In 1918, "Deutsche Gasglühlicht AG" spun off its lightbulb business and founded "OSRAM Werke GmbH KG" for this area of production, which "Auer-Gesellschaft" joined as a lim- ited partner. Both Siemens & Halske AG and AEG joined "OSRAM Werke GmbH
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KG". The joint company now received the name "OSRAM GmbH KG". In 1919, the following figurative mark came into being: a stylised light bulb which, having undergone various modifications over time, still stands for OSRAM today. In the years following the merger, especially in the 1920s, many production sites, branches and sales offices were established outside Germany.
In 1929, the US International General Electric became a shareholder in OSRAM GmbH Kommanditgesellschaft by acquiring shares from AEG. As a consequence of the Second World War, OSRAM lost its production sites in East Berlin and the Soviet occupation zone as well as foreign holdings and trademark rights worldwide by way of expropriation. In the 1950s and 60s, the company was able to reacquire and expand foreign holdings. In 1954, OSRAM's headquarters were moved to Munich. When OSRAM G.E.C. (General Electric Company) Ltd was founded in 1986, the company regained the rights to the OSRAM trademark in the United Kingdom and the British Commonwealth. Initially, OSRAM held a 49% share before the remaining 51% was acquired from G.E.C. in 1990 and the name of the company changed to OSRAM Ltd.
In 1976 and 1978, Siemens AG took over the company shares of AEG Telefunken and General Electric and thus became the sole shareholder. In 1993, OSRAM acquired SYLVANIA North American Lighting, the second-largest light manufacturer in North America, and its US, Canadian and Puerto Rican businesses. On 1 January 1999, OSRAM took over 51% of the LED division belonging to the group parent Siemens (Infineon Technologies AG received 49%) and since this time has traded as OSRAM Opto Semiconductors GmbH & Co. OHG. Since then, OSRAM has supplied semiconductor light sources for all applications. In August 2001, OSRAM obtained the remaining 49% of the LED business from Infineon Technologies AG and changed the legal form of OSRAM Opto Semiconductors to that of a GmbH. Between 2001 and 2003, the company built a modern LED production facility in Regensburg. In 2002, OSRAM Opto Semiconductors GmbH began to develop organic light emitting diodes (OLEDs).
In 2009, chip production began at the second LED site in Penang (Malaysia). This meant OSRAM became the first LED manufacturer with high-volume chip production sites in Europe and Asia. In the 2009 fiscal year, OSRAM acquired Amtech and a 51% share in Traxon, which was increased to 100% in November 2011. In October 2011, the takeover of Encelium was finalised. Encelium, a leading US software-technology development company, specialises in highly developed lighting control and energy management systems for commercial properties and industrial buildings. In August 2012, construction started in Wuxi in the Chinese province of Jiangsu for a new LED assembly plant.
From 1989 to 2013, OSRAM GmbH was run as a division of Siemens AG with its own legal form, before Siemens decided to perform a hive-down in July 2013 and took OSRAM Licht AG public. In October 2017, Siemens AG sold its last shares in OSRAM.
In 2014 OSRAM acquired Clay Paky, the leading provider of entertainment lighting for shows and events. In addition to that, the company put its new LED assembly plant in Wuxi, China into operation.
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In 2015 OSRAM sold its 13.5% holding in the Chinese company Foshan Electrical and Lighting Co., Ltd (Felco) to a subsidiary of Guangdong Rising Assets Management Co., Ltd. as part of its strategic realignment.
In 2016 OSRAM set up a Group-owned business accelerator called Fluxunit GmbH in order to promote internal and external ideas for innovation.
In 2017, as part of the transition to a photonics champion, OSRAM sold its light- bulb business in general lighting under the name Ledvance for roughly EUR 500 million to a Chinese consortium and expanded its production capacities by opening a new LED plant in Kulim, Malaysia.
In 2018, by its takeover of US specialist Vixar Inc., OSRAM strengthened its expertise in semiconductor-based optical security technology and in Fluence Bioen- gineering Inc. it acquired a US specialist in plant lighting. In addition, OSRAM set up a joint venture with automotive supplier Continental AG for digital solutions of the future in the automotive sector.
In 2019 OSRAM sold its European luminaires business, trading as Siteco, to Stern Stewart Capital as part of its focus on semiconductor-based photonics products.
In future, OSRAM will concentrate even more on digitalisation and future markets. In this regard, the management board decided in November 1998 to continue the development of its strategy, which included a far-reaching reorganisation and transformation process, combined with a realignment of the divisions of OSRAM. This focused positioning has helped OSRAM move even closer to its markets, with the goal of developing from a vertically integrated lighting expert to a high-tech photonics player. The transition in the lighting market to semiconductor-based technologies and digitalisation creates new opportunities which OSRAM would like to resolutely pursue. From the perspective of both the management and supervisory boards, the transformation process which has been initiated is also necessary to ensure OSRAM's future success in the challenging market environment in which the company finds itself.
After first the Luz Offer and then the Opal Offer failed in 2019, ams Offer published the Takeover Offer to the OSRAM Shareholders. The Takeover Offer was completed on 9 July 2020.
3. Legal form, registered seat, fiscal year and object
OSRAM is a stock corporation under German law with its registered seat in Mu- nich, Germany, registered in the commercial register (Handelsregister) of the local court (Amtsgericht) of Munich under HRB 199675. OSRAM's business address is Marcel-Breuer-Str. 6, 80807 Munich, Germany. The OSRAM fiscal year com- mences on 1 October and ends on 30 September.
The company's object as defined by its Articles of Association is:
"(1) The object of the company is heading a group of enterprises that operate, in particular, in the following areas of activity:
- the development, design, manufacture, and distribution
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- of electronic components, electronic systems and software, and lighting, illumination, and photonic, especially light-converting, products, systems, and solutions, including lamps, luminaires, operating and manufacturing devices and machinery, control systems, pre-materials, parts and accessories for such products, systems, and solutions, as well as products, systems, and solu- tions in associated or related areas of activity, and
- of components and systems for vehicles of any kind;
- the provision of consulting, servicing and other services in the areas of activity specified in (a).
- The company may itself also operate in the areas of activity specified in paragraph 1. It is authorised to engage in any action, implement any measure, or operate any business that is associated with the object of the company or appropri- ate to supporting the object of the company, either directly or indirectly. The com- pany may also establish, acquire, or hold investments in other enterprises, either in Germany or other countries, especially such enterprises in which the object of the enterprise covers, either partially or as a whole, the areas of activity specified in paragraph (1), and may lead or manage such enterprises or limit itself to the admin- istration of the investment. The company may have its operations, including the investments that it holds, managed entirely or partially by affiliated companies or may transfer or outsource its operations to such affiliated companies and enter into corporate agreements. The company is also permitted to set up branches and per- manent establishments in Germany and in other countries. The company may limit its operations to a portion of the areas of activity specified in paragraph 1."
4. Capital, shareholders and stock exchange trading
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Share capital
The share capital of OSRAM amounts to EUR 96,848,074.00 and is divided into 96,848,074 no-par value registered shares (Stückaktien) with a proportionate amount of the share capital of EUR 1.00 per OSRAM Share. The registered shares of OSRAM are ordinary shares. There are no other classes of shares. - Authorised Capital 2018
On 20 February 2018, the general shareholders' meeting of OSRAM resolved to authorise the OSRAM management board until 19 February 2023 to increase the share capital of OSRAM with the approval of the supervisory board once or multi- ple times in return for cash contributions and/or contributions in kind by up to a to- tal of EUR 24,078,562.00 by way of a one-time or multiple issuance of a total of 24,078,562 new, registered no-par value shares with a proportionate amount of the share capital of EUR 1.00 each in return for cash contributions and/or contributions in kind (§ 4(5) of the Articles of Association of OSRAM, Authorised Capital 2018).
Fundamentally, the new shares must be offered to the shareholders for subscrip- tion. The new shares may also be subscribed to by one or more banks or companies defined by the Executive Board in the sense of Section 186(5) sentence 1 AktG
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subject to the condition that the credit institutes or undertakings in turn offer the new shares for subscription to the shareholders (indirect pre-emption rights).
However, the management board is authorised, subject to the consent of the supervisory board, to disapply shareholders' pre-emption rights
- so far as the new shares are issued in return for a cash contribution and, at the time of the final determination of the issue price, which should be as close as possible to the time of placement of the new shares, the issue price of the new shares is not significantly lower (as defined in sections 203(1), 186(3) sen- tence 4 AktG than the market price of the company's shares of the same class and type that are already listed. This disapplication of pre-emption rights is limited to a maximum of 10% of the existing capital stock of the company, calculated on the basis of the capital stock of the company at the time this au- thorisation comes into effect or, if lower, at the time the authorisation is used. This limit is reduced by the capital stock attributable to those shares which are to be issued to service conversion or option rights / conversion or option obli- gations arising from bonds, debt instruments, or profit-sharing rights, so far as these have been issued in accordance with section 186(3) sentence 4 AktG during the period up to the time this authorisation is used on a non-pre- emptive basis or that is attributable to shares that are issued or sold during the period up to the time this authorisation is used on a simplified non-pre- emptive basis pursuant to or in accordance with section 186(3) sentence 4 AktG;
- so far as the new shares are issued in return for non-cash capital contributions, especially in order to be able to offer the new shares to third parties in connec- tion with mergers or for the direct or indirect acquisition of businesses, parts of businesses, or investments in businesses, or other assets, or of rights to ac- quire assets, or of receivables due from the company or its subsidiaries within the meaning of section 18 AktG;
- so far as this is necessary to grant the holders or beneficiaries of convertible bonds and/or warrant-linked bonds, profit-sharing rights and/or income bonds or warrants that are issued by the company or by subsidiaries within the mean- ing of section 18 AktG, a pre-emption right to new shares that is equal to the right they would have after exercising the conversion right or option or after fulfilling the conversion obligation or option obligation;
- so far as the new shares are to be issued as part of a share ownership or other share-based scheme to members of the management board of the company or the representative body of a company affiliated with the company or to em- ployees of the company or of a company affiliated with it, whereby the recipi- ent must be employed by, or a member of an executive or supervisory body of, the company or one of its affiliated companies at the time the commitment to issue the shares was given; within the framework permitted by section 204(3) sentence 1 AktG, the capital contribution to be paid on the new shares may be covered from the part of the profit for the year which the management board and supervisory board may allocate to other retained earnings in accordance with section 58(2) AktG; the company's supervisory board decides whether and to what extent members of the management board may be granted shares;
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- to disapply pre-emption rights for fractional amounts.
The proportionate amount of the capital stock attributable to shares issued on a non-pre-emptive basis for OSRAM Shareholders may not exceed a total of 10% of the company's capital stock existing at the time this authorisation becomes effective or, if lower, at the time this authorisation is used. This limit is reduced by the capital stock attributable to those shares which are to be issued to service conversion or option rights / conversion or option obligations arising from bonds, debt in- struments, or profit-sharing rights, so far as these have been issued during the period up to the time this authorisation is used on a non-pre-emptive basis or that is attributable to shares that are issued or sold during the period up to the time this au- thorisation is used on a non-pre-emptive basis.
The management board is authorised, subject to the consent of the supervisory board, to determine the further content of the share rights and the conditions for the issue of shares when implementing capital increases under Authorised Capital 2018, in particular the issue price.
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Contingent Capital 2018
On 20 February 2018, the general shareholders' meeting of OSRAM resolved to conditionally increase the company's share capital by up to EUR 10,468,940.00 by issuing up to 10,468,940 new, registered no-par value shares (§ 4(6) of the OSRAM Articles of Association, Contingent Capital 2018). The contingent capital increase will be carried out only in so far as, on the basis of convertible bonds or warrant-linked bonds, profit-sharing rights or income bonds (or combinations of these instruments) in each case with conversion or option rights / conversion or op- tion obligations, which are issued by 19 February 2023 by OSRAM or subsidiaries of OSRAM as defined in section 18 AktG on the basis of the authorisation re- solved by the general shareholders' meeting on 20 February 2018, conversion or option rights are exercised or holders of bonds with conversion or option obliga- tions fulfil their conversion or option obligations, or the company exercises its right, upon maturity of bonds, to grant the holders of the individual bonds no-par- value shares in the company instead of paying out all or part of the due amount in cash, and provided that no other form of fulfilment has been utilised. The new shares are issued at the conversion or option price to be determined in each case in accordance with the aforementioned authorisation resolution. The new shares is- sued are eligible to participate in profit-sharing from the start of the fiscal year in which they are created; so far as permitted by law, the management board may al- ternatively resolve, subject to the consent of the supervisory board, that the new shares are eligible to participate in profit-sharing from the start of the fiscal year for which - at the time of the exercise of the conversion or option right or the ful- filment of the conversion or option obligation - no resolution has yet been adopted by the general shareholders' meeting concerning the appropriation of profits. Sub- ject to the consent of the supervisory board, the managing board is authorised to specify the further details of the implementation of the contingent capital increase. - Treasury shares
On the basis of a resolution by the general shareholders' meeting of 14 February
2017, the management board of OSRAM was authorised pursuant to section 71(1) no. 8 AktG until 13 February 2022 to acquire treasury shares totalling up to 10% of
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the share capital in the period that the authorisation is valid or, if this value is low- er, at the time the authorisation is exercised. The shares acquired on the basis of this authorisation together with other treasury shares which the company has already acquired and which are owned by the company or to be allocated to the company may at no time account for more than 10% of the share capital.
On 6 November 2018, OSRAM announced a share buy-back programme with a volume of up to EUR 400 million (without ancillary purchase costs) and running from January 2019 to June 2020. In connection with this, the management board made partial use of the authorisation to acquire treasury shares in the context of the share buy-back programme in the 2019 fiscal year with the approval of the supervisory board. In the period from 10 January 2019 to 28 May 2019 inclusively, OSRAM acquired 2,663,125 treasury shares for a total of EUR 76,705,542.25 (without ancillary purchase costs), which corresponds to a share of approximately 2.75% of the share capital of OSRAM.
OSRAM holds 2,664,388 treasury shares as of the signing date of this Contract Report. This corresponds to approximately 2.75% of the share capital.
4.5 Shareholders
At the time of signing of this Contract Report ams Offer holds 66,605,912 OSRAM Shares. This corresponds to an ownership interest of approximately
68.77% of OSRAM's share capital, which is divided into 96,848,074 shares (for further details, reference is made to paragraph B.III.8).
Apart from the interest held by ams Offer, the OSRAM shareholder structure as at 22 September 2020, according to the published voting rights notifications pursuant to sections 33 et seqq. of the German Securities Trading Act (Wertpapierhan- delsgesetz), which are published on OSRAM's website at https://www.osram- group.de/de-DE/investors/regulatory-news, is broken down as follows:
Shareholder | Total proportion of voting rights held in % |
Bank of America Corporation | 4.89 |
Barclays PLC | 4.79 |
Citigroup Inc. | 3.97 |
BlackRock, Inc. | 3.90 |
Credit Suisse Group AG | 3.71 |
DNCA FINANCE | 3.05 |
After deducting the 2,664,388 treasury shares held by OSRAM (corresponding to approximately 2.75% of the share capital) and the 66,605,912 OSRAM Shares held by ams Offer from the OSRAM share capital, which is divided into 96,848,074 shares, the number of OSRAM Shares held in free float is 27,577,774. This corresponds to approximately 28.48% of the total share capital of OSRAM.
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4.6 Trading on the stock exchange
OSRAM Shares are admitted to trading on the regulated market with additional post-admission obligations (Prime Standard) on the Frankfurt Stock Exchange un- der ISIN DE000LED4000 and to trading on the regulated market on the Munich Stock Exchange. Beyond this, OSRAM Shares may be traded via the (Exchange Electronic Trading System) of Deutsche Börse AG, Frankfurt am Main, Germany (XETRA). In addition, OSRAM Shares are traded on the regulated unofficial mar- ket of the regional stock exchanges in Berlin, Düsseldorf, Hamburg, Hanover and Stuttgart and on the Tradegate Exchange. OSRAM Shares are included in the MDAX stock index.
5. Management board and supervisory board of OSRAM
5.1 Management board
Pursuant to § 5(1) of the OSRAM Articles of Association, the management board (Vorstand), subject to precise determination by the supervisory board (Aufsichts- rat), consists of multiple persons.
The management board of OSRAM has the following members:
- Dr Olaf Berlien (CEO, since January 2015)
- Kathrin Dahnke (CFO, since April 2020) and
- Dr Stefan Kampmann (CTO, since July 2016).
Pursuant to § 6(2) of the OSRAM Articles of Association, OSRAM is represented by two members of the management board or jointly by one member of the management board and an authorised signatory (Prokurist). The supervisory board may generally or in specific cases issue an exemption to all or to specific members of the management board from the prohibition on representing more than one party pursuant to section 181 2nd alternative of the German Civil Code (Bürgerliches Gesetzbuch - BGB).
5.2 Supervisory board
Pursuant to §7(1) of the OSRAM Articles of Association, the OSRAM supervisory board shall consist of twelve members, with the composition of members from shareholder and employee representatives arising from the legal requirements with regard to principles of equality.
The shareholder representatives are:
- Mr Peter Bauer, chairman of the supervisory board;
- Dr Christine Bortenlänger;
- Mr Johann Christian Eitner;
- Dr Margarete Haase;
- Mr Johann Peter Metzler, deputy chairman of the supervisory board; and
- Dr Thomas Stockmeier.
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The employee representatives are:
- Mr Klaus Abel, deputy chairman of the supervisory board;
- Mr Alexander Müller;
- Ms Olga Redda;
- Ms Ulrike Salb;
- Ms Irene Weininger; and
- Mr Thomas Wetzel.
6. Structure of the OSRAM Group
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Legal structure and substantial holdings
The OSRAM Group is an international light and photonics group. The parent com- pany of the OSRAM Group is OSRAM, an undertaking with the legal form of a stock corporation (Aktiengesellschaft) which has its registered seat in Munich, Germany, and a business address of Marcel-Breuer-Straße 6, 80807 Munich.
OSRAM is the management holding and within the OSRAM Group exercises the governance role. Since the beginning of the 2019 fiscal year, the management roles in Marketing and Communication for the OSRAM Group have been pooled at
OSRAM.
As of 30 September 2019, the OSRAM Group comprises OSRAM as the parent company, along with 103 subsidiaries and 22 affiliates. A complete list of all sub- sidiaries and affiliates is attached to this Contract Report as Annex 1. - Governance structures
The governance and organisational structure of the OSRAM Group is divided into the following functional areas:
Chief Executive Officer | Chief Financial Officer | Chief Technical Officer |
(CEO) | (CFO) | (CTO) |
_________________ | _________________ | _________________ |
Dr Olaf Berlien | Kathrin Dahnke | Dr Stefan Kampmann |
Business Unit Opto Semicon- | Accounting & Controlling | Corporate Innovation |
ductors (OS) | ||
Business Unit Automotive | Corporate Finance & Treasury | Innoventures (Fluxunit GmbH) |
Lighting (AM) | ||
Business Unit Digital (DI) | Taxes & Subsidiaries | Procurement & Supply Chain |
(incl. Logistics) | ||
Corporate Strategy | Investor Relations | Quality Management & Opera- |
tions | ||
Corporate Sales | Corporate Audit | Environment, Health & Safety |
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Corporate Communications & | Real Estate | R&D Organisations at Busi- | ||
Brand Strategy | ness Units (functional) | |||
Legal & Compliance | Mergers | & Acquisitions, | Post | Manufacturing at Business |
Closing Management | Units (functional) | |||
Human Resources | Global Shared Services | Information Technology | ||
Financial | Organisation of | the | ||
Business | Units and Countries | |||
(functional) | ||||
7. Business activities of the OSRAM Group
OSRAM is a photonics company and supplies lighting technologies in the fields of automotive and special lighting, light management systems and lighting solutions. In particular, its product portfolio comprises high-tech applications on the basis of semiconductor-based technologies such as infrared or laser. OSRAM sells its products in over 120 countries and has 26 production sites worldwide. The busi- ness activities of the OSRAM Group are divided into three divisions: Opto Semi- conductors (OS), Automotive (AM) and Digital (DI). The former division Lighting Solutions was dissolved at the beginning of the 2018 fiscal year.
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Opto Semiconductors (OS)
The OS division develops and manufactures optical semiconductors, which are im- portant elements in lighting, visualisation and sensor technology. The product range of the OS division offers a wide array of LEDs in the visible and infrared ar- eas in the low power, mid-power, high power und ultra-high-power performance classes for general lighting, automotive, consumer and industrial applications as well as laser diodes and optical sensors. The most important markets for the com- ponents include the automotive industry, smartphones and wearables, general light- ing, horticulture and industrial markets.
As of 30 September 2019, approximately 11,400 staff were employed in the OS division. - Automotive (AM)
The AM division develops, produces and distributes lamps, light modules and sen- sors in the OEM business to vehicle manufacturers and their suppliers and in addi- tion is involved in automotive lighting and product categories beyond lighting in the replacement parts business. Automotive lighting products include both conven- tional and LED and laser-based solutions. In the joint venture with Continental AG, which is part of the AM sector, expertise in lighting and electronics are com- bined to develop and distribute intelligent lighting solutions for automotive use, for example intelligent matrix light for front headlights. OSRAM expanded its position in automotive lighting in 2016 by taking over Novità Technologies, a manufacturer of LED12 modules for rear and fog lights as well as daylight running lights based in the United States of America (USA). With its investments in the LiDAR2 com- panies LeddarTech and Blickfeld, it has also strengthened its position in the field of autonomous driving.
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As of 30 September 2019, approximately 5,500 staff were employed in the AM di- vision.
7.3 Digital (DI)
The DI division bundles the parts of OSRAM's business which are intended to profit most heavily from progressive digitalisation. This ranges from electronic components to light systems and hard and software for light management as well as products which go beyond light. For example, the Boston-based subsidiary Digi- tal Lumens addresses industrial customers with energy-efficient lighting and sensor and software-basedadded-value services such as measuring and monitoring envi- ronmental parameters (temperature etc.). The DI division also includes entertain- ment applications, which cover shows and also cover stage, studio and film sets. Traxon, a specialist in effective facade illumination, is also in the DI division. OSRAM acquired Fluence Bioengineering, a Texan specialist and leading compa- ny in light for indoor plant cultivation. Lamps for cinematic projection and light solutions for medical and industrial applications are also found in the DI division. These also include high-intensity UV lamps used to sterilise surfaces, gasses or flu- ids, and textile-integrated lighting.
As of 30 September 2019, approximately 4,475 staff were employed in the DI divi- sion.
8. Development of business and earnings situation of the OSRAM Group
8.1 Key financial figures for the 2019, 2018 and 2017 fiscal years
The results of the individual segments were consolidated in the table below. The consolidated financial statements were prepared in accordance with the Interna- tional Financial Report Standards (IFRS) as applicable in the European Union. In addition, the provisions of section 315a(1) of the German Commercial Code (Han- delsgesetzbuch - HGB) were applied. However, due to the restructuring as of the 2017 fiscal year (dissolution of the Lighting Solutions (LS) division), it is largely not possible to compare the 2018 fiscal year with publicly available, financial in- formation.
Selected key financial figures for the 2019, 2018 and 2017 fiscal years:
in EUR million, unless otherwise stated | 2019 | 2018 | 2017 | ||
Revenue | 3,464 | 3,789 | 4,128 | ||
OS | 1,453 | 1,725 | 1,685 | ||
AM | 1,776 | 1,920 | n/a | ||
DI | 916 | 914 | n/a | ||
Reconciliation to consolidated financial statements | -681 | -770 | n/a | ||
EBITDA | 176* | 522* | 621 | ||
EBITDA margin (%) | 5.1% | 13.8% | 15.1% | ||
Adjusted EBITDA | 307 | 622 | 695 | ||
Adjusted EBITDA margin | 8.9% | 16.4 % | 16.8% | ||
Earnings before taxes (EBT) | -377* | 263* | 389 | ||
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Earnings for the period | -343* | 188* | 275 |
Earnings per share (EUR) (continuing operations) | -2.94* | 1.92* | 2.79 |
Free cash flow | 17* | -118* | 99 |
Total assets | 4,335 | 4,730 | 4,238 |
Total equity | 2,083 | 2,676 | 2,460 |
Equity ratio in % | 48 % | 57 % | 58 % |
Net debt/net liquidity | -350 | -51 | 411 |
Employees (FTE period average) | 24,685 | 25,637 | 25,934 |
- continuing operations
8.2 Development of business and results of operations in the fiscal year 2019
The 2019 fiscal year was a difficult one for OSRAM. Business was mainly charac- terised by the negative dynamic of the environment - in macro-economic terms, but above all in OSRAM's core businesses. In contracting markets, the volume of business also declined. Revenue amounted to around EUR 3.5 billion, a year-on- year decrease of approximately 13.1% on a comparable basis (previous year: growth of approximately 1.9%). With an adjusted EBITDA of EUR 307 million, the corresponding EBITDA margin sharply declined to approximately 8.9% com- pared to the previous year's figure (approximately 16.4%).
This trend was reflected in the income (loss) of OSRAM (continuing operations), which decreased from income of EUR 188 million in the previous year to a loss of EUR 343 million. The main reason for this was the reduction of EUR 348 million in gross profit. As the volume of business decreased while the cost of goods sold and services rendered remained high, the gross profit margin (gross profit as a per- centage of revenue) declined by a substantial 699 basis points. This was mainly caused by negative volume effects and the loss of economies of scale, primarily re- lated to the underutilisation of capacity at production facilities, reflecting the high operating leverage of OSRAM's vertically integrated business units with their high fixed costs. Moreover, impairment losses totalling EUR 210 million were recog- nised on goodwill. Ultimately, this led to a loss in OSRAM's continuing operations and corresponding negative, diluted earnings per share (continuing operations) of EUR -2.94.
The loss also impacted on free cash flow. Nevertheless, OSRAM's free cash flow
(continuing operations) improved sharply to reach positive territory at EUR 17 mil- lion (previous year: EUR -118 million). This was predominantly because of a de- crease in net operating working capital and a fall in capital expenditure. As of 30
September 2019, OSRAM's net debt increased to EUR 350 million (previous year: EUR 51 million).
In operational terms, OSRAM supplemented the performance improvement pro- grammes already initiated in the previous year with further reaching structural measures to counteract the deteriorating conditions. In strategic terms, OSRAM continued to forge ahead with its transformation into a high-tech photonics compa-
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ny by making changes to its organisational structure and selling both its luminaires business and the luminaire service business. OSRAM boasts a high equity ratio of approximately 48%, a balanced asset structure and solid finances, meaning it is well equipped to achieve further growth, regardless of the current gloomy economic situation.
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Development of business and results of operations for the nine-month period up to 30 June 2020
In the first nine months of the 2020 fiscal year, OSRAM's revenue fell on a com- parative basis by approximately -12.4% to EUR 2,300 million; however, positive free cash flow of EUR 64 million was achieved, thanks to targeted cash manage- ment in particular. Compared to the relevant period in the previous year, the ad- justed EBITDA margin declined and was at approximately 7.9%. At EUR 182 mil- lion, the EBITDA adjusted for special items was below the equivalent value for the previous year. At EUR -178 million the net income was negative. - Outlook for the 2020 fiscal year
Compared to the 2019 fiscal year, OSRAM is expecting the 2020 fiscal year to see a comparable revenue decline of -14.0%, an adjusted EBITDA margin of roughly 8% and a close-to-balance free cash flow.
OSRAM withdrew the guidance for fiscal year 2020 in March 2020 due to the un- predictable impacts of the COVID-19 pandemic. After an expected decline of business development in the third quarter of the fiscal year (1 April to 30 June 2020), the management board now expects a slight demand recovery in the second half of 2020. The profound weakness of the global automotive business as well as demand weakness in OSRAM's core markets in Europe and the U.S. will also bur- den development in the 4th quarter of 2020. This is countered by currently increas- ing revenues in China and the early measures taken by the company which helped to moderate the impact of the COVID-19 pandemic on liquidity and financial re- sults. These measures will continue to be consistently implemented. The same ap- plies to the started structural initiatives for the sustainable improvement of profita- bility by which gross savings of at least EUR 300 million should be realised by the end of fiscal year 2022.
9. Employees and co-determination
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Employees
As of 30 September 2019, the OSRAM Group employed a total of 24,685 "full- time equivalent" employees. - Co-determination
Pursuant to §7(1) of the company's Articles of Association, the OSRAM supervi- sory board shall consist of twelve members, with the composition of members from shareholder and employee representatives arising from the legal requirements with regard to principles of equality.
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- ams and the ams Group
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Overview
ams is a worldwide leader in sensor solutions which develops and manufactures high-performance sensor solutions, sensor integrated circuits (ICs), related algo- rithms and software. The ams Group's operations focus on the design, develop- ment and manufacture of high-performance sensor solutions in the strategic areas of optical, image and audio sensor applications.
The ams Group intends to secure a leading position with solutions for optical, im- age and audio sensors by continuously developing its technological capabilities and performance of its various sensor types and by providing differentiated (multi- sensor) application solutions. The key elements of this strategy include (i) the fo- cus on fast growing sensor segments; (ii) the transfer of sensor technologies which were developed for one application area to another application are; (iii) a product range that stands out from competition by offering customised sensor solutions and micromodule integration; (iv) the cooperation with innovative customers for all applications; (v) the creation of a diversified business portfolio of sensor technolo- gies and solutions as well as applications for end markets and customers; and (vi) the focus of inhouse manufacturing on steps which are decisive for a product range that stands out from competition or to secure attractive growth opportunities.
On average, the ams Group had 8,811 employees in 2019 (thereof approximately 1,100 engineers) and generated revenues of around EUR 1,885.3 million in the fis- cal year ended on 31 December 2019, an operating result (EBIT) of around EUR 391.7 million and a net profit of around EUR 299.7 million. - History and development
ams was established in 1981 as American Micro System Incorporated-Austria GmbH, a joint venture between American Micro Systems and Voestalpine AG with head office in Premstätten, Austria. In 1983, the first production facility, a 100mm wafer factory, was opened in Premstätten with around 300 employees. In 1987, after the exit of Voestalpine AG, the company was renamed Austria Mikro Systeme International Gesellschaft m.b.H and opened branches in California (USA) and Germany. In 1991-1992, the company was converted into a stock cor- poration and, in 1993, went public on the Vienna Stock Exchange. In 1994, ams opened its first branch in Asia.
In the year 2000, the company was delisted from the Vienna Stock Exchange in the course of a restructuring and renamed austriamicrosystems AG. In the same year, a 200mm wafer factory was opened in Premstätten, Austria. The expansion contin- ued in 2002 with the opening of a new location in Singapore and the expansion of existing branches in Hong Kong, Japan and the USA, followed by the opening of new locations in South Korea, China, Finland and Sweden in 2003. In 2004, austri- amicrosystems AG went public on the Swiss Stock Exchange in Zurich. In 2006, the company opened a new test centre in the Philippines and a new design centre in India and further expanded its 200mm wafer factory.
In 2011, the company acquired 100% of the shares in the light sensor technology provider Texas Advanced Optoelectronic Solutions Inc. with registered seat in Pla-
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no, Texas, USA, and changed its name to "ams" in order to combine the brands "austriamicrosystems" and "TAOS".
To further enhance its successful Radio-Frequency Identification (RFID), Near- Field Communication (NFC) and Wireless offerings and technology leadership in these markets, ams acquired 100% of the shares in IDS, a global RFID design leader, in 2012. The IDS group comprised IDS d.o.o., with registered seat in Ljubljana, Slovenia, and IDS IP Holding AG, with registered seat in Ljubljana, Slovenia, with its wholly-owned subsidiary IDS Microchip AG, with registered seat in Switzerland.
In 2014, ams acquired 100% of the shares in AppliedSensor Sweden Holding AB, with registered seat in Linköping, Sweden, including its subsidiaries Applied- Sensor GmbH, with registered seat in Germany, and APPLIEDSENSOR Inc., with registered seat in the USA, a global leader in solid-state chemical gas sensor solutions for high volume markets in order to add AppliedSensor's MEMS gas sensor technology to ams' expertise in advanced sensor design. In the same year, ams acquired 100% of the shares in acam-messelectronic gmbh, with registered seat in Stutensee, Germany, a leading provider of accurate time-based measurement and related sensor solutions.
In 2015, ams acquired the CMOS sensor business from NXP B.V., with registered seat in Eindhoven, Netherlands. The acquisition expanded ams' portfolio of "envi- ronmental sensors" with advanced monolithic and integrated CMOS sensors that measure several environmental variables such as relative humidity, pressure and temperature in one sensor device. In the same year, ams acquired 100% of the shares in CMOSIS International N.V., with registered seat in Antwerp, Belgium, a leader in advanced area and line scan CMOS image sensors for high-end imaging applications. The acquisition of CMOSIS was aimed at a complementary expansion of ams' sensor portfolio.
In 2016, ams acquired 100% of the shares in MAZeT GmbH, with registered seat in Jena, Germany, a colour and spectral sensing specialist. This strategic acquisition was aimed at extending ams' market leadership in optical sensors and strengthening ams' position in emerging optical sensor applications. In the same year, ams acquired 100% of the shares in Cambridge CMOS Sensors Ltd, with registered seat in Launceston, United Kingdom, the technology leader in micro hot- plate structures for gas sensing and infrared applications. The acquisition was aimed at realising synergies from the know-how of Cambridge CMOS Sensors Ltd. In 2016, ams also acquired Incus Laboratories Ltd, with registered seat in Stokenchurch, United Kingdom, a provider of IP for digital active noise cancellation in headphones and earphones. The acquisition was aimed at strengthening ams' position in the market for Active Noise Cancellation (ANC) solutions.
In 2017, ams acquired 100% of the shares in Heptagon Advanced MicroOptics Pte. Ltd., with registered seat in Singapore, the worldwide leader in high-performance optical packaging and micro-optics. With this transaction, ams became the clear global leader in optical sensor technologies anticipating industry and technology trends to drive growth in new applications. In the same year, ams acquired 100% of the shares in Princeton Optronics, Inc., with registered seat in Mercerville, New
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Jersey, USA, a leading provider of Vertical Cavity Surface-Emitting Lasers (VCSELs), in order to expand ams' optical sensor solutions offering.
To accelerate the adoption of 3D face recognition and help original equipment manufacturers (OEMs) to achieve a faster time-to-market, ams acquired KeyLemon S.A., with registered seat in Martigny, Switzerland, a leading provider of face recognition software, in 2018. In 2018, ams also acquired 30% of the shares in 7Sensing Software N.V., with registered seat in Leuven, Belgium. 7Sensing Software NV is a software and software licensing company that primarily develops software solutions and IP for optical, imaging, ambient and audio sensor solutions. In the same year, ams also acquired 100% of the shares in ixellence GmbH, with registered seat in Wildau, Germany.
In 2020, ams and Wise Road Capital, a private equity firm focusing on the semiconductor industry and other emerging high-tech industries, created the joint venture ScioSense, with registered seat in Eindhoven, Netherlands, in order to advance the development and sales of environmental, flow and pressure sensor solutions for the global market. Under the joint venture agreement, ams agreed to transfer em- ployees, IP, sensor products and solutions and related customers from ams to Scio- Sense, while Wise Road Capital will provide its expert joint venture guidance, deep market knowledge and strength in channel and customer relationships, especially in China. The ams Group holds indirectly 49% of the shares in ScioSense.
On 7 November 2019, ams Offer published the Takeover Offer to the OSRAM Shareholders for the acquisition of all OSRAM Shares. The Takeover Offer was completed on 9 July 2020 (see B.III.8.1).
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Legal form, registered seat, fiscal year and object
ams is a stock corporation incorporated under the laws of the Republic of Austria, having its registered seat in Premstätten, Austria, registered with the commercial register (Firmenbuch) of the civil district court of Graz (Landesgericht für Zivil- rechtssachen Graz) under FN 34109k. The fiscal year is the calendar year.
The object of ams according to its articles of association is the development, manu- facturing and sale of electronic products, including but not limited to integrated circuits (microsystems) and other microelectronic products, and the provision of related services, trading in such products and the brokerage of such transactions, as well as the acquisition of relevant production machines and equipment.
ams may establish branches in Austria and abroad, hold shares in companies in Austria and abroad, acquire, establish and sell such companies and enter into any transactions, including joint ventures, which are indirectly or directly conducive to the Company's interests, except for banking transactions. ams is also entitled to collect and process personal data by automated means. - Share capital, shareholders and stock exchange trading
4.1 Share capital
The share capital of ams amounts to EUR 274,289,280.00 and is divided into 274,289,280 no-par value shares, each representing the same pro rata amount of
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the share capital (ams Shares). All ams Shares are ordinary bearer shares. There are no other classes of shares.
4.2 Capital increase 2020
On the basis of the capital increase resolved by the company's extraordinary gen- eral meeting on 24 January 2020, the management board of ams resolved on 11 March 2020 to issue 189,869,454 new ordinary no-par value bearer shares by way of a discounted rights offering at an offer price of 9.20 Swiss francs (CHF) per share (Capital Increase 2020). In the course of the offering, 15,023,697 ams Shares were successfully placed with investors at a price of CHF 9.20. Together with 117,451,512 shares already subscribed by ams shareholders and holders of subscription rights at the completion of the rights exercise period, a total of 132,475,209 shares were taken up by investors. The remaining 57,394,245 ams Shares were taken up by the syndicate banks involved in the capital increase for
their own account according to their respective underwriting quota. As a result of the Capital Increase 2020, ams' share capital was increased from EUR 84,419,826.00 to EUR 274,289,280.00.
The gross proceeds from the issue in the amount of CHF 1.75 billion (which corresponds to approximately EUR 1.65 billion) was used to partially refinance the takeover of OSRAM including the related transaction costs.
4.3 Authorised Capital 2018
In June 2018, the general meeting of ams resolved to authorise the management board to increase the company's share capital until 5 June 2023 by up to EUR 8,441,982.00 by issuing up to 8,441,982 new no-par value shares against con- tributions in cash and/or in kind and to determine, in agreement with the superviso- ry board, the issue price as well as the terms of issue and the further details of the implementation (Authorised Capital 2018).
The management board of ams was authorised to offer the new shares for subscrip- tion to the shareholders by way of indirect subscription rights pursuant to sec- tion 153(6) of the Austrian Stock Corporation Act (Aktiengesetz - ÖAktG) or, with the approval of the supervisory board, to exclude the shareholders' subscription rights if
- the capital increase is made against contributions in kind, i.e. if shares are is- sued for the purpose of acquiring companies, parts of companies, businesses, parts of businesses or equity interests in one or more companies in Austria or abroad;
- the capital increase is made for the purpose of listing the company's shares on another non-European stock exchange;
- it is intended to exclude fractional amounts from the shareholders' subscription rights; or
- it is intended to cover an over-allotment option granted to the underwriting banks.
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As of the date of this Contract Report, the full amount of the Authorised Capital 2018 is still available.
4.4 Conditional Capital 2020
In June 2020, the general meeting of ams resolved to conditionally increase the share capital of ams pursuant to section 159(2) no. 1 ÖAktG by up to EUR 27,428,928.00 by issuing up to 27,428,928 no-par value bearer shares, each representing a pro-rata amount of EUR 1.00 of the share capital, for the purpose of issuing them to creditors of financial instruments (Conditional Capital 2020). As of the date of this Contract Report, no portion of the Conditional Capital 2020 has been committed for the possible conversion of a financial instrument. Therefore, no shares have been issued out of the Conditional Capital 2020.
4.5 Conditional Capital 2017
In June 2017, the general meeting of ams resolved to conditionally increase the share capital of ams pursuant to section 159(2) no. 1 ÖAktG by up to EUR 8,441,982.00 by issuing up to 8,441,982 no-par value bearer shares, each representing a pro-rata amount of EUR 1.00 of the share capital, for the purpose of issuing financial instruments in accordance with section 174 ÖAktG (Conditional Capital 2017). In September 2017, the management board resolved to issue a convertible bond for which a portion of the Conditional Capital 2017 of, in total, 3,273,858 new no-par value bearer shares was committed for the possible conversion of the convertible bond. In February 2018, the management board resolved to issue another convertible bond for which a portion of the Conditional Capital 2017 of, in total, 4,410,412 new no-par value bearer shares was committed for the possible conversion of the convertible bond. In March 2019, ams launched a buyback programme for the outstanding convertible bonds and, as a result, the number of ams Shares committed for the possible conversion of the convertible bonds was re- duced. As a result of the Capital Increase 2020, the number of ams Shares to be committed for the possible conversion of the convertible bond changed again because the terms and conditions of the convertible bonds had to be amended in accordance with dilution adjustment provisions. As at the date of this Contract Re- port, no shares have been issued out of the Conditional Capital 2017, and a total of 4,224 convertible bonds (1,602 under the USD Convertible Bond 2022 and 2,622 under the EUR Convertible Bond 2025) entitling their holders to subscribe for a total of 11,117,887 ams Shares (4,863,056 shares under the USD Convertible Bond 2022 and 6,254,831 shares under the EUR Convertible Bond 2025) were outstand- ing.
4.6 Conditional Capital 2015
In June 2015, the general meeting of ams resolved to conditionally increase the share capital of ams pursuant to section 159(2) no. 3 ÖAktG by up to EUR 5,000,000.00 by issuing up to 5,000,000 no-par value bearer shares for the purpose of granting stock options over a period of five years under the Performance Stock Unit Plan (PSP) 2014-2018 to selected employees, officers and members of the management board of ams and companies affiliated with ams (Conditional Capital 2015). In 2014, a total of 5,000,000 stock options for the same number of ams Shares was granted under the Performance Stock Unit Plan (PSP) 2014-
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2018. All granted options must be exercised 10 years after the granting date at the latest. As of the date of this Contract Report, no shares have been issued out of the Conditional Capital 2015, and 1,695,305 options were outstanding.
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Treasury shares
In line with the resolution of the general meeting adopted in 2019, which authoris- es the management board of ams to acquire up to 10% of the outstanding treasury shares, ams started to repurchase treasury shares representing up to 5% of the share capital. The buyback programme expired on 24 April 2020. The purpose of the share buyback programme was to repurchase the necessary shares to service obli- gations under long-term employee incentive programmes. On 27 April 2020, ams announced that, based on the then current outstanding number of 274,289,280 bearer shares, the maximum repurchase volume under the current share buyback programme of max. 5% or 13,714,464 bearer shares had been achieved and the share buyback programme was completed.
As of the date of this Contract Report, ams holds 13,702,448 treasury shares. This corresponds to approximately 5% of the share capital of ams. - Shareholders
As of the date of this Contract Report, the shareholder structure of ams is, according to the notifications published on the website of SIX Exchange Regulation un-
der https://www.ser-ag.com/en/resources/notifications-market-participants/significant-shareholders.html#/, as follows:
Shareholder | Total percentage of voting rights held in % |
Temasek Holdings (Singapore State Fund) | 5.40 |
BlackRock Inc. | 4.48 |
UBS Fund Management AG | 3.94 |
4.9 Trading on the stock exchange
The ams Shares (ISIN AT0000A18XM4) are listed on the main segment on the SIX Swiss Exchange and are traded on the regulated unofficial market (Frei- verkehr) of the stock exchanges in Berlin, Frankfurt am Main and Stuttgart and on the Global Market of the Vienna Stock Exchange. In addition, the ams Shares can be traded on XETRA.
5. Management board and supervisory board
5.1 Management board
Pursuant to § 4(1) of the articles of association of ams, the management board of ams comprises up to five members.
As of the date of this Contract Report, the management board of ams has the fol- lowing members:
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- Alexander Everke (Chief Executive Officer (CEO), since March 2016 and member of the management board since October 2015);
- Ingo Bank (Chief Financial Officer (CFO), since May 2020);
- Dr Thomas Stockmeier (Chief Operating Officer (COO), since October 2014); and
- Mark Hamersma (Chief Business Development Officer (CBDO), since January 2018).
Pursuant to § 5(2) of the articles of association of ams, the company is represented, if more than one member of the management board is appointed, by two members of the management board or by one member of the management board acting jointly with a holder of a general commercial power of attorney (Prokurist). Within the scope of their legal power of representation, ams may also be represented by two holders of a general commercial power of attorney (Prokuristen) acting jointly.
5.2 Supervisory board
Pursuant to § 8(1) of the articles of association of ams, the supervisory board of ams comprises at least three and not more than six members elected by the general meeting and the members appointed by the employees pursuant to section 110(1) of the Austrian Labour Constitution Act (Arbeitsverfassungsgesetz - ArbVG). The supervisory board has a maximum of 9 members.
The shareholder representatives are:
- Mag Hans Jörg Kaltenbrunner (chairperson);
- Dipl-KfmMichael Grimm (deputy chairperson);
- Dr Monika Henzinger;
- Brian Krzanich;
- Kin Wah Loh; and
- Yen Tan.
The employee representatives are:
- Andreas Pein; and
- Bianca Stotz.
On 24 July 2020, the employee representative Johann Eitner retired from the supervisory board of ams. The works council of ams will appoint a new employee representative as member of the supervisory board.
DI Guido Klestil is the honorary chairperson of the supervisory board of ams.
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6. Structure of the ams Group
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Operating and legal structure
ams is the ultimate parent company of the ams Group. It is responsible for the main group-wide management functions and duties, such as management of the individ- ual business areas, production and production planning, research & development, as well as the typical support functions finance and accounting, human resources, quality assurance, IT and organisational development. Furthermore, ams is respon- sible for internal legal advice, risk management and compliance.
In addition to its main location in Premstätten, Austria, the ams Group has loca- tions in Belgium, Germany, Italy, the Netherlands, Portugal, Slovenia, Switzer- land, Spain, Sweden, the United Kingdom, the People's Republic of China, India,
Japan, South Korea, the Philippines, Singapore, Taiwan and the USA. ams has subsidiaries in Switzerland, Italy, Germany, France, Belgium, the Netherlands, the United Kingdom, Spain, Portugal, Sweden, the USA and other locations.
The subsidiaries in the USA, Switzerland, Italy, Spain, the United Kingdom, Ger- many, Japan and India are engaged in development, marketing and sales activities, whereas the subsidiaries in France and China are engaged in marketing, sales and technical support. The subsidiary in the Philippines is responsible for production activities in testing, while the subsidiary in South Korea is responsible for sales and assembly in the region. The subsidiary in Singapore conducts production, mar- keting, sales and research & development activities.
Prior to the completion of the Takeover Offer on 31 December 2019, the ams Group comprised 45 subsidiaries and 12 affiliates. A complete list of all subsidiar- ies and affiliates as of 31 December 2019 is attached to this Contract Report as Annex 2. - Governance structures
The governance and organisational structure of the ams Group is divided into the following functional areas:
Chief Executive | Chief Financial | Chief Operating | Chief Business |
Officer | Officer | Officer | Development Officer |
_________________ | _________________ | _________________ | _________________ |
Alexander Everke | Ingo Bank | Dr Thomas | Mark Hamersma |
Stockmeier | |||
Commercial manage- | Finance and account- | Production & produc- | Corporate develop- |
ment of the business | ing | tion planning | ment |
areas | |||
Global Sales & | Controlling | Supply Chain | M&A activities |
Marketing | Management | ||
Human Resources | Taxes | Quality assurance | Post-merger |
integration | |||
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Public Relations | Legal & | Research & Develop- | ||
Risk management | ment | |||
Investor Relations | IT & Organisational | Property management | ||
development | ||||
Corporate Social Re- | ||||
sponsibility | ||||
7. Business of the ams Group
ams is a worldwide leader in sensor solutions which develops and manufactures high-performance sensor solutions, sensor integrated circuits (ICs), related algo- rithms and software. The ams Group's operations focus on the design, develop- ment and manufacture of high-performance sensor solutions, including detector, sensor interface and sensor processor integrated circuits, active and passive optical components, including driver ICs, and related sensing software algorithms and se- lective application software.
The range of products and services offered by the ams Group is divided into three strategic areas:
- Optical sensor applications;
- Image sensor applications; and
- Audio sensor applications.
The ams Group's sensors and sensor solutions are used by OEMs in a wide range of end-market applications. In the fiscal year 2019, the ams Group reported in the following three business segments in which products and sensor solutions of ams are used:
- Consumer;
- Non-Consumer;and
- Foundry.
The "Consumer" segment is comprised of products and sensor solutions targeting the mobile, consumer and communications markets. The "Non-Consumer" segment is comprised of products and sensor solutions targeting the industrial, medi- cal, and automotive markets. In the "Foundry" segment, ams reports the contract manufacturing of analogue/mixed signal ICs based on its customers' designs.
In the fiscal year 2020, ams reorganised its segments and integrated the "Foundry" segment in the "Non-Consumer" segment.
7.1 Optical sensor applications
The ams Group's optical sensor applications comprise a suite of complex and ad- vanced light sensing solutions. Optical sensors efficiently, quickly and accurately measure and translate external light stimuli - including colour and intensity chang- es - into electronic signals for use by a wide range of end-market applications. The ams Group's optical sensor offering includes, in particular, ambient light sensors
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and combined ambient light and proximity sensors (which are used, in particular, in smartphones, tablets, medical diagnostics, touchscreen control and industrial process control), colour sensors and combined colour and proximity sensors as well as spectral sensors (which are used in various industries such as product au- thentication, document verification and chemical analysis). In addition, the ams Group focuses on the development of advanced 3D sensing capabilities and on the development of a LiDAR system (a critical building block to enable assisted and autonomous driving via optical object detection similar to a radar, but with better high resolution).
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Image sensor applications
The ams Group's image sensor applications comprise a variety of technologies used to create the high-quality, precision images that are required in technical fields, such as hospital, medical practice, industrial and infrastructure applications. Image sensors convert the variable attenuation of light waves (as they pass through or reflect off objects) into signals or small bursts of current that convey infor- mation. Image sensors are used in both analogue and digital electronic imaging de- vices, which include digital cameras, camera modules, medical imaging equipment and night vision equipment. The ams Group's image sensor offering includes, in particular, area scan sensors, line scan sensors and miniature camera modules. - Audio sensor applications
The ams Group's audio sensor applications are used in a variety of advanced audio applications. These sensors mimic human hearing by receiving, processing and converting audio signals to an electric current for applications in complex consum- er and non-consumer products. Audio sensors are used, in particular, in micro- phones (which are used in telephones, computers, baby monitors and music sys- tems) and also for speech recognition, as well as for non-acoustic purposes such as ultrasonic sensors or knock sensors. The ams Group's audio sensor portfolio in- creasingly focuses on applications in active noise control technologies. The ams
Group's audio sensors can be advantageously combined with other ams sensor products (such as proximity sensors) and applied in devices that require a broad ar- ray of advanced sensing technologies, such as smart headphones and wireless ear- buds. The ams Group's audio sensor applications are regularly used by OEMs in- volved in consumer technology fields, in particular mobile phone producers as well as producers of voice-activated devices and wireless earbuds for smartphones.
8. Development of business and earnings situation of the ams Group
8.1 Financial information for the fiscal years 2019, 2018 and 2017
The consolidated financial statements of the ams Group were prepared in accord- ance with the International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB) and as to be applied in the Eu- ropean Union, as well as additional requirements relating to section 245a of the Austrian Commercial Code (Unternehmensgesetzbuch - UGB).
In millions of EUR, unless otherwise stated | 2019 | 2018 | 2017 | |
Revenue | 1,885.3 | 1,426.3 | 1,063.8 | |
Consumer segment | 1,403.6 | 1,003.0 | 683.5 | |
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Non-Consumer segment | 439.0 | 377.8 | 328.7 |
Foundry segment | 42.6 | 45.6 | 51.6 |
Gross margin (adjusted)1) | 41% | 32% | 43% |
Gross margin (IFRS reported) | 38% | 27% | 39% |
R&D expenses | 261.2 | 239.1 | 214.0 |
Operating result (EBIT) (adjusted)1) | 391.7 | 127.6 | 168.7 |
EBIT margin in % (adjusted)1) | 21% | 9% | 16% |
EBITDA | 621.9 | 225.5 | 224.4 |
Net result (adjusted)3) | 299.7 | 10.6 | 127.5 |
Earnings per share | 3.73 | 0.13 | 1.56 |
(in EUR, basic)3) | |||
Earnings per share | 4.15 | 0.15 | 1.74 |
(in CHF, basic)2) 3) | |||
Operating cash flow | 645.7 | 315.4 | -3.6 |
Total order backlog (as of 31 December) | 239.6 | 291.8 | 541.9 |
Acquisition of intangibles, property, plant and equipment | 181.6 | 412.9 | 582.0 |
Total assets (as of 31 December) | 4,433.4 | 3,584.5 | 3,261.3 |
Equity ratio | 38% | 36% | 25% |
Employees (average) | 8,811 | 10,322 | 7,016 |
____________ |
- Excluding acquisition-related and share-based compensation costs.
- Earnings per share in CHF were converted using the average currency exchange rate for the respective periods.
- Net result and earnings per share excluding valuation effect of the option element of the issued USD convertible bond.
8.2 Development of business and results of operations in the fiscal year 2019
In the fiscal year 2019, ams recorded substantial growth. Consolidated group reve- nues for the fiscal year 2019 increased by around 32% to EUR 1,885.3 million compared to EUR 1,426.3 million in 2018. This development was primarily due to the exceptional growth in demand in the target market Consumer (increase of around 39%) in conjunction with solid overall demand for ams' solutions in the au- tomotive, industry and medical markets. The revenue increase in the Consumer business was particularly driven by further deployment of optical sensing solutions in 3D sensing and high-quality light sensors for advanced display management, as well as the business development of leading smartphone manufactures using ams- solutions.
The Consumer segment, the Non-Consumer segment and the Foundry segment ac- counted for around 74%, 23% and 2%, respectively, of consolidated revenues.
The full year gross margin excluding acquisition-related amortisation and share- based compensations costs increased to around 41% in 2019 compared to around 32% in 2018. Gross margin including acquisition-related amortisation and share- based compensations costs also increased to around 38% compared to around 27% in the previous year. The improved utilisation of production capacities in Singa-
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pore in 2019 had a positive effect on the gross margin. This improved capacity utilisation resulted from significantly higher customer volumes in the consumer business compared to 2018. Furthermore, the price trend for the company's products was stable overall.
Due to the increase in sales and improved capacity utilisation, the operating result (EBIT) (including acquisition-related amortisation and share-based compensations costs) increased by EUR 315.8 million to EUR 328.7 million in 2019. EBITDA (earnings before interest and taxes plus depreciation and amortisation) increased by EUR 396.4 million to EUR 621.9 million. The return on equity reached around 18% (2018: around 7%).
The operating cash flow increased significantly to EUR 645.7 million in 2019 compared to EUR 315.4 million in the previous year. This increase was primarily due to the improved operating result.
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Development of business and results of operations in the first half of 2020
The results of the first half of 2020 show ams' business performing very well de- spite the ongoing global Covid-19 pandemic and its macro-economic and end mar- ket impact. The demand environment in the consumer market remained clearly supportive during the first two quarters while end markets in the automotive and industrial businesses seeing continued weakness worldwide. Group revenues for the first half of 2020 were EUR 872.3 million, a significant increase of around 22% compared to EUR 713.4 million recorded in the first half of 2019. The adjust- ed EBIT for the first half of 2020 was EUR 173.4 million (excluding acquisition- related and share-based compensation costs), significantly up from EUR 65.2 mil- lion in the same period 2019 (EUR 89.8 million including acquisition-related and share-based compensation costs, significantly up from EUR 15.5 million in the first half year 2019). Adjusted net income for the first half year 2020 was EUR 74.7 million (excluding acquisition-related and share-based compensation costs), compared to EUR -63.7 million for the same period 2019 (first half 2020: EUR -8.9 million including aforementioned costs). - Outlook for the fiscal year 2020
For the third quarter 2020, ams expects very good growth for ams' business despite the ongoing Covid-19 pandemic impacting economies and ams' end markets, on a sequential basis. This growth will be driven by volume ramps for smartphone sens- ing solutions while ams' non-consumer business in the automotive and industrial markets continues to show limited demand and provide a muted contribution to ams' results. ams will be fully consolidating OSRAM as of the beginning of the third quarter 2020 and intends to include OSRAM as a separate reporting segment.
Based on available information, ams expects revenues for ams' business of USD 530-570 million in the third quarter 2020, up 20% from the previous quarter. This positive outlook encompasses strength in ams' consumer business compensating for ongoing demand weakness in the majority of ams' non-consumer business. De- spite this situation, ams also expects robust profitability for the third quarter 2020 with an expected adjusted operating (EBIT) margin of 21-24%. The expectations above assume no further unforeseen negative effects from the Covid-19 pandemic that would result in a meaningful negative impact on ams' business.
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9. Employees and co-determination
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Employees
In the fiscal year 2019, the ams Group had, on average, 8,811 employees of which around 15% worked at the company headquarters in Premstätten, Austria, and around 85% outside of Austria. - Co-determination
Pursuant to § 8(1) of the articles of association of ams, the supervisory board of ams comprises at least three and not more than six members elected by the general meeting. Pursuant to section 110(1) of the Austrian Labour Constitution Act (Ar- beitsverfassungsgesetz - ArbVG), the responsible employee representative body appoints one employee representative for every two shareholder representatives as members of the supervisory board (one-third parity (Drittelparität)). The supervi- sory board of ams has a maximum of 9 members.
- ams Offer
-
Overview
ams Offer is a wholly-owned direct subsidiary of ams. The business address of ams Offer is: Marcel-Breuer-Straße 6, 80807 Munich. - Legal form, registered seat, fiscal year and object
ams Offer is a German limited liability company (Gesellschaft mit beschränkter Haftung) with registered seat in Ismaning, registered in the commercial register of the local court (Amtsgericht) of Munich under registration number HRB 252979. The share capital of ams Offer amounts to EUR 25,100.00.
The fiscal year of ams Offer begins on 1 February of each calendar year and ends on 31 January of the following calendar year.
The object of ams Offer according to its articles of association is the administration of its assets as well as the acquisition and holding of participations. In addition, the object of ams Offer comprises the provision of services to affiliated companies, in particular management services. ams Offer is entitled to engage in any business ac- tivities and to take any actions which are suitable to promote the object of the company directly or indirectly. It may acquire companies of the same or similar type and hold participations in such companies, also as a general partner. ams Of- fer may establish branches that have the same or similar name in Germany or abroad. - History and development
3.1 Formation
ams Offer was formed with the name Blitz F19-566 GmbH with registered seat in Frankfurt am Main and a share capital of EUR 25,000.00 by Blitzstart Holding AG on 18 July 2019 and registered in the commercial register of the local court (Amtsgericht) of Frankfurt am Main under registration number HRB 116376 on 13 August 2019.
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Acquisition by ams, amendment to the articles of association and relocation of reg- istered seat
Pursuant to a purchase and assignment agreement dated 16 October 2019, ams ac- quired Blitz F19-566 GmbH from Blitzstart Holding AG. In this connection, it was resolved to change the name of the company to ams Offer GmbH and to change the company's object and fiscal year, and the economic new formation (wirtschaftliche Neugründung) of ams Offer was filed for registration in the commercial register with the local court (Amtsgericht) of Frankfurt am Main.
On 14 November 2019, it was resolved to relocate the registered seat of Blitz F19- 566 GmbH, which had been renamed ams Offer GmbH on 28 October 2019, from Frankfurt am Main to Ismaning. On 26 November 2019, the relocation of the regis- tered seat was registered in the commercial register. - Capital increase
By shareholder resolution of 9 July 2020, registered in the commercial register on 14 July 2020, the share capital of ams Offer was increased, in return for the grant- ing of 100 new shares, from EUR 25,000.00 by EUR 100.00 to EUR 25,100.00.
All new shares were subscribed by ams. ams' contribution for the new shares was not made in cash but by the contribution of 28,007,603 OSRAM Shares. The amount by which the value of the OSRAM Shares exceeded the sum of the nomi- nal amounts of all new shares granted in return for the OSRAM Shares was allo- cated to the capital reserve of ams Offer in accordance with section 272(2) no. 1 HGB.
4. Governing bodies and representation
Pursuant to § 6(1) of the articles of association of ams Offer, the management of the company consists of one or more managing directors which are appointed and dismissed by the shareholders' meeting. Pursuant to § 7(1) of the articles of associ- ation of ams Offer, the company is represented, if only one managing director is appointed, by such managing director alone, and otherwise by two managing direc- tors acting jointly or by one managing director acting jointly with a holder of a general commercial power of attorney (Prokurist).
The managing directors of ams Offer are:
- Alexander Everke;
- Dr Thomas Stockmeier;
- Ingo Bank; and
- Dr Franz Michael Fazekas.
Each of the managing directors was appointed with the authority to enter into legal transactions in the name of the company with himself in his own name or as an agent of a third party.
ams Offer has neither a supervisory board nor any equivalent body.
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-
Business activities
As of 18 October 2019, ams Offer has not commenced any business activity. On 18 October 2019, ams Offer published its decision to make the Takeover Offer and took all necessary and useful measures in relation thereto. By publication of the of- fer document on 7 November 2019, ams Offer made the Takeover Offer. Since completion of the Takeover Offer on 9 July 2020, ams Offer has been acting as an intermediate holding in the ams Group.
As at the date of this Contract Report, ams Offer holds 66,605,912 OSRAM Shares; this corresponds to approximately 68.77% of the share capital and voting rights in OSRAM, and ams Offer also holds all the shares in ams R&D Spain, S.L. Apart from that, ams Offer does not hold any further shares or interests. ams Offer has 12 employees itself. - Earnings situation and financial position of ams Offer
ams Offer was registered in the commercial register on 19 August 2019 as a shelf company. Until its economic new formation following its acquisition by ams on 16 October 2019, ams Offer did not engage in any business activity. Since then, the economic activity of ams Offer has been limited to making the Takeover Offer to the OSRAM Shareholders and to its function as intermediate holding in the ams Group. Therefore, ams Offer has not generated any revenues.
ams Offer has a registered share capital in the amount of EUR 25,100.00. The capi- tal reserve pursuant to section 272(2) no. 1 HGB resulting from the contribution of the total number of 28,007,603 OSRAM Shares in the context of the capital in- crease resolved on 9 July 2020 amounts to approximately EUR 1,115 million. For the financing of the Takeover Offer, ams Offer took up a shareholder loan and, as a result, the total liabilities of ams Offer as of 22 September 2020 amounted to ap- proximately EUR 1,685.0 million. On the other side, the assets of ams Offer con- sist of a total number of 66,605,912 OSRAM Shares and the shares held by ams Offer in ams R&D Spain, S.L. - Financial resources of ams Offer to meet its liabilities under the Domination and Profit and Loss Transfer Agreement
Prior to the conclusion of the Domination and Profit and Loss Transfer Agreement, the management board of OSRAM and the management of ams Offer examined whether ams Offer will at all times be able to fulfil its payment obligations under the Domination and Profit and Loss Transfer Agreement. Based on the current economic, financial and contractual situation of ams Offer, the management board of OSRAM and the management of ams Offer came to the conclusion that ams Of- fer will be able to fulfil its obligations under the Domination and Profit and Loss Transfer Agreement.
The management board of OSRAM and the management of ams Offer based this conclusion on the following considerations:
Following effectiveness of the profit transfer obligation under the Domination and Profit and Loss Transfer Agreement, the profit of OSRAM will be available to meet the future payment obligations of ams Offer (see section D.I.2), with ams Of-
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fer being obliged, pursuant to section 302 AktG, to assume any annual loss of OSRAM that may arise during the term of the Agreement.
In addition, ams, without joining the Domination and Profit and Loss Transfer Agreement as a party, issued a comfort letter to OSRAM, which is attached to this Contract Report together with the Domination and Profit and Loss Transfer Agreement as Annex 3.
In this comfort letter, ams undertook without limitation and irrevocably to ensure, that ams Offer will be financially equipped in such a way that ams Offer is at all times able to fulfil all its liabilities arising from or in connection with the Agreement completely when they become due. This applies in particular to the obligation to compensate losses pursuant to section 302 AktG. In addition, in the event that ams Offer fails to fulfil its obligations towards the outside shareholders of OSRAM arising from or in connection with the Agreement completely when they become due, ams undertook without limitation and irrevocably vis-à-vis the outside shareholders of OSRAM that ams Offer will fulfil all its obligations towards them arising from or in connection with the Agreement completely when they become due, in particular with respect to the recurring compensation payment (Ausgleichszah- lung) and the cash compensation (Abfindung). To that extent the outside shareholders of OSRAM have an own claim according to section 328 para. 1 BGB directed at payment to ams Offer (see section D.I.7).
8. Takeover Offer and potential share acquisitions by ams Offer
8.1 Takeover Offer and additional share acquisitions
Prior to the publication of the decision to make the Takeover Offer to the OSRAM Shareholders for the acquisition of their OSRAM Shares on 18 October 2019 by ams Offer, ams had acquired 19,359,929 OSRAM Shares. This corresponded to a holding of approximately 19.99% of the OSRAM shares and voting rights in
OSRAM.
On 7 November 2019, ams Offer published the Takeover Offer to the OSRAM Shareholders for the acquisition of their OSRAM Shares at an offer price of EUR 41.00 per share of OSRAM. The completion of the Takeover Offer was, among other things, subject to the conditions of (i) a minimum acceptance thresh- old of 55% of all OSRAM Shares issued at the end of the acceptance period but excluding the 2,796,275 treasury shares held by OSRAM at the time of publication of the Offer Document, and (ii) the receipt of various merger control clearances.
The acceptance period for the Takeover Offer expired at the end of 5 December 2019. By the end of the acceptance period, the Takeover Offer had been accepted for a total of 36,386,823 OSRAM Shares, corresponding to approximately 37.57% of the share capital of OSRAM and voting rights in OSRAM. At the end of 5 De- cember 2019, ams continued to directly hold 19,359,929 OSRAM Shares. Accord- ingly, the total number of OSRAM Shares to be taken into account for the mini- mum acceptance threshold of the Takeover Offer at the end of the acceptance peri- od amounted to 55,746,752 OSRAM Shares, corresponding to approximately 59.27% of the share capital and voting rights. As a result, the minimum acceptance threshold of 55% was exceeded within the acceptance period and the relevant completion condition was fulfilled.
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The additional acceptance period for the Takeover Offer expired at the end of 24 December 2019. By the end of the additional acceptance period, the Takeover Offer had been accepted for a total of 36,936,158 OSRAM Shares, corresponding to approximately 38.14% of the share capital of OSRAM and the voting rights in
OSRAM.
After the end of the additional acceptance period and until completion of the Take- over Offer, ams purchased additional OSRAM Shares on the stock exchange. As a result, the indirect holding of ams in OSRAM prior to the completion of the Take- over Offer increased from 19,359,929 to 23,342,258 OSRAM Shares, corresponding to approximately 24.1% of the share capital of OSRAM and voting rights in
OSRAM.
In addition, on 10 April 2020, ams entered into a purchase agreement with funds advised by Sand Grove Capital Management LLP for the acquisition of a total of 4,665,345 OSRAM Shares off the stock exchange; this corresponded to approximately 4.82% of the OSRAM Shares and voting rights in OSRAM. The completion of this purchase agreement was also conditional upon the receipt of various merger control clearances.
After all relevant merger control clearances had been received, first of all, the purchase agreement with funds advised by Sand Grove Capital Management LLP was completed immediately after completion of the Takeover Offer on 9 July 2020. On 9 July 2020, ams also contributed the total number of 28,007,603 OSRAM Shares held by it to ams Offer by way of a capital increase against contributions in kind (see B.III.3.3).
An additional number of 1,662,151 OSRAM Shares, corresponding to approximately 1.72% of the share capital of OSRAM and voting rights in OSRAM were acquired by ams Offer since 6 July 2020 through additional purchases on the ex- change.
8.2 Potential acquisitions outside the compensation offer
ams reserves the right to directly or indirectly acquire at any time, to the extent permitted by law, additional OSRAM Shares outside the compensation offer pur- suant to clause 5 of the Domination and Profit and Loss Transfer Agreement on or off the stock exchange.
- Reasons for concluding the Domination and Profit and Loss Transfer Agree- ment
- Economic and legal reasons
1. Enhancing the strength and integration of the ams Group
The Agreement is essential in establishing an integrated group for sensor and pho- tonics solutions. It will enable closer and more effective cooperation between OSRAM, ams Offer and the ams Group. The contractual right to give instructions enables the management of ams Offer to implement single managerial control in the group's interest and single Group structures and strategies also in respect of
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OSRAM. This is a vital requirement for the proposed cooperation between ams Offer and OSRAM.
OSRAM and ams Offer expect in future to be able to leverage synergies together, particularly on the cost side, which necessitates the conclusion of the Agreement. Concluding the Agreement enables OSRAM to be integrated even more effectively and cost-efficiently into the ams Group.
Therefore, after conclusion of the Agreement, OSRAM's development is to be promoted in accordance with the business plan to be developed together with the management of OSRAM. On the basis of the Agreement, OSRAM and ams Offer have set themselves the goal of further strengthening and improving OSRAM's position in global competition. The intended purpose of the integration is to set up the ams Group more efficiently for the goal of becoming a worldwide market leader for photonics and sensor solutions and to ensure improved knowledge sharing within the Group. This will significantly strengthen the positions of the ams Group and the OSRAM Group on the photonics and sensor systems market. In addition to this, the integration will allow capitalising on the OSRAM Group's size of opera- tions, customer base and existing expertise with a view to expanding the range of solutions offered by OSRAM and the ams Group and/or their international orienta- tion.
The conclusion of the Agreement promotes the intentions and goals of ams and OSRAM, as the Parties agreed in the Business Combination Agreement on 11 No- vember 2019, namely
- to create a worldwide leading company offering sensor and photonics solutions with tangible benefits for customers, and
- to accelerate revenue growth and drive margin development through product enhancements as well as size, power and cost reductions as a result of the busi- ness combination.
Furthermore, the Agreement promotes the future strategic goals jointly agreed in the Business Combination Agreement,
- to continue pursuing OSRAM's vision of transformation into a photonics champion, in particular by leveraging leading capabilities in (traditional and non-traditional) emitters, drivers, processing ICs (integrated circuits), micro- optics and optical packaging, detectors and algorithm development;
- to deliver best-in-class optical sensor and photonics solutions for sizeable, high-growth sensing, illumination, visualisation and treatment applications in various attractive business fields with a focus on automotive, consumer and in- dustrial;
- to benefit, as a result of the business combination, from a more diversified, less cyclical revenue and cash flow mix;
-
to target for sizeable cost reductions through the optimisation of the manufac- turing footprint between OSRAM's Opto Semiconductors division and ams
Group;
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- to look, together with OSRAM, at the front-end manufacturing strategy and the footprint of optical semiconductors to address the structural utilisation issues under current revenue projections as well as assure the long-term cost competi- tiveness of the business;
- to realise, in relation to the integration of the manufacturing organisations of OSRAM's Opto Semiconductors division and ams, savings from combining the manufacturing overhead and indirect labour of the two businesses, as well as procurement synergies; and
- to leverage OSRAM's existing resources and capabilities to build a world-class optical semiconductor solution manufacturing organisation.
2. Limits and restrictions to cooperation in the current de facto corporate group
Due to the majority holding by ams Offer in OSRAM, a de facto corporate group exists between OSRAM and ams Offer at the present time. Strict limits apply to controlling and coordinating activities in a de facto corporate group. In addition, pursuant to section 76(1) AktG, the management board of OSRAM is obliged to take sole responsibility for managing OSRAM. If influence exerted interferes with the independent managerial control of OSRAM's management board and results in adverse effects on OSRAM, then OSRAM's management board must not comply with it unless the adverse effects caused by such influence are compensated by ams Offer or the entity of the ams Group exerting influence, section 311(1) AktG. Such compensation of adverse effects must be effected by the end of the OSRAM fiscal year in which such adverse influence was exerted, meaning within a narrow time frame, by providing factual compensation or by granting a relevant legal entitle- ment, section 311(2) AktG. OSRAM's management board must not execute the relevant measure or transaction if the adverse effect cannot be quantified and hence not be compensated. Therefore, OSRAM's management board must examine for each measure effected or omitted and each legal transaction of OSRAM effected or omitted upon request or in the interest of ams Offer whether such influence is le- gally permitted and whether it results in adverse effects on OSRAM. Such a case- by-case examination may require extensive analyses and tie up significant re- sources of the management board without resulting in legal certainty in each case. In many cases, in particular measures with a long-term objective, it is very difficult to determine whether the relevant measure has adverse effects. Adverse effects in the short term may be offset by positive effects in the long term. However, it is of- ten uncertain whether and to what extent such positive effects will materialise. In addition, OSRAM's management board must always take the interests of minority shareholders into consideration when performing its assessment.
Furthermore, all measures and transactions in a de facto corporate group which are taken on the initiative or in the interest of the controlling company or one of its af- filiates must be documented in detail. The management board of OSRAM must re- port thereon in an annual control report (Abhängigkeitsbericht), quantifying any potential adverse effects (section 312 AktG). This control report must then be au- dited by an auditor and thereafter by OSRAM's supervisory board (sections 313, 314 AktG).
All of these provisions require substantial amounts of time and financial and per- sonnel resources on both sides, and in particular on the side of OSRAM as the con-
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trolled entity. This is because all measures and legal transactions by OSRAM which are effected upon request of ams Offer or any of its affiliated entities or effected or omitted in their interest, either with ams Offer or with third parties, must be reviewed with the involvement of the management board and other departments of OSRAM (e.g. the legal, accounting and tax or finance departments) to ensure compliance with the applicable rules in a de facto corporate group. In addition to tying up resources and the impossibility of achieving complete legal certainty, this necessary audit also causes delays in implementing the planned cooperation between the OSRAM Group and the ams Group. This complicates the expeditious and efficient implementation of urgent business decisions to be taken and of those decisions that are in both parties' mutual interest.
In addition, setting the compensation for adverse effects, in particular quantifying and determining the nature and scope of adverse effects' eligibility for compensa- tion, generally causes practical difficulties. Problems are often encountered in relation to measures and legal transactions that go beyond the mere exchange of performance and consideration (e.g. receipt of goods or provision of services) or for which a market price cannot be determined (with sufficient certainty), such as for example in relation to sharing knowledge and commercial information. In these cases it is practically difficult, or often even impossible, to quantify and compensate adverse effects or corresponding advantages that may result for the controlled entity. As a result, such measures may not be taken in a de facto corporate group with sufficient legal certainty and may require substantial audit and documentation efforts or may have to be omitted in their entirety.
3. Establishment of a contractual corporate group by concluding the Domination and Profit and Loss Transfer Agreement
These difficulties in a de facto corporate group are avoided where a domination and profit and loss transfer agreement exists, as this creates a contractual basis for the planned close cooperation. The provisions on case-by-case compensation for adverse legal transactions or measures caused by the controlling entity or any of its affiliated entities or effected or omitted in their interest do not apply in a contractu- al corporate group. The controlling party to the contract especially has the right, under the provisions relating to domination, to directly issue instructions to the management board of the controlled company to take measures or engage in trans- actions in the interest of the controlling party to the contract or one of its affiliated companies. This is true even if such measures or transactions might be adverse for the controlled company when viewed on a stand-alone basis (section 308 AktG), the adverse effects cannot be compensated within the same fiscal year and/or an exact quantification of the adverse effect is not possible. This makes it possible to use resources more efficiently Group-wide and also to implement those measures for cooperation for which the quantification of any adverse effect and any corre- sponding benefit is not possible with legal certainty. Measures by management can accordingly be focused towards the common interest of the affiliated enterprises without great effort being required to control every measure and its effects on the controlled company. Furthermore, no expenditure is required for preparing and au- diting the control report, as no such report needs to be prepared in a contractual corporate group.
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For ams Offer, the Agreement enables better control of the planned cooperation with the OSRAM Group in the mutual interest of the group of undertakings as a whole. Furthermore, the Agreement will facilitate the unrestricted exchange of in- formation, including with regard to best-practice policies between OSRAM and the ams Group.
Concluding the Agreement thus proves to be a suitable legal means of implementing the proposed comprehensive cooperation of the undertakings involved, which is also applied by other undertakings in similar cases and is provided for by law precisely for this purpose.
The interests of OSRAM are further protected after conclusion of the Agreement by the fact that the right to give instructions is not unlimited (see paragraph D.I.1). In particular, OSRAM must not be deprived of its capability to continue existing as a result of adverse instructions, as the legal provisions assume the controlled enti- ty's continued existence even after the Agreement may have been terminated. Fur- thermore, adverse instructions are prohibited and do not trigger an obligation to comply where they obviously do not serve the interests of the controlling company or any affiliate of the controlling company or of the controlled company.
Due to the combination of a domination agreement with a profit and loss transfer agreement, ams Offer is entitled to a claim to OSRAM's distributable profit. The profit transfer obligation exists for the first time for the entire OSRAM fiscal year beginning on 1 October 2020, provided that the general shareholders' meeting of OSRAM approves the conclusion of the Agreement on 3 November 2020 and the Agreement is registered in the commercial register at the registered seat of OSRAM by 30 September 2021. If registration occurs after 30 September 2021, there will be a profit transfer obligation for the first time for the OSRAM fiscal year in which the Agreement becomes effective. In exchange, OSRAM receives a claim for assumption of losses under the Agreement in the event that an annual loss by OSRAM arises during the term of the Agreement. Provided that the general shareholders' meeting of OSRAM approves the conclusion of the Agreement on 3 November 2020 and the Agreement is registered in the commercial register at the registered seat of OSRAM by 30 September 2021, there will be an obligation - corresponding to OSRAM's profit transfer obligation to transfer profit - to assume losses for the entirety of the OSRAM fiscal year beginning on 1 October 2020. Contrary to the situation in a merely de facto corporate group, after entering into the Agreement OSRAM is no longer forced to rely on individual compensation for potentially adverse impact suffered as a result of the exercise of influence and instead receives by force of law a claim for full compensation of losses from ams Offer regardless of the issue of the exercise of influence or other factors (see section 302 AktG).
For outside OSRAM Shareholders, the Agreement provides a safeguard of interests that does not exist in a de facto corporate group. Outside OSRAM Shareholders obtain a statutory claim against ams Offer for receipt of an appropriate annual recurring compensation payment (Ausgleichszahlung) for the duration of the Agreement pursuant to section 304 AktG (see paragraph D.I.4) or for acquisition of their shares in return for appropriate compensation (Abfindung) pursuant to section 305 AktG as determined in the Agreement (see paragraph D.I.5).
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These obligations borne by ams Offer are secured by the comfort letter which ams issued to OSRAM (see paragraph D.I.7).
4. Summary result
The establishment of a contractual corporate group between OSRAM and ams Of- fer strengthens and expands the opportunities for a closer and strong cooperation between OSRAM and its major shareholder, ams Offer. Compared to the de facto corporate group currently existing, the contractual corporate group will result in saving costs and avoiding expenditure as, for example, no audit and documentation obligations have to be fulfilled in respect of adverse effects of influence exerted. The contractual corporate group also establishes legal certainty in the cooperation between OSRAM and ams Offer and in implementing organisational and structural measures. It offers more flexibility to issue instructions and makes decision pro- cesses and their implementation faster and more efficient. After the Agreement has become effective, the close cooperation could further achieve additional synergies. Finally, the contractual corporate group grants OSRAM as the controlled entity a claim for compensation of any annual net loss, irrespective of influence exerted or of the amount of any adverse effects, and offers outside shareholders a safeguard in the form of an appropriate recurring compensation payment (Ausgleichszahlung) or appropriate compensation (Abfindung).
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Tax reasons
If further requirements are fulfilled, the conclusion of the Agreement will result in the establishment of a consolidated tax group for corporate income tax and trade tax purposes (consolidated tax group for income tax purposes) between ams Offer as the controlling entity and OSRAM as the controlled entity in this tax group.
The existence of a consolidated tax group for income tax purposes requires, among other things, that ams Offer has continuously held a participation in OSRAM since the beginning of the latter's fiscal year which grants to it the majority of voting rights attaching to the shares in the controlled entity in the tax group (section 14(1) sentence 1 no. 1 sentence 1 of the German Corporation Tax Act (Körperschafts- teuergesetz - KStG), and that this participation is continuously attributable to a German permanent establishment of ams Offer during the entire existence of the consolidated tax group (section 14(1) sentence 1 no. 2 sentence 4 KStG). Further- more, the Agreement must have been concluded for a minimum term of five years and must in fact be performed during its entire term (section 14(1) sentence 1 no. 3 sentence 1 KStG).
The consolidated tax group for income tax purposes would first come into exist- ence on 1 October 2020 provided that the general shareholders' meeting of
OSRAM approves the conclusion of the Agreement on 3 November 2020 and the Agreement is registered in the commercial register at the registered seat of OSRAM by the end of the fiscal year beginning on 1 October 2020. If the Agree- ment is registered on a later date only, the consolidated tax group for income tax purposes would be established as of the beginning of such fiscal year of OSRAM in which the registration takes place.
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The existence of a consolidated tax group for income tax purposes will not make OSRAM's general tax law obligations inapplicable. As before, OSRAM will have to determine its tax results separately from ams Offer in accordance with general provisions. For corporate income tax purposes, OSRAM's income will be determined separately, and uniformly and with binding effect towards ams Offer and OSRAM. As a result of the existence of a consolidated tax group for income tax purposes, however, OSRAM's taxable income will be attributed to ams Offer starting from the fiscal year as from which the consolidated tax group first exists, taking into consideration certain statutory limitations, and will then be taxed at the level of ams Offer. However, OSRAM will be liable to pay tax on income in the amount of currently 20/17 of recurring compensation payments made to the outside OSRAM Shareholders (section 16 KStG). For trade tax purposes, the trade income is also to be separately determined for ams Offer and OSRAM irrespective of the consolidated tax group established for income tax purposes. The trade income figures achieved during the same tax period are then added, with any necessary cor- rections, and taxed at the level of ams Offer as from the tax period in which the consolidated tax group established for income tax purposes starts to exist.
Establishment of the consolidated tax group for income tax purposes will result in positive liquidity effects for ams Offer, as profit transfers under commercial law from OSRAM to ams Offer in a consolidated tax group for income tax purposes, contrary to profit distributions, are not subject to the deduction of withholding tax plus solidarity surcharge. If the Agreement was not concluded and OSRAM's profit was distributed as a dividend, withholding tax plus solidarity surcharge would be credited or refunded, since the dividend should generally be excluded when determining ams Offer's income (section 8b(1) KStG). However, this credit or refund would generally only occur in the context of the assessment of corporate income tax after filing the tax declaration for the tax period in which the dividend was re- ceived. In addition, a transfer of profits under commercial law in a consolidated tax group for income tax purposes, in contrast to a dividend distribution, is not subject to the prohibition to deduct a fictitious amount of five percent as business expens- es, as provided for in section 8b(5) KStG.
In addition, as a result of the establishment of a consolidated tax group for income tax purposes, ams Offer will be able to offset its tax result against the tax result of OSRAM, meaning that financing expenditure will be offset against operative earn- ings, which due to the lower tax payments on balance results in a corresponding liquidity benefit. Due to the resulting 95% tax exemption, such offset would be available to a very limited extent only in the event of dividend distributions by OSRAM to ams Offer.
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Alternatives
The management board of OSRAM and the management of ams Offer have thor- oughly examined alternatives to concluding the Agreement. They arrived at the conclusion that no other structural measure they examined is suitable to achieve the described objectives in a similar or even more beneficial manner. Against this background, the following other structures were examined in particular:
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Conclusion of an isolated domination agreement and an isolated profit and loss transfer agreement
The conclusion of an isolated domination agreement between OSRAM and ams Offer would be permitted by law. However, an isolated domination agreement does not permit profits to be transferred, but would nevertheless create an obligation to assume losses. In addition, the tax advantages sought by establishing a consolidat- ed tax group for corporate income tax and trade tax purposes (consolidated tax group for income tax purposes) and the liquidity benefit resulting from the transfer of profits could not be achieved by means of an isolated domination agreement.
The conclusion of an isolated profit and loss transfer agreement between OSRAM and ams Offer would also be permitted by law. However, a profit and loss transfer agreement provides no sufficient legal basis to allow the intended comprehensive cooperation and the unrestricted exchange of information between OSRAM and the ams Group. The intended close cooperation can only be achieved with legal certainty if a contractual basis is established for the current de facto corporate group by means of a domination agreement which gives ams Offer comprehensive rights to give instructions to OSRAM (see paragraphs C.I.2 and C.I.3). According- ly, the benefits of comprehensive cooperation that are also sought to be achieved could not be realised by means of a mere profit and loss transfer agreement.
Therefore, the Parties have decided to conclude a domination and profit and loss transfer agreement. This contractual form, by providing for a recurring compensa- tion payment (Ausgleichszahlung) and compensation (Abfindung), pays due con- sideration to the interests of OSRAM minority shareholders and has been tried and tested in practice in stock corporation law. - Exclusion of minority shareholders (squeeze-out)
The minority shareholders of OSRAM cannot be excluded pursuant to sec- tions 327a et seqq. AktG (squeeze-out under stock corporation law) on the date the Agreement is signed, as this would require that ams Offer holds a minimum partic- ipation of 95% in OSRAM's share capital.
The same holds true for excluding OSRAM's minority shareholders pursuant to section 62(5) of the German Transformation Act (Umwandlungsgesetz - UmwG) in conjunction with section 327a et seqq. AktG after a previous merger (squeeze-out under merger law), as this requires a minimum participation of 90%.
Furthermore, the minority shareholders of OSRAM cannot be excluded pursuant to sections 39a et seqq. of the German Securities Takeover Act (Wert- papierübernahmegesetz - WpÜG) (squeeze-out under takeover law), as ams Offer does not hold a minimum participation of 95% in OSRAM's share capital and hence does not meet the requirements for a squeeze-out under takeover law.
Even if a squeeze-out was possible and implemented, the consequent position of ams Offer as sole shareholder in OSRAM would not remove the limitations and difficulties that result from the continued existence of a de facto group (see para- graph C.I.2) for as long as OSRAM is organised as a stock corporation (Aktien- gesellschaft) or a European company (Societas Europaea) with its registered seat in Germany. Furthermore, the objectives pursued with the Domination and Profit
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and Loss Transfer Agreement (see paragraphs C.I.1 and C.I.3), in particular the establishment of a consolidated tax group for income tax purposes (see paragraph C.II), could not be achieved.
To the extent that OSRAM owns real property in Germany or holds a minimum participation, directly or indirectly, of 95% in the capital or assets of corporations or partnerships owning real property in Germany, a squeeze-out would further trigger real estate transfer tax (Grunderwerbsteuer).
3. Integration or merger
Integration into a group by way of integration pursuant to sections 319 et seqq. AktG is not possible. As ams Offer is neither the sole shareholder (section 319(1) sentence 1 AktG) nor holds a participation of at least 95% in OSRAM's share capital, it does not fulfil the requirements for integration. Apart from that, ams Offer as a limited liability company (Gesellschaft mit beschränkter Haftung) does not have the legal structure of a stock corporation (Aktiengesell- schaft) or European company (Societas Europaea) with registered seat in Germany as would be required for such integration, and would first have to be transformed into a company with either of the two legal structures.
A merger of ams Offer with OSRAM (downstream merger) is no alternative as is, conversely, a merger of OSRAM with ams Offer (upstream merger). On a downstream merger, ams Offer would cease to exist as a result of the merger and a de facto group would then exist with ams directly (see paragraph C.I.2). Therefore, a downstream merger would not change anything about the requirement of a domination and profit and loss transfer agreement to implement the envisaged integration of OSRAM. Nor is an upstream merger a suitable alternative. In this case, outside OSRAM Shareholders would obtain the same participation in value in ams Offer as their previous participation in OSRAM. In addition, OSRAM Shares would cease to be tradable because OSRAM Shares would be cancelled and ams Offer is organised as a limited liability company (GmbH).
Under the same conditions as in a squeeze-out, an upstream merger would also trigger real estate transfer tax (Grunderwerbsteuer).
4. Change of legal form
A transformation of OSRAM changing its legal form into that of another corpora- tion or a partnership is not suitable either to achieve the objectives pursued with the Agreement. Furthermore, OSRAM's corporate structure as a stock corporation
(Aktiengesellschaft) is to be maintained for the time being.
First of all, the intended consolidated tax group for income tax purposes would not be achieved by means of a change of legal form, and would still have to be estab- lished, in particular, by means of a profit and loss transfer agreement. Further, a change of legal form to a partnership limited by shares (Kommanditgesellschaft auf Aktien) would not change anything about the applicability of the rules for a de fac- to corporate group and the consequent disadvantages compared to the legal situa- tion if a domination and profit and loss transfer agreement was concluded.
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If its legal form was changed to that of a limited liability company (Gesellschaft mit beschränkter Haftung) or a partnership, instructions issued in the group's interest would also have to be examined on a case-by-case basis as to whether they cause adverse effects to OSRAM. This is because the fiduciary duty the controlling company has as a shareholder or partner would have to be observed also in relation to a limited liability company or a partnership, which would cause difficulties when implementing adverse measures.
Finally, a change of legal form would have caused additional expenditure and delays and, in the case of a change of legal form to a limited liability company (Ge- sellschaft mit beschränkter Haftung) or a partnership, the loss of the OSRAM Shares' admission to exchange trading. This would affect the tradability of OSRAM Shares. There is no legal obligation to change the legal form when concluding a domination and profit and loss transfer agreement.
5. Relationship agreement
The conclusion of a relationship agreement between OSRAM and ams Offer is not suitable either to achieve the objectives pursued with the Agreement.
A relationship agreement describes an agreement under the law of obligations be- tween a controlling shareholder (ams Offer) and a controlled company (OSRAM), which agree on specific aspects of the de facto corporate group equally and with mutual binding effects, without establishing a contractual corporate group. A rela- tionship agreement, which can provide for common coordination in operational and strategic matters and the consolidation of specific business functions, allows to obtain legally certain and factual controlling influence on the business activities of the controlled company and hence the intra-group exemption under cartel law. The contractual definition of the de facto corporate group further enables the control- ling company to assume group-wide compliance responsibility and to minimise li- ability risks arising from the "single economic entity" concept under Union law. A corresponding contractual design also enables agile management with only few hi- erarchical levels while maintaining positive economies of scope.
However, the de facto corporate group that would continue to exist between OSRAM and ams Offer despite the conclusion of a relationship agreement would continue to restrict the management and coordination of activities (see para- graph C.I.2). Any relationship agreement must still comply with the central provi- sions of sections 76, 111, 291 et seqq. AktG. This means that the management board of OSRAM would still be required under section 76(1) AktG to manage OSRAM in its own responsibility, even though the management board's manageri- al independence could be restricted in the well-understood interest of the company.
A relationship agreement between OSRAM and ams Offer would not be permitted to exclude or impede the companies' independent performance of their statutory responsibilities, as would be the case, for example, where the controlling share- holder's management would be granted substantial reservations of consent. This is why relationship agreements in practice provide neither for rights to give instruc- tions nor for reservations of consent for the controlling company, as this would counteract an agile group structure and may exceed the threshold for such relation- ship agreements to be considered covert domination agreements.
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6. Conclusions
The management board of OSRAM and the management of ams Offer, after thor- ough and careful consideration, have arrived at the conclusion that the intended close and efficient cooperation between OSRAM and ams Offer as well as the ams Group can only be achieved by concluding a domination and profit and loss trans- fer agreement. Concluding a domination and profit and loss transfer agreement is the only option that allows avoiding the limitations of a de facto corporate group (see paragraph C.I) and establishing a consolidated tax group for corporate income tax and trade tax purposes (see paragraph C.II).
- The Domination and Profit and Loss Transfer Agreement
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Explanation of the Agreement's content
The individual provisions of the Agreement are explained below.
1. Management Control (Clause 1 of the Agreement)
Clause 1 of the Agreement contains the constitutive provision for a domination agreement that OSRAM as the controlled company submits the management con- trol of its company to ams Offer as the controlling company. In accordance there- with, ams Offer is entitled to issue instructions to the management board of OSRAM with regard to the management of the company (Clause 1.1 sentence 2 of the Agreement). Notwithstanding this right to issue instructions, OSRAM will con- tinue to be a legally independent company with its own corporate bodies. Accord- ingly, the management board of OSRAM continues to be responsible for the man- agement and representation of the company. To the extent that instructions have not been issued, the management board of OSRAM is entitled to and must manage the company on its own responsibility.
The scope of the right of management control and the right to issue instructions is governed primarily by section 308 AktG. The management board of OSRAM is required to comply with permissible instructions given to it (Clause 1.2 sentence 1 of the Agreement). Section 308(1) sentence 2 AktG allows to issue instructions which have adverse effects for OSRAM to the extent that they serve the interests of ams Offer or of the group companies affiliated with it and with OSRAM. The management board of OSRAM is not entitled to refuse to comply with an instruc- tion given unless the instruction does obviously not serve these interests. The man- agement board does not have to follow any impermissible instructions, for example instructions the compliance with which would violate mandatory statutory provi- sions or provisions of the articles of association of OSRAM. Instructions which endanger the existence of OSRAM are impermissible in any event. A controlled company is further not required to comply with instructions given if and as long as the controlling company does not fulfil its obligations under the domination and profit and loss transfer agreement, in particular the obligations to assume losses and to pay the recurring compensation (Ausgleich) and the compensation (Abfin- dung) to outside shareholders (sections 304, 305 AktG) or to the extent that the controlling company is not expected to be able to comply with these obligations (for the termination right of the controlled company, see paragraph D.I.6.4). Fur-
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thermore, instructions to amend, maintain or terminate the Agreement cannot be issued pursuant to section 299 AktG (Clause 1.2 sentence 2 of the Agreement).
The right of management control and the right to issue instructions exists only towards the management board but not towards the supervisory board, the general shareholders' meeting or employees of OSRAM nor towards the corporate bodies or employees of any subsidiary of OSRAM. If the OSRAM management board is instructed to engage in a transaction which requires the consent of the supervisory board and if the supervisory board does not give its consent or does not give it within a reasonable period of time, the consent of the supervisory board can be substituted by repeating the instruction in accordance with section 308(3) sentence 2 AktG. The participation rights of OSRAM's general shareholders' meeting are not affected by the Agreement.
Any instruction must be issued in text form (Textform) within the meaning of section 126b BGB, for example by telefax or email (Clause 1.3 of the Agreement), and if instructions are issued orally, they must be confirmed in text form without undue delay.
Pursuant to section 294(2) AktG, Clause 6.2 of the Agreement, ams Offer's right to issue instructions and OSRAM's corresponding obligation to comply with such instructions pursuant to Clause 1 of the Agreement exist only from the time the Agreement becomes effective by virtue of its registration in the commercial register of OSRAM (see paragraph D.I.6.2).
2. Transfer of Profit (Clause 2 of the Agreement)
Clause 2 of the Agreement contains the constitutive provision for a profit and loss transfer agreement that OSRAM undertakes to transfer its entire annual profit (Gewinnabführung) to ams Offer during the term of the Agreement (Clause 2.1 sentence 1 of the Agreement). With regard to the scope of the profit to be trans- ferred - subject to establishing or dissolving reserves in accordance with Clause 2.2 of the Agreement - Clause 2.1 sentence 2 of the Agreement refers to the statutory provision in section 301 AktG as amended from time to time.
Pursuant to the current version of section 301 AktG, the amount of profit to be transferred is the annual profit arising without such transfer of profits, reduced by any loss carryforward from the previous year, by the amount to be allocated to the statutory reserve pursuant to section 300 AktG and by the amount that must not be distributed pursuant to section 268(8) of the German Commercial Code (Han- delsgesetzbuch - HGB). The amount to be allocated to the statutory reserve is de- termined in accordance with section 300 no. 1 AktG and depends on the amount of share capital and the net income for the year and the amount already allocated to the statutory reserve. The statutory reserve of OSRAM has been established in the full amount at present. The allocation of additional amounts under section 300 no. 1 AktG is not required where the statutory reserve has been established in full.
The ban on distribution pursuant to section 268(8) sentence 1 HGB applies if in- tangible assets created by the company itself are capitalized as fixed assets on the balance sheet (section 248(2) sentence 1 HGB). In this case, profits may be distrib- uted only to the extent that the amount of freely available reserves after the distri-
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bution, plus a profit carried forward and less a loss carried forward, at least equals the total amounts capitalised as internally created intangible assets less deferred tax liabilities established in respect thereof. If deferred taxes (section 274(1) sentence 2 HGB) are capitalised on the balance sheet, the amount of freely available reserves after the distribution, plus a profit carried forward and less a loss carried forward, must at least equal the amount of deferred tax assets less deferred tax liabilities (section 268(8) sentence 2 HGB). In the case of assets to which no creditors have access and whose sole purpose is to fulfil pension obligations or similar obligations that are due in the long term (section 246(2) sentence 2 HGB), section 268(8) sentence 3 HGB requires that the amount of freely available reserves after the distribution, plus a profit carried forward and less a loss carried forward, must at least equal the difference between the sum of the fair values stated in the balance sheet for these assets, reduced by deferred tax liabilities established in respect thereof, and the historical cost of these assets. The term "freely available re- serves" (frei verfügbare Rücklagen) includes both profit reserves and certain capital reserves. Accordingly, profit reserves whose distribution is not prevented by statutory provisions or provisions of the articles of association as well as freely available capital reserves pursuant to section 272(2) no. 4 HGB must be taken into account in determining the maximum distribution amount.
The amount to be transferred as profit pursuant to Clause 2.1 of the Agreement is reduced pursuant to Clause 2.2 sentence 1 of the Agreement if and to the extent that OSRAM, with the written consent of ams Offer, allocates amounts from the net income for the year generated without the profit transfer to other profit reserves (section 272(3) sentence 2 HGB). The allocation of such amounts to other profit reserves is only recognised for the purposes of the consolidated tax group for income tax purposes (see paragraph D.I.6.4) if this is economically justified in accordance with a reasonable commercial assessment (section 14(1) sentence 1 no. 4 KStG). Clause 2.2 sentence 1 of the Agreement takes this standard into ac- count. Pursuant to Clause 2.2 sentence 2 of the Agreement, ams Offer can demand that other profit reserves established during the term of the Agreement (sec- tion 272(3) sentence 2 HGB) be dissolved and transferred as profit (section 301 sentence 2 AktG) or be used to compensate for any annual loss (sec- tion 302(1) AktG).
Furthermore, Clause 2.2 sentence 3 of the Agreement stipulates that other reserves or profits carried forward from the time prior to the effectiveness of the Agreement may neither be transferred as profit nor used to compensate for any annual loss. The term "other reserves" (sonstige Rücklagen) includes any reserves pursuant to section 272 HGB except for other profit reserves established during the term of the Agreement. Therefore, the statutory reserve, reserves in accordance with the articles of association as well as the capital reserves are excluded from contractual transfer regardless of when they were established. Likewise, other profit reserves within the meaning of section 272(3) sentence 2 HGB that have been established prior to the effectiveness of the Agreement are excluded from profit transfer. This provision corresponds to the requirements of section 301 AktG and supreme court rulings on the use of reserves under a domination and profit and loss transfer agreement.
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The Agreement becomes effective upon registration in the commercial register at the registered seat of OSRAM, and at the earliest at the beginning of the fiscal year beginning on 1 October 2020 (Clause 6.2 of the Agreement, section 294(2) AktG). The obligation to transfer the annual profit applies for the first time to the profit generated in the entire fiscal year in which the Agreement becomes effective according to Clause 6.2 of the Agreement (Clause 2.3 of the Agreement). Hence, if the Agreement is registered in the commercial register prior to 30 September 2021, the profit transfer obligation applies to the entire profit generated in the fiscal year that begins on 1 October 2020.
The claim of ams Offer for a profit transfer becomes due at the end of a fiscal year of OSRAM for which the relevant claim exists (Clause 2.3 sentence 2 of the Agreement). Interest in the amount of 5% p.a. will be due for the period of time between the date the claim for profit transfer becomes due and the date it is actually satisfied (Clause 2.3 sentence 2 of the Agreement). This corresponds to the statutory rate of interest that applies between commercial parties (section 352(1) sentence 1 HGB).
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Assumption of Losses (Clause 3 of the Agreement)
Clause 3.1 of the Agreement provides for the obligation of ams Offer to assume any losses of OSRAM according to the provisions of section 302 AktG as amended from time to time. Pursuant to section 302(1) AktG in its current version, this means that ams Offer must compensate for any annual loss that would arise "oth- erwise", that is to say without the obligation to compensate for such loss, during the term of the Agreement. The obligation to compensate for losses does not exist to the extent that the annual loss is compensated for by withdrawing from other profit reserves (section 272(3) sentence 2 HGB) amounts which have been allocat- ed to such profit reserves during the term of the Agreement.
The obligation to compensate for losses ensures that OSRAM's equity stated on its balance sheet on the date the Agreement becomes effective will not reduce during the term of the Agreement. Hence, this obligation to assume losses serves to safe- guard the property interests of OSRAM, its shareholders and creditors during the existence of the Agreement.
Pursuant to Clause 3.2 of the Agreement, the obligation to assume losses applies for the first time to the entire fiscal year in which the Agreement becomes effective according to Clause 6.2 of the Agreement. Hence, if the Agreement is registered in the commercial register prior to 30 September 2021, this obligation exists for a po- tential loss in OSRAM's fiscal year that begins on 1 October 2020. The obligation to assume losses will be due at the end of each fiscal year of OSRAM. Interest in the amount of 5% p.a. will be due for the period of time between the date the claim for the assumption of losses becomes due and the date it is actually satisfied (Clause 3.2 sentence 2 in conjunction with Clause 2.3 sentence 2 of the Agree- ment). This corresponds to the statutory rate of interest that applies between com- mercial parties (section 352(1) sentence 1 HGB). - Recurring Compensation Payment (Clause 4 of the Agreement)
A duty to grant appropriate recurring compensation to outside OSRAM Sharehold- ers is created upon effectiveness of the Agreement pursuant to sec-
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tion 304(1) AktG. To fulfil this duty, ams Offer undertakes towards outside shareholders to make a recurring compensation payment (Recurring Compensation Payment, Clause 4.1 of the Agreement).
After the obligation to transfer profits becomes effective pursuant to Clause 2 of the Agreement, that is for the first time for the fiscal year of OSRAM in which the Agreement is registered in the commercial register of OSRAM, and at the earliest at the beginning of OSRAM's fiscal year beginning on 1 October 2020, OSRAM will generally no longer report any balance sheet profit for the relevant fiscal year and subsequent fiscal years. As from that date, OSRAM Shareholders no longer have the right to resolve on the attribution of any balance sheet profit, except for a resolution in the event of a dissolution of reserves established before the Agreement was concluded. As compensation for the loss of dividend claims, Clause 4.1 of the Agreement provides for the obligation of ams Offer to grant an appropriate Recurring Compensation Payment to outside OSRAM Shareholders. Such Recurring Compensation Payment will be made as from and including the fiscal year of OSRAM in relation to which the claim of ams Offer for the transfer of the annual profit pursuant to Clause 2 of the Agreement takes effect, and for the further duration of the Agreement. The Recurring Compensation Payment is due on the first banking day following the ordinary general shareholders' meeting of OSRAM for the relevant preceding fiscal year, and in any event within eight months following expiration of the relevant fiscal year of OSRAM (Clause 4.2 sentence 4 of the Agreement).
4.1 Type of the Recurring Compensation Payment
- Legal bases
A domination and profit and loss transfer agreement must provide for an appropriate recurring compensation payment for outside shareholders of the controlled company, which in the present case is OSRAM (section 304(1) sentence 1 AktG). If only an isolated domination agreement exists, such domination agreement must guarantee an appropriate guaranteed dividend to outside shareholders (sec- tion 304(1) sentence 2 AktG). Both the guaranteed dividend and the recurring compensation payment must consist of a recurring payment of money in relation to each share of outside shareholders (section 304(1) sentence 1 and 2 AktG). The Stock Corporation Act differentiates between two types of recurring compensation payments (see paragraphs (a) and (b) below).
- Fixed recurring compensation payment
In the case of a fixed recurring compensation payment, the annually recurring payment of a fixed cash amount is guaranteed. The amount of the fixed recurring compensation payment must equal the amount which could be expected to be distributed on each individual share as average profit share, that is to say as distributable profit for commercial law purposes, in view of the controlled company's past profitability and future earnings prospects, taking into account adequate deprecia- tion, amortisation and value allowances, but excluding the establishment of other profit reserves (section 304(2) sentence 1 AktG).
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- Variable recurring compensation payment
The variable recurring compensation payment guarantees a recurring compensation payment based on the controlling company's profit. However, the controlling company must be a German stock corporation (Aktiengesellschaft), a partnership limited by shares (Kommanditgesellschaft auf Aktien) or a European company (So- cietas Europaea) which has its registered seat in Germany. The variable recurring compensation payment must correspond to the amount which, using an appropriate conversion ratio, is attributable to each share of the controlling company as a profit participation (section 304(2) sentences 2 and 3 AktG).
- Reasons for determining a fixed Recurring Compensation Payment
The Agreement between OSRAM and ams Offer provides for a fixed annual recurring compensation payment. The main reasons for this are essentially the follow- ing:
ams Offer as the controlling company is a limited liability company (Gesellschaft mit beschränkter Haftung) under German law, meaning that the option to choose the type of recurring compensation payment is not available. Instead a fixed recurring compensation payment is the only available option. This means that a variable recurring compensation payment based on the profit of ams Offer is not legally possible without previously transforming the company into a stock corporation (Aktiengesellschaft) or a partnership limited by shares (Kommanditgesellschaft auf Aktien). Irrespective thereof, a recurring compensation payment based on the profit of ams Offer would not be suitable to guarantee the right of outside OSRAM Shareholders to receive an appropriate recurring compensation payment. The interest ams Offer holds in OSRAM is the only major asset of ams Offer, which is why outside OSRAM Shareholders, in economic terms, would only receive a recurring compensation payment based on the profit of OSRAM. However, ams Offer could use its control of OSRAM in a manner that results in the reduction of OSRAM's profit. This, in turn, would lead to a lower recurring compensation payment for outside OSRAM Shareholders.
4.2 Determination of the Recurring Compensation Payment as a gross payment, amount of the Recurring Compensation Payment
Pursuant to Clause 4 of the Agreement, ams Offer guarantees an annual Recurring Compensation Payment to outside shareholders of OSRAM for the duration of the Agreement. The amount as well as the determination of the appropriate Recurring Compensation Payment are explained and substantiated in more detail below and in paragraph E.II.
- Amount of the Recurring Compensation Payment
Clauses 4.1 and 4.2 of the Agreement provide for an annual Recurring Compensation Payment of EUR 2.24 (corresponding to an amount of EUR 2.57 before current corporate income tax and solidarity surcharge) per OSRAM Share, starting from and including the fiscal year of OSRAM in relation to which the profit transfer claim of ams Offer takes effect, and for the further duration of the Agreement. This amount will be due in full in each year because a balance sheet profit will no longer be reported after the profit transfer obligation will become effective and
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OSRAM Shareholders will no longer have the right to resolve on the appropriation of balance sheet profits. For the avoidance of doubt, it was agreed in Clause 4.2 sentence 4 of the Agreement that any withholding tax (such as capital gains tax plus solidarity surcharge thereon) will be withheld from the Recurring Compensation Payment to the extent required by statutory law.
- Adjustment mechanism for the Recurring Compensation Payment
In determining the Recurring Compensation Payment, the Parties have taken into account the rulings of the German Federal Court of Justice (Bundesgerichtshof - BGH) (decision of 21 July 2003, file no. II ZB 17/01 - "Ytong"). In this decision, the BGH decided that outside shareholders must be granted a recurring compensation payment within the meaning of section 304(1) sentence 1 and 2, sub-section 2 sentence 1 AktG, using the gross profit share that is expected to be distributable on each share as a fixed basis and deducting therefrom the corporate income tax burden in the relevant statutory amount. This is to ensure that a decreased corporate income tax rate compared to the applicable rate on the valuation date will not result in an unjustified benefit to the other contracting party (the controlling company) at the expense of outside shareholders. Conversely, this also is to prevent that the stipulation of a recurring compensation payment results in an unjustified advantage to outside shareholders at the expense of the other contracting party (the controlling company) in the event of a tax increase. These principles are to be applied accordingly to the solidarity surcharge levied as a surtax to corporate income tax.
On this basis, a fixed compensation payment in the form of the Recurring Compensation Payment is to be determined as an expected gross profit share per OSRAM Share (Gross Amount of Recurring Compensation) from which corporate income tax plus solidarity surcharge at the applicable rate for the relevant fiscal year are to be deducted (Net Amount of Recurring Compensation). In the event the rates of corporate income tax or solidarity surcharge change, this provides a variable provision which immediately results in a corresponding adjustment to the Net Amount of Recurring Compensation. However, withholding tax and solidarity surcharge are to be deducted only from the portion of the Gross Amount of Recurring Compensation which relates to profits subject to German corporate income tax.
According to the corporate income tax rate of 15% and the solidarity surcharge rate of 5.5% applicable on the signing date of the Contract Report, a total of EUR 0.33 per OSRAM Share is to be deducted from the Gross Amount of Recurring Compensation of EUR 2.57 per OSRAM Share. This results in a Net Amount of Recurring Compensation of EUR 2.24 per OSRAM Share for a full fiscal year.
The mechanism for adjusting the Recurring Compensation Payment based on changes to the tax rate can be illustrated by the following example: If the corporate income tax rate of 15% is reduced by two percentage points to 13%, the variable provision in Clause 4.2 of the Agreement results in the current deduction for corporate income tax and solidarity surcharge of EUR 0.33 per OSRAM Share being reduced by EUR 0.04 (2.0% plus solidarity surcharge of 5.5%, together 2.110% of the portion contained in the Gross Amount of Recurring Compensation which relates to the profits on which German corporate income tax is charged). This increases the Net Amount of Recurring Compensation from EUR 2.24 per OSRAM
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Share by EUR 0.04 to EUR 2.28. Conversely, an increase in the corporate income tax rate by two percentage points to 17% results in a reduction in the Net Amount of Recurring Compensation from EUR 2.24 per OSRAM Share by EUR 0.04 to EUR 2.20.
4.3 Further explanations of Clause 4 of the Agreement
The Recurring Compensation Payment is granted for the first time for the full fis- cal year of OSRAM for which the obligation of OSRAM to transfer profits under Clause 2 of the Agreement becomes effective (Clause 4.3 sentence 1 of the Agreement). Pursuant to Clause 2.3 of the Agreement, this applies for the first time to the entire profit generated in the fiscal year of OSRAM in which the Agreement becomes effective. If the Agreement becomes effective by 30 September 2021, the obligation to transfer profits exists for the fiscal year of OSRAM that begins on 1 October 2020. If the Agreement becomes effective in a subsequent fiscal year only, the obligation to transfer profits applies as from such subsequent fiscal year only.
As of the effectiveness of the profit transfer pursuant to Clause 2 of the Agreement, outside OSRAM Shareholders have no dividend entitlement unless a balance sheet profit is formed from reserves or profits carried forward from periods before the commencement of the Agreement and the general shareholders' meeting resolves to make a distribution.
If the Agreement ends during a fiscal year of OSRAM or if a Recurring Compen- sation Payment is payable for an abbreviated fiscal year (Rumpfgeschäftsjahr) of less than twelve months, the Recurring Compensation Payment is reduced for such fiscal year pro rata temporis (Clause 4.3 sentence 2 of the Agreement). This takes account of the fact that the determined amount of the Recurring Compensation Payment is based on a period of twelve months, that is a full fiscal year.
Clause 4.2 sentence 5 of the Agreement governs the due date of the Recurring Compensation Payment. The Recurring Compensation Payment to be made by ams Offer is due in each case on the first banking day following the ordinary general shareholders' meeting of OSRAM for the relevant preceding fiscal year, and in any event within eight months following the end of the fiscal year.
Clause 4.4 sentence 1 of the Agreement governs the adjustment of the Recurring Compensation Payment in the event the share capital is increased from company funds. If new OSRAM Shares are issued on a capital increase using company funds, the Recurring Compensation Payment per OSRAM Share is reduced to the extent of shares issued, so that the total amount of the Recurring Compensation Payment remains unchanged. This means in this case that the increase in the num- ber of OSRAM Shares held by an outside OSRAM Shareholder and which results from a capital increase using company funds will not affect the total amount of the Recurring Compensation Payment to which such OSRAM Shareholder is entitled. This provision is necessary because a capital increase from company funds, that is the conversion of profit reserves or certain capital reserves into share capital, has no impact on the value or profitability of the company and because the new OSRAM Shares from the capital increase using company funds are issued to OSRAM Shareholders without consideration. Furthermore, this is in accordance
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with the statutory provision of section 216(3) AktG, which provides that the economic substance of contractual relations between the company and third parties are not affected by the capital increase from company funds. If no new OSRAM Shares are issued in the capital increase from company funds, it is not necessary to adjust the Recurring Compensation Payment.
If the share capital of OSRAM is increased by issuing new OSRAM Shares against contributions in cash and/or in kind and by granting subscription rights to outside OSRAM Shareholders, the claim of outside shareholders for the Recurring Compensation Payment also extends to the newly created OSRAM Shares resulting from the capital increase. Clause 4.4 sentence 2 of the Agreement ensures in the event of such increases in OSRAM's share capital that not only the claims of existing outside OSRAM Shareholders to receive the Recurring Compensation Payment remain unaffected, but also that new outside OSRAM Shareholders are treated equally.
Clause 4.5 of the Agreement serves the purpose of protecting and treating all outside OSRAM Shareholders in the same way. If an OSRAM Shareholder claims that the Recurring Compensation Payment offered is too low, they can file an application for the court to determine the appropriate Recurring Compensation Payment in appraisal proceedings pursuant to section 1 et seqq. of the German Appraisal Proceedings Act (Spruchverfahrensgesetz - SpruchG). In the event of appraisal proceedings, the provision in Clause 4.5 sentence 1 of the Agreement grants all outside OSRAM Shareholders claims to receive an additional payment to the Recurring Compensation Payment if the court adjudicates a legally binding higher Recurring Compensation Payment. The same applies pursuant to Clause 4.5 sentence 2 of the Agreement if ams Offer undertakes to pay a higher Recurring Compensation Payment to an outside OSRAM Shareholder in a court settlement (gerichtlicher Vergleich) for the purpose of avoiding or settling proceedings pursuant to section 1 et seqq. SpruchG. These claims are also available to those OSRAM Shareholders who in the meantime have accepted the offer for Compensation (Ab- findung) pursuant to Clause 5 of the Agreement. Furthermore, these claims exist regardless of whether the OSRAM Shareholder was involved in any appraisal proceedings (see section 13 sentence 2 SpruchG).
5. Compensation (Clause 5 of the Agreement)
5.1 Type of compensation
In addition to the obligation to grant the recurring compensation payment pursuant to section 304 AktG, the Agreement must contain an obligation for ams Offer to acquire the shares of an outside OSRAM Shareholder upon demand by such share- holder in exchange for appropriate compensation (Abfindung) specified in the Agreement (section 305(1) AktG). In accordance with section 305(1) AktG, ams Offer offers a cash compensation in the amount of EUR 44.65 per OSRAM Share to outside OSRAM Shareholders who would like to divest their shareholding in the company on the occasion of the conclusion of the Agreement (Clause 5.1 of the Agreement).
With regard to the type of compensation, the German Stock Corporation Act (Ak- tiengesetz) makes a distinction between three categories:
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- Compensation in shares of the other party
If the other party (ams Offer) is a non-controlled and non-majority-owned stock corporation (Aktiengesellschaft) or partnership limited by shares (Kommanditge- sellschaft auf Aktien) with its registered seat in a Member State of the European Union or another contracting state to the Agreement on the European Economic Area, the Agreement has to provide for granting own shares of the relevant company as compensation (Abfindung) (section 305(2) no. 1 AktG).
- Choice between cash compensation and compensation in shares of the con- trolling company or the company holding a majority interest in the other party
If the other party (ams Offer) is a controlled or majority-owned stock corporation (Aktiengesellschaft) or partnership limited by shares (Kommanditgesellschaft auf Aktien) and the controlling company is a stock corporation (Aktiengesellschaft) or partnership limited by shares (Kommanditgesellschaft auf Aktien) with its registered seat in a Member State of the European Union or another contracting state to the Agreement on the European Economic Area, the Agreement has to provide either for granting shares in the controlling company or the company holding a majority interest or for granting cash compensation (section 305(2) no. 2 AktG). In this case, the domination and profit and loss transfer agreement does not have to provide for both types of compensation. The parties can rather choose one type of compensation.
- Cash compensation
In any other cases, the Agreement must provide for cash compensation (sec- tion 305(2) no. 3 AktG).
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Amount of compensation
According to the Agreement, ams Offer undertakes, upon demand of each outside
OSRAM Shareholder, to purchase such shareholder's OSRAM Shares in exchange for appropriate compensation (section 305(2) AktG). Each outside OSRAM Share- holder wishing to make use of the compensation offer will receive compensation within the meaning of section 305(2) AktG in the amount of EUR 44.65 for each OSRAM Share (Clause 5.1 of the Agreement). The amount as well as the determi- nation of appropriate compensation are explained and substantiated in more detail in paragraph E.III. -
Reasons for granting cash compensation
The main reasons for granting cash compensation were essentially the following:
ams Offer is organised in the legal form of a limited liability company (Gesell- schaft mit beschränkter Haftung) under German law and is thus neither a stock corporation (Aktiengesellschaft) nor a partnership limited by shares (Kommandit- gesellschaft auf Aktien) with its registered seat in a Member State of the European Union or another contracting state to the Agreement on the European Economic Area, and thus section 305(2) no. 1 and no. 2 AktG are not (directly) applicable.
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However, ams AG as the sole shareholder of ams Offer (paragraph B.III.1 above) is a stock corporation with its registered seat in a Member State of the European Union. It has been a controversial issue in legal literature whether section 305(2) no. 2 AktG, with regard to its meaning and purpose, is to be analogously applied to such a case. If it was applicable, the Parties would have an option to offer outside shareholders either a participation in the company being economically closest to the company controlled under the intercompany agreement or a cash payment as compensation.
Finally, the question of whether an option does exist does not have to be answered because the Parties would have exercised the option in favour of the cash compen- sation. They would have exercised the option in favour of the cash compensation primarily because otherwise there would have been the need for considerable extra time and money for the preparation of a compulsory valuation of the company granting the shares, here ams AG. This would have resulted in a further delay in the conclusion of the Agreement.
For the aforementioned reasons, the Agreement thus provides for cash compensa- tion.
5.4 Further explanations of Clause 5 of the Agreement
ams Offer's obligation to purchase OSRAM Shares in exchange for a Compensa- tion (Abfindung) is for a limited period of time pursuant to Clause 5.2 of the Agreement. The limited period ends two months after the date on which the regis- tration of the existence of the Agreement in the commercial register at the regis- tered seat of OSRAM has been announced pursuant to section 10 HGB. The time limit on the compensation offer is permitted by the German Stock Corporation Act and is customary. The provision of a two-month period (Clause 5.2 sentence 2 of the Agreement) corresponds to the statutory provision in section 305(4) sentence 2 AktG.
Pursuant to section 4(1) SpruchG, outside OSRAM Shareholders can file a motion for a court decision on the compensation to be granted within three months after the date on which the registration of the existence of the Agreement in the com- mercial register at the registered seat of OSRAM has been announced pursuant to section 10 HGB. Section 305(4) sentence 3 AktG provides that if a court is re- quested to determine the recurring compensation payment or the compensation, the period for accepting the offer for transferring the shares to the controlling company against payment of the compensation will end no earlier than two months after the date on which the decision on a shareholder's last motion ruled on has been an- nounced in the Federal Gazette (Bundesanzeiger). Clause 5.2 sentence 3 of the Agreement clearly states that this statutory provision shall apply without any re- striction. If appraisal proceedings are initiated, the period for accepting the Com- pensation offer will accordingly end two months after the date on which the deci- sion on the last motion of an OSRAM Shareholder ruled on has been announced in the Federal Gazette.
The declaration of outside OSRAM Shareholders that they want to accept the Compensation offer submitted by ams Offer must be received within the period to
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be determined as explained above. After this period has expired, the Compensation offer can no longer be accepted.
Following registration of the Agreement in the commercial register, outside OSRAM Shareholders may decide to either withdraw from the company and, in re- turn, to receive the Compensation offered, or to remain as OSRAM Shareholders and to receive the Recurring Compensation Payment offered in Clause 4 of the Agreement.
Clause 5.3 of the Agreement takes into account the principles already explained above with regard to Clause 4.4 of the Agreement in the event of an increase in the share capital using corporate funds or for contributions. Reference is made to the corresponding explanations (paragraph D.I.4.3 above).
Pursuant to Clause 5.4 of the Agreement, acceptance of the Compensation offered is free of costs for outside OSRAM Shareholders. This ensures that outside OSRAM Shareholders are not burdened with expenses, commissions or other handling fees by the banks and the amount of Compensation is maintained without any reduction. This does not affect taxes incurred by an outside OSRAM Shareholder on a potential gain on the sale. Such taxes shall be paid by the relevant outside OSRAM Shareholders themselves. Reference is made to paragraphD.I.4.2 with regard to the tax effects for outside OSRAM Shareholders.
Clause 5.5 of the Agreement, in turn, serves the purpose of protecting and treating all outside OSRAM Shareholders in the same way. In the event of appraisal proceedings pursuant to section 1 et seqq. SpruchG, the provision grants all outside OSRAM Shareholders claims to demand an additional payment to the Compensation if the court adjudicates a legally binding higher compensation or if ams Offer undertakes in a court settlement (gerichtlicher Vergleich) to pay a higher compensation to an outside OSRAM Shareholder for the purpose of avoiding or settling appraisal proceedings under section 1 et seqq. SpruchG. Such a claim will also exist if the outside OSRAM Shareholder has already received compensation, regardless of whether the outside OSRAM Shareholder participated in any appraisal pro- ceedings.
6. Effectiveness and term (Clause 6 of the Agreement)
6.1 Effectiveness
In accordance with the statutory requirements for consent under section 293 AktG, Clause 6.1 of the Agreement stipulates that the Agreement requires for its effec- tiveness the consent of the shareholders' meeting of ams Offer as well as the con- sent of the general shareholders' meeting of OSRAM. The shareholders' meeting of ams Offer is supposed to give its consent to the Agreement on 2 November 2020. The general shareholders' meeting of OSRAM is supposed to pass a resolu- tion on the consent to the Agreement on 3 November 2020.
Furthermore, due to the statutory provision in section 294(2) AktG, the Agreement only becomes effective upon its registration in the commercial register at the regis- tered seat of OSRAM, however, at the earliest, upon the beginning of the fiscal year of OSRAM beginning on 1 October 2020 (Clause 6.2 of the Agreement).
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6.2 Commencement of the term of the Agreement
- Effectiveness of the right of management control and the right to issue in- structions under Clause 1 of the Agreement
The right of management control and the right to issue instructions under Clause 1 of the Agreement become effective as of the point in time the Agreement becomes effective upon its registration.
- Effectiveness of the obligation to transfer profit under Clause 2 of the Agreement
The obligation to transfer the annual profit under Clause 2 of the Agreement applies for the first time to the entire profit generated in the fiscal year of OSRAM in which the Agreement becomes effective according to Clause 6.2 of the Agreement. Hence, if the Agreement is registered in the commercial register prior to 30 September 2021, the profit transfer obligation applies to the entire profit generated in the fiscal year that begins on 1 October 2020.
If the Agreement only becomes effective in the course of a subsequent fiscal year following the fiscal year of OSRAM that begins on 1 October 2020, for example due to a delay in registration because shareholders challenge the approval resolution passed by the general shareholders' meeting of OSRAM, the transfer of profit applies as of the beginning of the subsequent fiscal year in which the Agreement becomes effective.
- Effectiveness of the obligation to compensate losses under Clause 3 of the Agreement
According to Clause 3.2 of the Agreement, the obligation to assume any losses applies for the first time to the entire fiscal year of OSRAM in which the Agreement becomes effective. If the Agreement, as is generally the case, is not registered in the commercial register at the registered seat of OSRAM on the date the fiscal year begins, the Agreement thus also claims retroactive effect with regard to the obligation to compensate losses for the part of the fiscal year that has already lapsed at the time of registration in the commercial register.
6.3 Term of the Agreement/minimum term
Pursuant to Clause 6.3 sentence 1 of the Agreement, the Agreement is concluded for an indefinite period of time. Clause 6.3 sentence 3 of the Agreement provides that the Agreement can be terminated for the first time as of the end of the fiscal year that ends at least five full time years (Zeitjahre) (60 months) after the begin- ning of the fiscal year of OSRAM in which the Agreement has become effective according to Clause 6.2 of the Agreement. If the Agreement is registered in the commercial register at the registered seat of OSRAM and thus becomes effective pursuant to Clause 6.2 of the Agreement before 30 September 2021, the minimum term will consequently end on 30 September 2025. Pursuant to section 14(1) sen- tence 1 no. 3 KStG, this fixed minimum term of the Agreement of five consecutive full-time years as stipulated by contract is a requirement for effectively establish- ing a consolidated tax group for corporate income tax and trade tax purposes be- tween ams Offer and OSRAM. During the minimum term fixed in Clause 6.3 of the Agreement, the right to give regular notice of termination is excluded.
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6.4 Termination of the Agreement
During the minimum term fixed in Clause 6.3 of the Agreement of five consecu- tive full-time years after the beginning of the fiscal year of OSRAM in which the Agreement has become effective, the right to give regular notice of termination is excluded. Therefore, the Agreement can be terminated by observing a six months' notice period for the first time as of the end of the fiscal year that ends at least five full time years (60 months) after the beginning of the fiscal year of OSRAM in which the Agreement has become effective (Clause 6.3 sentence 3 of the Agree- ment). Any notice of termination must be in writing (Clause 6.5 of the Agreement).
In accordance with Clause 6.4 of the Agreement, the provisions on the minimum term do not affect the Parties' right to terminate the Agreement for good cause (wichtiger Grund) without complying with any notice period. The right to termi- nate the Agreement for good cause exists by virtue of law and cannot be excluded by contract. For civil law purposes, good cause for termination exists where, con- sidering all circumstances, the party wishing to terminate the agreement can no longer be reasonably expected to continue the contractual relationship. For in- stance, the deterioration of the financial or earnings situation of OSRAM as the controlled company gives ams Offer as the controlling company the right to termi- nate the Agreement if the risks are no longer acceptable to the controlling company and it is not responsible for the situation. OSRAM as the controlled company can terminate the Agreement, for example, if ams Offer as the controlling company is unable to satisfy its contractual obligations (assumption of losses, Recurring Com- pensation Payment (Ausgleich) and Compensation (Abfindung)).
Pursuant to Clause 6.4 sentence 1 of the Agreement, both Parties are entitled to terminate the Agreement for good cause (wichtiger Grund). Clause 6.4 sentence 2 provides that good cause also exists in particular if good cause for purposes of German tax law for the termination of the Agreement exists including those pursu- ant to R 14.5 (6) Corporation Tax Guidelines (Körperschaftsteuer-Richtlinien- KStR) (or a corresponding successor provision). Clause 6.4 sentence 2 of the Agreement ensures that ams Offer, in the case of a termination for good cause that does not impair the tax treatment, is also entitled to terminate the Agreement for good cause from a stock corporation law perspective.
The provision contained in Clause 6.4 sentence 2 of the Agreement must be seen in the light of applicable tax law. The conclusion of a profit and loss transfer agree- ment is necessary in order to be able to establish the intended status of a consoli- dated tax group between ams Offer and OSRAM for purposes of corporate income tax and trade tax. The prerequisite for this status of a consolidated tax group for purposes of corporate income tax and trade tax, in addition to the minimum term of the Agreement under section 14(1) sentence 1 no. 3 KStG, is, among others, that OSRAM as the controlled company is financially integrated into ams Offer as the controlling company in such a manner that the controlling company has the majori- ty of the voting rights in the controlled company. Furthermore, the profit and loss transfer agreement must be entered into for a minimum term of five years and must actually be performed during its term. Terminating the profit and loss transfer agreement before the end of the minimum term in accordance with section 14(1) sentence 1 no. 3 KStG will, as a rule, result in the non-recognition for tax purposes
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of the consolidated tax group from the outset. Only a termination for good cause, as a rule, does not affect the status of a consolidated tax group for fiscal years that have already been completed, even if the termination occurs within the minimum term of the profit and loss transfer agreement established under tax law, to the extent that the good cause is recognised for tax purposes.
The disposal or contribution of the interest may, as a rule, constitute good cause for the purposes of section 14(1) no. 3 KStG for the controlling company to prematurely terminate a domination and profit and loss transfer agreement, which does not affect the recognition of the status of a consolidated tax group for the past. This applies accordingly to the merger, demerger or liquidation of one of the two parties to the agreement. Clause 6.4 sentence 2 of the Agreement is supposed to also allow for a termination for good cause under stock corporation law in case any of the instances of termination for good cause recognised for tax purposes is given.
The abstract provisions on the reasons giving rise to a right to terminate an agreement for good cause are based on the following background: Pursuant to current rulings of German tax courts, the recognition for tax purposes of certain good causes which in previous contractual practice have been largely deemed non- detrimental always requires a case-by-case assessment. For example, an intragroup sale or contribution of the interest in the controlled company (OSRAM) to another ams Group company shall not automatically qualify as good cause recognised for tax purposes.
This formal approach concerning the recognition of a profit and loss transfer agreement for tax purposes involves quite a considerable risk that the agreement and the consequential consolidated tax group for purposes of corporate income tax and trade tax will altogether be invalid if the agreement explicitly provides for a list of good causes that are not recognised for tax purposes and do not properly consider the case-by-case assessment required by German tax courts. As a result, the Parties abstained from listing specific good causes for the extraordinary termination of the Agreement.
Furthermore, any termination of the Agreement will be subject to the statutory provision laid down in section 303 AktG: If a domination or a profit and loss transfer agreement ends, the controlling company (ams Offer) must provide security to creditors of the controlled company (OSRAM) if they make a corresponding request for this purpose to the controlling company within six months after the announcement of the registration. However, pursuant to section 303(1) and (2) AktG, this obligation only exists towards creditors whose claims were established before the registration of the termination of a domination or a profit and loss transfer agreement in the commercial register was announced pursuant to section 10 HGB and who, in the event of insolvency proceedings, would not have a right to preferential satisfaction from cover funds that have been established and state-monitored for their protection under statutory law. Instead of providing security, the controlling company may provide a guarantee for the claim; in this event, section 349 HGB concerning the exclusion of the defence of the failure to pursue remedies is not applicable (section 303(3) AktG).
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-
Comfort letter (Clause 7 of the Agreement)
Clause 7 of the Agreement contains a reference that ams, without joining the Agreement as a party, provided a comfort letter to OSRAM by separate declara- tion. This comfort letter is attached to the Contract Report together with the Agreement as Annex 3.
In the comfort letter, ams undertakes without limitation and irrevocably to ensure that ams Offer will be financially equipped in a way that ams Offer is at all times able to fulfil all its obligations arising from or in connection with the Agreement completely when they become due. This applies, in particular, to the obligation to compensate losses pursuant to section 302 AktG. In addition, ams undertakes to- wards outside OSRAM Shareholders irrevocably and without limitation that ams Offer will fulfil all its obligations towards them arising from or in connection with the Agreement, in particular the obligation to make the Recurring Compensation Payment and to pay the Compensation completely when they become due; this also applies to any increase in the Recurring Compensation Payment and the Compen- sation as a result of potential appraisal proceedings taking place according to the German Act on Appraisal Proceedings (Spruchverfahrensgesetz - SpruchG). To that extent outside OSRAM Shareholders have own claims against ams according to section 328(1) BGB directed at payment to ams Offer. This claim and a corre- sponding liability of ams towards outside OSRAM Shareholders only apply if ams Offer does not fulfil its obligations towards outside OSRAM Shareholders arising from or in connection with the Agreement completely when they become due and ams does not comply with its obligation to equip ams Offer as described above. This means that outside OSRAM Shareholders enjoy additional overall protection beyond the extent required by law.
The comfort letter provided by ams to OSRAM is subject to the laws of the Federal Republic of Germany. Exclusive place of jurisdiction for all disputes arising be- tween the Parties from or in connection with the comfort letter is Munich, Germa- ny, to the extent permitted by law. - Severability clause (Clause 8 of the Agreement)
Clause 8 of the Agreement (severability clause) ensures that the material content of the Agreement will continue to apply if, contrary to expectations, any provision of the Agreement proves to be invalid or impracticable in full or in part or the Agreement does not contain a necessary provision. This is a common provision in- cluded in domination and profit and loss transfer agreements.
- Payment of the Compensation (Abfindung) and of the Recurring Compensa- tion Payment (Ausgleich) (processing by banks)
ams Offer will commission a bank as central settlement agent (Central Settlement Agent) with the processing of the acquisition of the OSRAM Shares offered by outside OSRAM Shareholders in exchange for payment of an appropriate Com- pensation in accordance with Clause 5 of the Agreement. OSRAM Shareholders wishing to accept the Compensation offer must instruct their custodian bank to make available their OSRAM Shares to the Central Settlement Agent via the col- lective custody system for the purpose of receiving the Compensation. The Central
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Settlement Agent will provide the custodian banks in advance with forms of such acceptance notice. The Compensation will then be paid out concurrently (Zug um Zug) with the proper transfer of these OSRAM Shares to the Central Settlement Agent. The closing date shall be no later than the 10th banking day (Frankfurt am Main) after the Central Settlement Agent has been informed of the relevant number of OSRAM Shares for which the Compensation offer is supposed to be accepted. The processing of the Compensation is free of any commissions and charges for outside OSRAM Shareholders (see paragraph D.I.5.4). Further details of the processing (including the specification of the Central Settlement Agent) will be announced without undue delay after registration of the Agreement in the commercial register.
The fixed Recurring Compensation Payment pursuant to Clause 4 of the Agreement will be processed in the same manner as a dividend payment.
- Legal effects on outside OSRAM Shareholders
1. Corporate law effects
Performance of the Agreement will affect outside OSRAM Shareholders' adminis- trative and property rights conferred on them by virtue of their ownership in the shares.
With ams Offer's right of management control and right to issue instructions to
OSRAM in accordance with Clause 1 of the Agreement coming into effect, i.e. up- on registration of the Agreement in the commercial register of OSRAM, but no earlier than 1 October 2020, ams Offer shall be entitled to issue binding instruc- tions to OSRAM's management board with ams Offer being entitled to exclusively consider its own interests in controlling the management of OSRAM. Pursuant to the Agreement, ams Offer can also give adverse instructions to OSRAM provided that they serve the interests of ams Offer and are not otherwise impermissible, for example by violating mandatory legal provisions. Irrespective of ams Offer's obli- gation to assume any annual net loss that may arise to OSRAM, permissible ad- verse instructions may have considerable negative implications for OSRAM's fi- nancial and earnings situation, which may persist after termination of the Agree- ment.
ams Offer's right of management control and right to issue instructions to OSRAM as agreed in the Agreement will impair the administrative rights and potentially the property rights of outside OSRAM Shareholders. Outside OSRAM Shareholders will be financially compensated for such impairments by way of ams Offer's obli- gation to make an annual appropriate Recurring Compensation Payment (Aus- gleichszahlung) or to pay an appropriate Compensation (Abfindung). The Compen- sation compensates for the loss of membership and the resulting administrative and property rights that existed unimpaired before conclusion of the Agreement; the Recurring Compensation Payment compensates for the loss of the property right to receive a dividend. Outside shareholders have the option of whether to request the Recurring Compensation Payment or the Compensation (for the amount, see also paragraph E.).
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Once the obligation to transfer profit pursuant to Clause 2 of the Agreement has become effective, i.e. at the earliest from the fiscal year beginning on 1 October 2020 provided the Agreement is entered in the commercial register of OSRAM before the end of the fiscal year beginning on 1 October 2020, or in the relevant later fiscal year if registration is effected in a subsequent fiscal year only, OSRAM will no longer report any annual net income or distributable profit, apart from any earnings from the dissolution of reserves not subject to the contractual transfer of prof- it, or a distributable profit as a result of any pre-contractual profit brought forward. This means that, once the Agreement has become effective, outside OSRAM Shareholders will generally not receive any dividends during the term of the Agreement. They will generally not have the right to decide on the appropriation of distributable profits that arise during the term of the Agreement.
To safeguard the interests of outside shareholders, they have claims against ams Offer for an annual recurring compensation payment pursuant to section 304 AktG. The Recurring Compensation Payment to be made in accordance with Clause 4 of the Agreement will be made to outside OSRAM Shareholders without undue delay after the due date specified in Clauses 4.1 and 4.4 of the Agreement. This payment will be technically processed via the relevant custodian banks, as in the case of a dividend payment (see paragraph D.II).
As an alternative to receiving the Recurring Compensation Payment, outside OSRAM Shareholders can avail of the compensation offer pursuant to section 305 AktG and sell their shares to ams Offer in exchange for being granted the Compensation specified in Clause 5.1 of the Agreement. With regard to the details of the Recurring Compensation Payment and the Compensation, reference is made to the above explanations in paragraph D.I.4 and paragraph D.I.5 on Clause 4 and Clause 5 of the Agreement.
Upon effectiveness of the Agreement, ams Offer will be obliged to purchase OSRAM Shares from outside OSRAM Shareholders upon their demand and in exchange for payment of the Compensation specified in Clause 5.1 of the Agreement. As from this time, outside OSRAM Shareholders, by notice to their relevant custodian bank, can exercise their right to transfer their OSRAM Shares to ams Offer in exchange for payment of the Compensation fixed in the Agreement (for the details of acceptance, see paragraph D.II). As from the end of the day on which the Agreement becomes effective by registration in the commercial register, interest is payable on the Compensation pursuant to Clause 5.1 of the Agreement at an annual rate of five percentage points above the relevant base rate pursuant to section 247 BGB (section 305(3) sentence 3 AktG). OSRAM Shareholders who do not exercise their right to transfer their OSRAM Shares to ams Offer will remain OSRAM Shareholders and receive the Recurring Compensation Payment annually.
Outside OSRAM Shareholders do not lose the right to Compensation as a result of having received the Recurring Compensation Payment. If the offer of Compensation is only accepted after the Recurring Compensation Payment has been made, which can particularly be the case where the Compensation offer is accepted during or after conclusion of appraisal proceedings (see section 305(4) sentence 3 AktG and Clause 5.2 of the Agreement), Recurring Compensation Payments already received will be offset against the claim to the payment of interest
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on the Compensation under section 305(3) sentence 3 AktG. The offset will be made on the basis of reference periods, which normally are fiscal years. The OSRAM Shareholder entitled to Compensation will have the right to receive the difference between the Recurring Compensation Payment and interest on Compensation for the relevant reference period if the Recurring Compensation Payment received is lower than the interest on Compensation and also if the interest on Compensation is lower than the higher Recurring Compensation Payment in each peri- od. The Recurring Compensation Payment will be offset against the interest payable on Compensation only for the Recurring Compensation Payment that relates to the period that begins on the registration of the Agreement. Recurring Compensation Payments already received will not be offset against the Compensation payment itself. This conforms with the statutory provisions taking into consideration the German Federal Court of Justice (Bundesgerichtshof) rulings (judgment of 16 September 2002 - II ZR 284/01 - "Rütgers"; judgment of 2 June 2003 - II ZR 85/02; judgment of 10 December 2007 - II ZR 199/06).
Immediately after registration of the Agreement, the further details of the compensation process will be announced in the Federal Gazette (Bundesanzeiger) and communicated to outside OSRAM Shareholders via their custodian banks. The processing of the transfer of OSRAM Shares to ams Offer due to acceptance of the Compensation offer will be free of costs for OSRAM Shareholders (Clause 5.4 of the Agreement).
ams Offer's obligation to take over shares of outside OSRAM Shareholders in exchange for the payment of Compensation is for a limited period of time pursuant to Clause 5.2 of the Agreement. The notice by outside OSRAM Shareholders to accept the Compensation offered by ams Offer must be received by the Central Settlement Agent appointed by ams Offer within this period (see explanations in paragraph D.I.5.4 on the details of the period for which ams Offer's obligation exists). After this period has expired, the Compensation offer can no longer be accepted.
Aside from this, the entering into the Agreement has no legal effects on the shareholdings of outside OSRAM Shareholders. In particular, the conclusion of the Agreement or its registration in the commercial register will not cause any changes to the voting or other participation rights attaching to their shares.
The stock exchange listing of the OSRAM Shares will not be affected by the Agreement's registration in the commercial register. However, it cannot be excluded that a large number of outside OSRAM Shareholders will accept the Compensation offered and that the number of OSRAM Shares in free float will further de- crease. The consequent reduced liquidity of OSRAM Shares may result in higher price fluctuations of OSRAM Shares than in the past.
The number of OSRAM Shares in free float will decrease to the extent the Compensation offered under the Agreement will be accepted. As a consequence, OSRAM may no longer meet the relevant criteria for remaining in stock market indices that contain the OSRAM Shares. Among other things, exclusion from a stock market index can cause institutional investors replicating the relevant index in their portfolio to sell their OSRAM Shares and refrain from acquiring OSRAM Shares in the future. Increased supply of OSRAM Shares combined with reduced
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demand for OSRAM Shares can negatively influence the market price of OSRAM Shares.
2. Protection of outside OSRAM Shareholders
As described in more detail below, the protection of outside OSRAM Shareholders in connection with concluding the Agreement is ensured by granting a recurring compensation payment (Ausgleichszahlung) and compensation (Abfindung). Their appropriateness will be audited by a court-appointed Contract Auditor (see para- graph D.III.2.2). If, in the opinion of outside OSRAM Shareholders, the Recurring Compensation Payment and/or Compensation as specified in the Agreement is/are not appropriate, they can have the appropriateness reviewed in appraisal proceed- ings.
2.1 Compensation (Abfindung) and recurring compensation payment (Ausgleich)
The interests of outside OSRAM Shareholders are accounted for by the duty to grant compensation and a recurring compensation payment and their implementa- tion in the Agreement in the form of the Recurring Compensation Payment and the Compensation.
For fiscal years for which OSRAM is under an obligation to transfer profit pursu- ant to Clause 2 of the Agreement, outside OSRAM Shareholders shall receive full financial compensation for the loss of their dividend by means of ams Offer's obli- gation to make an annual Recurring Compensation Payment pursuant to Clause 4.2 of the Agreement in conjunction with section 304 AktG.
In the Expert Opinion (Annex 4), PwC concludes that the relevant objectified business value of OSRAM pursuant to IDW S 1 as of the valuation date of 3 November 2020, which is referred to in court rulings for determining the com- pensation, is approx. EUR 4,205 million. PwC refers to the number of outstanding shares (the Outstanding OSRAM Shares) when calculating the value per OSRAM Share. For 94,184,046 Outstanding OSRAM Shares, the objectified business value per Outstanding OSRAM Share is EUR 44.65.
Furthermore, the arithmetical objectified business value pursuant to IDW S1 as of 30 September 2020, i.e. the day preceding the beginning of the fiscal year for which ams Offer is likely to be required to make an annual recurring compensation payment to outside OSRAM Shareholders for the first time, is approx. EUR 4,174 million; the appropriate recurring compensation payment within the meaning of section 304 AktG derived therefrom, as determined by the Valuation Expert, is EUR 2.57 gross (EUR 2.24 net) per OSRAM Share.
On the basis of the Expert Opinion, the Parties fixed an annual Recurring Compensation Payment in the gross amount of EUR 2.57 (EUR 2.24 net).
As an alternative, outside OSRAM Shareholders can accept the compensation offered pursuant to section 305 AktG and, after registration of the Agreement, transfer the OSRAM Shares held by them to ams Offer in exchange for the payment of an appropriate compensation. The amount of the Compensation provided for in Clause 5.1 of the Agreement was determined to be EUR 44.65 per OSRAM Share by also considering the situation of OSRAM existing at the time of adoption of the relevant resolution in the general shareholders' meeting of OSRAM scheduled for
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3 November 2020. The amount was determined by also taking into account, apart from the company valuation carried out by PwC, the volume-weighted average stock exchange price of the OSRAM Share for the three-month period prior to the announcement on 10 February 2020 of the intention to enter into a domination and profit and loss transfer agreement as well as, in addition, prior to the announcement of the more specific intention to enter into a domination and profit and loss transfer agreement on 29 July 2020. This three months' average price was determined by the Federal Financial Supervisory Authority (BaFin) to be EUR 42.20 for the period until (and including) 9 February 2020 and EUR 41.14 for the period until (and including) 28 July 2020. According to supreme court rulings, the three months' average price is the lower limit of the appropriate compensation (see the detailed explanations and substantiation of the appropriateness of the compensation in paragraph E.III).
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Contract audit by expert auditor
At the joint request of the management board of OSRAM and the management of ams Offer, the Munich Regional Court I (Landgericht München I), by decision dated 19 May 2020, selected and appointed Ebner Stolz GmbH & Co. KG Wirt- schaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Kronenstraße 30, 70174 Stuttgart as expert auditor within the meaning of section 293b(1) AktG. This deci- sion is attached to the Contract Report as Annex 5. Ebner Stolz will audit the Agreement and, in particular, the appropriateness of the compensation (Abfindung) and the annual recurring compensation payment (Ausgleichszahlung) and prepare a separate Audit Report thereon pursuant to section 293e AktG. This Audit Report together with the documents specified in section 293f(1) AktG will be available via OSRAM's website at https://www.osram-group.de/hauptversammlung as from the date the general shareholders' meeting scheduled for 3 November 2020 is con- vened. Upon request, copies of these documents will be provided to each OSRAM Shareholder without delay and free of charge. Please refer to the notice of the gen- eral shareholders' meeting to be held on 3 November 2020 for details. - Appraisal proceedings
If OSRAM Shareholders are of the opinion that the amount of the annual Recur- ring Compensation Payment specified in the Agreement in Clause 4.2 is not appro- priate in accordance with section 304 AktG, they can have the appropriateness of the Recurring Compensation Payment reviewed by a court in appraisal proceedings
pursuant to section 304(3) sentence 3 AktG in conjunction with section 1 no. 1 SpruchG after the Agreement has taken effect. The right to request the initiation of appraisal proceedings does not depend on whether objection was declared in the general shareholders' meeting to the resolution on the consent to the Agreement by electronic means and recorded in the minutes taken by the officiating no- tary. A motion for the judicial review of the Recurring Compensation Payment in appraisal proceedings pursuant to section 304(3) sentence 3 AktG in conjunction with section 1 no. 1 SpruchG can be filed within three months after the date on which the registration of the Agreement's existence in the commercial register of OSRAM was announced pursuant to section 10 HGB. A statement of reasons for the motion pursuant to section 4(2) SpruchG must be submitted within the above period of three months. If the competent court determines a higher annual Recurring Compensation Payment in a final and non-appealable decision in such ap-
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praisal proceedings, such decision will be effective for and against all outside OSRAM Shareholders; therefore, OSRAM Shareholders not involved in the appraisal proceedings also have a claim against ams Offer for an increase of the Recurring Compensation Payment (section 13 sentence 2 SpruchG). ams Offer can terminate the Agreement in this event within two months after the court decision has become final and non-appealable (section 304(4) AktG). If such appraisal proceedings are terminated by a judicially recorded settlement, the rights of all outside OSRAM Shareholders are protected by the fact that section 11(2) SpruchG permits the termination of such proceedings only with the consent of the joint representative of the outside OSRAM Shareholders. Clause 4.5 of the Agreement provides that, in the event of a judicially recorded settlement, shareholders who have already been compensated according to Clause 5 of the Agreement are also entitled to demand a corresponding additional payment to the Recurring Compensation Payment already received by them, irrespective of whether they themselves were involved in the proceedings.
If outside OSRAM Shareholders are of the opinion that the Compensation specified in Clause 5.1 of the Agreement is not appropriate, they can also have the appropriateness of the offered Compensation reviewed by a court in appraisal proceedings pursuant to section 305(5) sentence 2 AktG in conjunction with section 1 no. 1 SpruchG. The above statements concerning the Recurring Compensation Payment apply accordingly with regard to the period for submitting the motion, the statement of reasons for the motion, the effect of the court decision in appraisal proceedings, the termination right of ams Offer after judicial determination of the Compensation as well as the termination of such proceedings by judicially recorded settlement.
IV. Tax effects on outside OSRAM Shareholders
1. Preliminary remarks
The following statements include a brief summary of some important German taxation principles which may be relevant in connection with the conclusion of the Agreement for outside OSRAM Shareholders subject to unlimited tax liability in Germany.
Tax effects for outside OSRAM Shareholders subject to limited tax liability in Germany are not explained below. These effects depend, among other factors, on special provisions of German tax law, the tax law in the country in which the rele- vant shareholder is domiciled and on the provisions of any existing treaty for the avoidance of double taxation (double taxation treaty).
The description in general relates only to corporate income tax, income tax, with- holding tax and trade tax as well as solidarity surcharge which accrue in Germany, but not to church tax. The description only deals with some selected aspects of these types of taxes. For example, the description does not address the special characteristics of so-calledlock-up shares acquired as consideration for a tax- privileged contribution under the German Transformation Tax Act (Umwandlung- steuergesetz - UmwStG), nor the special provisions for certain companies in the fi- nancial and insurance industries. This summary is based only on the currently ap- plicable law as applied by tax authorities and tax courts in their rulings as of the
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date of this Contract Report. This situation can change, potentially also with retroactive effect.
No guarantee is provided for the completeness and correctness of this description. This summary describes selected tax aspects in general without addressing the tax situation of any individual concerned. It is, therefore, not intended to be, and should not be construed as, legal or tax advice. Shareholders are recommended to consult their tax advisors. Only tax advisors are able to reasonably consider the specific tax circumstances of the individual shareholder.
2. Taxation of recurring compensation payments at the shareholder level
The annual Recurring Compensation Payment (Ausgleichszahlung) to be made by ams Offer to OSRAM Shareholders as provided for in Clause 4.2 of the Agreement is likely to be subject to the general rules on the taxation of dividends at the level of the shareholders concerned.
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Withholding tax
Withholding tax of 25% and solidarity surcharge levied thereon at a rate of 5.5% (resulting in a tax deduction including solidarity surcharge of 26.375%) will gener- ally be deducted from the recurring compensation payment at the time it is made. Withholding tax is generally deducted and paid irrespective of the amount in which the payment is actually subject to tax at the level of OSRAM Shareholders.
With regard to OSRAM Shareholders holding their shares as private assets, the collection of withholding tax generally discharges the shareholder's tax liability for recurring compensation payments (referred to as flat-rate withholding tax (Abgel- tungsteuer)). Subject to certain requirements, shareholders holding their shares as private assets can apply for exemption from such flat-rate withholding tax. By con- trast, withholding tax accruing to OSRAM Shareholders holding their shares as part of their business assets is generally credited against the relevant shareholder's income tax or corporate income tax. Withholding tax deducted in excess of such shareholders' personal tax liability will be refunded. This applies accordingly to the solidarity surcharge. - Shares held as private assets
The recurring compensation payments for shares held as private assets constitute income from capital assets and, as such, are subject to income tax; in this case, the deduction of withholding tax has the effect of finally settling the tax liability (re- ferred to as flat-rate withholding tax) and the recurring compensation payment no longer has to be declared in the OSRAM Shareholder's annual tax return. In cer- tain cases (for example, where a non-assessment certificate from the tax office was submitted or where a sufficient exemption order was issued), the recurring com- pensation payment can be paid to OSRAM Shareholders without deduction of withholding tax and solidarity surcharge.
At the request of OSRAM Shareholders, their recurring compensation payments can also be subject to the income tax according to the basic scale instead of deduct- ing flat-rate withholding tax if this leads to a lower tax burden for the shareholder (most favourable tax treatment test - Günstigerprüfung). In this event, the relevant amounts for taxation are the capital gains less the saver's tax-free allowance of
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EUR 801.00 (or EUR 1,602.00 for jointly assessed spouses), and the deduction of actual income-related expenses is excluded. The income from capital investments so calculated is subject to the relevant OSRAM Shareholder's personal income tax rate in their income tax assessment. Withholding tax initially deducted will be credited against income tax so levied.
If an OSRAM Shareholder meets the relevant requirements and applies for exemption from flat-rate withholding tax, taxation will be similar to that of a sole proprietor (see paragraph D.IV.2.3(ii)).
2.3 Shares held as business assets
If shares are held as business assets, taxation will depend on whether the OSRAM Shareholder is a corporation, a sole proprietor or a partnership (joint proprietors):
- Corporations
Recurring compensation payments are generally subject to corporate income tax for corporations unless the OSRAM Shareholder held a share of at least 10% in OSRAM's share capital at the beginning of the relevant calendar year. In this event, recurring compensation payments are generally exempt from corporate income tax. However, 5% of this tax-exempt income is deemed to be expenses which must not be deducted as business expenses for tax purposes and is therefore subject to corporate income tax (plus solidarity surcharge). In return, business expenses actually incurred in relation to recurring compensation payments can generally be deducted in full (subject to other restrictions on deduction). Recurring compensation payments are subject to trade tax at their full amounts unless the OSRAM Shareholder held a minimum share of 15% in OSRAM's share capital (intercompany participation) at the beginning of the relevant tax period. In the latter case, the exemption of 95% of recurring compensation payments from corporate income tax applies accordingly for trade tax purposes.
- Sole proprietors
In the case of sole proprietors (individuals), 60% of the recurring compensation payment is subject to the applicable income tax rate (referred to as partial income method (Teileinkünfteverfahren)). Accordingly, any expenses economically related to the recurring compensation payment are deductible for tax purposes at a rate of 60% only (subject to other restrictions on deduction). If the shares belong to the assets of a permanent establishment located in Germany, the full amount of the recurring compensation payment is subject to trade tax if and to the extent the OSRAM Shareholder is subject to trade tax and does not hold a minimum share of 15% in OSRAM's share capital at the beginning of the relevant tax period. How- ever, trade tax is credited in full or in part against the OSRAM Shareholder's income tax by way of a flat-rate procedure.
- Partnerships
If the shares are held by a partnership (joint proprietors), income tax or corporate income tax is assessed at the level of its partners only. For partners subject to corporate income tax which hold a minimum share of 10% in the share capital at the beginning of the relevant calendar year, 95% of the recurring compensation payment is finally exempt from taxation, while the remainder is taxable (see para-
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graph (i) above). However, if the partner is liable to income tax, 60% of the recurring compensation payment is subject to taxation (see paragraph (ii) above). As regards the deductibility of business expenses, the statements made under (i) above apply to partners liable to corporate income tax and the statements made under (ii) above apply to partners liable to income tax. The full amount of the recurring compensation payment is subject to trade tax at the level of the partnership if the partnership is subject to trade tax and does not hold a minimum share of 15% in the company's share capital at the beginning of the relevant tax period. However, if individuals hold interests in the partnership, trade tax accruing at the level of the partnership is credited in full or in part against their income tax by way of a flat- rate procedure. If the partnership holds a minimum share of 15% in the company's share capital at the beginning of the relevant tax period, 5% of the recurring compensation payment is subject to trade tax if corporations hold interests.
3. Taxation of compensation at the level of OSRAM Shareholders
Pursuant to Clause 5.1 of the Agreement, ams Offer undertakes towards OSRAM Shareholders who want to exit OSRAM on the occasion of the conclusion of the Agreement to purchase their shares in exchange for appropriate Compensation (Abfindung) in the amount of EUR 44.65 per OSRAM Share. For the OSRAM Shareholders concerned, a gain generated from the resulting transfer of OSRAM Shares in exchange for the above compensation is likely to be subject to the rules on the taxation of gains from the sale of shares in a corporation. A capital gain is realised if the compensation less any costs of sale exceeds the acquisition costs for tax purposes or the book value for tax purposes for the relevant shares at the level of the OSRAM Shareholder. If the compensation less any costs of sale is less than the acquisition costs or the book value of the shares at the level of the OSRAM Shareholder, a capital loss is incurred.
3.1 Withholding tax
Capital gains are generally subject to the deduction of withholding tax at a rate of 25% plus solidarity surcharge thereon at a rate of 5.5% (resulting in a total rate of 26.375%). Such deduction requires the existence of a domestic paying agent (do- mestic or domestic branch office of a foreign credit institution, financial services institution, securities trading company or securities trading bank) which holds in custody or administers the OSRAM Shares or carries out their sale and pays out or issues a credit for capital gains.
Compensation paid for shares held as private assets and acquired prior to 1 January 2009 is not subject to withholding tax. Deduction of withholding tax also does not apply to capital gains for shares held as business assets by corporations with unlimited tax liability. The same applies under certain circumstances to shares held by individuals or by partnerships as business assets.
If withholding tax and solidarity surcharge are deducted, they generally discharge the shareholder's tax liability with regard to shares held as private assets. The deduction of withholding tax will not discharge the shareholder's tax liability in relation to shares held as private assets if the shareholder held a minimum interest of 1% in OSRAM's share capital at any time during the last five years prior to the sale, and in relation to shares held as business assets. In these cases, tax deducted
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will rather be credited against the seller's tax liability for income or corporate income tax and solidarity surcharge or will be refunded in the amount of any excess.
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Shares held as private assets
Capital gains from the sale of OSRAM Shares are always taxable, irrespective of their holding period. Corresponding capital losses may only be offset against capi- tal gains from the sale of shares in the current year or in a subsequent year.
Capital gains resulting from compensation for shares are subject to the deduction of withholding tax if a German paying agent is involved. The deduction of with- holding tax will generally discharge the relevant tax liability, meaning that the in- vestor's relevant income tax liability is settled by the tax deduction, and the capital gain no longer has to be declared in the shareholder's annual tax return. In certain cases (for example, where a non-assessment certificate from the tax office was submitted or where a sufficient exemption order was issued), the recurring com- pensation payment can be paid to OSRAM Shareholders without deduction of withholding tax and solidarity surcharge. If no withholding tax is deducted in other cases (for example, where no German paying agent is involved), the OSRAM Shareholder must state the capital gain in their income tax return. However, the capital gain in these cases will not be subject to the shareholder's personal income tax rate; instead, the capital gain will be assessed at the flat rate of withholding tax.
At the request of the OSRAM Shareholder, the gain resulting from compensation can be taxed according to the basic scale of income tax instead of deducting flat- rate withholding tax if this leads to a lower tax burden for the shareholder. In this case, withholding tax initially deducted will be credited against income tax levied by way of assessment. When determining the income from investments only a sav- er's tax-free allowance of EUR 801.00 (or EUR 1,602.00 for jointly assessed spouses) may be deducted as income-related expenses. The deduction of actual in- come-related expenses is excluded.
60% of a capital gain is taxable if the OSRAM Shareholder held a minimum inter- est of 1% in OSRAM's share capital at any time during the last five years prior to the sale. The deducted withholding tax and solidarity surcharge will be credited against the OSRAM Shareholders' tax liability in their tax assessments, or refund- ed in the amount of any excess. In these cases, 60% of any capital losses and ex- penses economically related to the sale is deductible for tax purposes. - Shares held as business assets
If OSRAM Shares are held as business assets, taxation of the capital gains on their sale will depend on whether the OSRAM Shareholder is a corporation, a sole pro- prietor or a partnership (joint proprietors):
- Corporations
Capital gains from the sale of OSRAM Shares are generally exempt from corporate income tax and trade tax for corporations. However, 5% of the capital gains is deemed to be expenses which must not be deducted as business expenses for tax purposes and is therefore subject to corporate income tax (plus solidarity sur- charge) and trade tax. Capital losses and other profit reductions related to the sold shares cannot be taken into account for tax purposes.
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- Sole proprietors
If OSRAM Shares are held by sole proprietors, 60% of the capital gains is taxable. Accordingly, only 60% of the business expenses related to such capital gains and only 60% of any capital losses can be taken into account for tax purposes. If OSRAM Shares are part of the assets of a permanent establishment located in Germany, 60% of the capital gains is subject to trade tax if the sole proprietor is liable to trade tax. However, such trade tax is credited in whole or in part against the investor's income tax by way of a flat-rate procedure.
- Partnerships
If OSRAM Shares are held by a partnership (joint proprietors), taxation will depend on whether its partners are liable to income tax or corporate income tax. 95% of the capital gains from the sale of shares is generally exempt from taxation for partners liable to corporate income tax (see paragraph (i) above). 60% of the capital gains from the sale of shares is generally taxable for partners liable to income tax (see paragraph (ii) above). In addition, 60% (if individuals hold interests) and 5% (if corporations hold interests) of the capital gains from the sale of shares are subject to trade tax at the level of the partnership liable to trade tax if they are attributed to a domestic permanent establishment. However, if individuals hold interests in the partnership, trade tax is credited in full or in part against their income tax by way of a flat-rate procedure. As regards the deductibility of business expenses related to capital gains and of capital losses, the statements made under (i) above apply to partners liable to corporate income tax and the statements made under (ii) above apply to partners liable to income tax.
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Tax effects on OSRAM
If the other statutory requirements for the existence of a consolidated tax group for corporate income tax and trade tax purposes are also met, the Agreement will have the effect that OSRAM's income will be attributed to, and tax thereon paid by, ams
Offer for corporate income tax and trade tax purposes. However, OSRAM will be liable to pay tax on income in the amount of currently 20/17 of recurring compen- sation payments made (section 16 KStG). The consolidated tax group does not begin to exist before OSRAM's fiscal year in which the obligation to transfer profit pursuant to Clause 2 of the Agreement as well as the financial integration of OSRAM into ams Offer exist from the beginning of the year, which is expected to be 1 October 2020, provided the Agreement has been registered in the commercial register by the end of this fiscal year at the latest, that means before 30 September 2021, pursuant to Clause 6.2 of the Agreement. Whereas any loss carryforward for tax purposes existing on the date the consolidated tax group becomes effective will continue to exist, it cannot be deducted for tax purposes for the duration of the consolidated tax group.
Due to the consolidation for tax purposes, OSRAM is liable pursuant to section 73 of the German Fiscal Code (Abgabenordnung) for such taxes of the parent compa- ny of the consolidated tax group for which the consolidated tax group between them is relevant for tax purposes. The above provisions on taxes apply equally to claims for the reimbursement of tax credits.
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VI. Costs of the Domination and Profit and Loss Transfer Agreement
One-time costs were incurred for the conclusion and audit of the Agreement. OSRAM incurred such costs in particular for appointing the Valuation Expert (see paragraph E.I), for providing the Audit Report (see paragraph D.III.2.2) and for obtaining legal advice. The costs for providing the Expert Opinion and the Audit Report will be borne by OSRAM and ams Offer in equal parts. Apart from that, each Party will bear its own costs, including the costs of its external advisors. The external costs to be borne by OSRAM are expected to amount to approx. EUR 1.1 million in total. The external costs to be borne by ams Offer are expected to amount to approx. EUR 1.0 million.
- Type and amount of the recurring compensation payment (Ausgleich) and of the compensation (Abfindung) pursuant to sections 304, 305 AktG
- Overview
Pursuant to section 304 AktG, a domination and profit and loss transfer agreement must provide for appropriate compensation for outside shareholders by way of a recurring cash payment related to their shares in the share capital. The type of the recurring compensation payment and the reasons for determining a fixed recurring compensation payment were explained under paragraph D.I.4.1 above.
According to section 304(1) sentence 1 and (2) sentence 1 AktG, the recurring compensation payment guaranteed must at least be equal to the annual payment of the amount which could be expected to be distributed for each individual share as average profit share in view of the company's past profitability and future earnings prospects, taking into account adequate depreciation, amortisation and value al- lowances, but excluding other profit reserves.
Section 305(1) AktG provides that a domination and profit and loss transfer agreement must further provide for the obligation of the controlling company to purchase the shares of outside shareholders upon their request in exchange for the payment of an appropriate compensation specified in the agreement. Sec- tion 305(3) sentence 2 AktG provides that the appropriate compensation must take into account the situation of the company at the time its general meeting resolves on the agreement. This applies accordingly to the recurring compensation payment within the meaning of section 304 AktG. According to a decision of the German Federal Constitutional Court (Bundesverfassungsgericht) of 27 April 1999 (BvR 1613/94), the stock exchange price, if existing, must also be taken into ac- count when calculating the amount of compensation pursuant to section 305 AktG. The stock exchange price generally represents the lowest amount of compensation to be paid to the shareholder.
The relevant valuation date is the date of the planned general shareholders' meet- ing of OSRAM which is to resolve on the Agreement, that is 3 November 2020.
The management board of OSRAM and the management of ams Offer appointed
PwC as Valuation Expert to prepare an Expert Opinion on the business value of OSRAM as of the date of the planned general shareholders' meeting, 3 November 2020, and on the amount of the appropriate recurring compensation
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payment within the meaning of section 304 AktG and of the appropriate compensation within the meaning of section 305 AktG.
The Valuation Expert carried out the work necessary for the Expert Opinion from May 2020 to September 2020. On 21 September 2020, the Valuation Expert provided the Expert Opinion on the determination of OSRAM's business value as of the valuation date of 3 November 2020, that is the date of the general shareholders' meeting of OSRAM that resolves on the Agreement. In its function as neutral expert for the purposes of IDW S 1, PwC concludes in the Expert Opinion that the objectified business value of OSRAM within the meaning of IDW S 1 as of the valuation date of 3 November 2020 being relevant for the compensation is approx. EUR 4,205 million. This corresponds to a value of EUR 44.65 for each outstanding OSRAM Share based upon a total of 94,183,686 Outstanding OSRAM Shares.
The Valuation Expert further arrives at the conclusion that the relevant average stock exchange price is EUR 42.20 per OSRAM Share. The relevant price in this context is the volume-weighted average stock exchange price determined for OSRAM Shares by the BaFin for the three-month period preceding ams' announcement on 10 February 2020 of the intention to implement the conclusion of a domination and profit and loss transfer agreement between OSRAM and ams Offer (see also paragraph E.III). The value per OSRAM Share calculated by using the discounted cash flow method (Ertragswertmethode) is EUR 2.45 above the relevant stock exchange price; therefore, the value per OSRAM Share calculated by using the discounted cash flow method is relevant for the compensation. Accord- ingly, it results from the Expert Opinion that the appropriate compensation for the purposes of section 305 AktG is EUR 44.65 per OSRAM Share. The appropriate recurring compensation payment within the meaning of section 304 AktG derived from the arithmetical objectified business value pursuant to IDW S1 as of 30 Sep- tember 2020, i.e. the day preceding the beginning of the fiscal year for which ams Offer is likely to be required to make an annual recurring compensation payment to outside OSRAM Shareholders for the first time, as determined by the Valuation Expert, is EUR 2.57 gross (EUR 2.24 net) per OSRAM Share.
The complete Expert Opinion of PwC on the business value of OSRAM dated 21 September 2020 is attached hereto as Annex 4and thus forms an integral part of this Contract Report.
Following their own reviews, the management board of OSRAM and the management of ams Offer adopt as their own the full content of PwC's statements in the above Expert Opinion on OSRAM's business value, on the appropriate recurring compensation payment and on the appropriate compensation and include such statements in this Contract Report. In their own assessments, the management board of OSRAM and the management of ams Offer consider as appropriate an amount of EUR 44.65 per OSRAM Share for the compensation within the meaning of section 305 AktG and a gross amount of EUR 2.57 (EUR 2.24 net) per OSRAM Share for the recurring compensation payment within the meaning of section 304 AktG.
The Expert Opinion as well as this Contract Report will be available, together with the other documents required under section 293f(1) AktG, via OSRAM's website at https://www.osram-group.de/hauptversammlung as from the date of the notice of
70
Convenience translation of the German original
OSRAM's general shareholders' meeting that will resolve on the consent to the Agreement. Upon request, copies of these documents will be provided to each shareholder without delay and free of charge. With regard to the details of inspecting and requesting copies of these and other documents, reference is made to the notice of the general shareholders' meeting that resolves on OSRAM's consent to the Agreement.
For avoiding any liability risks, the management board of OSRAM and the management of ams Offer explicitly note that while OSRAM's plans on which the business valuation is based were prepared to the best of their knowledge and belief, they are also based on future circumstances or changes to market and competitive conditions whose realisation may be outside OSRAM's control, and that neither OSRAM nor ams Offer will or can assume any liability for the actual realisation of the facts and forecasts on which the plans are based. The sole purpose of this Contract Report is to comply with the statutory information duty pursuant to section 293a AktG.
-
Determination and fixing of the amount of the appropriate recurring compen- sation payment pursuant to section 304 AktG
Pursuant to Clause 4.2 of the Agreement, ams Offer will grant outside OSRAM Shareholders a fixed annual Recurring Compensation Payment from the fiscal year as of which the obligation to transfer profit under Clause 2 of the Agreement takes effect, which is expected to be the fiscal year beginning on 1 October 2020, for the duration of the Agreement. The annual Recurring Compensation Payment amounts to EUR 2.57 gross and EUR 2.24 net per OSRAM Share.
The reasons why the Parties agreed on a fixed recurring compensation payment were set out in paragraph D.I.4.1 above. The Parties agreed on a gross amount in accordance with the ruling of the German Federal Court of Justice (Bun- desgerichtshof) (decision of 21 July 2003 - II ZB 17/01 - "Ytong"). Reference is made in this regard to the explanations in paragraph D.I.4.2 above.
The management board of OSRAM and the management of ams Offer, by mutual agreement, fixed the amount of the recurring compensation payment on the basis of the conclusions of the Expert Opinion dated 21 September 2020, in which the Valuation Expert arrives at the conclusion that the appropriate recurring compensa- tion payment is EUR 2.57 gross (EUR 2.24 net) per OSRAM Share.
- Determination and fixing of the amount of the appropriate compensation pur- suant to section 305 AktG
Pursuant to Clause 5 of the Agreement, ams Offer is obliged, upon demand of each outside OSRAM Shareholder, to purchase such shareholder's OSRAM Shares in exchange for a Compensation (section 305(2) AktG). Each outside OSRAM Shareholder accepting the compensation offer will receive compensation in the amount of EUR 44.65 per OSRAM Share. The decisive reasons for agreeing on cash compensation as the offered type of compensation are set out in para- graph D.I.5.2 above.
71
Convenience translation of the German original
The management board of OSRAM and the management of ams Offer agreed in fixing the amount of compensation paid on the basis of the conclusions of the Expert Opinion dated 21 September 2020. In that Expert Opinion, the Valuation Expert determined an amount of EUR 44.65 for the value per OSRAM Share based on the objectified business value pursuant to IDW S1.
The Valuation Expert and the Parties also considered the stock exchange price of the OSRAM Share in determining the amount of compensation. In accordance with the ruling of the German Federal Constitutional Court (Bundesverfassungsgericht) of 27 April 1999 (BvR 1613/94), the stock exchange price generally represents the lowest limit for determining the amount of compensation to be offered to outside shareholders. The German Federal Court of Justice (Bundesgerichtshof) (judgment of 12 March 2001 - II ZB 15/00) specified the requirements laid down by the German Federal Constitutional Court with regard to the relevance of the stock exchange price for determining the appropriate compensation. In its judgment of 19 July 2010 (II ZB 18/09 "Stollwerck"), it established additional requirements in this respect by specifying that the relevant stock exchange price must be determined on the basis of a sales-weighted average stock exchange price during a three-month reference period preceding the announcement of a structural measure.
On 10 February 2020, ams communicated by way of an ad-hoc announcement that it intended to initiate the conclusion of a domination and profit and loss transfer agreement between ams Offer as the controlling company and OSRAM as the controlled company. Furthermore, on 29 July 2020, ams specified its intention to enter into a domination and profit and loss transfer agreement by communicating within the scope of an ad-hoc announcement concerning its results achieved in the second quarter of the 2020 fiscal year that, given the preparations already finalised, it considered the domination and profit and loss transfer agreement between ams Offer and OSRAM to be implemented around the end of 2020. The volume-weighted average three months' stock exchange price of the OSRAM Share determined by the BaFin for the three-month period preceding the publication of the ad-hoc announcement on 10 February 2020 is EUR 42.20 and preceding the publication of the more specific ad-hoc announcement on 29 July 2020 EUR 41.41. As this value is below the objectified value per share in the amount of EUR 44.65 determined by PwC according to IDW S 1, the relevant value for fixing the compensation in the present case was the objectified value per share determined by PwC according to IDW S 1 in the amount of EUR 44.65.
The volume-weighted average three months' stock exchange price does not need to be adjusted. According to the Stollwerck decision of the German Federal Court of Justice (Bundesgerichtshof), an extrapolation of the average stock exchange price at the time of the public announcement of the structural measure would only be necessary if - cumulatively - a longer period of time has passed between the public announcement of the structural measure and the date of the general meeting and if the development of the stock exchange prices appears to make such adjustment necessary. In the present case, however, it is not necessary to adjust the volume- weighted average three-month stock exchange price even if a period of more than eight and a half months lies between the announcement of the intention to enter into a domination and profit and loss transfer agreement (10 February 2020) and the date on which the Agreement will be submitted to the general shareholders' meet-
72
Convenience translation of the German original
ing for approval (3 November 2020) and it can thus not be excluded that a "longer period of time" in the sense of the aforementioned Stollwerck ruling might exist. The Valuation Expert has updated the volume-weighted average three months' stock exchange price of EUR 42.40 by using various methods; the various extrapolation mechanisms concerning the stock exchange price trend do not seem to require any adjustment, but rather seem to indicate that the use of the stock exchange price of EUR 42.20 continues to be appropriate as a lower limit. It should also be noted that the volume-weighted average three months' stock exchange price of EUR 41.14 as of 29 July 2020, the day on which the intention to enter into a domination and profit and loss transfer agreement was specified, was below the aforementioned average price and an adjustment would thus have been to the detriment of minority shareholders. Therefore, such an adjustment was not carried out in favour of minority shareholders.
-
Contract audit
The Contract Auditor prepared an Audit Report which, together with the docu- ments referred to in section 293f(1) AktG, will be available on OSRAM's website at https://www.osram-group.de/hauptversammlung from the date the regular gen- eral shareholders' meeting is convened. Upon request, copies of these documents will be available to each OSRAM Shareholder without delay and free of charge (paragraph D.III.2.2).
73
Convenience translation of the German original
OSRAM Licht AG
The management board
Munich, 22 September 2020
Dr Olaf Berlien
Chairman of the management board
Kathrin Dahnke
Member of the management board
Dr Stefan Kampmann
Member of the management board
Convenience translation of the German original
ams Offer GmbH
The management
Munich, 22 September 2020
Alexander Everke | Ingo Bank |
Managing director | Managing director |
Convenience translation of the German original
Annex 1 | List of all subsidiaries and affiliates of OSRAM Licht AG |
Status as of September 30, 2019
Capital Share | |||
in % | |||
Equity investments of OSRAM Licht AG, Munich / Germany | |||
OSRAM Beteiligungen GmbH, Munich | 100.00 | ||
OSRAM GmbH, Munich | 100.00 | ||
Subsidiaries of OSRAM GmbH, Munich / Germany | |||
Germany (as of September 30, 2019: 12 companies) | |||
BAG electronics GmbH, Arnsberg | 100.00 | ||
Heramo Immobilien GmbH & Co. KG, Grünwald | 100.00 | ||
OSRAM Beteiligungsverwaltung GmbH, Grünwald | 100.00 | ||
Fluxunit GmbH, Munich | 100.00 | ||
OSRAM CONTINENTAL GmbH, Munich | 50.00 | 2) | |
OSRAM Innovation Hub GmbH, Munich | 100.00 | ||
OSRAM Opto Semiconductors GmbH, Regensburg | 100.00 | ||
OSRAM OLED GmbH, Regensburg | 100.00 | ||
Siteco GmbH, Traunreut | 100.00 | ||
Siteco Beleuchtungstechnik GmbH, Traunreut | 100.00 | ||
Siteco Lighting GmbH, Traunreut | 100.00 | ||
OSRAM Lighting Services GmbH, Wipperfürth | 100.00 | ||
EMEA (excluding Germany) (as of September 30, 2019: 43 companies) | |||
OSRAM Sales EOOD, Trud / Bulgaria | 100.00 | ||
OSRAM EOOD, Trud / Bulgaria | 100.00 | ||
OSRAM A/S, Taastrup / Denmark | 100.00 | ||
OSRAM Oy, Vantaa / Finland | 100.00 | ||
Siteco France S.A.S., Fontenay-sous-Bois / France | 100.00 | ||
OSRAM Lighting S.A.S.U., Molsheim / France | 100.00 | ||
ADB STAGELIGHT S.A.S.U., Saint-Quentin / France | 100.00 | ||
OSRAM Continental France SAS, Toulouse / France | 50.00 | 2) | |
RGI Light Limited, Leeds / Great Britain | 100.00 | ||
RGI Light (Holdings) Limited, Leeds / Great Britain | 100.00 | ||
Ring Automotive Limited, Leeds / Great Britain | 100.00 | ||
Siteco UK Limited, Manchester / Great Britain | 100.00 | ||
LUX365 Limited, Manchester / Great Britain | 100.00 | ||
OSRAM Ltd., Reading, Berkshire / Great Britain | 100.00 | ||
Yekta Setareh Atllas Co. (P.J.S.), Tehran / Iran | 100.00 | ||
OSRAM S.p.A. - Società Riunite OSRAM Edison Clerici, Milano / Italy | 100.00 | ||
Siteco Italy S.r.l., Milano / Italy | 100.00 | ||
Clay Paky S.p.A., Seriate / Italy | 100.00 | ||
OSRAM Continental Italia S.r.l., Treviso / Italy | 50.00 | 2) | |
OSRAM d.o.o., Zagreb / Croatia | 100.00 | ||
OSRAM Benelux B.V., Capelle aan den Ijssel / Netherlands | 100.00 | ||
Fluence Bioengineering B.V., Schiphol / Netherlands | 100.00 | ||
OSRAM AS, Lysaker / Norway | 100.00 | ||
Siteco Norway AS, Lysaker / Norway | 100.00 | ||
OSRAM Continental Austria GmbH, Vienna / Austria | 50.00 | 2) | |
Siteco Lighting Austria GmbH, Vienna / Austria | 100.00 | ||
Siteco Österreich GmbH, Vienna / Austria | 100.00 | ||
OSRAM Sp. z o.o., Warsaw / Poland | 100.00 | ||
Siteco Poland Sp. z o.o., Warsaw / Poland | 100.00 | ||
OSRAM, Lda, Carnaxide / Portugal | 100.00 | ||
OSRAM Romania S.R.L., Bucharest / Romania | 100.00 | ||
OSRAM Continental Romania S.R.L., Iasi / Romania | 50.00 | 2) | |
OOO OSRAM, Moscow / Russia | 100.00 | ||
OSRAM AB, Stockholm / Sweden | 100.00 | ||
OSRAM Lighting AG, Winterthur / Switzerland | 100.00 | ||
Siteco Switzerland AG, Winterthur / Switzerland | 100.00 | ||
OSRAM, a.s., Nové Zámky / Slovakia | 100.00 | ||
OSRAM Lighting S.L., Madrid / Spain | 100.00 | ||
Siteco Lighting Spain, S.L., Madrid / Spain | 100.00 | ||
OSRAM Lighting (Pty) Ltd., Midrand / South Africa | 100.00 | ||
OSRAM Ceská republika s.r.o., Bruntál / Czech Republic | 100.00 | ||
OSRAM Teknolojileri Ticaret Anonim Sirketi, Istanbul / Turkey | 100.00 | ||
OSRAM Lighting Middle East FZE, Dubai / United Arab Emirates | 100.00 | ||
Americas (as of September 30, 2019: 19 companies) | |||
OSRAM S.A., Buenos Aires / Argentina | 100.00 | ||
OSRAM Comercio de Solucoes de Iluminacao Ltda., Barueri / Brazil | 100.00 | ||
OSRAM Chile Ltda., Santiago de Chile / Chile | 100.00 | ||
OSRAM Ltd., Vancouver / Canada | 100.00 | ||
OSRAM de Colombia Iluminaciones S.A.S., Bogotá / Colombia | 100.00 | ||
OSRAM de México S.A. de C.V., Naucalpan / Mexico | 100.00 | ||
OSRAM S.A. de C.V., Naucalpan / Mexico | 100.00 | ||
OSRAM Servicios Administrativos, S.A. de C.V., Naucalpan / Mexico | 100.00 | ||
OSRAM Continental Guadalajara Intelligent Lighting S de RL de CV, Tlajomulco de Zuniga, Jalisco / Mexico | 50.00 | 2) | |
OSRAM Continental Mexico Services S de RL de CV, Tlajomulco de Zuniga, Jalisco / Mexico | 50.00 | 2) | |
LedEngin, Inc., San Jose, California / U.S.A. | 100.00 | ||
Digital Lumens Inc., Wilmington, Delaware / U.S.A. | 100.00 | ||
Fluence Bioengineering, Inc., Wilmington, Delaware / U.S.A. | 100.00 | ||
OSRAM Opto Semiconductors, Inc., Wilmington, Delaware / U.S.A. | 100.00 | ||
OSRAM SYLVANIA INC., Wilmington, Delaware / U.S.A. | 100.00 | ||
Sylvania Lighting Services Corp., Wilmington, Delaware / U.S.A. | 100.00 | ||
Traxon Technologies LLC, Wilmington, Delaware / U.S.A. | 100.00 | ||
Vixar, Inc., Wilmington, Delaware / U.S.A. | 100.00 | ||
OSRAM CONTINENTAL U.S.A. Inc., Wilmington, Delaware / U.S.A. | 50.00 | 2) | |
APAC (as of September 30, 2019: 27 companies) | |||
OSRAM Pty. Ltd., Sydney / Australia | 100.00 | ||
OSRAM China Lighting Ltd., Foshan / China | 90.00 | ||
OSRAM Asia Pacific Management Company Ltd., Foshan / China | 100.00 | ||
OSRAM Guangzhou Lighting Technology Limited, Guangzhou / China | 100.00 | ||
OSRAM Kunshan Display Optic Co., Ltd., Kunshan / China | 100.00 | ||
OSRAM CONTINENTAL Kunshan Intelligent Lighting Co., Ltd., Kunshan / China | 50.00 | 2) | |
OSRAM Continental (Shanghai) Intelligent Lighting Co., Ltd., Shanghai / China | 50.00 | 2) | |
OSRAM Opto Semiconductors (China) Co., Ltd., Wuxi / China | 100.00 | ||
OSRAM Opto Semiconductors Trading (Wuxi) Co., Ltd., Wuxi / China | 100.00 | ||
Traxon Technologies Ltd., Shatin / Hong Kong | 100.00 | ||
OSRAM Asia Pacific Ltd., Causeway Bay / Hong Kong | 100.00 | ||
OSRAM Opto Semiconductors Asia Ltd., Wanchai / Hong Kong | 100.00 | ||
OSRAM CONTINENTAL INDIA Private Limited, Bangalore / India | 50.00 | 2) | |
OSRAM Lighting Private Limited, Gurgaon / India | 100.00 | ||
P.T. OSRAM Indonesia, Jakarta / Indonesia | 100.00 | ||
OSRAM Ltd., Yokohama / Japan | 100.00 | ||
OSRAM Opto Semiconductors (Japan) Ltd., Yokohama / Japan | 100.00 | ||
OSRAM (Malaysia) Sdn. Bhd., Kuala Lumpur / Malaysia | 100.00 | ||
Osram Opto Semiconductors (Malaysia) Sdn Bhd, Penang / Malaysia | 100.00 | ||
BAG electronics, Inc., Binan, Laguna / Philippines | 0.00 | 2) | |
TRILUX Lighting Inc., Binan, Laguna / Philippines | 0.00 | 2) | |
OSRAM Lighting Pte. Ltd., Singapore / Singapore | 100.00 | ||
OSRAM Co., Ltd., Seoul / South Korea | 100.00 | ||
OSRAM Opto Semiconductors Korea Ltd., Seoul / South Korea | 100.00 | ||
OSRAM Taiwan Company Ltd., Taipei / Taiwan
OSRAM Opto Semiconductors (Taiwan) Ltd., Taipei / Taiwan
OSRAM (Thailand) Co., Ltd., Bangkok / Thailand
Associates and joint ventures of OSRAM GmbH, Munich / Germany
Germany (as of September 30, 2019: 5 companies)
agrilution GmbH, Munich
Blickfeld GmbH, Munich
GoodIP GmbH, Munich
iThera Medical GmbH, Munich
Square Metrics GmbH, Berlin
EMEA (excluding Germany) (as of September 30, 2019: 4 companies)
EMGO N.V., Lommel / Belgium
LAMP NOOR (P.J.S.) Co., Tehran / Iran
Tvilight B.V., Groningen / Netherlands
beaconsmind AG, Zurich / Switzerland
Americas (as of September 30, 2019: 2 companies)
LeddarTech Inc., Québec / Canada
Motorleaf Inc., Montreal / Canada
APAC (as of September 30, 2019: 1 company)
Siteco Prosperity Lighting (Lang Fang) Co., Ltd., Lang Fang / China
Other equity investments of OSRAM GmbH, Munich / Germany
Germany (as of September 30, 2019: 3 companies)
Caruso GmbH, Ismaning
GSB - Sonderabfall-Entsorgung Bayern GmbH, Baar-Ebenhausen
Unternehmertum VC Fonds II GmbH & Co. KG, Garching b. München
EMEA (excluding Germany) (as of September 30, 2019: 4 companies)
KNX Association cvba, Brussels-Diegem / Belgium
Partech Partners S.A.S., Paris / France
Design LED Products Limited, Edinburgh / Great Britain
Voltimum S.A., Vernier / Switzerland
Americas (as of September 30, 2019: 3 companies)
Luminaerospace LLC, Denver, Colorado / U.S.A.
Recogni, Inc., Cupertino, California / U.S.A.
TetraVue, Inc., Wilmington, Delaware / U.S.A.
100.00
100.00
100.00
18.74 3)
12.55 3)
10.00 3)
9.26 3)
49.00 3)
50.00
20.00 1)
47.50
14.48 3)
29.05
12.94 3)
50.00
1.00 4)
0.07 4)
6.06
2.96 4)
8.50
6.03 4)
13.71 4)
2.00 4)
6.38 4)
6.36 4)
1) 3Not accounted for using the equity method due to immateriality.
2) 3Control on the basis of contractual agreements that enable material activities to be directed. 3) 3Significant influence on the basis of contractual provisions or legal arrangements.
4) 3These equity investments are measured in accordance with IFRS 9 Financial Instruments and are assigned to the FVOCI measurement category (financial assets measured at fair value through other comprehensive income without recycling to profit or loss).
Convenience translation of the German original
Annex 2 | List of all subsidiaries and affiliates of ams AG |
Group Enterprises
Accounting | Country of | Functional | Ownership | ||
method | incorporation | currency | interest | ||
2019 | 2018 | ||||
ams France S.à.r.l. | fully consolidated | France | EUR | 100% | 100% |
ams Italy S.r.l. | fully consolidated | Italy | EUR | 100% | 100% |
ams International AG | fully consolidated | Switzerland | CHF | 100% | 100% |
ams R&D Spain, S,L. | fully consolidated | Spain | EUR | 100% | 100% |
ams R&D UK Ltd. | fully consolidated | U, K, | GBP | 100% | 100% |
ams Japan Co, Ltd. | fully consolidated | Japan | JPY | 100% | 100% |
ams Semiconductors India Pvt Ltd. | fully consolidated | India | INR | 100% | 100% |
ams China Co Ltd | fully consolidated | China | RMB | 100% | 100% |
ams Asia Inc, | fully consolidated | Philippines | PHP | 100% | 100% |
Aspern Investment Inc. | fully consolidated | USA | USD | 100% | 100% |
ams Sensors USA Inc. | fully consolidated | USA | USD | 100% | 100% |
ams Korea Co, Ltd. | fully consolidated | Korea | KRW | 100% | 100% |
ams R&D doo | fully consolidated | Slovenia | EUR | 100% | 100% |
AppliedSensor Holding AB | fully consolidated | Sweden | SEK | 100% | 100% |
ams Sensors Netherlands BV | fully consolidated | Netherlands | EUR | 100% | 100% |
ams sensors Hong Kong Ltd. | at amortized costs | Hong Kong | HKD | 100% | 100% |
ams Finland Oy | fully consolidated | Finland | EUR | 100% | 100% |
ams Sensors Belgium BVBA | fully consolidated | Belgium | EUR | 100% | 100% |
CMOSIS International NV | fully consolidated | Belgium | EUR | 100% | 100% |
AWAIBA Holding SA | fully consolidated | Switzerland | CHF | 100% | 100% |
ams Sensors Portugal Unipessoal Lda | fully consolidated | Portugal | EUR | 100% | 100% |
ams Sensors Germany GmbH | fully consolidated | Germany | EUR | 100% | 100% |
ams Sensors UK Ltd. | fully consolidated | UK | GBP | 100% | 100% |
Incus Laboratories Ltd. | fully consolidated | UK | GBP | 100% | 100% |
ams Cayman Inc. | fully consolidated | Cayman Island | USD | 100% | 100% |
Heptagon Advanced Micro-Optics | |||||
Pte Ltd. | fully consolidated | Singapore | USD | 100% | 100% |
ams Sensors Singapore Pte. Ltd. | fully consolidated | Singapore | USD | 100% | 100% |
Heptagon Oy | fully consolidated | Finland | EUR | 100% | 100% |
Heptagon Holding Switzerland AG | fully consolidated | Switzerland | CHF | 100% | 100% |
Heptagon Micro Optics Technologies | |||||
Sdn Bhd | fully consolidated | Malaysia | MYR | 100% | 100% |
AMK Inv Systems Pte. Ltd. | fully consolidated | Singapore | USD | 100% | 100% |
Heptagon Holding CA Inc. | fully consolidated | USA | USD | 100% | 100% |
RF Digital Corp. | fully consolidated | USA | USD | 100% | 100% |
Simblee Corp. | fully consolidated | USA | USD | 100% | 100% |
RFDuino Inc. | fully consolidated | USA | USD | 100% | 100% |
Princeton Optronics Inc. | fully consolidated | USA | USD | 100% | 100% |
ams Holding USA Inc. | fully consolidated | USA | USD | 100% | 100% |
ams Sensors Asia Pte. Ltd. | fully consolidated | Singapore | USD | 100% | 100% |
KeyLemon SA | fully consolidated | Switzerland | CHF | 100% | 100% |
Ams Sensors Taiwan Pte. Ltd. | fully consolidated | Taiwan | TWD | 100% | 0% |
Sciosense BV | fully consolidated | Netherlands | EUR | 100% | 0% |
Sciosense Germany GmbH | fully consolidated | Germany | EUR | 100% | 0% |
Sciosense Italy S.r.l. | fully consolidated | Italy | EUR | 100% | 0% |
Opal Bidco GmbH | fully consolidated | Germany | EUR | 100% | 0% |
ams Offer GmbH | fully consolidated | Germany | EUR | 100% | 0% |
Associated Companies and Investments
Accounting | Establishing | Functional | Ownership | ||
method | State | currency | share | ||
2019 | 2018 | ||||
7Sensing Software NV. | At equity method | Belgium | EUR | 30% | 35% |
NewScale Technologies Inc. | At equity method | USA | USD | 29% | 34% |
Circadian Zirclight LLC | At equity method | USA | USD | 6.13% | 7.8% |
RF Micron Inc. d/b/a Axzon | At equity method | USA | USD | 9.21% | 9.83% |
Jinan Smart Sensing Sensor Co. Ltd. | At equity method | China | CNY | 49% | 0% |
Greentropsim | FVOCI | France | EUR | 10.06% | 9.31% |
Personify Inc. | FVOCI | USA | USD | 13.06% | 13.10% |
Leman Micro Devies | FVOCI | Switzerland | CHF | 15.43% | 17.30% |
HLJ Technologies Co. Ltd. | FVTPL | Taiwan | TWD | 12.50% | 15.20% |
Osram Licht AG | FVOCI | Germany | EUR | 19.99% | 0% |
Silicon Alps Cluster GmbH | FVOCI | Austria | EUR | 4% | 0% |
Bellus 3D | FVOCI | USA | USD | 3.26% | 3.26% |
Convenience translation of the German original | |
Annex 3 | Domination and Profit and Loss Transfer Agreement between |
OSRAM Licht AG and ams Offer GmbH, and the letter of com- | |
fort of ams AG |
Convenience translation of the German original
Domination and
Profit and Loss Transfer Agreement
between
OSRAM Licht AG,
Marcel-Breuer-Str. 6, 80807 Munich,
registered in the commercial register (Handelsregister) at the Local Court
(Amtsgericht) Munich (HRB 199675)
("OSRAM")
and
ams Offer GmbH,
Marcel-Breuer-Str. 6, 80807 Munich,
registered in the commercial register (Handelsregister) at the Local Court
(Amtsgericht) Munich (HRB 252979)
("ams Offer")
DAC38404624/9 163100-0010
Convenience translation of the German original
1 Management Control
- OSRAM submits the management control (Leitung) of its company to ams Offer. ams Offer is accordingly entitled to issue instructions (Weisungen) to the management board of OSRAM with regard to the management control of the company.
- The management board of OSRAM is required to comply with the instructions of ams Offer. ams Offer is not entitled to issue the instruction to the management board of OSRAM to amend, maintain or terminate this Agreement.
- Any instructions require text form (Textform) or, if the instructions are issued orally, they shall be confirmed in text form without undue delay.
2 Transfer of Profit
- OSRAM undertakes to transfer its entire annual profit (Gewinnabführung) to ams Offer. Subject to establishing or dissolving reserves in accordance with Clause 2.2 of this Agreement below, the maximum amount permissible under section 301 German Stock Corporations Act (Aktiengesetz - "AktG"), as amended from time to time, shall be transferred.
- OSRAM may, with the written consent of ams Offer, allocate parts of its annual profit to other profit reserves if and to the extent permissible under commercial law and as economically justified by reasonable commercial judgement. Upon written request of ams Offer, OSRAM shall dissolve other profit reserves established during the course of this Agreement and use the proceeds to compensate for any annual loss or transfer the proceeds as profit. Other reserves or profits carried forward from the period prior to the effectiveness of this Agreement may neither be transferred as profit nor be used to compensate for any annual loss.
- The obligation to transfer the annual profit applies for the first time to the entire fiscal year of OSRAM in which this Agreement becomes effective according to Clause 6.2 of this Agreement. The obligation according to sentence 1 becomes due upon the end of the fiscal year of OSRAM and shall bear interest from this point on at an interest rate of 5% p.a.
3 Assumption of Losses
- ams Offer is obliged towards OSRAM to assume any losses (Verlustübernahme) according to the provisions of section 302 AktG in its entirety as amended from time to time.
- The obligation to assume any losses applies for the first time to the entire fiscal year of OSRAM in which this Agreement becomes effective according to Clause 6.2 of this Agreement. Clause 2.3 sentence 2 applies accordingly to the obligation to assume any losses.
4 Recurring Compensation Payment
4.1 ams Offer undertakes to pay to the outside shareholders of OSRAM a recurring annual cash compensation ("Recurring Compensation Payment") (Ausgleichszahlung) from and including the fiscal year of OSRAM in relation to which the claim of ams Offer for the transfer of the annual profit under Clause 2 takes effect, and for the further duration of this Agreement.
1
Convenience translation of the German original
- The Recurring Compensation Payment amounts for each full fiscal year of OSRAM for each no-par value registered ordinary voting shares (Aktien ohne Nennbetrag) in OSRAM, representing a mathematical portion of EUR 1.00 in the share capital (each "OSRAM Share" and all "OSRAM Shares") to a gross sum (Bruttobetrag) of EUR 2.57 minus the amount of any corporate income tax and the solidarity surcharge in accordance with the respective tax rate applicable for these taxes for the relevant fiscal year, whereby this deduction is to be calculated only on the basis of the pro rata gross sum of EUR 2.08 per OSRAM Share resulting from profits which are subject to German corporate income tax. Based on the situation at the time of conclusion of this Agreement, the pro rata gross sum of EUR 2.08 for each OSRAM share, which relates to profits made by OSRAM being subject to the German corporate income tax, is subject to a deduction of 15% corporate income tax plus 5.5% solidarity surcharge, that is EUR 0.33. Together with the remaining pro rata gross sum of EUR 0.49 for each OSRAM Share, relating to profits not being subject to the German corporate income tax, the Recurring Compensation Payment amounts to EUR 2.24 for each OSRAM Share for each full fiscal year, based on the situation at the time of conclusion of this Agreement. For the avoidance of doubt, it is agreed that any withholding tax (such as capital gains tax plus solidarity surcharge thereon) shall be withheld from the Recurring Compensation Payment to the extent required by statutory law. The Recurring Compensation Payment is due on the first banking day following the ordinary general shareholders' meeting of OSRAM for any respective preceding fiscal year but in any event within eight months following expiration of the relevant fiscal year.
- The Recurring Compensation Payment is granted for the first time for the full fiscal year of OSRAM for which the claim of ams Offer to transfer of profit under Clause 2 becomes effective. If this Agreement ends during a fiscal year of OSRAM or if OSRAM establishes an abbreviated fiscal year (Rumpfgeschäftsjahr) while the obligation according to Clause 2 is existing, the Recurring Compensation Payment is reduced pro rata temporis.
- If the share capital of OSRAM is increased from the reserves in exchange for the issuance of new shares, the Recurring Compensation Payment for each OSRAM Share is reduced to such an extent that the total amount of the Recurring Compensation Payment remains unchanged. If the share capital of OSRAM is increased by cash contributions and/or contributions in kind, the rights under this Clause 4 also apply for the shares subscribed to by outside shareholders in such capital increase. The beginning of each entitlement of the new shares pursuant to this Clause 4 corresponds to the dividend entitlement set by OSRAM when issuing the new shares.
- If an appraisal proceeding (Spruchverfahren) according to the German Act on Appraisal Proceedings (Spruchverfahrensgesetz) is initiated and the court adjudicates a legally binding higher Recurring Compensation Payment, the outside shareholders, even if they have already been compensated according to Clause 5, are entitled to demand a corresponding additional payment to the Recurring Compensation Payment. Likewise all other outside shareholders will be treated in the same way if ams Offer undertakes to pay a higher Recurring Compensation Payment to an outside shareholder of OSRAM in a court settlement (gerichtlicher Vergleich) for the purpose of avoiding or settling judicial appraisal proceedings (Spruchverfahren).
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Convenience translation of the German original
5 Compensation
- ams Offer undertakes upon demand of each outside shareholder of OSRAM to purchase such shareholder's OSRAM Shares in exchange for a cash compensation ("Compensation") (Abfindung) in the amount of EUR 44.65 for each OSRAM Share.
- The obligation of ams Offer to purchase OSRAM Shares is for a limited period of time. The time limitation period ends two months after the date on which the registration of this Agreement in the commercial register at the registered seat of OSRAM has been announced pursuant to section 10 of the German Commercial Code (Handelsgesetzbuch - HGB). An extension of the time limitation period pursuant to section 305 para. 4 sentence 3 AktG as a result of a motion for determining the Recurring Compensation Payment or Compensation by the court determined according to section 2 of the German Act on Appraisal Proceedings remains unaffected. In this case, the time limitation period ends two months after the date on which the decision on the last motion ruled on has been announced in the Federal Gazette (Bundesanzeiger).
- If the share capital of OSRAM is increased using corporate funds in exchange for the issuance of new shares prior to the expiration of the time limitation period set forth in Clause 5.2, the Compensation for each share is reduced to such an extent that the total amount of the Compensation remains unchanged. If the share capital of OSRAM is increased prior to the expiration of the time limitation period set forth in Clause 5.2 by means of cash contributions and/or contributions in kind, the rights under this Clause 5 also apply for the shares subscribed to by the outside shareholders in such capital increase.
- The transfer of the OSRAM Shares for Compensation is free of costs for the outside shareholders of OSRAM.
- If an appraisal proceeding (Spruchverfahren) pursuant to the German Act on Appraisal Proceedings is initiated and the court adjudicates a legally binding higher compensation, the outside shareholders, even if they have already been compensated, are entitled to demand a corresponding additional payment to the Compensation. Likewise all other outside shareholders will be treated in the same way if ams Offer undertakes in a court settlement (gerichtlicher Vergleich) to pay a higher compensation to an outside shareholder of OSRAM for the purpose of avoiding or settling judicial appraisal proceedings (Spruchverfahren).
6 Effectiveness and Term of this Agreement
- This Agreement requires for its effectiveness each the consent of the general shareholders' meeting of OSRAM as well as the consent of the shareholders' meeting of ams Offer.
- This Agreement becomes effective upon registration of its existence in the commercial register at the registered seat of OSRAM, however, at the earliest, upon the beginning of the financial year of OSRAM beginning on 1 October 2020.
- This Agreement is concluded for an indefinite period of time. It can be terminated in writing with a notice period of six month to the end of the fiscal year of OSRAM. This Agreement can be terminated for the first time as of the end of the fiscal year that ends at least five years (Zeitjahre) (60 months) after the beginning of the fiscal year of OSRAM, in which this Agreement has become effective according to Clause 6.2 of this Agreement.
- Each party can terminate this Agreement for good cause (wichtiger Grund) without compliance with any notice period. Good cause exists in particular if good cause for
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Convenience translation of the German original
purposes of German tax law for the termination of this Agreement exists including those pursuant to R 14.5 (6) Corporation Tax Guidelines (Körperschaftsteuer-Richtlinien- KStR) (or a corresponding successor provision).
6.5 Any notice of termination must be in writing.
-
Comfort Letter
ams AG with seat in Premstätten, Austria, ("ams AG") holds 100% of the shares in ams Offer and in this capacity as direct shareholder, has without joining the Agreement as a party provided the comfort letter attached for information purposes to this Agreement as an Annex. In this comfort letter ams AG undertakes without limitation and irrevocably to ensure, that ams Offer will be financially equipped in a way that ams Offer is at all times able to fulfil all its obligations arising from or in connection with this Agreement completely when they become due. This applies in particular to the obligation to compensate losses pursuant to section 302 AktG. ams AG undertakes towards the outside shareholders of OSRAM irrevocably and in principle without limitation that ams Offer fulfils all its obligations towards them arising from or in connection with this Agreement completely when they become due, in particular with respect to the Recurring Compensation Payment and the Compensation. To that extent the outside shareholders of OSRAM have an own claim according to section 328 para. 1 German Civil Code (Bürgerliches Gesetzbuch - BGB) directed at payment to ams Offer. This claim and the corresponding liability of ams AG towards the outside shareholders however only apply if ams Offer does not fulfil its obligations towards the outside shareholders of OSRAM arising from or in connection with this Agreement completely when they become due and ams AG does not comply with its obligation to equip ams Offer. - Miscellaneous
To the extent a provision of this Agreement is or becomes invalid or impracticable in full or in part, or if this Agreement does not contain a necessary provision, the validity of the remaining provisions of this Agreement shall not be affected. In place of the invalid or impracticable provision, or in order to remedy an omission in this Agreement, an appropriate provision shall apply which corresponds as far as legally permissible to what the parties of this Agreement intended or would have intended in accordance with the intent and purpose of this Agreement if they had been aware of the provision.
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Convenience translation of the German original
Munich, 22 September 2020
OSRAM Licht AG
Dr. Olaf Berlien | Kathrin Dahnke |
Chairman of the management board, CEO | Member of the management board, CFO |
Munich, 22 September 2020
ams Offer GmbH
Alexander Everke | Ingo Bank |
Managing Director | Managing Director |
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- Non-binding convenience translation of the German original - | ams AG | T +43 3136 500-0 |
Tobelbader Strasse 30 | sensors@ams.com | |
8141 Premstaetten | www.ams.com | |
Austria |
OSRAM Licht AG
Marcel-Breuer-Str. 6
80807 München
Germany
Premstaetten, 22. September 2020
Comfort Letter (Patronatserklärung)
ams Offer GmbH, Marcel-Breuer-Str. 6, 80807 Munich, Germany, registered in the commercial register (Handelsregister) at the Local Court (Amtsgericht) Munich under company number HRB 252979 ("ams Offer"), intends to enter into a domination and profit and loss transfer agreement (Beherrschungs- und Gewinnabführungsvertrag) with OSRAM Licht AG, Marcel-Breuer-Str. 6, 80807 Munich, Germany, registered in the commercial register at the Local Court Munich under company number HRB 199675 ("OSRAM"), with OSRAM as the controlled and profit transferring company ("Agreement"). ams AG, a stock corporation incorporated and operating under the laws of Austria, with registered office in Premstätten ("ams AG"), directly holds 100% of the shares in ams Offer. ams AG hereby makes the following declarations without joining the Agreement as a party:
- ams AG undertakes without limitation and irrevocably to ensure, that ams Offer will be financially equipped in such a way that ams Offer is at all times able to fulfil all its liabilities arising from or in connection with the Agreement completely when they become due. This applies in particular to the obligation to compensate losses pursuant to section 302 German Stock Corporations Act (Aktiengesetz - AktG).
- ams AG undertakes without limitation and irrevocably vis-à-vis the outside shareholders of OSRAM that ams Offer fulfils all its obligations towards them arising from or in connection with the Agreement completely when they become due, in particular with respect to the recurring compensation payment (Ausgleichszahlung) and the cash compensation (Abfindung). To that extent the outside shareholders of OSRAM have an own claim according to section 328 para. 1 German Civil Code (Bürgerliches Gesetzbuch - BGB) directed at payment to ams Offer. ams AG's liability pursuant to the two preceding sentences does, however, only apply if ams Offer does not fulfil its obligations towards the outside shareholders of OSRAM arising from or in connection with the Agreement completely when they become due and ams AG does not comply with its obligation to equip ams Offer pursuant to Section 1 of this Comfort Letter.
- This Comfort Letter is subject to the law of the Federal Republic of Germany. Exclusive place of jurisdiction for all disputes arising between the parties from or in connection with this Comfort Letter is Munich, Germany, to the extent permitted by law.
Bankverbindungen/ | IBAN EUR AT28 1200 0763 1316 1100 | Firmenbuchgericht Graz | DVR 0420352 |
Bankaccounts | BIC BKAUATWW | Firmenbuch Nr. FN 34109k | UID/VAT ATU 28560205 |
UniCredit Bank Austria AG, Graz | IBAN USD AT60 1200 0763 1316 1106 |
- Non-binding convenience translation of the German original -
ams AG
Alexander Everke | Ingo Bank |
CEO | CFO |
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Convenience translation of the German original
Annex 4:Expert opinion by PricewaterhouseCoopers GmbH Wirtschafts- prüfungsgesellschaft, Friedrich-Ebert-Anlage35-37, 60327 Frankfurt am Main, Germany, of 21 September 2020 on the determination of the business value of OSRAM Licht AG as per the valuation date of 3 November 2020
Expert Opinion
on the business value of
OSRAM Licht AG,
Munich,
and on determining the appropriate cash compensation as well as the appropriate recurring compensation payment as of the date of the resolving general shareholders' meeting on the occasion of the planned conclusion of a Domination and Profit and Loss Transfer Agreement pursuant to § 291(1) German Stock Corporation Act between ams Offer GmbH, Ismaning, und OSRAM Licht AG, Munich
as per valuation date of 3 November 2020
This English version serves only as an explanatory note and shall not be signed by us. In case of any inconsistencies between the German and English version of our expert opinion, the German version shall prevail.
Assignment: 0.0939417.001
PwC
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Table of contents | Page | |||
A. Engagement and scope of work ............................................................................................ | 9 | |||
B. Principles and methods of valuation ................................................................................... | 11 | |||
I. | Basics of the valuation .............................................................................................. | 11 | ||
II. | Appropriate cash compensation pursuant to § 305 AktG ............................................ | 13 | ||
III. | Appropriate recurring compensation payment pursuant to § 304 AktG....................... | 13 | ||
C. Description of the valuation object ..................................................................................... | 15 | |||
I. | Legal characteristics ................................................................................................. | 15 | ||
1. | Legal situation.................................................................................................. | 15 | ||
2. | Corporate structure .......................................................................................... | 18 | ||
3. | Tax situation .................................................................................................... | 20 | ||
II. | Economic fundamentals............................................................................................ | 21 | ||
1. | Business operations .......................................................................................... | 21 | ||
2. | Market and competitive environment................................................................ | 24 | ||
a) Preliminary remarks and economic indicators............................................... | 24 | |||
b) Market segments.......................................................................................... | 28 | |||
(1) Business Unit "Opto Semiconductors"....................................................... | 28 | |||
(2) | Business Unit "Automotive"...................................................................... | 31 | ||
(3) | Business Unit "Digital" ............................................................................. | 34 | ||
c) Summary..................................................................................................... | 41 | |||
3. | Assets, financial position and operating income................................................. | 42 | ||
a) Assets and financial position ........................................................................ | 43 | |||
b) Operating income ........................................................................................ | 50 | |||
4. | Earnings adjustments ....................................................................................... | 58 | ||
5. | Success factors and risks of the strategic business model.................................... | 61 | ||
D. Determination of business value......................................................................................... | 64 | |||
I. | Valuation basis ......................................................................................................... | 64 | ||
1. | Approach ......................................................................................................... | 64 | ||
2. | Planning process .............................................................................................. | 66 | ||
3. | Forecast accuracy ............................................................................................. | 67 | ||
4. | Key assumptions............................................................................................... | 69 | ||
II. | Expected net distributions from operating assets ....................................................... | 71 | ||
0.0939417.001 |
PwC
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Table of contents | Page | ||
1. | Earnings before interest and taxes (EBIT) in the detailed planning period | .......... 71 | |
2. | Valuation-related modifications to the planning calculation .............................. | 80 | |
3. | Determination of the profit contributions of the valuation-relevant | ||
synergies .......................................................................................................... | 81 | ||
4. | Earnings before interest and taxes (EBIT) in terminal value ............................... | 82 | |
5. | Net distributions after personal income taxes .................................................... | 84 | |
III. | Determination of the discount rate ............................................................................ | 86 | |
1. | Risk-free rate.................................................................................................... | 87 | |
2. | Risk premium ................................................................................................... | 87 | |
3. | Terminal growth rate........................................................................................ | 95 | |
4. | Derivation of the discount rate.......................................................................... | 97 | |
IV. | Value of the business operations ............................................................................... | 98 | |
V. | Value of non-operating assets.................................................................................... | 99 | |
VI. | Business value ........................................................................................................ | 101 | |
VII. | Liquidation value.................................................................................................... | 101 | |
E. Plausibility assessment of the business value using the market approach ........................... | 103 | ||
I. | General approach ................................................................................................... | 103 | |
II. | Derivation of multiples ........................................................................................... | 104 | |
III. | Valuation with multiples......................................................................................... | 107 |
- Determination of an adequate cash compensation in accordance with § 305 German Stock Corporation Act and adequate recurring compensation payment in accordance
with § 304 German Stock Corporation Act ........................................................................ | 110 | |
I. | Share price ............................................................................................................. | 110 |
II. | Determination of the appropriate cash compensation .............................................. | 114 |
III. | Determination of the appropriate recurring compensation payment......................... | 116 |
G. Summary of results .......................................................................................................... | 120 |
0.0939417.001
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OSRAM Licht AG published this content on 23 September 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 25 September 2020 07:09:02 UTC
