7. Other disclosures

7.1. CORPORATE GOVERNANCE STATEMENT

DECLARATION OF CONFORMITY
The management and supervisory boards of listed companies issue an annually renewed declaration stating that the recommendations of the Government Commission on the German Corporate Governance Code have been and are being complied with, where necessary citing those recommendations that have not been or are not being applied. The declaration of conformity of MTU Aero Engines is included in the corporate governance report on page 20. There is a section devoted to Corporate Governance on the MTU website at www.mtu.de under Investor Relations.

MANAGEMENT PRACTICES EXTENDING BEYOND STATUTORY REQUIREMENTS
A full description of management practices that extend beyond statutory requirements is provided in the corporate governance report.

WORKING PROCEDURES OF THE BOARD OF MANAGEMENT AND SUPERVISORY BOARD
A description of the working procedures of the Board of Management and Supervisory Board is provided in the corporate governance report.

 

7.2. REFERENCE TO THE MANAGEMENT COMPENSATION REPORT

The compensation awarded to members of the Board of Management is made up of fixed and variable components. A more detailed description, including a table of individual members’ compensation entitlements, can be found in the ‘Corporate governance’ section of this Annual Report. The management compensation report forms an integral part of the group management report.

 

7.3. DIRECTORS’ DEALINGS

Pursuant to Section 15a of the German Securities Trading Act (WpHG), members of the Board of Management and the Supervisory Board have a legal obligation to disclose transactions involving the purchase or sale of shares in MTU Aero Engines Holding AG, Munich, or related financial instruments, on condition that the total amount of the transactions undertaken by a board member or related persons reaches or exceeds € 5,000 within a single calendar year. This disclosure requirement applies equally to any other management staff with executive powers and to persons closely related to them. These transactions are posted on the MTU website at www.mtu.de and published in the register of companies.

The total number of shares in MTU Aero Engines Holding AG, Munich held by members of the company’s Board of Management and Supervisory Board at December 31, 2010 equated to less than 1% (at December 31, 2009 less than 1%) of the company’s capital stock.

 

7.4. DISCLOSURES IN CONNECTION WITH THE TAKEOVER DIRECTIVE

The following disclosures are made pursuant to Section 315(4) of the German Commercial Code (HGB) (takeover directive implementation).

COMPOSITION OF SUBSCRIBED CAPITAL
The subscribed capital (capital stock) of MTU Aero Engines Holding AG is unchanged, and amounts to € 52.0 million, divided into 52.0 million registered non-par-value shares. All shares have equal rights and each share entitles the holder to one vote at the Annual General Meeting.

RESTRICTIONS CONCERNING VOTING RIGHTS AND THE TRANSFER OF SHARE OWNERSHIP
At December 31, 2010, MTU held 3,247,593 treasury shares. No voting rights are exercised in respect of treasury shares. The articles of association of MTU Aero Engines Holding AG do not contain any restrictions concerning voting rights or the transfer of share ownership. The Board of Management has no knowledge of any agreement between shareholders that could give rise to any such restrictions.

CAPITAL INVESTMENTS EXCEEDING 10% OF THE VOTING RIGHTS
According to its notification dated November 15, 2010, Capital Research and Management Company held 10.22% of MTU’s voting rights (5,313,949 shares).

SHARES WITH SPECIAL RIGHTS CONFERRING POWERS OF CONTROL ON THE HOLDER
MTU has not issued any shares with special rights conferring powers of control on the holder.

METHOD OF CONTROLLING VOTING RIGHTS WHEN EMPLOYEES OWN STOCK CAPITAL AND DO NOT EXERCISE THEIR CONTROL RIGHTS DIRECTLY
Employees holding shares in MTU Aero Engines Holding AG exercise their control rights like any other shareholder, in strict compliance with statutory regulations and the company’s articles of association.

RULES GOVERNING THE APPOINTMENT AND DISMISSAL OF MEMBERS OF THE BOARD OF MANAGEMENT
Members of the Board of Management are appointed by the Supervisory Board in accordance with the provisions of Section 84 of the German Stock Corporation Act (AktG). The Supervisory Board also determines the number of members in the Board of Management which, according to the articles of association, must consist of at least two members. The Supervisory Board is entitled to select one member of the Board of Management to serve as its chair. Members of the Board of Management serve for a term of office not exceeding five years. This initial term of office may be prolonged, in the same or a different capacity, for an additional five years. Pursuant to Section 31 of the German Co-Determination Act (MitbestG), the appointment of a member of the Board of Management requires a two-thirds majority of the votes of the Supervisory Board. In default of a majority vote, the Supervisory Board’s Mediation Committee is granted a one-month period within which it must submit an alternative proposal for the appointment. If no candidate is accepted as a result of this second vote, a third voting round is held, in which the chair of the Supervisory Board has two votes but the deputy chair is not entitled to a second vote.

The Supervisory Board has the right to refuse the appointment of a member or chair of the Board of Management on significant grounds – for instance gross breach of duty or incapacity to manage a business in an orderly manner.

RULES GOVERNING AMENDMENTS TO THE ARTICLES OF ASSOCIATION
All amendments to the articles of association require a resolution on the part of the Annual General Meeting, pursuant to Section 179 of the German Stock Corporation Act (AktG). Under the terms of the articles of association, such resolutions must be carried by a simple majority of the votes or, in cases where a majority of the voting stock must be represented at the meeting, by the simple majority of the voting stock – unless otherwise stipulated by the law (Section 18(1)). The right to add amendments of a purely formal nature, for instance changes to the share capital as the result of utilization of the authorized capital, is devolved to the Supervisory Board under the terms of Section 13 of the articles of association. Amendments to the articles of association become effective on the date at which they are entered in the commercial register (Section 181(3) of the German Stock Corporation Act – AktG).

AUTHORIZATIONS CONFERRED ON THE BOARD OF MANAGEMENT, ESPECIALLY CONCERNING THE ISSUE AND PURCHASE OF SHARES

AUTHORIZED CAPITAL
The Board of Management is authorized until April 21, 2015 to increase the company’s capital stock by up to € 5.2 million, with the prior approval of the Supervisory Board, by issuing, either in a single step or in several steps, new registered non-par-value shares in return for cash contributions (Authorized capital I 2010).

CONVERTIBLE BONDS AND BONDS WITH WARRANTS
At the Annual General Meeting on April 22, 2010, the Board of Management was authorized until April 21, 2015 to carry out conditional capital increases with the prior approval of the Supervisory Board:

• The company’s capital stock may be conditionally increased by up to € 3.64 million through the issue of up to 3,640,000 million new registered non-par-value shares. The purpose of this conditional capital increase is to issue shares to owners or creditors of convertible bonds and/or bonds with warrants in accordance with the authorization granted to the company’s Board of Management under a resolution passed by the Annual General Meeting on May 30, 2005. Shares may be issued at a conversion price or warrant exercise price determined on the basis of the conditions laid down in the relevant authorization.
  
  
• The company’s capital stock may be increased by up to € 22.36 million through the issue of up to 22,360,000 million new registered non-par-value shares, each corresponding to a proportional amount (one euro) of the company’s total capital stock (contingent capital). The purpose of this conditional capital increase is to issue shares to owners or creditors of convertible bonds and/or bonds with warrants in accordance with the authorization granted to the company’s Board of Management under a resolution passed by the Annual General Meeting on April 22, 2010. Shares may be issued at a conversion price or warrant exercise price determined on the basis of the conditions laid down in the relevant authorization.
  
  The Board of Management is authorized until April 21, 2015 to issue, in a single step or in several steps and with the prior approval of the Supervisory Board, bearer convertible bonds and/or bonds with warrants (collectively referred to as ‘securities’), with or without maturity date, with a total nominal value of up to € 500 million, and to grant the owners of convertible bonds and/or bonds with warrants the right, obligation or option to convert them into registered non-par-value shares of the company representing a share in the capital stock of up to € 22.36 million under the conditions established for the issue of convertible bonds or bonds with warrants. These securities may be issued in return for cash contributions only. They may be issued in euros or – to an equivalent value – in any other legal currency, for instance that of an OECD country. They may also be issued by an affiliated company in which MTU holds a controlling interest (group company). In such cases, and subject to the prior approval of the Supervisory Board, the Board of Management is authorized to act as guarantor for the securities, and to grant the owners of the securities the right, obligation or option to convert them into new registered non-par-value shares in MTU.

RESOLUTION CONCERNING THE AUTHORIZATION TO PURCHASE AND USE TREASURY SHARES PURSUANT TO SECTION 71(1) ITEM 8 OF THE GERMAN STOCK CORPORATION ACT (AKTG) AND CONCERNING THE EXCLUSION OF SUBSCRIPTION RIGHTS
At the Annual General Meeting on April 22, 2010, a resolution was passed by a majority of votes representing 98.03 % of the stock capital with voting rights held by those present at the meeting to accept the proposal by the Supervisory Board and Board of Management concerning the authorization to purchase and use treasury shares pursuant to Section 71(1) item 8 of the German Stock Corporation Act (AktG) and concerning the exclusion of subscription rights. The resolution adopted by the Annual General Meeting conferred the following authorizations on the company:

• The company is authorized to purchase treasury shares with an aggregate nominal value not exceeding 10% of the company’s issued capital stock, as applicable on the date of the resolution, during the period from April 23, 2010 through April 22, 2015, pursuant to Section 71(1) item 8 of the German Stock Corporation Act (AktG). At no point in time may the acquired shares, together with other treasury shares in the company’s possession or which are assigned to it pursuant to Section 71a et seq. of the German Stock Corporation Act (AktG), exceed 10 % of the company’s capital stock. At the discretion of the Board of Management, the shares may be purchased through the stock exchange or by means of a public offering addressed to all shareholders (or – if legally acceptable – through an open invitation to submit offers for sale). The shares must be sold in return for proceeds that do not lie more than 10% above or below the quoted share price, net of any supplementary transaction charges. The reference for the quoted share price as defined in the above ruling, in the case of a sale through the stock exchange, is the average value of share prices in the closing session of Xetra trading (or a comparable successor system) on the last three trading days prior to acquisition of the shares. In the case of shares purchased by means of a public offering addressed to all shareholders (or an open invitation to submit offers for sale), the reference for the quoted share price is the average value of share prices in the closing session of Xetra trading (or a comparable successor system) on the last three trading days prior to the publication of the offering or invitation. In the event of substantial fluctuations in the share price, the Board of Management is authorized to publish a new public offering or invitation to submit offers for sale, based on a recalculated average value of share prices according to the previously mentioned formula. The volume of the offer can be limited in the case of shares purchased by means of a public offering addressed to all shareholders (or an open invitation to submit offers for sale). If the take-up of the offering (or the total number of offers) exceeds this volume, the purchase must be transacted in proportion to the number of shares offered. Preferential treatment may be given to small packages (up to 100 shares) offered for sale. Further conditions may be imposed in the offering or invitation to submit offers.
  
  
• The Board of Management is authorized to sell the purchased treasury shares in another manner than through the stock exchange or by means of a public offering addressed to all shareholders, on condition that the shares are sold in return for cash contributions at a price that does not lie significantly below the market price of similarly entitled MTU shares at the time of sale.
  
  
• The Board of Management is authorized, with the prior approval of the Supervisory Board, to sell the purchased treasury shares in another manner than through the stock exchange or by means of an offering addressed to all shareholders if the treasury shares are sold to program participants in conjunction with the company’s stock option programs and those participants are, or were, employees or officers of the company or one of its associated companies. If shares are to be issued to active or former members of the MTU Board of Management under the terms of the company’s stock option programs, the Supervisory Board is authorized to transact this issue.
  
  
• The Board of Management is furthermore authorized to use the purchased treasury shares as partial or complete payment in conjunction with business combinations or the acquisition, whether direct or indirect, of businesses, parts of businesses or equity investments.
  
  
• The Board of Management is also authorized, with the prior approval of the Supervisory Board, to use the purchased treasury shares to discharge obligations or exercise rights relating to convertible bonds, bonds with warrants, certificates of beneficial interest or income bonds (or combinations of such instruments) issued by the company or by a dependent group company.
  
  
• The Board of Management is moreover authorized, with the prior approval of the Supervisory Board and without any requirement for a further resolution to be passed by the Annual General Meeting, to retire purchased treasury shares in whole or in part. Their retirement may be effected by employing a simplified procedure without any capital reduction, by adapting the actuarial value of the outstanding portion of shares to that of the company’s stock capital. The retirement may be limited to a defined fraction of the purchased shares. The authorization to retire shares may be utilized on one or more occasions. If the simplified procedure is employed, the Board of Management is authorized to amend the number of outstanding shares stated in the articles of association.
  
  
• The above-stated authorizations may be exercised on one or more occasions, in whole or in part, singly or in combination. They may also be exercised by group companies as defined in Section 17 of the German Stock Corporation Act (AktG).
  
  
• The subscription rights of existing shareholders in respect of these treasury shares is excluded insofar as the shares are utilized in the manner described in the above-stated authorizations.
  
  
• The authorization to purchase treasury shares granted to the company on May 26, 2009 is revoked as of the effective date of this new authorization. The authorization to use the treasury shares purchased under the terms of the above-mentioned earlier resolution dated May 26, 2009, remains in force.

SIGNIFICANT AGREEMENTS RELATING TO CHANGE OF CONTROL SUBSEQUENT TO A TAKEOVER BID

GROUP HOLDING COMPANY (MTU AERO ENGINES HOLDING AG, MUNICH)
The group holding company, MTU Aero Engines Holding AG, Munich, has not entered into any significant agreements with third parties or affiliated companies relating to change of control subsequent to a takeover bid.

GROUP COMPANIES
The following agreements were concluded with group companies:

CONVERTIBLE BOND
The convertible bond with a total nominal value of € 180.0 million issued by the company’s consoli-dated subsidiary MTU Aero Engines Finance B.V., Amsterdam, the Netherlands (‘bond debtor’) in the financial year 2007 has given rise to the following agreements relating to change of control subsequent to a takeover bid:

In the event of a change of control, the bond debtor or MTU Aero Engines Holding AG, Munich in its capacity as guarantor will notify the bondholders of this fact through the intermediary of the depository immediately after obtaining knowledge of the change of control. A change of control is deemed to have taken place if an individual or a group of individuals acting collectively acquires a controlling interest in the guarantor. The merger of one of the guarantor’s subsidiaries with the guarantor itself and the transfer of rights from the former to the latter does not constitute a change of control under any circumstances.

Notwithstanding the requirements of Section 315(4) of the German Commercial Code (HGB) and German accounting standard DRS 15a, control in the context of bond issuance means:

• direct or indirect legal or commercial ownership as defined in Section 22 of the German Securities Trading Act (WpHG) as of a total of 50% or more of the voting rights in the guarantor or, as defined in Section 17 of the German Stock Corporation Act (AktG), the ability to determine the affairs of the guarantor in any other manner,

or

• in the case of a takeover bid for shares of the guarantor, the existence of circumstances under which the shares already under the bidder’s control added to the shares for which the bid has already been accepted together entitle the bidder to 50% or more of the voting rights in the guarantor, if at the same time the bid has become unconditional,

or

• the sale or transfer of ownership of all or substantially all assets by the guarantor to another individual or group of individuals.

In the event of a change of control, the following agreements form part of the bond issuance conditions:

• Early repayment at the request of the bondholder
  In the event of a change of control, every bondholder has the right to demand that the bond debtor should proceed with repayment of part or all of the bond units held by the bondholder at par value plus accrued interest, on condition that the attached conversion rights have not yet been exercised and that the bond units have not yet been redeemed for the purposes of repayment. This repayment request must be received by the paying agency at least 20 days prior to the control record date.

• Repayment request
  The prescribed form for submitting a repayment request is that the bondholder should deliver a written request to the paying agency in person or by registered letter, enclosing a certified statement by the bondholder’s depository bank proving that he or she is the owner of the securities in question on the date of the request. Repayment requests are irrevocable.

• Adjustment of the conversion price due to change of control
  If, after the bond debtor or the guarantor has notified the bondholders of a change of control, bondholders exercise their conversion rights during the period up to the control record date, the conversion price (in certain cases after adjustment in accordance with Section 10 of the bond issuance conditions) shall not be reduced.

PROMISSORY NOTES
The four promissory notes for a total note amount of € 65.0 million raised by MTU Aero Engines Holding AG, Munich on June 3, 2009 gave rise to the following agreements relating to change of control subsequent to a takeover bid:

• Notwithstanding existing statutory cancellation rights, the lenders are entitled to declare due an amount that corresponds to their share in the loan and demand the immediate repayment of this amount of principal plus accumulated interest up to the date of repayment in the event that an individual or group of individuals acting collectively, or one or several third parties acting on the instructions of the relevant individual(s), at any time directly or indirectly (depending on whether the Board of Management or Supervisory Board has granted its approval to the borrower) hold(s) more than 50 % of the outstanding subscribed capital or hold(s) or acquire(s) a number of the borrower’s shares corresponding to 50 % or more of the voting rights.
  
  
• Requests for repayment must be submitted in writing, citing the reason for the cancellation of the loan and the underlying circumstances, and sent by registered mail to the borrower and the paying agency.

REVOLVING CREDIT FACILITY
The terms of the revolving credit facility for a total amount of € 100 million entitle the lender to cancel the agreement in the event that one individual or a group of individuals should acquire a controlling interest in MTU Aero Engines GmbH, Munich, or any other group company benefiting from the credit agreement, or in the event that one individual or a group of individuals should hold more than 50% of the share capital or corporate capital.

OTHER AGREEMENTS
It is possible that the group holding company might nevertheless be indirectly affected by a change of control though risk- and revenue-sharing agreements entered into by its group subsidiary, MTU Aero Engines GmbH, Munich. Under such agreements, a company acquires a stake in an engine program by investing its own resources – workforce capacity and financial resources (risk) – and in turn receives a proportion of the revenues corresponding to its percentage share in the program.

Such agreements, like certain other agreements concluded by other group subsidiaries operating in the MRO segment, often contain change-of-control clauses that entitle the other party to terminate the agreement in the event that one of that party’s competitors should acquire a given percentage of the company’s voting rights (generally 25-30%, occasionally rising to 50% of the equity capital).

CLAIMS FOR COMPENSATION IN THE EVENT OF A TAKEOVER BID
The company has not entered into any agreements entitling members of the Board of Management or other employees to claim compensation in the event of a takeover bid.