Docstoc

Deutsche Lufthansa Aktiengesellschaft MORGAN STANLEY

Document Sample
Deutsche Lufthansa Aktiengesellschaft MORGAN STANLEY Powered By Docstoc
					                  Deutsche Lufthansa Aktiengesellschaft
                    (a stock corporation incorporated under the laws of Germany,
                           having its registered seat in Cologne, Germany)

                                             6 750,000,000
                        1.25 per cent. Convertible Bonds due 2012
        Convertible into Ordinary Registered Shares with limited transferability
                                Issue Price: 100 per cent.
    The 1.25 per cent. Convertible Bonds due 2012 (the ""Bonds'') convertible into ordinary registered shares
with no par value and limited transferability (the ""Shares'') of Deutsche Lufthansa Aktiengesellschaft
(""Lufthansa'' or the ""Issuer'') issued by Lufthansa will be in the denomination of 7 1,000 each. Each Bond
will, at the option of the Bondholders, be convertible beginning on and including 31 May 2002 to and including
16 December 2011 into Shares at a conversion price for each Share of 7 20.16 subject to adjustments as
provided for in the Terms and Conditions of the Bonds. See ""Terms and Conditions of the Bonds Ì Û 7 and Û 8''.
To ensure compliance with international and national airline regulations, Bondholders, not being a German
citizen or an entity domiciled in Germany, may in certain circumstances receive a cash payment in lieu of
delivery of Shares upon conversion of Bonds. The cash payment will be based on the price of the Shares. In such
event, the Shares to be delivered upon conversion will be sold by Morgan Stanley Bank AG or a successor
German Ñnancial intermediary. See ""Terms and Conditions of the Bonds Ì Û 6(7)''.
    Unless previously converted, the Bonds will be redeemed by Lufthansa on 4 January 2012 (the
""Redemption Date'') at 100 per cent. of their principal amount. Lufthansa may, at its option, redeem the
Bonds, in whole and not in part, at their principal amount together with interest accrued thereon if (i) the
aggregate principal amount of the Bonds outstanding is less than 7 75,000,000 or if (ii) on or after 4 January
2005, the price of the Shares (plus any cash amounts payable by Lufthansa under the Terms and Conditions of
the Bonds) exceeds 130 per cent. of the conversion price during a speciÑed period. See ""Terms and Conditions
of the Bonds Û 9(2)''. Interest will accrue from and including 4 January 2002 and will be payable annually in
arrears on 4 January each year, commencing 4 January 2003.
     Application has been made to list the Bonds on the Luxembourg Stock Exchange. Application will be made
to list the conditional capital out of which Shares will be delivered upon conversion of Bonds on all eight
German stock exchanges. No assurance can be given that this listing approval will be granted.
    The Bonds are initially represented by a temporary global bond (the ""Temporary Global Bond'') in bearer
form without coupons which has been deposited on 4 January 2002 (the ""Issue Date'') with a common
depositary for Euroclear Bank S.A./N.V. as operator of the Euroclear System (""Euroclear'') and Clearstream
Banking S.A., Luxembourg (""Clearstream Luxembourg''). The Temporary Global Bond will be exchangeable
for a permanent global bond (the ""Permanent Global Bond'') in bearer form without coupons upon
certiÑcation as to non-US beneÑcial ownership. With the exception of certain limited circumstances (see
""Terms and Conditions of the Bonds Ì Û 2(2)'') deÑnitive certiÑcates representing individual Bonds and
interest coupons will not be issued. The Temporary Global Bond and the Permanent Global Bond will be kept in
custody with a common depository for Euroclear and Clearstream until all obligations of Lufthansa under the
Bonds have been satisÑed.
   Investing in the Bonds involves risks. See ""Risk Factors''.
    The Bonds and the Shares into which the Bonds can be converted have not been and will not be registered
under the US Securities Act of 1933, as amended (the ""Securities Act''). The Bonds are subject to US tax law.
Accordingly, subject to certain exceptions, the Bonds may not be oÅered, sold or delivered within the United
States or to or for the account or beneÑt of US persons. The Bonds are in bearer form.


                                  MORGAN STANLEY
                                        Sole Lead Manager and Bookrunner



Dresdner Kleinwort Wasserstein                                Schroder Salomon Smith Barney

                   The Date of this Information Memorandum is 25 January 2002
   THIS INFORMATION MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE BONDS OFFERED
HEREBY, AND DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY BONDS OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION.

     The distribution of this Information Memorandum and the offering of the Bonds, and the Shares to be
delivered upon conversion of the Bonds, may, in certain jurisdictions, be restricted by law. No action has been or
will be taken in any jurisdiction by the Issuer or by the Managers that would permit a public offering of the
Bonds or Shares or possession or distribution of a prospectus or offering memorandum in any jurisdiction where
registration, notification or other regulatory restrictions must be observed for that purpose. The Issuer and the
Managers require persons into whose possession this Information Memorandum comes to inform themselves of
and observe all such restrictions. None of the Issuer or the Managers accepts any legal responsibility for any
violation by any person, whether or not a prospective purchaser of the Bonds, of any such restrictions.

     For a further description of certain restrictions on offers and sales of the Bonds and on the distribution of this
Information Memorandum, particularly in relation to the United States, see ‘‘Subscription and Sale’’ and
‘‘Transfer Restrictions’’.

     No securities sales prospectus (Wertpapier-Verkaufsprospekt) has been filed with or approved by the Federal
                                                                  u
Securities Trading Supervisory Authority (Bundesaufsichtsamt f¨ r den Wertpapierhandel) in relation to the
Bonds. Accordingly, the Bonds may be sold in Germany only in accordance with any of the exemptions provided
in the Securities Sales Prospectus Act (Wertpapier-Verkaufsprospektgesetz).

     The Issuer has not authorized any offer of the Bonds to the public in the United Kingdom within the
meaning of the Public Offers of Securities Regulations 1995. The Bonds may not lawfully be offered or sold to
persons in the United Kingdom, except under circumstances which do not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of Securities Regulations 1995 and in compliance
within the meaning of section 21 of the Financial Services and Markets Act 2000. See ‘‘Subscription and Sale —
Selling Restrictions’’.

      In the Netherlands, the Bonds may only be offered, transferred, delivered or sold to individuals or legal
entities who or which trade or invest in securities in the conduct of their profession or trade, which include banks,
brokers, dealers, insurance companies, pension funds and other institutional investors, and commercial enterprises
which regularly, as an ancillary activity, invest in securities.

   THE BONDS AND THE SHARES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
UNITED STATES SECURITIES ACT 1933 AS AMENDED. THE BONDS ARE SUBJECT TO US TAX LAW
REQUIREMENTS. ACCORDINGLY, SUBJECT TO CERTAIN EXCEPTIONS, THE BONDS MAY NOT BE
OFFERED, SOLD OR DELIVERED WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR
BENEFIT OF U.S. PERSONS. THE BONDS ARE IN BEARER FORM.

      The purpose of this Information Memorandum is to give information with regard to the Issuer and the
Bonds. Subject to the qualifications set out below, the Issuer accepts responsibility for the information contained
in this Information Memorandum. To the best knowledge and belief of the Issuer the information contained in
this Information Memorandum is in accordance with the facts and does not omit anything likely to affect the
importance of such information.

     No person has been authorized to give any information or to make any representations, other than those
contained in this Information Memorandum, in connection with the issue and sale of the Bonds and, if given or
made, such information or representations must not be relied upon as having been authorized by the Issuer or the
Managers. Neither the delivery of this Information Memorandum nor any allotment or sale made in connection
herewith shall, under any circumstances, create any implication that there has been no change in the affairs of the
Issuer since the date hereof, or that the information herein is correct as of any time subsequent to the date hereof.

                                                          2
     The Managers make no representation or warranty, express or implied, as to the accuracy or completeness of
the information contained in this Information Memorandum and nothing contained herein is, or shall be relied
upon as, a promise or representation by the Managers as to the past or the future.

     The document does not constitute an offer or an invitation by or on behalf of the Issuer or by or on behalf of
the Managers to subscribe for or purchase any of the Bonds and should not be considered to be a
recommendation by the Issuer, the Managers or any of them that any recipient of this document should subscribe
for or purchase any of the Bonds. Each recipient of this document shall be taken to have made its own
investigation and appraisal of the conditions (financial or otherwise) of the Issuer.

     All references herein to ‘‘euro’’ or ‘‘4’’ are to the single currency which was introduced on 1 January 1999 at
the start of the third stage of the economic and monetary union of the European Union.

     This Information Memorandum contains statements relating to the future that are based on the beliefs of the
Issuer’s management. The words ‘‘anticipate’’, ‘‘believe’’, ‘‘estimate’’, ‘‘expect’’, ‘‘intend’’, ‘‘plan’’ and
‘‘project’’ are used to identify such future-oriented statements. These statements reflect current views with respect
to future events and are subject to risks and uncertainties. Many factors could cause the actual results to be
materially different. These factors include, among others, changes in general economic and business conditions,
changes in currency exchange rates and interest rates, the introduction of competing products, a lack of
acceptance of new products or services, and changes in business strategy. Actual results may vary materially from
those projected here. The Issuer does not intend or assumes any obligation to update these forward-looking
statements.

    IN CONNECTION WITH THIS ISSUE, MORGAN STANLEY & CO. INTERNATIONAL LIMITED OR
ANY PERSON ACTING FOR IT MAY OVER-ALLOT OR EFFECT TRANSACTIONS WITH A VIEW TO
SUPPORTING THE MARKET PRICE OF THE BONDS AND ANY ASSOCIATED SECURITIES AT A
LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL FOR A LIMITED PERIOD.
HOWEVER, THERE MAY BE NO OBLIGATION ON MORGAN STANLEY & CO. INTERNATIONAL
LIMITED OR ANY OF ITS AGENTS TO DO THIS. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME, AND MUST BE BROUGHT TO AN END AFTER A LIMITED PERIOD.




                                                         3
                                                               TABLE OF CONTENTS
                                                                                                                                                               Page


INCORPORATION BY REFERENCE............................................................................................................                           5

SUMMARY OF THE TERMS AND CONDITIONS OF THE BONDS ......................................................                                                          6

RISK FACTORS ...............................................................................................................................................    11

TERMS AND CONDITIONS OF THE BONDS ...........................................................................................                                   22

CAPITALIZATION ...........................................................................................................................................      43

BUSINESS ACTIVITIES .................................................................................................................................           44

GENERAL INFORMATION ABOUT DEUTSCHE LUFTHANSA AKTIENGESELLSCHAFT...............                                                                                  73

DESCRIPTION OF THE SHARE CAPITAL OF DEUTSCHE LUFTHANSA
 AKTIENGESELLSCHAFT ..........................................................................................................................                  76

TAXATION IN THE FEDERAL REPUBLIC OF GERMANY ....................................................................                                                79

CLEARANCE AND SETTLEMENT ..............................................................................................................                         84

SUBSCRIPTION AND SALE .........................................................................................................................                 85

TRANSFER RESTRICTIONS .........................................................................................................................                 87

GENERAL INFORMATION............................................................................................................................                 88

SUMMARY OF CERTAIN SIGNIFICANT DIFFERENCES BETWEEN
  GERMAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
  INTERNATIONAL ACCOUNTING STANDARDS ...................................................................................                                        89

DEFINITIONS AND INDUSTRY TERMS ....................................................................................................                             91

RECENT DEVELOPMENTS AND OUTLOOK............................................................................................                                     93

INDEX TO THE FINANCIAL STATEMENTS OF THE LUFTHANSA GROUP AND LUFTHANSA...                                                                                      F-1




                                                                                 4
                                  INCORPORATION BY REFERENCE


     The 1998, 1999 and 2000 audited consolidated Annual Reports, the unaudited consolidated Interim Report
for the nine months ended 30 September 2001, and the 1998, 1999 and 2000 audited unconsolidated annual
Financial Statements of the Issuer are incorporated by reference into this Information Memorandum. Copies of
the above-mentioned statements and reports may be inspected and obtained without charge at the offices of Dexia
                      `                    ee
Banque Internationale a Luxembourg, soci´ t´ anonyme, 69, route d’Esch, L-1470 Luxembourg, as long as the
Bonds are listed on the Luxembourg Stock Exchange and the rules of such stock exchange so require. The
consolidated Annual Reports of the Issuer for the years from and including 1995 and the consolidated Interim
Reports from and including the first six months of 1997 are available on its Internet website
www.lufthansa-financials.de.




                                                      5
                  SUMMARY OF THE TERMS AND CONDITIONS OF THE BONDS

     The following summary does not purport to be complete and is qualified in its entirety by, and is subject to
the detailed information, in particular, the Terms and Conditions, which are included in this Information
Memorandum. Consequently, it should be read in connection with the detailed information which is set out
elsewhere in this Information Memorandum and supplemented by such information.

Denomination of the Bonds:           The issue in an aggregate nominal amount of 4 750,000,000 is divided into
                                     bearer bonds each of nominal amount of 4 1,000 that rank pari passu with
                                     each other (the ‘‘Bonds’’).

Form of Bonds:                       On their issuance, the Bonds will be represented by a Temporary Global
                                     Bond in bearer form without interest coupons that will be replaced by the
                                     Permanent Global Bond in bearer form without interest coupons not earlier
                                     than 40 days and not later than 180 days following the Issue Date, on
                                     presentation of a certificate of non-US beneficial ownership. In compliance
                                     with US tax laws and regulations, bearer bonds may not be offered, sold or
                                     delivered within the US or to a US person, except in certain transactions
                                     permitted by US tax regulations. Definitive certificates representing
                                     individual Bonds and interest coupons shall be issued only in the limited
                                     circumstances described in § 2(2) of the Terms and Conditions. The
                                     Temporary Global Bond and the Permanent Global Bond will be kept in
                                     custody by a common depository for Clearstream Luxembourg and
                                     Euroclear until all obligations of the Issuer under the Bonds have been
                                     satisfied.

Status and Negative Pledge:          The Bonds constitute direct, unconditional, unsubordinated and unsecured
                                     obligations of the Issuer and rank at least pari passu with all other present
                                     and future unsecured and unsubordinated obligations of the Issuer save for
                                     any mandatory statutory provisions. For as long as any Bonds remain
                                     outstanding, the Issuer undertakes in the Terms and Conditions not to
                                     provide any mortgage, charge, pledge, lien or other form of encumbrance
                                     or security interest upon the whole or any part of its assets to secure other
                                     Capital Market Indebtedness (as defined in § 4 of the Terms and
                                     Conditions) other than Permitted Indebtedness (as defined in § 4 of the
                                     Terms and Conditions) without at the same time letting the Bondholders
                                     share pari passu in such security interest or granting to the Bondholders an
                                     equivalent security interest.

                                     Under § 4 of the Terms and Conditions, ‘‘Capital Market Indebtedness’’
                                     means any present or future indebtedness of the Issuer or any of the
                                     Issuer’s subsidiaries in respect of borrowed money which is in the form of,
                                     or represented by, bonds, notes, debentures or any similar securities which
                                     are or are intended to be quoted, listed or traded on any stock exchange or
                                     over-the-counter securities market. Under § 4 of the Terms and Conditions,
                                     ‘‘Permitted Indebtedness’’ means any Capital Market Indebtedness which
                                     is secured by a security interest over any of the Issuer’s or any of the
                                     Issuer’s subsidiaries’ aircraft or aircraft equipment.

Interest:                            The Bonds shall bear interest at the rate of 1.25 per cent. p.a. on their
                                     principal amount from and including 4 January 2002 until but excluding
                                     the Redemption Date. Interest shall be payable annually in arrears on
                                     4 January each year, commencing 4 January 2003.

                                                       6
Redemption Date:        The Issuer shall redeem the Bonds at 100 per cent. of their principal
                        amount on 4 January 2012, to the extent they have not previously been
                        redeemed or converted.
Issuer Call Feature:    If (i) the aggregate principal amount of the Bonds outstanding is less than
                        4 75,000,000 or if (ii) on or after 4 January 2005 the volume weighted
                        average quotation of the Share in XETRA as determined by the
                        Calculation Agent is equal to or greater than 130 per cent. of the then valid
                        Conversion Price on 20 Trading Days within a 30 Trading Day period, the
                        Issuer may, having given not less than 30 nor more than 60 days’ notice to
                        the Principal Paying and Conversion Agent and the Bondholders in
                        accordance with § 15 of the Terms and Conditions (which notice shall be
                        irrevocable), redeem all and not only some of the Bonds at their principal
                        amount together with accrued interest. (See § 9(2) of the Terms and
                        Conditions).
Termination Rights of
Bondholders:            Notwithstanding terminations rights of the Bondholders as a consequence
                        of an Event of Default (see § 12(1) of the Terms and Conditions) or a
                        Change of Control (see § 8(3) of the Terms and Conditions), Bondholders
                        shall be entitled to declare the Bonds to be due and repayable at their
                        principal amount by giving not less than 30 nor more than 60 days’ notice
                        (which notice shall be irrevocable) to the Issuer and the Principal Paying
                        and Conversion Agent after 4, 6 and 8 years (see § 9(3) of the Terms and
                        Conditions).
Conversion Price:       The price at which Shares shall be delivered by the Issuer to Bondholders
                        upon conversion shall initially be 4 20.16 per Share, subject to adjustments
                        as provided for in § 7 and § 8 of the Terms and Conditions.
Conversion Right:       Subject to adjustments as provided in § 7 and § 8 of the Terms and
                        Conditions, each Bondholder will have the right to convert each Bond into
                        Shares of the Issuer on any Business Day during the Conversion Period at
                        the then valid Conversion Price. The number of Shares to be delivered
                        upon conversion of Bonds will be determined by dividing the principal
                        amount of Bonds converted by the Bondholder by the then valid
                        Conversion Price. Fractions of Shares shall not be delivered on conversion
                        but shall be compensated in cash proportional to the respective fraction of
                        the average quotation in the XETRA afternoon auction on the five Business
                        Days immediately prior to the Conversion Date (calculated in accordance
                        with § 6(5)(b) of the Terms and Conditions). The Conversion Right may be
                        exercised by delivering to a Paying and Conversion Agent a duly
                        completed Conversion Notice (see § 6(3) of the Terms and Conditions).
                        Upon execution of the conversion, the Shares will be delivered from a
                        conditional capital of the Issuer in the amount of 4 97,689,600 created by
                        resolution of its shareholders’ meeting on 16 June 1999.
Conversion Period:      The Conversion Period shall be the period commencing on and including
                        31 May 2002 and ending on and including 16 December 2011. The
                        exercise of the Conversion Right shall be excluded during any of the
                        Excluded Periods as defined in § 6(2)(b) of the Terms and Conditions.




                                          7
Modified Conversion Procedure
in order to comply with the
Aviation Compliance
Documenting Act:                In order to comply with the provisions of the German Aviation Compliance
                                Documenting Act (Luftverkehrsnachweissicherungsgesetz) the Issuer may
                                at any time by giving one Business Day’s prior notice make an
                                announcement stating that a Bondholder that is not a German citizen or not
                                an entity domiciled in Germany may only exercise its Conversion Right if
                                the person designated in the Conversion Notice to which the Shares are to
                                be delivered is a German citizen or an entity domiciled in Germany (see
                                § 6(7) of the Terms and Conditions). A Non-German Bondholder
                                exercising its Conversion Right after such announcement and failing to
                                designate a German citizen or an entity domiciled in Germany in the
                                Conversion Notice must instruct a Paying and Conversion Agent to deliver
                                the full number of Shares in return for the Bonds converted to the
                                designated Intermediary (as defined in § 6(7)(d) of the Terms and
                                Conditions) against the obligation of the designated Intermediary to pay,
                                within ten Business Days, to such Non-German Bondholder via the
                                Principal Paying and Conversion Agent a Cash Consideration (for the
                                calculation of such Cash Consideration see § 6(7)(b) of the Terms and
                                Conditions) after deduction of a commission fee of 0.2 per cent. thereof.
                                Non-German Bondholders who exercise their Conversion Rights after
                                the Issuer has given notice in accordance with § 6(7)(a) of the Terms
                                and Conditions will not receive Shares. The Shares will be delivered
                                from the Issuer to the designated Intermediary against the obligation
                                of the designated Intermediary to pay to the relevant Non-German
                                Bondholder the Cash Consideration via the Principal Paying and
                                Conversion Agent. Upon delivery of Shares to the designated
                                Intermediary, the Issuer is discharged from all obligations under the
                                Bonds converted by the relevant Non-German Bondholder and the
                                relevant Non-German Bondholder’s rights under the Bonds converted
                                are limited to receipt of the Cash Consideration from the designated
                                Intermediary. The Issuer will not be liable for any shortfalls stemming
                                from the designated Intermediary’s non-performance of its obligation
                                to pay out the Cash Consideration or any loss stemming from delays in
                                relation to the payment of the Cash Consideration.

Anti-Dilution Protection:       Except for circumstances in which the Bondholders are granted similar
                                rights as the Issuer’s shareholders, Bondholders will be protected against
                                dilution in the event of (i) the granting of preemptive rights to Shareholders
                                of the Issuer, (ii) any capital increase from retained earnings, (iii) any
                                capital decrease, (iv) the payment of an Extraordinary Dividend (as defined
                                in § 1 of the Terms and Conditions) and (v) similar events or circumstances
                                requiring an adjustment in the opinion of a qualified independent expert
                                appointed by the Issuer. The protection of the Bondholders is effected by
                                adjustment of the Conversion Price subject to the condition that the
                                conditional capital of the Issuer is sufficient to create the respective amount
                                of Shares; otherwise the adjustment is effected by compensation payments
                                (see § 7 of the Terms and Conditions).

Change of Control Protection:   In the event of a Change of Control (as defined in § 8(1) of the Terms and
                                Conditions), the Issuer shall give notice to the Bondholders and fix a
                                Relevant Date (as defined in § 1 of the Terms and Conditions) in

                                                  8
                                  accordance with § 15 of the Terms and Conditions promptly after
                                  becoming aware of the Change of Control. In such case, each Bondholder
                                  is entitled to declare the early redemption of its Bonds on the Relevant
                                  Date (see § 8(3) of the Terms and Conditions). For Conversion Rights
                                  exercised on or before the Relevant Date, the Conversion Price is adjusted
                                  subject to the condition that the conditional capital of the Issuer is
                                  sufficient to create the respective amount of Shares; otherwise the
                                  adjustment is effected by compensation payments (see § 8(4) of the Terms
                                  and Conditions).

Payments:                         Payments of principal and interest, if any, on the Bonds shall be made by
                                  the Issuer to the Principal Paying and Conversion Agent for further
                                  payment to the Clearing System or to its order for credit to the relevant
                                  accountholders of the Clearing System. Upon effecting the payment to the
                                  Clearing System or to its order, the Issuer shall be released from its
                                  payment obligations under the Bonds in the amount of the effected
                                  payment.

Taxes:                            All payments under the Bonds shall be paid by the Issuer without
                                  deduction or withholding for or on account of any present or future taxes,
                                  duties or governmental charges whatsoever imposed or levied by or on
                                  behalf of the Federal Republic of Germany or any taxing authority therein,
                                  unless the Issuer is compelled by law to deduct or withhold such taxes,
                                  duties or charges. In that event, the Issuer shall deduct or withhold such
                                  taxes, duties or governmental charges and pay the amounts deducted or
                                  withheld to the competent authorities.

                                  The Terms and Conditions do not contain an undertaking by the
                                  Issuer to make additional payments in the event of the deduction or
                                  retention of tax or duties from the amounts payable under the Bonds.

Principal Paying and Conversion
Agent; Paying and Conversion
Agents; Calculation Agent:        The Issuer has appointed Citibank N.A. as initial principal paying and
                                  conversion agent (in such capacity, the ‘‘Principal Paying and Conversion
                                  Agent’’) and as initial calculation agent (in such capacity, the ‘‘Calculation
                                  Agent’’). The Issuer has appointed Dexia Banque Internationale a             `
                                                     ee
                                  Luxembourg, soci´ t´ anonyme, as additional paying and conversion agent
                                  (together with the Principal Paying and Conversion Agent the ‘‘Paying and
                                  Conversion Agents’’). The Issuer may at any time, by publication in
                                  accordance with § 15 of the Terms and Conditions and subject to the
                                  conditions set forth in § 14(2) and (3) of the Terms and Conditions, appoint
                                  another bank of international standing as Principal Paying and Conversion
                                  Agent, as Paying and Conversion Agent and/or as Calculation Agent.

Notices:                          All notices regarding the Bonds shall be published in a newspaper
                                  recognized by the rules and regulations of the Luxembourg Stock
                                  Exchange. This newspaper is expected to be the Luxemburger Wort. Any
                                  notice will become effective for all purposes on the date of its publication
                                  in the Luxemburger Wort. See § 15 of the Terms and Conditions.

Listings:                         Application has been made to list the Bonds on the Luxembourg Stock
                                  Exchange. The Shares are listed on all eight German stock exchanges.
                                  Application will be made to list the conditional capital out of which Shares
                                  will be delivered upon conversion of Bonds on all eight German stock

                                                    9
                    exchanges. No assurance can be given as to whether and when this listing
                    approval will be granted.
Governing Law and
Jurisdiction:       The Bonds shall be governed by and shall be construed in accordance with
                    the laws of the Federal Republic of Germany. The District Court
                    (Landgericht) in Frankfurt am Main shall have jurisdiction for all
                    proceedings arising out of or in connection with the Bonds.
German Securities
Code (WKN):         795560
ISIN:               XS0140276618
Common Code:        014027661




                                    10
                                                  RISK FACTORS
     In deciding whether to purchase Bonds in this Offering, investors should pay particular attention to the risks
described below as well as to the other information and descriptions of risks contained in this Information
Memorandum. The occurrence or existence of the events and circumstances described below could have a
material adverse effect on the Lufthansa Group’s business activity, financial position, results of operations and
business prospects. These events or the occurrence or existence of other risks that are currently unknown or
considered insignificant could also have negative consequences for the market price of the Bonds or the Shares.

The terrorist attacks in the US on 11 September 2001 and their consequences have adversely affected
and may continue to have an adverse effect on the business of the Lufthansa Group
      The recent terrorist attacks in the US on 11 September 2001 and the threat of future acts, including bio-
terrorism, sabotage acts or forms of terrorist acts not yet known, have had a significant impact on economic,
political and market conditions around the world. Airlines, in particular, have experienced significant revenue
losses and incurred substantial additional costs. This climate of uncertainty could continue for the foreseeable
future and may worsen dramatically if additional attacks occur. These conditions could increase the risk of, and
have a significant and continuing adverse effect on, the business, results of operations and financial position of the
Lufthansa Group.
     Lufthansa recently applied to the Government of the Federal Republic of Germany for compensation for
revenue losses and the damages sustained in September as a consequence of the terrorist attacks in the US on
11 September 2001. Currently, Lufthansa is seeking to recover losses amounting to approximately 4 180m
primarily attributable to revenue losses experienced during the closure of US air space following the attacks and
throughout September as well as costs related to the grounding of aircraft and passengers in Canada. No
assurance can be given that such or any compensation claims will be successful, in particular given current EU
guidelines only allow for compensation for losses incurred as a result of the four-day closure of US air space
following the terrorist attacks in the US on 11 September 2001. Lufthansa estimates such losses to amount to
around 4 70m. Thus, current estimates of losses ultimately to be borne by Lufthansa are subject to significant
change.
      In addition, the recent terrorist attacks and the consequences thereof have had and may continue to have
materially adverse effects on a number of other factors of significant importance for the airline industry in general
and the Lufthansa Group’s results of operations and financial position in particular. These factors are, among
others, (a) significantly lower demand for air travel and in-flight catering services (see ‘‘Recent Developments
and Outlook — Dramatic Decline in the Financial Position for the last three Months in 2001’’); (b) limitations on
the scope of available insurance coverage, caps on insurable losses, significantly higher costs of insurance if it is
available and the potential for aircraft being grounded if sufficient insurance is not available (see ‘‘— Insurance
costs have increased significantly and the insurance market may face further disruptions’’); (c) increased costs,
service disruptions and reduced operations and aircraft utilization as a result of heightened security measures;
(d) increases in the price of aircraft fuel; (e) decreases in the resale prices of certain types of aircraft (see ‘‘— The
Lufthansa Group currently faces significantly reduced demand resulting in overcapacities in its fleet’’);
(f) significant disruptions to the business of key airlines, which are customers of a number of companies of the
Lufthansa Group, in particular the LSG Sky Chefs Group (see ‘‘— The Business Prospects of the LSG Sky Chefs
Group are uncertain’’); (g) the return of protective regulation and subsidization by governments to benefit their
home or national airlines creating market distortions detrimental to the Lufthansa Group (see ‘‘— Airline
regulation and protectionism may increase in the future’’); and (h) an increase in the risks stemming from the
exposure of the Lufthansa Group to the credit risk of other airline operators (especially in the Business Segment
Catering, see ‘‘— The Business Prospects of the LSG Sky Chefs Group are uncertain’’). All of these factors have,
and may continue to have, a material adverse effect on, the Lufthansa Group’s business, results of operations and
financial position.
     Moreover, additional terrorist attacks, retaliatory actions or escalations in hostilities could lead to further
deteriorations in economic and political conditions around the world and additional adverse consequences that are
difficult to foresee. Any necessary long-term reduction or entire halt in operations and aircraft utilization or any

                                                           11
further decline in demand for in-flight catering services resulting from such events would significantly impact on
Lufthansa’s liquidity reserves. In the absence of sufficient liquidity reserves and/or the availability of additional
funding, the survival and existence of Lufthansa’s business could be endangered.

Insurance costs have increased significantly and the insurance market may face further disruption
      Lufthansa’s ability to run its airline business with the required cover for risks of losses due to natural or
man-made catastrophic events or disasters is, among others, based on insurance agreements that are subject to
various termination events and must be renegotiated regularly. As a consequence of the effects of the terrorist
attacks in the US on 11 September 2001, insurance companies have terminated insurance cover for certain risks
relating to war and other hostilities and requested significantly higher premiums for reinstatements combined
with significantly lower cover levels. This has resulted in significantly higher insurance costs to be borne by the
Lufthansa Group. The Federal Republic of Germany has issued a guarantee for loss amounts that exceed the
insurance cover currently available in the market for war and other hostilities. This guarantee, however, is limited
to the period up to 31 January 2002 and, pending political agreement among EU member states, may be charged
to Lufthansa which would result in further significant costs to the Lufthansa Group. Moreover, a proper state aid
notification procedure in Brussels and approval thereof by the EU Commission is necessary for an extension of
the guarantee beyond 31 January 2002. See ‘‘Business Operations — Fleet and Capital Expenditure — Insurance
of Aircraft’’. The dramatic increase in insurance costs already materially and adversely affects the business,
results of operations and financial position of the Lufthansa Group. Any charge for the government guarantee
currently issued would add to these material and adverse effects.
     Given the limited duration of the Federal Republic of Germany’s guarantee as well as the guarantees issued
by other governments for other airlines, the future availability of insurance cover for losses resulting from war
and other hostilities on financially acceptable terms is currently under negotiation. Any failure of these
negotiations as well as any other failure to effect insurance cover at financially acceptable terms in the future
would materially adversely affect the business, results of operations and financial position of the Lufthansa
Group.
     Further terrorist attacks, acts of sabotage or other man-made catastrophic events could significantly worsen
the situation.

The airline industry is extremely competitive and suffers significantly during economic downturns
     The airline industry is highly competitive and susceptible to price discounting. The competitors of the
Lufthansa Group include carriers with substantially larger home markets and greater financial resources as well as
carriers with lower cost structures, particularly on Asian and North American routes. Certain of the major
competitors of the Lufthansa Group are wholly or majority owned by their respective governments or
governmental agencies and may thus be able to call upon substantially greater financial resources (including
direct state subsidies) than Lufthansa and to engage in commercially unsound pricing practices on routes on
which they compete with the Lufthansa Group (see ‘‘— Airline regulation and protectionism may increase in the
future’’).
     In addition, the airline business is a cyclical business due in part to the sensitivity of passenger demand in
the air travel market to growth in the gross domestic product (GDP). In the airline industry, cyclical economic
downturns are characterized by excess capacities and lower prices. Economic uncertainty in certain markets may
also lead certain of the competitors of the Lufthansa Group to shift their capacity to markets and routes served by
the Lufthansa Group, increasing competition in such markets. The airline industry has been severely affected by
the current global economic weakness. In particular, Lufthansa has been affected by the recessive economic
downturn in Germany. These developments accentuate overcapacities and result in price pressure in the relevant
markets.
     Furthermore, the very nature of the airline business is such that a carrier’s operations are highly leveraged.
Each flight has certain relatively fixed costs such as fuel, fees and labor, while revenues from such flight depend
entirely on the number of passengers or cargo carried and the fares paid. This means that any decrease in the
number of passengers or cargo carried and fares paid results in a disproportionately greater decrease in profits.

                                                        12
This high operating leverage further accentuates the cyclicality prevailing in the airline industry and
overcapacities during cyclical economic downturns. There can be no assurance that the factors described above
will not have an adverse impact on Lufthansa’s business, results of operations and financial position.

The Lufthansa Group currently faces significantly reduced demand resulting in overcapacities
in its fleet
      As a consequence of the world-wide economic down-turn and the effects of the terrorist attacks in the US on
11 September 2001, the airline industry faces a steep decline in demand requiring a reduction of the capacity of
airline operations, which affects the ability of airlines to manage their fleet capacity effectively. In the winter
flight schedule, Lufthansa Group has reduced its capacity by an amount equivalent to the capacity of up to 43
aircraft (see ‘‘Business Activities — Fleet and Capital Expenditure — Capacity Adjustments’’).
     The Lufthansa Group aims at regularly rejuvenating its fleet, replacing older with new-generation aircraft
and accordingly, has concluded a considerable number of purchase contracts under which new aircraft are
currently under construction and due to be delivered to the Lufthansa Group over the coming years (see
‘‘Business Activities — Fleet and Capital Expenditure — Further Aircraft Acquisitions’’). There can be no
assurance that the Lufthansa Group will have sufficient liquidity to fund its commitments to purchase new
aircraft, nor can there be any assurance that there will be enough demand in the future to enable the Lufthansa
Group to operate these additional aircraft profitably. Any lack of sufficient liquidity to fund future aircraft
purchase commitments or any failure to operate profitably newly delivered aircraft would have a material adverse
effect on the business, results of operations and financial position of the Lufthansa Group.
     Also as part of its replacement strategy, the Lufthansa Group frequently contracts to sell its older aircraft in
the second-hand aircraft market or to lease such older aircraft to other airlines (see ‘‘Business Activities — Fleet
and Capital Expenditure — Used Aircraft Sales and Leasing’’). Hence, the Lufthansa Group is exposed to market
fluctuations in the second-hand aircraft market as well as to the credit risk of its contractual counter-parties.
Following the terrorist attacks in the US on 11 September 2001, prices for certain second-hand aircraft models
and creditworthiness of certain airlines have deteriorated significantly, adding to the risks prevailing in the
second-hand aircraft market. These risks may be aggravated in the future if airlines go out of business or are
otherwise forced to dispose of their aircraft assets. Any drop in second-hand prices or delays in entering into sales
or leasing agreements, especially where the Lufthansa Group needs to rely on the proceeds of sales or leases of
replaced aircraft could have a significant adverse effect on the business, results of operations and financial
position of the Lufthansa Group.

Airline regulation and protectionism may increase in the future
     The operation of a German airline in general as well as the award and retention of international route rights
is subject to laws and regulations and to bilateral and multilateral treaties between the Federal Republic of
Germany and other countries all of which are subject to frequently occurring changes. Lufthansa cannot predict
what laws and regulations will be adopted in the future or what changes to international, US, EU, German and
other air traffic regulation will come into force, and how such new or amended regulations would affect the
Lufthansa Group. This applies, in particular, to issues such as traffic and transit rights, fuel taxation, airport
charges, and slot allocation. A slot is an authorization given by an airport operator to take-off or land at a
particular airport during a specified time period. Typically, an airline must use its slots on a regular basis or risks
having those slots re-allocated to others. The scarcity of slots at congested airports presents a serious restriction
on the operations of airlines within the EU (see ‘‘Business Activities — The Regulatory Framework’’).
     In addition, onerous health, safety or security requirements could impose additional operational burdens or
costs. It may not be possible to pass such costs on to the customer and they could therefore adversely affect the
business, results of operations or financial position of the Lufthansa Group.
     The liberalization of the aviation market within the EU has created a substantially different operating
environment for the Lufthansa Group. Air traffic with the US has also been liberalized by the Open Sky
Agreement between the US and the Federal Republic of Germany. Following an intervention by the EU
Commission this agreement and similar agreements between other EU member states and the US are currently

                                                         13
under review by the European Court of Justice. An adverse ruling by the Court, and any subsequent renegotiation
of open Sky Agreements could adversely affect the business, results of operations or financial position of the
Lufthansa Group. A tendency towards protectionism still prevails in certain other regions, particularly outside the
EU where there is no general prohibition against government subsidies or other preferential treatment as in the
EU. Since the degree of protectionism often depends on the prevailing economic conditions in the airline
industry, which as a consequence of the current cyclical downturn and the effects of the terrorist attacks in the US
on 11 September 2001 have significantly deteriorated, there can be no assurance regarding increased regulation or
protectionist measures aiding Lufthansa’s competitors. In particular, certain governments may decide not to
charge costs for guarantees for third-party losses caused by war risk to the beneficiary airlines, which would
provide a significant competitive advantage (see ‘‘— Insurance costs have increased significantly and the
insurance market may face further disruptions’’). Other distortions of competition to the detriment of the
Lufthansa Group could occur if EU governments do not adopt a uniform response to proposed US security
regulations that are to apply extraterritorially (such as, for example, the proposed passenger name record system,
which might raise important concerns under German data protection laws but not necessarily under those of other
EU member states). Any such measure or any other measures distorting the competitive environment to the
detriment of the Lufthansa Group would have a material adverse effect on the business, results of operations and
financial position of the Lufthansa Group.

Airport, transit and landing charges may increase and the access to airports may be limited
in the future
     Airport, transit and landing charges represent a significant operating cost to the Lufthansa Group. Any
substantial increase in such charges, especially by the Frankfurt/Main airport or German air traffic control (DFS
Deutsche Flugsicherung GmbH), could have a material adverse effect on the business, results of operations and
financial position of the Lufthansa Group.
     The Lufthansa Group uses Frankfurt/Main airport as operating base for the majority of its air traffic. If the
intended expansion of the Frankfurt/Main airport aimed at securing the airport’s future as an international traffic
hub, and in particular, if the extension of the runway system should fail, or if additional operational restrictions in
connection with the expansion, such as, for example, further restrictions on night flights should obstruct the
efficient use of the airport, the airport may no longer meet the capacity and other economic requirements of the
Lufthansa Group. This could have a material adverse effect on the business, results of operations and financial
position of the Lufthansa Group.
      In addition, a principal limitation on access to many high-traffic airports is the limited number of slots
available at such airports. Where slots are not available, their availability is restricted, or the Lufthansa Group
cannot use its slots on a regular basis, the Lufthansa Group may have to amend its schedules or reduce aircraft
utilization. Either alternative could have an adverse financial impact on the Lufthansa Group. Moreover, loss of
currently available slots or failure to secure attractive slots in the future could have a material adverse effect on
the business, results of operations and financial position of the Lufthansa Group.

The Lufthansa Group is exposed to risks from acquisitions
     In the recent past, the Lufthansa Group has entered into several substantial acquisition agreements, acquiring
both, majority and minority interests. Since January 1999, the Lufthansa Group has spent an aggregate of
approximately 4 2.7bn for such acquisitions and for further capital increases. The economic success of such
acquisitions depends, to a large extent, on whether the ratio of purchase price to earnings contributions of the
acquired company or stake is reasonable and on whether the Lufthansa Group is able to integrate newly acquired
companies and interests at reasonable costs and to maximize potential synergies. To the extent this is not
achieved, or if the acquired companies prove to be unprofitable, the substantial investments associated with such
measures and any additional funding needs could have a significant adverse effect on the business, results of
operations and financial position of the Lufthansa Group.
    In particular, the integration of the LSG Sky Chefs Group’s US operations requires several substantial
measures, significant management efforts and substantial further funding. Some of these measures were delayed

                                                          14
due to the effects from the terrorist attacks in the US on 11 September 2001. The overall situation is aggravated
due to the high level of indebtedness and the large number of enterprises acquired by the LSG Sky Chefs Group
in recent years as well as by the overall uncertain business prospects of the LSG Sky Chefs Group (see ‘‘— The
business prospects of the LSG Sky Chefs Group are uncertain’’). The US operation’s reporting, risk and finance
management systems are not yet aligned with those of the LSG Sky Chefs Group and several additional steps are
required in order to fully integrate US operations. Any failure to effect a comprehensive and efficient
management system throughout the LSG Sky Chefs Group would materially impair an effective operational, cost,
financial and risk management of the LSG Sky Chefs Group and could have a significant adverse effect on its
business, results of operations and financial position. Any further deterioration of the LSG Sky Chefs Group’s
business, results of operations and financial position would materially adversely affect the financial position of
the Lufthansa Group.
     Additionally, past and future acquisitions of the Lufthansa Group may prove to be less profitable than
expected. If the book value of such acquisitions is regarded as being impaired as a consequence thereof, write-
downs on goodwill and certain other balance sheet items would be required. As prescribed by International
Accounting Standards (IAS), the preparation of the year-end accounts includes an impairment test of the
participations in acquired companies, and in particular of the interest in the Sky Chefs Group. Based on the
current situation of the LSG Sky Chefs Group (see ‘‘— The business prospects of the LSG Sky Chefs Group are
uncertain’’), Lufthansa believes that the book value of the Sky Chefs Group is likely to have been sufficiently
impaired to result in significant write-downs. The amount of such write-downs has not yet been determined. In
connection with this, Lufthansa has agreed with LSG to forgive a portion of Lufthansa’s shareholder loans to the
LSG Sky Chefs Group. The forgiven portion amounts to 4 500m. The ultimate amounts of the write-downs may
differ from the amount of such loan forgiveness. Any significant write-down of the interest in the LSG Sky Chefs
Group or of the interest in any other acquisition would have a material adverse effect on the financial position of
the Lufthansa Group.
      The Lufthansa Group reviews the impairment of its assets annually in connection with the preparation of its
audited financial statements. Write-downs resulting from asset impairments, if any, are not reflected in unaudited
interim financial information unless Lufthansa can reasonably determine the anticipated write-down amount as of
the relevant financial year end. Consequently, no impairment write-downs are reflected in the unaudited financial
information for the nine months period ended 30 September 2001.
      Moreover, under certain agreements (including those relating to Lufthansa’s investment in British Midland;
see ‘‘Business Activities — Segment Passenger Business — Alliances, Participations and Cooperations — Equity
Participations’’) relating to the acquisition of minority interests, the Lufthansa Group may be obliged to purchase
further shares in the relevant companies at pre-agreed prices, which may or may not reflect an attractive price for
such interest at the future date. If such pre-agreed prices are higher than the fair market value of the relevant
interests, Lufthansa Group’s results would be adversely affected. To the extent any such obligations were to
materialize, this would require substantial further investments and may have a material adverse effect on the
Lufthansa Group’s business, results of operations and financial position.

The business prospects of the LSG Sky Chefs Group are uncertain
     The airline catering activities of the Lufthansa Group are carried out by the LSG Sky Chefs Group. Due to
the decreasing demand for air travel and reduction in catering service levels in the US following the economic
downturn and the terrorist attacks in the US on 11 September 2001, the LSG Sky Chefs Group experienced
significant declines in revenues, especially in light of the fact that prior to these events it generated over
40 per cent. of its overall revenues in the US, predominantly with major US airlines. As a result, operations of the
LSG Sky Chefs Group, and in particular its US operations, are currently not profitable. If management does not
succeed in increasing revenue or decreasing costs, the LSG Sky Chefs Group will continue to accumulate
significant losses. In the context of the impairment tests relating to the LSG Sky Chefs Group the whole range of
assets of the LSG Sky Chefs Group will be scrutinized and Lufthansa believes that they will be subject to
significant write-downs (see ‘‘— The Lufthansa Group is exposed to risks from acquisitions’’). As the overall
indebtedness of LSG Sky Chefs Group’s US operating entities amounts to about 4 1.1bn and LSG Sky Chefs
Group indebtedness (including the US operating entities’ indebtedness and shareholder loans from Lufthansa)

                                                        15
amounts to about 4 3bn, any further losses to be sustained by the LSG Sky Chefs Group would materially
deteriorate its financial position. This would have a material adverse effect on Lufthansa’s business, results of
operations and financial position. Revenues of the LSG Sky Chefs Group may further decrease in the future as
costs for catering services are among those cost components which airlines can most easily manage by altering
food service levels. Major US and other airlines have already cut or abolished food services on certain routes.
These measures in combination with the overall declining demand for in-flight catering services following the
terrorist attacks in the US on 11 September 2001 severely affected the LSG Sky Chefs Group (see ‘‘Business
Description — Segment Catering — LSG Sky Chefs Group’’). Any further reduction in food service levels in the
US or elsewhere (for example, resulting from an adaptation of traditionally lower US food service levels in
Europe) would have a material adverse effect on the business of LSG Sky Chefs Group and further deteriorate its
financial position. This would adversely affect Lufthansa Group’s business, results of operations and financial
position.
     The LSG Sky Chefs Group is also exposed to potentially increasing financial difficulties of its customers.
The majority of the LSG Sky Chefs Group’s customers are airlines, including the major US airlines. Due to the
economic downturn and the terrorist attacks in the US on 11 September 2001, US airlines in particular have
experienced significant financial difficulties. Should any of these airlines file for bankruptcy or take other
measures to ensure protection from creditors, LSG Sky Chefs Group would not only face the risk of losing
customers, but may also face losses due to defaults on outstanding receivables. This would have a material
adverse effect on the LSG Sky Chefs Group’s business and financial position and would materially adversely
affect Lufthansa Group’s business, results of operations and financial position.
     In addition, several Scandinavian entities which commenced operations in 2000 will only be included in the
Segment Catering of the Lufthansa Group’s financial statements for the first time at the end of 2001.
Accordingly, these entities have not been included in the Segment Catering in prior periods, including interim
periods. As a result of such inclusion, the results for the Segment Catering and the results in the consolidated
financial statements of the LSG Sky Chefs Group in 2000 may have to be adjusted for losses of the formerly
unconsolidated Scandinavian subsidiaries to the extent no sufficient provisions have been established. An analysis
of the development of LSG Sky Chefs’ business in Scandinavia has led to the conclusion that, from today’s
perspective, catering contracts will lead to losses of approximately 4 45m on average per year. LSG Sky Chefs
will establish corresponding provisions which will also have an impact on the results of the Lufthansa Group and
the Segment Catering (see ‘‘Business Activities — Segment Catering — LSG Sky Chefs Group’’). LSG Sky
Chefs Group has entered into negotiations with a view to modify the existing catering contracts. If these
negotiations are not successful and such losses continue for an extended period or worsen, this would have a
material adverse effect on Lufthansa Group’s business, results of operations and financial position.

Lufthansa is exposed to risks from its strategic alliances and cooperations
     Lufthansa perceives its membership in the Star Alliance airline network as a significant competitive
advantage over its competitors, especially over its major European competitors. No assurance can be given that
other airline alliances will not become more successful than the Star Alliance network, thereby reducing
Lufthansa’s perceived competitive advantage. In addition, no assurance can be given that all of the current
member airlines in the Star Alliance network will retain their membership in the future. While termination notice
periods and termination payments have been agreed in order to secure sustainability of the Star Alliance network,
no assurance can be given that one or more members will not cancel their membership or may be required by law
(for example, as a result of insolvency proceedings or bankruptcy) or for any other reason to cancel their
membership in the Star Alliance network. Any such cancellation and the inability to replace any such member
would impair Lufthansa’s ability to offer to its customers the current range of feeder and connecting flights
covered by the relevant member of the Star Alliance network. Therefore, the cancellation of membership by an
important member airline of the Star Alliance could have a material adverse effect on the business, results of
operations and financial position of the Lufthansa Group. Additionally, no assurance can be given that the Star
Alliance itself will not be terminated as a result of the resignation of one or more of its members or as a result of
disputes among its members or for any other reasons. This could have a material adverse effect on the business,
results of operations and financial position of the Lufthansa Group.

                                                         16
     Lufthansa operates a number of its international flight operations through cooperation agreements,
predominantly within the Star Alliance network. These agreements typically provide for a sharing of profits and
losses from the relevant operations. See ‘‘Business Activities — Segment Passenger Business — Alliances,
Participations and Cooperations’’. Hence, if the relevant partner operates at a higher cost or generates lower
revenues than Lufthansa, Lufthansa’s results of operations from such operations would be adversely affected. In
addition, certain of these cooperation agreements cap the amount of the loss to be borne by Lufthansa’s partners
and limit Lufthansa’s share in any profits from such operations or specified routes. Thus, any gains or losses
generated from the operations or from specified routes covered by such cooperation agreements will be shared by
Lufthansa disproportionately. This may have a material adverse effect on the business, results of operations and
financial position of the Lufthansa Group.

Lufthansa is dependent on available air space, air traffic control and services provided by third parties
     Air space is a finite resource and any increase in air traffic could limit the operations of the Lufthansa Group.
Additionally, the Lufthansa Group is dependent upon the services of third parties such as air traffic controllers,
aircraft fuel handlers and baggage handlers as well as general airport services. If any of these third party services
were temporarily (e.g. as a result of strikes) or permanently unavailable or only available on financially
unacceptable conditions, this could result in a material adverse effect on the business, results of operations and
financial position of the Lufthansa Group.
     In particular, there is currently limited availability of air traffic controllers not only in Germany but across
Europe. Any limited availability of air traffic control resulting from such limited capacities or the absence of
measures to overcome such limitation (such as, for example, overtime) would result in longer flight and ground
time of aircraft operated by the Lufthansa Group and could have a material adverse effect on Lufthansa Group’s
business, results of operations and financial position.

Lufthansa is exposed to the risks from airport terminal operations such as at Munich 2 and
Terminal 1 of John F. Kennedy International
      The Lufthansa Group has invested in the construction of airport facilities such as new passenger terminals
(for example, Munich 2 and Terminal 1 of John F. Kennedy International, New York City, USA) and has entered
into financing contracts relating to these facilities. In addition, the Lufthansa Group committed to rent these
facilities or part thereof at long-term fixed rates based on project costs. If the actual costs of building and/or
operating these airport facilities in the future exceed the projected costs (resulting in higher rental payments by
the Lufthansa Group) this could have a significant adverse effect on the business, results of operations and
financial position of the Lufthansa Group.
     In relation to Terminal 1 of John F. Kennedy International, the Lufthansa Group, together with Air France,
Japan Airlines and Korean Air has committed to be jointly liable for all rental payments. If the overall rental
payments generated by the operator of Terminal 1 of John F. Kennedy from these airlines (including Lufthansa)
and any other air carriers and other lessees at Terminal 1 fell short of the contractually stipulated minimum rent,
these four airlines would be jointly liable for the shortfall. In addition, if one or more of the other three airlines
                                                              a
were to default on its or their respective obligations vis-` -vis the operator, Lufthansa together with the non-
defaulting airlines, would have to bear the resulting shortfall. Such shortfall could result in potentially significant
higher costs to the Lufthansa Group and, in such case, would have a material adverse effect on the business,
results of operations and financial position of the Lufthansa Group.

Lufthansa is exposed to the risk of catastrophic loss
      The Lufthansa Group, like all airlines, is exposed to potential catastrophic losses in the event one or more of
its aircraft or other operations is lost or affected by an accident, terrorist incident, act of sabotage or other
catastrophe. There can be no assurance that the amount of insurance cover available to the Lufthansa Group on
the occurrence of such an event would be adequate to cover the losses sustained by the Lufthansa Group (see
‘‘— Insurance costs have increased significantly and the insurance market may face further disruptions’’).
Further, there can be no assurance, that the Lufthansa Group would not be forced to bear substantial losses

                                                         17
irrespective of its insurance cover because the relevant insurer is unwilling or unable to pay out insurance benefits
or for any other reason. Any such losses would have a material adverse effect on the business, results of
operations and financial position of the Lufthansa Group.

Lufthansa is exposed to international political risks
      As an international airline, Lufthansa’s business is subject to various international political risks outside of
its control, such as instability of foreign economies and governments, hostilities or terrorism or the threat thereof
and changes in laws and policies affecting international air travel. Any future local or more global political
instability or adverse change could cause a general reduction of prices for airline travel or adversely affect airline
passenger traffic and hence adversely affect the Lufthansa Group’s business, results of operations and financial
position.

Potential disruptions of its and third party business systems could adversely affect Lufthansa
     The ability of the Lufthansa Group to receive and process ticket sales, manage reservations and its traffic
network and engage in other critical business tasks depends on the efficient and uninterrupted operation of its and
third party computer and communication systems. As computer and communication systems are vulnerable to
damage, power loss, terrorist or sabotage acts, computer viruses, third party disruption, fire and similar events,
there can be no assurance of such efficient and uninterrupted operation. Any significant disruption to the systems
used by the Lufthansa Group would damage its ability to efficiently carry on its business and could have a
material adverse effect on its business, results of operations or financial position.

The economic and political conditions in Germany are uncertain
    The business and operations of the Lufthansa Group are subject to the changing economic and political
conditions and climate prevailing from time to time in Germany. Currently Germany is experiencing a recessive
economic downturn which continues to have a material adverse effect on the Lufthansa Group’s business.
     In addition, environmentally or fiscally motivated political measures, such as general limitations on the
expansion of airport operations, restrictions on night flights, or specific taxes in relation to energy and fuel
consumption, have been discussed and debated from time to time in German politics. In addition, German labor
costs, corporate taxes and additional personnel expenses are high by international standards and weekly working
hours are among the shortest in the EU, the US and Japan. Although there has been monetary and political
stability and labor productivity is high in Germany, there can be no assurance that the Lufthansa Group’s
business, results of operations and financial position will not be adversely affected due to structural competitive
disadvantages stemming from the economic and political conditions in Germany.

Lufthansa may be adversely affected by aircraft fuel price fluctuations
     Aircraft fuel prices are susceptible to a number of factors, including political events and the coordinated
pricing decisions of producer cartels such as the Organization of Petroleum Exporting Countries. The Lufthansa
Group cannot predict the development of either short or long term fuel prices. In the event of a fuel supply
shortage, fuel prices could rise or a curtailment of scheduled services could occur. In order to reduce Lufthansa
Group’s exposure to fuel price rises, Lufthansa has a policy to hedge up to 90 per cent. of estimated future fuel
consumption costs on a revolving basis. However, its hedging contracts may not fully protect the Lufthansa
Group from significant increases in the price of aircraft fuel in the short or long term, and may on the other side
limit the benefits the Lufthansa Group could derive from significant decreases in the price of aircraft fuel.
Lufthansa’s assessment and estimates of the future development of aircraft fuel prices and the chosen degree of
risk aversion or risk tolerance will therefore materially impact its ability to achieve a successful hedging policy.
There can be no assurance that such hedging policy will prove successful.
     Additionally, with fuel costs representing approximately 11 per cent. of Lufthansa’s operating expenses
(before hedging) in the first three quarters of 2001, significant increases in fuel prices would have a material
adverse effect on Lufthansa’s business, results of operations and financial position.

                                                         18
Personnel costs are a significant cost item and the Lufthansa Group is dependent on good relations
with the unions representing its employees
     In light of the difficult economic situation confronting Lufthansa mainly as a consequence of the terrorist
attacks in the US on 11 September 2001, Lufthansa has reached an agreement with the ‘‘ver.di’’ union and the
‘‘Vereinigung Cockpit’’ pilots union (VC) for a package of measures aimed at reducing personnel costs for
ground staff as well as for cabin and cockpit crews. Together with the steps already taken such as a recruitment
freeze, the reduction in extra flying hours for flight crews, reduced work time for cabin crew, more part-time
offers and unpaid special leave, the Lufthansa Group aims at improving its future liquidity position. If future
agreements with unions or arbitrators diverge from certain of the agreed measures, or if all or part of such
measures prove to be unsuccessful, or if the negative trend continues and management and unions are not able to
agree on further measures warranted by the actual situation, this could have a material adverse effect on the
Lufthansa Group’s business, results of operations and financial position.
     In the second quarter of 2001, VC engaged in a sustained strike against Lufthansa resulting in significant
disruption of Lufthansa’s flight operations and in severe financial losses. To resolve the dispute, Lufthansa made
major concessions, particularly in remuneration levels. Certain cabin crew representatives are currently trying to
achieve official recognition for an independent employee representative organization under the name
                     a
‘‘Vereinigung Unabh¨ ngiger Flugbegleiter’’ (UFO) in order to achieve a similar position of strength as currently
enjoyed by VC. The competent regional court confirmed UFO’s position; the decision is under appeal. If future
conflicts among management and employees result in further strikes or other disruptive measures, this would have
a material adverse effect on Lufthansa Group’s business, results of operations and financial position.
     Negotiations with VC in relation to Lufthansa CityLine, which had stalled following the terrorist attacks in
the US on 11 September 2001, have been declared to have failed by VC and VC is currently soliciting its
members’ views as to future steps, including a potential strike. If management and VC are not able to resolve this
situation amicably, this could have a material adverse effect on the Lufthansa Group’s business, results of
operations and financial position.

Lufthansa faces competition from alternative means of travel, especially rail
      The German government and other European governments have funded and continue to fund significant
investments into the expansion of rail systems, particularly in the high-speed segment. High-speed trains already
offer an alternative form of travel at competitive timing and pricing on certain routes traditionally covered by
airline operations. As additional high-speed rail routes are opened, competitive pressure from rail operators will
increase. Any significant loss of passengers to rail operators would have a material adverse effect on the business,
results of operations and financial position of the Lufthansa Group.

Lufthansa is exposed to competition from budget airlines
     In the passenger airline business, budget airlines try to gain market share from Lufthansa and others by
offering low-price airfares. Lufthansa has responded to such competition on certain routes by reducing its own
fares. There can be no assurance that the development of such a lower-priced market segment will not affect
Lufthansa’s future growth or lead to a decline in prices or loss of market share, with a corresponding adverse
effect on the business, results of operations and financial position of the Lufthansa Group.

Lufthansa is subject to risks from foreign exchange rate fluctuations
      Given the international nature of its business, the Lufthansa Group receives a large part of its revenues and
incurs a substantial part of its operating expenses in foreign currencies, particularly US dollars. Thus, Lufthansa
is inevitably exposed to fluctuations in the exchange rates between those currencies and the euro which may have
a substantial impact on revenues and expenses recorded on Lufthansa’s income statement. While Lufthansa has
long pursued a policy of hedging such currency risks, in particular against the US dollar and the Japanese Yen,
significant changes in exchange rates, especially any significant depreciation of the euro, would materially affect
the Lufthansa Group’s results of operations and financial position. Further, its currency hedging contracts may

                                                        19
not fully protect Lufthansa from significant changes in foreign currency exchange rates, and may on the other
side limit the benefit Lufthansa could derive from changes advantageous to Lufthansa. Lufthansa’s assessment
and estimates of the future development of currency exchange rates and the chosen degree of risk aversion or risk
tolerance will therefore materially impact on its ability to effect a successful hedging policy. There can be no
assurance that such hedging policy will prove successful.

Lufthansa is subject to several anti-trust investigations
     The Lufthansa Group is subject to several anti-trust proceedings relating to its cooperation agreements and
to several other investigations by competent anti-trust authorities (see ‘‘Business Activities — Legal
Proceedings — Anti-trust Proceedings’’). There can be no assurance that any of these proceedings or
investigations will be adjudicated in Lufthansa’s favor. Any decision to the disadvantage of Lufthansa, such as a
levying of fines or imposing conditions detrimental to Lufthansa (for example a relinquishing of slots), could
materially affect Lufthansa’s position in the market and future growth potential and could adversely affect the
business, results of operations and financial position of the Lufthansa Group.

Potential shortages of specialized personnel
      Prior to the terrorist attacks in the US on 11 September 2001, pilots had been in short supply in the European
airline industry and the Lufthansa Group had to spend significant time, money and effort to recruit and retain
pilots. Although there is no pilot shortage at the current time, pilot shortages could occur again in the future. Any
significant or continuing shortage of pilots or other specialized personnel could have an adverse effect on the
business, results of operations and financial position of the Lufthansa Group.

Lufthansa is subject to risks in relation to its pension liabilities
     Until 1994 Lufthansa participated in the retirement pension scheme for public sector employees
                                         a
(Versorgungsanstalt des Bundes und der L¨ nder, VBL). Thereafter, Lufthansa itself assumed responsibility for the
supplementary benefit entitlements under this scheme for all employees who were employed by Lufthansa,
Condor (now part of the Thomas Cook AG) or LSG on 31 December 1994 and established sufficient reserves to
cover such obligations in accordance with Generally Accepted Accounting Principles in Germany and the
German tax laws. Employees of Lufthansa joining since 1 January 1995 are no longer included in such
supplementary pension scheme, but in a new company pension scheme under which specified annual pension
units, actuarially determined and fixed in nominal terms, are earned for each year of employment.
     The VBL articles (Satzung) still apply to the VBL supplementary pension scheme assumed by Lufthansa. As
a consequence, Lufthansa will automatically participate in possible reductions in payment levels and entitlements
under the VBL supplementary retirement benefit scheme for public sector employees, and similarly, will
automatically participate in any increased VBL pensions, e.g., due to a reduction of benefits in the statutory
pension insurance system. Any such increase in entitlements will directly affect Lufthansa and could have an
adverse effect on the Lufthansa Group’s business, results of operations and financial position.

Non-German shareholders of Lufthansa may be excluded in order to secure existing air traffic rights
     In order to maintain its operating license and air traffic rights Lufthansa must be in a position to identify at
any time the nationality of its shareholder base. The Federal Republic of Germany has adopted the Aviation
Compliance Documenting Act (Luftverkehrsnachweissicherungsgesetz) to secure the operating licenses and air
traffic rights of German air carriers. The Aviation Compliance Documenting Act permits certain measures to be
taken by Lufthansa to protect its operating license and air traffic rights. These measures include, as a last resort,
the exclusion of shareholders to reinstate the required shareholder structure. See ‘‘Business Activities — Airline
Regulation — The Aviation Compliance Documenting Act’’.

Upon conversion, non-German Bondholders may receive a cash payment in lieu of delivery of Shares
      To ensure compliance with international and national airline regulations, Bondholders, not being a German
citizen or an entity domiciled in Germany, upon conversion of Bonds, may receive a cash payment in lieu of

                                                         20
delivery of Shares. The cash payment will be based on the price of the Shares. In such event, the Shares to be
delivered upon conversion will be sold by a German financial intermediary (initially Morgan Stanley Bank AG).
See ‘‘Terms and Conditions of the Bonds — § 6(7)’’. There can be no assurance that the cash payment in lieu of
delivery of Shares represents a fair compensation for the Shares otherwise delivered upon conversion.
     Upon delivery of Shares to the German financial intermediary, Lufthansa is discharged from all obligations
under the Bonds converted by the relevant non-German Bondholder whose rights under the Bonds converted are
limited to receipt of the cash payment in lieu of delivery of Shares from the German financial intermediary.
Lufthansa will not be liable for any shortfalls stemming from the German financial intermediary’s non-
performance of its obligation to pay out the cash payment or any loss stemming from delays in relation to such
payment. The Bondholder carries the counterparty risk that the German financial intermediary is unable to fulfill
its obligations.

Market risks in relation to the Bonds
     There can be no assurance as to how the Bonds will trade in the secondary market or whether such market
will be liquid or illiquid. Even though application has been made to list the Bonds on the Luxembourg Stock
Exchange, there can be no assurance that such application will result in the listing of the Bonds or the trading in
the Bonds on the Luxembourg Stock Exchange will commence or, if commenced, will prevail at sufficient
liquidity levels and not be suspended. The Bonds will not be redeemable if no listing is obtained or as a result of
any such suspension of trading. If the Bonds are not traded on any securities exchange or if trading in the Bonds
is suspended, pricing information for the Bonds may be more difficult to obtain, and the liquidity and market
prices of the Bonds may be adversely affected.

Economic and conversion risks in relation to the Bonds
      The market value of the Bonds will be affected by a number of factors independent of the Lufthansa Group’s
creditworthiness and the value of the Shares, including, but not limited to, the volatility of the Shares, the
dividends on the Shares, the Lufthansa Group’s financial results and prospects, market interest and yield rates and
the time remaining to any redemption date to the maturity date of the Bonds.




                                                        21
                                       TERMS AND CONDITIONS OF THE BONDS
                                                 Terms and Conditions of the Bonds
                                                in definitive form and in global form
                           The German text of the Terms and Conditions is legally binding.
                                  The English translation is for convenience only.
               Terms and Conditions of the Bonds                                             Bedingungen der Wandelanleihe
                 (the ‘‘Terms and Conditions’’)                                                (die ‘‘Anleihebedingungen’’)

                          § 1 Definitions                                                               § 1 Definitionen
In these Terms and Conditions the following terms shall have the            In diesen Anleihebedingungen haben die folgenden Begriffe die
following meaning:                                                          ihnen nachfolgend zugewiesene Bedeutung:
‘‘Shares’’ means registered shares with no par value with limited                                                                      u
                                                                            ‘‘Aktien’’ bezeichnet vinkulierte auf den Namen lautende St¨ ckak-
transferability of the Issuer, each with a notional amount in the           tien der Anleiheschuldnerin mit einem anteiligen Betrag am
share capital of 4 2.56 entitled to dividends for the fiscal year in         Grundkapital von 4 2,56 je Aktie mit Dividendenberechtigung f¨ ru
which the Conversion Notice becomes effective.                                        a                                  a
                                                                            das Gesch¨ ftsjahr, in dem die Wandlungserkl¨ rung wirksam wird.
‘‘Fair Market Value’’ has the meaning set out in § 7(4)(b)(ii).             ‘‘Angemessener Marktwert’’ hat die in § 7(4)(b)(ii) festgelegte
                                                                            Bedeutung.
‘‘Bondholder’’ means the holder of a proportional co-ownership                         a                                               a
                                                                            ‘‘Anleihegl¨ ubiger’’ bezeichnet den Inhaber eines anteilsm¨ ßigen
participation or right in the Global Bond.                                  Miteigentums oder Rechts an der Globalurkunde.
‘‘Issuer’’ means Deutsche Lufthansa Aktiengesellschaft, Cologne.            ‘‘Anleiheschuldnerin’’ bezeichnet Deutsche Lufthansa Aktienge-
                                                                                         o
                                                                            sellschaft, K¨ ln.
‘‘Issue Date’’ means 4 January 2002.                                        ‘‘Ausgabetag’’ bezeichnet den 4. Januar 2002.
‘‘Exercised Bond’’ has the meaning set out in § 6(7)(b).                            ¨
                                                                            ‘‘Ausgeubte Teilschuldverschreibung’’ hat die in § 6(7)(b) fest-
                                                                            gelegte Bedeutung.
‘‘Distribution Record Date’’ means the Trading Day immediately                      ¨
                                                                            ‘‘Ausschuttungsstichtag’’ bezeichnet den dem Ex-Tag unmittelbar
preceding the Ex Date.                                                      vorangehenden Handelstag.
‘‘Extraordinary Dividend’’ is given in the event that the Issuer            ‘‘Außerordentliche Dividende’’ liegt vor, falls die Anleiheschuld-
distributes to its shareholders:                                                                a
                                                                            nerin an ihre Aktion¨ re:
(i)   a dividend in respect of any fiscal year of the Issuer which,          (i)    u                     a                               u
                                                                                  f¨ r eines ihrer Gesch¨ ftsjahre eine Dividende aussch¨ ttet, die,
      when aggregated with all dividends previously distributed to                                              a
                                                                                  zusammengerechnet mit s¨ mtlichen Dividenden, die sie an
      its shareholders in respect of the same fiscal year (such                                 a u                     a                         u
                                                                                  ihre Aktion¨ re f¨ r dasselbe Gesch¨ ftsjahr bereits ausgesch¨ t-
      aggregate amount hereinafter referred to as the ‘‘Total                     tet hat (dieser Gesamtbetrag nachfolgend die
      Dividend’’), causes the Dividend Yield calculated on a per                                                   u
                                                                                  ‘‘Gesamtdividende’’), dazu f¨ hrt, dass der Dividendenertrag
      Share basis on the daily average quotation of the Share in the                                                          a
                                                                                  je Aktie auf Basis des durchschnittlichen t¨ glichen Kurses der
      XETRA afternoon auction for that fiscal year (the ‘‘Overall                                                                    u
                                                                                  Aktie in der XETRA Nachmittagsauktion f¨ r dieses Ge-
      Dividend Yield’’) to exceed the average of the Dividend                          a
                                                                                  sch¨ ftsjahr (der ‘‘Gesamtdividendenertrag’’) den auf glei-
      Yields for the preceding five fiscal years calculated in the                  cher Basis berechneten durchschnittlichen Dividendenertrag
      same manner (the ‘‘Average Dividend Yield’’) plus                             a                    u           a
                                                                                  w¨ hrend der letzten f¨ nf Gesch¨ ftsjahre (der ‘‘Durchschnitt-
      5 percentage points (the entire excess over the Average                                                        u
                                                                                  liche Dividendenertrag’’) zuz¨ glich 5 Prozentpunkte uber-  ¨
      Dividend Yield — for the avoidance of doubt, including the                  schreitet      (der    gesamte       den    Durchschnittlichen
      5 percentage points — hereinafter referred to as the ‘‘Excess                                    ¨
                                                                                  Dividendenertrag ubersteigende Betrag — zur Klarstellung
      Dividend Yield’’); or                                                       unter Hinzurechung der 5 Prozentpunkte — nachfolgend der
                                                                                     ¨
                                                                                  ‘‘Uberschießende Dividendenertrag’’); oder
(ii) assets (including any share repurchase where the Issuer grants                    o                                 u
                                                                            (ii) Verm¨ genswerte (einschließlich des R¨ ckkaufs von Aktien,
     to its shareholders put options, but excluding any distribution                                                        a
                                                                                 bei denen die Anleiheschuldnerin ihren s¨ mtlichen Aktio-
     pursuant to (i)).                                                            a                           a
                                                                                 n¨ ren Verkaufsoptionen gew¨ hrt, jedoch ausschließlich einer
                                                                                         u         a             u
                                                                                 Aussch¨ ttung gem¨ ß (i)) aussch¨ ttet.
For these purposes no account shall be taken of any corporate tax            u                                         u
                                                                            F¨ r diese Zwecke wird ein mit einer Aussch¨ ttung gegebenenfalls
credit inherent in any distribution.                                                       o
                                                                            verbundenes K¨ rperschaftssteuerguthaben nicht eingerechnet.
‘‘Excluded Period’’ has the meaning set out in § 6(2)(b).                   ‘‘Ausschlusszeitraum’’ hat die in § 6(2)(b) festgelegte Bedeutung.
‘‘Cash Consideration’’ has the meaning set out in § 6(7)(b).                ‘‘Bar-Gegenleistung’’ hat die in § 6(7)(b) festgelegte Bedeutung.
‘‘Calculation Agent’’ has the meaning set out in § 14(1).                   ‘‘Berechnungsstelle’’ hat die in § 14(1) festgelegte Bedeutung.
‘‘Clearing System’’ means Clearstream Luxembourg and                        ‘‘Clearing System’’ bezeichnet Clearstream Luxembourg und
Euroclear.                                                                  Euroclear.

                                                                       22
‘‘Clearstream Luxembourg’’ means Clearstream Banking S.A.,                    ‘‘Clearstream Luxemburg’’ bezeichnet Clearstream Banking
Luxembourg.                                                                   S.A., Luxembourg.
‘‘Custodian’’ has the meaning set out in § 16(5)(b).                          ‘‘Depotbank’’ hat die in § 16(5)(b) festgelegte Bedeutung.
‘‘Dividend’’ means any dividend or distribution, whether of cash,                                                                     u
                                                                              ‘‘Dividende’’ bezeichnet jede Dividende oder Aussch¨ ttung von
assets or other property, and whenever paid or made and however                        a                       o
                                                                              Barbetr¨ gen oder anderen Verm¨ genswerten, ungeachtet des Zeit-
described (and for these purposes a distribution of assets includes,                              u
                                                                              punkts der Aussch¨ ttung oder Ausgabe oder ihrer Beschreibung
without limitation, an issue of shares or other securities credited as          u                                     u                o
                                                                              (f¨ r diese Zwecke schließt eine Aussch¨ ttung von Verm¨ genswer-
fully or partly paid up).                                                     ten jegliche Ausgabe von Aktien oder anderen Wertpapieren ein,
                                                                              die als voll oder teilweise eingezahlt gutgeschrieben sind).
‘‘Dividend Yield’’ means the percentage ratio of the dividend to                                                         a
                                                                              ‘‘Dividendenertrag’’ bezeichnet das Verh¨ ltnis der Dividende
the quotation of the Share.                                                                              u
                                                                              zum Kurs der Aktie, ausgedr¨ ckt in Prozent.
‘‘Average Dividend Yield’’ means the average of the Dividend                  ‘‘Durchschnittlicher Dividendenertrag’’ bezeichnet den durch-
Yields for the preceding five fiscal years calculated on a per Share                                                                 u         a
                                                                              schnittlichen Dividendenertrag je Aktie der letzten f¨ nf Gesch¨ fts-
basis on the daily quotation of the Share in the XETRA afternoon                                      a
                                                                              jahre auf Basis des t¨ glichen Kurses der Aktie in der XETRA
auction. In case that such quotation is not determined, the official                                    u
                                                                              Nachmittagsauktion. F¨ r den Fall, dass ein solcher Kurs nicht
quotation (Einheitskurs) on the Frankfurt Stock Exchange or, in               festgestellt wird, ist der Einheitskurs an der Frankfurter Wertpa-
case that no official quotation is determined, the last determined                  o            u
                                                                              pierb¨ rse bzw. f¨ r den Fall, dass kein Einheitskurs festgestellt
per share sale price of the Share in the official stock market                                                               u
                                                                              wird, jeweils der letzte fortlaufende Kurs f¨ r die Aktie in der
(Notierung im Parketthandel ) on the Frankfurt Stock Exchange or,             Notierung im Parketthandel an der Frankfurter Wertpapierb¨ rse o
if such sale price is not determined as well, the average of the bid                 u
                                                                              bzw. f¨ r den Fall, dass auch ein solcher Kurs nicht festgestellt
and ask prices on the Frankfurt Stock Exchange shall be relevant.             wird, das Mittel zwischen Brief- und Geldkurs an der Frankfurter
                                                                                           o
                                                                              Wertpapierb¨ rse maßgebend.
‘‘Euroclear’’ means Euroclear Bank S.A./N.V. as operator of the               ‘‘Euroclear’’ bezeichnet Euroclear Bank S.A./N.V. als Betreiber
Euroclear System.                                                             des Euroclear Systems.
‘‘Ex Date’’ means the first Trading Day on the Stock Exchange of               ‘‘Ex-Tag’’ bezeichnet den ersten Handelstag an der Frankfurter
Frankfurt on which the Shares are traded ‘‘ex right’’ with respect to                    o
                                                                              Wertpapierb¨ rse, an dem die Aktie ‘‘ex-Bezugsrecht’’ im Hinblick
the subscription of the shares, notes with warrants, or bonds with            auf den Bezug der Aktien, Optionsanleihen oder Anleihen mit
conversion rights or conversion obligations or option rights on own           Wandlungsrechten oder -pflichten oder Optionsrechte auf eigene
shares.                                                                       Aktien gehandelt wird.
‘‘Redemption Date’’ means 4 January 2012.                                        a
                                                                              ‘‘F¨ lligkeitstag’’ ist der 4. Januar 2012.
‘‘Permitted Indebtedness’’ has the meaning set out in § 4.                    ‘‘Genehmigte Verbindlichkeit’’ hat die in § 4 festgelegte Bedeu-
                                                                              tung.
‘‘Total Dividend’’ means the aggregate amount of all dividends                ‘‘Gesamtdividende’’ bezeichnet den Gesamtbetrag aller Dividen-
distributed by the Issuer to its shareholders in respect of one fiscal                                                       a
                                                                              den, die die Anleiheschuldnerin an ihre Aktion¨ re in einem Ge-
year.                                                                            a               u
                                                                              sch¨ ftsjahr aussch¨ ttet.
‘‘Overall Dividend Yield’’ means the overall Dividend Yield                   ‘‘Gesamtdividendenertrag’’ bezeichnet den Ertrag der
calculated on a per Share basis on the average quotation of the                                                                          a
                                                                              Gesamtdividende je Aktie auf Basis des durchschnittlichen t¨ gli-
Share in the XETRA afternoon auction for the relevant fiscal year.                                                                      u
                                                                              chen Kurses der Aktie in der XETRA Nachmittagsauktion f¨ r das
                                                                                             a
                                                                              jeweilige Gesch¨ ftsjahr.
‘‘Business Day’’ means a day (other than a Saturday or Sunday)                         a
                                                                              ‘‘Gesch¨ ftstag’’ ist jeder Tag (außer einem Samstag oder Sonn-
on which each of (i) the Trans-European Automated Real-Time                   tag), an dem sowohl (i) das Trans-European Automated Real-Time
Gross Settlement Express Transfer (TARGET) System, (ii) the                   Gross Settlement Express Transfer (TARGET) System als auch
Clearing System and (iii) commercial banks an foreign exchange                                                          a
                                                                              (ii) das Clearing System sowie (iii) Gesch¨ ftsbanken und Devisen-
markets in Luxembourg and Frankfurt am Main, settle payments in                  a
                                                                              m¨ rkte in Luxemburg und Frankfurt am Main Zahlungen in Euro
Euro.                                                                         abwickeln.
‘‘Global Bond(s)’’ has the meaning set out in § 2(2).                         ‘‘Globalurkunde(n)’’ hat die in § 2(2) festgelegte Bedeutung.
‘‘Trading Day’’ means each trading day in XETRA.                              ‘‘Handelstag’’ bezeichnet jeden Handelstag in XETRA.
‘‘Principal Paying and Conversion Agent’’ has the meaning set                 ‘‘Hauptzahl- und Wandlungsstelle’’ hat die in § 14(1) festgelegte
out in § 14(1).                                                               Bedeutung.
‘‘Intermediary’’ has the meaning set out in § 6(7)(d).                                   a
                                                                              ‘‘Intermedi¨ r’’ hat die in § 6(7)(d) festgelegte Bedeutung.
‘‘Capital Market Indebtedness’’ has the meaning set out in § 4.               ‘‘Kapitalmarktverbindlichkeit’’ hat die in § 4 festgelegte Bedeu-
                                                                              tung.
‘‘Control’’ has the meaning set out in § 8(1).                                ‘‘Kontrolle’’ hat die in § 8(1) festgelegte Bedeutung.
‘‘Change of Control’’ has the meaning set out in § 8(1).                      ‘‘Kontrollwechsel’’ hat die in § 8(1) festgelegte Bedeutung.
‘‘Default Notice’’ has the meaning set out in § 12(1).                           ¨            a
                                                                              ‘‘Kundigungserkl¨ rung’’ hat die in § 12(1) festgelegte Bedeu-
                                                                              tung.
‘‘Event of Default’’ has the meaning set out in § 12(1).                         ¨
                                                                              ‘‘Kundigungsgrund’’ hat die in § 12(1) festgelegte Bedeutung.

                                                                         23
‘‘Non-German Bondholder’’ has the meaning set out in § 6(7)(a).                                        a
                                                                            ‘‘Nicht-Deutscher Anleihegl¨ ubiger’’ hat die in § 6(7)(a) festge-
                                                                            legte Bedeutung.
‘‘Permanent Global Bond’’ has the meaning set out in § 2(2).                ‘‘Permanente Globalurkunde’’ hat die in § 2(2) festgelegte Be-
                                                                            deutung.
‘‘Person’’ has the meaning set out in § 8(1).                               ‘‘Person’’ hat die in § 8(1) festgelegte Bedeutung.
‘‘Security Interest’’ has the meaning set out in § 4.                       ‘‘Sicherungsrecht’’ hat die in § 4 festgelegte Bedeutung.
‘‘Restricted Period’’ has the meaning set out in § 2(2).                    ‘‘Sperrfrist’’ hat die in § 2(2) festgelegte Bedeutung.
‘‘Relevant Date’’ has the meaning set out in § 8(2).                        ‘‘Stichtag’’ hat die in § 8(2)(b) festgelegte Bedeutung.
‘‘Bond(s)’’ has the meaning set out in § 2(1).                              ‘‘Teilschuldverschreibung(en)’’ hat die in § 2(1) festgelegte Be-
                                                                            deutung.
‘‘Excess Dividend Yield’’ means the entire excess over the                    ¨
                                                                            ‘‘Uberschießender Dividendenertrag’’ bezeichnet den gesamten
Average Dividend Yield.                                                                                             ¨
                                                                            den Durchschnittlichen Dividendenertrag ubersteigenden Betrag.
‘‘U.S. Person’’ has the meaning set out in the Internal Revenue             ‘‘U.S.-amerikanische Person’’ bezeichnet eine U.S. person im
Code of 1986.                                                               Sinne des Internal Revenue Code von 1986.
‘‘Temporary Global Bond’’ has the meaning set out in § 2(2).                      a
                                                                            ‘‘Vorl¨ ufige Globalurkunde’’ hat die in § 2(2) festgelegte Bedeu-
                                                                            tung.
‘‘Optional Redemption’’ has the meaning set out in § 9(2)(a).                             ¨
                                                                            ‘‘Vorzeitige Ruckzahlung’’ hat die in § 9(2)(a) festgelegte Bedeu-
                                                                            tung.
‘‘Optional Redemption Date’’ has the meaning set out in                                    ¨
                                                                            ‘‘Vorzeitiger Ruckzahlungstag’’ hat die in § 9(2)(b) festgelegte
§ 9(2)(b).                                                                  Bedeutung.
‘‘Conversion Notice’’ has the meaning set out in § 6(3)(a).                                a
                                                                            ‘‘Wandlungserkl¨ rung’’ hat die in § 6(3)(a) festgelegte Bedeu-
                                                                            tung.
‘‘Conversion Price’’ is 4 20.16 per Share of the Issuer, subject to         ‘‘Wandlungspreis’’ betr¨ gt 4 20,16 pro Aktie der Anleiheschuld-
                                                                                                   a
adjustments of the Conversion Price pursuant to § 7 and § 8.                nerin, vorbehaltlich von Anpassungen des Wandlungspreises
                                                                                a
                                                                            gem¨ ß § 7 und § 8.
‘‘Conversion Right’’ has the meaning set out in § 6(1)(a).                  ‘‘Wandlungsrecht’’ hat die in § 6(1)(a) festgelegte Bedeutung.
‘‘Conversion Date’’ has the meaning set out in § 6(3)(d).                   ‘‘Wandlungstag’’ hat die in § 6(3)(d) festgelegte Bedeutung.
‘‘Conversion Ratio’’ the nominal amount of one Bond divided by                               a
                                                                            ‘‘Wandlungsverh¨ ltnis’’ ist der Nennbetrag einer Teilschuldver-
the then valid Conversion Price (without adjustments initially                                                      u
                                                                            schreibung dividiert durch den jeweils g¨ ltigen Wandlungspreis
49.6032 Shares per each Bond).                                                                     a
                                                                            (ohne Anpassungen anf¨ nglich 49,6032 Aktien pro Teilschuldver-
                                                                            schreibung).
‘‘Conversion Period’’ has the meaning set out in § 6(2)(a).                 ‘‘Wandlungszeitraum’’ hat die in § 6(2)(a) festgelegte Bedeutung.
‘‘Paying and Conversion Agent(s)’’ has the meaning set out in               ‘‘Zahl- und Wandlungsstelle(n)’’ hat die in § 14(2) festgelegte
§ 14(2).                                                                    Bedeutung.
‘‘Interest Period’’ means the period from the Issue Date                    ‘‘Zinsperiode’’ bezeichnet den Zeitraum ab dem Ausgabetag (ein-
(inclusive) up to the first Interest Payment Date (exclusive) and            schließlich) bis zum ersten Zinszahlungstag (ausschließlich) und
thereafter as from any Interest Payment Date (inclusive) up to the                                                                     a
                                                                            danach ab jedem Zinszahlungstag (einschließlich) bis zum n¨ chst-
next following Interest Payment Date (exclusive).                           folgenden Zinszahlungstag (ausschließlich).
‘‘Interest Payment Date’’ means 4 January of each year.                     ‘‘Zinszahlungstag’’ bezeichnet den 4. Januar eines jeden Jahres.

                  § 2 Form and Denomination                                                    § 2 Form und Nennbetrag
(1) The issue of convertible bonds of the Issuer in the aggregate           (1) Die Wandelanleihe der Anleiheschuldnerin im Gesamtnenn-
    principal amount of 4 750,000,000 (in words: Euro seven                     betrag    von     4 750.000.000      (in    Worten:    Euro
    hundred fifty million) is divided into Bonds (the ‘‘Bonds’’                                u
                                                                                siebenhundertf¨ nfzig Millionen) ist in auf den Inhaber lau-
    and each a ‘‘Bond’’) payable to bearer in the denomination of               tende Teilschuldverschreibungen (die ‘‘Teilschuldverschrei-
    4 1,000 each.                                                               bungen’’ und jede eine ‘‘Teilschuldverschreibung’’) im
                                                                                Nennbetrag von jeweils 4 1.000 eingeteilt.
(2) The Bonds will initially be represented by a temporary global                                                          a
                                                                            (2) Die Teilschuldverschreibungen werden zun¨ chst durch eine
    bearer bond (the ‘‘Temporary Global Bond’’) without                             a
                                                                                vorl¨ ufige auf den Inhaber lautende Globalschuldverschrei-
    interest coupons, which will be exchanged not earlier than                                   a
                                                                                bung (die ‘‘Vorl¨ ufige Globalurkunde’’) ohne Zinsscheine
    40 days (this period hereinafter referred to as the ‘‘Restricted                               a                                 u
                                                                                verbrieft; die Vorl¨ ufige Globalurkunde wird nicht fr¨ her als
    Period’’) and not later than 180 days after the Issue Date                  40 Tage (dieser Zeitraum nachfolgend die ‘‘Sperrfrist’’) und
    against a permanent global bearer bond (the ‘‘Permanent                              a
                                                                                nicht sp¨ ter als 180 Tage nach dem Ausgabetag in eine
    Global Bond’’, the Temporary Global Bond and the                            permanente         auf       den      Inhaber       lautende
    Permanent Global Bond, together the ‘‘Global Bonds’’ and                    Globalschuldverschreibung (die ‘‘Permanente Globalur-


                                                                       24
each a ‘‘Global Bond’’) without interest coupons upon                                      a
                                                                         kunde’’, die Vorl¨ ufige Globalurkunde und die Permanente
certification as to non-U.S. beneficial ownership of the Bonds             Globalurkunde gemeinsam die ‘‘Globalurkunden’’ und jede
the contents and nature of which shall correspond to the                  u
                                                                         f¨ r sich eine ‘‘Globalurkunde’’) ohne Zinsscheine ausge-
requirements of the law of the United States of America or to                                               ¨
                                                                         tauscht, und zwar gegen Nachweis uber das Nichtbestehen
the standard practices of the security clearing system(s) which          von U.S.-amerikanischem wirtschaftlichen Eigentum (U.S.
then exist(s).                                                           beneficial ownership) der Teilschuldverschreibungen, der
                                                                         nach Inhalt und Form den Anforderungen des Rechts der
                                                                         Vereinigten Staaten von Amerika oder den dann bestehenden
                                                                         Usancen der Clearing Systeme entspricht.


In compliance with United States tax laws and regulations,               Im Einklang mit den Steuergesetzen und -vorschriften der
bearer bonds may not be offered, sold or delivered within the                                  u
                                                                         Vereinigten Staaten d¨ rfen auf den Inhaber lautende Schuld-
United States or to a U.S. person, except in certain                     verschreibungen nur in Transaktionen, die mit dem U.S.-
transactions permitted by U.S. tax regulations. Each syndicate                           ¨
                                                                         Steuerrecht in Ubereinstimmung stehen, in den Vereinigten
member bank has agreed (i) that it will not, (x) at any time in          Staaten oder an eine U.S.-amerikanische Person (U.S. person)
connection with the original issuance of the Bonds or                    angeboten, verkauft oder geliefert werden. Jede Konsortial-
(y) within the Restricted Period, offer or sell Bonds to a               bank hat zugesichert, (i) dass sie weder (x) im Zusammen-
person who is within the United States or to a U.S. person                                 u
                                                                         hang mit der urspr¨ nglichen Ausgabe der Teilschuldverschrei-
except as permitted by U.S. tax regulations and (ii) that it will        bungen       noch     (y)    innerhalb      der      Sperrfrist
not deliver Bonds sold during the Restricted Period in                   Teilschuldverschreibungen einer sich in den Vereinigten Staa-
definitive form within the United States. No Bonds (other than            ten befindenden Person oder einer U.S.-amerikanischen Per-
the Temporary Global Bond) may be delivered, and no                      son (U.S. person) anbietet oder verkauft, es sei denn, dies ist
interest may be paid until the person entitled to receive such                                            a
                                                                         nach den U.S.-Steuergesetzen zul¨ ssig, und (ii) dass sie keine
Bonds or such interest furnishes the written certification of               a
                                                                         w¨ hrend der Sperrfrist verkauften Teilschuldverschreibungen
non-U.S. beneficial ownership described above.                            in effektiven Urkunden in die Vereinigten Staaten ausliefert.
                                                                                                           u
                                                                         Die Teilschuldverschreibungen d¨ rfen (mit Ausnahme der
                                                                              a
                                                                         Vorl¨ ufigen Globalurkunde) nicht ausgeliefert werden, und es
                                                                          u
                                                                         d¨ rfen keine Zinsen gezahlt werden, solange die Person, die
                                                                         einen Anspruch auf die Teilschuldverschreibung oder die
                                                                                                                                     a
                                                                         Zinsen hat, nicht die oben beschriebene schriftliche Best¨ ti-
                                                                         gung des Nichtbestehens von U.S.-amerikanischem wirt-
                                                                         schaftlichen Eigentum (U.S. beneficial ownership) vorlegt.


The following legend will appear on the Global Bonds,                    Auf den Globalurkunden und etwaigen effektiven Urkunden
definitive Bonds and interest coupons, if any, appertaining               und Zinsscheinen wird folgende Legende aufgedruckt: ‘‘Any
thereto: ‘‘Any United States person who holds this obligation            United States person who holds this obligation will be subject
will be subject to limitations under the United States income            to limitations under the United States income tax laws,
tax laws, including the limitations provided in Sections 165(j)          including the limitations provided in Sections 165(j) and
and 1287(a) of the Internal Revenue Code.’’ The sections                 1287(a) of the Internal Revenue Code.’’ Die in der Legende
referred to in such legend provide that, with certain                    genannten Vorschriften sehen abgesehen von bestimmten
exceptions, a U.S. person will not be permitted to deduct any             Ausnahmen vor, dass eine U.S.-amerikanische Person
loss, and will not be eligible for capital gain treatment with                                            a
                                                                         (U.S. person) in Bezug auf Ertr¨ ge aus einem Verkauf, einer
respect to any gain, realized on the sale, conversion, or                                    u
                                                                         Wandlung oder R¨ ckzahlung der Teilschuldverschreibung
redemption of such Bond or interest coupon.                                                                      u
                                                                         bzw. des Zinsscheines keine Verlustabz¨ ge vornehmen darf
                                                                         und mit diesen auch nicht der Behandlung als Kursgewinn
                                                                         (capital gain treatment) unterliegt.


If (i), for any reason, the Issuer becomes legally obligated to          Falls (i) die Anleiheschuldnerin — aus welchem Grund auch
issue Bonds in definitive form, or if (i) either Clearstream              immer — von Gesetzes wegen verpflichtet werden sollte,
Banking S.A., Luxembourg (‘‘Clearstream Luxembourg’’),                                 u
                                                                         effektive St¨ cke auszugeben, oder falls (ii) Clearstream
or Euroclear Bank S.A./N.V. as operator of the Euroclear                 Banking S.A., Luxembourg (‘‘Clearstream Luxembourg’’)
System (‘‘Euroclear’’; Clearstream Luxembourg and                        oder Euroclear Bank S.A./N.V. als Betreiber des Euroclear
Euroclear together ‘‘Clearing System’’) or the relevant                  Systems (‘‘Euroclear’’; Clearstream Luxembourg und
clearstream or euroclear system should be closed for business            Euroclear gemeinsam ‘‘Clearing System’’) oder das betref-
for a period of 21 Business Days or should announce an                                                              u
                                                                         fende Clearstream- oder Euroclear-System f¨ r einen Zeitraum
intention permanently to cease business and no substitute                                                     a          u         a
                                                                         von 21 aufeinanderfolgenden Gesch¨ ftstagen f¨ r Gesch¨ fte
clearing system should be available, the Global Bond will be             geschlossen bleiben oder die Absicht bekannt geben sollte,
exchangeable for Bonds in definitive bearer form. In this case,                       a
                                                                         den Gesch¨ ftsverkehr auf Dauer aufzugeben, und kein Ersatz-
Bonds in definitive bearer form will, if interest-bearing, either                                   u
                                                                         Clearing-System zur Verf¨ gung stehen sollte, wird die Glo-
have interest coupons attached or have a grid for recording the                                     u
                                                                         balurkunde in effektive St¨ cke ausgetauscht. In diesem Fall
payment of interest endorsed thereon. Other than provided in             werden Teilschuldverschreibungen in effektiven Urkunden,
the immediately preceding sentences, the Bondholders shall               soweit verzinslich, entweder mit Zinsscheinen versehen, oder
have no right to require the issue of definitive certificates              der Nachweis der Zinszahlung wird auf einem Abschnitt der
representing individual Bonds and interest coupons.                      Urkunde vermerkt. Mit Ausnahme von den in den vorange-
                                                                                       a                    a
                                                                         gangenen S¨ tzen beschriebenen F¨ llen haben die Anleihe-
                                                                           a
                                                                         gl¨ ubiger kein Recht, die Ausgabe von effektiven Urkunden
                                                                         ¨                                                 ¨
                                                                         uber einzelne Teilschuldverschreibungen und uber Zins-
                                                                         scheine zu verlangen.


                                                                    25
     Each of the Temporary Global Bond and the Permanent                                  a
                                                                                 Die Vorl¨ ufige Globalurkunde und die Permanente Globalur-
     Global Bond shall only be valid if it bears the hand-written                                                                    a
                                                                                 kunde sind jeweils nur wirksam, wenn sie die eigenh¨ ndigen
     signatures of two duly authorized representatives of the Issuer             Unterschriften von zwei durch die Anleiheschuldnerin bevoll-
     and is authenticated by the Principal Paying and Conversion                   a
                                                                                 m¨ chtigen Personen tragen und durch die Hauptzahl- und
     Agent without recourse, liability or warranty.                              Wandlungsstelle unter Ausschluss jeglicher Haftung gegenge-
                                                                                 zeichnet sind.


     The Global Bonds shall be deposited with a common                           Die Globalurkunden werden bei einer gemeinsamen
     depository for the Clearing System, until the Issuer has                                   u                                         a
                                                                                 Verwahrstelle f¨ r das Clearing Systems hinterlegt, bis s¨ mtli-
     satisfied and discharged all its obligations under the Bonds.                che Verpflichtungen der Anleiheschuldnerin aus den Teil-
                                                                                                            u
                                                                                 schuldverschreibungen erf¨ llt sind.


(3) The Bondholders shall receive proportional co-ownership                                    a                       a
                                                                            (3) Den Anleihegl¨ ubigern steht anteilsm¨ ßiges Miteigentum
    participations or rights in the Global Bonds, which are                     oder Rechte an der Globalurkunde zu, die nach Maßgabe des
    transferable in accordance with applicable law.                                                 ¨                    o
                                                                                anwendbaren Rechts ubertragen werden k¨ nnen.


                     § 3 Status of the Bonds                                           § 3 Status der Teilschuldverschreibungen

The Bonds constitute direct, unconditional, unsubordinated and                                                    u
                                                                            Die Teilschuldverschreibungen begr¨ nden unmittelbare, unbe-
(subject to the provisions of § 4) unsecured obligations of the             dingte, nicht nachrangige und (vorbehaltlich der Bestimmungen
Issuer and rank pari passu without any preference among                     des § 4) nicht besicherte Verbindlichkeiten der Anleiheschuldnerin
themselves and at least pari passu with all other unsubordinated            und stehen im gleichen Rang untereinander und mindestens im
and unsecured obligations of the Issuer, present or future save for                                                    a              u
                                                                            gleichen Rang mit allen anderen gegenw¨ rtigen und zuk¨ nftigen
certain mandatory exceptions provided by law.                               nicht besicherten und nicht nachrangigen Verbindlichkeiten der
                                                                            Anleiheschuldnerin, soweit bestimmte zwingende gesetzliche Be-
                                                                            stimmungen nichts anderes vorschreiben.

                       § 4 Negative Pledge                                                                        a
                                                                                                   § 4 Negativerkl¨ rung

So long as Bonds are outstanding and until all conversion                                                                            a
                                                                            Solange Teilschuldverschreibungen ausstehen und nicht s¨ mtliche
obligations have been fulfilled, the Issuer shall not provide any                                           u
                                                                            Wandlungsverpflichtungen erf¨ llt sind, wird die Anleiheschuldne-
mortgage, charge, pledge, lien or other form of encumbrance or              rin keine Grund- und Mobiliarpfandrechte, sonstigen Pfandrechte
security interest (each a ‘‘Security Interest’’) upon the whole or          oder dinglichen Sicherheiten oder sonstigen Sicherungsrechte (je-
any part of its assets to secure other Capital Market Indebtedness                                                                       o
                                                                            des ein ‘‘Sicherungsrecht’’) in Bezug auf ihr gesamtes Verm¨ gen
(as defined below) other than Permitted Indebtedness (as defined              oder     Teile     davon    zur     Sicherung     von    anderen
below) without at the same time letting the Bondholders share pari          Kapitalmarktverbindlichkeiten (wie nachstehend definiert) außer
passu in such Security Interest or granting to the Bondholders an           Genehmigten Verbindlichkeiten (wie nachstehend definiert) ge-
equivalent Security Interest, provided, however, that this                    a                                      a
                                                                            w¨ hren, ohne gleichzeitig die Anleihegl¨ ubiger gleichrangig an
undertaking shall not apply with respect to any Security Interest           einem solchen Sicherungsrecht zu beteiligen oder ihnen ein gleich-
existing on property at the time of the acquisition thereof by the                                             a
                                                                            wertiges Sicherungsrecht zu gew¨ hren; diese Verpflichtung gilt
Issuer, provided that such Security Interest was not created in                           u                                      o
                                                                            jedoch nicht f¨ r zum Zeitpunkt des Erwerbs von Verm¨ genswerten
connection with or in contemplation of such acquisition and that                                                                 o
                                                                            durch die Anleiheschuldnerin bereits an solchen Verm¨ genswerten
the amount secured by such Security Interest is not increased               bestehende Sicherungsrechte, soweit solche Sicherungsrechte nicht
subsequently to the acquisition of the relevant property.                   im Zusammenhang mit dem Erwerb oder in Erwartung des Er-
                                                                                                         o
                                                                            werbs des jeweiligen Verm¨ genswerts bestellt wurden und der
                                                                            durch das Sicherungsrecht besicherte Betrag nicht nach Erwerb des
                                                                                                o              o
                                                                            betreffenden Verm¨ genswertes erh¨ ht wird.

For the purposes of this § 4, ‘‘Capital Market Indebtedness’’                 u
                                                                            F¨ r Zwecke dieses § 4 bedeutet ‘‘Kapitalmarktverbindlichkeit’’
shall mean any present or future indebtedness of the Issuer or any                                      u
                                                                            jede bestehende oder zuk¨ nftige Verbindlichkeit der Anleihe-
of the Issuer’s subsidiaries in respect of borrowed money which is          schuldnerin oder einer ihrer Tochtergesellschaften bez¨ glich u
in the form of, or represented by, bonds, notes, debentures or any          Geldaufnahmen in Form von, oder verbrieft durch, Schuldver-
similar securities which are or are intended to be quoted, listed or                                       ¨
                                                                            schreibungen, Anleihen oder ahnliche Wertpapiere, soweit sie an
traded on any stock exchange or over-the-counter securities                        o
                                                                            einer B¨ rse oder im Freiverkehr notiert sind oder gehandelt werden
market.                                                                     oder deren Notierung oder Handel beabsichtigt ist.

‘‘Permitted Indebtedness’’ means any Capital Market                         ‘‘Genehmigte Verbindlichkeit’’ bezeichnet jede Kapitalmarkt-
Indebtedness which is secured by a security interest over any of the                                                                 u
                                                                            verbindlichkeit, die durch Flugzeuge oder Flugzeugausr¨ stungen
Issuer’s or any of the Issuer’s subsidiaries’ aircraft or aircraft          der Anleiheschuldnerin oder einer ihrer Tochtergesellschaften besi-
equipment.                                                                  chert ist.

                           § 5 Interest                                                               § 5 Verzinsung

(1) Each Bond shall bear interest on its then outstanding principal         (1) Der jeweils ausstehende Nennbetrag einer Teilschuldver-
    amount at a rate of 1.25 per cent. per annum as from (and                   schreibung wird ab dem Ausgabetag (einschließlich) mit
    including) the Issue Date. Interest is payable annually in                           a                                  a              a
                                                                                1,25 % j¨ hrlich verzinst. Die Zinsen sind j¨ hrlich nachtr¨ glich
    arrear on each Interest Payment Date in the amount of 4 12.5                jeweils im Betrag von 4 12,5 pro Teilschuldverschreibung am
    per Bond commencing on 4 January 2003.                                      Zinszahlungstag, beginnend mit dem 4. Januar 2003, zahlbar.

                                                                       26
(2) Subject as provided herein, a Bond shall cease to bear interest        (2) Der Zinslauf der Teilschuldverschreibungen endet, soweit
    from the end of the day preceding the due date for                         hierin nicht abweichend geregelt, am Ende des Tages, der dem
    redemption, even if the due date is not a Business Day unless                                                  u              a
                                                                               Tag vorangeht, an dem sie zur R¨ ckzahlung f¨ llig werden.
    payment of the full amount due is improperly withheld or                                                                       a
                                                                               Dies gilt auch, wenn der letztere Tag kein Gesch¨ ftstag ist, es
    refused by or on behalf of the Issuer or unless default is                                                        a            a
                                                                               sei denn, die zur Tilgung der jeweils f¨ lligen Betr¨ ge erforder-
    otherwise made in respect of any such payment. In such event               lichen Zahlungen werden durch die Anleiheschuldnerin oder
    such Bond shall cease to bear interest at the end of the day                                                           u
                                                                               auf deren Veranlassung unberechtigt zur¨ ckbehalten oder de-
    preceding the actual date of redemption of such Bond.                      ren Leistung wird verweigert oder es tritt eine sonstige
                                                                                              o           u
                                                                               Leistungsverz¨ gerung bez¨ glich einer solchen Zahlung ein. In
                                                                               diesem Fall endet der Zinslauf der Teilschuldverschreibung
                                                                                                                  a             u
                                                                               mit Ablauf des Tages, der der tats¨ chlichen R¨ ckzahlung der
                                                                               Teilschuldverschreibung vorausgeht.

(3) Subject as provided herein, each Bond will cease to bear               (3) Der Zinslauf jeder Teilschuldverschreibung endet vorbehalt-
    interest from (and including) the Interest Payment Date                    lich der hierin enthaltenen Bestimmungen an dem
    immediately preceding its Conversion Date, if applicable,                  Zinszahlungstag (einschließlich), der ihrem Wandlungstag un-
    subject to due conversion of the relevant Bond in accordance               mittelbar vorangeht, sofern ggf. die Wandlung der betreffen-
    with § 6(5) of these Terms and Conditions.                                                                   a
                                                                               den Teilschuldverschreibung gem¨ ß § 6(5) dieser Anleihebe-
                                                                                                       a
                                                                               dingungen ordnungsgem¨ ß erfolgt.

(4) Where interest is to be calculated in respect of a period which        (4) Sind Zinsen im Hinblick auf einen Zeitraum zu berechnen,
    is shorter than an Interest Period, the interest will be                         u
                                                                               der k¨ rzer als eine Zinsperiode ist, so werden sie auf der
    calculated on the basis of the actual number of days in the                                     a
                                                                               Grundlage der tats¨ chlichen Anzahl der im jeweiligen Zeit-
    period elapsed from and including the most recent Interest                 raum ab dem unmittelbar vorhergehenden Zinszahlungstag
    Payment Date (or, if none, the Issue Date), divided by the                 (einschließlich) (oder, falls es einen solchen nicht gibt, ab
    number of days in the Interest Period in which the relevant                dem Ausgabetag) verstrichenen Tage, dividiert durch die
    period falls (including the first such day but excluding the                Anzahl der Tage in der Zinsperiode, in die der jeweilige
    last).                                                                                a
                                                                               Zeitraum f¨ llt (einschließlich des ersten solchen Tages, jedoch
                                                                               ausschließlich des letzten), berechnet.


                         § 6 Conversion                                                               § 6 Wandlung

(1) Conversion Right                                                       (1) Wandlungsrecht

(a) Subject as hereinafter provided, each Bondholder shall have            (a) Vorbehaltlich der nachfolgenden Bestimmungen, anwendba-
    the right (the ‘‘Conversion Right’’) at any time during the                rer Gesetze und sonstiger Rechtsvorschriften und wie nachfol-
    Conversion Period, subject to any applicable laws and                                                            a
                                                                               gend beschrieben, hat jeder Anleihegl¨ ubiger das Recht (das
    regulations and in the manner described below, to convert                  ‘‘Wandlungsrecht’’) jede Teilschuldverschreibung ganz,
    each Bond in whole, but not in part into Shares of the Issuer.                                                              a
                                                                               nicht jedoch teilweise, zu jedem Zeitpunkt w¨ hrend des
    Subject to admission, the Shares may be officially traded (im               Wandlungszeitraums in Aktien der Anleiheschuldnerin zu
    amtlichen Handel) on the Frankfurt Stock Exchange. In                      wandeln. Die Aktien sind vorbehaltlich der Zulassung im
    accordance with § 6(5), the number of Shares to be delivered                amtlichen Handel an der Frankfurter Wertpapierb¨ rse    o
    on conversion of a Bond shall be determined by dividing the                handelbar. Die Anzahl der bei Wandlung einer Teilschuldver-
    denomination of the Bond by the conversion price (the                      schreibung zu liefernden Aktien errechnet sich unter Beach-
    ‘‘Conversion Price’’) of 4 20.16 per Share, subject to any                 tung von § 6(5) aus der Division des Nennbetrags der Teil-
    adjustment pursuant to § 7 and § 8 of these Terms and                      schuldverschreibung durch den Wandlungspreis (der
    Conditions. The result of such division shall be rounded in                ‘‘Wandlungspreis’’) in H¨ he von 4 20,16 pro Aktie, vorbe-
                                                                                                         o
    accordance with German business practice to four decimal                                                a
                                                                               haltlich einer Anpassung gem¨ ß § 7 und § 8 dieser Bedingun-
    points.                                                                    gen. Das Ergebnis dieser Division ist auf vier Dezimalstellen
                                                                                      a
                                                                               kaufm¨ nnisch zu runden.

(2) Conversion Period                                                      (2) Wandlungszeitraum

(a) Subject to the subsequent provisions, the Conversion Right             (a) Vorbehaltlich der nachfolgenden Bestimmungen kann das
    may be exercised during the period commencing on 31 May                    Wandlungsrecht vom 31. Mai 2002 bis zum 16. Dezember
    2002 and ending on 16 December 2011 (both dates inclusive)                 2011        (beide      Tage       einschließlich)    (der
    (the ‘‘Conversion Period’’). If the end of the Conversion                                                  u
                                                                               ‘‘Wandlungszeitraum’’) ausge¨ bt werden. Wenn das Ende
    Period falls on a day, which is not a Business Day, the                                                                  a
                                                                               des Wandlungszeitraumes auf einen Tag f¨ llt, der kein
    Conversion Period shall terminate on the Business Day                             a
                                                                               Gesch¨ ftstag ist, endet der Wandlungszeitraum an dem
    immediately preceding such day. If the last day of the                            a
                                                                               Gesch¨ ftstag, der diesem Tag unmittelbar vorangeht. Wenn
    Conversion Period falls in an Excluded Period, the                          der letzte Tag des Wandlungszeitraumes in einen
    Conversion Period shall terminate on the last Business Day                                       a
                                                                               Ausschlusszeitraum f¨ llt, endet der Wandlungszeitraum am
    prior to the commencement of such Excluded Period.                                         a
                                                                               letzten Gesch¨ ftstag vor dem Beginn eines solchen
                                                                               Ausschlusszeitraumes.

(b) The exercise of the Conversion Right shall be excluded during                      u                               a
                                                                           (b) Die Aus¨ bung des Wandlungsrechts ist w¨ hrend der nachfol-
    any of the following periods (each an ‘‘Excluded Period’’):                            a
                                                                               genden Zeitr¨ ume (jeder ein ‘‘Ausschlusszeitraum’’) ausge-
                                                                               schlossen:


                                                                      27
     (i)     in connection with any shareholders’ meetings of the                (i)        a
                                                                                         anl¨ sslich von Hauptversammlungen der Anleihe-
             Issuer a period commencing on the third Business Day                                       a
                                                                                         schuldnerin w¨ hrend des Zeitraums, der am dritten
             preceding the last day for registration to attend                                  a                        u
                                                                                         Gesch¨ ftstag vor dem letzten f¨ r die Anmeldung zur
             shareholders’ meeting and ending on the third Business                      Teilnahme an der Hauptversammlung bestimmten Tag
             Day following such shareholders’ meeting (both dates                                                    a
                                                                                         beginnt und am dritten Gesch¨ ftstag nach der Hauptver-
             inclusive);                                                                 sammlung endet (beide Tage einschließlich);

     (ii)    a period commencing 14 days before the last day of the              (ii)      a
                                                                                         w¨ hrend eines Zeitraumes, der 14 Tage vor dem letzten
             fiscal year of the Issuer and ending on the last day of                                    a
                                                                                         Tag des Gesch¨ ftsjahres der Anleiheschuldnerin beginnt
             such fiscal year; and                                                                                                      a
                                                                                         und der am letzten Tag eines solchen Gesch¨ ftsjahres
                                                                                         endet; und

     (iii)   a period commencing on the date on which an offer by                (iii)     a
                                                                                         w¨ hrend des Zeitraumes ab dem Tag, an dem die
             the Issuer to its shareholders to subscribe to shares,                                                                    a
                                                                                         Anleiheschuldnerin ein Angebot an ihre Aktion¨ re zum
             profit-sharing rights, option rights on own shares, or                       Bezug von Aktien, Optionsrechten auf eigene Aktien,
             bonds with conversion or option rights or obligations is                    Genussrechten oder von Anleihen mit Wandlungs- oder
             published in a mandatory newspaper of one of the                                                                   ¨
                                                                                         Optionsrechten oder -pflichten in einem uberregionalen
             German stock exchanges where the shares are admitted                                                                    o
                                                                                         Pflichtblatt einer der deutschen Wertpapierb¨ rsen, an
             for trading, or in the German Federal Gazette                               denen die Aktien zum Handel zugelassen sind, oder im
             (Bundesanzeiger), whatever is earlier, and ending on                                            o                         o
                                                                                         Bundesanzeiger ver¨ ffentlicht (die erste Ver¨ ffentli-
             the last day of the subscription period (both dates                                                                         u
                                                                                         chung ist maßgebend), bis zum letzten Tag der f¨ r die
             inclusive)                                                                      u
                                                                                         Aus¨ bung des Bezugsrechts bestimmten Frist (jeweils
                                                                                         einschließlich)

(3) Conversion Notice                                                                         a
                                                                             (3) Wandlungserkl¨ rung

(a) To exercise the Conversion Right, the Bondholder must                                 u                                              a
                                                                             (a) Zur Aus¨ bung des Wandlungsrechts hat der Anleihegl¨ ubiger
    deliver at its own expense during normal business hours to                                                              a
                                                                                 auf eigene Kosten zu den normalen Gesch¨ ftszeiten bei einer
    any Paying and Conversion Agent a duly completed and                         Zahl- und Wandlungsstelle, unter Verwendung des bei den
    executed notice (the ‘‘Conversion Notice’’) using a form                                                   a                   u
                                                                                 Zahl- und Wandlungsstellen erh¨ ltlichen jeweils g¨ ltigen Vor-
    (from time to time current) obtainable from the Paying and                                             a          u
                                                                                 drucks, eine ordnungsgem¨ ß ausgef¨ llte und unterzeichnete
    Conversion Agents. The Conversion Notice is irrevocable and                      a                              a
                                                                                 Erkl¨ rung (die ‘‘Wandlungserkl¨ rung’’) abzugeben. Die
    shall, also with respect to the registration, among other things                           a
                                                                                 Wandlungserkl¨ rung ist unwiderruflich und hat unter anderem
                                                                                 auch zur Eintragung die folgenden Angaben zu enthalten:

     — state the name, nationality (natural persons) respectively                                              o          u
                                                                                 — den Namen, Staatsangeh¨ rigkeit (nat¨ rliche Personen)
       national identity (legal persons), date of birth and address                                 a
                                                                                   bzw. Nationalit¨ t (juristische Personen), Geburtsdatum
       of the exercising Bondholder and the name, nationality                                                u               a
                                                                                   und die Adresse des aus¨ benden Anleihegl¨ ubigers sowie
       (natural persons) respectively national identity (legal                                            o          u
                                                                                   Namen, Staatsangeh¨ rigkeit (nat¨ rliche Personen) bzw.
       persons), date of birth and address of the person to which                            a
                                                                                   Nationalit¨ t (juristische Personen), Geburtsdatum und
       the Shares shall be delivered or transferred on exercise of                                                               u
                                                                                   Adresse der Person, an die die Aktien bei Aus¨ bung des
       the Conversion Right;                                                                          ¨
                                                                                   Wandlungsrechts ubertragen oder geliefert werden sollen;

     — specify the number of Bonds with respect to which the                                                                  u
                                                                                 — die Anzahl der Teilschuldverschreibungen, f¨ r die das
       Conversion Right shall be exercised;                                                            u
                                                                                   Wandlungsrecht ausge¨ bt werden soll;

     — designate the securities account of the Bondholder or its                                                       a
                                                                                 — das Wertpapierdepot des Anleihegl¨ ubigers oder der zu
       nominee at a Clearing System participant or at a Clearing                   diesem Zweck von ihm benannten Person bei einem
       System accountholder to which the Shares are to be                          Teilnehmer am Clearing System oder bei einem Kontoin-
       delivered;                                                                                                                 ¨
                                                                                   haber des Clearing Systems, auf das die Aktien ubertragen
                                                                                   werden sollen;

     — if applicable, give directions to the relevant Paying and                 — gegebenenfalls Anweisungen an die jeweilige Zahl- und
       Conversion Agent for payment of any cash sum which                                               u                              a
                                                                                   Wandlungsstelle bez¨ glich der Zahlung von Barbetr¨ gen,
       such Bondholder is entitled to receive pursuant to these                                     a
                                                                                   die der Anleihegl¨ ubiger nach diesen Anleihebedingungen
       Terms and Conditions and which shall be paid by way of                      zu erhalten berechtigt ist und die auf ein vom Zahlungs-
       the transfer to a Euro account maintained by the payee                           a
                                                                                   empf¨ nger unterhaltenes Eurokonto bei einer Bank in der
       with a bank in the European Union.                                                a                  ¨
                                                                                   Europ¨ ischen Union zu uberweisen sind; und

     — contain the certifications and undertakings set out in the                                                      a
                                                                                 — in dem Vordruck der Wandlungserkl¨ rung geforderte Be-
       form of the Conversion Notice relating to certain                             a                               a
                                                                                   st¨ tigungen und Verpflichtungserkl¨ rungen im Zusam-
       restrictions of the ownership of the Bonds and/or the                                                    a
                                                                                   menhang mit etwaigen Beschr¨ nkungen der Inhaberschaft
       Shares.                                                                     an den Teilschuldverschreibungen und/oder den Aktien.

Failure to deliver such certifications and undertakings shall                                                   a          a
                                                                             Das Fehlen der vorstehend erw¨ hnten Best¨ tigungen und
make the Conversion Notice to which they relate invalid and no                                 a        ¨
                                                                             Verpflichtungserkl¨ rungen fuhrt zur Unwirksamkeit der be-
Shares or cash shall be delivered in respect thereof.                                                 a
                                                                             treffenden Wandlungserkl¨ rung und hat zur Folge, dass in
                                                                                                                 a
                                                                             Bezug auf eine solche Wandlungserkl¨ rung keine Aktien gelie-
                                                                             fert und keine Zahlungen geleistet werden.


                                                                        28
(b) The exercise of the Conversion Right shall further require that                       u
                                                                             (b) Die Aus¨ bung des Wandlungsrechts setzt außerdem voraus,
    the Bonds to be converted will be delivered to the Principal                 dass die Teilschuldverschreibungen, die gewandelt werden
    Paying and Conversion Agent by transferring (book entry                                            a     ¨
                                                                                 sollen, durch buchm¨ ßige Ubertragung der Teilschuldver-
    transfer) the Bonds to the Clearing System account of the                    schreibungen auf das Konto der Hauptzahl- und
    Principal Paying and Conversion Agent. In the event that                     Wandlungsstelle bei dem Clearing System an die Hauptzahl-
    definitive certificates representing individual Bonds have been                                                          u
                                                                                 und Wandlungsstelle geliefert werden. F¨ r den Fall, dass
    issued the exercise of the Conversion Right requires                                             ¨
                                                                                 effektive Urkunden uber einzelne Teilschuldverschreibungen
    presentation and surrender of the relevant definitive certificate.                                                  u
                                                                                 ausgegeben worden sind, setzt die Aus¨ bung des Wandlungs-
                                                                                                         a
                                                                                 rechts Vorlage und Aush¨ ndigung der betreffenden effektiven
                                                                                 Urkunde voraus.
(c) Upon fulfillment of all requirements specified in subsections                                                             u            u
                                                                             (c) Die Hauptzahl- und Wandlungsstelle pr¨ ft nach Erf¨ llung
    (a) and (b) for the exercise of the Conversion Right, the                     a
                                                                                 s¨ mtlicher in Absatz (a) und (b) genannten Voraussetzungen
    Principal Paying and Conversion Agent will verify whether                     u          u
                                                                                 f¨ r die Aus¨ bung des Wandlungsrechts, ob die Anzahl der an
    the number of Bonds delivered to it exceeds or falls short of                sie gelieferten Teilschuldverschreibungen die in der
    the number of Bonds specified in the Conversion Notice. In                                    a
                                                                                 Wandlungserkl¨ rung angegebene Anzahl an Teilschuldver-
    the event of any such excess or shortfall, the Issuer shall in                              ¨
                                                                                 schreibungen uber- oder unterschreitet. Ist dies der Fall, wird
    accordance with § 6(5) and subject to § 6(7) deliver to the                  die Anleiheschuldnerin entsprechend § 6(5) und vorbehaltlich
    Bondholder or the person designated in the Conversion Notice                 § 6(7), entweder (i) diejenige Gesamtzahl von Aktien, die der
    the lower of (i) such total number of Shares which                                                   a
                                                                                 in der Wandlungserkl¨ rung angegebenen Anzahl an Teil-
    corresponds to the number of Bonds set forth in the                          schuldverschreibungen entspricht, oder (ii) diejenige Gesamt-
    Conversion Notice, or (ii) such total number of Shares which                                                             a
                                                                                 zahl von Aktien, die der Anzahl der tats¨ chlich gelieferten
    corresponds to the number of Bonds in fact delivered and in                                                                            a
                                                                                 Teilschuldverschreibungen entspricht, an den Anleihegl¨ ubi-
    the event of an excess of Bonds delivered over the number of                                                         a
                                                                                 ger bzw. an die in der Wandlungserkl¨ rung angegebene Per-
    Bonds specified in the Conversion Notice, the Bonds                           son liefern, je nachdem, welcher der beiden vorgenannten
    remaining shall be transferred by the Principal Paying and                                                                         ¨
                                                                                 Werte der jeweils niedrigere ist, und, im Falle einer Uberzahl
    Conversion Agent to the Clearing System account specified in                           a
                                                                                 an tats¨ chlich gelieferten Teilschuldverschreibungen gegen-
    the Conversion Notice.                                                       ¨                               a
                                                                                 uber der in der Wandlungserkl¨ rung angegebenen Anzahl an
                                                                                                                    ¨    a
                                                                                 Teilschuldverschreibungen, die uberz¨ hligen Teilschuldver-
                                                                                                                              a
                                                                                 schreibungen auf das in der Wandlungserkl¨ rung angegebene
                                                                                                                              ¨
                                                                                 Wertpapierdepot bei dem Clearing System ubertragen.
(d) The Conversion Right shall be validly exercised on the                                                                      a
                                                                             (d) Das Wandlungsrecht ist an demjenigen Gesch¨ ftstag wirksam
    Business Day immediately following the Business Day on                              u                    a
                                                                                 ausge¨ bt, der dem Gesch¨ ftstag unmittelbar folgt, an dem
    which all of the prerequisites specified in subsections (a),                   a                    a
                                                                                 s¨ mtliche in den Abs¨ tzen (a), (b) und (c) genannten Voraus-
    (b) and (c) for the exercise of the Conversion Right have been                           u           u                             u
                                                                                 setzungen f¨ r die Aus¨ bung des Wandlungsrechts erf¨ llt sind
    fulfilled (the ‘‘Conversion Date’’). In the event that the                                                u
                                                                                 (der ‘‘Wandlungstag’’). F¨ r den Fall jedoch, dass die in den
    prerequisites specified in subsections (a), (b) and (c) are                        a
                                                                                 Abs¨ tzen (a), (b) und (c) genannten Voraussetzungen an
    fulfilled on a day which falls within an Excluded Period, then                               u                                          a
                                                                                 einem Tag erf¨ llt sind, der in einen Ausschlusszeitraum f¨ llt,
    the Conversion Date shall be the first Business Day after the                                                         a
                                                                                 ist der Wandlungstag der erste Gesch¨ ftstag nach dem Ende
    end of such Excluded Period provided that such day still falls               des Ausschlusszeitraums, soweit auch dieser Tag noch in den
    within the Conversion Period; otherwise, the Conversion                                            a
                                                                                 Wandlungszeitraum f¨ llt; anderenfalls ist das Wandlungsrecht
    Right shall not have been validly exercised.                                                       u
                                                                                 nicht wirksam ausge¨ bt.
(4) Stamp and other duties and taxes and conversion costs:                   (4) Stempelsteuern, sonstige Abgaben, Steuern und
    Payment of all stamp duty, stamp duty reserve, transfer and                                                                ¨
                                                                                 Wandlungskosten: Die Anleiheschuldnerin ubernimmt oder
    registration tax and any other duties and taxes and any                                                       a
                                                                                 veranlasst die Zahlung s¨ mtlicher Stempelsteuern,
    brokers’ commission or other stock exchange transaction                                                  ¨
                                                                                 Stempelsteuereinbehalte, Ubertragungs-, Registrierungs-und
    costs, together with any value added or other tax thereon,                                                          a
                                                                                 sonstigen Steuern oder Abgaben, H¨ ndlerprovisionen oder
    arising on exercise of any Conversion Right and/or on the                                o
                                                                                 sonstiger B¨ rsenabwicklungskosten, (einschließlich der dar-
    transfer or delivery of Shares by, or on behalf of, the Issuer to            auf anfallenden Mehrwert-oder sonstigen Steuern), die durch
    the relevant Bondholder or the person designated in the                              u                                             ¨
                                                                                 die Aus¨ bung eines Wandlungsrechts und/oder die Ubertra-
    Conversion Notice will be made or procured by the Issuer. If                 gung oder Lieferung von Aktien durch die (oder im Namen
    the Issuer shall fail to pay, or procure the payment of, any                                                                          a
                                                                                 der) Anleiheschuldnerin an den betreffenden Anleihegl¨ ubi-
    such taxes, duties or costs, the relevant Bondholder or the                                                       a
                                                                                 ger oder die in der Wandlungserkl¨ rung angegebene Person
    person designated in the Conversion Notice shall be entitled                 entstehen. Sollte die Anleiheschuldnerin die Zahlung oder die
    to tender and pay the same. The Issuer undertakes to                         Veranlassung zur Zahlung solcher Steuern, Abgaben und
    reimburse each Bondholder or each person designated in the                                                                    a
                                                                                 Kosten unterlassen, ist der betreffende Anleihegl¨ ubiger oder
    Conversion Notice in respect of the payment of such taxes,                                             a
                                                                                 die in der Wandlungserkl¨ rung angegebene Person berechtigt,
    duties and costs and any penalties paid in respect thereof. A                die entsprechende Zahlung anzubieten und zu leisten. Die
    Bondholder exercising Conversion Rights must pay to the                                                                             a
                                                                                 Anleiheschuldnerin verpflichtet sich, jedem Anleihegl¨ ubiger
    Principal Paying and Conversion Agent (upon request by such                                                     a
                                                                                 oder jeder in der Wandlungserkl¨ rung angegebenen Person
    agent) any such taxes, duties or costs arising in any other                  die von ihm/ihr so gezahlten Steuern, Abgaben, sonstigen
    circumstances in connection with the exercise of Conversion                                                u
                                                                                 Kosten und etwaige Strafgeb¨ hren zu erstatten. Jeder Anlei-
    Rights.                                                                           a                                      u
                                                                                 hegl¨ ubiger, der das Wandlungsrecht aus¨ bt, muss an die
                                                                                 Hauptzahl- und Wandlungsstelle auf deren Verlangen alle
                                                                                 Steuern, Abgaben oder Kosten, die unter sonstigen Umst¨ n- a
                                                                                                                        u
                                                                                 den im Zusammenhang mit der Aus¨ bung des Wandlungs-
                                                                                 rechts entstehen, zahlen.




                                                                        29
(5) Delivery of Shares                                                        (5) Lieferung von Aktien
(a) Upon any exercise of the Conversion Right only full Shares                                u
                                                                              (a) Nach Aus¨ bung des Wandlungsrechts werden ausschließlich
    shall be delivered. Fractions of Shares shall not be delivered.               ganze Aktien geliefert. Ein Anspruch auf Lieferung von
    Fractions of Shares shall not be issued. To the extent that any               Bruchteilen von Aktien besteht nicht. Soweit sich bei der
    conversion of one or several Bond(s) results in fractions of                          u                          u
                                                                                  Durchf¨ hrung der Wandlung f¨ r eine oder mehrere Teil-
    Shares, the fractions of Shares resulting from the conversion                 schuldverschreibungen Bruchteile von Aktien ergeben, wer-
    of a Bond shall be aggregated and full Shares resulting from                  den die sich bei der Wandlung einer Teilschuldverschreibung
    such aggregation of fractions of Shares shall be delivered to                 ergebenden Bruchteile der Aktien addiert und die sich infolge
    the extent the Principal Paying and Conversion Agent                          der Addition der Bruchteile ergebenden ganzen Aktien gelie-
    (without any obligation to do so) has ascertained that several                fert, soweit die Hauptzahl- und Wandlungsstelle (ohne dazu
    Bonds have been converted at the same time for the same                       verpflichtet zu sein) festgestellt hat, dass mehrere Teilschuld-
    Bondholder. The Shares to be delivered shall be transferred as                                   u                       a
                                                                                  verschreibungen f¨ r denselben Anleihegl¨ ubiger zur gleichen
    soon as practicable, in any event not later than seven Business               Zeit gewandelt wurden. Die zu liefernden Aktien werden nach
    Days, after the Conversion Date to the designated securities                          u
                                                                                  Durchf¨ hrung der Wandlung alsbald, in jedem Fall nicht
    account of the Bondholder or the person designated in the                        a                    a
                                                                                  sp¨ ter als sieben Gesch¨ ftstage, nach dem Wandlungstag auf
    Conversion Notice.                                                                                                             a
                                                                                  das angegebene Wertpapierdepot des Anleihegl¨ ubigers oder
                                                                                                               a
                                                                                  der in der Wandlungserkl¨ rung angegebenen Person uber-   ¨
                                                                                  tragen.
(b) Remaining fractions of Shares shall not be delivered and shall            (b) Verbleibende Bruchteile von Aktien werden nicht geliefert;
    be compensated in cash proportional to the respective fraction                sie werden in Geld ausgeglichen, wobei ein entsprechender
    of the average quotation of the Share in the XETRA afternoon                  Bruchteil, berechnet auf den Durchschnittskurs der Aktie in
    auction on the Frankfurt Stock Exchange on the five Business                   der XETRA-Nachmittagsauktion an der Frankfurter
    Days immediately prior to the Conversion Date, rounded                                    o            u         a
                                                                                  Wertpapierb¨ rse an den f¨ nf Gesch¨ ftstagen unmittelbar vor
    down to the nearest full Cent.                                                                                            a
                                                                                  dem Wandlungstag, abgerundet auf den n¨ chsten Cent, ge-
                                                                                  zahlt wird.
(c) Any compensation in cash of fractions of Shares pursuant to                                                      u
                                                                              (c) Ein etwaiger Ausgleich in Geld f¨ r Bruchteile von Aktien
    subsection (b) shall be effected as soon as practical, in any                      a                                                   a
                                                                                  gem¨ ß Absatz (b) erfolgt alsbald, in jedem Fall nicht sp¨ ter
    event not later than seven Business Days, after the Conversion                                a
                                                                                  als sieben Gesch¨ ftstage, nach dem Wandlungstag, wobei in
    Date. No interest shall be due on such amount.                                keinem Fall auf diesen Betrag Zinsen geschuldet werden.
(d) To the extent that any payment pursuant to subsection (b) is in           (d) Soweit nach Auffassung der Anleiheschuldnerin irgendeine
    the opinion of the Issuer considered to be a reduction of the                               a
                                                                                  Zahlung gem¨ ß Absatz (b) als Erm¨ ßigung des a
    Conversion Price or if a reduction of the Conversion Price                                                                     a
                                                                                  Wandlungspreises anzusehen ist oder eine Erm¨ ßigung des
    takes place pursuant to § 7 no payment and no adjustment of                   Wandlungspreises nach § 7 stattfindet, erfolgt keine Zahlung
    the Conversion Price, respectively, shall be made to the extent               bzw. Anpassung des Wandlungspreises, soweit der
    that the Conversion Price for one Share would thereby be                                      u
                                                                                  Wandlungspreis f¨ r eine Aktie unter den rechnerischen Anteil
    reduced below the calculated par value of the Share in the                                                              u
                                                                                  der Aktie am Grundkapital herabgesetzt w¨ rde (§ 9(1) AktG).
    share capital (§ 9(1) of the German Stock Corporation Act).
(e) Upon execution of the conversion, the Shares will derive from                                                 u
                                                                              (e) Die Aktien werden nach Durchf¨ hrung der Wandlung aus
    a conditional capital of the Issuer in the amount of                                     a
                                                                                  einem gem¨ ß Beschluss der Hauptversammlung der Anleihe-
    4 97,689,600 created by resolution of its shareholders’                       schuldnerin vom 16. Juni 1999 geschaffenen bedingten Kapi-
    meeting on June 16, 1999.                                                     tal im Nennbetrag von insgesamt 4 97.689.600 stammen.
(f)   Shares acquired pursuant to the execution of the conversion             (f)                                  u
                                                                                    Aktien, die aufgrund der Durchf¨ hrung der Wandlung erwor-
      are entitled to dividends for the then current and all following                                                        a
                                                                                    ben werden, sind vom Beginn des Gesch¨ ftsjahres der An-
      fiscal years as from the beginning of the fiscal year of the                    leiheschuldnerin an, in dem die Aktien ausgegeben werden,
      Issuer in which such Shares are issued.                                        u                                   a
                                                                                    f¨ r dieses und alle folgenden Gesch¨ ftsjahre der Anleihe-
                                                                                    schuldnerin dividendenberechtigt.
(g) The Issuer shall register in the relevant register of                                                             u
                                                                              (g) Die Anleiheschuldnerin wird die f¨ r diese Zwecke in der
    shareholders of the Issuer the person designated for the                                                  a
                                                                                  betreffenden Wandlungserkl¨ rung benannte Person als Inha-
    purpose in the relevant Conversion Notice as holder of the                    ber der entsprechenden Anzahl an Aktien in das maßgebliche
    relevant number of Shares. Until registration in the register of                     a
                                                                                  Aktion¨ rsregister der Anleiheschuldnerin eintragen. Bis zur
    shareholders of the Issuer the shareholder has no rights with                                          a
                                                                                  Registrierung im Aktion¨ rsregister der Anleiheschuldnerin
    respect to the Shares.                                                                           a
                                                                                  kann der Aktion¨ r keine Rechte aus den Aktien geltend
                                                                                  machen.
(6) Inability to deliver: Notwithstanding § 6(7), the Issuer will                       o
                                                                              (6) Unm¨ glichkeit der Lieferung: Unbeschadet § 6(7), wird die
    instead pay an amount in cash equal to the value of the Shares                Anleiheschuldnerin einen Barbetrag zahlen, der dem Wert der
    (as determined by multiplication of the Conversion Ratio with                                                                a
                                                                                  Aktien (zu berechnen aus dem Wandlungsverh¨ ltnis multipli-
    the quotation of the Share in the XETRA afternoon auction on                  ziert mit dem Kurs der Aktie in der XETRA
    the Business Day preceding the Conversion Date and the                                                                  a
                                                                                  Nachmittagsauktion an dem Gesch¨ ftstag vor dem
    number of the Bonds delivered for conversion), if subject to                  Wandlungstag und der Anzahl der zur Wandlung gelieferten
    other provisions, at any time when the transfer or delivery of                Teilschuldverschreibungen) entspricht, sofern und soweit, vor-
    Shares to any Bondholder of Shares is required, such transfer                 behaltlich anderweitiger Regelungen zu irgendeinem Zeit-
    or delivery would be unlawful or contrary to any official                                           ¨
                                                                                  punkt, zu dem die Ubertragung oder Lieferung von Aktien
    declaration, order, directive or regulation. The Issuer will pay                                             ¨
                                                                                  erforderlich ist, eine solche Ubertragung oder Lieferung
    such amount in cash to the relevant Bondholder or to the                      rechtswidrig ist oder im Widerspruch zu einer offiziellen
    person designated in the Conversion Notice not later than                          a           u
                                                                                  Erkl¨ rung, Verf¨ gung, Weisung oder Vorschrift steht. Die


                                                                         30
    21 days after the date when the Shares were due to be                                                                            a
                                                                                Anleiheschuldnerin wird diesen Barbetrag nicht sp¨ ter als
    delivered and otherwise in accordance with directions given                                                                          a
                                                                                21 Tage nach dem Tag, an dem die Aktien zur Lieferung f¨ llig
    by the relevant Bondholder as provided in the Conversion                                     ¨
                                                                                waren, und in Ubereinstimmung mit den durch den Anleihe-
    Notice.                                                                       a                                           a
                                                                                gl¨ ubiger in der entsprechenden Wandlungserkl¨ rung erteilten
                                                                                                                 a
                                                                                Anweisungen an den Anleihegl¨ ubiger oder an die in er
                                                                                                a
                                                                                Wandlungserkl¨ rung angegebene Person zahlen.
(7) Modified conversion procedure in order to comply with                                           ¨
                                                                            (7) Modifizierte Durchfuhrung der Wandlung zur Einhaltung
    Aviation Compliance Documenting Act                                         des Luftverkehrsnachweissicherungsgesetzes
(a) In order to comply with the provisions of the Aviation                  (a) Zur Einhaltung der Vorschriften des Luftverkehrsnachweis-
    Compliance Documenting Act (Luftverkehrsnach-                               sicherungsgesetzes ist die Anleiheschuldnerin jederzeit be-
    weissicherungsgesetz) the Issuer may at any time by giving                                                                         a
                                                                                rechtigt, unter Beachtung einer Frist von einem Gesch¨ ftstag
    one Business Day’s prior notice make an announcement in                                                  a              u
                                                                                durch Bekanntmachung gem¨ ß § 15 anzuk¨ ndigen, dass ein
    accordance with § 15 stating that a Bondholder not being a                             a
                                                                                Anleihegl¨ ubiger, bei dem es sich nicht um einen deutschen
    German citizen or an entity domiciled in Germany (the ‘‘Non-                             o
                                                                                Staatsangeh¨ rigen oder eine Gesellschaft mit Sitz im Inland
    German Bondholder’’) is only entitled to exercise the                                                                     a
                                                                                handelt (der ‘‘Nicht-Deutsche Anleihegl¨ ubiger’’), das
    Conversion Right if the person designated in the Conversion                                         u
                                                                                Wandlungsrecht nur aus¨ ben darf, wenn es sich bei der in der
    Notice to which the Shares are to be delivered is a German                                  a
                                                                                Wandlungserkl¨ rung angegebenen Person, an die die Aktien
    citizen or an entity domiciled in Germany.                                                                                           o
                                                                                geliefert werden sollen, um einen deutschen Staatsangeh¨ ri-
                                                                                gen oder eine Gesellschaft mit Sitz im Inland handelt.
(b) A Non-German Bondholder wishing to exercise its                                                               a
                                                                            (b) Ein Nicht-Deutscher Anleihegl¨ ubiger, der nach einer Be-
    Conversion Right after an announcement pursuant to § 6(7)(a)                                    a
                                                                                kanntmachung gem¨ ß § 6(7)(a) sein Wandlungsrecht aus¨ ben u
    and failing to designate a German citizen or an entity                                                                o
                                                                                will und keinen deutschen Staatsangeh¨ rigen oder keine Ge-
    domiciled in Germany in the Conversion Notice must instruct                 sellschaft mit Sitz im Inland in der Wandlungserkl¨ rung  a
    a Paying and Conversion Agent to deliver the full number of                 benennt, muss eine Zahl- und Wandlungsstelle anweisen, die
    Shares in return for the exercised Bond (the ‘‘Exercised                                                 u              u
                                                                                volle Anzahl von Aktien f¨ r die ausge¨ bte Teilschuldver-
    Bond’’) to the Intermediary against the obligation of the                                          ¨
                                                                                schreibung (die ‘‘Ausgeubte Teilschuldverschreibung’’) statt
    Intermediary to pay to the Non-German Bondholder as                                                a
                                                                                an ihn an den Intermedi¨ r zu liefern, mit der Verpflichtung des
    consideration a cash amount (the ‘‘Cash Consideration’’), in                          a                                     a
                                                                                Intermedi¨ rs, dem Nicht-Deutschen Anleihegl¨ ubiger als Ge-
    each case after deduction of a commission fee equal to                      genleistung einen Barbetrag (die ‘‘Bar-Gegenleistung’’), je-
    0.2 per cent. of the Cash Consideration on the basis of the                                               u         o
                                                                                weils nach Abzug einer Geb¨ hr in H¨ he von 0,2 % der Bar-
    following:                                                                  Gegenleistung nach folgender Maßgabe zu zahlen:
    (i)     If the aggregate value of the Shares with respect to                (i)                                   a              u
                                                                                        Wenn kumuliert pro Gesch¨ ftstag Ausge¨ bte Teil-
            Exercised Bonds delivered on one Business Day is less                       schuldverschreibungen mit einem zugrundeliegenden
            than 4 5,000,000 the Intermediary will use its best                         Aktienwert von weniger als 4 5.000.000 geliefert wer-
            efforts to promptly sell the Shares received upon                                                   a          u
                                                                                        den, wird der Intermedi¨ r sich bem¨ hen, die aufgrund
            conversion and pay to the Principal Paying and                                                                             o
                                                                                        der Wandlung erhaltenen Aktien sofort bestm¨ glich zu
            Conversion Agent, for the account of the Non-German                         verkaufen, und wird an die Hauptzahl- und
            Bondholder, the sale price for such Shares.                                 Wandlungsstelle, zugunsten des Kontos des Nicht-Deut-
                                                                                                        a                    u
                                                                                        schen Anleihegl¨ ubigers, den Preis f¨ r die verkauften
                                                                                        Aktien zahlen.
    (ii)    If the aggregate value of the Shares with respect to the            (ii)                                  a              u
                                                                                        Wenn kumuliert pro Gesch¨ ftstag Ausge¨ bte Teil-
            Exercised Bonds delivered on one Business Day is                            schuldverschreibungen mit einem zugrundeliegenden
            4 5,000,000 or more but less than 4 50,000,000 the                          Aktienwert von 4 5.000.000 oder mehr, aber weniger
            Intermediary will pay to the Principal Paying and                           als 4 50.000.000 geliefert werden, wird der Intermedi¨ r
                                                                                                                                             a
            Conversion Agent, for the account of the Non-German                         an die Hauptzahl- und Wandlungsstelle, zugunsten des
            Bondholder, in respect of each of the Shares so                                                                    a
                                                                                        Kontos des Nicht-Deutschen Anleihegl¨ ubigers, pro ge-
            delivered the volume weighted average quotation of the                      lieferte Aktie den von der Berechnungsstelle ermittel-
            Share in XETRA as determined by the Calculation                             ten, volumengewichteten Durchschnittskurs der Aktie
            Agent on the Business Day following the day of                                                          a
                                                                                        in XETRA an dem Gesch¨ ftstag, der unmittelbar auf
            delivery of the Shares to the Intermediary.                                                                                a
                                                                                        die Lieferung der Aktien an den Intermedi¨ r folgt,
                                                                                        zahlen.
    (iii)   If the aggregate value of the Shares with respect to the            (iii)                                 a             u
                                                                                        Wenn kumuliert pro Gesch¨ ftstag Ausge¨ bte Teil-
            Exercised Bonds delivered on one Business Day is                            schuldverschreibungen mit einem zugrundeliegenden
            4 50,000,000 or more the Intermediary will pay to the                       Aktienwert von 4 50.000.000 oder mehr geliefert wer-
            Principal Paying and Conversion Agent, for the account                                                a
                                                                                        den, wird der Intermedi¨ r an die Hauptzahl- und
            of the Non-German Bondholder, in respect of each of                         Wandlungsstelle, zugunsten des Kontos des Nicht-Deut-
            the Shares so delivered the volume weighted average                                         a
                                                                                        schen Anleihegl¨ ubigers, pro gelieferte Aktie den von
            quotation of the Share in XETRA as determined by the                        der Berechnungsstelle ermittelten, volumengewichteten
            Calculation Agent on the three Business Days following                      Durchschnittskurs der Aktie in XETRA der drei
            the day of delivery of the Shares to the Intermediary.                            a
                                                                                        Gesch¨ ftstage, die unmittelbar auf die Lieferung der
                                                                                                                a
                                                                                        Aktien an den Intermedi¨ r folgen, zahlen.
For these purposes, the value of the Shares shall be determined by                                                       u
                                                                            Der zugrundeliegende Aktienwert ergibt sich f¨ r diese Zwecke aus
multiplication of the Conversion Ratio with the quotation of the                                a
                                                                            dem Wandlungsverh¨ ltnis multipliziert mit dem Kurs der Aktie in
Share in the XETRA afternoon auction on the Business Day                                                                      a
                                                                            der XETRA Nachmittagsauktion an dem Gesch¨ ftstag vor dem
preceding the Conversion Date and the number of the Exercised                                                           u
                                                                            Wandlungstag und der Anzahl der Ausge¨ bten Teilschuldver-
Bonds. If the respective quotation cannot be determined on the              schreibungen. Sofern der entsprechende Kurs an dem/den nach (ii)


                                                                       31
relevant Business Day(s) pursuant to (ii) and (iii) the determination                                      a
                                                                             und (iii) maßgeblichen Gesch¨ ftstag(en) nicht festgestellt werden
should be based on the quotation on the next Business Day(s) on                                                  a              a
                                                                             kann, wird der Kurs des /der n¨ chsten Gesch¨ ftstage(s), an
which the respective quotation can be determined. In the event that          dem/denen der entsprechende Kurs ermittelt werden kann,
the Shares delivered upon conversion are not admitted for listing at                           u
                                                                             zugrundegelegt. F¨ r den Fall, dass die im Falle der Wandlung zu
the Frankfurt Stock Exchange, the amount of the Cash                         liefernden Aktien nicht zum Handel an der Frankfurter Wertpapier-
Consideration to be paid shall solely be determined pursuant to (i)            o
                                                                             b¨ rse zugelassen sind, wird der Betrag der zu zahlenden Bar-
above. The payment of the Cash Consideration is due within                   Gegenleistung allein nach vorstehendem (i) ermittelt. Die Zahlung
10 Business Days after delivery of the Shares to the Intermediary,                                                                      a
                                                                             der Bar-Gegenleistung erfolgt innerhalb von 10 Gesch¨ ftstagen
such period being extended, if applicable, by the number of                                                             a            a
                                                                             nach Lieferung der Aktien an den Intermedi¨ r; ggf. verl¨ ngert sich
Business Days on which the determination of the quotation of the                                                      a
                                                                             die Frist um die Anzahl von Gesch¨ ftstagen, an denen die
Share as described above is not possible.                                    Kursermittlung wie vorstehend geschildert nicht stattfindet.

Failure to designate a person which is a German citizen or an                Das Fehlen der Benennung einer Person, die deutscher Staats-
entity domiciled in Germany or to instruct a Paying and                            o
                                                                             angeh¨ riger oder eine Gesellschaft mit Sitz im Inland ist, oder
Conversion Agent to deliver the Shares to the Intermediary                   der Anweisung an eine Zahl- und Wandlungsstelle, die Aktien
shall make the Conversion Notice of the Non-German                                             a               ¨
                                                                             an den Intermedi¨ r zu liefern, fuhrt zur Unwirksamkeit der
Bondholder invalid and no Shares or cash shall be delivered in                               a                                     a
                                                                             Wandlungserkl¨ rung des Nicht-Deutschen Anleihegl¨ ubigers
respect thereof. Upon delivery of Shares to the Intermediary,                und hat zur Folge, dass in Bezug auf diese
the Issuer is discharged from all obligations under the                                      a
                                                                             Wandlungserkl¨ rung keine Aktien geliefert und keine Zahlun-
Exercised Bonds and the relevant Non-German Bondholders’                     gen geleistet werden. Durch die Lieferung der Aktien an den
rights under the Exercised Bonds are limited to receipt of the                         a
                                                                             Intermedi¨ r wird die Anleiheschuldnerin von allen Verpflich-
Cash Consideration from the Intermediary. The Issuer will not                                        ¨
                                                                             tungen aus den Ausgeubten Teilschuldverschreibungen frei,
be liable for any shortfalls stemming from the Intermediary’s                und die Rechte des betreffenden Nicht-Deutschen
non-performance of its obligation to pay out the Cash                                  a                      ¨
                                                                             Anleihegl¨ ubigers aus den Ausgeubten Teilschuldverschreibun-
Consideration or any loss stemming from delays in relation to                            a
                                                                             gen beschr¨ nken sich auf den Erhalt der Bar-Gegenleistung
the payment of the Cash Consideration.                                                           a
                                                                             von dem Intermedi¨ r. Die Anleiheschuldnerin haftet nicht fur ¨
                                                                                           a                           ¨
                                                                             fehlende Betr¨ ge, die aus einer Nichterfullung der Verpflich-
                                                                                                    a        ¨               ¨
                                                                             tungen des Intermedi¨ rs herruhren, oder fur Verluste im
                                                                                                       o
                                                                             Zusammenhang mit verz¨ gerten Zahlungen der Bar-Gegenlei-
                                                                             stung.

(c) Any announcement of the Issuer pursuant to § 6(7)(a) will                              u                                   a
                                                                             (c) Eine Ank¨ ndigung der Anleiheschuldnerin gem¨ ß § 6(7)(a)
    remain in full force until it is revoked by publication in                                                                    a
                                                                                 bleibt in Kraft, bis sie durch Bekanntmachung gem¨ ß § 15
    accordance with § 15.                                                        widerrufen wird.

(d) Morgan Stanley Bank AG is the initial intermediary (the                                                              a                 a
                                                                             (d) Morgan Stanley Bank AG ist der anf¨ ngliche Intermedi¨ r (der
    ‘‘Intermediary’’). The Issuer is entitled to terminate the                                a
                                                                                 ‘‘Intermedi¨ r’’). Die Anleiheschuldnerin ist berechtigt, die
    appointment of the Intermediary. In the event of such                                                    a
                                                                                 Bestellung des Intermedi¨ rs zu widerrufen. Im Falle einer
    termination or the Intermediary being unable or unwilling to                                                                          a
                                                                                 solchen Abberufung oder, falls der bestellte Intermedi¨ r nicht
    continue to act as Intermediary, the Issuer shall appoint                                         a a
                                                                                 mehr als Intermedi¨ r t¨ tig werden kann oder will, ist die
    another financial institution domiciled in the Federal Republic               Anleiheschuldnerin verpflichtet, ein anderes Kreditinstitut mit
    of Germany as successor Intermediary. Any such appointment                   Sitz in der Bundesrepublik Deutschland als Nachfolge-Inter-
    or termination shall be published without undue delay in                           a
                                                                                 medi¨ r zu bestellen. Jede solche Bestellung oder ein solcher
    accordance with § 15, or, should this not be possible, be                                                           u           a
                                                                                 Widerruf der Bestellung ist unverz¨ glich gem¨ ß § 15 oder,
    published in another way.                                                                      o                                        ¨
                                                                                 falls dies nicht m¨ glich sein sollte, in sonstiger Weise offent-
                                                                                 lich bekannt zu machen.


                     § 7 Dilution Adjustment                                                             a
                                                                                                 § 7 Verw¨ sserungsschutz

(1) Preemptive Right for Shareholders: If the Issuer, subject to                                   ¨          a
                                                                             (1) Bezugsrecht fur Aktion¨ re: Wenn die Anleiheschuldnerin
    preemptive rights of its shareholders (i) increases its share                            a                                       a
                                                                                 unter Gew¨ hrung eines Bezugsrechts an ihre Aktion¨ re, (i) ihr
    capital by issuance of new shares against capital contribution               Grundkapital durch die Ausgabe neuer Aktien gegen Einlagen
    (§§ 182, 186 German Stock Corporation Act), (ii) sells its                       o
                                                                                 erh¨ ht (§§ 182, 186 AktG) oder (ii) eigene Aktien verkauft
    own shares, or (iii) issues or guarantees further notes with                 oder (iii) weitere Schuldverschreibungen mit Options- oder
    warrants or bonds with conversion rights or obligations or                   Wandlungsrechten oder -pflichten oder Optionsrechte auf ei-
    option rights on its own shares (§ 221 German Stock                          gene Aktien begibt (§ 221 AktG) oder garantiert und in den
    Corporation Act), and in any of these cases (i) through                        a
                                                                                 F¨ llen (i) bis (iii) der Ex-Tag vor dem Wandlungstag liegt, so
    (iii) the Ex Date is before the Conversion Date, then with the               wird mit Wirkung vom Ex-Tag an (einschließlich) der
    effect of (and inclusive) the Ex Date the Conversion Price will                                                      a
                                                                                 Wandlungspreis um den Betrag erm¨ ßigt, der sich aus dem
    be reduced by the amount which is calculated on basis of the                 von der Berechnungsstelle ermittelten, volumengewichteten
    volume weighted average quotation of the preemptive rights                                                         a
                                                                                 Durchschnittskurs des den Aktion¨ ren zustehenden Bezugs-
    of the shareholders as determined by the Calculation Agent on                rechtes an allen Handelstagen an der Frankfurter Wertpapier-
    every Trading Day on the Frankfurt Stock Exchange —                           o
                                                                                 b¨ rse — aufgerundet auf volle 5 Cent — errechnet. Das
    rounded to the next full five Cents. While the relevant                                                        a                       a
                                                                                 maßgebliche Wandlungsverh¨ ltnis bleibt dabei unver¨ ndert,
    Conversion Ratio remains unchanged the compensation of the                                                      a
                                                                                 die Abfindung des Anleihegl¨ ubigers erfolgt im Falle der
    Bondholder is effected in case of conversion by payment in                                                      a                   a
                                                                                 Wandlung durch Zahlung gem¨ ß § 6(5)(c). Eine Erm¨ ßigung
    accordance with § 6(5)(c). A reduction of the Conversion                                                    a                      a
                                                                                 des Wandlungspreises entf¨ llt, wenn den Anleihegl¨ ubigern
    Price will not take place if the Bondholders obtain a                                                   a
                                                                                 ein Bezugsrecht einger¨ umt wird, welches dem Bezugsrecht
    preemptive right, which is equal to the preemptive right of the                           a
                                                                                 der Aktion¨ re entspricht.
    shareholders.


                                                                        32
(2) Capital Increase from Retained Earnings: In case of a                                    o
                                                                             (2) Kapitalerh¨ hung aus Gesellschaftsmitteln: Im Falle einer
    capital increase from retained earnings, the conditional capital                        o
                                                                                 Kapitalerh¨ hung der Anleiheschuldnerin aus Gesellschafts-
    of the Issuer shall increase by operation of law in the same                 mitteln wird das bedingte Kapital der Anleiheschuldnerin
    proportion as the share capital (§ 218 of the German Stock                                                                  a
                                                                                 kraft Gesetzes (§ 218 AktG) im gleichen Verh¨ ltnis wie das
    Corporation Act). If the capital is increased without issuance                                 o                                 a
                                                                                 Grundkapital erh¨ ht. Wird das Grundkapital gem¨ ß § 207
    of new shares in accordance with § 207 (2) sentence 2 of the                                                                   o
                                                                                 (2) Satz 2 AktG ohne Ausgabe neuer Aktien erh¨ ht, hat die
    German Stock Corporation Act, the rights of the Bondholders                             o
                                                                                 Kapitalerh¨ hung aus Gesellschaftsmitteln keine Auswirkun-
    remain unchanged. If, however, new shares are issued, the                                                               a
                                                                                 gen auf die Rechtsposition der Anleihegl¨ ubiger. Werden
    right of a Bondholder to subscribe Shares in exchange for                                                          o
                                                                                 dagegen neue Aktien ausgegeben, erh¨ ht sich der Anspruch
    Bonds by exercising the Conversion Right shall increase in                                   a                    u
                                                                                 eines Anleihegl¨ ubigers, durch Aus¨ bung des Wandlungs-
    the same proportion as the conditional capital. The number of                rechts Aktien im Umtausch gegen die Teilschuldverschreibun-
    Shares determined in accordance with this provision shall                                                        a
                                                                                 gen zu erwerben, im gleichen Verh¨ ltnis, wie das bedingte
    (before any agglomeration of fractions of Shares) be rounded                             o
                                                                                 Kapital erh¨ ht worden ist. Die Anzahl von Aktien, die sich
    in accordance with German business practice to four decimal                  aufgrund dieser Bestimmung ergibt, wird (vor einer etwaigen
    points. The amount of Shares resulting from such calculation                 Addition von Bruchteilen von Aktien) auf vier Dezimalstellen
    shall be delivered pursuant to the provisions of § 6(5)(a).                         a
                                                                                 kaufm¨ nnisch gerundet. Die sich daraus ergebende Anzahl
    Fractions of Shares shall be aggregated in accordance with the                                       a
                                                                                 der Aktien wird gem¨ ß den Bestimmungen des § 6(5)(a)
    provisions of § 6(5)(a). Remaining fractions of Shares shall be                                                           a
                                                                                 geliefert. Bruchteile von Aktien werden gem¨ ß den Bestim-
    compensated pursuant to the provisions of § 6(5)(b).                                                                     u
                                                                                 mungen des § 6(5)(a) zusammengefasst. Dar¨ ber hinaus ver-
                                                                                                                                  a
                                                                                 bleibende Bruchteile von Aktien werden gem¨ ß § 6(5)(b)
                                                                                 ausgeglichen.
(3) Capital Decrease: In the event of a decrease in the share                (3) Kapitalherabsetzung: Im Falle einer Herabsetzung des
    capital of the Issuer without consolidation of shares (§ 222                 Grundkapitals der Anleiheschuldnerin ohne eine Zusammen-
    para. 4 No. 1 of the German Stock Corporation Act), the                      legung der Aktien (§ 222 Abs. 4 Nr. 1 AktG) bleibt bei
    Conversion Price shall remain unchanged with the proviso,                           u                                            a
                                                                                 Durchf¨ hrung der Wandlung der Wandlungspreis unver¨ ndert,
    however, that a decreased calculated value of the share capital              jedoch mit der Maßgabe, dass auf die einzelne zu liefernde
    of the Issuer is to be allotted to each Share to be delivered. In            Aktie ein verminderter rechnerischer Anteil am Grundkapital
    case of a capital decrease accomplished by a consolidation of                der Anleiheschuldnerin entfallen kann. Im Falle einer
    shares (§ 222 para. 4 No. 2 of the German Stock Corporation                  Kapitalherabsetzung, die durch Zusammenlegung der Aktien
    Act) or by redemption of shares (§ 237 of the German Stock                   (§ 222 Abs. 4 Nr. 2 AktG) oder durch Einziehung von Aktien
    Corporation Act) and in case of increase or reduction of the                                                                 o
                                                                                 (§ 237 AktG) erfolgt, und im Falle einer Erh¨ hung oder
    number of shares without any changes in the capital (stock                                                                         a
                                                                                 Herabsetzung der Anzahl von Aktien ohne Kapitalver¨ nde-
    splitting) § 7(2) shall apply accordingly.                                   rung (Aktiensplit) findet § 7(2) entsprechende Anwendung.
(4) Extraordinary Dividend: If an Extraordinary Dividend is                  (4) Außerordentliche Dividende: Sofern eine Außerordentliche
    given, then, either:                                                         Dividende vorliegt, wird:
(a) the Conversion Price shall be adjusted in accordance with the                                      a
                                                                             (a) der Wandlungspreis gem¨ ß der nachstehenden Formel
    following formula:                                                           angepasst:

                       CPo – VD                                                                    CPo – VD
     EPn = EPo ×                                                                 EPn = EPo ×
                         CPo                                                                         CPo


     where:                                                                      Dabei ist
     — ‘‘EPn’’ is the new Conversion Price;                                      — ‘‘EPn’’ der neue Wandlungspreis;
     — ‘‘EPo’’ is the Conversion Price in effect immediately prior               — ‘‘EPo’’ der unmittelbar vor dem Abschluss des Handels
       to the close of trading on the Distribution Record Date;                               u               u
                                                                                   am Aussch¨ ttungsstichtag g¨ ltige Wandlungspreis;
     — ‘‘CPo’’ is the Price of the Share in the XETRA afternoon                  — ‘‘CPo’’ der Kurs der Aktie in der XETRA
       auction on the Distribution Record Date; and                                                            u
                                                                                   Nachmittagsauktion am Aussch¨ ttungsstichtag; und
     — ‘‘VD’’ is the amount of the Extraordinary Dividend (in the                — ‘‘VD’’ der Betrag der Außerordentlichen Dividende (im
       case of a dividend distribution) or the Fair Market Value                                     u
                                                                                   Falle der Aussch¨ ttung einer Dividende) oder der ange-
       (in the case of a distribution of assets), in each case                                                               u
                                                                                   messene Marktwert (im Falle der Aussch¨ ttung von Ver-
       divided by the sum of the total number of Shares actually                     o
                                                                                   m¨ genswerten), jeweils geteilt durch die Summe der Ge-
       issued on the Distribution Record Date and the total                                                                    u
                                                                                   samtzahl von Aktien, die am Aussch¨ ttungsstichtag
       number of Shares (including fractions of Shares) issued to                      a
                                                                                   tats¨ chlich ausgegeben werden, und der Gesamtzahl von
       Bondholders assuming that conversion with respect to all                    Aktien (einschließlich Bruchteilen von Aktien), die an die
       outstanding Bonds had been effected on the Distribution                                a                              a
                                                                                   Anleihegl¨ ubiger ausgegeben worden w¨ ren, wenn die
       Record Date; or                                                             Wandlung im Hinblick auf alle ausstehenden Teilschuld-
                                                                                                                u                        u
                                                                                   verschreibungen am Aussch¨ ttungsstichtag durchgef¨ hrt
                                                                                               a
                                                                                   worden w¨ re; oder
(b) the Issuer shall in the event that compensation payments                 (b) die Anleiheschuldnerin im Falle der Notwendigkeit von Aus-
    pursuant to subsection (6) are necessary pay to the                                                                                a
                                                                                 gleichszahlungen nach Absatz 6 an die Anleihegl¨ ubiger
    Bondholders in respect of each Share to be delivered to the                                                 a                     a
                                                                                 alsbald, in jedem Fall nicht sp¨ ter als sieben Gesch¨ ftstage,
    Bondholders upon exercise of the Conversion Right, as soon                                             u                        u
                                                                                 nach dem Wandlungstag f¨ r jede Aktie, die bei Aus¨ bung des
    as practicable, in any event not later than seven Business                                                      a
                                                                                 Wandlungsrechts an die Anleihegl¨ ubiger zu liefern ist:
    Days, after the Conversion Date:


                                                                        33
     (i)    in the case of a an Extraordinary Dividend distribution,             (i)                           u
                                                                                        im Falle der Aussch¨ ttung einer Außerordentlichen
            an amount equal to (aa) the product of (x) the Total                        Dividende einen Betrag entsprechend (aa) dem Produkt
            Dividend and (y) a fraction in which the numerator is                       aus (x) der Gesamtdividende und (y) einem Bruch, in
            the Excess Dividend Yield and the denominator is the                                   ¨
                                                                                        dem der Uberschießende Dividendenertrag den Z¨ hler a
            Overall Dividend Yield less (bb) the amount of any                          und der Gesamtdividendenertrag den Nenner bildet,
            Extraordinary Dividend already paid to Bondholders or                           u
                                                                                        abz¨ glich (bb) des Betrages einer Außerordentlichen
            for which the Conversion Price has already been                             Dividende, die im Bezug auf eine Dividendenaussch¨ t- u
            adjusted pursuant to subsection (4)(a) in relation to a                            u                 a
                                                                                        tung f¨ r dasselbe Gesch¨ ftsjahr bereits an die Anleihe-
            dividend distribution with respect to the same fiscal                          a                       u                            u
                                                                                        gl¨ ubiger gezahlt, oder f¨ r die der Wandlungspreis f¨ r
            year; or                                                                                     a                     a
                                                                                        dasselbe Gesch¨ ftsjahr bereits gem¨ ß Absatz (4)(a)
                                                                                        angepasst worden ist, zahlen; oder

     (ii)   in the case of a distribution of assets, an amount (the              (ii)                         u                o
                                                                                        im Falle einer Aussch¨ ttung von Verm¨ genswerten ei-
            ‘‘Fair Market Value’’) equal to the fair market value of                    nen Betrag (der ‘‘Angemessene Marktwert’’) ent-
            the distribution on the Distribution Record Date as                         sprechend dem angemessenen Marktwert der Aussch¨ t-  u
            determined by the Issuer in its own fair discretion                                             ¨
                                                                                        tung am Ausschuttungsstichtag, der von der
            (§ 317 German Civil Code) on the basis of the valuation                     Anleiheschuldnerin nach billigem Ermessen
            of a qualified independent expert,                                           (§ 317 BGB) auf Basis der Bewertung eines qualifizier-
                                                                                                  a
                                                                                        ten, unabh¨ ngigen Gutachters ermittelt wird, zahlen.

     in each case divided by the sum of the total number of Shares                         a                               a
                                                                                 Die gem¨ ß (i) oder (ii) zu zahlenden Betr¨ ge werden jeweils
     actually issued on the Distribution Record Date and the total               geteilt durch die Summe der Gesamtzahl von den am
     number of Shares (including fractions of Shares) issued to                          u                  a
                                                                                 Aussch¨ ttungsstichtag tats¨ chlich ausgegebenen Aktien und
     Bondholders assuming that conversion with respect to all                    der Gesamtzahl von Aktien (einschließlich Bruchteile von
     outstanding Bonds had been effected on the Distribution                                                       a
                                                                                 Aktien), die an die Anleihegl¨ ubiger ausgegeben worden
     Record Date.                                                                  a
                                                                                 w¨ ren, wenn die Wandlung im Hinblick auf alle ausstehenden
                                                                                                                         u
                                                                                 Teilschuldverschreibungen am Aussch¨ ttungsstichtag durch-
                                                                                     u             a
                                                                                 gef¨ hrt worden w¨ re.

(5) Other adjustments: If the Issuer determines that another                (5) Weitere Anpassungen: Wenn die Anleiheschuldnerin fest-
    adjustment should be made as a result of one or more events                 stellt, dass weitere Anpassungen infolge des Eintritts eines
    or circumstances not referred to above in § 7(1) to (4) (even if            anderen Ereignisses oder Umstandes oder mehrerer solcher
    the relevant event is or circumstances are specifically                             a
                                                                                Umst¨ nde oder Ereignisse vorgenommen werden m¨ ssen,      u
    excluded from the operation of § 7(1) to (4)), the Issuer shall,                                                                      u
                                                                                das, der oder die nicht den in § 7(1) bis (4) aufgef¨ hrten
    at its own expense and acting reasonably, request a qualified                                          a
                                                                                Ereignissen oder Umst¨ nden entspricht oder entsprechen
    independent expert selected by the Issuer, to determine as                  (auch wenn ein solches Ereignis oder ein solcher Umstand
    soon as practicable what further adjustment (if any) is fair and                   u
                                                                                ausdr¨ cklich von der Anwendung des § 7(1) bis (4) ausge-
    reasonable to take account thereof and the date on which such               schlossen ist), wird die Anleiheschuldnerin auf eigene Kosten
    adjustment should take effect, and upon such date such                      und nach billigem Ermessen einen von der Anleiheschuldne-
    adjustment (if any) shall be made and shall take effect in                              a                           a
                                                                                rin ausgew¨ hlten qualifizierten, unabh¨ ngigen Gutachter be-
    accordance with such determination, provided that an                                                       o
                                                                                auftragen, um so bald wie m¨ glich zu bestimmen, ob, wann
    adjustment shall only be made pursuant to this § 7(5) if such               und in welchem Umfang angemessenerweise weitere Anpas-
    qualified independent expert is so requested to make such a                  sungen vorzunehmen sind, um dem eingetretenen Ereignis
    determination in writing not more than 21 days after the                    oder Umstand Rechnung zu tragen. Eine etwaige Anpassung
    occurrence of the relevant event or circumstance.                               ¨
                                                                                in Ubereinstimmung mit diesem § 7(5) wird, wie auf diese
                                                                                Weise bestimmt, an dem entsprechenden Tag durchgef¨ hrt      u
                                                                                und wird dementsprechend wirksam. Hierbei gilt jedoch, dass
                                                                                                      a
                                                                                eine Anpassung gem¨ ß diesem § 7(5) nur vorgenommen wird,
                                                                                                              a
                                                                                falls der qualifizierte, unabh¨ ngige Gutachter, der die erfor-
                                                                                                                                         a
                                                                                derlichen Festlegungen treffen soll, schriftlich nicht sp¨ ter als
                                                                                21 Tage nach dem Eintritt des betreffenden Ereignisses oder
                                                                                Umstandes beauftragt wird.

(6) Compensation Payments: Should measures pursuant to the                  (6) Ausgleichszahlungen: Sollten Maßnahmen nach den Abs¨ t-  a
    subsections (3) to (5) lead to the effect that, at the time when                                   u
                                                                                zen (3) bis (5) dazu f¨ hren, dass das bedingte Kapital der
    such measures are taken and provided all outstanding                                                                      u
                                                                                Anleiheschuldnerin zum Zeitpunkt der Durchf¨ hrung solcher
    Conversion Rights are exercised, the conditional capital of the             Maßnahmen und unter der Annahme, dass alle ausstehenden
    Issuer does not suffice to create the respective amount of                                          u
                                                                                Wandlungsrechte ausge¨ bt werden, zur Schaffung der erfor-
    Shares, an increased amount of Shares shall, as a result of the             derlichen Anzahl von Aktien nicht ausreicht, wird eine er-
    adjustment of the Conversion Ratio, only be delivered to the                 o
                                                                                h¨ hte Anzahl von Aktien als Folge einer Anpassung des
    degree the conditional capital of the Issuer would suffice if all                           a
                                                                                Wandlungsverh¨ ltnisses nur geliefert, soweit das bedingte
    outstanding Bonds were converted. The remaining residual                    Kapital der Anleiheschuldnerin im Falle einer Wandlung aller
    amount per Bond and the possibly remaining fractions of                                                                           u
                                                                                ausstehenden Teilschuldverschreibungen ausreichen w¨ rde.
    Shares shall be compensated pursuant to the provisions of                                         a
                                                                                Verbleibende Restbetr¨ ge pro Teilschuldverschreibung und
    § 6(5)(b) and (c).                                                                                                                   a
                                                                                eventuell verbleibende Bruchteile von Aktien werden gem¨ ß
                                                                                den Regelungen in § 6(5)(b) und (c) ausgeglichen.




                                                                       34
(7) Notices: The Issuer shall give notice in accordance with § 15                                                                        ¨
                                                                                (7) Bekanntmachung: Die Anleiheschuldnerin hat in Uberein-
    (i) of the granting of a preemptive right (subsection (1)),                                                       a
                                                                                    stimmung mit § 15 (i) die Einr¨ umung eines Bezugsrechts
    (ii) any capital increase from retained earnings                                                                    o
                                                                                    (Absatz (1)), (ii) eine Kapitalerh¨ hung aus Gesellschafts-
    (subsection (2)), (iii) any capital decrease (subsection (3)),                  mitteln (Absatz (2)), (iii) eine Kapitalherabsetzung (Ab-
    (iv) the payment of any Extraordinary Dividend                                  satz (3)), (iv) die Zahlung einer außerordentlichen Dividende
    (subsection (4)), and any other adjustment (subsection (5)).                    (Absatz (4)), und (v) weitere Anpassungen (Absatz (5))
                                                                                    bekannt zu machen.


                       § 8 Change of control                                                           § 8 Kontrollwechsel

(1) Change of Control: ‘‘Change of Control’’ occurs when:                       (1) Kontrollwechsel: Ein ‘‘Kontrollwechsel’’ tritt ein, wenn
(a) any Person (as defined below) or Persons acting in concert                   (a) eine Person (wie nachstehend bezeichnet) oder mehrere Per-
    acquires or acquire Control (as defined below) of the Issuer if                  sonen, die gemeinsam handeln, die Kontrolle (wie nachste-
    such Person or Persons does not or do not have Control of the                                      ¨
                                                                                    hend bezeichnet) uber die Anleiheschuldnerin erwirbt bzw.
    Issuer at the Issue Date of the Bonds; or                                       erwerben, falls diese Person oder Personen zum Ausgabetag
                                                                                                                                  ¨
                                                                                    der Teilschuldverschreibungen keine Kontrolle uber die An-
                                                                                    leiheschuldnerin hat oder haben; oder
(b) the Issuer sells or transfers all or substantially all of its assets                                       a                            a
                                                                                (b) die Anleiheschuldnerin s¨ mtliche oder im wesentlichen s¨ mt-
    to any Person or Persons;                                                                   o
                                                                                    liche Verm¨ genswerte an eine andere Person bzw. Personen
                                                                                        a           ¨     a
                                                                                    ver¨ ußert oder ubertr¨ gt; oder
(c) in the case of a tender offer for Shares of the Issuer, (i) the                                   ¨
                                                                                (c) im Falle eines Ubernahmeangebotes gerichtet auf die Aktien
    Shares of the Issuer already in the Control of the offeror and                  der Anleiheschuldnerin, (i) die Aktien der Anleiheschuldne-
    the Shares of the Issuer which have already been tendered                       rin, die bereits unter Kontrolle des Bieters sind und die Aktien
    carry, in aggregate, 50 per cent. or more of the voting Shares                  der Anleiheschuldnerin, die im Zusammenhang mit dem
    of the Issuer and at this time (ii) the offer has become                         ¨                            ¨
                                                                                    Ubernahmeangebot bereits ubertragen worden sind, zusam-
    unconditional.                                                                  men 50 % oder mehr der stimmberechtigten Aktien der An-
                                                                                    leiheschuldnerin ausmachen und zu diesem Zeitpunkt (ii) das
                                                                                    Angebot bereits unbedingt war.

     For the purposes of this § 8:                                                     u
                                                                                      F¨ r diesen § 8 gelten folgende Definitionen:

     ‘‘Control’’ means direct or indirect legal or beneficial                          ‘‘Kontrolle’’ bezeichnet das unmittelbare oder mittelbare
     ownership of, in aggregate, 50 per cent. or more of the voting                   rechtliche oder wirtschaftliche Eigentum an insgesamt 50 %
     shares of the Issuer.                                                            oder mehr der stimmberechtigten Aktien der Anleiheschuld-
                                                                                      nerin.

     A ‘‘Person’’ means any individual, company, corporation,                                                              u
                                                                                      Eine ‘‘Person’’ bezeichnet jede nat¨ rliche Person, Personen-
     firm, partnership, joint venture, undertaking, association,                       gesellschaft, Kapitalgesellschaft, Firma, jedes Joint Venture,
     organization, trust, state or agency of a state, in each case                    Unternehmen, jede Vereinigung, Organisation, jeder Trust,
     whether or not being a separate legal entity but it does not                                         o                          a
                                                                                      Staat oder jede Beh¨ rde eines Staates, unabh¨ ngig davon, ob
     include the subsidiaries of the Issuer that are wholly or                                                     a
                                                                                      es sich dabei um eine selbst¨ ndige juristische Person handelt
     majority owned, directly or indirectly, by it.                                   oder nicht, mit Ausnahme von unmittelbar oder mittelbar
                                                                                            a
                                                                                      vollst¨ ndig oder mehrheitlich gehaltenen Tochtergesellschaf-
                                                                                      ten der Anleiheschuldnerin.

(2) Notice of Change of Control: If a Change of Control occurs,                 (2)                ¨
                                                                                      Mitteilung uber den          Kontrollwechsel:      Falls   ein
    the Issuer will:                                                                  Kontrollwechsel eintritt,

(a) give notice by publication in accordance with § 15 promptly                 (a) gibt die Anleiheschuldnerin, nachdem sie von dem
    after becoming aware of the Change of Control; and                              Kontrollwechsel Kenntnis erlangt hat, dies durch Bekanntma-
                                                                                                          u
                                                                                    chung gem. § 15 unverz¨ glich bekannt; und

(b) fix a date (the ‘‘Relevant Date’’) which shall be a Business                 (b) bestimmt die Anleiheschuldnerin einen Zeitpunkt (der
    Day and give notice of the Relevant Date by publication in                                                   a
                                                                                    ‘‘Stichtag’’), der ein Gesch¨ ftstag sein muss, und gibt den
    accordance with § 15. The Relevant Date will be not less than                   Stichtag durch Bekanntmachung gem. § 15 bekannt. Der
    60 nor more than 90 days after the notice of the Change of                      Stichtag darf nicht weniger als 60 und nicht mehr als 90 Tage
    Control published in accordance with § 15.                                      nach der gem. § 15 erfolgten Bekanntmachung des
                                                                                    Kontrollwechsels liegen.

(3) Early Redemption by Bondholders: If the Issuer gives                                          ¨
                                                                                (3) Vorzeitige Ruckzahlung auf Verlangen der Anleihegl¨ ubi-a
    notice in accordance with § 8(2), each Bondholder may at his                    ger: Falls die Anleiheschuldnerin eine Mitteilung gem. § 8(2)
    option, on giving not less than 30 days’ notice to the Principal                                             a                  a
                                                                                    macht, kann jeder Anleihegl¨ ubiger durch Erkl¨ rung gegen-
    Paying and Conversion Agent, require the Issuer to redeem on                    ¨
                                                                                    uber der Hauptzahl- und Wandlungsstelle mit einer Frist von
    the Relevant Date any or all of its Bonds not previously                        mindestens 30 Tagen von der Anleiheschuldnerin verlangen,
    converted or called for redemption at their nominal amount                                                        a
                                                                                    an dem Stichtag einen Teil oder s¨ mtliche seiner Teilschuld-
    together with interest accrued until (but not including) the                    verschreibungen, die nicht zuvor gewandelt wurden oder
    date of redemption. Any notice by a Bondholder under this                                          u
                                                                                    deren vorzeitige R¨ ckzahlung verlangt worden ist, zu deren
    § 8(3) shall be irrevocable and shall oblige such Bondholder                                                                         u
                                                                                    Nennbetrag einschließlich Zinsen bis zum Tag der R¨ ckzah-


                                                                           35
    to present the relevant Bonds for redemption in accordance                                          u                      a
                                                                               lung (ausschließlich) zur¨ ckzuzahlen. Jede Erkl¨ rung eines
    with the preceding sentence.                                                         a
                                                                               Anleihegl¨ ubigers nach § 8(3) ist unwiderruflich und ver-
                                                                                                      a
                                                                               pflichtet den Anleihegl¨ ubiger, die betreffenden Teilschuld-
                                                                                                                                    u
                                                                               verschreibungen gem. dem vorstehenden Satz zur R¨ ckzah-
                                                                               lung vorzulegen.
(4) Adjustment of Conversion Price for Change of Control: If             (4) Anpassung des Wandlungspreises im Falle eines
    the Issuer gives notice in accordance with § 8(2), upon any              Kontrollwechsels: Im Fall einer Mitteilung der Anleihe-
    exercise of Conversion Rights on or before the Relevant Date,                                                         u
                                                                             schuldnerin gem. § 8(2), wird bei jeder Aus¨ bung von
    the Conversion Price shall be adjusted as set out below:                 Wandlungsrechten vor oder am Stichtag der Wandlungspreis
                                                                             wie nachfolgend festgelegt angepasst:


    Conversion Date                               Conversion Price             Wandlungstag                            Wandlungspreis

    From   05/31/2002   to   01/04/2003                       4 16.63          Vom   31.05.2002   bis   04.01.2003                 4 16,63
    From   01/05/2003   to   01/04/2004                       4 17.51          Vom   05.01.2003   bis   04.01.2004                 4 17,51
    From   01/05/2004   to   01/04/2005                       4 18.40          Vom   05.01.2004   bis   04.01.2005                 4 18,40
    From   01/05/2005   to   01/04/2006                       4 19.28          Vom   05.01.2005   bis   04.01.2006                 4 19,28
    From   01/05/2006   to   01/04/2012                       4 20.16          Vom   05.01.2006   bis   04.01.2012                 4 20,16


    § 7(6) shall apply accordingly.                                            § 7(6) findet entsprechende Anwendung.




           § 9 Maturity, Redemption and Purchase                                          a            ¨               ¨
                                                                                     § 9 F¨ lligkeit, Ruckzahlung und Ruckkauf
(1) Redemption on the Redemption Date: The Bonds will be                 (1)     ¨                  a
                                                                               Ruckzahlung am F¨ lligkeitstag: Die Teilschuldverschrei-
    redeemed at their principle amount together with accrued                                        a                                 u
                                                                               bungen werden am F¨ lligkeitstag zum Nennbetrag zuz¨ glich
    interest on the Redemption Date to the extent they have not                                         u
                                                                               aufgelaufener Zinsen zur¨ ckgezahlt, soweit sie nicht vorher
    previously been redeemed, converted or purchased and                           u
                                                                               zur¨ ckgezahlt, gewandelt, oder gekauft und entwertet worden
    cancelled.                                                                 sind.
(2) Redemption at the option of the Issuer                                    ¨
                                                                         (2) Ruckzahlung nach Wahl der Anleiheschuldnerin
(a) The Issuer may, having given not less than 30 nor more than          (a) Die Anleiheschuldnerin ist berechtigt, die Teilschuldver-
    60 days’ notice to the Principal Paying and Conversion Agent             schreibungen insgesamt und nicht nur teilweise durch eine
    and the Bondholders in accordance with § 15 (which notice                (unwiderrufliche) Mitteilung an die Hauptzahl- und
    will be irrevocable), redeem all but not only some of the                                                    a           a
                                                                             Wandlungsstelle und die Anleihegl¨ ubiger gem¨ ß § 15 mit
    Bonds (the ‘‘Optional Redemption’’) at their principal                                                            o
                                                                             einer Frist von mindestens 30 Tagen und h¨ chstens 60 Tagen
    amount together with accrued interest.                                         u                                u
                                                                             zur R¨ ckzahlung zum Nennbetrag zuz¨ glich aufgelaufener
                                                                                          u                         ¨
                                                                             Zinsen zu k¨ ndigen (die ‘‘Vorzeitige Ruckzahlung’’).
(b) However, such notice may only be given (i) if the aggregate                                                          o
                                                                         (b) Die Anleiheschuldnerin darf von dieser M¨ glichkeit jedoch
    principal amount of the Bonds then outstanding is less than              nur Gebrauch machen, (i) falls der Gesamtnennbetrag aller zu
    4 75,000,000 or (ii) after 4 January 2005 if the volume                  diesem Zeitpunkt ausstehenden Teilschuldverschreibungen
    weighted average quotation of the Share in XETRA as                      weniger als 4 75.000.000 betr¨ gt oder (ii) falls nach dem
                                                                                                             a
    determined by the Calculation Agent is equal to or greater               4. Januar 2005 der von der Berechnungsstelle ermittelte,
    than 130 per cent of the then valid Conversion Price on 20               volumengewichtete Durchschnittskurs der Aktie in XETRA
    Trading Days within a 30 Trading Day period, the last                                              a
                                                                             an 20 Handelstagen w¨ hrend eines Zeitraums von 30
    Trading Day in such 30 Trading Day period to occur not more              Handelstagen 130 Prozent des jeweils gultigen         ¨
    than 15 days prior to the date upon which notice of such                                                         ¨
                                                                             Wandlungspreises entspricht oder diesen ubersteigt, wobei der
    redemption is given to the Bondholders (the ‘‘Optional                   letzte Handelstag in dem Zeitraum von 30 Handelstagen
    Redemption Date’’).                                                         a
                                                                             sp¨ testens 15 Tage vor dem Tag liegen muss, an dem die
                                                                                                               a       ¨          u
                                                                             Anleiheschuldnerin die Anleihegl¨ ubiger uber die R¨ ckzah-
                                                                                                                 ¨
                                                                             lung informiert (der ‘‘Vorzeitige Ruckzahlungstag’’).
(c) Upon such notice becoming effective, the Issuer will be bound        (c) Mit dem Wirksamwerden einer solchen Mitteilung ist die
    to redeem the Bonds to which such notice relates at their                Anleiheschuldnerin verpflichtet, die Teilschuldverschreibun-
    principal amount on the date fixed for redemption, together in            gen, auf die sich eine solche Mitteilung bezieht, zu ihrem
    either case with interest accrued to the date of redemption.                                       u                               u
                                                                             Nennbetrag an dem zur R¨ ckzahlung festgelegten Tag zuz¨ g-
                                                                                                                                u
                                                                             lich der bis zu diesem Tag aufgelaufenen Zinsen zur¨ ckzuzah-
                                                                             len.
(3) Early Redemption at the Option of the Bondholder:                                     ¨                                      a
                                                                         (3) Vorzeitige Ruckzahlung nach Wahl der Anleihegl¨ ubiger:
    Notwithstanding § 12, on 4 January 2006, 4 January 2008 and                                                        a
                                                                             Unbeschadet von § 12 ist jeder Anleihegl¨ ubiger berechtigt,
    4 January 2010 any Bondholder may elect to redeem in cash                mit Wirkung zum 4. Januar 2006, 4. Januar 2008 und 4. Ja-
    all or part of the outstanding Bonds held by such Bondholder                             u
                                                                             nuar 2010 die R¨ ckzahlung aller oder einiger von ihm gehal-
    at their principal amount together with accrued interest by                                                                    u
                                                                             tener Teilschuldverschreibungen zum Nennbetrag zuz¨ glich
    giving not less than 30 nor more than 60 days’ notice. Such                                                                  u
                                                                             aufgelaufener Zinsen zu verlangen. Eine solche K¨ ndigung
    election shall be made by written notice to the Issuer,                               u
                                                                             erfolgt gegen¨ ber der Anleiheschuldnerin durch eine an die


                                                                    36
     delivered by hand or registered mail, at the specified office of                                    a
                                                                                angegebene Gesch¨ ftsstelle der Hauptzahl- und
     the Principal Paying and Conversion Agent and will be                      Wandlungsstelle abzugebende oder per Einschreiben zu rich-
     irrevocable.                                                                                       a
                                                                                tende, schriftliche Erkl¨ rung unter Beachtung einer Frist von
                                                                                nicht weniger als 30 und nicht mehr als 60 Tagen und ist
                                                                                unwiderruflich.
(4) Discharge of Obligation: In the case of an exercise of its                      ¨                                 u
                                                                            (4) Erfullung der Verpflichtung: Bei Aus¨ bung des Wandlungs-
    Conversion Right by a Bondholder pursuant to § 6, the                                                     a           a
                                                                                rechts durch einen Anleihegl¨ ubiger gem¨ ß § 6 wird die
    delivery by the Issuer of the Shares together with the payment              Anleiheschuldnerin, in Bezug auf die von der Wandlung
    of any interest accrued, if any, on the Bond pursuant to § 5                betroffenen Teilschuldverschreibungen, durch Lieferung der
    and any other payments due to the Bondholder under these                                u                                        a
                                                                                Aktien zuz¨ glich der Zahlung etwaiger Zinsen gem¨ ß § 5
    Terms and Conditions shall fully discharge the Issuer’s                                                                         a
                                                                                sowie aller anderen an den entsprechenden Anleihegl¨ ubiger
    obligations under such Bond.                                                                                              a          a
                                                                                nach diesen Anleihebedingungen zahlbaren Betr¨ ge, vollst¨ n-
                                                                                dig von ihren Verpflichtungen aus diesen Anleihebedingungen
                                                                                befreit.
(5) Repurchase and Cancellation: The Issuer may at any time                       ¨
                                                                            (5) Ruckkauf und Entwertung: Die Anleiheschuldnerin kann
    purchase Bonds in the market or otherwise at any price.                     jederzeit und zu jedem Preis im Markt oder auf andere Weise
                                                                                Teilschuldverschreibungen ankaufen.

                          § 10 Payments                                                             § 10 Zahlungen
(1) The Issuer undertakes to pay, as and when due, principal and            (1) Die Anleiheschuldnerin verpflichtet sich, Kapital und Zinsen
    interest and any other amounts due on Bonds in Euro to the                                                          a
                                                                                auf die Teilschuldverschreibungen bei F¨ lligkeit in Euro an
    Principal Paying and Conversion Agent for on-payment to the                 die Hauptzahl- und Wandlungsstelle zur Weiterleitung an das
    Clearing System or to its order for credit to the relevant                  Clearing System oder dessen Order zur Gutschrift auf den
    accountholders of the Clearing System. Upon effecting the                   Konten der jeweiligen Kontoinhaber bei dem Clearing System
    payment to the Clearing System or to its order, the Issuer shall            zu zahlen. Die Anleiheschuldnerin wird durch Leistung der
    be released from its payment obligation in the amount of the                Zahlung an das Clearing System oder dessen Order in H¨ he o
    effected payment.                                                           der geleisteten Zahlung von ihrer Zahlungspflicht befreit.
(2) If any payment of principal or interest or any other amount             (2) Falls eine Zahlung auf Kapital oder Zinsen einer Teilschuld-
    with respect to a Bond is to be effected on a day other than a              verschreibung an einem Tag zu leisten ist, der kein
    Business Day, payment shall be effected on the next following                     a                                       a
                                                                                Gesch¨ ftstag ist, so erfolgt die Zahlung am n¨ chstfolgenden
    Business Day. In this case, the relevant Bondholders shall                         a
                                                                                Gesch¨ ftstag. In diesem Fall steht den betreffenden
    neither be entitled to any payment claim nor to any interest                          a
                                                                                Anleihegl¨ ubigern weder ein Zahlungsanspruch noch ein An-
    claim or other compensation with respect to such delay.                                                                           a
                                                                                spruch auf Zinszahlungen oder eine andere Entsch¨ digung
                                                                                                    o
                                                                                wegen dieser Verz¨ gerung zu.
(3) In the event that definitive certificates representing individual              u                                        ¨
                                                                            (3) F¨ r den Fall, dass effektive Urkunden uber einzelne Teil-
    Bonds have been issued, payments of principal and of interest               schuldverschreibungen ausgegeben worden sind, erfolgen
    in respect of each Bond will be made against presentation and               Zahlungen von Kapital und Zinsen bezogen auf die einzelne
    surrender (or, in the case of part payment only, endorsement)                                                                   a
                                                                                Teilschuldverschreibung gegen Vorlage und Aush¨ ndigung
    of the definite certificate, except that payments of interest due             der effektiven Urkunde (oder, allein im Falle von Teilzahlun-
    on a Interest Payment Date will be made against presentation                gen, durch Indossament), außer im Fall von an einem
    and surrender (or, in the case of part payment only,                                            a
                                                                                Zinszahlungstag f¨ lligen Zinszahlungen, die gegen Vorlage
    endorsement) of the relevant interest coupon, in each case at               des betreffenden Zinsscheins (oder, allein im Falle von Teil-
    the office of the Principal Paying and Conversion Agent.                     zahlungen, durch Indossament) erfolgen, jeweils bei der Ge-
                                                                                    a
                                                                                sch¨ ftsstelle der Hauptzahl- und Wandlungsstelle.

                            § 11 Taxes                                                                § 11 Steuern
All payments under the Bonds shall be paid by the Issuer without             a
                                                                            S¨ mtliche Zahlungen auf die Teilschuldverschreibungen sind von
deduction or withholding for or on account of any present or future         der Anleiheschuldnerin ohne Abzug oder Einbehalt von oder
taxes, duties or governmental charges whatsoever imposed or                                 a                u
                                                                            wegen gegenw¨ rtiger oder zuk¨ nftiger Steuern, Abgaben oder
levied by or on behalf of the Federal Republic of Germany or any                o             u
                                                                            beh¨ rdlicher Geb¨ hren irgendwelcher Art zu zahlen, die durch
taxing authority therein, unless the Issuer is or will be compelled                u
                                                                            oder f¨ r die Bundesrepublik Deutschland oder irgendeine dort zur
by law to deduct or withhold such taxes, duties or charges. In that                             a
                                                                            Steuererhebung erm¨ chtigte Stelle auferlegt oder erhoben werden,
event, the Issuer shall deduct or withhold such taxes, duties or            sofern nicht die Anleiheschuldnerin kraft Gesetzes verpflichtet ist
governmental charges and pay the amounts deducted or withheld to                                                             u
                                                                            oder wird, solche Steuern, Abgaben oder Geb¨ hren abzuziehen
the competent authorities. The Issuer shall not be obliged to pay           oder einzubehalten. In diesem Fall wird die Anleiheschuldnerin die
any additional amounts of capital and/or interest because of such                                                   o             u
                                                                            betreffenden Steuern, Abgaben oder beh¨ rdlichen Geb¨ hren einbe-
deduction or withholding.                                                   halten oder abziehen und die eingehaltenen oder abgezogenen
                                                                                 a              a            o
                                                                            Betr¨ ge an die zust¨ ndigen Beh¨ rden zahlen. Die Anleiheschuld-
                                                                            nerin ist nicht verpflichtet, wegen eines solchen Einbehalts oder
                                                                                         a           a
                                                                            Abzugs zus¨ tzliche Betr¨ ge an Kapital und/oder Zinsen zu zahlen.




                                                                       37
          § 12 Termination Rights of the Bondholders                                        ¨                            a
                                                                                      § 12 Kundigungsrechte der Anleihegl¨ ubiger
(1) Events of Default: Bondholders shall be entitled to declare                    ¨           ¨                     a
                                                                            (1) Kundigungsgrunde: Jeder Anleihegl¨ ubiger ist berechtigt,
    the Bonds to be immediately due and repayable at their                                                     ¨
                                                                                durch Abgabe einer Ku ndigungserkl¨ rung (einea
    principal amount together with accrued interest by giving                        ¨            a              u
                                                                                ‘‘Kundigungserkl¨ rung’’) gegen¨ ber der Anleiheschuldne-
    notice of default (a ‘‘Default Notice’’) to the Issuer and the              rin und der Hauptzahl- und Wandlungsstelle seine Teilschuld-
    Principal Paying and Conversion Agent, if any of the                                                         u            a
                                                                                verschreibungen zur sofortigen R¨ ckzahlung f¨ llig zu stellen
    following events (each an ‘‘Event of Default’’) shall occur:                                     u                                 u
                                                                                und deren sofortige R¨ ckzahlung zum Nennbetrag zuz¨ glich
                                                                                aufgelaufener Zinsen zu verlangen, falls einer der folgenden
                                                                                  u           u                                   ¨
                                                                                K¨ ndigungsgr¨ nde vorliegt (jeweils ein ‘‘Kundigungs-
                                                                                grund’’):
(a) Non-Payment: the Issuer fails to pay any interest or principal          (a) Nichtzahlung: wenn die Anleiheschuldnerin Kapital oder
    or any other amounts due pursuant to § 6 to § 9 on any of the               Zinsen oder sonstige nach § 6 bis § 9 auf die Teilschuldver-
    Bonds when due and such failure continues for a period of                                             a                         u
                                                                                schreibungen zahlbare Betr¨ ge nicht innerhalb von f¨ nfzehn
    15 days; or                                                                                                a
                                                                                Tagen nach dem betreffenden F¨ lligkeitsdatum zahlt; oder
(b) Conversion: the Issuer fails to perform any of its obligations          (b) Wandlung: wenn die Anleiheschuldnerin ihre Verpflichtun-
    in respect of the exercise of Conversion Rights and such                                                 u
                                                                                gen in Bezug auf die Aus¨ bung von Wandlungsrechten nicht
    failure continues for a period of 15 days; or                                  u                     u        u
                                                                                erf¨ llt und die Nichterf¨ llung f¨ r einen Zeitraum von 15 Ta-
                                                                                gen andauert; oder
(c) Breach of Other Obligations: the Issuer does not perform or             (c) Verletzung anderer Verpflichtungen: wenn die Anleihe-
    comply with any one or more of its other obligations under                  schuldnerin eine oder mehrere ihrer anderen Verpflichtungen
    the Bonds and such default is not remedied within 60 days                                                                  u
                                                                                aus den Teilschuldverschreibungen nicht erf¨ llt und dieser
    after the Principal Paying and Conversion Agent has received                Zustand nicht innerhalb von 60 Tagen, nachdem die
    notice thereof from a Bondholder, such notice being                                                                        u
                                                                                Hauptzahl- und Wandlungsstelle eine diesbez¨ gliche Mittei-
    substantially in the form as specified in § 12(2); or                                                a
                                                                                lung durch den Anleihegl¨ ubiger in der in § 12(2) festgelegten
                                                                                Art erhalten hat, behoben wird; oder
(d) Cross-Default: (i) any present or future indebtedness of the                                                                  u
                                                                            (d) Drittverzug: (i) wenn eine bestehende oder zuk¨ nftige Zah-
    Issuer for or in respect of moneys borrowed or raised becomes               lungsverpflichtung der Anleiheschuldnerin im Zusammen-
    due and payable prior to its stated maturity for reason of the              hang mit einer Kredit- oder sonstigen Geldaufnahme infolge
    occurrence of a default (howsoever defined), or (ii) any such                                             a
                                                                                einer Nichtleistung (unabh¨ ngig davon, wie eine solche defi-
    indebtedness is not paid when due or, as the case may be,                                         a
                                                                                niert ist) vorzeitig f¨ llig wird, oder (ii) wenn eine solche
    within an applicable grace period, or (iii) any amounts due                                                a
                                                                                Zahlungsverpflichtung bei F¨ lligkeit oder nach Ablauf einer
    under any present or future guarantee by the Issuer for                                                      u
                                                                                etwaigen Nachfrist nicht erf¨ llt wird, oder (iii) wenn die
    moneys borrowed or raised are not paid when due or, as the                  Anleiheschuldnerin einen Betrag, der unter einer bestehenden
    case may be, within an applicable grace period, provided that                         u                            a
                                                                                oder zuk¨ nftigen Garantie oder Gew¨ hrleistung im Zusam-
    the relevant aggregate amount in respect of which one or more               menhang mit einer Kredit- oder sonstigen Geldaufnahme, zur
    of the events mentioned above in this subsection (d) has or                            a                  a
                                                                                Zahlung f¨ llig wird, bei F¨ lligkeit oder nach Ablauf einer
    have occurred equals or exceeds 4 125,000,000 or its                        etwaigen Nachfrist nicht zahlt, vorausgesetzt, dass der Ge-
    equivalent and such default continues for more than 30 days                 samtbetrag der betreffenden Zahlungsverpflichtungen, Garan-
    after the Principal Paying and Conversion Agent has received                               a                   u
                                                                                tien oder Gew¨ hrleistungen, bez¨ glich derer eines oder meh-
    notice thereof from a Bondholder, such notice being                         rere der in diesem Absatz (d) genannten Ereignisse eintritt,
    substantially in the form as specified in § 12(2), provided                  mindestens dem Betrag von 4 125.000.000 oder dessen Ge-
    however, that this § 12(1)(d) shall not apply, where the Issuer                                              a
                                                                                genwert in einer anderen W¨ hrung entspricht oder diesen
    contests its relevant payment obligation in good faith; or                  ¨                                u
                                                                                ubersteigt und der jeweilige K¨ ndigungsgrund nicht innerhalb
                                                                                von 30 Tagen, nachdem die Hauptzahl- und Wandlungsstelle
                                                                                             u                                        a
                                                                                eine diesbez¨ gliche Mitteilung durch den Anleihegl¨ ubiger
                                                                                nach Maßgabe von § 12(2) erhalten hat, behoben wird. Dieser
                                                                                § 12(1)(d) ist jedoch nicht anwendbar, wenn die Anleihe-
                                                                                schuldnerin ihre betreffenden Zahlungsverpflichtungen in gu-
                                                                                tem Glauben bestreitet; oder
(e) Suspension of Payments: the Issuer suspends its payments                (e) Einstellung von Zahlungen: wenn die Anleiheschuldnerin
    generally or announces its inability to meet its financial                                                                  a
                                                                                ihre Zahlungen allgemein einstellt oder die Unf¨ higkeit, ihre
    obligations; or                                                                                               u
                                                                                finanziellen Verpflichtungen zu erf¨ llen, bekannt gibt; oder
(f)   Insolvency: any competent court institutes insolvency                 (f)                            a
                                                                                  Insolvenz: wenn ein zust¨ ndiges Gericht ein Insolvenzverfah-
      proceedings against the Issuer and such proceedings have not                                                       o
                                                                                  ren gegen die Anleiheschuldnerin er¨ ffnet und ein solches
      been discharged or stayed within 60 days, or the Issuer                     Verfahren nicht innerhalb von 60 Tagen aufgehoben oder
      applies for the institution of such proceedings or an                       ausgesetzt worden ist, oder die Anleiheschuldnerin die Einlei-
      application for the institution of such proceedings has been                tung eines solchen Verfahrens beantragt, oder falls der Antrag
      filed but was rejected by the competent court for lack of                    auf Einleitung eines solches Verfahren gestellt, aber von dem
      assets, or if the Issuer offers or makes a general arrangement                  a
                                                                                  zust¨ ndigen Gericht mangels Masse abgelehnt wird, oder
      for the benefit of its creditors; or                                         wenn die Anleiheschuldnerin eine allgemeine Schuldregelung
                                                                                                     a
                                                                                  zugunsten ihrer Gl¨ ubiger trifft oder diese anbietet; oder




                                                                       38
(g) Liquidation: the Issuer goes into liquidation (except in                (g) Liquidation: wenn die Anleiheschuldnerin in Liquidation
    connection with a merger or reorganization or other form of                 geht (es sei denn, dies geschieht im Zusammenhang mit einer
    combination with another company or in connection with a                    Verschmelzung, Reorganisation oder einer anderen Form des
    reconstruction and such other or new company or, as the case                Zusammenschlusses mit einer anderen Gesellschaft oder im
    may be, companies effectively assume substantially all of the               Zusammenhang mit einer Umwandlung, sofern die andere
    assets and liabilities of the Issuer); or                                   oder neue Gesellschaft oder gegebenenfalls die anderen neuen
                                                                                Gesellschaften im wesentlichen alle Aktiva und Passiva der
                                                                                                     ¨                ¨
                                                                                Anleiheschuldnerin ubernimmt oder ubernehmen); oder

(h) Cessation of Business Operations: the Issuer ceases to carry                                          a a
                                                                            (h) Einstellung der Gesch¨ ftst¨ tigkeit: wenn die Anleihe-
    on all or a material part of its current business or operations,                                    a a                     ¨
                                                                                schuldnerin ihre Gesch¨ ftst¨ tigkeit ganz oder uberwiegend
    except for the purpose of and followed by a reorganization,                                  u
                                                                                einstellt außer f¨ r Zwecke einer nachfolgenden Reorganisa-
    merger or other form of combination.                                        tion, Verschmelzung oder anderen Form des Zusammen-
                                                                                schlusses.

(2) Default Notice: Termination pursuant to subsection (1) shall                   ¨                a             u
                                                                            (2) Kundigungserkl¨ rung: Eine K¨ ndigung nach Absatz (1) er-
    be made by written notice (which notice shall be irrevocable)                            u
                                                                                folgt gegen¨ ber der Anleiheschuldnerin durch eine an die
    to the Issuer, delivered by hand or registered mail, at the                                         a
                                                                                angegebene Gesch¨ ftsstelle der Hauptzahl- und
    specified office of the Principal Paying and Conversion Agent                                        o
                                                                                Wandlungsstelle pers¨ nlich abzugebende oder per Einschrei-
    together with proof that such Bondholder at the time of such                                                                         a
                                                                                ben zu richtende, schriftliche und unwiderrufliche Erkl¨ rung.
    notice is a holder of the relevant Bonds by means of a                      Der      betreffende                 a
                                                                                                          Anleihegl¨ ubiger      hat     seiner
    certificate of such Bondholder’s custodian bank, whereupon                     u               a
                                                                                K¨ ndigungserkl¨ rung eine Bescheinigung seiner Depotbank
    the same shall, subject to § 12(3), become immediately due                         u
                                                                                beizuf¨ gen, durch die er nachweist, dass er im Zeitpunkt der
    and payable without presentment, demand, protest or other                     u
                                                                                K¨ ndigung Inhaber der betreffenden Teilschuldverschreibung
    notice of any kind, all of which the Issuer expressly waives,                                                                   u
                                                                                ist. Sofern nicht alle in § 12(1) angegebenen K¨ ndigungs-
    unless, prior thereto, all events specified in § 12(1) have been                u
                                                                                gr¨ nde vorher geheilt wurden, werden die Teilschuldver-
    cured. No event or circumstance other than an event specified                schreibungen daraufhin, vorbehaltlich von § 12(3), sofort zur
    in § 12(1) shall entitle Bondholders to declare their Bonds due               u             a
                                                                                R¨ ckzahlung f¨ llig, ohne dass eine Vorlegung, eine Klage, ein
    and payable prior to their stated maturity, save as expressly                                                         a
                                                                                Protest oder die Abgabe sonstiger Erkl¨ rungen erforderlich
    provided for in these Terms and Conditions and subject to                                                               u
                                                                                ist, auf die die Anleiheschuldnerin ausdr¨ cklich verzichtet.
    applicable mandatory law. The Issuer shall, promptly on any                 Nach Maßgabe anwendbaren zwingenden Rechts berechtigen
    Bond becoming immediately due and repayable, give notice                                                   a
                                                                                andere Ereignisse oder Umst¨ nde, die keines der in § 12(1)
    of such fact in accordance with § 15 specifying the expiry                                                                    a
                                                                                genannten Ereignisse darstellen, den Anleihegl¨ ubiger nicht
    date.                                                                                                                              u
                                                                                dazu, seine Teilschuldverschreibungen vorzeitig zur R¨ ckzah-
                                                                                       a                                             u
                                                                                lung f¨ llig zu stellen, es sei denn, dies ist ausdr¨ cklich in
                                                                                diesen Anleihebedingungen bestimmt. Die Anleiheschuldne-
                                                                                rin wird die Tatsache, dass eine Teilschuldverschreibung zur
                                                                                              u            a
                                                                                sofortigen R¨ ckzahlung f¨ llig gestellt wurde, umgehend ent-
                                                                                sprechend § 15 und unter Angabe des entsprechenden Verfall-
                                                                                tages bekannt gegeben.

(3) Effective Date: In the cases specified in § 12(1) (c) and (d),                                       ¨
                                                                            (3) Wirksamkeit der Kundigung: In den F¨ llen gem¨ ßa         a
    respectively, any notice declaring Bonds due shall become                                                      u
                                                                                § 12(1)(c) und (d) wird eine K¨ ndigung, sofern nicht bei
    effective only when the Principal Paying and Conversion                     deren Eingang zugleich einer der in § 12(1)(a), (b), (e), (f)
    Agent has received such notices from Bondholders in an                                              u            u
                                                                                und (g) bezeichneten K¨ ndigungsgr¨ nde vorliegt und andau-
    aggregate nominal amount of at least one-tenth of the                       ert, erst wirksam, wenn bei der Hauptzahl- und
    aggregate nominal amount of the Bonds then outstanding,                     Wandlungsstelle             ¨             a
                                                                                                          K u ndigungserkl¨ rungen       von
    unless at the time such notice is received, any of the events                         a
                                                                                Anleihegl¨ ubigern eingegangen sind, die Teilschuldverschrei-
    specified in § 12(1)(a), (b), (e), (f), and (g), respectively,               bungen im Gesamtnennbetrag von mindestens einem Zehntel
    entitling Bondholders to declare their Bonds due has occurred               des Gesamtnennbetrags der dann ausstehenden Teilschuldver-
    and is continuing.                                                          schreibungen halten.


             § 13 Presentation Period, Prescription                                                                  a
                                                                                           § 13 Vorlegungsfrist, Verj¨ hrung

The period for presentation of the Bonds (as laid down in § 801                                       a                           u
                                                                            Die Vorlegungsfrist gem¨ ß § 801 (1) Satz 1 BGB f¨ r die Teil-
(1) sentence 1 of the German Civil Code) shall be reduced to ten                                                             u              a
                                                                            schuldverschreibungen wird auf zehn Jahre verk¨ rzt. Die Verj¨ h-
years. The period of limitation for claims under the Bonds                               u        u
                                                                            rungsfrist f¨ r Anspr¨ che aus den Teilschuldverschreibungen, die
presented during the period for presentation shall be two years             innerhalb der Vorlegungsfrist zur Zahlung vorgelegt wurden, be-
calculated from the expiration of the relevant presentation period.           a
                                                                            tr¨ gt zwei Jahre von dem Ende der betreffenden Vorlegungsfrist an.


§ 14 Principal Paying and Conversion Agent, Paying and                             § 14 Hauptzahl- und Wandlungsstelle, Zahl- und
           Conversion Agents, Calculation Agent                                          Wandlungsstellen, Berechnungsstelle

(1) Citibank N.A. shall be the initial principal paying and                                                   a
                                                                            (1) Citibank N.A. ist die anf¨ ngliche Hauptzahl- und
    conversion agent (the ‘‘Principal Paying and Conversion                     Wandlungsstelle (die ‘‘Hauptzahl- und Wandlungsstelle’’)
    Agent’’) as well as the initial calculation agent (the                      sowie    die        a
                                                                                                anf¨ ngliche    Berechnungsstelle  (die
    ‘‘Calculation Agent’’).                                                     ‘‘Berechnungsstelle’’).


                                                                       39
                                  `                 ee
(2) Dexia Banque Internationale a Luxembourg, soci´ t´ anonyme                                                   `                 ee
                                                                              (2) Dexia Banque Internationale a Luxembourg, soci´ t´ anonyme
    shall be appointed as additional paying and conversion agent                  ist als weitere Zahl- und Wandlungsstelle (gemeinsam mit der
    (together with the Principal Paying and Conversion Agent the                  Hauptzahl- und Wandlungsstelle die ‘‘Zahl- und
    ‘‘Paying and Conversion Agents’’, each a ‘‘Paying and                         Wandlungsstellen’’,         jede    eine     ‘‘Zahl-     und
    Conversion Agent’’). The Issuer shall procure that as long as                 Wandlungsstelle’’) bestellt. Die Anleiheschuldnerin wird da-
    Bonds are listed on the Luxembourg Stock Exchange there                        u
                                                                                  f¨ r sorgen, dass, solange Teilschuldverschreibungen an der
    will at all times be a Paying and Conversion Agent and                                         o
                                                                                  Luxemburger B¨ rse notiert werden, immer eine Zahl- und
    Calculation Agent in the City of Luxembourg. In no event                      Wandlungsstelle und Berechnungsstelle in der Stadt Luxem-
    shall the specified office of a Paying and Conversion Agent or                  burg bestellt sind. In keinem Fall darf die Adresse einer von
    of a Calculation Agent appointed by the Issuer be within the                  der Anleiheschuldnerin benannten Zahl- und Wandlungsstelle
    United States or its possessions.                                             oder Berechnungsstelle innerhalb der Vereinigten Staaten oder
                                                                                  ihrer Besitzungen liegen.

(3) The Issuer shall procure that there will at all times be a                                                        u
                                                                              (3) Die Anleiheschuldnerin wird daf¨ r sorgen, dass stets eine
    Principal Paying and Conversion Agent as well as a                            Hauptzahl-       und     Wandlungsstelle        sowie       eine
    Calculation Agent. The Issuer is entitled to appoint banks of                 Berechnungsstelle vorhanden sind. Die Anleiheschuldnerin ist
    international standing as Paying and Conversion Agent and                     berechtigt, andere Banken von internationalem Ansehen als
    Calculation Agent. Furthermore, the Issuer is entitled to                     Zahl- und Wandlungsstelle und Berechnungsstelle zu bestel-
    terminate the appointment of a Paying and Conversion Agent                    len. Die Anleiheschuldnerin ist weiterhin berechtigt, die Be-
    and Calculation Agent. In the event of such termination or                    stellung einer Bank zur Zahl- und Wandlungsstelle und zur
    such bank being unable or unwilling to continue to act as                     Berechnungsstelle zu widerrufen. Im Falle einer solchen Ab-
    Paying and Conversion Agent and/or Calculation Agent, the                     berufung oder, falls die bestellte Bank nicht mehr als Zahl-
    Issuer shall appoint another bank of international standing as                                                                    a
                                                                                  und Wandlungsstelle und/oder Berechnungsstelle t¨ tig werden
    Paying and Conversion Agent and/or Calculation Agent. The                     kann oder will, bestellt die Anleiheschuldnerin eine andere
    Issuer shall to the extent possible procure that it will at all               Bank von internationalem Ansehen als Zahl- und
    times maintain a Paying and Conversion Agent with a                           Wandlungsstelle und/oder Berechnungsstelle. Die Anleihe-
    specified office in a European Union member state that will                                                           a          o
                                                                                  schuldnerin wird sich, soweit tats¨ chlich m¨ glich, darum
    not be obliged to withhold or deduct tax pursuant to any                           u
                                                                                  bem¨ hen, dass stets eine Zahl- und Wandlungsstelle mit
    European Union Directive on the taxation of savings                                  a                                                a
                                                                                  Gesch¨ ftsstelle in einem Mitgliedsstaat der Europ¨ ischen
    implementing the conclusions of the ECOFIN Council                            Union vorhanden ist, die nicht verpflichtet ist, Steuern einzu-
    meeting of 26 – 27 November 2000 or any law implementing                                                             a
                                                                                  behalten oder abzuziehen, die gem¨ ß einer Richtlinie der
    or complying with, or introduced in order to conform to, such                        a                                             u
                                                                                  Europ¨ ischen Union zur Besteuerung von Eink¨ nften auf
    Directive. Any such appointment or termination shall be                       Spareinlagen, mit der die Ergebnisse des Treffens des
    published without undue delay in accordance with § 15, or,                    ECOFIN Rates vom 26. – 27. November 2000 umgesetzt
    should this not be possible, be published in another way.                     werden sollen, oder jedweder sonstigen Vorschrift, mit der
                                                                                                                          u
                                                                                  diese Richtlinie umgesetzt oder eingef¨ hrt oder mit der dieser
                                                                                  Richtlinie in wie auch immer gearteter Weise entsprochen
                                                                                  werden soll, einzubehalten oder abzuziehen sind. Jede solche
                                                                                  Bestellung oder ein solcher Widerruf der Bestellung ist unver-
                                                                                   u           a                               o
                                                                                  z¨ glich gem¨ ß § 15 oder, falls dies nicht m¨ glich sein sollte,
                                                                                                      ¨
                                                                                  in sonstiger Weise offentlich bekannt zu machen.

(4) Each Paying and Conversion Agent and the Calculation Agent                (4) Jede Zahl- und Wandlungsstelle und die Berechnungsstelle
    shall be held responsible for giving, failing to give, or                                 u               a
                                                                                  haften daf¨ r, dass sie Erkl¨ rungen abgeben, nicht abgeben
    accepting a declaration, or for acting or failing to act, only if,            oder entgegennehmen oder Handlungen vornehmen oder un-
    and insofar as, they fail to act with the diligence of a                      terlassen, nur, wenn und soweit sie die Sorgfalt eines ordentli-
    conscientious businessman. All determinations and                             chen Kaufmanns verletzt haben. Alle Bestimmungen und
    calculations made by the Calculation Agent shall be made in                   Berechnungen durch die Berechnungsstelle erfolgen in Ab-
    conjunction with the Issuer and shall, in the absence of                      stimmung mit der Anleiheschuldnerin und sind, soweit nicht
    manifest error, be conclusive in all respects and binding upon                                                                           u
                                                                                  ein offenkundiger Fehler vorliegt, in jeder Hinsicht endg¨ ltig
    the Issuer and all Bondholders.                                                      u                                                a
                                                                                  und f¨ r die Anleiheschuldnerin und alle Anleihegl¨ ubiger
                                                                                  bindend.

(5) The Paying and Conversion Agents and the Calculation Agent                (5) Die Zahl- und Wandlungsstellen und die Berechnungsstelle
    acting in such capacity, act only as agents of the Issuer. There              sind in ihrer jeweiligen Funktion ausschließlich Beauftragte
    is no agency or fiduciary relationship between the Paying and                  der Anleiheschuldnerin. Zwischen den Zahl- und
    Conversion Agents and the Calculation Agent on the one side                   Wandlungsstellen und der Berechnungsstelle einerseits und
    and the Bondholders on the other side. Each of the Paying and                                a
                                                                                  den Anleihegl¨ ubigern andererseits besteht kein Auftrags-
    Conversion Agents and the Calculation Agent shall be exempt                                     a
                                                                                  oder Treuhandverh¨ ltnis. Die Zahl- und Wandlungsstellen und
    from the restrictions set forth in § 181 German Civil Code                                                                  a
                                                                                  die Berechnungsstelle sind von den Beschr¨ nkungen des
       u
    (B¨ rgerliches Gesetzbuch) and similar restrictions of other                                                                 a
                                                                                  § 181 BGB und etwaigen gleichartigen Beschr¨ nkungen des
    applicable laws.                                                                                             a
                                                                                  anwendbaren Rechts anderer L¨ nder befreit.

                            § 15 Notices                                                          § 15 Bekanntmachungen

(1) Notices relating to the Bonds shall be published in a                     (1) Die Teilschuldverschreibungen betreffende Bekanntmachun-
    newspaper recognized by the rules and regulations of the                      gen werden in einer von dem Regelwerk der Luxemburger
    Luxembourg Stock Exchange (this newspaper is expected to                                 o
                                                                                  Wertpapierb¨ rse anerkannten Zeitung (voraussichtlich das
    be the Luxemburger Wort). A notice shall be deemed to be                                               o
                                                                                  Luxemburger Wort) ver¨ ffentlicht. Eine Mitteilung gilt mit
    made on the day of its publication (or in the case of more than                                o
                                                                                  dem Tag ihrer Ver¨ ffentlichung (oder bei mehreren Mitteilun-
    one publication on the day of the first publication).                                                            o
                                                                                  gen mit dem Tage der ersten Ver¨ ffentlichung) als erfolgt.


                                                                         40
(2) The Issuer shall also be entitled to make notifications to the                                            o
                                                                           (2) Sofern die Regularien der B¨ rse, an der die Teilschuldver-
    Clearing System for communication by the Clearing System                   schreibungen notiert sind, dies zulassen, ist die Anleihe-
    to the Bondholders or directly to the Bondholders provided                 schuldnerin berechtigt, Bekanntmachungen auch durch eine
    this complies with the rules of the stock exchange on which                Mitteilung an das Clearing System zur Weiterleitung an die
                                              `
    the Bonds are listed. Notifications vis a vis the Clearing                           a                                    a
                                                                               Anleihegl¨ ubiger oder direkt an die Anleihegl¨ ubiger zu be-
    System shall be deemed to be effected seven days after the                                              ¨
                                                                               wirken. Bekanntmachungen uber das Clearing System gelten
    notification to the Clearing System, direct notifications of the             sieben Tage nach der Mitteilung an das Clearing System,
    Bondholders shall be deemed to be effected upon their                                                            a
                                                                               direkte Mitteilungen an die Anleihegl¨ ubiger mit ihrem Zu-
    receipt.                                                                   gang als bewirkt.

(3) The text of any publication to be made in accordance with this                                o                   a
                                                                           (3) Die Texte aller Ver¨ ffentlichungen gem¨ ß diesem § 15 sind
    § 15 shall also be available at the specified office of each of                                            a a
                                                                               außerdem in den Gesch¨ ftsr¨ umen der Zahl- und
    the Paying and Conversion Agents.                                                               a
                                                                               Wandlungsstellen erh¨ ltlich.

                       § 16 Final Clauses                                                     § 16 Schlussbestimmungen

(1) Amendments: The Terms and Conditions may be unilaterally                    ¨                                        o
                                                                           (1) Anderungen: Die Anleihebedingungen k¨ nnen einseitig
    amended by the Issuer if the Luxembourg Stock Exchange so                                                  a
                                                                               durch die Anleiheschuldnerin ge¨ ndert werden, sofern die
    requires as a condition for admission for listing of the Bonds.                           o
                                                                               Luxemburger B¨ rse dies zur Zulassung der Teilschuldver-
    Such amendments will be published in accordance with § 15.                                                          ¨
                                                                               schreibungen zum Handel verlangt. Solche Anderungen wer-
                                                                                       a
                                                                               den gem¨ ß § 15 bekanntgemacht.

(2) Governing Law: The form and content of the Bonds and the               (2) Anwendbares Recht: Form und Inhalt der Teilschuldver-
    rights and duties of the Bondholders, the Issuer and the                                                                           a
                                                                               schreibungen sowie die Rechte und Pflichten der Anleihegl¨ u-
    Paying and Conversion Agents as well as the Calculation                    biger, der Anleiheschuldnerin und der Zahl- und
    Agent shall in all respects be governed by and shall be                    Wandlungsstellen sowie der Umrechnungsstelle bestimmen
    construed in accordance with the laws of the Federal Republic              sich in jeder Hinsicht nach dem Recht der Bundesrepublik
    of Germany.                                                                                             ¨
                                                                               Deutschland und werden in Ubereinstimmung damit ausge-
                                                                               legt.

(3) Place of performance: Place of performance is Frankfurt am                     ¨             u
                                                                           (3) Erfullungsort: Erf¨ llungsort ist Frankfurt am Main, Bundes-
    Main, Federal Republic of Germany.                                         republik Deutschland.

(4) Jurisdiction: The District Court (Landgericht) in Frankfurt            (4) Gerichtsstand: Jegliche aus oder im Zusammenhang mit den
    am Main shall have non-exclusive jurisdiction for any action               Teilschuldverschreibungen entstehenden Klagen oder Verfah-
    or other legal proceedings arising out of or in connection with                                                          a
                                                                               ren unterliegen der nichtausschließlichen Zust¨ ndigkeit des
    the Bonds.                                                                 Landgerichts Frankfurt am Main.

(5) Enforcement: Any Bondholder may in any proceedings                                                        ¨
                                                                           (5) Geltendmachung von Anspruchen: Jeder Anleihegl¨ ubigera
    against the Issuer or to which the Bondholder and the Issuer               kann in Rechtsstreitigkeiten gegen die Anleiheschuldnerin
    are parties protect and enforce in its own name its rights                                                                       a
                                                                               oder in Rechtsstreitigkeiten, an denen der Anleihegl¨ ubiger
    arising under its Bonds on the basis of the following                      und die Anleiheschuldnerin beteiligt sind, im eigenen Namen
    documents:                                                                 seine Rechte aus den ihm zustehenden Teilschuldverschrei-
                                                                               bungen unter Vorlage der folgenden Dokumente geltend ma-
                                                                               chen:

(a) a certificate issued by its Custodian (i) stating the full name         (a) einer Bescheinigung seiner Depotbank, die (i) den vollen
    and address of the Bondholder, (ii) specifying an aggregate                                                                 a
                                                                               Namen und die volle Anschrift des Anleihegl¨ ubigers be-
    principal amount of Bonds credited on the date of such                     zeichnet (ii) den Gesamtnennbetrag von Teilschuldverschrei-
    statement to such Bondholder’s securities account maintained               bungen angibt, die am Ausstellungstag dieser Bescheinigung
    with its Custodian and (iii) confirming that its Custodian has              dem bei dieser Depotbank bestehenden Wertpapierdepot die-
    given a written notice to the Clearing System and the                                    a                                           a
                                                                               ses Anleihegl¨ ubigers gutgeschrieben sind und (iii) best¨ tigt,
    Principal Paying and Conversion Agent containing the                       dass die Depotbank dem Clearing System und der Hauptzahl-
    information specified in (i) and (ii) and bearing                           und Wandlungsstelle eine schriftliche Mitteilung gemacht hat,
    acknowledgements of the Clearing System; and                                                     a                 a            a
                                                                               die die Angaben gem¨ ß (i) und (ii) enth¨ lt und Best¨ tigungs-
                                                                                                                 a
                                                                               vermerke des Clearing Systems tr¨ gt; sowie

(b) a copy of the Global Bond relating to the Bonds, certified as           (b) einer von einem Vertretungsberechtigten des Clearing Sy-
    being a true copy by a duly authorized officer of the Clearing              stems oder der Hauptzahl- und Wandlungsstelle beglaubigten
    System or by the Principal Paying and Conversion Agent. For                Ablichtung der Globalurkunde. Im Sinne der vorstehenden
    the purposes of the foregoing, ‘‘Custodian’’ means any bank                Bestimmungen ist ‘‘Depotbank’’ ein Bank- oder sonstiges
    or other financial institution of international recognized                  Finanzinstitut von international anerkanntem Ruf, das zum
    standing authorized to engage in securities custody business                                                   a
                                                                               Betreiben des Wertpapierdepotgesch¨ fts berechtigt ist und bei
    with which the Bondholder maintains a securities account in                                   a
                                                                               dem der Anleihegl¨ ubiger Teilschuldverschreibungen in ei-
    respect of any Bonds and having an account maintained with                                                   a
                                                                               nem Wertpapierdepot verwahren l¨ sst und das ein Konto bei
    the Clearing System and includes the Clearing System.                                                   a
                                                                               dem Clearing System unterh¨ lt, einschließlich des Clearing
                                                                               Systems.

(6) Prescription: Claims for principal shall become void ten                       a              u                                     a
                                                                           (6) Verj¨ hrung: Anspr¨ che auf Zahlung von Kapital verj¨ hren
    years after the relevant redemption Date. Claims for interest                                              a                    u
                                                                               zehn Jahre nach dem jeweiligen F¨ lligkeitstag, Anspr¨ che auf
    on the Bonds shall become void five years after the relevant                                                             a      u
                                                                               Zinsen auf die Teilschuldverschreibung verj¨ hren f¨ nf Jahre
    Interest Payment Date.                                                     nach dem jeweiligen Zinszahlungstag.


                                                                      41
(7) Replacement of Bonds: If a Global Bond or definitive                      (7) Ersetzung von Teilschuldverschreibungen: Falls eine Glo-
    certificates representing individual Bonds or interest coupons                                                       ¨
                                                                                 balurkunde oder effektive Urkunden uber einzelne Teilschuld-
    are lost, stolen, mutilated, defaced or destroyed, they may be               verschreibungen oder Zinsscheine verloren gehen, gestohlen,
    replaced at the office of the Principal Paying and Conversion                      u              a               o             o
                                                                                 verst¨ mmelt, besch¨ digt oder zerst¨ rt werden, k¨ nnen sie bei
    Agent, subject to all applicable laws and stock exchange                               a
                                                                                 der Gesch¨ ftsstelle der Hauptzahl- und Wandlungsstelle er-
    requirements, upon payment by the claimant of the expenses                   setzt werden, vorbehaltlich anwendbaren Rechts und Anforde-
    incurred in connection with such replacement and on such                                   o
                                                                                 rungen der B¨ rsen. Der Anspruchsteller erstattet diejenigen
    terms as to evidence, security, indemnity and otherwise as the               Kosten, die mit dem Austausch verbunden sind und die aus
    Issuer may reasonably require.                                               von der Anleiheschuldnerin geforderten Beweis-, Sicherheits-
                                                                                                     u                           u
                                                                                 und Freistellungsgr¨ nden oder sonstigen vern¨ nftigen Gr¨ n-u
                                                                                 den angefallen sind.
(8) Severability: Should any of the provisions of these Terms and            (8) Teilunwirksamkeit: Sollte eine der Bestimmungen dieser
    Conditions be or become invalid or unenforceable in whole or                 Anleihebedingungen ganz oder teilweise unwirksam und un-
    in part, the validity or the enforceability of the remaining                        u
                                                                                 durchf¨ hrbar sein oder werden, so bleibt die Wirksamkeit
    provisions shall not in any way be affected or impaired                                      u              ¨
                                                                                 oder die Durchf¨ hrbarkeit der ubrigen Bestimmungen hiervon
    thereby. In this case the invalid provision shall be replaced by                   u
                                                                                 unber¨ hrt. Anstelle der unwirksamen Bestimmung soll, so-
    a provision which, to the extent legally possible, provides for                                o
                                                                                 weit rechtlich m¨ glich, eine dem Sinn und wirtschaftlichen
    an interpretation in keeping with the meaning and the                        Zweck dieser Anleihebedingungen zum Zeitpunkt der Bege-
    economic purposes of the Terms and Conditions at the time of                 bung der Teilschuldverschreibungen entsprechende Regelung
    the issue of the Bonds. Under circumstances in which these                                       a
                                                                                 gelten. Unter Umst¨ nden, unter denen sich diese Anleihebe-
    Terms and Conditions prove to be incomplete, a                                                       a                              a
                                                                                 dingungen als unvollst¨ ndig erweisen, soll eine erg¨ nzende
    supplementary interpretation in accordance with the meaning                  Auslegung, die dem Sinn und Zweck dieser Anleihebedingun-
    and the purposes of these Terms and Conditions under due                                                              u
                                                                                 gen entspricht, unter angemessener Ber¨ cksichtigung der be-
    considerations of the legitimate interest of the parties involved            rechtigten Interessen der beteiligten Parteien erfolgen.
    shall be applied.
(9) Binding Version: The German version of these Terms and                   (9) Bindende Fassung: Die deutsche Fassung dieser Anleihebe-
    Conditions shall be binding.                                                 dingungen ist bindend.




                                                                        42
                                                               CAPITALIZATION
     The following table sets forth the capitalization and indebtedness of the Lufthansa Group extracted from the
audited consolidated financial statements of Lufthansa Group prepared in accordance with IAS as at
31 December 2000 and extracted from the consolidated financial statements of the Lufthansa Group as at
30 September 2001 (unaudited). The unaudited pro-forma information as at 30 September 2001 reflects the
issuance of the Bonds and the intended application of the proceeds therefrom, before deduction of 4 11m
estimated fees and expenses of such issuance (see ‘‘General Information — Use of Proceeds’’). Apart from the
Bonds, Lufthansa neither issued nor guaranteed bonds that are convertible or exchangeable into or attached with
warrants to subscribe for Shares (i.e. the shares of Lufthansa).
                                                                                                  30.9.2001
                                                                    31.12.2000                  (unaudited)     30.9.2001     pro-forma
                                                                   LH financial   31.12.2000    LH financial    (unaudited)      30.9.2001
                                                                    statements        totals     statements         totals (unaudited)(1)
                                                                           5m           5m              5m            5m              5m
Cash and Cash Equivalents..........................                     385.8       385.8           276.0         276.0           391.0
Short-term debt(2) ...........................................                      518.7                       1,082.0           447.0
Long-term debt(3) ...........................................                     5,279.9                       6,549.8         7,171.4
Stockholders’ equity
Issued Capital .................................................        976.9                       976.9                         976.9
Capital Reserve ..............................................          680.8                       680.8                         809.2
Retained Earnings(4) .......................................          1,766.8                     2,540.7                       2,540.7
Net Income......................................................        689.0                        65.2                          65.2
Total stockholders’ equity.............................                           4,113.5                       4,263.6         4,392.0
Total Capitalization(5).....................................                      9,912.1                      11,895.4        12,010.4
(1) The proceeds from the issuance of the Bonds are reflected in the positions long-term debt and Capital Reserve. The final amounts will be
    calculated on the basis of the price per Share on 4 January 2002 in accordance with IAS.
(2) Short-term debt comprises short-term financial obligations and the short-term portion of long-term debt (payable within the next
    12 months).
(3) Long-term debt includes long-term financial obligations and provisions for pensions.
(4) 30 September 2001 retained earnings include fair values in accordance with IAS 39 (predominantly mark-to-market valuations of
    hedging transactions and other marketable financial instruments; such mark-to-market valuations will vary over time).
(5) Total capitalization includes short-term debt, long-term debt and stockholders’ equity

    There has been no material change in the capitalization and indebtedness of Lufthansa Group since
30 September 2001 except as otherwise disclosed in this Information Memorandum.




                                                                         43
                                                    BUSINESS ACTIVITIES
Introduction
      Lufthansa, one of the world’s largest commercial airlines, was founded in Cologne in 1953 under the name
                       u
‘‘Aktiengesellschaft f¨ r Luftverkehrsbedarf’’, adopting its present corporate name ‘‘Deutsche Lufthansa
Aktiengesellschaft’’ in 1954. Lufthansa is the primary operating and holding company of the Lufthansa Group
and also the largest individual company in the Lufthansa Group. Lufthansa’s Executive Board, whose members
include the Chairman, the Chief Financial Officer, the Chief Human Resources Officer and the Chief Executive of
the Segment Passenger Business, directs the activities of the entire Lufthansa Group. Inter-company agreements
regulate cooperation within the Lufthansa Group. The Lufthansa Group is engaged in activities across six
strategic business segments: Passenger Business; Logistics; Maintenance, Repair and Overhaul (MRO); Catering;
Leisure Travel and IT Services. Other service subsidiaries and most non-core activities are held by Lufthansa
Commercial Holding GmbH. The Lufthansa Group comprises more than 400 subsidiaries and affiliates operating
around the world. The following table gives an overview of the current structure of the Lufthansa Group:

  Lufthansa*




     Passenger          Logistics         MRO               Catering           Leisure        IT Services   Others
     Business                                                                  Travel




     Lufthansa          Lufthansa         Lufthansa         LSG                Thomas         Lufthansa     Lufthansa
     CityLine           Cargo AG          Technik AG        Lufthansa          Cook AG        Systems       Commercial
     GmbH               100%              100%              Service            (formerly      Group         Holding
     100%                                                   Holding AG         C&N            GmbH          GmbH
                                                            100%               Touristic      100%          100%
                                                                               AG) 50%
     Cologne            Kelsterbach       Hamburg           Kriftel            Oberursel      Kelsterbach   Cologne



* Lufthansa is not only a holding company but also operates the Segment Passenger Business.
      Lufthansa has entered into control and profit and loss transfer agreements (Beherrschungs- und Gewinnab-
 u            a
f¨ hrungsvertr¨ ge) with the following ultimate holding companies of Lufthansa’s business segments: Lufthansa
Cargo AG (see ‘‘Business Segment Logistics — Lufthansa Cargo’’), Lufthansa Technik AG (see ‘‘Business
Segment Maintenance, Repair and Overhaul (MRO) — Lufthansa Technik’’), LSG Lufthansa Service Holding
AG (see ‘‘Business Segment Catering — LSG Sky Chefs Group’’), Lufthansa CityLine GmbH (see ‘‘Segment
Passenger Business — Lufthansa CityLine’’) and Lufthansa Commercial Holding GmbH (see ‘‘Service and
Financial Companies’’) which itself has entered into control and profit and loss transfer agreement with
Lufthansa Systems Group GmbH (see ‘‘Business Segment IT Services — Lufthansa Systems’’). By virtue of
these agreements, the relevant subsidiaries are placed under the control of Lufthansa and agree to transfer all their
profits to Lufthansa. In return, Lufthansa must assume the controlled company’s losses.
      The core business of the Lufthansa Group is the operation of domestic and international scheduled passenger
and cargo flights to more than 450 destinations in a global network. In 2000, the Group carried 47 million
passengers and 1.8 million tons of freight and mail. Additionally, the Lufthansa Group offers a broad range of
related services, such as aircraft maintenance, repair and overhaul (MRO), catering and IT services.
     As at 30 September 2001, the number of employees of the Lufthansa Group (calculated as the average for
the period from 1 January 2001 through 30 September 2001) totaled 83,447.

Segment Passenger Business
Lufthansa
     The most significant business segment of the Lufthansa Group is the passenger business which is operated as
a profit center within Lufthansa, the parent company of the Lufthansa Group. It is headed by an Airline Board

                                                                  44
with divisional responsibility for the divisions Product and Services, Operations, Sales, Network Management/
Marketing as well as Human Resources and IT. The airline currently offers flights to more than 300 destinations
worldwide.
     As at 30 September 2001, Lufthansa had 31,959 employees (calculated as the average for the period from
1 January 2001 through 30 September 2001).
    The following table shows certain financial information for Lufthansa for the financial years 2000 and 1999
as well as for the first nine months in the financial years 2001 and 2000.
                                                                                                      Jan-Sep 2001    Jan-Sep 2000
                                                                                  2000(1)   1999(1)     (unaudited)     (unaudited)

Passengers carried (in millions) ..................................                41.3      38.9            31.2            31.2
Passenger load factor (in per cent.) ............................                  75.2      73.3            73.6            76.0
Revenue(2) (in 4 m) ......................................................        9,827     8,510           7,544           7,012
Segment Result(3) (in 4 m)...........................................               677       584             231             541

(1) The metrics regarding passengers carried and the passenger load factor are unaudited.
(2) Includes revenue with companies of the Lufthansa Group of 4 523m in 2000, 4 495m in 1999, 4 444m in first nine months 2001 and
    4 397m in first nine months 2000.
(3) Segment results in accordance with IAS 14.

     The steep decline in demand for air travel that followed the terrorist attacks in the US on 11 September 2001
together with the general slowdown in economic activity had and continues to have a significant impact on the
business of the Segment Passenger Business.
     Due to the general economic slowdown, available capacity grew faster than sales volume, particularly in the
third quarter of 2001. In addition, overall expenses of Lufthansa rose by more than 10 per cent. over the first three
quarters of 2001 compared to the same period in 2000 with the biggest rates of increase recorded by maintenance,
repair and overhaul services and aircraft fuel. Furthermore, Lufthansa has to spend significantly more on
insurances and on security fees.
     In addition, air travel dropped dramatically following the terrorist attacks in the US on 11 September 2001
adding to the gap between capacity and demand. The impact is aggravated by the fact that traditionally September
and October have been the most profitable months for Lufthansa. In September, Lufthansa recorded a fall of
almost 10 per cent. in the number of passengers and capacity sold compared to the relevant period in the previous
year. This sharp decline only occurred during the last few weeks of the third quarter and is therefore not fully
reflected in the figures for the first nine months of 2001. The development for the last three months of 2001 is
expected to be dramatically weaker (see ‘‘Recent Developments and Outlook — Dramatic Decline in the
Financial Position for the last three Months of 2001’’). Passenger numbers dropped 14.6 per cent. and
17.6 per cent. in October and November 2001, respectively (each month compared with the same month in 2000).
Lufthansa reacted to these steep declines in demand by scrutinizing capacity and has reduced its capacity by an
amount equivalent to the capacity of up to 43 aircraft. (see ‘‘— Fleet and Capital Expenditure — Capacity
Adjustments’’). Most of these measures were only implemented at the start of the winter flight schedules on
28 October 2001 and the effects thereof will only begin to be seen in November 2001 (see ‘‘Recent Developments
and Outlook — Dramatic decline in the financial position for the last three months of 2001’’).
     The passenger load factor dropped to 65.9 per cent. and 67.9 per cent. in October and November 2001,
respectively, as compared to 76.6 per cent. for October 2000 and 72.2 per cent. for November 2000. The
November 2001 figures already include effects of the implemented capacity reductions.

Lufthansa CityLine
     Lufthansa CityLine, the regional airline within the Lufthansa Group, has been a wholly-owned Lufthansa
subsidiary since 1993. With its fleet of 50-seater and 80-seater aircraft, Lufthansa CityLine operates a third of all
Lufthansa flights in the European network of the Lufthansa Group. As at 30 September 2001, the fleet of
Lufthansa CityLine consisted of 76 aircraft, 18 Avro RJ85s and 47 Canadair Jets and 11 Fokker 50, which are

                                                                             45
subleased to another airline. Additional Canadair Jets CRJ 700s have been ordered; 2 were delivered during the
last three months of 2001 and a further 10 aircraft are expected to be delivered during the financial year 2002.
     Lufthansa CityLine has its administrative headquarter and a workshop hangar for all maintenance and
substantial overhaul work at the Cologne/Bonn airport. As at 30 September 2001, Lufthansa CityLine had 2,029
employees (calculated as the average for the period from 1 January 2001 through 30 September 2001).
    The following table shows certain financial information for Lufthansa CityLine for the financial years 2000
and 1999 as well as for the first nine months in the financial years 2001 and 2000.
                                                                                                      Jan-Sep 2001      Jan-Sep 2000
                                                                                  2000(1)   1999(1)     (unaudited)       (unaudited)

Passengers carried (in millions) ..................................                  5.7      4.9               4.6              4.3
Passenger load factor (in per cent.) ............................                  59.8      57.5              59.2             59.6
Revenue(2) (in 4 m) ......................................................        1,035      882               816              759
Segment Result(3) (in 4 m)...........................................                57       51                12               32
(1) The metrics regarding passengers carried and the passenger load factor are unaudited.
(2) Includes revenue with companies of the Lufthansa Group of 4 16m in 2000, 4 19m in 1999, 4 9m in first nine months 2001 and 4 13m in
    first nine months 2000.
(3) Segment results in accordance with IAS 14.

    Lufthansa CityLine has also been affected by the consequences of the terrorist attacks in the US on
11 September 2001.
     Between January and September 2001 the Lufthansa Group’s regional carrier improved its traffic data
significantly. The number of passengers carried increased by 7.1 per cent. to 4.6 million compared to the relevant
period in 2000. As capacity offered grew at a faster rate, the passenger load factor slightly decreased as compared
to the first nine months of 2000. In October and November 2001, Lufthansa CityLine recorded significant
decreases in passenger volume.
    In response to the consequences of the terrorist attacks in the US on 11 September 2001, the decision was
made in cooperation with Lufthansa’s network management to deploy CityLine aircraft for the winter flight
schedule on routes previously served by Lufthansa jets. Additionally, the conclusion of a new pay agreement for
cockpit crews was postponed in the light of the altered economic climate (see ‘‘Recent Developments and
Outlook — Lufthansa negotiates with Unions’’).

Alliances, Participations and Cooperations
    Star Alliance — The Star Alliance is one of the world’s leading international airline alliances, with 15
member airlines. Star Alliance partners currently offer customers a route network with close to 900 airports
worldwide.
     The Star Alliance is not built upon a legal combination of the flight activities of its members but upon a
network of bi- or multi-lateral agreements between individual alliance members. These agreements range from
mutual recognition of frequent flyer programs, code-sharing arrangements and joint operation of certain routes, to
equity participations between member airlines. Important joint flight operations include the following: Lufthansa
and Austrian Airways; Lufthansa, SAS and British Midland; Lufthansa and United Airlines; and Lufthansa and
Singapore Airlines. Typically, these joint flight operations involve the sharing of profits and losses from the
relevant operations between the partners on specified routes. Certain of these cooperation agreements cap the
amount of the loss to be borne by Lufthansa’s partners and limit Lufthansa’s share in any profits from such
operations or specified routes. Thus, any gains or losses generated from the operations or from specified routes
covered by such cooperation agreements will be shared by Lufthansa disproportionately (see ‘‘Risk Factors —
The Lufthansa Group is exposed to risks from its strategic alliances and cooperations’’). Certain of these
agreements entered into by Lufthansa are currently under review by competent anti-trust authorities (see ‘‘—
Legal Proceedings — Anti-Trust Proceedings’’).

                                                                             46
     The alliance offers a wide range of benefits to customers of its member airlines such as coordinated
timetables, short waiting times and efficient transfers often within the same terminal.
     The Star Alliance members recently established a separate legal entity, Star Alliance Service GmbH, which
has about 60 employees. Star Alliance Services GmbH has as its sole object the support of Star Alliance members
in relation to joint marketing, consulting and integration of certain service functions.
     Lufthansa considers its Star alliance membership as one of the key elements to future success, especially in
the market segment for long-haul passenger flights.
     Equity Participations — In December 2000 Lufthansa acquired a 20 per cent. stake in British Midland,
primarily to secure valuable slots at Heathrow airport through its cooperation with British Midland. The other
shareholders of British Midland are SAS, Sir Michael Bishop and other individual shareholders associated with
Sir Michael Bishop or involved in the management of British Midland. Sir Michael Bishop and the other
individual shareholders were granted put options which permit them to put their shares to Lufthansa under certain
circumstances. The exercise of such put options would increase Lufthansa’s stake in British Midland and would
trigger significant put prices to be paid by Lufthansa (see ‘‘Risk Factors — The Lufthansa Group is exposed to
risks from acquisitions’’). Lufthansa has been made aware that put options relating to a 10 per cent. stake in
British Midland may be exercised during the first three months of 2002 and that Lufthansa may be required to
grant a loan of GBP 50m to certain shareholders of British Midland. Repayment of such loan could potentially be
off-set against Lufthansa’s obligation to pay the purchase price upon the further exercise of put options.
     The terrorist attacks in the US on 11 September 2001 and the general slowdown in economic activity
similarly had a significant impact on the business of British Midland. British Midland expects the full impact of
changing market conditions to become apparent in the last three months of 2001, and in anticipation thereof has
introduced measures such as capacity reductions, personnel measures as well as insurance surcharges on tickets.
     On 1 January 2001 Lufthansa acquired a 24.9 per cent. stake in the German airline Eurowings. The seller
and Lufthansa have agreed a call option pursuant to which Lufthansa can acquire an additional 24.1 per cent.
from Winter 2003/2004 and a corresponding put option for the seller. The transaction was approved by the
German Federal Cartel Office (Bundeskartellamt) on 24 September 2001 subject to certain conditions,
particularly relating to slots. In addition, put and call options on further approximately 50.9 per cent. of the shares
have been agreed. However, Lufthansa has the right to determine a third party as purchaser for the remaining
shares. Any such acquisition will be subject to merger control approval. Since March 2001, Lufthansa has
cooperated with Eurowings on German and European flight routes.
     The Lufthansa Group holds a stake of about 21 per cent. in the Italian regional airline Air Dolomiti, listed on
the Milan stock exchange. The company was founded in 1989 and commenced operations in 1991. Air Dolomiti
operates both feeder and point to point flights from Northern Italy. Feeder routes primarily go towards the
Lufthansa hubs in Munich and Frankfurt in order to enable journeys to be continued to a final destination on
flights operated by other carriers, mainly Lufthansa and other members of the Star Alliance.
     Team Lufthansa — Team Lufthansa is a franchise cooperation with the regional carriers Augsburg Airways,
Cimber Air, Cirrus Airlines, Contact Air and Rheintalflug. Team Lufthansa operates point-to-point services
between European regions and feeder flights to Lufthansa’s two hubs at Frankfurt and Munich. In the financial
year 2000 the Team partners carried a total of 2.2 million passengers and operated 40 aircraft. Lufthansa receives
payments for all passengers carried and sets products and safety standards. The concept underlying Team
Lufthansa aims at expanding the Lufthansa route network, especially to smaller destinations. Lufthansa considers
this as an important factor in strengthening its competitive position.
     Cooperation with other Airlines — Lufthansa has also entered into cooperation agreements with a number of
other international airlines outside the Star Alliance network. The level of cooperation varies but typically
involves the offering of code-share flights- mostly in cross-border traffic between Germany and the respective
carrier’s home market. In addition, the cooperation also includes Lufthansa’s Miles & More program for frequent
flyers. Within Europe, Lufthansa cooperates with Adria Airways, Air Baltic, Air One, Croatia Airlines, Czech
Airlines, Luxair, Maersk Air and Spanair. Outside Europe, Lufthansa cooperates with Qatar Airways, South
African Airways and Air China.

                                                          47
Business Segment Logistics — Lufthansa Cargo

     Lufthansa Cargo, a wholly-owned subsidiary of Lufthansa, is responsible for marketing and handling freight
transport. In addition to the capacities of its own fleet of freight aircraft, Lufthansa Cargo utilizes the belly
capacities on passenger aircraft operated by Lufthansa, Lufthansa CityLine and Condor and, more recently, the
Spanish carrier Spanair.

     Lufthansa Cargo currently is among the leading operators in international scheduled cargo traffic. To retain
its position in the world market, Lufthansa Cargo offers additional services to its customers, especially in the
logistics area. As part of that strategy, Lufthansa Cargo has introduced time-definite services, guaranteeing
delivery within specified time-frames. These services comprise special transports, such as perishables, valuable
items, high-quality textiles and hazardous goods.

      Under a new structure, implemented at the beginning of financial year 2001, Lufthansa Cargo’s core
business was divided into three business segments: ‘‘Global Cargo Net’’ brings together the activities in airport-
to-airport business, ‘‘Global Cargo Handling Services’’ unites all ground handling functions, while ‘‘Global
Freighter Operations’’ include the freighter fleet’s commercial flight operations.

    As at 30 September 2001, Lufthansa Cargo had 5,444 employees (calculated as the average for the period
from 1 January 2001 through 30 September 2001).

     The following table shows certain financial information for Lufthansa Cargo for the years 2000 and 1999 as
well as for the first nine months in the financial years 2001 and 2000.
                                                                                                        Jan-Sep 2001      Jan-Sep 2000
                                                                                   2000(1)    1999(1)     (unaudited)       (unaudited)

Cargo/mail (in thousand tons).....................................                  1,802      1,745           1,231             1,327
Cargo load factor (in per cent.) ..................................                  68.2       68.4            61.4              67.5
Revenue(2) (in 4 m) ......................................................        2,563.6    2,081.7           1,776             1,814
Segment Result(3) (in 4 m)...........................................               227.9       54.8               6               155

(1) The metrics regarding cargo/mail and the cargo load factor are unaudited.
(2) Includes revenue with companies of the Lufthansa Group of 4 1m in 2000, 4 1m in 1999, 4 4m in first nine months 2001 and 4 3m in first
    nine months 2000.
(3) Segment results in accordance with IAS 14.

     Lufthansa Cargo’s business, which was already weakened by the decline in the global economy, was
additionally affected by the consequences of the terrorist attacks in the US on 11 September 2001. The
consequences such as the temporary closure of US air space resulted in a drastic decrease of tonnage and sales
volume of 9.4 per cent. and 12.8 per cent. in October 2001 as compared to October 2000, respectively.

     As early as May 2001, Lufthansa Cargo implemented certain measures such as route cuts and a recruitment-
freeze in selected departments in anticipation of an economic downturn. In August 2001, Lufthansa Cargo
implemented further measures including the grounding of 2 B747-200 together with a general recruitment-freeze.
The measures taken are aimed at providing compensation for the dramatic decline in demand (see ‘‘Recent
Developments and Outlook — Dramatic decline in the financial position for the last three months of 2001’’).

Business Segment Maintenance, Repair and Overhaul (MRO) — Lufthansa Technik

     Lufthansa Technik commenced operations as a separate company in 1995 and comprises the aircraft
maintenance and engineering activities of the Lufthansa Group. Lufthansa Technik provides aero engineering
services to the Lufthansa Group and more than 260 other international airlines.

    Lufthansa Technik is one of the leading MRO service providers for commercial aircraft, engines and related
components in the world. Its product portfolio encompasses the entire spectrum of MRO services for modern
commercial aircraft.

                                                                             48
   Lufthansa Technik currently holds 67.3 per cent. of the voting rights in Hawker Pacific Aerospace, a
NASDAQ-listed US-based stock corporation.
     As at 30 September 2001, the Lufthansa Technik Group had 11,151 employees (calculated as the average for
the period from 1 January 2001 through 30 September 2001).
    The following table shows certain financial information for the Lufthansa Technik Group for the years 2000
and 1999 as well as for the first nine months in the financial years 2001 and 2000.
                                                                                                      Jan-Sep 2001     Jan-Sep 2000
                                                                                     2000      1999     (unaudited)      (unaudited)

Revenue(1) (in 4 m) ......................................................        2,264.5   1,819.8         1,971             1,568
Segment Result(2) (in 4 m)...........................................               101.9      41.4           117               (25)

(1) Includes revenue with companies of the Lufthansa Group of 4 1,156m in 2000, 4 947m in 1999, 4 1,010m in first nine months 2001 and
    4 787m in first nine months 2000.
(2) Segment results in accordance with IAS 14.

     MRO operations were not affected as other business segments by the consequences of the terrorist attacks in
the US on 11 September 2001. However, Lufthansa Technik believes that these consequences together with the
general economic downturn may still adversely impact on MRO operations. So far, there have only been isolated
cases of contracts being postponed or cancelled. Nevertheless, Lufthansa Technik has also adopted cost-cutting
programs in anticipation of a possible sharp drop in demand for its services.

Business Segment Catering — LSG Sky Chefs Group
     The catering activities of the Lufthansa Group are operated by the LSG Sky Chefs Group under the LSG Sky
Chefs brand. The LSG Sky Chefs Group is one of the largest in-flight caterers in the world. Lufthansa estimates
that LSG Sky Chefs Group’s share represents one third of the global market for in-flight catering. LSG Sky Chefs
provides in-flight services to more than 260 international airlines. It provides food processing and logistics
services to the airline industry as well as in other areas, such as airport gastronomy, retail stores, party service and
hygienic inspection.
     In 1999, LSG increased its ownership in Onex Food Services, Inc., the parent company of the US-based Sky
Chefs Group, from approximately 25 per cent. to approximately 48 per cent. On 1 June 2001, LSG purchased the
remaining shares in Onex Food Services, Inc. for a purchase price of approximately 4 1.3bn. This purchase price
was fully financed by Lufthansa through shareholder loans. Following the acquisition, the LSG Sky Chefs Group
generated more than 40 per cent. of its airline catering and in-flight services revenues in the Americas (including
Latin America and New Zealand). More than 30 per cent. of these revenues were attributable to Germany, and
approximately 10 per cent. to the rest of Europe/Middle East and Africa. LSG Sky Chefs major customers
include the Lufthansa Group, American Airlines, Delta Airlines, SAS, Northwest, United Airlines and US
Airways.
     The full integration of the US operations into the LSG Sky Chefs Group is currently being implemented. As
reporting, risk and finance management systems are not yet aligned, substantial measures, management efforts
and further funding as well as a number of additional steps are required in order to implement a comprehensive
and efficient management system within the LSG Sky Chefs Group. Any failure or further delay in the
implementation of such systems would materially impair an effective operational, cost, financial and risk
management within the LSG Sky Chefs Group (see ‘‘Risk Factors — The Lufthansa Group is exposed to risks
from acquisitions’’).
     The LSG Sky Chefs Group has expanded its activities in the US into the business field Convenient Meal
Solutions, which provides food products to retail outlets and commercial food service providers. In the recent
past the LSG Sky Chefs Group acquired a considerable number of companies in this sector.
     In November 1998 the LSG Sky Chefs Group entered the motorway service stations business when it
acquired a minority interest in the German formerly state-owned motorway service company Autobahn Tank &
Rast Holding GmbH. Other shareholders include Allianz Capital Partners and Apax.

                                                                             49
     The following table shows certain financial information for the LSG Sky Chefs Group for the years 2000
and 1999 as well as for the first nine months of the financial years 2001 and 2000. The major changes in the
consolidated companies of the LSG Sky Chefs Group, in particular stemming from the acquisition of the US-
based Sky Chefs Group, render any comparison with the previous year’s annual as well as three-quarter figures
meaningless. As of 1 June 2001 the LSG Sky Chefs Group fully owns the Sky Chefs Group, and consequently its
results are consolidated in the Segment Catering of the Lufthansa Group’s financial statements. Prior thereto, the
results of the Sky Chefs Group were accounted for on the basis of equity accounting. In addition, several
Scandinavian entities which commenced operations in 2000 will only be included in the Segment Catering of the
Lufthansa Group’s financial statements for the first time at the end of 2001. Accordingly, these entities have not
been included in the Segment Catering in prior periods including interim periods.
    As at 30 September 2001, the LSG Sky Chefs Group had 39,469 employees. The average number of
employees calculated for the period from 1 January 2001 to 30 September 2001 amounted to 25,162.
                                                                                                        Jan-Sep 2001(1)     Jan-Sep 2000
                                                                                 2000(1)       1999        (unaudited)        (unaudited)

Revenue(2) (in 4 m) ....................................................        1,051.6      948.3               1,612               743
Segment Result(3) (in 4 m) ........................................                38.7       25.0                  (9)               20

(1) These figures may be adjusted for losses of the formerly unconsolidated Scandinavian subsidiaries to the extent no sufficient provisions
    have been established (see ‘‘Risk Factors — The business prospects of the LSG Sky Chefs Group are uncertain’’).
(2) Includes revenue with companies of the Lufthansa Group of 4 408.1m in 2000 and 4 379.9m in 1999, 4 347m in the first nine months
    2001 and 4 304m in the first nine months 2000.
(3) Segment results in accordance with IAS 14.

      Operations of the LSG Sky Chefs Group, and in particular its US operations, are currently not profitable.
The dramatic decline in air traffic and passenger volumes following the terrorist attacks in the US on
11 September 2001, severely curtailed the LSG Sky Chefs Group’s business volume, especially in the US. The
LSG Sky Chefs Group expects the full impact of changing market conditions to become apparent in the last three
months of 2001 and, consequently, expects full year results for 2001 to be substantially below those of the
previous year on a pro forma basis. The LSG Sky Chefs Group has launched a package of measures to mitigate
the consequences of the downturn. Since September 2001 the LSG Sky Chefs Group has dismissed a significant
number of employees across all units in the US. The number of employees in the LSG Sky Chef Group’s catering
facilities in Europe and Asia has either already been reduced or negotiations with staff representatives to effect
reductions have been initiated. These measures are supplemented by cost control programs, a freeze on
investments and further capacity reductions designed to address the declining demand.
     As prescribed by International Accounting Standards (IAS), the preparation of the year-end accounts of the
Lufthansa Group includes an impairment test of the interest in the Sky Chefs Group. Based on the current
difficulties (see ‘‘Risk Factors — The business prospects of the LSG Sky Chefs Group are uncertain’’), Lufthansa
believes that the book value of the Sky Chefs Group is likely to have been sufficiently impaired to result in
significant write-downs. The amount of such write-downs has not yet been determined. In this connection,
Lufthansa has agreed with LSG to forgive a portion of Lufthansa’s shareholder loans to the LSG Sky Chefs
Group. The forgiven portion amounts to 4 500m. The ultimate amounts of the write-downs may differ from the
amount of such loan forgiveness. See ‘‘Risk Factors — The Lufthansa Group is exposed to risks from
acquisitions’’.
     The business of LSG Sky Chefs Group in Scandinavia is effected principally through the Scandinavian
subsidiaries described above whose results have not previously been included in the Segment Catering of the
Lufthansa Group’s financial statements. An analysis of the development of LSG Sky Chefs Group’s business in
Scandinavia has led to the conclusion that, from today’s perspective, catering contracts will lead to losses of
approximately 4 45m on average per year. The catering contracts currently run until 2005 but may be extended at
the customer’s option for periods of two years. LSG Sky Chefs will establish corresponding provisions which
will also have an impact on the results of the Lufthansa Group and the Segment Catering. The LSG Sky Chefs
Group has entered into negotiations with a view to modify the existing catering contracts. The LSG Sky Chefs
Group believes that the breadth of the Lufthansa Group’s commercial relationships with the customer and

                                                                           50
alternative options provide it with a solid basis for such negotiations and that a commercially sound solution will
be agreed.

Business Segment Leisure Travel — Thomas Cook AG
     In 1998, Lufthansa and KarstadtQuelle AG established as joint partners a holding company, C&N Touristic
AG, consisting of Condor Flugdienst GmbH and NUR Touristic GmbH and their respective subsidiaries, to
provide integrated leisure travel and related services. Following the acquisition of the British leisure group,
Thomas Cook plc, in early 2001, C&N Touristic AG was renamed Thomas Cook AG at the end of June 2001.
     In June 2000, C&N Touristic AG acquired the Havas Voyages travel business and thereby established a
significant presence in the French market.
     The Condor holiday carrier is one of the world’s largest charter airlines. In the 2001 summer timetable, the
holiday carrier operated more than 600 weekly flights to 67 destinations.
     As a 50 per cent. shareholder, Lufthansa accounts for its investment in Thomas Cook AG on an equity basis.
The following table shows the segment results for Thomas Cook AG based on its financial years 1998/1999 and
1999/2000 (each running from 1 November through 31 October) as well as for the first nine months of the years
1999/2000 and 2000/2001 (each running from 1 November through 31 July). Since May 2001 the group accounts
of Thomas Cook AG include Thomas Cook plc. Hence, the figures for the first nine months of the year 2001 are
not comparable with the same period of the previous year.
                                                                                                         Jan-Sep 2001      Jan-Sep 2000
                                                                                   2000         1999     (unaudited)(1)    (unaudited)(1)

Segment Result(2) (in 4 m)...........................................              26.7        33.9              (31)                (1)

(1) The figures for the first nine months of the year 2001/2000 are not comparable with the same period of the previous year due to changes
    in the consolidated group.
(2) Segment results in accordance with IAS 14. Lufthansa’s segment result for full financial years relate to full financial years of
    Thomas Cook (running from 1 November through 31 October) and Lufthansa’s segment result for the first nine months of a financial
    year relate to the first nine months of the financial year of Thomas Cook (1 November through 31 July).

     In the wake of the terrorist attacks in the US on 11 September 2001, Thomas Cook has suffered a significant
decline in bookings for upcoming vacation seasons. In order to offset the resulting negative impact, Thomas Cook
launched a program comprising measures such as capacity reductions, staff dismissals and closures of travel
agencies to reduce the impact on profitability.

Business Segment IT Services — Lufthansa Systems
     With the formation of Lufthansa Systems in 1995, Lufthansa’s entire data processing system was spun-off
into a separate company. As from 1 January 2001, the IT Services business segment was restructured and
Lufthansa Systems now serves as holding company for the Lufthansa Systems Group. The Lufthansa Systems
Group offers a broad range of products and services in the business areas airline, aviation and infrastructure.

     As at 30 September 2001, the 6 consolidated companies of the Lufthansa Systems Group had 1,993
employees (average over period from 1 January 2001 through 30 September 2001). The following table shows
certain financial information for the Lufthansa Systems Group for the years 2000 and 1999 as well as for the first
nine months of the financial years 2001 and 2000.
                                                                                                         Jan-Sep 2001      Jan-Sep 2000
                                                                                   2000         1999       (unaudited)       (unaudited)

Revenue(1) (in 4 m) ......................................................        436.2       378.1               339               305
Segment Result(2) (in 4 m)...........................................              24.5         6.1                13                15

(1) Includes revenue with companies of the Lufthansa Group of 4 317.7m in 2000, 4 299.8m in 1999, 4 249m for the first nine months of
    2001 and 4 221m for the first nine months of 2000.
(2) Segment results in accordance with IAS 14.


                                                                             51
      As a result of the general economic downturn and in particular the cost saving measures initiated in the
airline industry and the expected postponement by many customers of new IT projects, Lufthansa expects a
decline in the results for the last three months of 2001 compared to the same period in the prior year.

Service, Financial and Non-Core Companies

     The activities concentrated within the various strategic business segments of the Lufthansa Group are
supported by companies providing financial and other business services. These companies, together with holdings
in companies which are active in fields different from the Lufthansa Group’s core business, are primarily grouped
under Lufthansa Commercial Holding.

      In particular, Lufthansa Commercial Holding, together with Air France and Iberia holds the majority of
shares and voting rights in AMADEUS Global Travel Distribution S.A., the joint venture company which
developed and administers the AMADEUS reservations and data system. The AMADEUS reservation system,
developed in 1987 as a European response to the computer reservation systems introduced by US airlines, allows
terminals and travel agencies linked to the system direct access to airline service information and to make
reservations electronically. One class of the shares (A shares) of AMADEUS Global Travel Distribution S.A. is
listed on the Madrid, Barcelona, Paris and Frankfurt Stock Exchanges. In July 2001, Lufthansa issued 4 250m
2.25 per cent. bonds due 2006, exchangeable into A shares of AMADEUS Global Travel Distribution, S.A.
potentially reducing Lufthansa’s interest in AMADEUS Global Travel Distribution S.A.

     Additionally, Lufthansa Commercial Holding holds interests in certain special purpose companies for asset
finance activities. These include the project companies for the Munich 2 terminal and for certain leasing
activities.

     Lufthansa Commercial Holding also has equity participations in the following companies: START
AMADEUS GmbH, the German national marketing company for the Amadeus reservation system; Loyalty
                      u
Partner Gesellschaft f¨ r Kundenbindungssysteme mbH, operating the ‘‘Payback’’ loyalty program in Germany;
the companies operating the AirPlus charge card activities; and Opodo Ltd., the operating company of the joint
online travel agency activities of the major European airlines. Lufthansa Commercial Holding has agreed to
provide significant additional financing to Opodo Ltd.

     In May 2001, Lufthansa Commercial Holding sold its shares in the wholly-owned subsidiary GlobeGround
GmbH to Penauille Polyservices S.A., France, (Penauille) for an aggregate amount of 4 370m subject to
customary post-closing adjustments. According to the purchase agreement, Lufthansa Commercial Holding sold
and transferred in a first step a 51 per cent. share of GlobeGround GmbH in August 2001. The remaining
49 per cent. share will be transferred to Penauille with legal and economic effect as of 1 July 2002. Prior to the
transfer of the 51 per cent. share in GlobeGround GmbH to Penauille, the ground service business of
                                                               u            u
GlobeGround GmbH in Leipzig, Dresden, Friedrichshafen, M¨ nster-Osnabr¨ ck and Munich has been transferred
to GlobeGround Deutschland GmbH, a company in which Lufthansa Commercial Holding and GlobeGround
GmbH hold a participation of 51 per cent. and 49 per cent., respectively.

     As at December 31, 2000, Lufthansa Cargo holds an equity interest of 25.03 per cent. in DHL International
Ltd., Bermuda which is a global express courier and cargo services provider.

Operating Environment
General

     The business and operations of Lufthansa are subject to the changing economic and political conditions
prevailing from time to time in the Federal Republic of Germany and elsewhere. German labor costs, corporate
taxes and personnel expenses are high and weekly working hours are amongst the shortest compared to the rest of
the EU, the US and Japan. However, in recent years the Federal Republic of Germany has been conscious of its
competitive position and has reacted by reforming its taxes. Further structural reforms involving pensions and
labor law are still outstanding.

                                                       52
International Airline Business

     As an international airline, the revenues of Lufthansa are affected to a considerable extent by general
economic conditions world-wide. Passenger numbers for international scheduled services (without domestic air
transport) grew at an average annual rate of 7 per cent. between 1995 and 20001, as reported by the International
Air Transport Association (IATA). Because of the increase in demand for international scheduled services over
the same period, the existing capacity was utilized to a higher degree. IATA members were able to increase their
passenger load factors on international scheduled services to 72.5 per cent. in 20002.

    A number of factors contributed to this growth, including Gross Domestic Product (GDP) growth, the
growth of international trade, rising personnel income and the declining cost of air travel.

     However towards the end of 2000 and during 2001, even prior to September, airline traffic demand
(passenger and freight) and yields have been adversely affected by the weakening economic performance in
several major markets, including Europe which is of particular importance to the Lufthansa Group. According to
IATA’s monthly international statistics, freight and passenger growth decelerated in the second half of 2000 as
the economic downturn began to take effect with the downward trend continuing through 2001. In the period
January to August 2001, the member carriers of the Association of European Airlines (AEA), reported very weak
scheduled international traffic growth of just 0.6 per cent. year on year3.

     In the past, bilateral air traffic was coordinated to a considerable extent by the International Air Transport
Association (IATA). As discussed under ‘‘Airline Regulation’’ below, this association provides a framework
within which its member airlines agree on standards for the industry and on levels of and within certain
parameters, conditions of fares. The tariff coordinating function of IATA has been approved within certain limits
by the competition authorities of both the EU and the US. Originally, this voluntary framework was strictly
adhered to but in view of the increasingly liberal attitude of governments towards competition, the influence of
IATA in the field of tariff coordination has decreased markedly in recent years. Lufthansa remains, however, a
member of IATA and of its tariff coordinating committee.

Terrorist attacks in the US on 11 September 2001

     As well as being impacted by trends in the underlying economic performance of major markets, the airline
industry is subject to the impact of sudden exogenous shocks. There have been in the past a number of occasions
when sudden economic or political shocks have had a significant impact on demand and yields for passenger and
freight traffic in air transportation. One such event was the impact of the Gulf War in 1990 and 1991, although
growth in the demand for air transportation, in particular of international scheduled services, recovered quickly in
1992 and following an improved outlook for major economies at the time. The terrorist attacks in the US on
11 September 2001 have had a significant negative impact on air transportation demand in all markets and for
many airlines world-wide, but in particular on the US domestic, transatlantic and Middle Eastern markets.

      This sudden impact of falling demand has also resulted in a decrease in the passenger load factors of most
airlines on international and domestic flights, particularly as the nature of the airline business is such that airline’s
operations are highly leveraged.

     In response to the terrorist attacks in the US on 11 September 2001 many airlines have announced
substantial reductions in their fleet capacity, employees and capital expenditure programs. These measures are
aimed at restoring capacity utilisation and of limiting the impact on airlines’ overall profitability. Given the
unprecedented nature of the attacks and of the impact of this exogenous shock on the airline industry it is difficult
to predict their longer terms consequences on demand for air transportation services and on the future levels of
profitability of airlines.

1   IATA World Air Transport Statistics 2001 edition page 19.
2   IATA World Air Transport Statistics 2001 edition page 19.
3   AEA Traffic Update August 2001.


                                                                53
European Market
      In recent years, most European countries’ economies have experienced a significant weakness in growth,
which was partly reflected in the intra-European air transport market. For the year 2000 as a whole the member
airlines of the Association of European Airlines (AEA) were able to increase their revenue passenger kilometers
(RPKs) on intra-European routes by 9.1 per cent.4 On the other hand, evidence of a weakening of the intra-
European market was beginning to emerge during the second half of 2001 and prior to 11 September 2001, with
monthly year on year passenger traffic growth (RPKs) slowing down. The impact of the terrorist attacks in the US
on 11 September 2001 has been significant with revenue passenger kilometers (RPKs) reported by AEA carriers
falling by 13.4 and 14.7 per cent. in October and November 2001 on these routes5.
     The ‘‘no-frills’’ or low cost airline segment has however continued to grow strongly as new market
participants have emerged with favorable unit cost positions and aggressive price strategies on selected routes.
The impact of the terrorist attacks in the US on 11 September 2001 has been less severe for these types of airlines
operating on intra-European routes than on more traditional full service airlines.
    Due to increasing competition, the pressure on air fares within Europe will continue. The EU liberalization
package offers a wide range of possibilities for airlines to compete. The major airlines have tried to access third-
country markets by acquisition or cooperation with other airlines. At the same time the new low cost airlines have
opened up new routes to non-hub destinations, or as previously mentioned have competed on selected routes with
major carriers.
     The level of competition varies between routes. Many routes to commercial centers, catering in particular for
business travelers, tend to attract more competition from major airlines offering a range of on-board services and
airport facilities such as business lounges.

German Market
     The Federal Republic of Germany is Lufthansa’s major market. The German economy is presently on the
brink of a recession. The cyclical downswing started in mid 2000, and the direct and indirect effects of the
terrorist attacks in the US on 11 September 2001 have put an additional strain on the economy. In 2001,
according to the Organisation for Economic Co-operation and Development (OECD), gross domestic product
may only rise by 0.7 per cent.6 OECD expects that the economy will begin to recover in 2002.
     On domestic routes, the number of Lufthansa passengers rose in 2000 by 6.1 per cent. However, competition
within Germany is increasing with new market participants such as Ryanair, who has announced in November
2001 that Frankfurt Hahn Airport will become its second Continental European base. In addition, further
expansion of routes served by high-speed trains (e.g. ICE, TGV) may result in a more difficult competitive
environment, in particular for domestic or short-haul intra-European flights. As a result, future increases in
passenger traffic in this segment may only be achieved through the application of significant price reductions.

North American Market
     In recent years the domestic air transportation market in the US has shown a tendency towards saturation.
However, on North Atlantic routes, which are of particular relevance to the Lufthansa Group, significant growth
was achieved in the full year 2000. In 2000, the AEA airlines increased their traffic on North Atlantic routes, as
measured by revenue passenger kilometers (RPKs) by 7.9 per cent. At the same time they were able to achieve a
passenger load factor of 77.8 per cent., an increase of 2.0 percentage points over the previous year7.
     However, as economic growth in the relevant major markets (United States and Europe) has weakened, and
with an actual decline in US’ GDP being recorded in the third quarter of 2001, demand on the North Atlantic
routes has weakened significantly, even prior to the impact of the terrorist attacks in the US on 11 September

4   AEA Yearbook 2001 page I-6.
5   AEA Traffic Update October 2001 and AEA Traffic Update November 2001.
6   OECD Economic Outlook — Preliminary Edition to No. 70, November 2001 (Country Summary on Germany).
7   AEA Yearbook 2001 page I-8.


                                                           54
2001. The AEA reported that the North Atlantic market slowed towards the end of 2000 and shifted into actual
decline in February-April of 20018. In the accumulated period between January and August 2001, revenue
passenger kilometers (RPKs) declined by 2 per cent.9 At the same time capacity (Available Seat Kilometres,
ASKs) increased by 1.4 per cent., leading to an overall decline in passenger load factor of 2.7 percentage points
to 76.6 per cent.10
     The terrorist attacks in the US on 11 September 2001 have worsened the situation. The North Atlantic routes
have been more significantly impacted than other markets in which the European airlines operate (e.g. intra-
Europe, Far East). In the months of October and November 2001, passenger traffic (RPKs) on North Atlantic
routes as reported by AEA carriers declined by 33.5 per cent. and 31.5 per cent. year on year, with corresponding
significant declines in passenger load factors11.
     The decline in traffic volumes and a highly competitive marketplace has also seen significant pressure on
yields. These were already declining with the onset of weakness in the major economies during 2000.

Other Markets
      The Asia/Pacific region represents an important market for the Lufthansa Group and other major European
airlines. In 2000 it accounted for 17.7 per cent. of the traffic (in RPKs) of AEA member airlines12. However,
following the economic crisis in 1998 the market has been less vigorous than it was in the early to mid-1990s,
with growth rates on routes between Europe and the Asia-Pacific region slowing considerably between 1998 and
2000. In early 2001 the market to this region began to deteriorate with monthly year on year declines in traffic
being reported by AEA carriers on these routes from February right through to August13.
      On the other hand, in 2000 and in the period January to August 2001, AEA members were able to increase
their load factors on Asia/Pacific routes by controlling the rate of capacity (in ASKs) increase against passenger
traffic (in RPKs), resulting in a passenger load factor of 78.6 per cent. for the period January to August 200114.
As a result of the impact of the terrorist attacks in the US on 11 September 2001 the load factor fell, although the
rate of traffic decline on these routes had been lower than on the North Atlantic routes (a decline of 20.3 per cent.
year on year versus a decline of 31.5 per cent. for the North Atlantic in the month of November15).
      On South American routes, AEA members increased their revenue passenger kilometers (RPKs) by just over
13 per cent. in 2000, a significant growth rate16. At the same time utilization of seats improved. The strong growth
rate recorded during 2000 began to decline in the first few months of 2001 (January to April)17, and as with other
international markets to/from Europe, declines in traffic were being reported on South Atlantic routes in the few
months preceding the terrorist attacks in the US on 11 September 200118. As a consequence of those attacks and
of the weakening economic outlook, traffic reported by the AEA carriers declined further in October and
November 2001, but by a much lower rate than reported for the North Atlantic (a decline of 15.5 per cent. and
13.0 per cent. respectively19). The recent economic crisis in Argentina may have a further impact on the outlook
for traffic on the South Atlantic routes.
      In Middle East markets, political instability and conflict has not yet enabled lasting peace or stability and
this has in recent years impacted on the economic situation. Nevertheless the AEA members were able to increase
their traffic (RPKs) and load factors to the North African and Middle Eastern markets significantly in 2000, with

8    AEA   Yearbook 2001 page I-8.
9    AEA   Traffic Update August 2001.
10   AEA   Traffic Update August 2001.
11   AEA   Traffic Update October 2001 and AEA Traffic Update November 2001.
12   AEA   Yearbook 2001 page I-9.
13   AEA   Traffic Updates February 2001 to August 2001.
14   AEA   Traffic Update August 2001.
15   AEA   Traffic Update November 2001.
16   AEA   Yearbook 2001 page I-5.
17   AEA   Traffic Updates January to April 2001.
18   AEA   Traffic Updates July and August 2001.
19   AEA   Traffic Update October 2001 and AEA Traffic Update November 2001.


                                                             55
double digit traffic growth being recorded20. From February 2001, the rate of traffic growth to these markets
declined and in some months prior to September actually declined year on year. The impact of the terrorist
attacks in the US on 11 September 2001 has been to cause a significant decline in traffic (a decline of 28.1 per
cent. year on year for November 200121) and passenger load factors, as a result of heightened security issues and
political instability.

Fleet and Capital Expenditure

     Lufthansa acquires aircraft both through lease agreements and by outright purchase. As at 30
September 2001, Lufthansa’s fleet comprised 58 leased aircraft (operating leases and finance leases) and 282
purchased aircraft. Based on Lufthansa’s long-standing policy of continuous fleet modernization its aircraft fleet
is one of the youngest among major airlines.

     Lufthansa benefits from certain cost savings stemming from lower operating costs resulting from the low
average age of its fleet. Overall, less maintenance is required and fuel consumption can be significantly lower
than that of older aircraft. In addition, more modern aircraft typically produce significantly lower levels of noise
and exhaust pollutants.

Owned Aircraft

     As at 30 September 2001 the Lufthansa Group legally and beneficially owned the following aircraft
(including 10 aircraft under hire purchase agreements for which the transfer of title to the Lufthansa Group is
subject to the full payment of the purchase price):
                                                                                                                                          Number
Type of Aircraft*                                                                                                        Operator        of aircraft

Airbus A300-600................................................................................................              Lufthansa       12
Airbus A310-300................................................................................................              Lufthansa        5
Airbus A319-100................................................................................................              Lufthansa       20
Airbus A320-200................................................................................................              Lufthansa       36
Airbus A321-100................................................................................................              Lufthansa       18
Airbus A321-200................................................................................................              Lufthansa        6
Airbus A340-200................................................................................................              Lufthansa        4
Airbus A340-300................................................................................................              Lufthansa       20
Boeing 737-300..................................................................................................             Lufthansa       41
Boeing 737-500..................................................................................................             Lufthansa       30
Boeing 747-200..................................................................................................             Lufthansa        8
Boeing 747-200F................................................................................................       Lufthansa Cargo         3
Boeing 747-200SF .............................................................................................        Lufthansa Cargo         1
Boeing MD-11F .................................................................................................       Lufthansa Cargo        13
Boeing 747-400..................................................................................................             Lufthansa       26
AVRO RJ85........................................................................................................   Lufthansa CityLine        8
Bombardier CRJ-100LR/-200LR.......................................................................                  Lufthansa CityLine       19
Bombardier CRJ-700 .........................................................................................        Lufthansa CityLine        3
Total for Lufthansa, Lufthansa Cargo and Lufthansa CityLine.......................                                                          273

* 9 subleased Fokker 50 aircraft (owner Lufthansa CityLine) are not included as the table shows jet aircraft only.


Aircraft Leasing

       The Lufthansa Group has entered into both finance and operating lease agreements for a number of aircraft.

20   AEA Traffic Update December 2000.
21   AEA Traffic Update November 2001.


                                                                                56
     In the case of finance leases, the relevant company in the Lufthansa Group — as the lessee of the aircraft —
pays lease installments, which together with the stipulated termination value at the end of the term, amortize the
purchase cost of the aircraft to the lessor over the term agreed and also give the lessor an acceptable return on his
investment. As regards the treatment of finance leases under German GAAP, beneficial ownership of the leased
asset is generally assigned to the lessor, as long as the terms and conditions of the lease agreement are consistent
with applicable German tax regulations. Similarly, under IAS 17 leases are qualified as finance leases, if the
lessee substantially bears all risks and is entitled to all rewards in relation to the aircraft. In contrast to German
GAAP, IAS 17 further provides that aircraft subject to finance leases are assigned to the lessee. Consequently, the
aircraft subject to finance leases described below are included as beneficially owned in Lufthansa Group’s
balance sheet.
     In the case of operating leases, the lessee must pay a fixed rental and is responsible for the risk inherent in
the operation of the aircraft during the term of the agreement. In turn, the lessor bears the risk of realizing the
aircraft’s residual value at the end of the agreed term of the lease and is entitled to all rewards in relation to the
aircraft. Under both German GAAP and IAS 17, legal and beneficial ownership of aircraft subject to operating
leases lies with the lessor. See ‘‘Summary of Certain Significant Differences between German Generally
Accepted Accounting Principles and International Accounting Standards’’.
       The table below sets forth details of the lease agreements of the Lufthansa Group as at 30 September 2001:
                                                                                                                       Finance   Operating
Type of Aircraft*                                                                                      Operator        Leasing    Leasing

Airbus A340-200 .............................................................................              Lufthansa      2         —
Airbus A340-300 .............................................................................              Lufthansa      6         —
Airbus A300-600 .............................................................................              Lufthansa     —           2
Airbus A321-100 .............................................................................              Lufthansa      2         —
Boeing 737-300 ...............................................................................             Lufthansa     —           2
Boeing 747-200SF...........................................................................         Lufthansa Cargo       2         —
Boeing 747-200F .............................................................................       Lufthansa Cargo       2         —
Boeing MD-11F...............................................................................        Lufthansa Cargo       1         —
Boeing 747-400 ...............................................................................             Lufthansa      2         —
Bombardier CRJ-100LR/-200LR ....................................................                  Lufthansa CityLine     24         —
Bombardier CRJ-700.......................................................................         Lufthansa CityLine      1         —
AVRO RJ85 .....................................................................................   Lufthansa CityLine      7          3
Total for Lufthansa, Lufthansa Cargo and Lufthansa CityLine ....                                                         49          7

* 2 subleased Fokker 50 aircraft (owner Lufthansa CityLine) are not included as the table shows jet aircraft only.

      Irrespective of whether the leases of the Lufthansa Group are finance leases or operating leases, the lease
agreements provide that the lessee (i.e. Lufthansa or the other operators within the Lufthansa Group) must
provide adequate insurance cover for the operation of the aircraft. Generally, any failure to provide such
insurance cover results in an event of default under the relevant leasing and financing agreements leading to the
possible consequence that the lessee is inhibited from further operating the aircraft. Following the terrorist attacks
in the US on 11 September 2001, aircraft insurers terminated third-party and hull insurance contracts covering
losses from war and other hostilities. Currently, such risks are covered by new insurance taken out by the
Lufthansa Group (however, at lower cover levels) and a guarantee issued by the Federal Republic of Germany
(see ‘‘— Insurance Cover’’). The loss of this insurance cover would have constituted an event of default under the
leasing arrangements of the Lufthansa Group. Any unavailability of adequate insurance in the future will inhibit
the Lufthansa Group from making use of its aircraft subject to leasing arrangements. This would materially and
adversely affect the Lufthansa Group. See ‘‘Risk Factors — Insurance costs have increased significantly and the
insurance market may face further disruptions’’.




                                                                               57
Aircraft Delivery and Acquisitions
    During the last three months of 2001, the Lufthansa Group took delivery of 2 Airbus A340-300, 1 Boeing
B747-400 and 2 Bombardier CRJ-700. In addition, Lufthansa purchased 1 Airbus A300-600, the operating lease
of which expired in December 2001. During 2002 the Lufthansa Group expects to take delivery of 1 Boeing
B747-400 and 7 Bombardier CRJ-700.
     Moreover, the Lufthansa Group is committed to purchasing a further 4 Airbus A340-300 (for delivery during
fourth quarter 2003 and first quarter 2004), 10 Airbus A340-600 (2003 — 2004), 1 Airbus A300-600R (first
quarter 2003), 7 Bombardier CRJ-700 (2003) and 60 Fairchild Dornier FD728 for delivery in the years 2003 to
2006. In addition, Lufthansa is committed to purchasing 11 Bombardier CRJ-200 (2002-2004) which are
intended to be leased to Eurowings.
     In December 2001, Lufthansa ordered additional aircraft (see ‘‘Recent Developments and Outlook —
Aircraft Orders’’).

Aircraft Options
     The Lufthansa Group also has options to purchase additional aircraft, including 37 Airbus A319/A320/
A321, 16 Airbus A340, 15 Bombardier CRJ-200, 10 Bombardier CRJ-700 and 60 Fairchild Dornier FD728
covering prospective requirements up to the year 2010. No firm decision has been made yet as to whether any of
these options will be exercised. The acquisition of option aircraft and the resulting financial obligations will
depend on actual requirements of the Lufthansa Group from time to time.

Capacity Adjustments
     In response to the falling demand for both passenger and freight services, Lufthansa decided in the summer
of 2001 to reduce selected capacities and to decommission certain aircraft. Following the terrorist attacks in the
US on 11 September 2001 Lufthansa decided to ground further aircraft. As a result, in the winter flight schedule,
Lufthansa has reduced its capacity by an amount equivalent to the capacity of up to 43 aircraft.

Used Aircraft Sales and Leasing
     As a result of its current overcapacity, the Lufthansa Group is in the process of disposing of those aircraft no
longer required for current operations. In this context, Lufthansa has contracted to sell 7 Boeing B737-300s at
prices above book value: 3 were delivered in 2001, while the remaining 4 will be delivered in the first half of
2002. Further, Lufthansa has contracted to sell 3 Boeing B747-200 in the beginning of 2002. These planes will be
sold to Lufthansa Technik which will use them as a source of spare and replacement parts. Apart from outright
sales, Lufthansa also seeks to lease some of its aircraft currently not in use.

Insurance Cover
     The Lufthansa Group as the owner and operator of aircraft is insured against third party losses caused by
aircraft operations as this is a requirement under the laws of most jurisdictions where the Lufthansa Group
operates. In addition, the aircraft operated by the Lufthansa Group have hull insurance cover. Both kinds of
insurance typically cover all risks to which the operation of an aircraft is exposed (such as malfunction but
excluding wear and tear, human failure, war and other hostilities etc.). Following the terrorist attacks in the US on
11 September 2001, insurance companies have terminated insurance cover for certain risks relating to war and
other hostilities which were previously covered. In addition, the insurance companies require significantly higher
premiums for reinstatements despite the significantly lower levels of cover. As a result, cover levels for third-
party losses resulting from war and other hostilities are now significantly lower and the insurance costs to the
Lufthansa Group have significantly increased.
     Third party losses — Whereas the Lufthansa Group typically insured third-party losses arising from war and
other hostilities for up to US$ 2bn per incident, to the knowledge of Lufthansa no such cover is presently
available in the market. The Lufthansa Group currently insures these risks for only up to US$ 50m per incident
and for claims in any one year not exceeding US$ 50m in aggregate. Despite this lower cover, Lufthansa Group’s

                                                         58
insurance costs for third party losses have increased significantly. Whereas previously the overall annual costs
amounted to about US$ 20m (including risk from war and other hostilities), these costs now amount to
approximately US$ 30m (excluding cover for third party losses from war and other hostilities). In addition, the
cover for third party losses from war and other hostilities amounting to up to US$ 50m costs US$ 1.25 per flight
per passenger (with round-trips counting as two flights). Given the current passenger data, Lufthansa estimates
that this will result in additional insurance costs of US$ 75m each year. Hence, given current estimates, annual
insurance costs for third party losses will increase from US$ 20m to US$ 105m, representing a more than five-
fold increase.
     The gap between insurance cover for third-party losses resulting from war and other hostilities amounting to
up to US$ 50m and the previously available cover of up to US$ 2bn is currently covered by a guarantee from the
Federal Republic of Germany, subject, however, to an overall cap of US$ 20bn. Although the guarantee’s
duration is currently limited to 31 January 2002, the German government has already publicly indicated that it
plans to extend its term to 31 March 2002. The Federal Republic of Germany has informed German airline
operators that it will charge US$ 1 per flight per passenger for the first four weeks of the guarantee period and
US$ 1.10 per flight per passenger thereafter. Assuming a guarantee period to 31 March 2002 and based upon
current passenger data, Lufthansa estimates that this will result in additional costs of around US$ 23m. Pending
the outcome of negotiations between EU governments, these amounts are currently not charged by the Federal
Republic of Germany.
     Given the limited duration of government guarantees, the future availability of insurance cover on financially
acceptable terms for third party losses resulting from war and other hostilities is currently under negotiation
between airline and insurance industry representatives. The outcome of these negotiations cannot be predicted.
The cost for insuring third-party losses resulting from war and other hostilities for up to US$ 1bn, the highest
cover that Lufthansa is aware of in the market, amounts to US$ 3.10 per flight per passenger. Any such increase
or any other further increase of insurance costs for the Lufthansa Group following the expiry of the Federal
Republic of Germany’s guarantee, would expose the Lufthansa Group to significant risks. See ‘‘Risk Factors —
Insurance costs have increased significantly and the insurance market may face further disruption’’.
     Hull Insurance — Following the terrorist attacks in the US on 11 September 2001, costs for hull war risks
insurance have also increased significantly. Whereas prior to the terrorist attacks the Lufthansa Group paid about
US$ 1.3m annually for hull war risks insurance, it now pays around US$ 19m annually. The risk of country of
registration confiscation has been re-insured until 31 January 2002.

Risk Management Policy
     The Lufthansa Group’s risk management system is based on a structured risk map designed to identify all
relevant risks to which the business operations of the Lufthansa Group may be exposed and an early warning
system for detecting the occurrence of such risks. This risk management system does not run on separate software
platform, but is implemented on the basis of designated risk officers with pre-defined reporting lines. The
Lufthansa Group’s internal auditing department as well as its statutory auditors regularly audit the suitability and
effectiveness of these instruments, the effectiveness of which is reconsidered by Lufthansa from time to time.

Foreign Exchange Rate and Interest Rate Hedging
     As a result of its international business activities, the Lufthansa Group is exposed to fluctuations in the
exchange rates between foreign currencies and the euro and to fluctuations in interest rates on the international
markets. The Lufthansa Group is in a net payer position with respect to the US dollar, in particular due to
investments in aircraft and expenses for aircraft fuel. In addition, given the need to finance its aircraft and other
investments, the Lufthansa Group is subject to interest rate risks. In order to limit the exchange rate and interest
rate related risks, Lufthansa enters into respective hedging transactions, including the use of derivative
instruments.
    As at 30 November 2001, the nominal volume of exchange rate hedges amounted to approximately 4 3.2bn.
The major part of this volume served to hedge fixed contractual obligations for capital expenditures denominated
in US dollars; the remainder relates to contemplated future net cashflows from sales in other currencies. The

                                                        59
nominal volume of interest rate hedges as at 30 November 2001 amounted to approximately 4 55m, which is
designed to hedge interest expenses from financing transactions.
     The guidelines for the hedging of exchange rate and interest rate risks are stipulated in an internal Lufthansa
directive from December 1994, which was most recently updated in February 2001. The guidelines were prepared
in coordination with the external auditors, the internal audit department and were also submitted to the
Supervisory Board for information.
     As hedging transactions involve certain risks, there can be no assurance that Lufthansa’s currency exchange
and interest rate hedging transactions will not negatively affect the results of the Lufthansa Group (see ‘‘Risk
Factors — Foreign Exchange Rate Fluctuations’’).

Fuel Price Hedging
     Since expenses for aircraft fuel (without results from hedging transactions) amounted to approximately 12
per cent. of the operating costs of the Lufthansa Group for the year ended 31 December 2000, significant
increases in aircraft fuel costs have an adverse effect on the results of operation and financial position of the
Lufthansa Group. Even though the aircraft fuel price exposure of the Lufthansa Group is reduced by the fact that
it benefits from having one of the youngest and, therefore, most fuel-efficient fleets of all the major airlines, its
exposure to aircraft fuel price fluctuations is still significant.
     The hedging policy of the Lufthansa Group with regard to aircraft fuel price fluctuations is set by
Lufthansa’s Executive Board and detailed guidelines are determined by a price-hedging committee which gives
guidance to the traders responsible for undertaking hedging transactions. The traders then provide monthly
reports to the price-hedging committee.
     The exposure of the Lufthansa Group to adverse movements in aircraft fuel prices is managed by the use of
various hedging instruments in respect of the price of crude oil, gas oil and kerosene. The policy of the Lufthansa
Group is to hedge up to 90 per cent. of future aircraft fuel consumption costs on a revolving basis.
     As hedging transactions involve certain risks, there can be no assurance that Lufthansa’s fuel price hedging
transactions will not negatively affect the results of the Lufthansa Group (see ‘‘Risk Factors — Aircraft Fuel Price
Fluctuations’’).

Airline Regulation
The Aviation Compliance Documenting Act
     The Aviation Compliance Documenting Act (Luftverkehrsnachweissicherungsgesetz) became effective in
1997. The purpose of the Act is the fulfillment at all times by German air carriers listed on a stock exchange of
certain requirements relating to their ownership and control situation. These requirements concern the air carrier’s
operating license and other air traffic rights which the air carrier exercises (together, the ‘‘air traffic position’’).
The requirements are based on European law as well as bilateral air traffic agreements to which the Federal
Republic of Germany is a party.
     The granting and maintenance of an air traffic operating license is dependent on certain ownership and
effective control requirements which are set out in Council Regulation (EC) No. 2407/92 dated 23 July 1992.
Article 4, para. 2 of Regulation 2407/92 provides that an air carrier must be owned and continue to be owned
directly or through majority ownership by EU member states and/or nationals of member states. The air carrier
must at all times be effectively controlled by such member states or such nationals. Further, Article 4, para. 4
provides that any entity which directly or indirectly participates in the controlling shareholding of an air carrier
must meet the requirements set out in Article 4, para. 2. Article 4, para. 5, provides that the air carrier must at all
times be able to demonstrate to the member state responsible for the operating license that it meets these
requirements.
     The regulations of the Federal Republic of Germany contain similar requirements such as the provisions of
Section 20 of the Air Traffic Act (Luftverkehrsgesetz) for the granting of an operating license, as well as the

                                                          60
requirements under licenses for scheduled routes granted under Section 21 of the Air Traffic Act and other
concessions.
     Certain other important air traffic rights are granted between states by way of bilateral treaties. These traffic
rights are then passed on to national air carriers by way of designation (Bezeichnung). The Federal Republic of
Germany has entered into more than 120 bilateral air traffic agreements. These bilateral agreements typically
provide that the air carriers designated by a contracting party must at all times be able to prove, upon the other
party’s request, that substantial ownership (which normally is understood to mean majority ownership) and
effective control is vested in nationals of the contracting party. Only a few air traffic treaties do not contain this
nationality requirement, or refer to EU nationality in place of German nationality to the extent that air carriers
designated by the Federal Republic of Germany are concerned. The requirements set out in the treaties largely
correspond to the requirements as to ownership and control contained in Regulation 2407/92. If the airline cannot
prove that it fulfils these requirements, the contracting state may deny the airline the exercise of the traffic rights
granted under the relevant treaty.
      Accordingly, a German air carrier must be owned and controlled by EU nationals in order to maintain its
operating license under Regulation 2407/92, and by German nationals in order to maintain its traffic rights under
most of the bilateral air traffic agreements. It must further at all times be able to evidence its ownership and
control situation. The respective air carrier must therefore have knowledge of its shareholders and of their
nationality. Further, the air carrier must be able to protect its operating license and the air traffic rights, both of
which are essential for the continuation of its business operations. For these reasons, the Aviation Compliance
Documenting Act enables German air carriers to gain a considerable degree of knowledge of the nationality and
citizenship of their shareholders. Various measures and intervention rights allow the air carrier to influence its
shareholder base to safeguard the maintenance of the operating license and the air traffic rights.
     The Aviation Compliance Documenting Act provides that the shares of Lufthansa are converted by operation
of law into restricted registered shares in respect of which the transfer is subject to the consent of Lufthansa’s
Executive Board (vinkulierte Namensaktien). The owners of the restricted registered shares and their nationality
are registered in the share register of Lufthansa. The citizenship of natural persons is registered; for legal persons
or other entities, the register indicates their nationality as indicated by their domicile (corporate seat). Persons
holding alone, or together with others, 5 per cent. or more of the voting rights in Lufthansa must notify Lufthansa
whether they are subject to direct or indirect non-German majority ownership or control, and, if so, the identity of
the relevant owner.
     Pursuant to Section 5 of Lufthansa’s Articles of Association, the consent of the Executive Board to the
transfer of shares may only be withheld if registration could endanger Lufthansa’s air traffic position.
     If 40 per cent. of the voting rights are held by shareholders whose shareholding might endanger the
maintenance of Lufthansa’s air traffic position, Lufthansa may, subject to the availability of funds which may be
used for such purpose, acquire its own shares. However, Lufthansa may not hold more than 10 per cent. of its
registered share capital.
      If 45 per cent. of the voting rights, or a controlling shareholding as defined in Section 17 of the German
Stock Corporation Act (Aktiengesetz), are vested in shareholders whose shareholding might endanger the
maintenance of Lufthansa’s air traffic position, Lufthansa’s Executive Board, if so authorized by the shareholders
meeting, may issue new shares for cash consideration and may exclude the pre-emptive rights of the existing
shareholders over the newly issued shares. In this context, the Lufthansa’s shareholders’ meeting has resolved
that the Executive Board is authorized to issue new Shares up to 10 per cent. of its registered share capital. See
‘‘Description of Share Capital — Share Capital — Capital Measures in relation to the Aviation Compliance
Documenting Act’’.
     Finally, Section 5 of the Aviation Compliance Documenting Act provides that if the majority of the voting
rights, or a controlling shareholding as defined in Section 17 of the Stock Corporation Act is vested in
shareholders whose shareholding might endanger the maintenance of Lufthansa’s air traffic position, Lufthansa
may request the relevant shareholders to dispose of their Shares within a time period of no less than four weeks,
and to evidence such disposal to Lufthansa without undue delay. Such request is to be addressed primarily to

                                                         61
non-Germans and in the reverse order of the relevant dates of the acquisitions of the Shares. If the request for
disposal is not complied with, the Executive Board may declare the Shares held by the relevant shareholders as
forfeited, with the effect that the shareholders concerned lose ownership of the Shares. Ownership of the Shares
will then automatically be transferred to the Federal Republic of Germany or a specifically appointed
governmental agency. The shareholders concerned must be compensated for the loss of ownership in an amount
corresponding to the higher of two stock exchange quotations, namely the last stock exchange quotation officially
determined on the day immediately preceding the request for the disposal of the Shares and the last stock
exchange quotation officially determined on the day immediately preceding the expiration of the grace period of
the disposal of the Shares. As regards the stock exchanges where the shares are listed, the quotation at the stock
exchange with the highest trading volume in the shares will be relevant. Costs of the transfer will be deducted
from the compensation to be paid to the shareholder.
    A grandfathering clause exempts those shareholders from the disposal obligation who were shareholders
when the Aviation Compliance Documenting Act came into force.
     In the course of the legislative process, the Aviation Compliance Documenting Act’s compliance with
German constitutional and European law has been confirmed. Lufthansa is not aware of any pending or
threatened administrative or judicial proceedings concerning the validity of the Aviation Compliance
Documenting Act, in particular its compliance with superseding law.

The International Regulatory Framework — The ‘‘Chicago System’’
     The regulatory system for international air transport is based upon principles established by the Chicago
Convention of 1944. The Chicago Convention, which, to date, has been signed by nearly two hundred sovereign
states, lays down the general principle that each state has sovereignty over its airspace and therefore should have
the right to control the operation of scheduled international air services over or into its territory. As a result,
international air transport is based on traffic rights issued by individual states. This framework is referred to as the
‘‘Chicago System’’.
     In recognition of each state’s sovereignty over its airspace, the Chicago System allows states to impose a
highly restrictive operating environment on airlines. As a result, Lufthansa’s ability to expand and compete in
several markets is significantly constrained by regulatory restraints. However, Lufthansa’s most important
markets, the EU market and EU-US air traffic have been substantially liberalized (see — ‘‘Open Sky Agreements
and CEAA’’ and — ‘‘EU Regulatory Framework — Air traffic’’).
      Under the Chicago System, traffic rights are issued either between states which then transfer the rights on to
air carriers, or from states directly to carriers. Between states, traffic rights are exchanged by way of bilateral or
multilateral air traffic agreements. For example, the Federal Republic of Germany has entered into more than 120
bilateral air traffic agreements with other states (see — ‘‘The International Regulatory Framework — Bilateral
Agreements’’).
     The most important multilateral air traffic agreements are the International Air Transport Agreement of 1944
(the ‘‘Five Freedoms Agreement’’) and the International Air Services Transit Agreement of 1944 (the ‘‘Transit
Agreement’’). The Transit Agreement was signed by over one hundred sovereign states. It grants carriers based in
contracting states general rights for scheduled flights over the territories of other contracting states and to land in
such territories for non-commercial purposes. Such rights, however, may only be exercised between signatory
states. The International Air Transport Agreement was signed by few states only and still remains ineffective. The
Federal Republic of Germany became a member to the Chicago Convention and the Transit Agreement in 1956,
but is not a signatory to the International Air Transport Agreement.
     The Chicago Convention has directly liberalized air traffic to a very limited extent, namely for non-
scheduled flights (including cargo) over and landings in the territories of signatory states. Non-scheduled
commercial flights are subject to restrictions imposed by individual states. Traffic rights for non-scheduled flights
are normally obtained by the airline carriers themselves. Only very few bilateral air traffic agreements to which
the Federal Republic of Germany is a party, including the US/German air traffic agreement, cover non-scheduled
services.

                                                          62
     The Chicago Convention also established the International Civil Aviation Organisation (ICAO) which
operates as a specialized agency of the United Nations. ICAO has developed standards and recommended
practices for a wide range of activities such as aircraft operations, personnel licensing, security, accident
investigation, navigation services, airport design and operation and environmental protection. Nearly 200
countries are members of ICAO, including the Federal Republic of Germany, which has adopted the majority of
the standards and practices recommended by ICAO.

The International Regulatory Framework — Bilateral Agreements
     The Federal Republic of Germany is currently party to bilateral agreements concerning air traffic with more
than 120 countries. The agreements usually govern the designation of airlines and airports for the operation of
specified routes, the capacity offered by such airlines and procedures for the agreement of tariffs. They typically
give the designated airlines the right to operate scheduled services (passengers, mail and cargo) on certain routes
between the contracting states. Most of the bilateral agreements require airlines to demonstrate that they are
owned and controlled by nationals of the contracting state.
     Many bilateral agreements further require airlines to co-ordinate tariffs before seeking approvals by the
governments concerned. The International Air Transport Association (IATA) provides a forum for the
coordination of tariffs on international routes and for international liaison in areas such as technical safety,
security, navigation and flight operations and the development of communication standards and administrative
procedures.
     It has traditionally been the practice of states to designate only one airline (the ‘‘Flag carrier’’) or a small
number of airlines to exercise the rights granted to it under multilateral or bilateral air transport agreements. In
the past, Lufthansa was the only carrier designated by the government of the Federal Republic of Germany under
its bilateral air traffic Agreements. More recently, other German airlines have been granted rights by the
government to operate on particular routes both within, to and from the Federal Republic of Germany.

Open Sky Agreements and CEAA
     Air traffic with the US has been liberalized by several states, including the Federal Republic of Germany and
other EU member states, by way of so-called ‘‘open sky agreements’’. Discussions have arisen between the EU
and its member states on whether it was lawful for them to enter into these agreements and the EU has sued the
relevant member states before the European Court. It remains to be seen whether the ‘‘open sky agreements’’ will
remain in force or be replaced by an overall EU-US agreement.
     Under the US-German Open Sky Agreement in force since 1996, air traffic is liberalized with regard to the
number of airlines to be designated, the number of weekly flight frequencies, the number of airport destinations
and limitations of the fifth and sixth freedom of the air. The agreement further provides for a liberal tariff system.
     A further open airspace with liberal market access is currently being negotiated between the EU and nine
Eastern European states. It is the intention of these states to create a ‘‘Common European Aviation Area’’
(CEAA). Implementation of the CEAA is expected to require several years to complete, but will substantially
improve market conditions and liberalize air traffic regulation in the participating states. Although Eastern Europe
is not a crucial market for Lufthansa, creation of the CEAA is expected to improve its market position in those
states which will become part of CEAA.

EU Regulatory Framework — Air traffic
     On 1 January 1993, the EU brought into effect the Third Liberalization Package (the ‘‘Third Package’’) as
part of the process of creating a single market for air transport within the EU. The Third Package applies to
scheduled, non-scheduled and cargo services. It includes, in particular, the following measures:
     National rules governing operating licenses to airlines based in the EU were harmonized. EU airlines are
now issued a common EU operating license (Regulation (EC) 2407/92) in any EU member state. EU airlines
must have their principal place of business and registered office in a member state, must have air transport as their
principal activity and must be owned and effectively controlled by member states or nationals of member states.

                                                         63
In addition, EU airlines must hold an air operator’s certificate issued by their national authorities. As regards
Lufthansa’s ownership and control, see ‘‘— The Aviation Compliance Documenting Act’’.
     EU airlines are now permitted to fix their own fares on services provided within the EU subject to safeguards
against predatory pricing or unreasonable price rises (Regulation (EC) 2409/92).
      EU airlines may now operate ‘‘fifth freedom services’’ (services to and from states which are not the
airline’s state of origin) between member states, and capacity restrictions on such routes are no longer
permissible (Regulation (EC) 2408/92). Regulation (EC) 2408/92, however, includes provisions enabling member
states to restrict access to routes in order to distribute traffic between airports or airport systems or where
environmental issues or congestion concerns apply, but such restrictions must not be discriminatory and are
subject to review by the European Commission in advance of implementation. Member states may also impose on
EU airlines certain ‘‘public services’’ obligations with respect to the continuity, regularity, capacity and pricing of
a scheduled service to a peripheral or development region in its territory. Since 1 April 1997, any EU airline may
operate any routes within the European Community including routes within other member states (Regulation
(EC) 2408/92).
     Access to the market for ground handling at EU airports has been liberalized by directive (EC) 96/67 and its
national implementation. This directive aims at improving competitive structures in the field of ground handling.
The member states must ensure that access to the ground handling market is granted by the airport authorities
under a transparent and impartial procedure which prevents airport authorities or airlines from maintaining
certain barriers to market entry. The Directive has been implemented in the Federal Republic of Germany by the
                                           ¨                                         a
Ground Services Ordinance (Verordnung uber Bodenabfertigungsdienste auf Flugpl¨ tzen).
     The European Commission has issued a Green Table on fair and efficient pricing in the transport sector in
which the European Commission proposes to re-examine among other things the existing tax exemptions for
aircraft fuel. It cannot be excluded that the Commission will take measures to withdraw these tax exemptions.
Due to the dependency of the Lufthansa Group’s business on aircraft fuel, such measures could have an adverse
effect on Lufthansa’s business.

EU Regulatory Framework — Slot allocation
    Air traffic at an airport requires slots. In particular at heavily used or congested airports, slots are a scarce
commodity. It is vital for the Lufthansa Group to obtain a sufficient number of slots in order to maintain and
expand its business.
     Within the EU, slot allocation in major airports — the so-called ‘‘slot-coordinated’’ airports, which include
twelve German airports — follows the EC Regulation no. 95/93. At smaller German airports, slot allocation is
governed by §§ 27a, b of the German Air Traffic Act (Luftverkehrsgesetz).
      Under Art. 10 of the EU Regulation 95/93, slots are distributed by an airport coordinator under a specific
scheme for each semester. If the number of applications exceeds the number of available slots, priority is given to
those carriers which already held the equivalent slot in the preceding semester and used it to at least 80 per cent.
(so called ‘‘grandfathering rights’’). On the other hand, if a carrier does not use a slot to the extent required, it
may lose that slot which is then transferred to a slot pool. However, the Regulation also provides that exceptional
circumstances, namely unforeseeable and irresistible cases outside the air carrier’s control, may affect the use of
slots. In its Communication dated 10 October 2001 (COM(2001) 574 final) the Commission considers that the
closure of American airspace between 11 and 14 September 2001 and the subsequent changes to services
(suspension, reduced frequencies) constitute exceptional circumstances and that coordinators should interpret the
provisions of the above Regulation in such a way that airlines do not risk losing their unused slots as a
consequence of the terrorist attacks. Carriers should therefore be able to keep their slots with grandfather status
during the next coordination season in summer 2002.
     While slots may be exchanged between carriers under certain conditions (Article 8 clause 1 EU
Regulation 95/93), it is disputed whether slots may be traded by way of commercial deals. Slot trading would be
a valuable tool for the Lufthansa Group to save resources and adapt its capacities, especially in a declining air
traffic market environment. However, under current EU practice, the trading of slots is not considered legitimate.

                                                          64
EU Regulatory Framework — Airport charges
     Airport operators raise charges for incoming and outgoing flights based on a number of criteria.
     The EU intends to harmonize the airport charges but legislation has not yet been approved. The impact of
airport charges may further increase with further privatization of airport operating companies and air traffic
control, as privatized companies would seek to improve their profit at the expense of air carriers and airport users.

EU Regulatory Framework — Competition law
     Through a series of liberalization measures introduced between 1987 and 1993, the air transport sector
within the EU was brought directly within the scope of European competition regulations (Articles 81 and 82 of
the Treaty of Rome). These regulations now apply to anti-competitive agreements between undertakings and the
abuse of a dominant position in the EU by any undertaking or group of undertakings. Airlines operating air
transport services within the EU are now subject to European competition rules and also to the rules concerning
the granting of State Aids (Articles 87 to 89 of the Treaty of Rome).
     Regulation (EC) 3976/87 (as amended) enables the European Commission to grant block exemptions from
Article 81 (1) for certain kinds of agreements, decisions and concerted practices concerning the following:
           (i)     joint planning and coordination of airline schedules;
           (ii)    consultations on tariffs for the carriage of passengers, baggage and of freight on scheduled air
                   services;
           (iii)   joint operations on new less busy scheduled air services;
           (iv)    slot allocation and airport scheduling; and
           (v)     joint purchase, development and operation of computer reservation systems.
      Two block exemption regulations are currently in force pursuant to Regulation 3976/87 (as amended).
Commission Regulation (EC) 1617/93 (as amended) exempts, subject to certain conditions, certain types of
agreements from Article 81 (1). The exemption extends to agreements concerning joint planning, operation and
tariff consultations for certain scheduled air services for the carriage of passengers and their baggage (not freight)
within the EU, as well as to slot allocation and airport scheduling. Further, Commission Regulation (EC) 3652/93
provides, subject to certain conditions, an automatic exemption from Article 81 (1) in respect of certain types of
agreements for the joint purchase, development, marketing or operation of computer reservation systems.

German Regulatory Framework
     Access to the German domestic market is freely available to all German based air carriers. Regulation
(EC) 2407/92 partly replaced Section 20 of the German Air Traffic Act in respect of the granting of operating
licenses. The right to operate flights on routes within Germany and into other EU member states is governed by
Regulation (EC) 2408/92. An application to the relevant national authorities is required, but approval is automatic
for EC carriers and refusal may only be based on the exceptions listed in Regulation (EC) 2408/92.
      Scheduled routes to destinations outside of the EU require a license under § 21 Air Traffic Act. Route
licenses are issued for a semester each and usually renewed for the next flight schedule period. The bilateral
treaties influence German carriers’ rights to fly to destinations outside the EU. Lufthansa is only excluded from
route service to Jerusalem Airport and the internationally unrecognized, Republic of North Cyprus.

Regulatory Framework Summary
     In spite of the measures introduced in the EU to liberalize air transport, the air transport sector remains
highly regulated for all services which include non-EU destinations. Opportunities for expansion of airlines’
operations continue to be restricted by reciprocal regulatory hurdles. In particular, the Chicago System continues
to operate beyond EU borders and in relation to air services between member states and states outside the EU.
Accordingly, national regulations and the conditions of bilateral air service agreements (which can be highly

                                                         65
restrictive) continue to apply to such services. These restrictions are particularly significant to Lufthansa’s
operations in the states of the former Soviet Union, Africa, the Middle East, several parts of Europe and in the
Asian/Pacific-rim regions.
    Within the EU, the close relationship between many state-owned airlines and their parent governments has
slowed the liberalization process, particularly concerning the granting of state aid to financially troubled
competitors, which can have an significant effect on general competition within the EU air transport sector.
     Furthermore, practical restrictions on capacity arising from the limitations of existing air traffic management
systems and scarcity of slots at congested airports, have made it difficult for airlines to receive the full benefit of
the EU liberalization policies. Very few airlines, for example, have yet made any use of the rights to fly between
member states in which they are not based. It is anticipated that such restraints will continue to exist for the
foreseeable future.

Environmental Issues
      The main environmental issues the Lufthansa Group faces are regulations concerning substance and noise
emissions from its aircraft. The Lufthansa Group has renewed its fleet to comply with current regulations. The
improvements implemented will enable it to operate its aircraft within the EU after 1 April 2002, when even more
stringent EU regulations are expected to come into force. Although the EU has signaled that it is considering
delaying the coming into force of this regulation, it is expected that older, noisier aircraft (‘‘Chapter II aircraft’’)
will be prohibited from flying within the EU in the near future. The Lufthansa Group has initiated a ‘‘Silent
Aircraft Program’’ to further reduce noise emissions by technical measures. While noise reduction, if successful,
will increase the chances that the Lufthansa Group complies with environmental legislation, it cannot be excluded
that future regulation will impose even more stringent restrictions on aircraft emissions. Emissions may also have
an impact on airport charges in the future (see ‘‘Regulatory Environment — Airport Charges’’).
     Further environmental issues arise at facilities operated by subsidiaries of Lufthansa, in particular Lufthansa
Technik which stores, processes and discharges hazardous substances at its Hamburg facilities. Ground water
contaminations have been detected at the Hamburg and Frankfurt sites and are being remedied through ground
water treatment facilities.
     Environmental issues may also arise at the gasoline stations leased by Autobahn Tank & Rast Holding
GmbH in which the Lufthansa Group is a shareholder, at kerosene and gasoline stations operated by the
Lufthansa Group, and in relation to the de-icing of aircraft.
     Several national and international subsidiaries of the Lufthansa Group have been certified under EMAS and
ISO 14001 (among others, Lufthansa CityLine and Lufthansa Technik) or are scheduled for certification in the
near future.

Management
General
     In accordance with the German Stock Corporation Act (Aktiengesetz), Lufthansa has a Supervisory Board
(Aufsichtsrat) and an Executive Board (Vorstand). The two Boards are independent and no individual may be a
member of both Boards.
     The Executive Board is responsible for managing the business of Lufthansa in accordance with applicable
laws and the Articles of Association (Satzung) of Lufthansa.
     The principal function of the Supervisory Board is to supervise the Executive Board. It is also responsible
for appointing and removing the members of the Executive Board. Certain major or unusual transactions of
significant importance to Lufthansa, such as large capital expenditure items including certain large aircraft leasing
transactions, participations (investments), acquisition, disposal or granting of security rights over Lufthansa’s real
property, assumption of long-term indebtedness or significant appointments, require the approval of the
Supervisory Board. The Supervisory Board does not, however, supervise the day to day business of Lufthansa.

                                                          66
      Both the members of the Executive Board and the members of the Supervisory Board manage their own
affairs. In carrying out their duties, the individual Board members must exercise the standard of care of a diligent
and prudent businessman.

Supervisory Board
     Under Lufthansa’s Articles of Association, the Supervisory Board consists of twenty members. Ten
members are elected by the shareholders in the general meeting in accordance with the Stock Corporation Act;
the other ten members are elected by the relevant categories of employees in accordance with the provisions of
the Co-determination Act relating to employee participation (Mitbestimmungsgesetz).
      A member of the Supervisory Board elected by the shareholders may be removed by a majority of the votes
cast at a general meeting of shareholders. A member of the Supervisory Board elected by the employees may be
removed (upon application of at least three-quarters of the members of the relevant class of employees and, in the
case of a member of the Supervisory Board representing a trade union, upon application of that trade union) by a
majority of at least three-quarters of the votes cast by the relevant class of employees. The Supervisory Board
appoints a Chairman and a Deputy Chairman from amongst its members. At least half the members of the
Supervisory Board must be present or represented by another member of the Supervisory Board being in the
possession of a written voting instruction to constitute a quorum. Unless otherwise provided for by law or
Lufthansa’s Articles of Association, resolutions are passed by a simple majority of the votes cast. In the event of
a tie, another vote is held and the Chairman (who is, in practice, always a representative of the shareholders) then
has a second vote.
     The members of the Supervisory Board are elected for a term of approximately five years (shorter terms
apply to replacement members). The remuneration of the members of the Supervisory Board are determined by
the shareholders at general meetings and set forth in Lufthansa’s Articles of Association (see ‘‘— Compensation
of the Boards’ Members’’).
    The present members of the Supervisory Board of Lufthansa, the date on which they were first elected to the
Supervisory Board and their principal occupations, are as follows:
                                       Function within the
Name                                    Lufthansa Group             Member since           Principal Occupation

              o
Dr. Wolfgang R¨ ller            Honorary Chairman of the         14 July 1988        Honorary Chairman of the
                                Supervisory Board                                    Supervisory Board,
                                (no voting right)                                    Dresdner Bank AG
Dr. Klaus G. Schlede            Chairman of the Supervisory      17 June 1998        Former Deputy Chairman of
                                Board; shareholder                                   the Executive Board,
                                representative                                       Deutsche Lufthansa AG
Frank Bsirske                   Deputy Chairman of the           1 April 2001        Chairman of the ‘‘ver.di’’
                                Supervisory Board;                                   union (German union for
                                employee representative                              services industries)
Dr. Rolf-E. Breuer              Member of the Supervisory        26 June 1997        Chairman of the Executive
                                Board, shareholder                                   Board, Deutsche Bank AG
                                representative
Dr. Gerhard Cromme              Member of the Supervisory        1 January 2002      Chairman of the Supervisory
                                Board, shareholder                                   Board, ThyssenKrupp AG
                                representative
Herbert Flickenschild           Member of the Supervisory        1 July 2001         Purser
                                Board, employee
                                representative




                                                         67
                                  Function within the
Name                               Lufthansa Group         Member since        Principal Occupation

Peter Geisinger              Member of the Supervisory   17 June 1998     Flight Captain
                             Board, employee
                             representative
Ulrich Hartmann              Member of the Supervisory   17 June 1998     Chairman of the Executive
                             Board, shareholder                           Board, E.ON AG
                             representative
Roland Issen                 Member of the Supervisory   14 July 1988     Former Head of German
                             Board, employee                              Union of Salaried
                             representative                               Employees (DAG)
Dr. Otto Graf Lambsdorff     Member of the Supervisory   7 July 1993      Attorney, Honorary
                             Board, shareholder                           President of Deutsche
                             representative                                                   u
                                                                          Schutzvereinigung f¨ r
                                                                          Wertpapierbesitz e. V.
Eckhard Lieb                 Member of the Supervisory   18 June, 2001    Aircraft Engine Mechanic
                             Board, employee
                             representative
Franz-Eduard Macht           Member of the Supervisory   14 July 1988     Member of the office staff
                             Board, employee
                             representative
Franz Ludwig Neubauer        Member of the Supervisory   6 July 1994      Former Chairman of the
                             Board, shareholder                           Executive Board, Bayerische
                             representative                               Landesbank/Girozentrale
Ilona Ritter                 Member of the Supervisory   1 July 2001      Secretary of the ‘‘ver.di’’
                             Board, employee                              union
                             representative
       o
Willi R¨ rig                 Member of the Supervisory   1 May 2000       Member of the office staff
                             Board, employee
                             representative
Jan G. Stenberg              Member of the Supervisory   17 June 1998     Former President & Former
                             Board, shareholder                           Chairman of the Executive
                             representative                               Board, SAS Scandinavian
                                                                          Airlines Systems
Dr. Alfons Titzrath          Member of the Supervisory   3 January 2001   Former Chairman of the
                             Board, shareholder                           Supervisory Board, Dresdner
                             representative                               Bank AG
Patricia Windaus             Member of the Supervisory   26 June 1997     Flight Attendant
                             Board, employee
                             representative
Dr. Hans Dietrich Winkhaus   Member of the Supervisory   17 June 1998     Member of the Proprietors’
                             Board, shareholder                           Committee, Henkel KGaA
                             representative
Dr. Michael Wollstadt        Member of the Supervisory   17 June 1998     Member of the office staff
                             Board, employee
                             representative
Dr. Klaus Zumwinkel          Member of the Supervisory   17 June 1998     Chairman of the Executive
                             Board, shareholder                           Board, Deutsche Post AG
                             representative

                                                    68
     The Supervisory Board must, under the Co-determination Act, appoint a permanent committee to make
proposals as to the appointment of members to the Executive Board if the Supervisory Board fails to reach
agreement with the two-thirds majority required in respect of such resolutions. The proposals of such permanent
committee are passed by a simple majority of the votes cast. In the event such a majority can not be reached
another vote is held and the Chairman of the Supervisory Board then has a second vote.
     In addition, the Supervisory Board is authorized to form committees and define their tasks and areas of
authority by way of rules of procedure.

Executive Board
    Under the terms of Lufthansa’s Articles of Association, the Executive Board consists of two or more
members (the total number is determined by the Supervisory Board). The members are appointed by the
Supervisory Board in accordance with the Stock Corporation Act and the Co-determination Act. At present, the
Executive Board has four members.
     The Executive Board must report regularly to the Supervisory Board, in particular on proposed business
policy and strategy, profitability and on the current business of Lufthansa as well as on any exceptional matters
which arise from time to time.
     The members of the Executive Board are appointed by the Supervisory Board for a maximum term of five
years in each case. They may be re-appointed or have their term extended for one or more terms of up to five
years. Under certain circumstances, such as a serious breach of duty or a bona fide vote of no confidence by the
shareholder’s meeting, a member of the Executive Board may be removed by the Supervisory Board prior to the
expiration of such term.
     The current members of Lufthansa’s Executive Board, details of the year in which they were appointed and
their normal office are as follows:
Name                                              Member since                           Position

                          u
Dipl.-Ing. Dr.-Ing. E.h. J¨ rgen Weber        1 April 1989            Chairman of the Executive Board and
                                                                      Chief Executive Officer
Dr. Karl-Ludwig Kley                          1 September 1998        Chief Financial Officer
Stefan Lauer                                  1 May 2000              Chief Executive Human Resources
Wolfgang Mayrhuber                            1 January 2001          Chief Executive Passenger Business
                                                                      Division

Compensation of the Boards’ Members
     Section 13 of Lufthansa’s Articles of Association stipulates that the members of the Supervisory Board shall
receive a remuneration for their services of 4 10,000 plus a variable payment of 4 3,000 for each 4 0.05 per share
surpassing 4 0.25 per share on the dividend approved by the Annual General Meeting. The Chairperson shall
receive the double amount, the Deputy Chairperson one and a half of the amount.
    The members of the Supervisory Board shall in addition receive a reimbursement for their out-of-pocket
expenses (in particular travel expenses) and a participation fee of 4 125 for each meeting. Lufthansa further
reimburses the premium for a group accident insurance and the value-added tax on their remunerations.
     The members of the Supervisory Board shall also be entitled to concessionary travel facilities at significantly
discounted prices in line with IATA and Lufthansa provisions.
     The aggregate amount of compensation paid by Lufthansa to members of its Supervisory Board for 2000
amounted to 4 0.7m. The aggregate amount of compensation paid by Lufthansa and its subsidiaries to the
members of its Executive Board amounted to 4 2.3m for 2000 and 4 0.1m for 1999 in financial year 2000. These
figures include the cash equivalent of benefits from transport concessions, calculated in accordance with the
relevant IATA conditions.



                                                        69
     Of the loans granted by Lufthansa or its subsidiaries to a member of the Executive Board, 4 16,000 were
outstanding at 31 December 2000. In the course of 2000, 4 2,000 of such loans were repaid. The loans bear
interest at a rate of 4 per cent. per annum. As at 31 December 2000, the residual time to maturity was 5 years.

Stock Option Plan ‘‘LH-Performance’’
     The Lufthansa Group offers participation in its stock option plans ‘‘LH-Performance’’ to its senior
management. Under the plans, participants purchase Shares from Lufthansa at a discount of up to 30 per cent.
which are acquired by Lufthansa in the open market. For each Share purchased, the participant is granted an
option free of charge. The option entitles its holder to receive at the end of its duration (minimum 3 years and up
to 4 years) a cash payment in an amount determined based on the performance of the price of the Shares
compared to an index composed of European airlines.

Employees
Representation of Employees
     In Germany, employment agreements, i.e. on general working conditions and salaries for employees below
management level, are generally collectively negotiated between associations of companies within a particular
industry and the relevant unions.
    Lufthansa, although formally a member of ‘‘Arbeitsrechtliche Vereinigung Hamburg’’, a Hamburg-based
employers’ association for the public sector, maintains an Industrial Relations Department, which negotiates and
concludes collective agreements for more than 50,000 employees of the Lufthansa Group.
      Employees’ representation at Lufthansa is as follows: Cockpit staff at Lufthansa German Airlines, Lufthansa
Cargo Airline and the charter carrier Condor are represented by ‘‘Vereinigung Cockpit’’ (VC), the German pilots
union. Formerly tied to ‘‘Deutsche Angestellten Gewerkschaft’’ (DAG), a white-collar union. VC gained
independence with regards to industrial relations’ matters in 1999. Ground and cabin staff at all companies within
the Lufthansa Group are represented by the newly formed union ‘‘ver.di’’, resulting from a merger of DAG with
                             ¨                                                  o
the public sector union ‘‘Offentliche Dienste, Transport und Verkehr’’ (¨ tv) and several other unions in
March 2001. Certain cabin crew representatives are currently trying to achieve official recognition for an
independent employee representative organization under the name ‘‘Vereinigung Unabh¨ ngiger                a
Flugbegleiter’’ (UFO) in order to achieve a similar position of strength as currently enjoyed by the ‘‘Vereinigung
Cockpit’’ pilots union. The competent regional court confirmed UFO’s position; the decision is under appeal. See
‘‘Risk Factors — Personnel costs are a significant cost item and the Lufthansa Group is dependent on good
relations with the unions representing its employees’’.

Collective Bargaining Agreements
     Lufthansa’s policy regarding wage increases over the past ten years has been strongly influenced by the
near-collapse of Lufthansa in 1992 and the measures to regain financial strength in the subsequent years. In their
negotiations, Lufthansa and the unions jointly aimed at a reorganization of the Lufthansa Group in order to
provide the Lufthansa Group with a stable basis for competition.
     In the most recent round of negotiations, Lufthansa and the ‘‘ver.di’’ union entered into a collective
bargaining agreement which binds the parties until 31 March 2002, increasing wages by 3.5 per cent. over a
period of 14 months. Additionally, a one-time payment by Lufthansa was made.
      In spring of 2001, VC initiated a campaign for substantial salary increases and improvements in employment
terms for cockpit crew of Lufthansa and Lufthansa Cargo. Claims for salary increases of such a dimension were,
so far, unknown in Germany’s industrial relations’ environment. The members of VC went on strike for two and a
half days in May 2001, causing considerable disruptions to Lufthansa’s business operations. This was the first
strike action hitting Lufthansa since 1985. The dispute was ultimately settled through mediation. As one result of
the mediation, salaries for cockpit staff increased by an average of 12 per cent. in 2001, and a complementary
variable pay element based on the results of the Lufthansa Group was introduced. Additionally, further salary
increases for cockpit staff were agreed for the remaining three years’ validity of the agreement, and the variable

                                                        70
pay elements based on the performance of the Lufthansa Group aim at increasing overall cost flexibility.
Separately, negotiations with VC in relation to Lufthansa CityLine stalled following the terrorist attacks in the US
on 11 September 2001 and have been declared to have failed by VC. VC is currently soliciting its members’
views as to future steps, including a potential strike (see ‘‘Risk Factors — Personnel costs are a significant cost
item and the Lufthansa Group is dependent on good relations with the unions representing its employees’’).
     Recently, Lufthansa and its unions entered into collective agreements as part of Lufthansa’s reaction to the
downturn affecting the airline industry following the terrorist attacks in the US on 11 September 2001, mainly to
extend the duration of salary contracts expiring in 2002 by seven months (see ‘‘Recent Developments and
Outlook — Lufthansa negotiates with unions’’).

Pension Plans
    Lufthansa’s domestic employees (including those on foreign assignment) are covered by a collectively
negotiated company pension scheme.
     ) Following Lufthansa’s withdrawal from the Versorgungsanstalt des Bundes und der L¨ nder (‘‘VBL’’, the
                                                                                              a
       public employees’ pension fund of the Federal Republic of Germany and States) upon the privatization in
       1994, Lufthansa has assumed all complementary pension commitments for the active employees then
       employed. All ongoing complementary benefit entitlements of employees retired and former employees
       with vested rights at that time will continue to be met solely by VBL. In its consolidated balance sheet as
       at December 31, 1994, Lufthansa recognized pension provisions sufficient to meet these complementary
       commitments in accordance with German GAAP and tax laws.
     ) A new company pension scheme under which specified annual pension units, actuarially determined and
       fixed in nominal terms, are earned for each year of service applies for employees newly employed since
       1995.
     ) In addition, crew members have been guaranteed interim benefits for the period between termination of
       their employment as a crew member and the beginning of their statutory or company pension entitlement.
       Such commitments are also fully recognized by actuarially determined pension accruals.
     The total pension accruals of the Lufthansa Group as at 30 September 2001 amounted to 4 3,573m. Such
accruals have been allocated in the annual financial statements on the basis of generally accepted actuarial
principles and in accordance with IAS 19.

Legal Proceedings
Anti-trust Proceedings
      The EU Commission has been investigating since 1996 whether the cooperation between Lufthansa and
United Airlines as well as the cooperation between SAS and United Airlines in regards to transatlantic travel
violates EU anti-trust laws. In September 2000 further negotiation took place with the competition authorities of
the EU Commission in which the EU Commission presented its new considerations on the evaluation of the
competitive situation and potential preconditions for clearance currently under consideration. It is a positive
development from Lufthansa’s perspective, that the frequency reductions considered earlier on in the process
have been dropped. The EU Commission, however, is still considering requiring the relinquishment of further
slots. In addition, the EU member states are now being requested to liberalize the so-called price-leadership in
each domestic airline market which may lead to further preconditions being imposed by the EU Commission.
Even though Lufthansa believes that an approval of the cooperation will be forthcoming, it is anticipated that at
least some of the preconditions currently under consideration will be imposed.
     The EU commission investigated the cooperation between Lufthansa, SAS and British Midland. The
cooperation was exempted by the EU commission. However, the parties have accepted several undertakings. They
are obliged to transfer up to 3 start and landing slots at Frankfurt airport to a requesting competitor for the route
Frankfurt-London under several conditions. Lufthansa intends to fulfill its undertakings by transferring the
requested slots in spring of 2002 to such requesting competitor.

                                                         71
     The German Federal Cartel Office considers the price setting of Lufthansa on the Frankfurt/Main-Berlin
route an abuse of market dominance and, correspondingly, has issued a prohibition order. On 19 March 1997
Lufthansa lodged complaints against the prohibition order of the Federal Cartel Office. By a resolution of
26 November 1997 the Berlin Court of Appeals (Kammergericht) lifted the prohibition order of the Federal Cartel
Office. After the Federal Cartel Office filed a complaint on 22 June 1999 the Federal High Court of Justice
(Bundesgerichtshof) reversed the decision and remitted the matter to the Berlin Court of Appeal for further
clarification. The decision of the Court of Appeals is still pending. Lufthansa has established a provision of
4 12.8m for risks resulting from this proceeding.
     On 12 November 2001 the airline Germania started servicing the Frankfurt/Main-Berlin route for a one-way
rate of 4 99. In response, Lufthansa introduced a comparable rate. In the meantime Germania reduced its rate to
4 55. Since 16 November 2001 the Federal Cartel Office is investigating whether Lufthansa’s price reduction
represents an abuse of the presumed market dominance of Lufthansa on the Frankfurt/Main-Berlin route. On
22 January 2002, the Federal Cartel Office announced that it views Lufthansa’s price reduction as an abusive
practice and intends to prohibit it. Lufthansa can respond to the Federal Cartel Office until 30 January 2002 and
intends to appeal to the courts if the Federal Cartel Office ultimately rules against Lufthansa.

Litigation
      A legal action is pending before the Regional Court in Cologne regarding the entitlement of travel agents to
                                                                                           u
receive commissions in relation to the so-called variable regional landing fee (Landegeb¨ hr) included in ticket
prices. Despite the limited amount in dispute in this proceeding of approximately 4 31,000, considerable financial
consequences cannot be excluded in the case of a court decision against Lufthansa as other travel agents could
rely on such a decision as precedent. In such case, Lufthansa could ultimately be held responsible for significant
amounts. Lufthansa has not yet determined whether it is necessary to establish a provision in connection with this
litigation.
     A legal action has been brought by Hannover Airport as a test case regarding the imposition of fees for
Lufthansa’s own check-in services (so-called permit fees). Following Lufthansa’s success in the first instance, the
Court of Appeals remitted the case to the European Court of Justice, to obtain a decision based on the underlying
EU directive. Should Lufthansa ultimately be unsuccessful, its potential liability in all relevant cases could be
significant. Lufthansa’s belief that it will ultimately prevail in this matter is based on the favorable wording of the
EU directive as compared to the implementing national law.
      There are currently about 30 legal disputes pending regarding the transitional pensions for cockpit staff.
Both the Frankfurt Labor Court and the Cologne Labor Court of first instance dismissed the respective cockpit
staff members’ actions. Most of the lawsuits are now continuing in the second instance. In order to avoid further
lawsuits, Lufthansa undertook to provide equal treatment in accordance with the final decisions in 2 proceedings.
The relating risks and potential financial obligations are not yet assessable, since the subject matter is in dispute
between two senates of the Federal Labor Court.




                                                         72
     GENERAL INFORMATION ABOUT DEUTSCHE LUFTHANSA AKTIENGESELLSCHAFT

Corporate Information
Creation
                                                                      u
    Lufthansa was founded in 1953 with the name ‘‘Aktiengesellschaft f¨ r Luftverkehrsbedarf’’. In 1954, the
name was changed to ‘‘Deutsche Lufthansa Aktiengesellschaft’’.

Duration, Corporate Seat, Financial Year
     The duration of Lufthansa is unlimited.
    The corporate seat of Lufthansa is in Cologne and its head office is at Von-Gablenz-Straße 2-6, 50679
Cologne, Germany. Lufthansa is registered with the Commercial Register (Handelsregister) of the Local Court
(Amtsgericht) in Cologne under the number HRB 2168.
     The financial year of Lufthansa is the calendar year.

Corporate Purpose
      The corporate purpose of Lufthansa, as contained in its Articles of Association, is national and international
air traffic and the conduct of all business and the operation of all facilities relating to and conducive to civil
aviation.

Rights Attaching to Shares
Transfer of Shares
     The transfer of the Shares is restricted and requires Lufthansa’s approval. Lufthansa may only withhold such
approval if it has grounds to believe that the transferee’s registration could jeopardize Lufthansa’s rights and
prerogatives under aviation laws and agreements.

Annual General Meetings
     The annual general meetings of shareholders are held at the registered seat of Lufthansa or in another
German city where a stock exchange is located. The annual general meetings are called by the Executive Board in
agreement with the Chairman of the Supervisory Board. The convening must be announced not less than one
month before the day by the end of which the shares must be deposited according Lufthansa’s Articles of
Association.

Voting Rights
    The right to attend, and to vote at, the annual general meeting is accorded only to those shareholders whose
names are recorded in the share register and who are timely registered as attendees.
     At the annual general meeting, each Share confers one vote. Resolutions are adopted by simple majority of
the votes cast. In cases where a majority of the share capital is required by mandatory law, a simple majority of
the share capital will suffice, unless mandatory legal provisions or Lufthansa’s Articles of Association require
otherwise.

Dividend Rights
     Dividends in respect of Shares are declared once a year at the annual general meeting. For each financial
year, the Executive Board approves Lufthansa’s unconsolidated financial statements and submits them together
with a proposal regarding the distribution of profits to the Supervisory Board for its approval. After examining the
financial statements and proposal for profit distribution, the Supervisory Board presents a report in writing at the
annual general meeting. On the basis of the Supervisory Board’s report, the shareholders vote on the Executive
Board’s proposal regarding the disposition of all unappropriated profits, including the amount of net profits to be

                                                        73
distributed as a dividend. Lufthansa’s shareholders participate in the distribution of dividends in proportion to
their shareholdings. Prior to liquidation of Lufthansa, the only amounts that may be distributed to shareholders
under German law are the distributable profits (Bilanzgewinn) of Lufthansa.
     For the fiscal years 2000, 1999 and 1998, Lufthansa has paid dividends of 40.60, 40.56 and 40.56 per Share,
respectively.

Rights in Liquidation
     Except in the event of insolvency, Lufthansa can be dissolved by a resolution of the general shareholders’
meeting passed by a three-fourths majority of the registered share capital represented. The assets remaining after
payment of debts are then distributed among the shareholders according to their shares in the registered share
capital.

Share Price Statistics
     The following table sets out, for the three years ending 31 December 2001, 2000 and 1999, the closing price
per Share in XETRA, as reported by the Frankfurt Stock Exchange, at year-end:
                                                                                                                                                              Share Price
                                                                                                                                                                 (in 5) at
                                                                                                                                                              Year ending

2001 ......................................................................................................................................................         14.8
2000 ......................................................................................................................................................         27.5
1999 ......................................................................................................................................................         23.7

                   o
(Source: Deutsche B¨ rse AG)
    The following table sets out the highs and lows of the price per Share in XETRA in euro, as reported by the
Frankfurt Stock Exchange, for the three years ending 31 December 2001, 2000 and 1999
                                                                                                                                                    High             Low

2001 ..............................................................................................................................                 27.5              8.1
2000 ..............................................................................................................................                 28.1            19.3
1999 ..............................................................................................................................                 25.1            16.1

                   o
(Source: Deutsche B¨ rse AG)
     The following table sets out the highs and lows of the price per Share in XETRA in euro, as reported by the
Frankfurt Stock Exchange, for the months July, August, September, October, November and December of the
year 2001.
                                                                                                                                                    High             Low

July 2001......................................................................................................................                     19.3            18.6
August 2001 .................................................................................................................                       19.3            16.6
September 2001 ...........................................................................................................                          17.2              8.9
October 2001................................................................................................................                        13.2            10.1
November 2001............................................................................................................                           16.3            11.5
December 2001 ............................................................................................................                          16.2            14.3

                   o
(Source: Deutsche B¨ rse AG)
       The closing price per Share in XETRA on 23 January 2002 was 4 17.7 (Source: Deutsche B¨ rse AG).
                                                                                             o

                                                                                       74
Announcements, Paying Agents
    Lufthansa’s announcements to its shareholders are, in accordance with its Articles of Association, made in
the German Federal Gazette (Bundesanzeiger). Notification concerning the shares are also published in a
                                       o
mandatory stock exchange newspaper (B¨ rsenpflichtblatt).
    Lufthansa’s paying agents are Dresdner Bank AG, Deutsche Bank AG, Bankgesellschaft Berlin AG,
HypoVereinsbank AG, Bayerische Landesbank Girozentrale, BHF-BANK AG, Commerzbank AG,
                                                                                            u
Hamburgische Landesbank –Girozentrale-, HSBC Trinkaus & Burkhardt KGaA, Landesbank Hessen-Th¨ ringen
Girozentrale, Landesbank Schleswig-Holstein Girozentrale, MERCK FINCK & CO PRIVATBANKIERS,
M.M. Warburg & CO KGaA, Sal. Oppenheim jr. & Cie. KGaA, SEB AG, Vereins- und Westbank AG,
Westdeutsche Landesbank Girozentrale, Westfalenbank AG, Deutsche Bank Saar AG.

Auditors
                                                                                         u
     The auditors of Lufthansa are PwC Deutsche Revision Aktiengesellschaft Wirtschaftspr¨ fungsgesellschaft.
The financial statements and the consolidated financial statements for 31 December 1998, 1999 and 2000 were
audited by the auditors and an unqualified audit opinion was given in each case.




                                                     75
               DESCRIPTION OF THE SHARE CAPITAL OF DEUTSCHE LUFTHANSA
                                 AKTIENGESELLSCHAFT
     Set out below is a summary of certain information in relation to Lufthansa’s registered share capital as well
as a summary of certain provisions of Lufthansa’s Articles of Association (Satzung) and German law. This
summary is intended to provide the most relevant information in relation to the Lufthansa’s registered share
capital and the rights attaching to the Shares, but does not purport to be complete. It is qualified entirely by
reference to Lufthansa’s Articles of Association and German law in effect at the date of this Information
Memorandum.

Share Capital
     The issued registered share capital of Lufthansa amounts to 4 976,896,000 consisting of 381,600,000
                                  u
registered no par-value shares (St¨ ckaktien) (i.e. shares without nominal value and registered in the name of the
holder), each with a notional amount in the share capital (anteiliger Betrag des Grundkapitals) of 4 2.56 and with
limited transferability.
     Shareholders are registered with their name, residence, date of birth and amount of shares in a share register
maintained at Lufthansa’s head office. Natural persons must notify to Lufthansa their citizenship, and legal
persons or other entities, their nationality (i.e. corporate seat). Any transfer of Shares is subject to the approval of
Lufthansa. Lufthansa may refuse such approval only where it has reason to believe that the proposed transferee’s
registration in the share register could jeopardize Lufthansa’s licenses, rights and prerogatives under aviation laws
and agreements (see ‘‘— Capital Measures in relation to the Aviation Compliance Documenting Act’’).

Authorized Capital
     Until 15 June 2004, Lufthansa’s Executive Board, upon approval of the Supervisory Board, is authorized to
increase the share capital by up to 4 100m through one or more issues of new no-par value registered shares
against a contribution in cash. Subscription rights of existing shareholders to share fractions resulting from the
application of the subscription ratio can be excluded. Otherwise, any new shares will be offered to all existing
shareholders on a pro-rata basis.
     The Executive Board is further authorized until 15 June 2004, upon approval of the Supervisory Board, to
increase the share capital by up to 4 25m through one or more issues of new no-par value registered shares
against a contribution in cash. The new shares issued under such authorization must be offered to the employees
of Lufthansa and of companies associated with it only. The subscription rights of existing shareholders are
excluded.

Conditional Capital
      In addition, the Executive Board is authorized until 15 June 2004, upon approval of the Supervisory Board,
to issue one or a number of series of convertible bonds or bonds with warrants with an aggregate par value of up
to 4 1bn and with maturities of up to 15 years. In relation thereto, conditional capital for effecting a conditional
increase in the share capital of up to 4 97,689,600 through issuance of up to 38,160,000 new no-par value
registered shares has been created. New no-par value registered shares out of the conditional capital will only be
created upon exercise of conversion and/or option rights by holders of bonds.
     On 5 December 2001, Lufthansa’s Executive Board and Supervisory Board resolved to make use of the
authorization mentioned above and to issue the Bonds. The Executive Board and the Supervisory Board also
resolved to exclude subscription rights of existing shareholders.

Capital Measures in relation to the Aviation Compliance Documenting Act
     The Aviation Compliance Documenting Act provides for certain measures with regard to Lufthansa’s share
capital. If the circumstances set forth under Section 4(3) of the Aviation Compliance Documenting Act
(Luftverkehrsnachweissicherungsgesetz) occur, i.e. if (i) 45 per cent. or more of Lufthansa’s share capital or (ii) a
controlling interest within the meaning of Section 17 of the German Stock Corporation Act (Aktiengesetz)

                                                          76
(a ‘‘Controlling Interest’’) is held by persons whose shareholding would jeopardize the maintenance of the
prerogatives under aviation laws and agreements, Lufthansa’s Executive Board, if so authorized by the
shareholders’ meeting and after obtaining consent from the Supervisory Board, is authorized to increase the share
capital against contributions in cash and to exclude subscription rights of existing shareholders. In such case, the
issue price for the new shares must be fixed in agreement with the Supervisory Board and may not materially fall
short of the then prevailing stock market price. A capital increase pursuant to this provision must not exceed 10
per cent. of Lufthansa’s total registered share capital at the time such measure is taken. Lufthansa’s shareholders’
meeting has authorized the Executive Board to increase the share capital against a contribution in cash and to
exclude the subscription rights of existing shareholders under the conditions set forth in Section 4(3) of the
Airline Compliance Documenting Act. The share capital may only be increased to the extent necessary to secure
the operating license and air traffic rights of Lufthansa.
     In addition, upon the occurrence of the circumstances set forth under Section 5(2) of the Aviation
Compliance Documenting Act, i.e. if (i) a Controlling Interest is held by such persons whose shareholding is
contrary to the maintenance of the prerogatives under aviation laws and agreements, thus resulting in a breach of
the respective requirements, and (ii) such breach leads to the prerogatives under aviation laws and agreements
being jeopardized and (iii) it would, in view of the potential damage, be unreasonable for the relevant company to
remedy such situation on the basis of the measures contemplated by Section 4 of the Aviation Compliance
Documenting Act, i.e. the repurchase of own shares or the increase of the share capital described above,
Lufthansa’s Executive Board is authorized, if so authorized by the shareholders’ meeting and with the consent of
the Supervisory Board, to require shareholders to sell all or part of the Shares held by them and to furnish
evidence to Lufthansa forthwith that they have done so. Shareholders may be called upon to take such action to
the extent necessary to ensure that Lufthansa meets the requirements for retaining its licenses, rights and
prerogatives under aviation laws and agreements and in the order stipulated in Section 5(3) of the Aviation
Compliance Documenting Act. Under that provision, the Executive Board must approach the shareholders in
accordance with the respective dates on which they became shareholders (starting with the most recent dates),
provided that shareholders whose shareholding is contrary to the maintenance of the prerogatives under aviation
laws and agreements must be approached first. Lufthansa’s shareholders’ meeting has authorized the Executive
Board to require shareholders to sell all or part of the Shares held by them and to furnish evidence to Lufthansa
forthwith that they have done so under the conditions set forth in Section 5(2) of the Airline Compliance
Documenting Act.

Pre-emptive Rights
     Under the Stock Corporation Act, a shareholder in a stock corporation has a right of pre-emption
(Bezugsrecht) to subscribe for shares, debt instruments convertible into shares (or involving a profit participation)
and participation rights issued by the corporation in proportion to the shares held by such shareholder in the
existing capital of the corporation. Under the Stock Corporation Act, this preferential right can only be excluded
in certain circumstances and, in any event, only with the consent of a majority of three-quarters of the share
capital present at the passing of the resolution and simple majority of the votes cast.

Transfer of Shares
     Any transfer of Shares is subject to the approval of Lufthansa. Lufthansa may refuse such approval only in
case the maintenance of the air traffic license is endangered. Title to the Shares (and the coupons attached) will
pass if Lufthansa has given its approval and at the earliest upon assignment, delivery or, if such Shares are
deposited with a clearing system, in accordance with the rules of the relevant clearing system. Lufthansa’s Shares
may be deposited with, and held through, Clearstream Frankfurt. Lufthansa’s Shares can be held in a global
securities deposit through the inclusion in Clearstream’s electronic securities processing system for registered
shares.




                                                        77
Repurchase of Shares
     Under the Stock Corporation Act, Lufthansa may not purchase its own shares except under certain
conditions and limitations provided for in the Act. The number of shares purchased by Lufthansa (when
aggregated) must not exceed 10 per cent. of Lufthansa’s share capital. On 20 June 2001, Lufthansa’s
shareholders’ meeting authorized the Executive Board, upon approval of the Supervisory Board, to repurchase up
to 10 per cent. of its Shares until 19 December 2002.
    Additional provisions with respect to the purchase of its own shares by Lufthansa are stipulated in the
Aviation Compliance Documenting Act (see ‘‘Business Activities — Airline Regulation — The Aviation
Compliance Documenting Act’’).




                                                     78
                        TAXATION IN THE FEDERAL REPUBLIC OF GERMANY

     The following is a summary of certain German tax provisions. It does not purport to be a comprehensive
description of all the tax considerations which may be relevant to a decision to purchase Bonds. The summary is
based on the tax laws of the Federal Republic of Germany as in effect on the date of issuing the Bonds, which are
subject to change, possibly with retroactive effect. This summary does not deal with the individual tax
circumstances of a particular investor.

    Any person who is in doubt as to his tax position is urged to consult his individual tax advisor before
purchasing Bonds.

     The Bonds are convertible bonds within the meaning of § 221(1) of the German Stock Corporation Act
(Aktiengesetz).

Investors resident in Germany
  Individual Bondholders
     Taxation of interest

     The recurring interest payments made by the Issuer (§ 5(1) of the Terms and Conditions) are, net of
allowable deductions, taxed with individual investors (§ 20(1) no. 7 German Income Tax Act (Einkommen-
                                                                                                a
steuergesetz — ‘‘EStG’’)) at a rate of up to 48.5 per cent. plus solidarity surcharge (Solidarit¨ tszuschlag) at a rate
of 5.5 per cent. based on the income tax amount (i.e. aggregate tax burden of 51.1675 per cent.).

     In case the investor holds the Bonds as business assets of a commercial enterprise in Germany, the gross
amount of the interest payments, net of allowable deductions, is additionally subject to trade income tax. The
actual tax burden depends on municipal tax levies and is in a range of approximately 15 per cent. to
approximately 20 per cent. of the net interest income of the investor. There is a lump sum deduction of the trade
income tax for individual income tax purposes.

     Disposal or redemption of Bonds

     Proceeds from the sale of Bonds are subject to income tax of (i) the amount accounted separately for the
                                                                                                   u
interest accrued allocable to the current interest period until disposal or redemption of Bonds (St¨ ckzinsen)
(§ 20(2) sentence 1 no. 3 EStG) or (ii) the market yield if accrued interest is not separately accounted for
(§ 20(2) sentence 1 no. 4 lit. (c) EStG).

     In principle, the taxable amount is determined at the yield upon issue allocable to the investor’s holding
period (besitzanteilige Emissionsrendite). However, if the investor is not able to verify such yield upon issue of
the Bonds (or refrains therefrom), the market yield (Marktrendite) is deemed to be interest income and therefore
taxed (§ 20(2) sentence 1 no. 4 lit. (c), sentence 2 EStG). The market yield is defined as the difference between
the subscription or purchase price paid by the investor and the proceeds from the disposal or redemption of the
Bonds (§ 20(2) sentence 1 no. 4 sentence 2 EStG). The investor has a (factual) option to be taxed on the basis of
the market yield or the yield upon issue.

     In case of a taxation of the yield upon issue (Emissionsrendite), proceeds other than such interest amounts
are not subject to German income tax for investors holding Bonds as private asset except (i) for Bonds sold within
one year after subscription or acquisition (§ 23(1) sentence 1 no. 2 EStG) or (ii) the investor holds or held a
participation of more than 1 per cent. in the share capital of the Issuer at any time within five years preceding the
disposal or redemption (§ 17(1) sentence 1 and 2 EStG).

     The current interests received by the investor have to be deducted from the taxable amount in case of a
taxation on the basis of the yield upon issue (Emissionsrendite) (§ 20(2) sentence 3 EStG).

    Capital gains realized upon disposal of Bonds which form a part of a German business operation are subject
to German taxation in general.

                                                          79
     Conversion
     The Issuer takes the view that the conversion itself is according to the present practice of the fiscal
authorities (see: Oberfinanzdirektion (Senior Finance Authority) Frankfurt am Main, decree dated March 29,
1995, S-2150 A 6 St II 21) not a taxable event. However, it cannot be ruled out that the tax authority competent
for the taxation of the investor takes a different view.

     Special cases under the Terms and Conditions
     The special cases mentioned in the Terms and Conditions are treated as follows:

Optional Redemption
     The Issuer takes the view that in case the Issuer exercises its right of Optional Redemption of the Bonds
(§ 9(2) of the Terms and Conditions), the proceeds from the (early) repayment of the Bonds are taxable (§ 20(2)
sentence 1 no. 4 lit. (c) EStG) to the extent they exceed the denomination amount of the Bonds and constitute
            u
interest. St¨ ckzinsen are also taxable (§ 20(2) sentence 1 no. 3 and no. 4 lit. (c) EStG).

Compensation in lieu of fractional shares
      If upon conversion of Bonds the investor does not only receive Shares, but also a cash compensation for
fractional Shares (§ 6(5) lit. (b) of the Terms and Conditions), the Issuer takes the view that this is a non-taxable
event (exchange of assets) since the acquisition of fractional Shares is excluded under German corporate law. The
cash compensation compensates the investor for the value which he would otherwise have been entitled to upon
conversion of Bonds in form of Shares. The cash compensation does not constitute a consideration for the
temporary providing of capital but rather a compensation for the claim for the delivery of Shares which cannot be
fully satisfied. The cash compensation, therefore, in the opinion of the Issuer, has to be treated as non-taxable in
the same way as the conversion of the Bond (see ‘‘Conversion’’). Furthermore, the cash compensation could also
be qualified as a tax free (partial) return of the invested capital.

Anti-dilution protection — reduction of Conversion Price (§ 7(1) of the Terms and Conditions)
     If upon conversion of Bonds the Conversion Price is reduced in order to avoid a dilution of the conversion
rights of the investors (§ 7(1) of the Terms and Conditions), the Issuer takes the view that it is not a taxable event.
The reduction of the Conversion Price merely compensates the loss of subscription rights the investor would have
had if he had already converted the Bonds into Shares and would already be shareholder of the Issuer. The
reduction of the Conversion Price does not constitute a consideration for the granting of capital.
     In case of compensation payments effecting the adjustment of the Conversion Price the Issuer takes the view
that it is not a taxable event either. The compensation payments provide the investor with the value of the
subscription rights resulting from the Bonds. The compensation payments do not constitute a consideration for
the granting of capital but rather a compensation for the claim for delivery of Shares which is not satisfied
because the conditional capital of the Issuer is not sufficient to create the respective amount of Shares.
Furthermore, the compensation payments could also be treated as a capital gain realized upon delivery and a
subsequent sale of Shares. In the latter case the Issuer takes the view that the realized capital gain is tax free (i) if
the sale is not made within a period of one year after subscription or acquisition of the Bonds and (ii) if the
investor has not held a participation of at least 1 per cent. of the share capital of the Issuer at any time within five
years preceding the sale.
     However, it can not be ruled out that the tax authority competent for the taxation of the investor takes a
different view.

Modified conversion (Aviation Compliance Documenting Act)
     The provisions of modified conversion in compliance with the Aviation Compliance Documenting Act
(§ 6(7) of the Terms and Conditions) provide for a delivery of the Bonds by the investor to the Payment and
Conversion Agent. The converted Shares are delivered to the designated Intermediary which is required to pay in

                                                           80
consideration therefor a cash payment as described in the Terms and Conditions. Hence, the conversion of the
Bonds automatically triggers a sale of the received Shares by the designated Intermediary. Therefore, the
explanations regarding the sale of Shares apply accordingly.

Change of Control
      In case of Change of Control (§ 8(1) of the Terms and Conditions) the investor can claim premature
redemption of the Bonds against payment of the nominal amount of the Bonds together with the accrued interest
until the Redemption Date. The proceeds from the (early) repayment of the Bonds are taxable (§ 20(2) sentence 1
no. 4 lit. (c) EStG) to the extent they exceed the denomination amount of the Bonds and constitute interest.
  u
St¨ ckzinsen are also taxable (§ 20(2) sentence 1 no. 3 and no. 4 lit. c EStG).

Extraordinary Dividend
     Any payment of compensations or reduction of the Conversion Price (§ 7(4) or (5) of the Terms and
Conditions) made by the Issuer upon distribution of an Extraordinary Dividend constitutes only a compensation
for the financial disadvantages suffered by the investors rather than consideration for the granting of capital.

     Dividends out of Shares received in exchange for Bonds
     Individual German shareholders are taxed only to 50 per cent. of the gross dividend amount distributed on
                     u
the Shares (Halbeink¨ nfteverfahren). The individual income tax rate amounts up to 48.5 per cent. plus solidarity
surcharge at a rate of 5.5 per cent. thereon (i.e. aggregate tax burden of 51.1675 per cent.). Likewise only
50 per cent. of the expenses related to the taxable dividend income will be deductible for tax purposes.

     Disposal of Shares received in exchange for Bonds
      If an individual German shareholder disposes of Shares within one year after the acquisition of Bonds, the
capital gains are considered taxable income. 50 per cent. of such capital gains are subject to German income tax
(at a rate of up to 48.5 per cent. plus solidarity surcharge of 5.5 per cent. thereon), the other 50 per cent. are tax
                      u
exempted (Halbeink¨ nfteverfahren). Capital gains from such speculative transactions are only taxable if they
exceed 4 512 in the aggregate per calendar year. In this case, the total amount and not only the exceeding amount
will be subject to tax (Freigrenze). Losses from the disposal of the Shares may only be set-off against capital
gains realized during the current fiscal year. Any excess loss may be brought backwards to the preceding year or
carried forward indefinitely but may only be offset against gains from speculative transactions. The gain or loss
will be determined as the difference between the amount realized upon the disposal of the Shares and the
acquisition costs (Anschaffungskosten) of the Bonds.
     If the individual German shareholder disposes of Shares after expiry of the one year holding period, capital
gains from the disposal of the Shares are tax free, unless he holds or held a participation of at least 1 per cent. in
the share capital of the Issuer at any time within five years preceding the disposal. Losses are only deductible to a
limited extent.

     Savers’ exemption and standard deduction
     A tax liability will only arise if and to the extent the investor’s total income from capital assets (interests and
dividends) exceeds an exempt amount of currently 4 1,550 (4 3,100 for married couple filing jointly) plus a lump-
sum amount for income related expenses of 4 51 (4 102 for married couple filing jointly) per calendar year. This
does not apply to capital gains from the disposal of Shares and any tax liability which may arise according to
§ 17 EStG or § 23 EStG.

  Corporate Bondholders
     Interest on the Bonds and capital gains
     As a general principle, for corporate bondholders interest payments as well as capital gains received in case
of redemption of repayment at the Redemption Date are subject to taxation regardless of any holding periods. The

                                                          81
interest income and aforementioned capital gains are subject to corporate income tax (§ 8(1) German Corporate
                     o
Income Tax Act (K¨ rperschaftsteuergesetz — ‘‘KStG’’), § 20(1) no. 7 EStG) at a rate of 25 per cent. plus
solidarity surcharge of 5.5 per cent. thereon (i.e. aggregate tax burden of 26.375 per cent.) and trade income tax.

     Dividends out of Shares received in exchange for Bonds
     Dividends distributed for the Shares are tax free for corporate German shareholders with respect to corporate
income tax but will be subject to trade income tax unless the shareholder has held at least 10 per cent. of the share
capital of the Issuer since the beginning of the business year in which the dividends are distributed. The tax
exemption for corporate income tax purposes is not available for dividends derived from Shares held as part of the
trading book of credit institutions and financial service companies or which are held by a finance company with
the intention of generating a short term trading profit.

     Disposal of Shares received in exchange for Bonds
     If the corporate German shareholder disposes of Shares, capital gains are free from corporate income tax,
notwithstanding any holding period. The tax exemption is not available for capital gains derived from the disposal
of Shares held as part of the trading book of credit institutions and financial service companies or which are held
by a finance company with the intention of generating a short term trading profit.

  Withholding tax
     Withholding duty
     The Issuer has — prior to the payment to the Paying and Conversion Agent — to withhold withholding tax
on investment income (Kapitalertragsteuer) on the annual interest disbursements and the proceeds from the
redemption of the Bonds at the Redemption Date to the extent they constitute accrued interests (§ 43(1)
sentence 1 no. 2 EStG) at a rate of 25 per cent. plus solidarity surcharge of 5.5 per cent. thereon (i.e. aggregate tax
burden of 26.375 per cent.). The withholding tax on investment income has to be withheld irrespective of the tax
residence of the Investor.
     As the Bond is a convertible bond in the meaning of § 221(1) Aktiengesetz, no advance income withholding
tax (Zinsabschlagsteuer) is levied on the amount accounted separately for the interest accrued allocable to the
                                                                    u
current interest period until disposal or redemption of the Bond (St¨ ckzinsen) and the market yield (Marktrendite)
(§ 43(1) sentence 1 no. 8 EStG).
     Dividends distributed by German domiciled corporations are — irrespective of whether they are taxable at
shareholders’ level or not — subject to withholding tax (Kapitalertragsteuer) at a rate of 20 per cent. (§§ 43(1)
sentence 1 no. 1, 43a(1) no. 1 EStG) plus solidarity surcharge thereon at a rate of 5.5 per cent. (i.e. aggregate tax
burden 21.1 per cent.). The withholding tax is withheld by the corporation (§ 44(1) sentence 3 EStG), i.e. the
Issuer.

     Creditability of German withholding tax
     Any German withholding tax (Kapitalertragsteuer) and solidarity surcharge thereon is creditable against
German individual or, if any, corporate income tax, and, to the extent the total German income tax liability of the
investor resident in Germany will be less than the amounts withheld, will be refunded.

Investors not resident in Germany
    If the Bonds are held as business assets of in a permanent establishment or by a permanent representative in
Germany, the principles set out above regarding German tax residents, apply.
                                                                                            a
     Interest payments to investors who are not subject to unlimited tax liability (unbeschr¨ nkte Steuerpflicht) in
Germany and do not hold the Bonds as domestic business assets or with a domestic permanent representative
are — in general — not subject to German income and corporate income tax and solidarity surcharge. By most of
the Double Taxation Conventions (DTC) the right of taxation of interest income is granted to the state of

                                                          82
residence of the receiver of the interest payments. However, the withholding tax on investment income at a rate of
25 per cent. plus solidarity surcharge at a rate of 5.5 per cent. thereon has to be withheld irrespective of the tax
residence of the investor.
     Dividend payments made to investors which are not tax residents and do not hold the Shares in a permanent
establishment or through a permanent representative in Germany are subject to withholding tax
(Kapitalertragsteuer) at the rate of 20 per cent. plus solidarity surcharge at a rate of 5.5 per cent. thereon (i.e.
aggregate withholding tax charge of 21.1 per cent.). Under various DTCs the withholding tax rate on distributed
dividends is reduced to 15 per cent. (various DTCs provide for further reductions if the foreign corporate investor
holds a qualifying participation of 10 per cent. or 25 per cent.).
     Should a DTC be applicable, the investor is entitled to request a refund of withholding taxes on interest and
dividend payments in accordance with the provisions of such DTC from the Federal Tax Office (Bundesamt f¨ r      u
Finanzen, Friedhofstraße 1, D-53221 Bonn) by using the official forms which are available from the Federal Tax
Office or German embassies /consulates).
     The availability of a tax credit in respect of German withholding tax amounts may be restricted under the tax
law applicable in the jurisdiction of residence of such non-resident investors.

Inheritance and Gift Tax
     Transfer of Bonds by reason of death or by way of a gift are subject to German gift or inheritance tax —
usually at the lowest market value of the Bonds at the relevant date — provided that
     (a) the decedent or donor or the heir, donee or any other beneficiary at the time of the death or the execution
of the gift have their domiciles or their habituals in Germany or are German citizens who have not been living
abroad for a continuing period of more than five years without having a domicile in Germany, or
     (b) except for the case under (a), the Bonds were part of the assets of the business of the decedent or donor
for which a German permanent establishment was maintained or a permanent representative was appointed.

Other Taxes
     The purchase or disposition of Bonds is not subject to any stock exchange transfer tax, company tax, stamp
duty or similar tax in Germany. At present, a wealth tax is not levied in Germany.
     The foregoing tax considerations are not exhaustive. They do not address specific facts or circumstances that
may be relevant in each individual case. Investors or other interested persons are therefore advised to consult their
own tax advisors in connection with the holding and acquisition of Bonds, their disposal and their redemption as
well as their conversion into Shares.




                                                         83
                                    CLEARANCE AND SETTLEMENT
     The Bonds are initially represented by a Temporary Global Bond in bearer form without interest coupons.
The Temporary Global Bond has been deposited on the Issue Date with a common depository for Euroclear and
Clearstream Luxembourg. Upon receipt of certification as to non-US beneficial ownership, the Temporary Global
Bond will be exchangeable for a Permanent Global Bond in bearer form without interest coupons.
     The Temporary Global Bond and the Permanent Global Bond will be kept in custody by a common
depository for Euroclear and Clearstream Luxembourg until all obligations of Lufthansa under the Bonds have
been satisfied. A copy of the Global Bond is available to the Bondholders free of charge at the office of the
Paying and Conversion Agent. Definitive certificates representing individual Bonds and interest coupons shall be
issued only in the limited circumstances described in § 2(2) of the Terms and Conditions.
     The Bonds shall be transferable by appropriate entries in securities accounts in accordance to the applicable
rules of Euroclear and Clearstream Luxembourg.




                                                       84
                                                                SUBSCRIPTION AND SALE

Underwriting Arrangements
     Subject to the terms and conditions set forth in the Subscription Agreement dated 2 January 2002 (the
‘‘Subscription Agreement’’), the Issuer issued and sold to Morgan Stanley & Co. International Limited (the ‘‘Sole
Lead Manager’’), Dresdner Bank Aktiengesellschaft and Salomon Brothers International Limited (together, the
‘‘Managers’’) and each of the Managers severally purchased 750,000 Bonds convertible into registered shares
with limited transferability of Lufthansa (vinkulierte Namensaktie) in the principal amounts set forth opposite its
name below:
                                                                                                                                                                  Principal
Manager of Bonds                                                                                                                                                   Amount
                                                                                                                                                                   5
Morgan Stanley & Co. International Limited....................................................................................                                600,000,000
Dresdner Bank Aktiengesellschaft .....................................................................................................                         75,000,000
Salomon Brothers International Limited............................................................................................                             75,000,000
Total .....................................................................................................................................................   750,000,000

     Under the terms and conditions of the Subscription Agreement, the Managers are committed to purchase all
of the Bonds, if any are taken, at the purchase price of 100 per cent. of their principal amount. Commissions will
be charged separately.
      The Managers have offered the Bonds directly to investors at the issue price set forth on the cover page of
this Information Memorandum (the ‘‘Issue Price’’) and delivered the Bonds to such investors on 4 January 2002.
     The Issuer has agreed that, subject to applicable statutory law, for a three-month period commencing on the
Issue Date it will not, and to the extent legally possible, will cause its subsidiaries not to, issue, offer, sell or
otherwise undertake to sell or dispose of (i) any securities in the form of bonds convertible into or exchangeable
for Shares or Shares, (ii) other securities which are convertible into or exchangeable for or grant the right to
subscribe for or receive Shares, or (iii) other similar securities or (iv) enter into any derivative transaction having
a similar economic effect to the foregoing, in each case of (i) through (iv) without the prior written consent (such
consent not to be unreasonably withheld) of the Sole Lead Manager.
     The Subscription Agreement contains representations and warranties of the Issuer relating, inter alia, to the
accuracy of the information contained in this Information Memorandum. In addition, the Issuer has agreed to
indemnify the Managers against certain liabilities in connection with the offering of the Bonds.

Selling Restrictions
Federal Republic of Germany
     Each Manager acknowledges that it, its affiliates and any person acting on its behalf has only offered and
sold and will only offer and sell the Bonds in the Federal Republic of Germany (‘‘Germany’’) in compliance with
the provisions of the German Securities Sales Prospectus Act (Wertpapier-Verkaufsprospektgesetz).

Netherlands
     Each Manager acknowledges that in the Netherlands, the Bonds may only be offered, transferred, delivered
or sold to individuals or legal entities who or which trade or invest in securities in the conduct of their profession
or trade, which include banks, brokers, dealers, insurance companies, pension funds and other institutional
investors, and commercial enterprises which regularly, as an ancillary activity, invest in securities.

United States of America
    Each Manager acknowledges that the Bonds have not been and will not be registered under the US Securities
Act of 1933, as amended (the ‘‘Securities Act’’), and may not be offered or sold within the US or to, or for the

                                                                                       85
account or benefit of US persons except in accordance with Regulation S under the Securities Act
(‘‘Regulation S’’) or pursuant to another exemption from the registration requirements of the Securities Act.

     Each Manager acknowledges that the Bonds may be offered or sold (i) as part of their distribution at any
time and (ii) otherwise until 40 days after the later of the commencement of the Offering and the Settlement Date,
only in accordance with Rule 903 of Regulation S; accordingly, neither such Manager, its affiliates, as defined in
rule 501(B) of Regulation D under the Securities Act (‘‘Affiliates’’) nor any persons acting on its or their behalf
have engaged or will engage in any directed selling efforts (within the meaning of Regulation S) or general
solicitation or general advertising (within the meaning of Rule 502(c) under the Securities Act), with respect to
the Bonds, and such Manager, its Affiliates and any such persons have complied and will comply with the
offering restrictions requirement of Regulation S.

      Each Manager acknowledges that at or prior to confirmation of sales of the Bonds, it will have sent to each
distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Bonds from
it during the restricted period a confirmation or notice to substantially the following effect: ‘‘The Securities
covered hereby have not been registered under the US Securities Act of 1933 (the ‘‘Securities Act’’) and may not
be offered and sold within the US or to, or for the account or benefit of, US persons (i) as part of their distribution
at any time or (ii) otherwise until 40 days after the later of the commencement of the Offering and the Settlement
Date, except in either case in accordance with Regulation S under the Securities Act. Terms used above have the
meaning given to them by Regulation S.

United Kingdom

     Each Manager acknowledges that it has not offered or sold and, prior to the expiry of a period of six months
from the Settlement Date, will not offer or sell any Bonds to persons in the United Kingdom except to persons
whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal
or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not
result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities
Regulations 1995.

     Each Manager acknowledges that it has only communicated or caused to be communicated and will only
communicate or cause to be communicated any invitation or inducement to engage in investment activity (within
the meaning of section 21 of the Financial Services and Markets Act 2000 (the ‘‘FSMA’’)) received by it in
connection with the issue or sale of any Bonds in circumstances in which section 21(1) of the FSMA does not
apply to the Issuer.

    Each Manager acknowledges that it has complied and will comply with all applicable provisions of the
FSMA with respect to anything done by it in relation to the Bonds in, from or otherwise involving the United
Kingdom.

General

     Each Manager acknowledges that it, its affiliates and any person acting on its behalf will comply with all
applicable securities laws in each jurisdiction in which it purchases, offers, sells or delivers bonds or have in
possession or distribute the Information Memorandum or any other offering material relating to the Bonds.




                                                         86
                                          TRANSFER RESTRICTIONS

    Because of the following restrictions, purchasers of the Bonds should consult legal counsel prior to making
any offer, resale, pledge or otherwise transfer of the Bonds offered in this Information Memorandum. Terms
defined in Regulation S under the US Securities Act shall have the same meanings when used in this section.

     The Bonds have not been and will not be registered under the Securities Act or any other state securities law.
The Bonds may not be offered or sold within the US to, or for the account or benefit of, US persons, except under
an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and
applicable state securities laws. The Bonds are being offered and sold outside the US under the exemption to US
securities registration afforded by Regulation S.

     Each prospective purchaser of Bonds offered in reliance on Regulation S, by accepting delivery of this
Information Memorandum, will be deemed to have acknowledged, represented and agreed with the Issuer and the
Underwriter as follows:

     ) The Bonds have not been and will not be registered under the Securities Act or with any securities
       regulatory authority of any state or territory of the US and are subject to significant restrictions on
       transfer;

     ) The purchaser (and the person, if any, for whose account it is acquiring the Bonds) is outside the US and
       is not a US person (as that term is defined under Regulation S) and is acquiring the Bonds in an offshore
       transaction meeting the requirements of Regulation S;

     ) The purchaser is not an affiliate of the Issuer or a person acting on behalf of such an affiliate, and the
       purchaser is not in the business of buying and selling securities or, if it is in such business, it did not
       acquire the Bonds from the Issuer or an affiliate thereof in the initial distribution of the Bonds; and

     ) Such purchaser will not, prior to the expiration of 40 days after the last closing date of the Offering (the
       ‘‘Restricted Period’’), offer, sell, pledge or otherwise transfer any interest in the Bonds except (i) in an
       offshore transaction in accordance with Regulation S or (ii) under an applicable exemption from
       registration under the Securities Act, in each case in accordance with any applicable securities laws of any
       state or territory of the US and any other jurisdiction.

     Upon the expiration of the Restricted Period, the Bonds offered in reliance on Regulation S will no longer be
subject to this restriction on resale and transfer, if, at the time of such expiration, the offer or sale of such Bonds
in the US would not be restricted under the securities laws of the US or any other State of the US.




                                                          87
                                           GENERAL INFORMATION

Authorization
     The issue of the Bonds by Lufthansa has been duly authorized by a resolution of the shareholders’ meeting
held on 16 June 1999 and by resolutions Lufthansa’s Executive Board and Supervisory Board on 5 December
2001. In relation to its authorization of the issuance of the Bonds, the shareholders’ meeting’s on 16 June 1999
also resolved on the creation of conditional capital for effecting a conditional increase in the share capital of up to
4 97,689,600 through issue of up to 38,160,000 new registered shares with limited transferability. New shares out
of the conditional capital will only be issued upon Bondholders exercising their Conversion Rights. Subject to
admission, the new shares may be traded with official quotation (im amtlichen Handel) on all eight German stock
exchanges.

Listing Information
     Application has been made to list the Bonds on the Luxembourg Stock Exchange.
    A legal notice containing information regarding the issue of the Bonds and Lufthansa’s Articles of
                                                                                                          `
Association has been registered and deposited with the Greffier en Chef du Tribunal d’Arrondissement de et a
Luxembourg, where copies thereof may be inspected and obtained.
     Copies of Lufthansa’s Articles of Association and copies of the agency agreement dated 3 January 2002 (the
‘‘Agency Agreement’’) between Lufthansa and Citibank N.A., as principal paying and conversion agent as well
                                                      `                  ee
as calculation agent and Dexia Banque Internationale a Luxembourg, soci´ t´ anonyme, as paying and conversion
                                                                      `                  ee
agent may be inspected and obtained at Dexia Banque Internationale a Luxembourg, soci´ t´ anonyme, 69, route
d’Esch, L-1470 Luxembourg.
     The documents incorporated by reference into this Information Memorandum and Lufthansa’s financial
statements (unaudited quarterly consolidated interim reports, audited consolidated and unconsolidated annual
reports) for future periods (such financial statements not incorporated by reference into this Information
Memorandum) may be inspected and obtained without charge at the offices of Dexia Banque Internationale a    `
                  ee
Luxembourg, soci´ t´ anonyme, 69, route d’Esch, L-1470 Luxembourg, as long as the Bonds are listed on the
Luxembourg Stock Exchange and the rules of such stock exchange so require.
     For so long as the Bonds are listed on the Luxembourg Stock Exchange and the rules of such stock exchange
so require, Lufthansa will maintain a paying agent and conversion agent in Luxembourg. All payments of
principal and interest on the Bonds and any cash payment to Bondholders exercising their Conversion Rights will
be made through the Paying and Conversion Agent.

Use of Proceeds
      The net proceeds raised from the issuance of the Bonds, after deduction of estimated fees and expenses of
4 11m, amount to approximately 4 739m. The proceeds will be used for the refinancing of existing short term
liabilities and general corporate purposes.

Litigation
      Save as disclosed in this Information Memorandum, neither Lufthansa nor any subsidiary is involved in any
litigation or arbitration proceedings that, if determined adversely to Lufthansa or subsidiary, would, in the
aggregate, have a material adverse effect on the conditions (financial or otherwise) of the Lufthansa Group, taken
as a whole, nor is Lufthansa aware that any such proceedings are threatened.

Material Change
     There has been no material adverse change in the capitalization and indebtedness of the Lufthansa Group
since 31 December 2000 except as otherwise disclosed in this Information Memorandum.

                                                          88
                 SUMMARY OF CERTAIN SIGNIFICANT DIFFERENCES BETWEEN
                GERMAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
                        INTERNATIONAL ACCOUNTING STANDARDS
     While the consolidated financial statements of the Lufthansa Group have been prepared in accordance with
International Accounting Standards (‘‘IAS’’), Lufthansa’s financial statements included in this Information
Memorandum have been prepared in accordance with the generally accepted accounting principles in Germany
(‘‘German GAAP’’). German GAAP differ in certain significant aspects from IAS.
    The following sets forth, in the opinion of Lufthansa, the principal differences between German GAAP and
IAS relevant to the determination of net profit and shareholders’ equity for Lufthansa’s German GAAP annual
financial statements for 1998 to 2000.

Aircraft
      In order to obtain favorable tax treatment, certain tax option rights must be exercised in Lufthansa’s German
GAAP financial statements. Lufthansa exercised such tax options, particularly with respect to the establishment
                                                                  u
of special items with an equity portion (Sonderposten mit R¨ cklageanteil). Such special items with an equity
portion relate almost exclusively to the depreciation of aircraft in accordance with § 82f German Income Tax
                                         u
Regulation (Einkommensteuer-Durchf¨ hrungsverordnung). Such tax option rights may not be recorded under
IAS. After expiration of the tax option right under § 82f German Income Tax Regulation at the end of 1998,
Lufthansa started using the declining-balance depreciation method instead of the straight-line depreciation
method for newly acquired aircraft. Under IAS 16, the declining-balance depreciation method is only permissible
if it reflects the pattern in which the asset’s economic benefits are consumed by the enterprise.
     Furthermore, Lufthansa applies a tax rule allowing a full-year and a half-year write down, respectively, of
aircraft acquired during the first six and the second six months of the relevant financial year. Under IAS 16,
depreciation is commenced at the date of acquisition.

Leasing
     Under German GAAP, beneficial ownership of the leased asset is generally assigned to the lessor, as long as
the terms and conditions of the lease agreement are consistent with applicable German tax regulations. Neither
the leased asset nor the corresponding obligation are included in the balance sheet. Thus, leasing charges are
shown as an expense in the lessee’s profit and loss account.
      Similarly, under IAS 17 leases are qualified as finance leases, if the lessee substantially bears all risks and is
entitled to all rewards in relation to the aircraft. In contrast to German GAAP, IAS 17 further provides that
aircraft subject to finance leases are assigned to the lessee. Under IAS, leased assets classified as finance leases
and the resulting obligations of the lessee are recorded on the lessee’s balance sheet.

Recognition of self-developed intangible assets
     Under German GAAP, costs incurred in the self-development of intangible assets (including research and
development costs stemming from the development of internally used software) may not be recorded as an asset.
     Under IAS 38, development costs (including those for self-developed software) must be recorded as an asset
if certain recognition conditions for intangible assets are fulfilled.

Percentage-of-completion method for certain construction contracts
     Under German GAAP construction contracts extending beyond the current financial year are recorded under
the completed-contract method, pursuant to which income or expenses are recognized when realized.
     Under IAS 11, the percentage-of-completion method is applicable if certain conditions with respect to a
reliable estimate of contract revenue and contract costs are fulfilled. The percentage-of-completion method
permits revenue and expense recognition according to the stage of completion of the construction contract.

                                                         89
Provisions
     Under German law, financial statements prepared for commercial purposes also form the basis for the
company’s tax accounts. Thus, tax considerations substantially influence the preparation of the financial
statements, and companies may tend to apply more conservative valuation methods in their financial statements.
German GAAP require accruals or provisions to be established for uncertain liabilities and loss contingencies.
The amount of these accruals or provisions is determined by a reasonable and prudent estimate reflecting the
expected expenses. Provisions for uncertain liabilities must be established as soon as, in the view of a prudent
business person, such liabilities are expected. Moreover, under German GAAP, a company may establish a
provision in relation to certain identified future expenses (whether or not such expenses relate to a third party
commitment), if the expenses resulted from an event in the current or any previous year.
     Under IAS 37, a provision should be established when (i) a company has a present obligation (legal or
constructive) as a result of a past event, (ii) it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation, and (iii) a reliable estimate can be made of the amount of the
obligation. In this context, ‘‘probable’’ is defined as ‘‘more likely than not’’ and ‘‘obligation’’ is considered to
exclusively relate to obligations in relation to third parties.
     Under German GAAP, long-term provisions may only be established at their present value to the extent that
the expenditures for which they are established include an interest portion.
     By contrast, IAS 37 requires the establishment of such provisions at their present value, if the effect of the
time value of money is material.

Pensions and Similar Benefits
     Under German GAAP, the obligations for pensions and similar benefits provided by a company are accrued
uniformly over the service lives of employees. Such accruals are determined on the basis of actuarial principles
using a modified entry age method and an interest rate of 6 per cent. p.a. as prescribed by the German tax code.
     Under IAS 19, unbiased and mutually compatible actuarial assumptions regarding the future development of
key variables such as interest rates, compensation and pension increases must be made. IAS 19 requires an
enterprise to use the projected unit credit method.

Foreign Currency
     Under German GAAP, unrealized currency exchange gains with respect to long-term accounts receivable or
long-term accounts payable in foreign currency cannot be recognized at the balance sheet date, whereas
unrealized currency exchange losses should be recognized.
    According to IAS 21, value changes with respect to long- or short-term accounts receivable or accounts
payable in foreign currency are recognized as profit or loss.

Deferred Taxes
     Under German GAAP, deferred taxes are recognized exclusively in relation to timing differences between
the taxable income and the profit before taxation as shown in the profit and loss account under German GAAP.
Such timing differences must be recognized on a net basis. German GAAP requires a deferred tax liability to be
recorded in the financial statements. Where a deferred tax asset arises, German GAAP allows a company the
option of its recognition.
     Under IAS 12, deferred taxes are recognized in relation to all taxable and deductible temporary differences,
including the carryforward of unused tax losses and unused tax credits, to the extent that it is probable that future
taxable profits will be available against which the unused tax losses and unused tax credits can be utilized. The
measurement of deferred taxes is based upon tax rates that have been enacted or substantively enacted by the
balance sheet date.

                                                         90
                              DEFINITIONS AND INDUSTRY TERMS

Definitions

  IATA                                International Air Transport Association

  LSG                                 LSG Lufthansa Service Holding AG

  LSG Sky Chefs Group                 LSG Lufthansa Service Holding AG and its consolidated
                                      subsidiaries

  Lufthansa                           Deutsche Lufthansa Aktiengesellschaft

  Lufthansa Cargo                     Lufthansa Cargo AG

  Lufthansa CityLine                  Lufthansa CityLine GmbH

  Lufthansa Commercial Holding        Lufthansa Commercial Holding GmbH

  Lufthansa Group                     Lufthansa and its consolidated subsidiaries

  Lufthansa Systems                   Lufthansa Systems Group GmbH

  Lufthansa Technik                   Lufthansa Technik AG

  Lufthansa Technik Group             Lufthansa Technik AG and its consolidated subsidiaries

  Sky Chefs Group                     Onex Food Services Inc. and its consolidated subsidiaries

  Thomas Cook                         Thomas Cook AG and its consolidated subsidiaries

Industry Terms
 Operating Statistics

  revenue passenger-kilometer (RPK)   means one fare paying passenger transported one kilometer;
                                      revenue passenger-kilometers are computed by multiplying the
                                      number of revenue passengers by the kilometers they are flown

  revenue ton-kilometer               means one ton of revenue traffic transported one kilometer;
                                      revenue ton-kilometers are computed by multiplying metric tons
                                      of revenue traffic (passenger, freight and mail) by the kilometers
                                      this traffic is flown

 Capacity Measurements and Load Factors

  available seat-kilometers (ASKs)    means the total number of seats available for the transportation of
                                      revenue passengers multiplied by the number of kilometers those
                                      seats are flown

  available ton-kilometers            means the total number of metric tons available for the
                                      transportation of passengers and cargo multiplied by the number
                                      of kilometers this capacity is flown

  available cargo ton-kilometers      means the available ton-kilometers of saleable cargo capacity
                                      after allowance for all baggage assuming a 100 per cent.
                                      passenger load factor and any operational restrictions on capacity

                                               91
cargo                   means freight and mail

cargo load factor       means revenue ton-kilometers for cargo expressed as a percentage
                        of available cargo ton-kilometers

passenger load factor   means revenue passenger-kilometers expressed as a percentage of
                        available seat-kilometers

overall load factor     means revenue ton-kilometers expressed as a percentage of
                        available ton-kilometers




                                 92
                               RECENT DEVELOPMENTS AND OUTLOOK

Dramatic decline in results of operations and financial position for the last three months of 2001
     In the wake of the terrorist attacks in the US on 11 September 2001, demand for air travel declined
significantly; in the US particularly on trans-Atlantic routes, as well as in Europe and Asia. Due to the closure of
US air space commercial air traffic using and entering US airspace came to a halt in the week of the attacks
resulting in significant operating losses. The Lufthansa Group estimates its direct damages resulting from the
attacks to amount to about 4 70m during the days of the air space closure and to an overall 4 180m when
including direct and indirect damages sustained through September 2001.
     On 19 September 2001 Lufthansa’s Executive and Supervisory Board resolved on a comprehensive package
in order to secure Lufthansa Group’s liquidity and to mitigate a potential operating loss for 2001. These measures
and additional measures taken since September included capacity reductions, an immediate hiring freeze, and the
freeze of investments and other projects. In order to compensate for increased on-board and ground security costs,
Lufthansa introduced a security surcharge for passenger and cargo transport. In addition, Lufthansa applied to the
Federal Republic of Germany for compensation of the losses sustained throughout September 2001 (see ‘‘Risk
Factors — The terrorist attacks in the US on 11 September 2001 and their consequences have adversely affected
and may continue to have an adverse effect on the business of the Lufthansa Group’’).
     The Lufthansa Group’s financial results (without regard to potential write-downs of financial assets) for the
year 2001 will deteriorate compared to the financial results for the previous year, mainly due to the increased
interest payments in connection with the acquisition of the Sky Chefs Group.

Segment Passenger Business
     As a result of the dramatically declining demand, the passenger load factor dropped significantly by
approximately 10 percentage points in October 2001 in comparison to October 2000. Traffic revenue and
profitability also declined dramatically. This was due to the fact that capacity and costs could not easily be
curtailed to meet the abrupt decline in demand. In reaction to the declining demand, Lufthansa reduced its
capacity by an amount equivalent to the capacity of up to 43 aircraft. In November 2001, the passenger load
factor improved in relation to October 2001, although it was still approximately 4 percentage points below the
passenger load factor in November 2000. Also, in December 2001 the passenger load factor improved in relation
to November 2001 but was still down by 0.5 percentage points in comparison to December 2000. Such relative
improvement in the passenger load factors was a result of the capacity reductions described above.
Notwithstanding such relative improvement, the overall number of passengers carried was down by 14.6 per cent.
in December 2001 as compared to December 2000.

Segment Logistics
     In the wake of an overall weaker economic climate, Lufthansa Cargo was already exposed to declining
demand as of mid-2001. Lufthansa Cargo was primarily effected by the terrorist attacks in the US on
11 September 2001 by the ensuing closure of US air space. Demand started to normalize again in late September,
but only at the depressed levels prevailing prior to the terrorist attacks. In anticipation of the economic downturn,
Lufthansa Cargo started implementing counter-measures as early as in May 2001. Lufthansa Cargo has continued
to implement further cost-cutting measures for the remainder of the year. Lufthansa estimates that revenue losses
will almost be compensated by cost-cutting efforts.

Segment Catering
     Following the acquisition of the remaining shares in Onex Food Services, Inc., the parent company of LSG
Sky Chefs Group’s US operating entities, the LSG Sky Chefs Group’s exposure to the domestic US market
increased significantly. Consequently, the LSG Sky Chefs Group was particularly affected by the terrorist attacks
in the US on 11 September 2001 and the resulting decline not only in demand for air travel but also in demand for
in-flight catering services. See ‘‘Business Activities — Business Segment Catering — LSG Sky Chefs Group’’.
Further decreases in food service levels cannot be excluded, which would result in a further decline in demand for

                                                         93
the products and services offered by LSG Sky Chefs Group. Management of the LSG Sky Chefs Group is
continuing to implement a comprehensive cost-cutting program, which has already encompassed significant
work-force dismissals, especially in the US.

Segment Maintenance, Repair and Overhaul
     Due to comparatively stable demand for maintenance, repair and overhaul services, Lufthansa Technik has
not yet been as affected by the consequences of the terrorist attacks in the US on 11 September 2001 as other
business segments of the Lufthansa Group. In anticipation of potential future developments, primarily stemming
from general reductions of fleet capacities throughout the world as well as deferral of discretionary maintenance,
repair and overhaul activity, management has revised Lufthansa Technik’s planning accordingly.

Segment Leisure Travel
     Thomas Cook’s 2000/2001 financial year, which ended on 31 October 2001, was relatively unaffected by the
terrorist attacks in the US on 11 September 2001 due to the dominance of prepaid bookings and the limited role
of US-related flight and travel activities in its business. However, Lufthansa currently expects no segment profits
from its participation in Thomas Cook for the year 2001. In addition, Thomas Cook has suffered a significant
decline in bookings for the upcoming seasons. In order to offset the resulting negative impact, Thomas Cook
launched a program comprising measures such as capacity reductions, staff dismissals and closures of travel
agencies to lessen the effects on profitability.

Lufthansa negotiates with Unions
      On 7 December 2001, Lufthansa reached agreement with the ‘‘ver.di’’ union and the Vereinigung Cockpit
pilots union on a package of measures aimed at reducing personnel costs. This agreement, together with the steps
already taken such as a recruitment freeze, the reduction in extra flying hours for flight crews, more part-time
offers and unpaid special leave, will assist Lufthansa to improve cashflow next year. Negotiations with VC in
relation to Lufthansa CityLine, which had stalled following the terrorist attacks in the US on 11 September 2001,
have been declared by VC to have failed and VC is currently soliciting its members’ views as to future steps,
including a potential strike.

Financing Transactions
     In the last three months of 2001, Lufthansa entered into three long-term financing agreements raising in total
an amount of approximately US$350m using aircraft as collateral: a Japanese operating lease for one Airbus
A340-300, a US cross-border lease for one Boeing 747-400 and an Asset Backed Securities transaction using
four narrow-body aircraft as collateral.

Aircraft Orders
     In December, Lufthansa ordered 15 A380-800 aircraft for deliveries commencing in late 2007.

Financial Ratings by Moody’s and Standard & Poor’s
     On 20 December 2001, the rating agencies Moody’s and Standard & Poor’s published new ratings for
Lufthansa and certain subsidiaries of the Lufthansa Group. Standard & Poor’s assigned a ‘‘BBB+’’ long-term and
‘‘A–2’’ short-term corporate credit rating to Lufthansa, each with a stable outlook. Moody’s downgraded to
‘‘Baa1’’ from ‘‘A2’’ the debt rating of Lufthansa International Finance (Netherlands) N.V., Amsterdam, The
Netherlands, a finance subsidiary of Lufthansa. At the same time, Moody’s assigned a ‘‘Prime–2’’ short-term
rating to Lufthansa. In a related action, Moody’s downgraded to ‘‘Ba1’’ from ‘‘Baa1’’ the ratings for secured debt
by Lufthansa catering subsidiaries SC International Services, Inc. and Caterair International Corporation. The
outlook for all the ratings has been changed by Moody’s to negative. According to Moody’s, this decision was
based on the challenging industry conditions and the concern that air travel may remain depressed for a prolonged
period of time.

                                                       94
LSG Shareholder Loans
     At the end of 2001, Lufthansa has agreed with LSG to forgive a portion of Lufthansa’s shareholder loans to
the LSG Sky Chefs Group. The forgiven portion amounts to 4 500m.

Outlook
     Based on current booking levels and general economic data, Lufthansa does not expect the situation to
significantly improve during the first six months of 2002. As capacity has already been reduced in order to meet
the declining demand, Lufthansa will focus on improving cashflow by carefully controlling projects and
investments and concentrating on additional cost-cutting efforts.




                                                      95
                                               INDEX TO THE FINANCIAL STATEMENTS
                                                         OF LUFTHANSA
                                                                                                                                                                   Page

LUFTHANSA CONDENSED GROUP REPORT JANUARY TO SEPTEMBER 2001 ......................                                                                                  F-2
Condensed Consolidated Income Statement ..................................................................................................                         F-3
Condensed Cash Flow Statement ...................................................................................................................                  F-4
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF LUFTHANSA FOR THE
  YEARS 1998, 1999 AND 2000.................................................................................................................                       F-5
Condensed Consolidated Income Statement for the Financial Years 2000, 1999 and 1998 .......................                                                        F-6
Condensed Consolidated Balance Sheets as of 31 December 2000, 1999 and 1998 ..................................                                                     F-7
Lufthansa Group — Cash Flow Statement ....................................................................................................                         F-8
CONDENSED FINANCIAL STATEMENTS OF LUFTHANSA FOR
  THE YEARS 1998, 1999 AND 2000.......................................................................................................                             F-9
Condensed Profit and Loss Account for Fiscal Years 2000, 1999 and 1998...............................................                                               F-10
Condensed Balance Sheets as of 31 December, 2000, 1999 and 1998........................................................                                            F-11
CONSOLIDATED FINANCIAL STATEMENTS OF LUFTHANSA FOR THE YEAR 2000...........                                                                                        F-12
Consolidated Income Statement for the Financial Year 2000.......................................................................                                   F-13
Consolidated Balance Sheet as of 31 December 2000..................................................................................                                F-14
Schedule of the Lufthansa Group Equity Capital..........................................................................................                           F-15
Lufthansa Group — Cash Flow Statement ....................................................................................................                         F-16
Notes to the Consolidated Financial Statements of Lufthansa 2000 ............................................................                                      F-17
Notes to the Consolidated Income Statement ................................................................................................                        F-24
Notes to the Consolidated Balance Sheet — Assets .....................................................................................                             F-31
Notes to the Consolidated Balance Sheet — Equity and Liabilities ............................................................                                      F-40
Other disclosures .............................................................................................................................................    F-47
Supervisory Board and Executive Board........................................................................................................                      F-58
Independent Auditors’ Report.........................................................................................................................              F-62
FINANCIAL STATEMENTS OF LUFTHANSA FOR THE YEAR 2000 ............................................                                                                   F-63
Balance Sheet as of 31 December 2000 ........................................................................................................                      F-65
Profit and Loss Account for Fiscal Year 2000 ..............................................................................................                         F-66
Statement of Fixed Assets Movements 2000 .................................................................................................                         F-67
Notes to Lufthansa Financial Statements for the year 2000 .........................................................................                                F-68
Notes to Balance Sheet Items — Assets........................................................................................................                      F-70
Notes to Balance Sheet Items — Liabilities and shareholders’ equity ........................................................                                       F-72
Notes to Profit and Loss Accounts.................................................................................................................                  F-76
Supervisory Board and Executive Board........................................................................................................                      F-80
Audit opinion...................................................................................................................................................   F-85




                                                                                   F-1
       LUFTHANSA
 CONDENSED GROUP REPORT
JANUARY TO SEPTEMBER 2001




           F-2
                          LUFTHANSA — GROUP REPORT JANUARY TO SEPTEMBER 2001

                                                   Condensed Consolidated Income Statement
                                                                                                             Jan-Sep   Jan-Sep   Change in
                                                                                                                2001      2000    per cent
                                                                                                                 5m        5m
Traffic revenue .....................................................................................          9,455     8,959         5.5
Other revenue .......................................................................................         2,859     1,842        55.2
Revenue ...............................................................................................      12,314    10,801        14.0
Other operating income/increase in finished and unfinished
  goods /own work capitalised ............................................................                      772     1,287       (40.0)
Total operating income......................................................................                 13,086    12,088         8.3
Cost of materials..................................................................................           5,765     4,709        22.4
Staff costs.............................................................................................      3,049     2,617        16.5
Depreciation and amortisation expense ..............................................                            872       745        17.0
Other operating expenses.....................................................................                 2,914     2,920         (0.2)
Total operating expenses ...................................................................                 12,600    10,991        14.6
Profit from operating activities ........................................................                        486     1,097       (55.7)
Operating result .................................................................................              290       794       (63.5)
Income from subsidiaries, joint ventures and associates ...................                                      37        67       (44.8)
Interest result including other financial items ....................................                            (277)     (236)      (17.4)
Financial result...................................................................................            (240)     (169)      (42.0)
Profit from ordinary activities .........................................................                        246       928       (73.5)
Taxes.....................................................................................................     (173)     (253)       31.6
Minority interest...................................................................................             (8)       (3)     (166.7)
Net profit for the period ...................................................................                     65       672       (90.3)
Earnings per share.............................................................................               50.17     51.76       (90.3)


* Figures not comparable due to change in group of consolidated companies.




                                                                                    F-3
                      LUFTHANSA — GROUP REPORT JANUARY TO SEPTEMBER 2001

                                                 Condensed Cash Flow Statement
                                                                                          Jan-Sep   Jan-Sep   Change in
                                                                                             2001      2000    per cent
                                                                                              5m        5m
Cash and cash equivalents at beginning of period........................                     386       225        71.6
Cash flows from operating activities...................................................     1,203     1,835       (34.4)
Cash outflows for investing activities .................................................   (1,428)   (1,045)       36.7
Cash inflows/outflows from financing activities ................................                115      (399)         —
Net increase/decrease in cash and cash equivalents...........................               (110)      391          —
Cash and cash equivalents at end of period ..................................                276       616       (56.2)




                                                                     F-4
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
               OF LUFTHANSA
       FOR THE YEARS 1998, 1999 AND 2000




                    F-5
                                                                      LUFTHANSA — GROUP REPORT

                Condensed Consolidated Income Statement for the Financial Years 2000, 1999 and 1998
                              According to International Accounting Standards (IAS)
                                                                                                                   2000         1999           1999           1998
                                                                                                                     5m          5m      DM million     DM million
Traffic revenue ...................................................................................             12,549.2     10,676.7        20,881.9       19,852.2
Other revenue.....................................................................................              2,651.2      2,118.0         4,142.5        3,102.6
Revenue .............................................................................................          15,200.4     12,794.7        25,024.4       22,954.8
Changes in inventories and work performed by the enterprise
  and capitalised ...............................................................................                  41.3         59.1           115.6           64.1
Other operating income.....................................................................                     1,644.2      1,354.4         2,649.0        2,595.6
Total operating income ...................................................................                     16,885.9     14,208.2        27,789.0       25,614.5
Cost of materials ...............................................................................              (6,618.2)    (5,320.6)      (10,406.2)      (9,185.9)
Staff costs ..........................................................................................         (3,624.9)    (3,232.2)       (6,321.6)      (5,607.7)
Depreciation and amortisation expense ............................................                             (1,022.4)      (933.4)       (1,825.6)      (1,693.6)
Other operating expenses ..................................................................                    (4,138.4)    (3,709.7)       (7,255.6)      (6,282.4)
Total operating expenses.................................................................                      (15,403.9)   (13,195.9)      25,809.0      (22,769.6)
Profit from operating activities......................................................                            1,482.0      1,012.3        1,980.0        2,844.9
Income from subsidiaries, joint ventures and associates.................                                            64.7        284.7          556.9          260.1
Interest result including other financial items..................................                                  (331.4)      (294.1)        (575.3)        (622.9)
Financial result ................................................................................                (266.7)        (9.4)          (18.4)        (362.8)
Profit from ordinary activities .......................................................                          1,215.3      1,002.9         1,961.6        2,482.1
Other taxes.........................................................................................              (26.4)       (28.7)          (56.1)         (35.3)
Profit before income taxes ..............................................................                        1,188.9         974.2        1,905.5        2,446.8
Income taxes ......................................................................................              (502.9)       (334.6)        (654.5)      (1,015.1)
Minority interest ................................................................................                  3.0          (9.2)         (18.1)          (1.0)
Net profit for the period .................................................................                         689.0        630.4       1,232.9        1,430.7
Earnings per share ..........................................................................                     5 1.81       5 1.65      DM 3.23        DM 3.75




                                                                                                         F-6
                                                       LUFTHANSA — GROUP REPORT

                   Condensed Consolidated Balance Sheets as of 31 December 2000, 1999 and 1998
                              According to International Accounting Standards (IAS)
                                                                                             31.12.2000   31.12.1999    31.12.1999    31.12.1998
                                                                                                    5m           5m    DM million    DM million
Assets
Fixed assets............................................................................     10,733.1      9,351.8      18,290.5      16,444.8
Repairable aircraft spare parts ..............................................                  348.9        319.8         625.4         595.5
                                                                                             11,082.0      9,671.6      18,915.9      17,040.3
Current assets.........................................................................       3,666.0      2,916.4       5,704.1       6,662.6
Income tax assets ..................................................................             18.7        263.9         516.1         261.6
Prepaid expenses....................................................................             43.7         35.2          68.9          75.8
Total assets............................................................................     14,810.4     12,887.1      25,205.0      24,040.3
Equity and liabilities
Issued capital .........................................................................        976.9        976.9       1,910.6       1,908.0
Capital reserve .......................................................................         680.8        680.8       1,331.5       1,331.5
Retained earnings ..................................................................          1,766.8      1,403.4       2,745.0       1,791.4
Net profit for the period........................................................                689.0        630.4       1,232.9       1,430.7
Capital and reserves............................................................              4,113.5      3,691.5       7,220.0       6,461.6
Minority interest ..................................................................             51.3         41.5          81.2          19.4
Provisions and accruals ......................................................                5,942.8      5,082.7       9,940.9       9,928.0
Liabilities ..............................................................................    4,461.4      3,812.2       7,455.9       7,122.1
Deferred income...................................................................              241.4        259.2         507.0         509.2
Total equity and liabilities..................................................               14,810.4     12,887.1      25,205.0      24,040.3




                                                                                  F-7
                                                LUFTHANSA — GROUP REPORT

                                        Lufthansa Group — Cash Flow Statement
                                  According to International Accounting Standards (IAS)
                                                                                   2000      1999          1999         1998
                                                                                    5m        5m     DM million   DM million
Cash Flow Statement
Cash and cash equivalents on 1 January ...............                           225.0     641.6       1,254.9      2,648.4
Cash flows from operating activities...........................                 2,140.2     808.9       1,582.1      3,637.9
Net cash used in investing activities including
  investments in securities ..........................................         (1,727.1)   (769.1)    (1,504.3)    (3,144.6)
Net cash used in financing activities ..........................                  (262.2)   (452.7)      (885.4)    (1,887.2)
Net decrease/increase in cash and cash equivalents...                            150.9     (412.9)      (807.6)    (1,393.9)
Effects of exchange rate changes................................                   9.9       (3.7)        (7.2)         0.4
Cash and cash equivalents on 31 December ..........                              385.8     225.0         440.1      1,254.9




                                                                         F-8
CONDENSED FINANCIAL STATEMENTS
         OF LUFTHANSA
 FOR THE YEARS 1998, 1999 AND 2000




               F-9
                                                                                                   Lufthansa

                                                   Condensed Profit and Loss Account
                                                  for Fiscal Years 2000, 1999 and 1998
                                  According to German Generally Accepted Accounting Principles (HGB)
                                                                                                                                2000        1999           1999           1998
                                                                                                                                  5m         5m      DM million     DM million
Traffic revenue ....................................................................................................          9,383.7     8,131.1        15,903.1       15,349.3
Other revenue......................................................................................................            443.7       378.0           739.4          676.9
Turnover.............................................................................................................         9,827.4     8,509.1       16,642.5       16,026.2
Other operating income......................................................................................                  1,267.8     1,122.2        2,194.8        1,731.5
Total operating income ....................................................................................                  11,095.2     9,631.3       18,837.3       17,757.7
Cost of materials ................................................................................................           (4,831.5)   (3,958.3)      (7,741.8)      (7,072.0)
Personnel expenses .............................................................................................             (1,899.2)   (1,738.0)      (3,399.3)      (3,155.2)
Depreciation ........................................................................................................          (926.7)     (611.5)      (1,196.0)      (1,066.9)
Other operating expenses ...................................................................................                 (3,265.1)   (2,778.6)      (5,434.4)      (5,087.4)
Total operating expenses..................................................................................                  (10,922.5)   (9,086.4)     (17,771.5)     (16,381.5)
Operating profit ................................................................................................               172.7       544.9         1,065.8        1,376.2
Income from subsidiaries and associated companies........................................                                      550.3       138.8           271.4          712.1
Interest result including other financial items ...................................................                              20.5        70.7           138.4         (131.4)
Financial result .................................................................................................              570.8      209.5           409.8          580.7
Profit on ordinary activities before taxation.................................................                                   743.5      754.4         1,475.6        1,956.9
Taxes ...................................................................................................................      (298.4)    (352.1)         (688.7)      (1,172.5)
Net profit for the year......................................................................................                    445.1      402.3           786.9          784.4
Transfer to retained earnings .............................................................................                    (216.1)    (187.7)         (367.1)        (364.6)
Dividends............................................................................................................          229.0       214.6          419.8          419.8




                                                                                                         F-10
                                                                                                Lufthansa

                                   Condensed Balance Sheets as of 31 December 2000, 1999 and 1998
                                 According to German Generally Accepted Accounting Principles (HGB)
                                                                                                      31.12.2000      31.12.1999    31.12.1999    31.12.1998
                                                                                                               5m            5m    DM million    DM million
Assets
Total fixed assets .........................................................................                 7,220.1      6,436.2      12,588.0      11,461.1
Current assets .............................................................................                2,830.6      2,405.0       4,703.8       6,033.5
Prepaid expenses.........................................................................                     122.9        131.2         256.6         297.0
                                                                                                           10,173.6      8,972.4      17,548.4      17,791.6

Liabilities and shareholders’ equity
Capital stock .................................................................................              976.9         976.9       1,910.6       1,908.0
Reserves
— share premiums .......................................................................                      680.8        680.8       1,331.5       1,331.5
— retained earnings .....................................................................                   1,031.6        815.6       1,595.1       1,230.6
Dividends ......................................................................................              229.0        214.6         419.8         419.8
Shareholders’ equity...................................................................                     2,918.3      2,687.9       5,257.0       4,889.9
Special items with an equity portion .......................................                                  702.7        822.6       1,608.9       1,810.3
Provisions.....................................................................................             4,296.1      3,757.7       7,349.4       7,490.8
Liabilities .....................................................................................           2,227.1      1,689.5       3,304.4       3,599.9
Deferred income..........................................................................                      29.4         14.7          28.7           0.7
                                                                                                           10,173.6      8,972.4      17,548.4      17,791.6




                                                                                                    F-11
 CONSOLIDATED FINANCIAL
STATEMENTS OF LUFTHANSA
    FOR THE YEAR 2000




          F-12
                                    Consolidated Income Statement for the Financial Year 2000
                                                                                                           Notes       2000        1999
                                                                                                                        5m          5m
Traffic revenue .....................................................................................          6)   12,549.2    10,676.7
Other revenue .......................................................................................         7)    2,651.2     2,118.0
Revenue ...............................................................................................            15,200.4    12,794.7
Changes in inventories and work performed by the enterprise and
  capitalised.........................................................................................        8)       41.3        59.1
Other operating income .......................................................................                9)    1,644.2     1,354.4
Cost of materials..................................................................................          10)   (6,618.2)   (5,320.6)
Staff costs.............................................................................................     11)   (3,624.9)   (3,232.2)
Depreciation and amortisation expense ..............................................                         12)   (1,022.4)     (933.4)
Other operating expenses.....................................................................                13)   (4,138.4)   (3,709.7)
Profit from operating activities ........................................................                            1,482.0     1,012.3
Income from investments accounted for under the equity method ...                                            14)       62.7       221.8
Other income from subsidiaries, joint ventures and associates .........                                      14)        2.0        62.9
Net interest ...........................................................................................     15)     (256.2)     (219.3)
Impairment losses relating to financial assets and securities held as
  current assets....................................................................................         23)      (75.2)      (74.8)
Financial result...................................................................................                  (266.7)       (9.4)
Profit from ordinary activities .........................................................                            1,215.3     1,002.9
Other taxes ...........................................................................................      16)      (26.4)      (28.7)
Profit before income taxes ................................................................                          1,188.9       974.2
Income taxes ........................................................................................        16)     (502.9)     (334.6)
Minority interest...................................................................................                    3.0        (9.2)
Net profit for the period ...................................................................                         689.0        630.4
Earnings per share.............................................................................              17)     5 1.81      5 1.65




                                                                                  F-13
                                           Consolidated Balance Sheet as of 31 December 2000
                                                                                                             Notes   31.12.2000   31.12.1999
                                                                                                                            5m           5m
Assets
Intangible assets ...................................................................................          19)      200.3        238.3
Aircraft .................................................................................................     20)    7,404.0      6,850.4
Other tangible assets............................................................................              21)      887.1        532.4
Investments accounted for under the equity method..........................                                    23)    1,212.4      1,017.5
Other financial assets...........................................................................               23)    1,029.3        713.2
Fixed assets .........................................................................................         18)   10,733.1      9,351.8
Repairable aircraft spare parts........................................................                                 348.9        319.8
                                                                                                                     11,082.0      9,671.6
Inventories ............................................................................................       24)      252.8        231.5
Trade receivables..................................................................................            25)    1,578.3      1,281.5
Other receivables and other assets ......................................................                      25)      865.1        625.7
Securities ..............................................................................................      26)      584.0        552.7
Cash and cash equivalents...................................................................                   27)      385.8        225.0
Current assets.....................................................................................                   3,666.0      2,916.4
Income tax assets ...............................................................................              28)       18.7        263.9
Prepaid expenses ................................................................................              29)       43.7         35.2
Total assets ..........................................................................................              14,810.4     12,887.1
Equity and liabilities
Issued capital........................................................................................         30)      976.9        976.9
Capital reserve .....................................................................................          31)      680.8        680.8
Retained earnings.................................................................................             31)    1,766.8      1,403.4
Net profit for the period ......................................................................                         689.0        630.4
Capital and reserves ..........................................................................                       4,113.5      3,691.5
Minority interest ................................................................................                       51.3         41.5
Retirement benefit obligations.............................................................                            3,354.3      2,993.0
Provisions for income taxes ................................................................                            136.5         61.5
Other provisions and accruals .............................................................                           2,452.0      2,028.2
Provisions and accruals.....................................................................                   32)    5,942.8      5,082.7
Long-term borrowings .........................................................................                 33)    2,408.4      2,299.8
Trade payables .....................................................................................           34)    1,064.0        802.2
Other liabilities.....................................................................................         34)      989.0        710.2
Liabilities.............................................................................................              4,461.4      3,812.2
Deferred income .................................................................................              35)      241.4        259.2
Total equity and liabilities ................................................................                        14,810.4     12,887.1




                                                                                   F-14
                                           Schedule of the Lufthansa Group Equity Capital
                                                                                         Currency    Net profit
                                                       Issued    Capital    Retained   translation     for the
                                                       capital   reserve    earnings   differences      period     Total
                                                          5m         5m          5m           5m           5m        5m
Balance on 31 December 1998 ....                       975.5      680.8       915.6           0.4      731.5     3,303.8
Transfers ..........................................      1.4           —     515.5            —       (516.9)       —
Dividends.........................................        —             —       —             —        (214.6)   (214.6)
Net profit for the period .................                —             —       —             —         630.4     630.4
Currency translation differences .....                     —            —        —            8.2          —        8.2
Other neutral changes .....................                —            —     (36.3)           —           —      (36.3)
Balance on 31 December 1999 ....                       976.9      680.8     1,394.8           8.6      630.4     3,691.5
Transfers ..........................................      —             —     415.8          —         (415.8)       —
Dividends.........................................        —             —       —            —         (214.6)   (214.6)
Net profit for the period .................                —             —       —            —          689.0     689.0
Currency translation differences .....                    —             —        —         (14.7)          —      (14.7)
Other neutral changes .....................               —             —     (37.7)          —            —      (37.7)
Balance on
31 December 2000 .........................             976.9      680.8     1,772.9          (6.1)      689.0    4,113.5

     Currency translation differences are disclosed in the balance sheet under retained earnings. Neutral changes
result mainly from changes in the capital of investments accounted for under the equity method.

Note to Lufthansa Group Cash Flow Statement
     The cash flow statement shows the change in cash and cash equivalents of the Lufthansa Group during the
year under review. As required by IAS 7, cash flows have been divided into operating, investing and financing
activities. Cash and cash equivalents disclosed in the cash flow statement comprise exclusively cash in hand and
bank balances. The actual level of liquid funds can be determined by including securities held as current assets.




                                                                 F-15
                                                The Lufthansa Group — Cash Flow Statement
                                                                                                                                         2000        1999
                                                                                                                                          5m          5m
Cash Flow Statement
Cash and cash equivalents on 1 January ...............................................................                                 225.0       641.6
Profit before income taxes...........................................................................................                 1,188.9       974.2
Depreciation and amortisation of, and impairment losses relating to fixed assets                                                      1,054.4     1,021.6
  (net of reversals) ......................................................................................................
Depreciation of repairable aircraft spare parts ...........................................................                             71.7        41.0
Result from fixed assets disposal ................................................................................                     (388.3)     (231.9)
Result from investments accounted for under the equity method .............................                                            (62.7)     (221.8)
Net interest ...................................................................................................................       256.2       219.3
Income taxes paid ........................................................................................................            (211.2)     (922.9)
Change in inventories ..................................................................................................               (21.3)      (33.0)
Change in receivables, other assets and prepaid expenses ........................................                                     (644.6)     (692.6)
Change in provisions and accruals..............................................................................                        413.9       416.0
Change in liabilities (without borrowings) .................................................................                           540.7       245.7
Other.............................................................................................................................     (57.5)       (6.7)
Cash flows from operating activities .......................................................................                           2,140.2       808.9
Purchase of tangible assets and intangible assets ......................................................                             (1,778.5)   (1,240.7)
Purchase of financial assets.........................................................................................                   (236.7)     (244.1)
Additions to repairable aircraft spare parts ................................................................                          (100.8)      (56.3)
Proceeds from sale of non-consolidated equity investments .....................................                                         539.3       392.9
Acquisition of non-consolidated equity investments..................................................                                   (453.9)     (420.5)
Acquisition of consolidated equity investments* .......................................................                                (115.2)     (115.4)
Proceeds from disposals of intangible assets, tangible assets and                                                                       287.1       178.1
   other financial assets................................................................................................
Interest received ...........................................................................................................          107.4       107.3
Dividends received.......................................................................................................               55.5       157.3
Net cash used in investing activities ........................................................................                       (1,695.8)   (1,241.4)
Investments in securities /sale of securities.................................................................                          (31.3)      472.3
Net cash used in investing activities including investments in securities ...........                                                (1,727.1)    (769.1)
Proceeds from long-term borrowings..........................................................................                            667.3        3.1
Repayments on long-term borrowings ........................................................................                            (558.8)     (78.1)
Dividends paid .............................................................................................................           (214.6)    (214.6)
Interest paid..................................................................................................................        (156.1)    (163.1)
Net cash used in financing activities .......................................................................                           (262.2)    (452.7)
Net decrease/increase in cash and cash equivalents..............................................                                       150.9      (412.9)
Effects of exchange rate changes................................................................................                         9.9        (3.7)
Cash and cash equivalents on 31 December ..........................................................                                    385.8       225.0
Securities ......................................................................................................................      584.0       552.7
Total liquid funds.......................................................................................................              969.8       777.7
Net increase/decrease in total liquid funds.................................................................                           192.1      (888.9)

* Net of 4 0.6m (prior year: 4 54.7m).
   Note to Lufthansa Group Cash Flow Statement see page F-15.




                                                                                    F-16
                     Notes to the Consolidated Financial Statements of Lufthansa 2000

1    Fundamentals and methods
     The consolidated financial statements of Deutsche Lufthansa AG and its subsidiaries have been prepared in
accordance with the International Accounting Standards (IAS) and the interpretations of the Standing
Interpretations Committee (SIC). All standards applying to financial year 2000 have been taken into account.
IAS 10 (Events after the Balance Sheet Date) in the wording revised 1999, IAS 16 (Property, Plant and
Equipment) and IAS 22 (Business Combinations) in the wording revised 1998, IAS 37 (Provisions, Contingent
Liabilities and Contingent Assets) as well as IAS 38 (Intangible Assets) have been applied for the first time. In
addition to that, IAS 12 has already been applied voluntarily in the revised wording of October 2000.
    No accounting or valuation methods under German law not in conformity with IAS or SIC have
been applied.
    The requirements set out in section 292a of the German Commercial Code (HGB) have been met.
Accordingly, Deutsche Lufthansa AG is exempted from its obligation to prepare consolidated financial statements
under the German Commercial Code. The assessment as to whether this obligation is satisfied was based on the
German Accounting Standard No.1 (DRS 1) promulgated by the German Standards Committee Council.
     The following accounting and valuation methods applied to the present consolidated financial statements
deviate from German law:
     — translation of foreign currency receivables and liabilities as at the closing date and recognition of the
       effects of changes in foreign exchange rates in the income statement;
     — accounting of internally generated intangible fixed assets;
     — revenue recognition by reference to the stage of completion of long-term customer orders;
     — valuation of long-term provisions at present value;
     — no recognition of other provisions if the probability of outflow of resources is below 50 per cent;
     — recognition of deferred tax assets and liabilities in accordance with the liability method;
     — recognition of assets and corresponding liabilities under finance leasing agreements according to IAS 17;
     — valuation of retirement benefit obligations according to the projected unit credit method, taking account
       of future trends in salaries and the corridor rule under IAS 19.
     After the change of Lufthansa Group’s internal currency from DM to 4 as of 1 January 2000, the
consolidated financial statements 2000 have for the first time been prepared in 4. Prior-year figures have been
translated at the irrevocable conversion rate of DM1.95583 per 4.

2    Consolidation methods
     All significant subsidiaries under legal and/or actual control of Deutsche Lufthansa AG are included in the
consolidated financial statements. Significant joint ventures and associates are accounted for under the equity
method, provided that the Group holds an interest of between 20 and 50 per cent and exercises significant
influence. Other equity investments are valued at acquisition cost. Pages F-56/F-57 of this report present a list of
significant subsidiaries, joint ventures and associates.
      For the purpose of initial consolidation of subsidiaries, the acquisition cost of equity investments is
compared to the Group’s share in the carrying amount of the respective company’s equity. The difference
between acquisition cost and prorated equity is, as a rule, initially allocated to the subsidiary’s assets and
liabilities up to the amount of the difference between fair value and carrying amount. Within the context of
subsequent consolidations, hidden reserves and encumbrances thus disclosed are carried forward, amortised or
released in accordance with the treatment of the corresponding assets and liabilities. Any remaining asset-side
difference from capital consolidation is recognised as goodwill and amortised over its expected useful life

                                                       F-17
according to the straight-line method. As from financial year 2000, negative goodwills are, as required by IAS 22
in its revised wording, openly deducted from asset-side differences and, provided that they do not result from
anticipated losses, released over a maximum period of 20 years in accordance with the development of the
corresponding fixed asset items. Negative goodwills arising before the financial year 2000 are released with an
effect on the income statement over a period of five years as before.
     The carrying amount of the investments accounted for by the equity method is increased and reduced
respectively at each reporting date by the Lufthansa Group’s prorated share of the associate’s or joint venture’s
changes in equity capital. The difference between the carrying amount of the equity investment and the prorated
equity of the company is allocated and carried forward on the basis of the principles applicable to consolidation.
     Effects resulting from intra-Group transactions are eliminated. Receivables and liabilities between
consolidated companies are netted; intra-Group profits and losses with regard to fixed assets and inventories are
eliminated, and intra-Group earnings are set off against corresponding expenses. For all temporary differences
from consolidation, tax deferrals are recognised as required by IAS 12.
     The consolidation methods used are unchanged compared with the preceding year, except for the changes
due to the application of IAS 12 and IAS 22 in their revised versions.

3      Currency translation
     For the purpose of foreign currency translation into euro, in-house exchange rates are fixed monthly
following the rates of exchange of international stock exchanges. The acquisition cost of assets purchased in
foreign currency (mainly aircraft invoiced in USD) is determined by translation at the in-house exchange rate
effective at the time of payment. As regards rate-hedged payments, acquisition cost is based on hedge rates within
the context of separate valuation units.
     The financial statements of foreign Group companies are translated into euro in accordance with the
functional currency concept. The functional currency is the currency of the country in which the respective
company is located. Consequently, assets and liabilities are translated at the average rates at the balance sheet
date, whereas income statement items are translated at annual average rates. Any differences resulting from this
as well as from currency translation of amounts carried forward from the prior year are recorded in the balance
sheet under equity without effects on earnings. Goodwill arising from capital consolidation of foreign
subsidiaries is carried forward at historical acquisition cost.
       The following table reflects the fluctuation in major foreign exchange rates compared as against the euro:
                                                                                                  2000           2000         1999           1999
                                                                                               Rate at         Income      Rate at         Income
                                                                                              balance       statement     balance       statement
                                                                                            sheet date   average rate   sheet date   average rate

USD ..............................................................................          1.07504        1.09244      0.99722        0.94449
CAD .............................................................................           0.71793        0.73678      0.68617        0.63523
GBP ..............................................................................          1.60436        1.64704      1.61240        1.52344
HKD .............................................................................           0.13705        0.14019      0.12828        0.12171
THB ..............................................................................          0.02468        0.02709      0.02658        0.02494
SEK ..............................................................................          0.11316        0.11843           —              —

4      Group of consolidated companies
     In addition to Deutsche Lufthansa AG as the parent company, the group of consolidated companies includes
18 domestic and 32 foreign companies (prior year: 15 domestic and 25 foreign companies). Compared with the
prior year, the group of consolidated companies was expanded in 2000 by the newly acquired companies Globe
Services Sweden AB and Hamburger Gesellschaft f¨ r Flughafenanlagen mbH. A total amount of 4 115.8m was
                                                      u
spent on the acquisition. The financial and operating control of both companies was transferred to the Group
effective 1 April 2000. In addition to that, Lufthansa Technik Immobilien- und Verwaltungsgesellschaft mbH, LSG
Lufthansa Service Catering- und Dienstleistungsgesellschaft mbH, Top Flight Catering AB including its four

                                                                                     F-18
subsidiaries, and LSG Lufthansa Service Cape Town (Pty) Ltd. have for the first time been included in the group
of consolidated companies. The group of consolidated companies also includes shares in seven so-called
specialised securities funds, the assets of which have to be allocated to the Group under an economic approach.
One fund was released during the year.
     The inclusion of other subsidiaries has been unnecessary because their combined influence on the Group’s
net assets, financial position and results of operations is insignificant. All in all, these non-consolidated
companies account for approximately five per cent of revenue, results, capital and reserves, debts and balance
sheet total.
     The consolidated financial statements include investments in 65 joint ventures and 56 associates (prior year:
55 joint ventures and 55 associates), nine (prior year: seven) joint ventures and 18 (prior year: 17) associates of
which are accounted for by the equity method of accounting. For the first time, the newly acquired investment in
                                                                           u
British Midland plc as well as the investments in EFM — Gesellschaft f¨ r Enteisen und Flugzeugschleppen am
             u
Flughafen M¨ nchen mbH and GlobeGround Berlin GmbH have been accounted for under the equity method.
Since they are, all in all, of minor significance, the other joint ventures and associates are carried at
acquisition cost.
     The following assets and liabilities as well as income and expenses are allocable to the Group owing to its
interest in the respective joint venture:
                                                                                                                                            2000                  1999
                                                                                                                                                 5m                5m
Fixed assets ..................................................................................................................         1,596.4               1,318.0
Current assets ...............................................................................................................            701.6                 574.5
Liabilities......................................................................................................................       1,844.1               1,546.1
Expenses.......................................................................................................................         3,103.3               3,189.3
Income ..........................................................................................................................       3,163.1               3,278.5
     The effects of the changes in the group of consolidated companies and the group of companies carried at
equity are shown in the following tables.
     Except for the effects on the minority shares in capital, which have increased by 20 per cent due to the first
inclusion of Top Flight Catering AB and its four subsidiaries, the effects on the balance sheet total and the other
balance sheet items account for less than 5 per cent each.

Balance sheet
                                                                                                                                                         of which from
                                                                                                                                                      changes in group
                                                                                                                                        Group           of consolidated
                                                                                                                                    31.12.2000               companies
                                                                                                                                           5m                      5m
Fixed assets .............................................................................................................          10,733.1                    257.3
Current assets ..........................................................................................................            3,666.0                   (185.5)
Balance sheet total ..................................................................................................              14,810.4                     72.5
Capital and reserves ................................................................................................                4,113.5                    (18.9)
Minority shares in capital .......................................................................................                      51.3                      8.6
Provisions and accruals...........................................................................................                   5,942.8                     (6.3)
Liabilities .................................................................................................................        4,461.4                     77.0




                                                                                    F-19
Income Statement
                                                                                                                                                 of which from
                                                                                                                                              changes in group
                                                                                                                                     Group      of consolidated
                                                                                                                                 31.12.2000          companies
                                                                                                                                        5m                 5m
Revenue ...................................................................................................................      15,200.4                 43.2
Operating income ....................................................................................................            16,885.9                 46.6
Operating expenses .................................................................................................             15,403.9                 31.5
Profit from operating activities ...............................................................................                   1,482.0                 15.1
Financial result ........................................................................................................          (266.7)                (7.6)
Profit from ordinary activities ................................................................................                   1,215.3                  7.5
Taxes ........................................................................................................................      529.3                  1.8
Net profit for the period .........................................................................................                  689.0                  5.0
       Effects concerning the income statement are explained in more detail in the Notes to individual items.

5      Accounting and valuation methods
Income and expense recognition
     Revenue and other operating income are recognised upon the performance of services or passage of risk to
the customer. Revenue from customer-related long-term construction contracts is recognised according to the
stage of completion based on the percentage of completion method.
      Operating expenses are recognised in the income statement upon utilisation of the service or at the date of
their origin. Warranties are recognised when the respective revenue is recognised. Interest income and expenses
are reported on an accrual basis. Income or expenses from profit or loss transfer agreements are recognised at the
end of the financial year. Dividends are, as a rule, recognised as received.

Intangible assets
      Acquired intangible assets are recognised at acquisition cost, internally generated intangible assets from
which the Group expects future benefits are recognised at manufacturing cost and amortised according to the
straight-line method over the estimated useful life of five years. Manufacturing cost includes all costs directly
attributable to the manufacturing process as well as appropriate portions of the indirect costs relating to this
process. Borrowing costs are not capitalised.
     Goodwill arising from consolidation and accounting under the equity method is amortised systematically
over its estimated useful life, i.e. over a period of four to twenty years. The estimated useful life reflects the future
economic benefits expected to be achieved by the improved market position resulting from the business
acquisition and the respective company’s value added opportunities.

Tangible assets
     Tangible assets serving business operations for more than one year are valued at acquisition or
manufacturing cost, reduced by scheduled straight-line depreciation. Manufacturing cost includes all costs
directly attributable to the manufacturing process as well as appropriate portions of the indirect costs relating to
this process. Borrowing costs are not capitalised. The useful lives applied to tangible assets correspond to the
expected useful lives in the Group. Exclusively tax-based depreciation is not recognised.
    New aircraft and spare engines are depreciated over a period of twelve years to a residual value of
15 per cent.
     Buildings are assigned a useful life of between 20 and 45 years. Buildings and leasehold improvements are
depreciated according to the term of the lease or a shorter useful life. Depreciation rates are mainly between ten
and twenty per cent per year. A useful life of up to ten years is reported for plant and machinery. Office and plant
equipment is depreciated under normal conditions over three to ten years.

                                                                                    F-20
Finance leasing
     In accordance with IAS 17, the economic ownership of leased assets is transferred to the lessee if the lessee
bears substantially all the risks and rewards of ownership of the leased asset. Provided that economic ownership is
transferred to the Lufthansa Group, the asset is recognised at the time of conclusion of the contract at the present
value of the lease payments plus incidental payments, if any, to be borne by the lessee. Depreciation methods and
useful lives correspond to those applied to comparable acquired assets.

Impairment of assets
     Intangible assets and tangible assets are written down at the balance sheet date if the recoverable amount of
the asset has dropped below its carrying value. The recoverable amount is determined as the higher of an asset’s
net selling price and the present value of the estimated cash flow.

Financial assets
     Financial assets are recognised at cost. Long-term low- or non-interest bearing loans are recognised at their
present value. Marketable listed securities are reported at the lower of cost or market value on a portfolio basis at
the balance sheet date. Other financial assets are written down to a lower value at the balance sheet date if a
permanent impairment in value may be assumed.

Repairable aircraft spare parts
     Repairable spare parts are recorded at continually adjusted prices based on average purchase cost. For
valuation purposes, spare parts are assigned to individual aircraft types and depreciated in accordance with the
depreciation rate for aircraft.

Current assets
     Current assets include inventories, receivables, securities as well as cash and cash equivalents.

Inventories
     The item includes non-repairable spare parts, raw materials and supplies, purchased merchandise and
payments made on account of inventories. Valuation is based on acquisition cost determined on the basis of
average prices or on manufacturing cost. Manufacturing cost includes all the costs directly attributable to the
manufacturing process as well as appropriate portions of the indirect costs relating to this process. Borrowing
costs are not capitalised. Valuation as of the balance sheet date is based on the lower of cost or realisable selling
price net of any costs yet to be incurred. As a rule, valuation is based on the net realisable value of the finished
product.

Receivables
    Short-term receivables are carried at cost. Low- or non-interest bearing monetary receivables with a term of
more than one year are measured at their present values at the date of the transaction.
     Customer receivables from manufacturing or service orders not yet completed at the balance sheet date are
recognised at manufacturing cost plus a mark-up corresponding to the stage of completion, provided that the
outcome of the contract can be assessed reliably. Other unfinished customer orders are recognised at the amount
of the manufacturing cost incurred to the extent that their recovery is expected.
     If it is uncertain whether receivables can be collected, customer receivables are carried at the lower realisable
value. In addition to necessary individual allowances, any recognisable risks from the general credit risk are
accounted for by recognising flat rate itemised allowances.
     Foreign currency receivables are valued at the middle rate of buying and selling price at the balance
sheet date.

                                                        F-21
Securities held as current assets

     Securities held as current assets are carried at the lower of cost or market price determined on the basis of
individual or portfolio valuation.

Derivative financial instruments

     In the Lufthansa Group, derivatives are used exclusively for the hedging of interest rate and currency risks in
accordance with an intra-Group guideline, and for the hedging of fuel price risks on the basis of a safety policy
defined by the Executive Board and supervised by a price hedging committee. Interest rate and currency hedging
transactions are also entered into with non-consolidated group companies.

     Interest rate risks are hedged mainly on the basis of interest rate swaps; the variable interest rate the
underlying asset is based on is exchanged for a fixed interest rate over the entire term. The resulting interest rate
gap is recorded as accrued, with an effect on the income statement. Future interest rate gaps resulting from
interest rate swaps are not recognised because of the compensatory measurement of the underlying transaction
and the hedge. However, as regards interest rate swaps with non-consolidated group companies, provisions for
contingent losses are set up in accordance with the principles applicable to pending transactions, unless a
corresponding counter-transaction exists.

     Forward exchange transactions and currency options are used to hedge currency risks. Also fluctuation band
options which represent the combination of a purchase and simultaneous sale of currency options of the same
currency are used. Fluctuation band options are concluded as zero cost options, i.e. the option premium to be paid
equals the premium resulting from the sale of the option. If hedging transactions are allocated to future fixed
contracted investments, the respective exchange gain or loss is included in the investment’s acquisition cost and
thus affects the income statement over the scheduled useful life of the asset. If hedging serves future liquidity
surplus or undercoverage, the risk of having to buy or sell currencies at rates higher or lower than those of the
balance sheet date is recognised with an effect on the income statement. The same applies to currency hedging
transactions with non-consolidated group companies, unless there is a corresponding counter-transaction.

     Fuel price hedging arrangements have been made in the form of fixed price and option transactions on the
crude and heating oil market. The results from fuel price hedging operations are included in fuel expense.

      Premiums paid upon the conclusion of interest rate, currency or fuel price hedging operations are capitalised
until the option is exercised or expires, and valued at the lower of acquisition cost or market value at the balance
sheet date. Conversely, a premium paid by the contracting party is carried as a liability and valued at the higher of
acquisition cost or market value at the balance sheet date. Upon exercise or expiry of the option, the respective
amount is recorded in the income statement as interest rate or exchange rate difference or fuel expense.

Provisions and accruals

     Retirement benefit obligations are valued in accordance with the accrued benefit valuation method
prescribed by IAS 19 for performance-oriented pension plans. The interest share included in pension expense is
shown in the financial result as interest expense.

     Provisions for taxes and other provisions and accruals are set up to cover external obligations resulting from
a past event and likely to lead to an outflow of economic resources in future, provided this outflow can be
estimated reliably. If a provision or accrual was not recognised because one of the recognition criteria was not
met, the respective commitments are disclosed under contingent liabilities.

     Provisions for obligations which are not expected to result in an outflow of resources in the following year
are measured at the amount of the present value of the expected outflow.

     The amount of provisions and accruals recognised is reviewed at each balance sheet date. Provisions in
foreign currency are translated at closing rates.

                                                        F-22
Liabilities
     Liabilities under finance lease agreements are recorded at the present values of the lease rates at the
respective date of the conclusion of the agreement. Other liabilities are carried at the amounts repayable.
     Liabilities denominated in foreign currency are translated at the middle rate of selling and buying price at the
balance sheet date.

Deferred tax items
      In accordance with IAS 12, deferred taxation is provided for all temporary differences between the tax bases
of the assets and liabilities of the individual companies and their carrying values in the consolidated financial
statements. Tax loss carryforwards which are likely to be utilised in the future are recognised in the amount of the
deferred tax assets. IAS 12 in the version revised in the year 2000 now requires the corporation tax retention rate
to be used in the valuation of deferred tax differences. Consequently, previously reported deferred tax items or
liabilities with regard to result portions not yet distributed had to be released. The other deferred tax assets and
liabilities recognised or carried as a liability in the preceding year were adjusted to the retention tax rate.
     Due to the reduction of the corporation tax rate to generally 25 per cent decided and enacted within the
scope of the year 2000 tax reform, the rate for deferred taxes in Germany had to be reduced from 40 to 35 per
cent. Any deferred tax assets and liabilities carried forward from prior years have in this connection been adjusted
either with or without an effect on the income statement in so far as they had been set up to the debit of the results
or provisions and accruals. Tax rates for deferred taxes abroad were 16 to 45 per cent.




                                                        F-23
                                                   Notes to the Consolidated Income Statement

6      Traffic revenue
By sector                                                                                                                                 2000             1999
                                                                                                                                           5m               5m
Passenger ......................................................................................................................      10,006.6          8,614.8
Freight ..........................................................................................................................     2,414.0          1,935.0
Mail ..............................................................................................................................      128.6            126.9
                                                                                                                                      12,549.2        10,676.7
Scheduled .....................................................................................................................       12,134.4        10,359.5
Charter ..........................................................................................................................       414.8           317.2
                                                                                                                                      12,549.2        10,676.7

     The traffic revenue of Lufthansa Cargo AG disclosed in segment reporting (note 39) includes revenue from
the carriage of passengers on combined passenger and freight traffic in the amount of 4 0.5m (prior year: 4 0.5m),
which has been allocated to traffic revenue — passenger in the above table.

7      Other revenue
By sector                                                                                                                                 2000             1999
                                                                                                                                           5m               5m
Maintenance .................................................................................................................          1,049.2            784.8
Catering services..........................................................................................................              495.3            464.0
Travel (commissions)...................................................................................................                  173.6            141.9
EDP services ................................................................................................................            288.1            250.5
Ground services ...........................................................................................................              343.9            233.9
Other services...............................................................................................................            301.1            242.9
                                                                                                                                       2,651.2          2,118.0

     The expansion of the group of consolidated companies caused revenue from catering services to rise by
4 21.1m and other services by 4 22.1m.
     Other revenue includes revenue from unfinished services in connection with long-term construction or
service orders amounting to 4 46.2m (prior year: 4 75.1m). Such revenues were recognised by the stage of
completion in the amount of the proportion of the anticipated total revenue attributable to this stage. Provided that
it was impossible to make reliable estimates of the outcome of the total order, revenues were recognised in the
amount of order costs incurred. The stage of completion was estimated on the basis of the costs incurred at the
balance sheet date in relation to total anticipated order costs.
     The accumulated costs of unfinished orders, i.e. taking account of the amounts recognised                                                    in prior years,
amounted to 4 56.1m (prior year: 4 76.6m), whereas the respective profits amounted to                                                             4 3.1m (prior
year: 4 8.2m). Customers had already paid down 4 55.6m (prior year: 4 38.5m). The balance of                                                     these amounts
reduced by allowances is shown under receivables and other assets (cf. note 25). 4 1.1m                                                           was withheld
by customers.




                                                                                     F-24
8      Changes in inventories and work performed by the enterprise and capitalised
Changes in inventories and work performed
by the enterprise and capitalised                                                                                                 2000      1999
                                                                                                                                   5m        5m
Decrease/increase in finished and unfinished goods ..................................................                              (0.3)      1.0
Work performed by the enterprise and capitalised.....................................................                            41.6      58.1
                                                                                                                                 41.3      59.1


9      Other operating income
Other operating income                                                                                                            2000      1999
                                                                                                                                   5m        5m
Income from disposal of fixed assets .........................................................................                   421.8     251.9
Income from write-ups to fixed assets........................................................................                     30.3      10.8
Foreign currency translation gains ..............................................................................               392.9     193.5
Release of provisions...................................................................................................         99.0     162.5
Income from re-debiting of accounts payable............................................................                         112.4     102.3
Re-debiting of charges for EDP distribution systems................................................                              29.0      26.1
Release of allowances for receivables / elimination of accounts payable .................                                        14.2      52.8
Hiring out of staff........................................................................................................      34.2      32.2
Compensations received for damages .........................................................................                     43.3      22.4
Rental income ..............................................................................................................     33.6      35.0
Income from the subleasing of aircraft ......................................................................                    11.2      19.5
Income from disposal of current financial assets.......................................................                           47.8      92.4
Other operating income ...............................................................................................          374.5     353.0
                                                                                                                               1,644.2   1,354.4

     Income from the disposal of fixed assets includes 4 23.1m (prior year: 4 27.3m) relating to the sale of
aircraft. A total of 4 392.8m (prior year: 4 213.2m) results from the disposal of financial assets. 4 375m of this
amount relates to the sale of 3.9 per cent of the shares in AMADEUS Global Travel Distribution S.A. In the
preceding year, 4 176.6m was achieved from the sale of 71.8 per cent of the shares in EQUANT N.V. held in
prior years as well as 4 36.5m from the sale of 34 per cent of the shares in START AMADEUS GmbH.
     Foreign currency translation gains include mainly gains on exchange differences between the exchange rate
in operation at the date of the transaction (average rate for a month) and the time of payment (spot rate) as well as
currency translation gains from valuation at the closing rate. Translation losses from these transactions are
recognised under other operating expenses (note 13).
     The release of provisions relates to a large number of provisions set up in prior years and not used
completely. The expense for provisions that had not been set up in an adequate amount in prior years was
assigned to the respective primary type of expense.
     Other operating income includes a large number of items which are not allocable to any of the accounts
already mentioned, including non-cash benefits from the employer’s contributions (contra entry in staff costs),
advertising income and canteen income.




                                                                                F-25
10     Cost of materials
Cost of materials                                                                                                                       2000      1999
                                                                                                                                         5m        5m
Fuel for aircraft............................................................................................................        1,498.6    908.0
Other raw materials and supplies................................................................................                     1,081.5    853.1
Purchased merchandise................................................................................................                  169.3    165.6
Total cost of raw materials and supplies and purchased merchandise..............                                                     2,749.4   1,926.7
Charges.........................................................................................................................     2,250.3   2,095.3
Charter ..........................................................................................................................     529.0     421.9
External services — technical.....................................................................................                     494.1     376.6
Flight services ..............................................................................................................         230.4     209.4
Operating lease.............................................................................................................            61.9      28.6
External services — EDP............................................................................................                     25.7      24.8
Other purchased services.............................................................................................                  277.4     237.3
Total cost of purchased services...............................................................................                      3,868.8   3,393.9
                                                                                                                                     6,618.2   5,320.6

     Cost of materials rose by 4 20.1m as a result of the expansion of the group of consolidated companies. The
increase nearly exclusively relates to expense for purchased merchandise in the amount of 4 19.8m as a result of
the initial consolidation of the new catering companies.

11     Staff costs
Staff costs                                                                                                                             2000      1999
                                                                                                                                         5m        5m
Wages and salaries.......................................................................................................            2,880.3   2,629.9
Social security..............................................................................................................          471.4     440.4
Pension costs and other employee benefits ................................................................                              273.2     161.9
                                                                                                                                     3,624.9   3,232.2

    The increase in staff costs includes 4 13.7m resulting from the expansion of the group of consolidated
companies.

      Pension costs and other employee benefits include mainly additions to retirement benefit obligations
(cf. note 32). 4 0.4m (prior year: 4 0.4m) have been recognised for executive officers.
Average number of employees                                                                                                             2000      1999

Ground personnel.........................................................................................................            52,158    49,554
Flight personnel ...........................................................................................................         16,512    15,865
Trainees ........................................................................................................................       853       788
                                                                                                                                     69,523    66,207

       Ground personnel includes 414 employees of the companies consolidated for the first time.

12     Depreciation and amortisation expense

     The depreciation and amortisation applied to intangible assets, aircraft and other tangible assets may be
gathered from the notes to the respective items. Only scheduled depreciation and amortisation is concerned.

                                                                                    F-26
     The first amortisation of goodwill with regard to the new consolidated companies in the amount of 4 0.3m as
well as their own contribution to the depreciation and amortisation item caused depreciation and amortisation
expense to increase by 4 7.8m in total.

13     Other operating expenses
Other operating expenses                                                                                                       2000       1999
                                                                                                                                5m         5m
Sales commissions paid to agencies ...........................................................................              1,180.5    1,042.8
Rents and maintenance costs.......................................................................................            474.7      483.3
Staff-related expenses ..................................................................................................     503.4      468.9
Expenditure for EDP distribution systems .................................................................                    235.8      193.5
Advertising and sales promotion.................................................................................              155.4      139.5
Foreign currency translation losses .............................................................................             444.5      445.6
Audit, consulting and legal fees..................................................................................             96.7       84.5
Expenses incurred from re-debited accounts payable ................................................                           143.3      114.6
Allowances for receivables ..........................................................................................          33.9       30.1
Losses from disposal of fixed assets...........................................................................                 33.4       20.0
Losses from disposal of current financial assets ........................................................                       25.6       48.8
Losses from disposal of other current assets..............................................................                      0.1        2.3
Other operating expenses.............................................................................................         811.1      635.8
                                                                                                                            4,138.4    3,709.7

                                                                                    u
    Owing to the acquisition and first consolidation of Hamburger Gesellschaft f¨ r Flughafenanlagen mbH,
which is the owner of the airport facilities in Hamburg used by the Group, rental expense decreased absolutely
compared with the prior year.

      Foreign currency translation losses include mainly losses on exchange rate differences between the exchange
rate in operation at the date of the transaction (average rate for a month) and the time of payment (spot rate) as
well as translation losses from valuation at the closing rate (cf. note 9).

14     Income from subsidiaries, joint ventures and associates
Income from subsidiaries, joint ventures and associates                                                                        2000       1999
                                                                                                                                5m         5m
Income from profit transfer agreements .....................................................................                    34.1      45.9
Income from joint ventures .........................................................................................           75.5     210.7
Income from associates ...............................................................................................         (1.8)     21.9
Income from other equity investments .......................................................................                   15.1      13.0
Expenses from loss transfer ........................................................................................          (58.2)     (6.8)
                                                                                                                              64.7      284.7

     Income and expenses from profit transfer agreements include subsidiaries’ tax contributions /credits. The
income from joint ventures includes profits in the amount of 4 72.7m (prior year: 4 207.9m). The income from
associates includes losses in the amount of 4 10.0m (prior year: profits in the amount of 4 13.9m) which are
accounted for under the equity method.

     The considerable improvement in the prior-year income from joint ventures was attributable to the fact that
the equity investment in AMADEUS Global Travel Distribution S.A. was accounted for under the equity method,
leading to income in the amount of 4 178.7m. Apart from the share of profit for the years 1999 and 1998, the item
also included income from the reduction of the equity investment in the company, which was due to the floatation
and the concomitant capital increase.

                                                                              F-27
     The income contributions by the three companies accounted for under the equity method for the first time
amounted to 4 6.1m after the prorated amortisation of goodwill. In addition to that, the dividends of the newly
consolidated companies had to be eliminated from the income from subsidiaries, joint ventures and associates. As
a result, the income increased by a total of 4 2.1m due to the changes in the group of consolidated companies and
the group of companies included under the equity method.

15     Net interest
Net interest                                                                                                                       2000      1999
                                                                                                                                    5m        5m
Income from other securities and long-term loans ....................................................                              41.0      23.9
Other interest and similar income...............................................................................                   67.2      76.7
Interest and similar expenses ......................................................................................             (364.4)   (319.9)
                                                                                                                                 (256.2)   (219.3)


     As a consequence of the inclusion of the new companies in the group of consolidated companies of the
Lufthansa Group, the negative interest balance increased by 4 9.7m.

     Interest expenses include 4 6.6m from compounding of long-term other provisions and accruals discounted
in prior years.

16     Taxes
Other taxes                                                                                                                        2000      1999
                                                                                                                                    5m        5m
Current tax expenses....................................................................................................           29.4      29.5
Release of tax provisions /tax liabilities......................................................................                   (2.3)     (0.4)
Refunds for prior years ...............................................................................................            (0.5)      (0*)
                                                                                                                                  26.6      29.1
Taxes re-debited to subsidiaries ..................................................................................               (0.2)     (0.4)
                                                                                                                                  26.4      28.7


* below 4 0.1m

Income taxes                                                                                                                       2000      1999
                                                                                                                                    5m        5m
Current income tax expenses ......................................................................................               291.7     347.4
Release of tax provisions ............................................................................................            (1.9)     (1.7)
Refunds for prior years ...............................................................................................           (3.4)     (0.7)
Deferred tax .................................................................................................................   216.5     (10.4)
                                                                                                                                 502.9     334.6




                                                                                 F-28
    The following table reconciles expected and disclosed tax expense. The expected tax charge is determined
by multiplying profit before income taxes by the applicable tax rate, i.e. 50 per cent for financial year 2000 and
40 per cent for financial year 1999. They consist of a tax rate of 40 per cent (profit retention tax rate) and
30 per cent in the preceding year (distribution tax rate) for corporation tax and trade tax on earnings of
10 per cent for each year. Due to the year 2000 tax reform and the 25 per cent corporation tax rate applicable as
from 2001, deferred tax items have been valued at 35 per cent as of the end of the year.
                                                                                                  2000                       1999
                                                                                               Basis of         2000      Basis of         1999
                                                                                            assessment    Tax charge   assessment    Tax charge
                                                                                                   5m            5m           5m            5m
Expected income tax charge........................................                            1,188.9         594.5        974.2         389.7
Release of and valuation changes deferred tax items                                               —           147.2          —             —
  carried forward from the first application of
  IAS 12 in its revised wording.................................
Tax-free income and other deductible amounts .........                                          408.1        (204.1)        55.5         (22.2)
Non-deductible amortisation of goodwill ...................                                      61.5          30.8         51.7          20.7
Losses incurred with foreign subsidiaries                                                       (12.7)          6.4        149.9         (60.0)
  (prior year: retained earnings) not imposed with
  deferred taxes ...........................................................
Solidarity surcharge .....................................................                          —           8.9            —          10.2
Deviation of local taxes from deferred tax rate .........                                           —         (18.7)           —         (18.8)
Tax refund on prior year divided ................................                                   —         (46.0)           —            —
Reduction of deferred tax items to 35 per cent of                                                   —         (28.7)           —            —
  the basis of assessment............................................
Other.............................................................................                  —          12.6            —          15.0
Disclosed income tax charge.....................................                                              502.9                      334.6

      By virtue of the first application of IAS 12 in its wording revised in the year 2000, deferred tax assets and
liabilities from split corporation tax rates in Germany have been released or revalued affecting income. Now,
taxes due upon distribution will not be taken into account before the time of distribution. In the event of full profit
distribution, there will be deferred tax assets in the amount of 4 142.0m.

     Due to the first application of IAS 12 in its wording revised in the year 2000, deferred tax liabilities on
retained earnings with foreign subsidiaries are no longer set up. Any corresponding prior year amounts have been
released affecting the income statement.

     Within the scope of valuation at equity, deferred taxes on the retained earnings of equity investments are set
up in the amount of the taxes due upon distribution.

     Deferred taxes from the currency translation of equity investments set up without affecting earnings in prior
years have been released without affecting earnings.

     Had the cited valuation changes of IAS 12 in its revised wording already been applied in prior years, a
deferred tax charge in the amount of 4 13.9m would have occurred in financial year 1999 instead of deferred tax
income in the amount of 4 10.4m, whereas in financial year 2000 deferred tax liabilities would have been reduced
by 4 147.2m. The consolidated profits for the financial years would have changed correspondingly.

    In financial year 2000, deferred tax assets in the amount of 4 3.7m (prior year: deferred tax liabilities in the
amount of 4 7.6m) were recognised without affecting earnings.




                                                                                     F-29
       Deferred tax assets and liabilities for the years 2000 and 1999 are allocated as follows:
                                                                                            31.12.2000   31.12.2000        31.12.1999     31.12.1999
                                                                                                   5m           5m                5m              5m
                                                                                                Assets   Liabilities           Assets      Liabilities
Losses carried forward and tax credits .......................                                    4.1         (2.3)            15.2             (0.8)
Equity capital taxed above distribution rate ...............                                       —            —             102.2             (4.0)
Equity capital taxed below distribution rate ...............                                       —            —              (7.8)             —
Tax-based depreciation, tax-free reserves ...................                                      —         291.7           (382.1)             2.4
Retirement benefit obligations.....................................                                —         (283.7)           284.1               —
Finance lease aircraft...................................................                          —        (139.8)           187.0               —
Depreciation and amortisation expense ......................                                      —          365.5           (144.2)             —
Other provisions and accruals .....................................                               —         (197.5)           154.1               —
Other.............................................................................               14.6         51.8            (61.6)            16.2
                                                                                                 18.7          85.7           146.9             13.8

     Apart from the aforementioned deferred tax assets arising from losses carried forward and tax credits, there
are tax losses in the amount of 4 23.7m (prior year: 4 21.5m), which could not be recognised.

17     Earnings per share
    Earnings per share are determined as the quotient from the net profit for the period and the weighted average
number of ordinary shares in issue during the year. There were no shares outstanding on 31 December 2000 or
31 December 1999 that might have a dilutive effect on the earnings per share.
                                                                                                                                2000            1999

Earnings per share in 4 ..............................................................................................          1.81           1.65
Net profit for the period in 4m ...................................................................................             689.0          630.4
Weighted average number of ordinary shares in issue during the period.................                                   381,473,915    381,115,973




                                                                                     F-30
                                                                Notes to the Consolidated Balance Sheet

                                                                                    Assets

18       Fixed assets
                                                                                                 Aircraft     Other                    Total
                                                                           Intangible          and spare    tangible   Financial       fixed
                                                                               assets            engines      assets      assets      assets
                                                                                 5m                  5m         5m           5m         5m
Acquisition cost
1 January 2000 ....................................................            472.4           12,884.6     1,623.3     2,093.8    17,074.1
Exchange rate differences ...................................                    0.3                —          10.1       (13.2)       (2.8)
Change in group of consolidated companies .....                                  4.4                —         570.2         2.9       577.5
Additions..............................................................         60.3            1,524.4       184.5       766.4     2,535.6
Disposals ..............................................................        54.8              325.1        85.1       245.1       710.1
Transfers...............................................................        (0.2)                —          0.2          —           —
31 December 2000 ..............................................                482.4           14,083.9     2,303.2     2,604.8    19,474.3
Amortisation/depreciation/
  impairment losses
1 January 2000 ....................................................            234.1            6,034.2     1,090.9       363.1     7,722.3
Exchange rate differences ...................................                    0.1                 —          5.1         0.2         5.4
Change in group of consolidated companies .....                                  3.2                 —        233.4        (0.1)      236.5
Additions..............................................................         67.9              789.4       165.1        56.9     1,079.3
Disposals ..............................................................        23.2              143.7        78.4        26.7       272.0
Reversals of impairment losses...........................                         —                  —           —         30.3        30.3
Transfers...............................................................          —                  —           —           —           —
31 December 2000 ..............................................                282.1            6,679.9     1,416.1       363.1     8,741.2
Carrying amount 31 December 2000..............                                 200.3            7,404.0       887.1     2,241.7    10,733.1
Carrying amount 1 January 2000...................                              238.3            6,850.4       532.4     1,730.7     9,351.8


     Tangible fixed assets also include leased assets which, due to the form of the underlying lease contracts as
finance leases, are allocable to the Group’s economic rather than to its legal property. The movement of these
assets is presented in note 22.
         There are land charges in the amount of 410.0m in connection with land and buildings.




                                                                                        F-31
19       Intangible assets
                                                                          Concessions,
                                                                             industrial
                                                                           and similar
                                                                                rights     Software
                                                                            and assets    internally
                                                                          and licenses    generated
                                                                        in such rights        by the               Negative     Advance
                                                                            and assets    enterprise    Goodwill   goodwill    payments    Total
                                                                                   5m             5m         5m         5m          5m       5m
Acquisition cost
1 January 2000 .................................................                201.9            38.1     215.0         —          17.4    472.4
Exchange rate differences ................................                        0.2             0.1       0.0*        —           0.0*     0.3
Change in group of
  consolidated companies**............................                            0.0*            5.0       2.3        (2.9)         —       4.4
Additions...........................................................             33.1             9.3       6.5        (4.7)       16.1     60.3
Disposals ...........................................................            29.0            22.8        —          —           3.0     54.8
Transfers............................................................            10.1             4.1        —          —         (14.4)    (0.2)
31 December 2000 ...........................................                    216.3            33.8     223.8        (7.6)       16.1    482.4
Amortisation
1 January 2000 .................................................                138.5             8.4      87.1         —           0.1    234.1
Exchange rate differences ................................                        0.1             —         0.0*        —           0.0*     0.1
Change in group of
  consolidated companies**............................                            0.0*            5.0       0.3        (2.1)         —       3.2
Additions...........................................................             30.7             4.9      33.0        (0.8)        0.1     67.9
Disposals ...........................................................            23.1             0.1        —          —           —       23.2
Write-ups...........................................................               —               —         —          —           —         —
Transfers............................................................            (0.2)            0.2        —           —          0.0*     0.0*
31 December 2000 ...........................................                    146.0            18.4     120.4        (2.9)        0.2    282.1
Carrying amount 31 December 2000...........                                      70.3            15.4     103.4        (4.7)       15.9    200.3
Carrying amount 1 January 2000................                                   63.4            29.7     127.9         —          17.3    238.3


*      below 40.1m

**     including the reclassification of the liabilities-side difference from consolidation

    The additions to goodwill from consolidation relate to the acquisition of Globe Services Sweden AB in the
amount of 44.9m and the subsequent correction of goodwill in the amount of 41.6m.

                                                                                            u
    The additions to negative goodwill relate to the acquisition of Hamburger Gesellschaft f¨ r Flughafenanlagen
mbH in the amount of 44.0m and, in the amount of 40.7m, to the companies of the Top Flight Catering group
consolidated for the first time.




                                                                                          F-32
20       Aircraft
                                                                                                                                   Advance
                                                                                                                                  payments
                                                                                                                                 on aircraft
                                                                                                                Aircraft and      and spare
                                                                                                               spare engines        engines        Total
                                                                                                                          5m             5m          5m
Acquisition cost
1 January 2000.....................................................................................               12,118.9            765.7     12,884.6
Additions ..............................................................................................           1,196.1            328.3      1,524.4
Disposals ..............................................................................................             221.5            103.6        325.1
Transfers ...............................................................................................            486.1           (486.1)          —
31 December 2000...............................................................................                   13,579.6            504.3     14,083.9
Depreciation
1 January 2000.....................................................................................                 6,034.2              —       6,034.2
Additions ..............................................................................................              789.4              —         789.4
Disposals ..............................................................................................              143.7              —         143.7
Write-ups ..............................................................................................                 —               —            —
Transfers ...............................................................................................               0.0*             —           0.0*
31 December 2000...............................................................................                     6,679.9              —       6,679.9
Carrying amount 31 December 2000 ..............................................                                     6,899.7           504.3      7,404.0
Carrying amount 1 January 2000 ...................................................                                  6,084.7           765.7      6,850.4

* below 40.1m

    The order commitment relating to aircraft and spare engines amounted to 44.3bn (prior year: 45.0bn) on
31 December 2000.

21       Other tangible fixed assets
                                                                                                                        Other    Payments on
                                                                                                   Technical       equipment,    account and
                                                                                   Land            plant and   office and plant   assets under
                                                                           and buildings          equipment         equipment    construction       Total
                                                                                     5m                  5m                5m             5m          5m
Acquisition cost
1 January 2000 ....................................................               456.9               477.7             673.0           15.7      1,623.3
Exchange rate differences ...................................                       1.3                 8.2               0.6            0.0*        10.1
Change in group of consolidated companies .....                                   459.5               104.6               5.5            0.6        570.2
Additions..............................................................            34.6                36.9              85.2           27.8        184.5
Disposals ..............................................................           18.4                19.2              47.5            0.0*        85.1
Transfers...............................................................            4.5               (19.2)             28.7          (13.8)         0.2
31 December 2000 ..............................................                   938.4               589.0             745.5           30.3      2,303.2
Depreciation
1 January 2000 ....................................................               214.0               358.4             518.5             —       1,090.9
Exchange rate differences ...................................                       0.5                 4.2               0.4             —           5.1
Change in group of consolidated companies .....                                   147.8                81.1               4.5             —         233.4
Additions..............................................................            26.3                35.8             103.0             —         165.1
Disposals ..............................................................           16.3                15.9              46.2             —          78.4
Write-ups..............................................................              —                   —                 —              —            —
Transfers...............................................................             —                 (0.1)              0.1             —            —
31 December 2000 ..............................................                   372.3               463.5             580.3             —       1,416.1
Carrying amount 31 December 2000..............                                    566.1               125.5             165.2           30.3        887.1
Carrying amount 1 January 2000...................                                 242.9               119.3             154.5           15.7       532.4


* below 40.1m


                                                                                           F-33
         The values of firmly ordered tangible assets not yet under the Group’s economic control are as follows:
                                                                                                                                       31.12.2000       31.12.1999
                                                                                                                                              5m               5m
Land and buildings ......................................................................................................                    0.2              4.5
Technical plant .............................................................................................................                5.5             14.5
Office and plant equipment .........................................................................................                         50.7             41.2
                                                                                                                                            56.4             60.2


22       Assets leased and hired out
                                                                          Aircraft       Aircraft         Leased                                             Leased
                                                                        and spare      and spare         aircraft                                             other
                                                                           engines       engines       and spare                                        equipment,
                                                                             leased        leased        engines                              Leased      office and
                                                                          to third    from third    subleased to           Leased           technical         plant
                                                                            parties       parties   third parties        buildings              plant    equipment
                                                                               5m            5m              5m                  5m              5m            5m
Acquisition cost
1 January 2000 .................................................             89.5       2,589.1             47.3            113.0               45.1          14.8
Exchange rate differences ................................                    —             —                —                —                  0.6           —
Change in group of consolidated companies ....                                —             —                —                —                  0.7           —
Additions...........................................................         10.6         156.4               —                —                 6.5           1.4
Disposals ...........................................................        51.1          60.7               —               3.1                 —             —
Transfers............................................................        25.2        (499.3)           (25.2)             2.6                 —            0.1
31 December 2000 ...........................................                 74.2       2,185.5             22.1            112.5               52.9          16.3
Depreciation
1 January 2000 .................................................             50.4       1,325.2             26.3                27.6            24.1          11.0
Exchange rate differences ................................                     —             —                —                   —              0.0*           —
Change in group of consolidated companies ....                                 —             —                —                   —              0.1            —
Additions...........................................................          6.3         178.8              3.4                 3.3             4.8           1.9
Disposals ...........................................................        31.4          36.6               —                  3.1              —             —
Write-ups...........................................................           —             —                —                   —               —             —
Transfers............................................................        16.2        (384.5)           (16.3)                1.2              —             —
31 December 2000 ...........................................                 41.5       1,082.9             13.4                29.0            29.0          12.9
Carrying amount 31 December 2000...........                                  32.7       1,102.6              8.7                83.5            23.9           3.4
Carrying amount 1 January 2000................                               39.1       1,263.9             21.0                85.4            21.0           3.8


* below 40.1m

    The total of the leased assets to be allocated to the Group’s economic ownership in accordance with IAS 17
amounts to 41,222.1m (prior year: 41,395.1m), 41,111.4m of which (prior year: 41,284.9m) relate to aircraft.
      As a rule, aircraft finance lease agreements are non-terminable within the scope of a fixed basic lease term of
at least four years. Their maximum term is twelve years. After expiry of the lease term, the lessee is usually
entitled to acquire the asset at the respective residual value plus a markup of 25 per cent of the difference between
the residual value as stipulated in the lease agreement and the higher market value. If this option is not exercised
by the lessee, the lessor may sell the aircraft at the best possible price on the market. The lessee is entitled to
75 per cent of the sales surplus exceeding the residual value. If sales revenue is below the residual value, the
difference is to be paid by the lessee. Some of these lease agreements provide for variable lease payments in so
far as the included interest share is linked to the future course of market interest rates, as a rule, the 6-month
LIBOR rate.
     Apart from this, there are finance lease agreements in quite different forms for buildings and parts of
buildings, technical plant and office and plant equipment.
     Lease terms for buildings and parts of buildings are between 10 and 30 years. Lease agreements provide for
lease payments, which are partly based on variable interest rates, partly on fixed interest rates, as well as for

                                                                                      F-34
purchase options at the end of the contractual lease period. The agreements are non-cancellable. Options for the
extension of the agreements — if any — exist only on the part of the lessor.

     Lease terms for technical plant are between three and ten years. Lease agreements provide for fixed lease
payments and purchase options at the end of the lease term. An extension of the lease term by the lessee is
provided for with five exceptions. The agreements are either non-cancellable or may be cancelled only upon the
acquisition of the assets.

     Lease terms for office and plant equipment are between four and eight years. The agreements mainly provide
for fixed lease payments as well as for purchase options at the end of the lease term. Some of these agreements
may be extended by the lessee. The agreements are either non-cancellable or may be cancelled only upon the
acquisition of the assets and payment of a termination penalty.

     The following payments from finance lease agreements will become due in the following years, whereby
variable lease payments were extrapolated on the basis of the last valid interest rate:
                                                                                                              2001   2002-2005   as from 2006
                                                                                                               5m          5m             5m
Lease payments....................................................................................           290.5    1,259.6          242.6
Discounts ..............................................................................................      20.0      185.9           94.6
Net present values................................................................................           270.5    1,073.7          148.0
Payments from sub-lease agreements .................................................                           2.1        3.9            —

     Sublease agreements are concluded for two aircraft in the form of operating lease agreements. The
agreements have a lease term of seven years each.

     In addition to the finance lease agreements, a considerable number of lease agreements are concluded which,
pursuant to their economic contents, qualify as operating lease agreements. Accordingly, the leased assets are to
be allocated to the lessor. Apart from nine further aircraft, these agreements concern mainly leased buildings.

     The term of the operating lease agreements for aircraft is between three and ten years. Usually, the
agreements are terminated automatically after expiry of the lease term, in some cases lease extension options
have been agreed upon. Two of nine aircraft are subleased on the basis of operating lease. Sublease terms are
between five and seven years.

   As a rule, lease agreements for buildings have a term of five to ten years. The facilities at the Frankfurt and
Munich airports are leased for a period of 30 years.

       Amounts due in the following periods:
                                                                                                              2001   2002-2005   as from 2006
                                                                                                               5m          5m             5m
Aircraft .................................................................................................    26.3       46.4            —
Buildings ..............................................................................................     180.1      766.2     189.1 p.a.
Other lease agreements........................................................................               215.8      626.9     109.7 p.a.
                                                                                                             422.2    1,439.5     298.8 p.a.
Payments from sublease of aircraft.....................................................                        1.2         —             —

     Seven aircraft in the economic and legal ownership of the Group are subleased on the basis of operating
lease. The following payments result from these agreements, the lease terms of which are between five and
seven years:
                                                                                                              2001   2002-2005   as from 2006
                                                                                                               5m          5m             5m
Payments from operating lease agreements........................................                               7.5       13.5             —

                                                                                   F-35
                  23       Financial assets
                           Financial assets developed as follows in financial year 2000:
                                                                               Investments      Loans                                              Loans     Securities                 Pre-
                                                   Investments       Loans               in         to Investments        Loans        Other     to other      held as             financing
                                                             in           to          joint      joint           in           to       equity      equity        fixed     Other           of
                                                   subsidiaries subsidiaries      ventures    ventures   associates   associates investments investments        assets    loans    leasehold      Total

                                                           5m           5m             5m         5m            5m          5m           5m           5m           5m       5m          5m         5m

Acquisition cost
1 January 2000 ............................            144.0         211.8         443.3        88.7        793.0          8.9        39.6           7.3         89.7     250.2       17.3  2,093.8
Exchange rate differences ...........                    0.6           1.6         (18.7)        0.0*         3.3          0.0*        0.0*           —           0.0*       —         0.0*   (13.2)
Change in group of
  consolidated companies...........                     (0.1)         (0.7)          3.7         —            —           —            —             —            0.0*      —          0.0*        2.9
Additions......................................         76.2         193.2         201.2         8.6        209.1         3.9         30.1          10.8         11.5      15.3        6.5       766.4
Disposals ......................................         4.6          14.3          89.0        11.9         47.5         0.0*         6.4           3.8         29.3      37.1        1.2       245.1
Transfers.......................................        13.2          12.4          11.4        (0.7)        (2.2)       (1.3)       (11.0)        (10.3)       (11.5)       —          —           —
31 December 2000 ......................                229.3         404.0         551.9        84.7        955.7        11.5         52.3           4.0         60.4     228.4       22.6     2,604.8
Impairment losses
1 January 2000 ............................               3.6         20.1           15.0         2.6       130.7          0.8          1.6          0.0*        44.4     144.3         0.0*    363.1
Exchange rate differences ...........                     0.1          —              —           —           0.1          0.0*         —            —            —         —           —         0.2
Change in group of
  consolidated companies...........                        —           0.0*          (0.1)        —           —             —            —            —            —         —          0.0*     (0.1)
Additions......................................           1.7         10.5            7.3         5.6        21.2          0.3           —            —           0.0*     10.3          —       56.9
Disposals ......................................           —           0.0*           0.3         —           —             —            —            —            —       26.4          —       26.7
Reversals of impairment losses...                         0.0*         4.6            —           —           —            0.0*         1.1          0.0*        24.1       0.5          —       30.3
Transfers.......................................          0.8          0.2            0.0*       (0.2)       (0.8)          —            —            —            —         —           —         —
31 December 2000 ......................                   6.2         26.2           21.9         8.0       151.2          1.1          0.5           —          20.3     127.7          —      363.1
Carrying amount
  31 December 2000 .................                   223.1         377.8         530.0        76.7        804.5        10.4         51.8           4.0         40.1     100.7       22.6     2,241.7
Carrying amount
  1 January 2000.......................                140.4         191.7         428.3        86.1        662.3          8.1        38.0           7.3         45.3     105.9       17.3     1,730.7


* below 40.1m

                      The items ‘‘loans’’ and ‘‘prefinancing of leasehold’’ include amounts of 445.5m (prior year: 463.0m) and
                  40.9m respectively (prior year: 40.9m) with a residual term of less than one year.
                      Investments in joint ventures and associates include 4471.7m and 4740.7m (prior year: 4394.6m and
                  4622.9m) accounted for under the equity method.
                      The following table compares the carrying amounts and market values of the items disclosed under
                  financial assets.
                                                                                                                                     31.12.2000             31.12.2000       31.12.2000
                                                                                                                                      Carrying                 Market        Unrealised
                                                                                                                                        amount                   value            gains
                                                                                                                                              5m                     5m              5m
                  Loans ....................................................................................................             569.6                 569.6                 —
                  Equity investments ...............................................................................                   1,609.4               2,381.7              772.3
                  Securities held as fixed assets .............................................................                            40.1                  96.2               56.1
                  Prefinancing of leasehold ....................................................................                           22.6                  22.6                 —
                                                                                                                                       2,241.7               3,070.1              828.4




                                                                                                         F-36
     The unrealised gains on equity investments relate exclusively to the equity investments in AMADEUS
Global Travel Distribution S.A., whereas the unrealised gains on securities held as fixed assets relate to the equity
investment in EQUANT N.V.
                                                                                                             31.12.2000    31.12.2000   31.12.2000
                                                                                                              Carrying        Market    Unrealised
                                                                                                                amount          value        gains
                                                                                                                    5m            5m           5m
Loans ....................................................................................................      399.1         406.4          7.3
Equity investments ...............................................................................            1,269.0       3,485.1      2,216.1
Securities held as fixed assets .............................................................                     45.3         273.5        228.2
Prefinancing of leasehold ....................................................................                    17.3          17.3           —
                                                                                                              1,730.7       4,182.3      2,451.6

      The determination of the market values of equity investments and securities for which no active market
exists and which are thus not publicly traded, was impracticable. Therefore, the respective carrying amounts
stated in the above tables are used instead of the market values. In some cases, the saleability of the financial
assets is limited. The carrying amount of these investments totalled 4186.0m (prior year: 4243.0m). The equity
investment in AMADEUS Global Travel Distribution S.A. is not to be sold before the expiration of a temporary
restraint on alienation ending on 28 February 2001; the equity investment in EQUANT N.V. may currently only
be traded with airlines holding an equity investment in SITA Foundation, or on the basis of a stock exchange
floatation approved by the latter. With regard to 17 further equity investments, the shareholders have a right of
first refusal or are required to give their approval.
    Impairment losses of 430.2m (prior year: 474.3m) were recognised. The high impairment losses for the year
1999 relate mainly to non-interest bearing convertible preferred shares issued by Air Canada.

24     Inventories
Inventories                                                                                                                31.12.2000   31.12.1999
                                                                                                                                  5m           5m
Raw materials and supplies.........................................................................................           220.6        201.4
Finished goods and work in progress .........................................................................                  29.8         27.8
Advance payments .......................................................................................................        2.4          2.3
                                                                                                                              252.8        231.5

     The carrying value of the inventories reported at the lower net realisable value is 4186.0m (prior
year: 4168.3m).




                                                                                   F-37
25     Receivables and other assets
                                                                                                                of which                          of which
                                                                                                                  with a                            with a
                                                                                                           residual term                     residual term
                                                                                                           of more than                      of more than
Receivables and other assets                                                             31.12.2000             one year        31.12.1999        one year
                                                                                                  5m                     5m            5m              5m
Trade receivables..........................................................                1,578.3                      0.1      1,281.5              0.0*
— of which from work in progress net of advance
   payments received ..................................................                       (43.6)                     —         (53.9)              —
Receivables from subsidiaries .....................................                           269.7                     1.3        282.9             10.3
— of which from work in progress net of advance
   payments received ..................................................                         (0.2)                    —           (0.7)             —
Receivables from joint ventures ..................................                              45.0                    0.3          27.0             7.6
— of which from work in progress net of advance
   payments received ..................................................                         (0.2)                    —           (0.1)             —
Receivables from associates ........................................                            31.2                    2.4          16.1             3.1
— of which from work in progress net of advance
   payments received ..................................................                         (0.1)                    —           (0.1)             —
Receivables from other equity investments ................                                      51.2                     —           59.9              —
— of which from work in progress net of advance
   payments received ..................................................                        (4.0)                    —           (1.4)              —
Other assets ..................................................................               468.0                   76.9         239.8             41.2
                                                                                           2,443.4                    81.0       1,907.2             62.2

* below 40.1m

     429.8m (prior year: 442.0m) of the receivables from subsidiaries, 425.4m (prior year: 49.4m) of the
receivables from joint ventures, 422.4m (prior year: 47.6m) of the receivables from associates and 451.0m (prior
year: 459.5m) of the receivables from other equity investments relate to trade receivables. All in all, the
aforementioned items include trade receivables in the amount of 4128.6m (prior year: 4118.5m).
     Other assets include tax claims against tax authorities in the amount of 479.4m (prior year: 45.0m) unrelated
to income taxes. The total amount includes expected refunds for provisions in the amount of 45.4m.
     The reported carrying amounts of the monetary assets recorded in these items correspond to their market
values.

26     Securities held as current assets
     The following table shows the carrying amounts and market values of securities held as current assets at the
balance sheet date:
                                                                                                                                31.12.2000     31.12.1999
                                                                                                                                       5m              5m
Carrying amount ..........................................................................................................         584.0           552.7
Market value ................................................................................................................      623.9           635.4
Unrealised gains...........................................................................................................         39.9            82.7

     Carrying values have been reduced by impairment losses in the amount of 445.1m (prior year: 40.5m) in
order to report short-term financial investments at the lower of cost or market value.
     As regards the temporary restraint on alienation with regard to the equity investment in EQUANT N.V.
included in this item at a carrying amount of 430.0m, cf. note 23.

                                                                                  F-38
27   Cash and cash equivalents
     At the balance sheet date, cash and cash equivalents included cash in various banks denominated in EURO at
interest rates ranging between 4.3 and 4.5 per cent (prior year: DM interest rate with various banks between
2.3 and 2.7 per cent, GBP deposits at interest rates between 5.45 and 5.75 per cent). Foreign currency balances
are valued at the closing rate.

28   Income tax assets
     The item includes deferred tax assets in the amount of 418.7m (prior year: 4146.9m).

29   Prepaid expenses
    Apart from a loan discount of 41.1m (prior year: 41.2m), this item includes prepaid amounts the related
expense of which is to be allocated to following years. 45.2m (prior year: 47.9m) of the amount have a residual
term of more than one year.




                                                     F-39
                                  Notes to the Consolidated Balance Sheet

                                             Equity and Liabilities

30   Issued capital

     The issued capital of Deutsche Lufthansa AG amounts to 4976.9m.

     The issued capital is divided into 381,600,000 registered shares, each representing a share of 42.56 of the
issued capital.

     Until 15 June 2004, the Executive Board is, upon approval by the Supervisory Board, authorised to increase
the issued capital by up to 4100m by issuing new registered shares (Authorised Capital A) and by 425m
respectively by issuing new registered shares to employees (Authorised Capital B) against a contribution in cash.
As regards Authorised Capital A, fractional amounts may be excluded from the shareholders’ subscription right;
as far as Authorised Capital B is concerned, the subscription right is always excluded.

     In addition to that, the Executive Board is authorised until 15 June 2004 to issue convertible bonds once or
repeatedly and/or bonds with an aggregate par value of up to 41 billion, bearing maturities of up to 15 years. In
this connection, there is contingent capital for effecting a conditional increase of the issued capital by
497,689,600 by issuing 38,160,000 new registered shares. The conditional capital increase will be effected only
to the extent that the holders of convertible bonds or bonds with warrants exercise their conversion or
option rights.

     In financial year 2000, Lufthansa AG acquired a total of 1,282,166 shares of its own stock at an average
price of 425.50. This corresponds to 0.34 per cent of the issued capital.

     The shares have been used as follows:

     — 867,438 shares were offered to the employees of Lufthansa AG and 36 subsidiaries and associates from
       the 1999 profit-sharing scheme at the price of 425.00. For one associate with a deviating financial year
       the price was 423.15.

     — 22,299 shares as part of the performance-based variable remuneration of staff members of Lufthansa AG
       and 22 subsidiaries and associates to whom the regular pay scale does not apply at the price of 425.00.

     — 392,429 shares as part of the performance-based variable remuneration of senior executives of
       Lufthansa AG and 42 subsidiaries and associates or as part of the 1999 profit-sharing scheme for
       captains of Lufthansa AG and 4 subsidiaries and associates at the price of 415.57. Lufthansa AG and its
       group companies grant an outperformance option for these shares, which includes the right to receive a
       cash payment depending on the development of the Lufthansa share value compared with that of an
       index of rival airlines. The programme covers a period of three years.

     An outperformance option identical in structure to the above-mentioned option was already granted by
Lufthansa AG and its group companies as part of the performance-based variable remuneration of senior
executives in 1998 and 1999. Each of the programmes covers three years. In 1997, the senior executives of
Lufthansa AG and nine group companies acquired shares as an investment. Within the scope of this programme,
Lufthansa AG and its group companies also granted an outperformance option, the contents of which were
identical to the above-mentioned option. This outperformance option became due in financial year 2000 after
expiry of the programme term and was paid out in full. The provisions that had already been set up for this
programme in the preceding year have been utilised. As of 1 January 2000, a total of 704,958 shares was held by
senior executives/captains, whereas they held 931,560 shares on 31 December 2000 in total. As of 31 December
2000, there were provisions set up in the amount of 421.8m (prior year: 414.3m) for possible cash payments from
these programmes.

     As of the balance sheet date, the portfolio did not contain any own shares.

                                                      F-40
31     Reserves
     The capital reserve contains only the premium from capital increases. The legal reserve included in the
retained earnings continues to amount to 425.6m; the remainder relates to other retained earnings.

32     Provisions and accruals
                                                                                                      of which                  of which
                                                                                                    due in the                due in the
                                                                                                     following                 following
Provisions and accruals                                                                31.12.2000         year   31.12.1999         year
                                                                                              5m          5m            5m          5m
Retirement benefit and similar obligations .................                             3,354.3        112.1      2,993.0        194.9
Income tax liabilities ...................................................                 50.8         50.8         47.7         47.7
Provisions for deferred taxes.......................................                       85.7           —          13.8           —
Other tax liabilities ......................................................               27.6         27.6         23.2         23.2
Provisions for unearned transportation revenue .........                                  561.4        561.4        548.2        548.2
Outstanding invoices....................................................                  610.6        574.2        447.9        433.4
Other accruals ..............................................................           1,252.4      1,040.2      1,008.9        802.7
                                                                                        5,942.8      2,366.3      5,082.7      2,050.1


Retirement benefit obligations
     A corporate pension scheme has been set up for employees working in Germany or seconded abroad. The
plan formula follows the so-called VBL scheme which is the supplementary pension scheme for all state
employees and has been adapted by Deutsche Lufthansa AG as a corporate pension scheme after privatisation for
all employees who joined the Group before 1995. Flight personnel are, in addition, entitled to a transitional
pension arrangement for the period between the end of their active service and the commencement of the
statutory/corporate pension plan. Benefits depend in both cases on the final salary before retirement (final
salary plans).
      For employees who joined the Group after 1994, a new corporate pension scheme (different from the VBL
scheme) has been installed. With this scheme, a certain percentage of the current salary is converted into a
retirement benefit component, and the retirement benefit is the sum of those components accumulated during the
period of active service (average salary plan). Under IAS 9, such a scheme is to be classified as a defined benefit
plan and must therefore be included in measuring retirement benefit obligations and pension expense.
     Retirement benefit obligations for employees abroad depend mainly on their years of service and final
salary.
     Corporate pension schemes as well as the transitional pension arrangement are financed exclusively by
pension accruals in the balance sheet. The defined benefit obligations for all commitments are evaluated annually
applying the projected unit credit method.
     The determination of the present value of retirement benefit obligations and the pension expense are based
on the 10 per cent corridor rule. Actuarial gains and losses are not recognised unless they exceed 10 per cent of
the defined benefit obligation.




                                                                                F-41
     The amount exceeding the corridor is divided over the expected average remaining working lives of the
employees concerned affecting the income statement and recorded in the balance sheet. Because of actuarial
gains (prior year: losses), retirement benefit obligations recognised in the balance sheet are higher (prior year:
lower) than the defined retirement benefit obligations:
Funding status                                                                                                                             2000           1999
                                                                                                                                            5m             5m
Defined benefit obligations..........................................................................................                    3,116.9        3,004.6
Actuarial losses /gains not yet recognised...................................................................                            237.4          (11.6)
                                                                                                                                       3,354.3        2,993.0

     The change in funding status compared with the preceding year is mainly due to the relief following
the 37th change of the VBL statutes, salary development deviating from valuation assumptions, and the
corresponding balance changes.
       Pension accruals developed as follows in financial years 2000 and 1999:
Retirement benefit obligations                                                                                                              2000           1999
                                                                                                                                            5m             5m
Carryforward ................................................................................................................          2,993.0        2,760.4
Exchange rate differences carryforward .....................................................................                              (0.0)*          0.4
Change in group of consolidated companies..............................................................                                     —             6.3
Pensions paid ...............................................................................................................            (92.5)         (78.8)
Addition........................................................................................................................         452.9          305.6
Release .........................................................................................................................         (0.1)          (0.5)
Transferred obligations ................................................................................................                   1.0           (0.4)
Balance ........................................................................................................................       3,354.3        2,993.0

* below 40.1m

       Total pension expense as recognised in the income statement is composed of the following elements:
                                                                                                                                           2000           1999
                                                                                                                                            5m             5m
Current service cost .....................................................................................................               143.7          135.2
Amortised actuarial gains ............................................................................................                      —            (2.5)
Past service cost...........................................................................................................             118.7           12.5
Interest cost ..................................................................................................................         190.5          160.4
                                                                                                                                         452.9          305.6

    Current service cost and amortised actuarial gains are reported as staff costs, whereas the interest cost of the
expected retirement benefit obligations is shown under interest expense.
       The determination of retirement benefit obligations has been based on the following assumptions:
Actuarial assumptions                                                                                              31.12.2000        31.12.1999     31.12.1998
                                                                                                                 in per cent.       in per cent.   in per cent.
Interest rate...........................................................................................                  6.5              6.5            6.0
Future salary increase ..........................................................................                         3.0              3.0            2.5
Future pension increase .......................................................................                       2.0-3.0          2.0-3.0        1.5-2.5

    The 1998 mortality tables by Heubeck have been applied as biometric basis of calculation. Fluctuation has
been estimated by age and sex.

                                                                                   F-42
Other provisions and accruals

        The individual groups of provisions and accruals have been developed as follows in financial year 2000:
                                                                                             Anticipated
                                                                                                   losses
                                                               Bonus                          related to
                                                Staff           miles                           onerous      Ecological         Pending      Restructuring
                                                costs     programme        Warranties          contracts      recovery             cases         measures          Other

                                                 5m               5m                 5m              5m            5m               5m                 5m            5m

1 January 2000 ......................          305.0           283.1                 9.9           79.0          27.5             13.7                40.8         249.2
Exchange rate differences .....                  0.0*             —                   —              —             —                —                   —            0.0*
Utilisation...............................    (169.8)         (130.3)               (0.9)         (47.5)         (2.0)            (1.3)               (6.2)       (164.4)
Addition/formation ................            225.1           209.6                 2.8           59.0           8.7              7.3                 0.9         399.1
Interest effect .........................        0.4              —                  0.3            3.2            —                —                  1.8            —
Release ...................................    (21.8)          (40.4)               (0.8)         (12.7)         (0.7)            (5.0)               (2.6)        (70.3)
Reclassification ......................           3.7              —                   —             0.1            —               0.2                (4.8)          3.5
31 December 2000 ................              342.6           322.0                11.3           81.1          33.5             14.9                29.9         417.1


* below 40.1m

     Provisions for staff costs mainly concern commitments to employees from partial retirement agreements and
profit sharing. Anticipated losses related to onerous contracts may arise from the valuation of derivative financial
instruments, pending continuous obligations or customer orders, in the event that there is an imbalance of
performance and counter performance. Provisions for pending cases have been set up on the basis of the
estimated outcome of the lawsuit. The ‘‘warranties’’ item includes an amount of 46.8m from a warranty with
regard to the value of a sold share of an equity investment.

      The individual groups of provisions and accruals include short-term provisions and accruals with a term of
less than one year as well as long-term provisions and accruals.

     The following outflows of funds have been estimated for discounted long-term provisions and accruals
within the individual groups:
                                                                                                                                                                2005 and
                                                                                                                                                              subsequent
                                                                          2001                    2002                2003                    2004                 years
                                                                             5m                     5m                    5m                    5m                   5m
Staff costs.............................................                  34.1                    42.9                22.8                      5.3                30.7
Anticipated losses related to
  onerous contracts .............................                         10.9                    10.6                    5.4                   3.6                 0.6
Ecological recovery..............................                          3.2                     3.2                    3.2                   3.2                19.0
Restructuring measures........................                             4.4                     1.3                    2.8                   0.7                19.6
                                                                          52.6                   58.0                 34.2                    12.8                 69.9


33      Long-term borrowings
                                                                                                            of which due                                  of which due
                                                                                                              in less than                                  in less than
Long-term borrowings                                                                        31.12.2000           one year            31.12.1999                one year
                                                                                                    5m                    5m                    5m                   5m
Bonds............................................................................              267.4                139.6                    267.4                   —
Liabilities to banks ......................................................                    783.3                112.4                    216.3                 69.8
Other liabilities.............................................................               1,357.7                128.7                  1,816.1                469.5
                                                                                             2,408.4                380.7              2,299.8                    539.3


                                                                                    F-43
    The following tables show the terms and conditions of long-term borrowings as well as their carrying
amounts and market values:

Bonds
                                                                      Fixed            Carrying       Market     Carrying       Market
                                                               interest rate             amount         value      amount         value
Weighted average interest rate                                         until          31.12.2000   31.12.2000   31.12.1999   31.12.1999
                                                                                             5m           5m           5m           5m
6-month DM-LIBOR ...........................                         2001                139.6        139.6        139.6        139.6
6.25 .......................................................         2006                127.8        133.6        127.8        139.0
                                                                                         267.4        273.2        267.4        278.6


Liabilities to banks
                                                                      Fixed            Carrying       Market     Carrying       Market
                                                               interest rate             amount         value      amount         value
Weighted average interest rate                                        until*          31.12.2000   31.12.2000   31.12.1999   31.12.1999
                                                                                             5m           5m           5m           5m
6.34 .......................................................         2000                   —            —           51.1         52.4
6.75 .......................................................         2001                  4.3          4.3           9.0          9.0
6-month Euribor...................................                   2001                 18.0         18.0            —            —
6-month LIBOR ...................................                    2002                 35.2         35.2          48.8         48.8
5.30 .......................................................         2002                  7.7          8.0            —            —
7.19 .......................................................         2003                116.6        124.5          86.9         95.3
6.78 .......................................................         2004                 28.0         29.9          20.5         23.1
5.90 .......................................................         2005                 74.8         79.2            —            —
6.80 .......................................................         2006                 48.7         54.2            —            —
6.18 .......................................................         2007                 64.1         69.8            —            —
6.17 .......................................................         2008                 24.2         26.0            —            —
6.05 .......................................................         2010                337.2        352.4            —            —
6-month Euribor...................................                   2010                 24.5         24.5            —            —
                                                                                         783.3        826.0        216.3        228.6


* Some of the agreements will expire only after the reported fixed-interest periods.




                                                                               F-44
Other liabilities (finance lease agreements)
                                                                      Fixed            Carrying       Market     Carrying       Market
                                                               interest rate             amount         value      amount         value
Weighted average interest rate                                         until          31.12.2000   31.12.2000   31.12.1999   31.12.1999
                                                                                             5m           5m           5m           5m
7.5.........................................................         2000                   —           —          368.3        386.7
6-month DM-LIBOR ...........................                         2000                   —           —           12.8         12.8
6.8.........................................................         2001                 34.9         35.3         38.2         39.8
6-month DM-LIBOR ...........................                         2001                 33.2         33.2        176.3        176.3
5.5.........................................................         2002                220.2        223.5        234.0        240.7
6-month DM-LIBOR ...........................                         2002                 56.6         56.6         62.2         62.2
1.8 (Yen)...............................................             2002                124.5        127.6        126.5        132.5
6.6.........................................................         2003                112.0        116.3        127.8        134.5
6-month DM-LIBOR ...........................                         2003                 78.6         78.6         86.8         86.8
7.3.........................................................         2004                 84.0         90.3         89.0         97.1
6-month DM-LIBOR ...........................                         2004                145.4        145.4           —            —
6-month DM-LIBOR ...........................                         2005                255.2        255.2        278.7        278.7
6-month DM-LIBOR ...........................                         2006                130.0        130.0        135.8        135.8
7.8.........................................................         2014                 28.6         33.2         29.2         34.0
                                                                                       1,303.2      1,325.2      1,765.6      1,817.9


Remaining other liabilities
                                                                      Fixed            Carrying       Market     Carrying       Market
                                                               interest rate             amount         value      amount         value
Weighted average interest rate                                         until          31.12.2000   31.12.2000   31.12.1999   31.12.1999
                                                                                             5m           5m           5m           5m
62% of prime rate................................                    2015                   6.1          6.1          5.7          5.7
7.125 (USD).........................................                 2018                  48.4         53.8         44.8         45.2
                                                                                           54.5         59.9         50.5         50.9

     The market rates stated in the above tables have been determined on the basis of the interest swap rates
effective at the balance sheet date for the corresponding residual maturities.




                                                                               F-45
34     Other liabilities
                                                                                                     of which due                  of which due
                                                                                                       in less than                  in less than
Other liabilities                                                                       31.12.2000        one year    31.12.1999        one year
                                                                                               5m              5m            5m              5m
Liabilities to banks ......................................................                 35.9            25.9          20.0             17.7
Payments received on account of orders ....................                                 44.6            44.6          20.1             20.1
Trade payables .............................................................             1,064.0         1,063.9         802.2            802.2
Bills payable.................................................................               0.6             0.5           0.5              0.5
Liabilities to subsidiaries.............................................                   211.3           202.2         147.2            134.9
Liabilities to joint ventures..........................................                     40.6            40.6          29.5             29.5
Liabilities to associates................................................                   35.7            30.3          22.8             22.0
Liabilities to other equity investments........................                             12.4             1.2          23.9             23.8
Other liabilities.............................................................             607.9           541.7         446.2            392.1
— of which from taxes ...............................................                      (54.3)          (54.3)        (50.0)           (49.7)
— of which relating to social security .......................                             (60.8)          (59.9)        (59.6)           (58.8)
                                                                                         2,053.0         1,950.9       1,512.4         1,442.6

    Payments received on account of orders also include the net credit balance from payments received on
account of orders and receivables from work in progress in the amount of 441.7m (prior year: 410.3m).
      48.6m (prior year: 48.3m) of the liabilities to subsidiaries, 440.4m (prior year: 429.5m) of the liabilities to
joint ventures, 428.9m (prior year: 414.9m) of the liabilities to associates and 41.2m (prior year: 42.8m) of the
liabilities to other equity investments relate to trade payables. All in all, the aforementioned items include trade
payables in the amount of 479.1m (prior year: 455.5m).
       49.4m (prior year: none) of the liabilities to banks have been collateralised.
     The carrying amounts of the monetary liabilities recorded under these items correspond to their market
values.

35     Deferred income
     Deferred income includes mainly accrued book profits from finance lease transactions released affecting the
income statement over the term of the respective lease agreement in accordance with IAS 17. In 1999 the item
additionally includes a negative goodwill from consolidation in the amount of 40.9m. By virtue of the first
application of IAS 22 in its wording revised in the year 1998, these differences are openly deducted from
goodwill as from financial year 2000. 446.9m (prior year: 456.4m) of all deferred income has a residual maturity
of less than one year.




                                                                                 F-46
                                                                 Other disclosures

36    Contingencies and events occurring after the balance sheet date
                                                                                                                       31.12.2000   31.12.1999
                                                                                                                              5m           5m
Contingent losses
from guarantees, bills and cheque charges.................................................................              1,217.9      1,288.7
from warranty agreements ...........................................................................................    1,474.2        876.5
from collateralisation of third-party liabilities............................................................             130.4        130.4

     Guarantees include an amount of 4 412.5m (prior year: 4 232.9m) representing contingent liabilities in
respect of creditors of joint ventures, whereas warranties include an amount of 4 129.2m (prior year: 4 137.2m)
representing contingent liabilities in respect of creditors of joint ventures. The reported amount includes a total
sum of 4 645.9m (prior year: 4 578.5m) relating to the assumption of co-debtors’ guarantees in favour of
North American fuelling and ground service companies. This amount is compared with compensatory claims
against the other co-debtors in the amount of 4 630.9m (prior year: 4 562.7m). Since annual financial statements
have not yet been available, some of the aforesaid amounts are preliminary.

     Since a corresponding outflow of resources is not very likely, various provisions with a potential effect on
the financial results of 4 27.1m (prior year: 4 23.6m) for subsequent years have not been set up.

     The contingent claims from two concluded aircraft sales mentioned in the preceding year have been realised.
There has been a total inflow of 4 58.3m from this sale. 4 2.9m of the claims provable in bankruptcy from
sublease agreements with Fokker Aircraft BV also stated in the preceding year have been realised. There are no
further claims.

37    Other financial commitments

     As of 31 December 2000, there was a total commitment to order investments in tangible assets and
intangible assets of 4 4.3bn (prior year: 4 5.0bn). In addition to that, there are equity and shareholder loan
commitments in the amount of 4 0.2bn (prior year: 4 0.2bn) from participating interests. There are commitments
for the acquisition of shares in the amount of 4 1.8bn from purchase agreements, exercised call options, and
granted put options.

38    Hedging policy and derivative financial instruments

     As an internationally operating aviation group, the Lufthansa Group is exposed to currency, interest rate and
fuel price risks as well as credit and liquidity risks. The corporate policy provides for means to limit these risks
by systematic financial management.

Price risk

     The major risks the Lufthansa Group is exposed to are exchange rate fluctuations between the Euro and
other currencies, interest rate fluctuations on the international money and capital markets as well as price
fluctuations on the crude oil and oil products markets. The hedging policy for limiting these risks is set by the
Executive Board and documented by internal Group guidelines. It also provides for the use of financial
derivatives. The corresponding financial transactions are concluded only with first-rate counterparties.

      The Lufthansa Group is in a net payer position with respect to the US dollar, in particular due to investments
in aircraft. These firmly contracted USD aircraft investments are hedged up to 100 per cent against exchange rate
fluctuations. With all other currencies, there is generally a surplus of deposits. Subject to the possible scheduling
of expected cash flows denominated in individual currencies, 50 or 75 per cent of the respective currency
exposure are hedged for a period of up to 18 months.

                                                                           F-47
     Variable interest liabilities based on firm agreements are hedged against interest rate risks at up to
100 per cent. Planned liquidity surplus or under coverage may be hedged at up to 50 per cent for a maximum
period of 24 months.
     In financial year 2000, the share of fuel expenses accounted for 9.7 per cent (prior year: 6.9 per cent) of the
operating expenses of the Lufthansa Group. Great changes in fuel prices may have a substantial effect on the
Group results. However, Lufthansa benefits from having one of the youngest fleets of all major airlines with a
correspondingly low fuel consumption.
      Different hedging instruments with regard to the crude and heating oil market are used to limit the fuel price
risk. The Group’s policy aims at hedging up to 90 per cent of the fuel consumption in the next 24 months on a
revolving basis.

Credit risk
     The sale of passenger and freight documents is for the most part handled through agencies. The majority of
these agencies are connected to special national clearing systems for the settlement of passenger and freight sales.
The financial standing of such agents is checked by the particular clearing centre. Owing to the world-wide
spreading, the credit risk with regard to sales agents is relatively low.
      Unless otherwise provided for in the respective agreements, receivables and liabilities existing between
airlines are settled on a bilateral basis or by settlement via a clearing house of the International Air Transport
Association (IATA). All receivables and liabilities are generally netted in monthly intervals, which leads to a
visible reduction of the default risk. In particular cases, the respective service contract demands a special
collateral.
     For all other service relationships additional collateral is required depending on the nature and scope of the
services rendered. In addition to that, credit reports /references are obtained and historical data from the previous
business relationship used, in particular with regard to payment behaviour, in order to avoid non-performance.
     Recognisable risks are accounted for by adequate allowances on receivables.
     The credit risk from derivative financial instruments lies in the potential insolvency of a counterparty and is
thus maximally equal to the sum of the positive net market values in respect of the corresponding business
partners. As of 31 December 2000, this credit risk amounted to 4 511.9m, as of 31 December 1999 to 4 225.6m.
Since financial transactions are concluded only with first-rate counterparties within the scope of predefined limits,
the actual risk of default is low.

Liquidity risk
     Complex financial planning instruments are used to recognise the Group’s future liquidity position as is
evident from the results of the Group’s strategic and planning process. These systems show the expected liquidity
development within a planning horizon of usually up to three years. Twelve-month liquidity planning is updated
daily based on actual data.
     As of 31 December 2000, the Lufthansa Group was provided with non-utilised short-term credit
arrangements in the amount of 4 800m.
    In addition to that, there are short-term funding options through a commercial paper programme in a
maximum total amount of 4 1.0bn, which had not been utilised as of 31 December 2000.
     As of 31 December 2000, the Group hedged against fluctuations in currencies, interest rates and fuel prices
using derivative financial instruments. The market values of the financial derivatives shown in the following tables
correspond to the price a third party would have to pay to Lufthansa AG in order to assume the rights and/or
obligations related to the financial instrument in question. Market values have been determined on the basis of the
market information available at the balance sheet date. Negative signs mean a possible commitment upon opting
out of the financial instrument at the balance sheet date. The following currency hedges classified by type of

                                                        F-48
business exist with respect to banks and non-consolidated Group companies; some of the transactions with banks
are counter-transactions to the transactions concluded with non-consolidated companies.
                                                                                                          Carrying        Market
                                                                                                            amount          value
                                                                                                 Term    31.12.2000    31.12.2000
                                                                                                                5m            5m
Exchange rate hedges
USDm 1,510.4 Fluctuation band options (currency purchase) ...                          maximum   2006         (0.3)       233.1
USDm     268.6 Forward purchase.................................................       maximum   2002         (2.5)        28.0
USDm         1 Forward sale.........................................................   maximum   2002         (0.2)        (0.2)
YENm 20,274.5 Forward purchases ...............................................        maximum   2001          —           13.7
YENm     2,750 Fluctuation band options (currency sale) ...........                    maximum   2001         (0.5)        (0.9)
YENm     6,152 Sold call options..................................................     maximum   2002        (11.2)       (11.2)
GBPm      58.8 Forward sales .......................................................   maximum   2001         (0.0)*        4.5
GBPm        50 Forward purchases ...............................................       maximum   2001          —           (0.1)
HKDm 331.2 Forward sales .......................................................       maximum   2001          —            3.4
CHFm        67 Forward sales .......................................................   maximum   2001         (0.3)        (0.6)
CADm      12.7 Forward sales .......................................................   maximum   2001          —            0.5
SGDm      28.1 Forward sales .......................................................   maximum   2001          —            1.4

* below 4 (0.1m)

                                                                                                          Carrying        Market
                                                                                                            amount          value
                                                                                                 Term    31.12.1999    31.12.1999
                                                                                                                5m            5m
Exchange rate hedges
USDm 2,209.5 Fluctuation band options (currency purchase) ...                          maximum   2006          —          162.5
USDm      77.7 Fluctuation band options (currency sale) ...........                    maximum   2000          —          (17.5)
USDm     148.8 Forward purchases ...............................................       maximum   2001          —           19.1
USDm         1 Forward sales .......................................................   maximum   2002         (0.1)        (0.1)
YENm 17,250 Fluctuation band options (forward sale).............                       maximum   2001        (22.4)       (26.5)
YENm     9,182 Sold call options..................................................     maximum   2002        (21.0)       (21.0)
YENm     5,218 Forward purchases ...............................................       maximum   2000          —           11.0
YENm 17,330.1 Forward sales .......................................................    maximum   2001          —          (19.7)
GBPm      36.2 Fluctuation band options (currency sale) ...........                    maximum   2000         (2.9)        (2.5)
HKDm        84 Forward sales .......................................................   maximum   2000         (0.4)        (0.3)
CHFm      29.5 Forward sales .......................................................   maximum   2000          —            0.1

Interest rate hedges

      Hedges of variable interest rate loans:
                                                                                                         Carrying         Market
                                                                                                           amount           value
                                                                                             Term       31.12.2000     31.12.2000
                                                                                                               5m             5m
4m 143.2       Swaps 6.14 per cent                against 6-month LIBOR            maximum 2002                —            (0.0)*
               on average
4m      5.1    Swaps 4.05 per cent                against 6-month Euribor maximum 2002                         —             0.1
               on average

* below 4 (0.1m)


                                                                   F-49
       Hedges of variable interest rate loans:
                                                                                                                 Carrying       Market
                                                                                                                   amount         value
                                                                                                         Term   31.12.1999   31.12.1999
                                                                                                                       5m           5m
4m 194.3          Swaps 5.77 per cent                        against 6-month LIBOR             maximum 2002            —          (3.5)
                  on average
4m       5.1      Swaps 4.05 per cent                       against 6-month Euribor maximum 2002                       —           0.1
                  on average

       Hedges of variable interest rate cash investments:

4m       4.6      Swaps 6.28 per cent                        against 6-month LIBOR                      2002           —           0.1
                  on average

Fuel price hedges
                                                                                                                 Carrying       Market
                                                                                                                   amount         value
                                                                                           Tonnes        Term   31.12.2000   31.12.2000
                                                                                                                       5m           5m
Options .........................................................................      1,520,000    2001-2003       (11.2)       68.8
Fixed price transactions ...............................................               4,938,400    2001-2003         —         149.8
                                                                                                                 Carrying       Market
                                                                                                                   amount         value
                                                                                           Tonnes        Term   31.12.1999   31.12.1999
                                                                                                                       5m           5m
Options .........................................................................      4,194,900    2000-2003        23.3         69.3
Fixed price transactions ...............................................               3,784,200    2000-2003         —           40.9

     As of 31 December 2000 and 1999, there were hedging arrangements with regard to the products gas oil and
crude oil for the financial years until 2003 in the form of fixed price transactions and options.

     The market value is determined on the basis of the current financial market conditions as of 31 December of
the financial year in question. The basis used is the mean value of the respective futures and corresponding
volatility reported monthly by several international banks.

39     Segment reporting

     The Lufthansa Group operates in seven major business segments, i.e. passenger business through Deutsche
Lufthansa AG and Lufthansa CityLine GmbH (passenger business), freight traffic (logistics) through Lufthansa
Cargo AG, aircraft maintenance and repair (maintenance, repair and overhaul) through Lufthansa Technik group,
catering through the LSG Lufthansa Service/SKY Chefs group, tourism (leisure travel) through the
C&N-Touristic group, EDP services (IT services) through Lufthansa Systems GmbH and the companies of the
START Informatik group as well as ground services through GlobeGround GmbH and its group companies
(‘‘ground services’’). Lufthansa Commercial Holding,

     Lufthansa International Finance (Netherlands) N.V., the special securities funds and other equity
investments completing the operating business of the Lufthansa Group are summarised under ‘‘other’’.
The results of the ‘‘leisure travel’’ business is included in the group results at equity only.

     As a rule, inter-segment sales and revenue are rendered at prices that would also have been agreed upon with
third parties. Administration services are charged in the form of cost allocation.

       For information on external revenue relating to traffic cf. note 6.

                                                                                    F-50
Primary reporting format — business segment information for financial year 2000 in 6m:
                                                                                                                Leisure                               Ground
                                               Passenger    Business    Logistics       MRO        Catering      Travel        IT Services            Services
                                                Deutsche                            Lufthansa
                                               Lufthansa   Lufthansa   Lufthansa      Technik           LSG               Lufthansa      START         Globe                   Total
                                                     AG     CityLine       Cargo       Group           Group      C&N       Systems    AMADEUS        Ground       Other    segments

External revenue ......................         9,304.2    1,018.8     2,562.3      1,108.6          643.5         —        118.5            175.8     268.7         —     15,200.4
— of which traffic revenue ....                  8,990.4    1,015.7     2,543.1           —              —         —            —                —         —         —      12,549.2
Inter-segment revenue..............               523.1       15.8         1.3      1,155.9          408.1        —         317.7              0.1       9.6        —       2,431.6
Total revenue............................       9,827.3    1,034.6     2,563.6      2,264.5        1,051.6        —         436.2            175.9     278.3        —      17,632.0
Other segment income.............               1,154.7       59.6       288.5        135.4           42.6       26.7        18.0             28.7      13.7      633.4     2,401.3
— of which reversal of
    impairment losses ..............                 —           —           —            —              —          —           —              —          —        29.9        29.9
— of which from investments
    accounted for under the
    equity method ....................             (1.1)        —          0.5         12.7           (6.1)      26.7          —                —        6.2       23.8        62.7
Segment expenses....................           10,304.8    1,037.4     2,624.2      2,298.0        1,055.5        —         429.7            208.6     304.5      116.0    18,378.7

Segment results ......................           677.2         56.8      227.9        101.9             38.7     26.7         24.5            (4.0)    (12.5)     517.4     1,654.6
— of which from investments
   accounted for under the
   equity method ....................              (1.1)        —          0.5         12.7             (6.1)    26.7           —               —        6.2        23.8       62.7
Segment assets.........................         6,691.0      822.7     1,715.3      1,709.7            695.6    309.4         96.5            66.5     200.2     1,758.5   14,065.4
— of which from investments
   accounted for under the
   equity method ....................             159.8         —           —          88.4            345.8    309.4          —                —        8.1       298.7    1,210.2
Segment liabilities ...................         5,454.2      332.2       523.0      1,104.7            355.9       —        156.3             40.9      96.4     1,055.9    9,119.5
— of which from investments
   accounted for under the
   equity method ....................                —          —          0.8           —               —          —          —               —         —          —           0.8
Capital expenditure..................           1,288.6      200.2       338.7          49.2            31.3        —         34.1            37.4      26.8      181.6     2,187.9
— of which from investments
   accounted for under the
   equity method ....................            255.2           —           —           0.1             5.1        —          —               —         1.0        —         261.4
Depreciation and amortisation                    670.4         70.9        99.4         58.8            25.4        —         39.4            16.1      33.2       10.6     1,024.2
— of which impairment
   losses ..................................         —           —           —            —              —          —           —              —          —          —           —
Other significant non-cash
  expenses ...............................       212.7          2.4        11.1         20.4            11.1        —          4.2             0.2        0.3        0.1     262.5




                                                                                                F-51
Primary reporting format — business segment information for financial year 1999 in 6m:
                                                                                                                Leisure                              Ground
                                               Passenger    Business    Logistics       MRO        Catering      Travel        IT Services           Services
                                                Deutsche                            Lufthansa
                                               Lufthansa   Lufthansa   Lufthansa      Technik           LSG               Lufthansa      START        Globe                   Total
                                                     AG     CityLine       Cargo       Group           Group      C&N       Systems    AMADEUS       Ground       Other    segments

External revenue ......................        8,014.4       863.0     2,080.4        872.8            568.4       —         78.3            179.3    138.1         —     12,794.7
— of which traffic revenue ....                 7,753.8       860.5     2,062.4           —                —       —            —                —        —         —      10,676.7
Inter-segment revenue..............              495.4        19.0         1.3        947.0            379.9      —         299.8              0.0      4.9        —       2,147.3
Total revenue............................      8,509.8       882.0     2,081.7      1,819.8            948.3      —         378.1            179.3    143.0        —      14,942.0
Other segment income.............                846.7        55.4       109.0        156.0             27.5     33.9        18.2             31.9      3.6      481.2     1,763.4
— of which reversal of
    impairment losses ..............                 —           —           —            —              —          —           —              —         —        10.3        10.3
— of which from investments
    accounted for under the
    equity method ....................            (1.7)         —          0.4          5.5            (17.8)    33.9          —                —       0.0      201.5       221.8
Segment expenses....................           8,772.8       886.3     2,135.9      1,934.4            950.8      —         390.2            166.3    163.6      154.3    15,554.6

Segment results ......................           583.7         51.1        54.8         41.4            25.0     33.9          6.1            44.9    (17.0)     326.9     1,150.8
— of which from investments
   accounted for under the
   equity method ....................             (1.7)         —          0.4          5.5            (17.8)    33.9           —               —       0.0       201.5      221.8
Segment assets.........................        5,971.7       698.5     1,542.1      1,125.7            688.2    212.1         93.7            75.0    174.5     1,540.5   12,122.0
— of which from investments
   accounted for under the
   equity method ....................              8.0          —           —          97.2            373.2    212.1          —                —       0.4      326.6     1,017.5
Segment liabilities ...................        4,720.5       184.7       424.0        815.7            342.7       —        123.5             49.8     57.4      883.4     7,601.7
— of which from investments
   accounted for under the
   equity method ....................               —            —         1.3           —               —          —          —               —        —          —           1.3
Capital expenditure..................            732.2         61.0      289.7          47.6           357.7        —         38.6            39.4    102.3      228.1     1,896.6
— of which from investments
   accounted for under the
   equity method ....................              9.7           —           —           8.3           304.6        —          —               —        —          —        322.6
Depreciation and amortisation                    627.6         66.4        85.7         46.0            22.5        —         42.6            12.2     22.4       57.5      982.9
— of which impairment
   losses ..................................         —           —           —            —              —          —           —              —         —          —           —
Other significant non-cash
  expenses ...............................         98.8         1.7        10.6         20.0             9.9        —          3.9             0.0       0.3        0.1     145.3




                                                                                                F-52
Reconciliation of segment information to consolidated figures in 6m:
                                                             Total segments                   Reconciliation                            Group
                                                               2000             1999           2000                1999               2000             1999

External revenue.........................             15,200.4              12,794.7             —             —              15,200.4             12,794.7
— of which traffic revenue .......                     12,549.2              10,676.7             —             —              12,549.2             10,676.7
Inter-segment revenue ................                 2,431.6               2,147.3        (2,431.6)     (2,147.3)                 —                    —
Total revenue ..............................          17,632.0              14,942.0        (2,431.6)     (2,147.3)           15,200.4             12,794.7
Other revenue .............................            2,401.3               1,763.4          (715.8)       (349.9)            1,685.5              1,413.5
— of which reversal of
    impairment losses .................                       29.9              10.3               —               0.5               29.9              10.8
— of which from investments
    accounted for under the
    equity method .......................                 62.7                 221.8           (62.7)       (221.8)                —                    —
Expenses .....................................        18,378.7              15,554.6        (2,974.8)     (2,358.7)           15,403.9             13,195.9
Results........................................         1,654.6              1,150.8         (172.6)           (138.5)             1,482.0          1,012.3
— of which from investments
   accounted for under the
   equity method .......................                  62.7                 221.8          (62.7)           (221.8)              —                    —
Assets..........................................      14,065.4              12,122.0         (745.0)            765.1         14,810.4             12,887.1
— of which from investments
   accounted for under the
   equity method .......................                1,210.2              1,017.5            —              —               1,210.2              1,017.5
Liabilities ....................................        9,119.5              7,601.7        1,526.1        1,552.4            10,645.6              9,154.1
— of which from investments
   accounted for under the
   equity method .......................                       0.8                1.3              —                —                  0.8              1.3
     The reconciliation column includes the effects resulting from consolidation procedures as well as the
amounts resulting from the different interpretation of the contents of segment items in comparison to the
corresponding Group items.

Secondary reporting format — geographical segments for financial year 2000 in 6m:
                                                                                  Central
                                                                   North       and South       Asia /    Middle                                         Total
                                    Germany         Europe        America        America      Pacific       East           Africa         Other       segments

Traffic revenue ..............       4,798.9        3,126.8       1,621.7          357.5     1,786.9      152.8            227.7         476.9       12,549.2
Other operating
  revenue ......................     598.8          758.8          566.4           56.4       329.9      226.7            113.9           0.3        2,651.2
Other segment income*                995.6          434.3           66.4            4.5        33.2        4.7              4.5         142.3        1,685.5
Income from
  investments
  accounted for under
  the equity method.....               37.2           29.4         (14.2)            —          9.8         —               0.5               —         62.7
Segment assets..............       11,264.3        1,174.9       1,098.9           55.5       327.6       65.6             78.6              0.0    14,065.4
— of which from
  investments
  accounted for under
  the equity method.....              324.1         275.9          540.4              —        69.8        —                —                —       1,210.2
Capital expenditure.......          1,941.6         213.2           26.6             0.6        3.5        0.9              1.5              —       2,187.9
— of which from
  investments
  accounted for under
  the equity method.....             103.3          158.0            0.1              —          —             —             —               —        261.4

* Other segment income corresponds to the other income of the Group item (including income from the disposal of/write-up to financial
  assets)




                                                                               F-53
Secondary reporting format — geographical segments for financial year 1999 in 6m:
                                                                    Central
                                                        North    and South       Asia/    Middle                                Total
                                   Germany    Europe   America     America      Pacific      East      Africa       Other     segments

Traffic revenue ..............      3,825.9   2,574.0   1,521.3      294.2     1,598.4     183.5       258.8       420.6    10,676.7
Other operating
  revenue ......................    709.5     552.6     371.4        44.6      225.3      142.3        71.7         0.6      2,118.0
Other segment income*               917.4      78.5      51.3         5.4       40.9        7.0         6.7       306.3      1,413.5
Income from
  investments
  accounted for under
  the equity method.....              27.6    179.6      11.6         —          3.0        —           0.0         —         221.8
Segment assets..............       9,801.1    888.3     996.2        34.8      284.1       65.2        51.0         1.3    12,122.0
— of which from
  investments
  accounted for under
  the equity method.....             215.8    141.7     575.5           —        83.3        —          1.2          —       1,017.5
Capital expenditure.......         1,323.8     57.1     509.8          0.6        2.8       0.3         1.5         0.7      1,896.6
— of which from
  investments
  accounted for under
  the equity method.....               —         9.7    312.4           —          —         —          0.5          —        322.6


* Other segment income corresponds to the other income of the Group item (including income from the disposal of/write-up to financial
  assets)

     The allocation of traffic revenue to regions is based on the original place of sale, the allocation of other
operating revenue is based on the geographical location of the customer, and the allocation of other segment
income is based on the place of service. The items resulting from investments accounted for at equity are
allocated to regions depending on the location of the head office of the company in question.

     Regions are in principle defined on the basis of geographical rules. Deviating from this principle, the traffic
revenue of the previous Soviet Union as well as that of Turkey and Israel is allocated to Europe in accordance
with guidelines by the International Air Transport Association.

        The ‘‘Other’’ column includes items which cannot be allocated to a certain region.

     Lufthansa controls its traffic operations on the basis of network results, not on the basis of regional profit
transfers. This applies to some extent to the catering segment too. Consequently, the presentation of regional
segment results is of no informative value for the Lufthansa Group.

40      Related party transactions

     The business segments of the Lufthansa Group render numerous services to non-consolidated subsidiaries
within the scope of their ordinary activities. In turn, the respective investments render services to the Lufthansa
Group within the scope of their business objectives. These extensive delivery and service relationships are
handled on the basis of market prices.

     In addition, the Group and non-consolidated subsidiaries have concluded numerous settlement agreements
regulating the mutual utilisation of services. The administration services rendered in such cases are charged as
cost allocations.

     The cash management of the Lufthansa Group is centralised, and regarding this the Lufthansa Group
assumes a ‘‘banking function’’ also in respect of non-consolidated investments. The non-consolidated subsidiaries
included in the Group’s cash management invest their available cash in the Group or borrow funds from the
Group and effect their derivative hedging transactions there. All transactions are processed under market
conditions.

                                                                 F-54
     Because of the spatial proximity, a large number of sublease contracts have been concluded between the
Lufthansa Group and related parties; in these cases, the Lufthansa Group re-debits rental costs and incidental
costs to the respective companies on a pro rata basis.
       The following table shows the volume of services rendered to or obtained from related parties:
                                                                                    Volume of services rendered    Volume of services utilised
                                                                                          2000              1999         2000               1999
                                                                                            5m               5m            5m               5m
Company
Condor Flugdienst GmbH ...........................................                       139.5           127.7           23.1             15.0
Condor/Cargo Technik GmbH.....................................                            27.4            27.7           19.1             15.3
Lufthansa Technik Logistik GmbH.............................                              11.2            25.9           87.5             74.2
Lufthansa Flight Training GmbH................................                            22.1            21.5           64.3             70.8
Delvag Luftfahrtversicherungs-AG..............................                            31.4            16.3           10.9              8.1
Miles&More International Inc. ...................................                         18.7            14.4             —                —
Lufthansa AirPlus Servicekarten GmbH.....................                                 11.9            14.3           47.2             37.8
Lufthansa Revenue Services GmbH ...........................                                5.3            11.2           89.1             55.2
Lufthansa Airmotive Ireland Ltd. ...............................                           7.9            10.3           68.0             36.4
Airline Training Center GmbH ...................................                           5.2             1.5            5.1              1.0
Lufthansa Catering Logistik GmbH............................                               9.9             8.6           43.8             42.0
Lufthansa Consulting GmbH.......................................                           4.0             4.6           14.0              4.8
Lufthansa A.E.R.O. GmbH .........................................                          4.4             1.0            7.0              5.7
Lido GmbH Lufthansa Aeronautical Services............                                      3.5             3.6           11.5             12.0
Lufthansa LOEWE Druck und Distribution GmbH...                                             1.7             3.2           15.2             13.8
                                        u
Lufthansa City Center Reiseb¨ ropartner GmbH ........                                      0.5             3.1            4.5              6.0
Lufthansa Technical Training GmbH..........................                                2.2             2.2            8.8              7.3
Lufthansa Process Management GmbH......................                                    1.9             1.9            8.1              7.3
Lufthansa Engineering and Operational Services
  GmbH .......................................................................              2.4             1.8          24.1             24.7
Lufthansa Systems AS GmbH ....................................                              0.1             1.4           6.0             12.9
Lufthansa Shannon Turbine Technologies Limited ....                                         0.9             0.7           9.7              8.0
Shannon Aerospace Ltd. .............................................                        0.2             0.3          27.1             18.4
Global Tele Sales Ltd. ................................................                     0.1             0.3           8.1              7.8
Albatros Versicherungsdienste GmbH ........................                                 1.4              —           10.4              9.9

41     Supervisory Board and Executive Board
     The members of the Supervisory Board and the Executive Board are listed on pages F-58 to F-61.
For discharging their duties in the parent company and in subsidiary companies, the members of the Executive
Board received remuneration in the amount of 4 2.3m for 2000 and 4 0.1m for 1999 in financial year 2000, and
4 1.9m for 1999 and 4 0.2m for 1998 in financial year 1999. A claim arising from a loan arrangement in the
amount of 4 16t to a member of the Executive Board exists as of 31 December 2000. 4 2t was paid back in the
year 2000; the interest rate is 4 per cent, the residual term is five years.
    The members of the Supervisory Board received 4 0.7m (prior year: 4 0.5m). These amounts include
benefits from concessionary travel in line with the applicable IATA regulations.
     Pensions obligations to former members of the Executive Board and their surviving dependants in the
amount of 4 31.9m (prior year: 4 29.1m) exist. In financial year 2000, current remuneration amounted to 4 2.3m
for 2000 and 4 3t for 1999. In financial year 1999, current remuneration amounted to 4 2.2m for 1999, including
remuneration from subsidiaries.

Cologne, 29 March 2001

Deutsche Lufthansa Aktiengesellschaft
The Executive Board

                                                                                 F-55
Major Subsidiaries of the Lufthansa Group
                                                                                                                                Capital   Voting right
Name, domicile                                                                                                                   share     percentage

Capital Gain International (1986) Ltd., Hong Kong..................................................                           100.00%      100.00%
Consolidated Catering Services (China) Ltd., Hong Kong........................................                                100.00%     100.00%
Feenagh Investments (Proprietary) Ltd., Johannesburg, South Africa* ....................                                       51.00%       51.00%
Globe Services Sweden AB, Stockholm, Sweden .....................................................                             100.00%      100.00%
GlobeGround GmbH, Frankfurt/Main.........................................................................                     100.00%      100.00%
                               u
Hamburger Gesellschaft f¨ r Flughafenanlagen mbH, Hamburg................................                                      95.00%       95.00%
Hudson General Aviation Services Inc., Montreal, Canada ......................................                                 99.89%       99.89%
Hudson General Corp., Great Neck, NY, USA .........................................................                            99.83%       99.83%
Hudson General LLC, New York, USA .....................................................................                        99.89%       99.89%
LAGS USA Inc., Delaware, USA...............................................................................                   100.00%      100.00%
LSG Catering China Ltd., Hong Kong.......................................................................                     100.00%      100.00%
LSG Catering Guam, Inc., Guam, USA .....................................................................                      100.00%      100.00%
LSG Catering Hong Kong Ltd., Hong Kong .............................................................                          100.00%      100.00%
LSG Catering Saipan, Inc., Saipan, Micronesia.........................................................                        100.00%      100.00%
LSG Catering Thailand Ltd., Bangkok, Thailand ......................................................                          100.00%      100.00%
LSG Holding Asia Ltd., Hong Kong..........................................................................                    100.00%      100.00%
LSG Lufthansa Service Asia Ltd., Hong Kong .........................................................                          100.00%      100.00%
LSG Lufthansa Service Cape Town (Pty) Ltd., Cape Town, South Africa ..............                                             51.00%       51.00%
LSG Lufthansa Service Catering- und Dienstleistungs-gesellschaft mbH,
  Neu-Isenburg ............................................................................................................   100.00%      100.00%
LSG Lufthansa Service Deutschland GmbH, Frankfurt/Main...................................                                     100.00%      100.00%
LSG Lufthansa Service Enterprises Ltd., Hong Kong...............................................                              100.00%      100.00%
LSG Lufthansa Service Europa/Afrika GmbH, Kriftel..............................................                               100.00%      100.00%
LSG Lufthansa Service Guam, Inc., Guam, USA .....................................................                             100.00%      100.00%
LSG Lufthansa Service Holding AG, Kriftel .............................................................                       100.00%      100.00%
LSG Lufthansa Service Nordost GmbH, Berlin.........................................................                           100.00%      100.00%
LSG Lufthansa Service Saipan, Inc., Saipan, Micronesia .........................................                              100.00%      100.00%
LSG Lufthansa Service SKY Chefs France S.A., Roissy, France ............................                                       50.00%       51.00%
LSG Lufthansa Service USA Corp., Wilmington, Delaware, USA ..........................                                         100.00%      100.00%
LSG SKY Chefs Europe Holding Ltd., Horley, United Kingdom............................                                          50.00%       51.00%
LSG SKY Chefs /GCC Ltd., Feltham, United Kingdom ...........................................                                   25.00%       51.00%
LSG-Airport Gastronomiegesellschaft mbH, Frankfurt/Main ....................................                                  100.00%      100.00%
LSG-Food & Nonfood Handel GmbH, Frankfurt/Main ............................................                                   100.00%      100.00%
LSG-Hygiene Institute GmbH, Neu-Isenburg ............................................................                         100.00%      100.00%
LSG-Sky Food GmbH, Alzey .....................................................................................                100.00%      100.00%
Lufthansa Cargo AG, Kelsterbach ..............................................................................                100.00%      100.00%
Lufthansa CityLine GmbH, Cologne ..........................................................................                   100.00%      100.00%
Lufthansa Commercial Holding GmbH, Cologne ......................................................                             100.00%      100.00%
Lufthansa International Finance (Netherlands) N.V., Amsterdam, Netherlands.......                                             100.00%      100.00%
Lufthansa Systems GmbH, Kelsterbach......................................................................                     100.00%      100.00%
Lufthansa Technik AG, Hamburg ...............................................................................                 100.00%      100.00%
Lufthansa Technik Immobilien- und Verwaltungsgesellschaft mbH, Hamburg........                                                100.00%      100.00%
Orderich Company Ltd., Hong Kong .........................................................................                    100.00%      100.00%
SKY Chefs Barcelona S.A., Barcelona, Spain ...........................................................                         50.00%       51.00%
SKY Chefs Madrid S.A., Madrid, Spain....................................................................                       50.00%       51.00%
SKY Chefs UK Ltd., Horley, United Kingdom.........................................................                             50.00%       51.00%
START AMADEUS GmbH, Frankfurt/Main .............................................................                               66.00%       66.00%
Top Flight Catering AB, Sigtuna, Sweden .................................................................                      86.50%       86.50%
                         o
Top Flight Catering G¨ teborg AB, Sigtuna, Sweden.................................................                             86.50%       86.50%

                                                                                F-56
                                                                                                                       Capital   Voting right
Name, domicile                                                                                                          share     percentage

                         o
Top Flight Catering Malm¨ AB, Sigtuna, Sweden ....................................................                    86.50%        86.50%
Top Flight Catering Stockholm AB, Sigtuna, Sweden ..............................................                      86.50%        86.50%
Top Flight Taxfree AB, Sigtuna, Sweden...................................................................             86.50%        86.50%

*    Accounted for under the equity method (majority acquisition on 13 December 2000)


Major Joint Ventures**
                                                                                                                       Capital   Voting right
Name, domicile                                                                                                          share     percentage

Air Dolomiti S.p.A. Linee Aeree Regionali Europee, Ronchi dei Legionari, Italy ....                                   26.00%        26.00%
Aircraft Maintenance and Engineering Corp., Beijing, China...................................                         40.00%        50.00%
AMADEUS Global Travel Distribution S.A., Madrid, Spain ...................................                            27.92%        27.92%
Autobahn Tank & Rast Holding GmbH, Bonn ..........................................................                    31.09%        31.09%
C&N Touristic AG, Schwalbach .................................................................................        50.00%        50.00%
Global Logistics System Europe Company for Cargo Information Services
  GmbH, Frankfurt/Main ............................................................................................   46.85%        42.86%
Shannon Aerospace Ltd., Shannon, Ireland................................................................              50.00%        50.00%

Major Associates**
                                                                                                                       Capital   Voting right
Name, domicile                                                                                                          share     percentage

Aeromar Ltd., Moscow, Russia...................................................................................       49.00%        49.00%
Airest Restaurant- und Hotelbetriebsgesellschaft mbH, Vienna, Austria..................                               30.00%        30.00%
Airport Carts LLC, Wilmington, Delaware, USA......................................................                    33.00%        33.00%
British Midland plc, Donington Hall, United Kingdom ............................................                      20.00%        20.00%
China Air Catering Ltd., Hong Kong .........................................................................          50.00%        50.00%
CLS Catering Services Ltd., Vancouver, Canada.......................................................                  40.00%        40.00%
DHL International Ltd., Bermuda, USA ....................................................................             25.03%        25.03%
HEICO Aerospace Holdings Corp., Hollywood, Florida, USA ................................                              20.00%        20.00%
Hong Kong Beijing Air Catering Ltd., Hong Kong ..................................................                     45.00%        45.00%
Hong Kong Shanghai Air Catering Ltd., Hong Kong ...............................................                       45.00%        45.00%
Jamestown Investments Ltd., Hong Kong ..................................................................              37.50%        37.50%
LSG De Montis S.p.A., Rome, Italy ..........................................................................          50.00%        50.00%
LSG Lufthansa Service Hong Kong Ltd., Hong Kong..............................................                         38.12%        38.12%
Nanjing Lukou International Airport LSG Catering Co. Ltd., Nanjing, China........                                     40.00%        40.00%
Onex Food Services, Inc., Dover, Delaware, USA ....................................................                   48.00%        48.00%
Siam Flight Services Ltd., Bangkok, Thailand ..........................................................               49.00%        49.00%
Xi’an Aircraft Catering Co. Ltd., Xi’an, Shaanxi, China..........................................                     30.00%        30.00%

**   Accounted for under the equity method




                                                                          F-57
                             Supervisory Board and Executive Board

Supervisory Board                             o
                             Dr. Wolfgang R¨ ller
                             Honorary Chairman
                             of the Supervisory Board,
                             Dresdner Bank AG,
                             Honorary Chairman

Members with voting rights   Dr. Klaus G. Schlede               Andreas Heß
                             Former Deputy Chairman             Collective bargaining official,
                             of the Executive Board,            Union of Public Services’ and
                             Deutsche Lufthansa AG,                                    ¨
                                                                Transport Employees (OTV),
                             Chairman                           employee representative

                             Herbert Mai                        Roland Issen
                             Former Chairman of the             Head of German Union of Salaried
                             Union of Public Services’ and      Employees (DAG),
                                                   ¨
                             Transport Employees(OTV),          employee representative
                             employee representative,
                             Deputy Chairman                    Dr. Otto Graf Lambsdorff
                             (until March 31, 2001)             Lawyer,
                                                                Honorary President
                             Richard Bornheimer                 of Deutsche Schutzvereinigung
                             Motor mechanic,                     u
                                                                f¨ r Wertpapierbesitz e.V.
                             employee representative
                             (until April 30, 2000)             Franz-Eduard Macht
                                                                Member of the office staff,
                             Dr. Rolf-E. Breuer                 employee representative
                             Chairman of the Executive Board,
                             Deutsche Bank AG                   Ingo Marowsky
                                                                Flight attendant,
                             Frank Bsirske                      employee representative
                             Chairman ver.di,
                             employee representative            Franz Ludwig Neubauer
                             (from April 1, 2001)               Former Chairman of the Executive
                                                                Board,
                             Peter Geisinger                    Bayerische Landesbank
                             Captain,                           Girozentrale
                             employee representative
                                                                Dr. Wolfgang Peiner
                             Holger Hagge                       Chairman of the Executive Boards,
                             Lathe operator,                    Parion OHG and
                             employee representative            Parion Finanzholding AG
                             (until April 25, 2001)
                                                                       o
                                                                Willi R¨ rig
                             Ulrich Hartmann                    Member of the office staff,
                             Chairman of the Executive Board    employee representative
                             E.ON AG                            (from May 1, 2000)




                                              F-58
                  Jan G. Stenberg                      Patricia Windaus
                  President and Chairman               Flight attendant,
                  of the Executive Board,              employee representative
                  SAS
                                                       Dr. Hans-Dietrich Winkhaus
                  Dr. Alfons Titzrath                  Member of the Proprietors’
                  Chairman of the                      Committee
                  Supervisory Board,                   Henkel KGaA
                  Dresdner Bank AG
                  (from January 3, 2001)               Dr. Michael Wollstadt
                                                       Member of the office staff,
                  Bernhard Walter                      employee representative
                  Former Chairman of the
                  Executive Board,                     Dr. Klaus Zumwinkel
                  Dresdner Bank AG                     Chairman of the Executive Board,
                  (until December 31, 2000)            Deutsche Post AG

Executive Board                           ¨
                  Dipl.-Ing.Dr.-Ing.E.h. JurgenWeber
                  Chairman of the Executive Board

                  Dr. Karl-Ludwig Kley
                  Member of the Executive Board
                  Chief Financial Officer

                  Dr. Heiko Lange
                  Member of the Executive Board
                  Chief Executive Human Resources
                  (until July 31, 2000)

                  Stefan Lauer
                  (Deputy Member of the
                  Executive Board from May 1, 2000)
                  Member of the Executive Board
                  Chief Executive Human Resources
                  (from August 1, 2000)

                  Wolfgang Mayrhuber
                  Member of the Executive Board
                  Chief Executive Passenger Business
                  (from January 1, 2001)




                                   F-59
Other mandates of                       o
                        Dr. Wolfgang R¨ ller                            Dr. Otto Graf Lambsdorff
                        a) Heidelberger Zement AG (Chairman)            a) D.A.S. Deutscher Automobil Schutz
the Supervisory         b) Henkel KGaA (Proprietors’ Committee)            Allgemeine Rechtsschutz-Versicherungs-AG
Board members                                                              IVECO Magirus AG (Chairman)
Deutsche Lufthansa AG   Dr. Klaus G. Schlede                               NSM AG (Chairman)
                        a) C&N Touristic AG Deutsche Hyp Deutsche          HSBC Trinkaus & Burckhardt KGaA
                           Hypotheken-bank Frankfurt-Hamburg               Victoria Lebensversicherung AG Victoria
                           AG Deutsche Postbank AG Gerling-Konzern         Versicherung AG
                                    u
                           Globale R¨ ck-versicherungs-AG               b) IVECO N.V., Amsterdam
                        b) DHL Worldwide Express B.V.,                     (Board of Directors)
                           Amsterdam (Board of Directors)
                                                                        Franz Ludwig Neubauer
                        Herbert Mai                                     a) Deutsche Kreditbank AG
                        a) E.ON AG                                                                                a
                                                                           Gabriel Sedlmayr Spaten-Franziskaner-Br¨ u
                                                                           KGaA (Deputy Chairman)
                        Dr. Rolf-E. Breuer                                  u
                                                                           S¨ ddeutsche Bodencreditbank AG (Deputy
                                                      o
                        a) Bertelsmann AG Deutsche B¨ rse AG               Chairman)
                           (Chairman)                                         u
                                                                           Th¨ ga AG
                             u          u
                           M¨ nchener R¨ ckversicherungs-Gesellschaft
                           AG Siemens AG (Deputy Chairman)              Dr. Wolfgang Peiner
                           E.ON AG                                      a) Aachener Bausparkasse AG
                        b) Compagnie de Saint-Gobain S.A. (Board of        (Chairman)
                           Directors)                                      Bankgesellschaft Berlin AG Gothaer
                           Landwirtschaftliche Rentenbank (Board of        Credit-Versicherung-AG2) (Chairman)
                           Directors)                                      Gothaer R¨ ckversicherung AG2) (Chairman)
                                                                                     u
                                                                           Roland-Rechtsschutz-Versicherungs-AG
                        Ulrich Hartmann                                    (Deputy Chairman)
                        a) Hochtief AG                                  b) EUREKO N.V.
                           IKB Deutsche Industriebank AG (Chairman)        Friends Provident Life Office, London (Main
                             u         u
                           M¨ nchener R¨ ckversicherungs-Gesellschaft      Board)
                           AG (Chairman) E.ON Energie AG1)                   u
                                                                           K¨ hne & Nagel International AG,
                           (Chairman) RAG Aktiengesellschaft               Schindellegi/Schweiz (Board of Directors)
                           (Chairman) VEBA Oel AG1) (Chairman)
                        b) Henkel KGaA (Proprietors’ Committee)         Jan G. Stenberg
                                                                        b) SAS Commuter Consortium, Denmark
                        Andreas Heß                                        (Chairman of the Board)
                        a) LSG Lufthansa Service Holding AG                SAS International Hotels A/S, Norway
                           (Deputy Chairman)                               (Chairman of the Board)
                             ¨   u
                           TUV S¨ ddeutschland Holding AG                  B2 Bredband AB
                           (Deputy Chairman)                               (Chairman of the Board)
                                                                            o
                                                                           F¨ rvaltings AB Stattum
                        Roland Issen                                       Proceedo Commerce AB
                        a) DAWAG — Deutsche                                Orange Sverige AB
                           Angestellten-Wohnungsbau AG (Chairman)
                                o
                        b) Verm¨ gensverwaltung der DAG GmbH            Dr. Alfons Titzrath
                           (Chairman)                                   a) Allianz Holding AG (Deputy Chairman)
                                                                           Celanese AG
                                                                           Dresdner Bank AG (Chairman)
                                                                             u
                                                                           M¨ nchener
                                                                             u
                                                                           R¨ ckversicherungs-Gesellschaft AG
                                                                           RWE AG
                                                                           VAW aluminium AG

                                                                        Bernhard Walter
                                                                        a) Bilfinger+Berger Bauaktiengesellschaft
                                                                           DaimlerChrysler AG
                                                                           Deutsche Hyp Deutsche Hypothekenbank
                                                                           Frankfurt-Hamburg AG3)
                                                                           Deutsche Telekom AG
                                                                           Heidelberger Zement AG
                                                                           Henkel KGaA
                                                                           mg technologies ag
                                                                           Staatliche Porzellan-Manufaktur Meissen
                                                                           GmbH
                                                                           Thyssen Krupp AG
                                                                           Wintershall AG (Deputy Chairman)
                                                                        b) KG Allgemeine Leasing GmbH & Co.
                                                                           (Chairman Board of Directors)




                                                    F-60
Other mandates of                 Dr. Hans-Dietrich Winkhaus                        Dr. Klaus Zumwinkel
                                  a) BMW AG                                         a) Allianz Versicherungs-AG
the Supervisory                      Degussa-H¨ ls AG
                                                u                                      Deutsche Postbank AG4) (Chairman)
Board members                        Deutsche Telekom AG (Chairman)                    Tchibo Holding AG
Deutsche Lufthansa AG                ERGO-Versicherungen                               Thyssen Krupp Materials & Services AG
                                     Schwarz-Pharma AG (Chairman)                   b) Danzas Holding AG4)
                                  b) Henkel KGaA                                       (Chairman Board of Directors)
                                     (Proprietors’ Committee)                          Deutsche Post Beteiligungen GmbH4)
                                                                                       (Chairman)
                                                                                       DHL Worldwide Express B.V.,
                                                                                       Amsterdam (Board of Directors)
                                                                                       C.V. International Post Corp. U.A.
                                                                                       (Deputy Chairman)

Mandates of                                                 ¨
                                  Dipl.-Ing. Dr.-Ing. E.h. Jurgen Weber             Stefan Lauer
                                  a) Allianz Lebensversicherungs-AG                 a) LSG Lufthansa Service Deutschland GmbH5)
the Executive                        C&N Touristic AG (Deputy Chairman)                 Lufthansa Cargo AG5) (Chairman)
Board members                        KarstadtQuelle AG                                  Lufthansa Systems Group GmbH5)
Deutsche Lufthansa AG                LSG Lufthansa Service Holding AG5)                 Lufthansa Technik AG5)
                                     (Chairman)                                     b) DHL Worldwide Express B.V., Amsterdam
                                     Lufthansa Cargo AG5)                               (Board of Directors)
                                     Lufthansa Systems GmbH5) (Chairman)                Lufthansa Flight Training GmbH5)
                                     Lufthansa Technik AG5) (Chairman)                  (Chairman)
                                  b) Loyalty Partner GmbH5) (Chairman)                                                          u
                                                                                        MVP Versuchs- und Planungsgesellschaft f¨ r
                                     Sapient Corp. (Board of Directors)                 Magnetbahnsysteme mbH (Chairman)

                                  Dr. Karl-Ludwig Kley                              Wolfgang Mayrhuber
                                  a) C&N Touristic AG                               a) Eurowings Luftverkehrs AG
                                     Delvag Luftfahrtversicherungs-AG5)                Lufthansa CityLine GmbH5) (Chairman)
                                     (Chairman)                                        RWE Systems AG
                                     Delvag R¨ ckversicherungs-AG5) (Chairman)
                                              u                                     b) AMECO Corp., Beijing (Deputy Chairman,
                                     Gerling Firmen- und Privat-Service AG             Board of Directors)
                                     LSG Lufthansa Service Holding AG5)                Deutsche Investitions- und
                                     Lufthansa AirPlus Servicekarten GmbH5)            Entwicklungsgesellschaft mbH
                                     (Chairman)                                        Hawker Pacific Aerospace, Los Angeles5)
                                     Lufthansa Cargo AG5)                              (Chairman Board of Directors)
                                     Lufthansa Systems Group GmbH5)                    Lufthansa Technik Philippines Ltd.,
                                     (Chairman)                                        Manila5) (Board of Directors)
                                     Lufthansa Technik AG5)
                                     START AMADEUS GmbH5) (Chairman)                Dr. Heiko Lange
                                  b) Albatros Versicherungsdienste GmbH5)           a) Arabella Sheraton Holding AG
                                     (Chairman)                                        LSG Lufthansa Service Holding AG5)
                                     Air Dolomiti S.p.A. Linee Aeree Regionali         Pensions-Sicherungs-Verein VVaG
                                     Europee
                                     (Deputy Chairman Board of Directors)
                                     AMADEUS Global Travel Distribution S.A.,
                                     Madrid (Board of Directors)
                                     GlobeGround GmbH5) (Chairman)
                                     KG Allgemeine Leasing GmbH & Co.
                                     (Board of Directors)
                                     SkyChefs International Services, Inc. (Board
                                     of Directors)


a)   Membership of supervisory boards required by law

b)   Membership of comparable supervisory bodies at companies in Germany and abroad

1)   Company in which E.ON AG has a controlling interest

2)   Company in which Parion OHG and Parion Finanzholding AG have a controlling interest

3)   Company in which Dresdner Bank AG has a controlling interest

4)   Company in which Deutsche Post AG has a controlling interest

5)   Company in which Deutsche Lufthansa AG has a controlling interest




                                                               F-61
                                              Independent Auditors’ Report*
     We have audited the accompanying consolidated financial statements of Deutsche Lufthansa AG and its
subsidiaries (Lufthansa Group) for the financial year from 1 January to 31 December 2000, comprising the
balance sheet, income statement, statement of changes in equity, cash flow statement and the notes to the
financial statements. These consolidated financial statements, which have been prepared in accordance with the
standards laid down by the International Accounting Standards Committee (IASC), are the responsibility of
Lufthansa’s Management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audit and examination of whether they comply with the International Accounting Standards (IAS).
     We conducted our group audit in accordance with German auditing standards, the generally accepted
                                                                                               u
standards for the audit of financial statements promulgated by the Institut der Wirtschaftspr¨ fer (Institute of
Public Auditors in Germany) and the International Standards on Auditing (ISA). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are
free of material misstatements. Performing an audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements. It also includes assessing the accounting
principles used and significant estimates made by the Management, as well as evaluating the overall presentation
of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
     In our opinion based on the results of our audit, the consolidated financial statements of the Lufthansa Group
as of 31 December 2000 give a true and fair view of the net assets and financial position of the Group, the
consolidated results of its operations and its cash flows for the year then ended in accordance with IAS.
     Our audit which, in accordance with German auditing standards, also covered the management report
prepared by Lufthansa’s Management for the financial year from 1 January to 31 December 2000, has not led to
any reservations. In our opinion, the management report provides a fair understanding of the Group’s position and
suitably presents the risks of future development. We also confirm that the consolidated financial statements of
the Lufthansa Group as of 31 December 2000 and the management report for 2000 meet the requirements for the
company to be exempted from the obligation to prepare consolidated financial statements and a management
report for the Group under German law.


 u
D¨ sseldorf, 10 April 2001

PwC Deutsche Revision
Aktiengesellschaft
             u
Wirtschaftspr¨ fungsgesellschaft
Pape                                                        Dr. Husemann
             u
Wirtschaftspr¨ fer                                                       u
                                                            Wirtschaftspr¨ fer




                           a
* Translation from the Best¨ tigungsvermerk


                                                          F-62
FINANCIAL STATEMENTS
    OF LUFTHANSA
  FOR THE YEAR 2000




        F-63
                                                                         Lufthansa

                                                            Financial Statements 2000
                                                                                                                                                          Page


Company Balance Sheet..................................................................................................................................   F-65
Company Profit and Loss Account.................................................................................................................           F-66
Company Statement of Fixed Assets Movements..........................................................................................                     F-67
Notes to Company Financial Statements........................................................................................................             F-68
Supervisory Board and Executive Board........................................................................................................             F-80
Other mandates of the Supervisory Board members .....................................................................................                     F-82
Mandates of the Executive Board members...................................................................................................                F-83
Audit Opinion for Fiscal Year ........................................................................................................................    F-85




                                                                             F-64
                                                                               Lufthansa

                                                       Balance Sheet as of 31 December 2000
                                                                                                                    Notes   31.12. 2000   31.12. 1999
                                                                                                                                   5m            5m
Assets
Intangible assets ..........................................................................................                     35.8          35.7
Aircraft ........................................................................................................             4,547.1       4,167.2
Other tangible assets ...................................................................................                        79.2          73.0
Investments ..................................................................................................        4)      2,558.0       2,160.3
Total fixed assets........................................................................................             3)      7,220.1       6,436.2
Stocks ..........................................................................................................     5)         17.6          19.0
Accounts receivable ....................................................................................              6)        621.6         488.0
Other receivables and other assets .............................................................                      6)      1,410.8       1,250.3
Securities .....................................................................................................      7)        499.8         539.9
Cheques, Cash-in-hand, Bundesbank balances, bank balances.................                                            7)        280.8         107.8
Current assets ............................................................................................                   2,830.6       2,405.0
Prepaid expenses .......................................................................................              8)        122.9         131.2
                                                                                                                             10,173.6       8,972.4
Liabilities and shareholders’ equity
Capital stock................................................................................................         9)        976.9         976.9
Reserves
— share premiums......................................................................................               10)        680.8         680.8
— retained earnings....................................................................................              10)      1,031.6         815.6
Dividends.....................................................................................................       27)        229.0         214.6
Shareholders’ equity .................................................................................                        2,918.3       2,687.9
Special items with an equity portion......................................................                           11)        702.7         822.6
Provisions ...................................................................................................       12)      4,296.1       3,757.7
Liabilities to banks......................................................................................                      376.0          56.3
Payables to subsidiaries ..............................................................................                         519.5         582.8
Other liabilities............................................................................................                 1,331.6       1,050.4
Liabilities ....................................................................................................     13)      2,227.1       1,689.5
Deferred income ........................................................................................                         29.4          14.7
                                                                                                                             10,173.6       8,972.4




                                                                                    F-65
                                                                               Lufthansa

                                                                   Profit and Loss Account
                                                                     for Fiscal Year 2000
                                                                                                                              Notes       2000        1999
                                                                                                                                           5m          5m
Traffic revenue......................................................................................................           16)    9,383.7     8,131.1
Other revenue .......................................................................................................          17)      443.7       378.0
Turnover ..............................................................................................................                9,827.4     8,509.1
Other operating income .......................................................................................                 18)     1,267.8     1,122.2
Cost of materials ..................................................................................................           19)    (4,831.5)   (3,958.3)
Personnel expenses...............................................................................................              20)    (1,899.2)   (1,738.0)
Depreciation..........................................................................................................         21)      (926.7)     (611.5)
Other operating expenses.....................................................................................                  22)    (3,265.1)   (2,778.6)
Operating profit..................................................................................................                       172.7       544.9
Income from subsidiaries and associated companies .........................................                                    23)      550.3       138.8
Net interest ...........................................................................................................       24)       86.3        82.1
Write-down of investments and securities classified as current assets..............                                                      (65.8)      (11.4)
Financial result ...................................................................................................                    570.8       209.5
Profit on ordinary activities before taxation ..................................................                                         743.5       754.4
Taxes .....................................................................................................................    25)     (298.4)     (352.1)
Net profit for the year .......................................................................................                          445.1       402.3
Transfer to retained earnings ...............................................................................                  10)     (216.1)     (187.7)
Dividends .............................................................................................................        27)      229.0       214.6




                                                                                    F-66
                                                                                                          Lufthansa

                                                                           Statement of Fixed Assets Movements 2000
                                                                                                      Amounts in 5m
                                                                                                                                                                                                Book           Book
                                                         Acquisitions/production costs                                               Accumulated depreciation                                  values         values
                                               As of                                                   As of       As of    Of fiscal         Of                                   As of          as of          as of
                                           1.1. 2000   Additions    Disposals    Transfers       31.12. 2000   1.1. 2000        year   disposals   Write-ups    Transfers   31.12. 2000   31.12. 2000    31.12. 1999

I.    Intangible assets
1.    Concessions, industrial
      and similar rights and
      assets and licences in
      such rights and assets....               79.1          6.3          8.7             3.7           80.4       54.5        12.0          7.1          —           —            59.4          21.0           24.6
2.    Advance payments.........                11.1          9.1          1.7            (3.7)          14.8         —           —            —           —           —              —           14.8           11.1

                                               90.2         15.4         10.4            0.0            95.2       54.5        12.0          7.1          —           —            59.4          35.8           35.7
II. Aircraft
1. Aircraft and accessories                 7,852.0      1,084.0         82.0        349.2           9,203.2    4,290.4       891.3         50.9          —           0.0       5,130.8       4,072.4        3,561.6
2. Advance payments and
    plant under construction                  605.6        218.5          0.2       (349.2)           474.7           —          —            —           —           —             —           474.7          605.6

                                            8,457.6      1,302.5         82.2            0.0         9,677.9    4,290.4       891.3         50.9          —           0.0       5,130.8       4,547.1        4,167.2
III. Other tangible assets
1. Real estate, leasehold
     rights and buildings
     including buildings on
     third party land ..............          110.0          6.5          4.0            0.2          112.7        69.3         4.5          3.5          —           0.0          70.3          42.4           40.7
2. Office and other
     equipment.......................         138.4         20.9         15.2            0.8          144.9       107.1        18.9         14.2          —           0.0        111.8           33.1           31.3
3. Advance payments and
     plant under construction                    1.0         3.7          —              (1.0)           3.7          —          —            —           —           —             —             3.7            1.0

                                              249.4         31.1         19.2            0.0          261.3       176.4        23.4         17.7          —           0.0        182.1           79.2           73.0
IV.   Investments
1.    Shares in subsidiaries ....             835.9        202.8           —              —          1,038.7          0.4       0.0           —           0.4         —             0.0       1,038.7          835.5
2.    Loans to subsidiaries .....           1,028.6        371.9        409.5             —            991.0          —        15.8           —           —           —            15.8         975.2        1,028.6
3.    Other equity
      investments.....................        188.2        255.2          —               —           443.4           0.8        —            —           —           —             0.8         442.6          187.4
4.    Loans to companies
      held as other equity
      investments.....................         14.1           —           3.3             —            10.8         2.4         3.3           —            —          —            5.7            5.1           11.7
5.    Securities........................        0.4          0.0           —              —             0.4          —           —            —            —          —             —             0.4            0.4
6.    Other loans.....................        225.9          8.8         32.1             —           202.6       143.3         9.4         25.9          0.4         —          126.4           76.2           82.6
7.    Prefinancing of
      leaseholds.......................        14.1          6.5          0.8             —             19.8          —          —            —           —           —             —            19.8           14.1

                                            2,307.2        845.2        445.7             —          2,706.7      146.9        28.5         25.9          0.8         —          148.7        2,558.0        2,160.3

Total fixed assets ..................       11,104.4      2,194.2        557.5             —         12,741.1    4,668.2       955.2        101.6          0.8         —         5,521.0       7,220.1        6,436.2




                                                                                                               F-67
                          Notes to Lufthansa Financial Statements for the year 2000

1)   Application of the Commercial Code
     The financial statements of the Company (Deutsche Lufthansa AG) have been drawn up in accordance with
the stipulations of the German Commercial Code and the German Stock Corporation Act. The accounting system
was changed over to the euro currency (4) with effect from January 1, 2000.
     In the interests of clearer presentation, certain items which are grouped together in the balance sheet and the
profit and loss account are shown and explained separately in the notes. Over and above the statutory
classification system, the entry relating to aircraft is listed separately in order to improve the clarity of the
financial statements.

2)   Accounting and general valuation methods
     Intangible assets and tangible assets are stated at their purchase or manufacturing costs less scheduled
depreciation.
     In-house exchange rates for foreign currencies are set monthly in advance according to the rates of exchange
on international markets. These serve as the basis for converting foreign currency items to 4 in the month in
which entries are made.
     Accounts receivable/payable in foreign currency and receivables from/payables to subsidiaries in foreign
currency, liquid funds and provisions are valued as at the balance sheet date. For all other receivables /liabilities in
foreign currency the lower/higher of cost or market principle is observed by comparing the purchase cost with the
value on the balance sheet date.
     The cost of capital goods acquired from abroad — mainly aircraft invoiced in US dollars — is determined
by translation according to the exchange rates in effect at the time of payment. Assets for which payments are
hedged against exchange rate fluctuations are valued/devalued within the framework of separate valuation units.

Intangible assets
     Acquired concessions and similar rights are generally depreciated at a rate of 20 per cent.

Tangible assets
     Scheduled depreciation of tangible assets is based on the purchase and manufacturing costs depreciated over
the asset’s useful life. Advantage is taken of the simplification options permitted under tax law. Starting with the
1997 financial year, aircraft and accessories are likewise written down in the year of acquisition according to the
half-year rule. Low-value assets are written off completely in the year of acquisition.

Aircraft
     New aircraft are written down over 12 years to a residual book value of 15 per cent. As from the financial
year 2000, aircraft deployed beyond the assumed useful life of 12 years are written down to a residual book value
of 10 per cent. This gives rise to an additional depreciation charge of 4 57 million. New aircraft to which the
provisions of section 82f of the Income Tax Ordinance are no longer applicable are written down according to the
declining-balance method, and otherwise by the straight-line method. Aircraft acquired second hand are
depreciated within 8 years by the declining-balance method without a residual value.

Other tangible assets
     Buildings are assigned a useful life of between 20 and 50 years. Buildings and installations on land
belonging to third parties are written off according to the term of the lease or are assigned a lower useful life. In
general, depreciation rates are between 10 and 20 per cent per year. Office and other equipment is written off
under normal conditions in 3 to 10 years.

                                                         F-68
      Office and other equipment acquired from the 1997 financial year is written down by the declining-balance
method in accordance with the options under tax law; otherwise, office and other equipment is depreciated by the
straight-line method.

Investments

     Investments are stated at their purchase price with due consideration of necessary value adjustments.

Current assets

    Raw materials and supplies are valued at acquisition costs, stock risks are provided for through appropriate
mark-downs.

     Securities are shown at their purchase price with due account taken of any necessary value adjustments.

     In addition to the individual value adjustments necessary for known risks applying to other current assets,
sufficient provision is made for general credit risk through a write-down of each item by a standard amount.

Provisions

     Provisions for pensions are shown at their going-concern value, which is calculated according to actuarial
principles on the basis of the 1998 computation tables using an imputed interest rate of 6 per cent.

     The expected increase in collectively negotiated wage and salary rates ensuing from the 2001 pay round
have already been factored into the going-concern value. The increase in provisions which this entailed amounted
to 4 54 million.

     The valuation of other provisions takes into account all known risks judged on the basis of sound business
practice.

     In addition, provisions for aircraft maintenance were set up in the amount of 4 191 million pursuant to
section 249 (2) of the German Commercial Code.

Liabilities

     Liabilities are shown at their repayment value.




                                                       F-69
                                                        Notes to Balance Sheet Items

                                                                          Assets

3)     Fixed assets

       Changes in individual fixed asset items during the 2000 financial year are shown in a separate table.

     Over and above the Company’s 225 own aircraft listed in the Statement of Fixed Assets Movements and the
balance sheet, additional aircraft were chartered, in some cases complete with crews.

     On top of this, the Company has long-term leasing contracts for two Airbus A321s, four Boeing 747-400s
and six Airbus A340s.

4)     Investments

       The Company’s principal equity investments are:
                                                                                                                 Share    Equity      Earnings
Company                                                                                                           in %    capital   after taxes
                                                                                                                              5m           5m
Lufthansa CityLine GmbH, Kriftel ......................................................................            100      25.6          2.2 *)
Lufthansa Cargo AG, Kelsterbach........................................................................            100     158.8         20.7 *)
Lufthansa Technik AG, Hamburg ........................................................................             100     368.6         21.0 *)
LSG Lufthansa Service Holding AG, Kriftel ......................................................                   100     314.2         12.2 *)
Lufthansa Flight Training GmbH, Frankfurt/Main..............................................                       100      20.5          0.2 *)
Lufthansa Commercial Holding GmbH, Cologne ...............................................                         100     261.5        406.2 *)
Delvag Luftfahrtversicherungs-AG, Cologne.......................................................                   100       6.4          2.7 *)
Lufthansa International Finance (Netherlands) N.V., Amsterdam .....................                                100       0.4          0.3 **)
Air Dolomiti S.p.A., L.A.R.E. ............................................................................          26      12.0         (0.2) **)
British Midland PLC, Derby ................................................................................         20      41.7         (0.3) ****)
C&N Touristic AG, Frankfurt/Main.....................................................................               50     444.6         67.9 ***)
AMECO-Beijing Aircraft Maintenance and Engineering Corporation, Beijing                                             40      74.3         14.8 **)

*)       before profit/loss transfer
**)      provisional result
***)     fiscal year Nov. 1, 1999 – Oct. 31, 2000
****) fiscal year 1999

       Shareholdings are listed in full in the commercial register (HRB 2168).

5)     Stocks
Stocks                                                                                                                   31.12.00     31.12.99
                                                                                                                             5m            5m
Raw materials and supplies ..........................................................................................        8.7         10.8
Finished goods and merchandise..................................................................................             8.9          8.2
                                                                                                                            17.6         19.0




                                                                           F-70
6)     Receivables and other assets
                                                                                                                    of which due
                                                                                                                            after
                                                                                                                       more than
Receivables and other assets                                                                             31.12.00       one year    31.12.99
                                                                                                             5m                         5m
Accounts receivable ............................................................................           621.6             —       488.0
Receivables from subsidiaries.............................................................               1,038.1            —        936.6
Receivables from companies held as other equity investments ........                                        54.8            0.1       54.4
Other assets .........................................................................................     317.9           46.1      259.3
                                                                                                         2,032.4           46.2     1,738.3


7)     Securities and liquid assets
     Cash-in-hand and bank balances consist almost entirely of credit balances held with banks. Foreign currency
balances not expected to be transferred in the foreseeable future are discounted by an appropriate mark-down and
shown as other assets. The item securities contains miscellaneous securities only; they include unit shares in six
different special funds amounting to 4 452.4 million and bearer bonds issued by Lufthansa International Finance
(Netherlands) N.V. amounting to 4 12.8 million.

8)     Prepaid expenses
     In addition to a discount of 4 1.1 million this item contains prepaid instalments in connection with finance
leasing agreements for aircraft amounting to 4 96.8 million.




                                                                                 F-71
                                          Notes to Balance Sheet Items

                                       Liabilities and shareholders’ equity

9)   Capital stock
     The Company’s issued capital totals 4 976.9 million.
     The issued capital is divided into 381,600,000 non-par registered shares, with each share representing 4 2.56
of issued capital.
     The Executive Board is authorised, upon approval of the Supervisory Board, to increase the issued capital by
up to 4 100 million through issuing before and on June 15, 2004 new registered shares (Authorised Capital A).
By the same token, the Executive Board is additionally authorised to increase capital by 4 25 million through
issuing new registered shares to employees (Authorised Capital B) by making a cash contribution. In the case of
Authorised Capital A, fractional amounts may be excluded from the shareholders’ subscription right; in the case
of Authorised Capital B, a right of subscription is fully ruled out.
     The Executive Board is further authorised to issue once only or repeatedly before and on June 15, 2004
convertible bonds and/or bonds with warrants with an aggregate par value of up to 4 1 billion, bearing maturities
of up to 15 years. In this connection conditional capital exists to carry out a conditional increase in issued capital
by 4 97,689,600 through issuing 38,160,000 new registered shares. The conditional increase in issued capital will
be carried out only to the extent that the holders of convertible bonds or bonds with warrants exercise their
conversion or option rights.
     In the financial year 2000 the Company acquired a total of 1,282,166 shares of its own stock at an average
price of 4 25.50. That corresponds to 0.34 per cent of the issued capital.
     The shares were utilised as follows:
     — 867,438 shares as an offer to the employees of the Company and of 36 subsidiaries and associates from
       the 1999 profit-sharing scheme at a price of 4 25.00, and in the case of one associate with a non-standard
       accounting year at a price of 4 23.15
     — 22,299 shares as part of the performance-based variable remuneration of staff paid above-standard rates
       employed by the Company and 22 subsidiaries and associates at a price of 4 25.00
     — 392,429 shares as part of the performance-based variable remuneration of the executives of the Company
       and of 42 subsidiaries and associates or as part of the 1999 profit-sharing scheme for flight captains of
       the Company and four subsidiaries and associates at a price of 4 15.57. The Company and its Group
       companies have granted an outperformance option on these shares giving the beneficiary the right at the
       end of the programme to a cash payment depending on the performance of the Lufthansa share compared
       with that of an index of rival airlines.
     At the balance sheet date no own shares remained in the portfolio.

10) Reserves
     The share premium account solely contains the premiums resulting from capital increases.
     The legally stipulated reserves contained in the retained earnings account continue to amount to 4 25.6
million; the remainder are other retained earnings.
     4 216.1 million of the net profit for the year was transferred to other retained earnings.

11) Special items with an equity portion
     The difference between the depreciation allowed under commercial law and that permitted by tax regulations
is shown under special items with an equity portion. Section 82f of the Income Tax Ordinance permitted an extra

                                                        F-72
depreciation allowance of up to 30 per cent of the acquisition costs of new aircraft to be claimed over and above
scheduled depreciation.

    In addition, the special items with an equity portion include a tax-free reserve for the tax gains resulting
from the Tax Relief Act 1999/2000/2002.

     The changes in the special item with an equity portion boosted the profit on ordinary activities before
taxation by 4 119.9 million (in 1999 they boosted the corresponding figure by 4 103 million) and the net profit for
the year by 4 59.9 million (in 1999 by 4 51.9 million).

     The income tax payable on release of the remaining special items will be spread over up to 9.5 years owing
to the release period involved.

12) Provisions
Provisions                                                                                                                                 31.12.00   31.12.99
                                                                                                                                                5m        5m
Provisions for pensions and similar obligations ..................................................................                         2,028.9    1,824.2
Tax provisions........................................................................................................................        64.4       46.3
Provisions for unearned transportation revenue ...................................................................                          860.9      805.5
Other provisions ....................................................................................................................      1,341.9    1,081.7
                                                                                                                                           4,296.1    3,757.7


     A company-based pension scheme was set up for employees working in Germany or seconded abroad
following the Company’s withdrawal from the public sector supplementary retirement pension scheme, VBL.
The provisions for pensions further contain the transitional pension arrangements for flight personnel.

    Other provisions mainly consist of funds earmarked for outstanding bills and credit memos, for personnel
expenses, rental and leasing commitments, plus maintenance.

13) Liabilities
                                                                                                              Due in later
                                                                                        Due within              than five                    Total        Total
Liabilities                                                                               one year                  years                31.12.00     31.12.99
                                                                                                   5m                     5m                 5m           5m
Liabilities to banks .......................................................                   74.8                  139.4                376.0         56.3
Advance payments received on account of orders ......                                           0.6                    —                    0.6          1.4
Accounts payable ..........................................................                   751.8                     —                 751.8        559.2
Payables to subsidiaries ................................................                     385.8                  128.2                519.5        582.8
Payables to companies held as other equity
  investments ................................................................                 61.2                      —                 77.0         65.9
Other liabilities..............................................................               234.0                    80.1               502.2        423.9
of which for taxes.........................................................                   (34.4)                    (—)               (34.4)       (30.9)
of which relating to social security and similar
  obligations .................................................................                (28.9)                   (0.9)              (29.8)       (32.5)
                                                                                           1,508.2                   347.7               2,227.1      1,689.5




                                                                                 F-73
Payables to subsidiaries
       The following bonds, issued by Lufthansa International Finance (Netherlands) N.V., are outstanding:
Bonds                                                                                                                                          5m

61/4% bearer bonds dated....................................................................................................   1986/2006    127.8
Variable-rate bearer bonds dated .......................................................................................       1991/2001    139.2
                                                                                                                                            267.0


14) Contingent liabilities
Contingent liabilities                                                                                                          31.12.00   31.12.99
                                                                                                                                    5m         5m
Relating to guarantees, bills and cheque guarantees...................................................                          1,207.5    1,407.0
Relating to guarantee commitments .............................................................................                 1,167.2      876.3
Relating to the granting of sureties for third-party liabilities.....................................                             130.4      130.4

     The amounts disclosed contain the sum of 4 645.9 million representing the assumption of co-debtors’
guarantees in favour of North American fuelling and handling firms. Offsetting this amount are compensatory
claims against the other co-debtors of 4 630.9 million. Owing to annual accounts still pending, the
aforementioned amounts are to some extent provisional.

15) Other financial commitments
Commitment to order investments
       As of December 31, 2000 the commitment to order investments in fixed assets amounted to 4 2.4 billion.
     Purchase contracts and put options written give rise to obligations to take over company shares totalling
4 704.5 million of which 4 164.9 million is due at the earliest in 2004 and 4 367.8 million at the earliest in 2005.

Commitments from rent agreements
    The business premises consist almost exclusively of rented property. Rent agreements are generally on a 5 to
10 year basis. The premises at Frankfurt Airport and Hamburg Airport are leased on a 30-year basis with
prefinancing provided in part by Lufthansa. Total rent of approximately 4 200 million is paid each year.
     Long-term aircraft leasing agreements concluded up to the reporting date gave rise to charges of
4 112 million in the 2000 financial year, and these will fall in subsequent years to up to 4 22 million per annum.
The leasing contracts also include purchase options up to the year 2006 amounting to 4 0.5 billion.




                                                                            F-74
Exchange rate, interest rate and fuel price hedging
    As at December 31, 2000 the following exposures, mainly in the form of corridor options, existed from
hedging operations designed to cover fluctuations in exchange rates, interest rates and fuel prices in US dollars:

Exchange rate hedges

USD 1,510.4 million     Short puts......................................................    at   average   4 0.825    max.   expiry   2006
USD 268.6 million       Forward purchases........................................           at   average   4 0.961    max.   expiry   2002
USD 1.0 million         Forward sales................................................       at   average   4 0.838    max.   expiry   2002
Yen 8,902.0 million     Short calls .....................................................   at   average   4 0.0083   max.   expiry   2002
Yen 20,274.5 million    Forward sales................................................       at   average   4 0.0103   max.   expiry   2001
GBP 50.0 million        Forward purchases........................................           at   average   4 1.604    max.   expiry   2001
GBP 58.8 million        Forward sales................................................       at   average   4 1.671    max.   expiry   2001
HKD 331.2 million       Forward sales................................................       at   average   4 0.147    max.   expiry   2001
CHF 67.0 million        Forward sales................................................       at   average   4 0.652    max.   expiry   2001
CAD 12.7 million        Forward sales................................................       at   average   4 0.756    max.   expiry   2001
SGD 28.2 million        Forward sales................................................       at   average   4 0.675    max.   expiry   2001

     These transactions are partly closed out by offsetting deals with Group companies /companies held as equity
investments.

Interest rate hedges
    Hedges of variable-rate loans:

4 million 143.1   Swaps at average 6.14 per cent .............                against 6-months LIBOR                  max. expiry 2002
4 million 5.1     Swaps at average 4.05 per cent .............                against 6-months EURIBOR                expiry up to 2002

    These transactions are partly closed out by offsetting deals with Group companies.

Fuel prices
     Hedging arrangements have been made for the financial years 2001 – 2003 in the form of fixed-price
transactions (swaps), call options, corridor options and long put options, based on average prices. Provisions for
anticipated losses related to these uncompleted transactions were not necessary at the balance sheet date.
     As at the balance sheet date approx. 45% of the total anticipated fuel requirements for the year 2001 and
approx. 26%. of anticipated fuel needs for 2002 – 2003 was hedged at fixed prices and approx. 29% of
anticipated needs for 2001 by corridor options. For 19% of the total needs in 2001 and 21% of the needs in 2002
and 2003 the impact of the hedging transactions against price rises is limited by offsetting transactions to an
average price level of approx. USD 26.74/bbl for 2001 and approx. USD 22.45/bbl for 2002 – 2003.
     The average fixed fuel price for the year 2001 is approx. USD 19.63/bbl and for 2002 – 2003 approx.
USD 15.47/bbl (crude oil). The average lower limit of all corridor options for the year 2001 is approx.
USD 138/to (gas oil) and approx. USD 15.7/bbl (crude oil) for the years 2002 – 2003 approx. USD 13.35/bbl
(crude oil).




                                                                    F-75
                                                           Notes to Profit and Loss Accounts

16) Traffic revenue
Passenger traffic revenue by route                                                                                                           2000      1999
                                                                                                                                             5m        5m
Europe ..............................................................................................................................    2,774.2   2,569.6
Germany ...........................................................................................................................      1,504.9   1,380.4
North America .................................................................................................................          2,114.6   1,697.1
Asia/Pacific.......................................................................................................................       1,600.3   1,347.4
South America .................................................................................................................            377.0     297.3
Africa................................................................................................................................     326.9     297.7
Middle East ......................................................................................................................         219.5     163.9
Other.................................................................................................................................     466.3     377.7
                                                                                                                                         9,383.7   8,131.1

Traffic revenue by sector                                                                                                                    2000      1999
                                                                                                                                             5m        5m
Scheduled .........................................................................................................................      8,976.0   7,719.1
Charter ..............................................................................................................................     407.7     412.0
                                                                                                                                         9,383.7   8,131.1


17) Other revenue
By sector                                                                                                                                   2000      1999
                                                                                                                                             5m        5m
Ground services /cabin sales ............................................................................................                 139.3     122.2
Travel services (commissions).........................................................................................                    268.6     225.4
Other.................................................................................................................................     35.8      30.4
                                                                                                                                          443.7     378.0

       82 per cent of other revenue was generated in Europe (1999: 84 per cent).




                                                                                    F-76
18) Other operating income
Other operating income                                                                                                                     2000       1999
                                                                                                                                            5m         5m
Income from release of special items with an equity portion.......................................                                       119.9      103.6
Proceeds from the sale of tangible assets.......................................................................                          13.3      208.7
Exchange rate gains from foreign currency translation .................................................                                  498.1      162.2
Write-back of provisions .................................................................................................                92.9       95.8
Redebiting of charges for computerised distribution systems .......................................                                       29.0       26.2
Revenue from the redebiting of accounts payable .........................................................                                101.9      101.4
Services rendered for Group companies.........................................................................                            67.1       54.7
Hiring out of staff............................................................................................................           40.9       47.7
Payments received for damages ......................................................................................                      23.7       10.6
Rental income ..................................................................................................................          21.2       22.4
Counterpart for utilisation of provisions.........................................................................                        30.8       49.1
Other miscellaneous operating income ...........................................................................                         229.0      239.8
                                                                                                                                        1,267.8    1,122.2

     4 108.9 million of the release of special items relates to the so-called reflux, meaning the annual release over
the depreciation period of special tax depreciation allowances for newly purchased aircraft. In addition, 4 10.8
million was released owing to purchase cost corrections and a further 4 0.2 million out of the tax-free reserve in
accordance with the Tax Relief Act 1999/2000/2002.

19) Cost of materials
Cost of materials                                                                                                                          2000       1999
                                                                                                                                            5m         5m
Aircraft fuel......................................................................................................................     1,119.0      711.3
Other expenses for raw materials, supplies and goods purchased ................................                                            61.5       55.7
Other expenses for services purchased ...........................................................................                       3,651.0    3,191.3
                                                                                                                                        4,831.5    3,958.3


20) Personnel expenses
Personnel expenses                                                                                                                         2000       1999
                                                                                                                                            5m         5m
Wages and salaries...........................................................................................................           1,393.7    1,321.6
Social security contributions and other pension costs ...................................................                                 505.5      416.4
of which for retirement pensions ....................................................................................                    (293.4)    (207.0)
                                                                                                                                        1,899.2    1,738.0

Average number of employees                                                                                                                2000       1999

Ground staff .....................................................................................................................      15,213     14,928
Flight crews......................................................................................................................      14,917     14,405
Trainees ............................................................................................................................      207        202
                                                                                                                                        30,337     29,535




                                                                                    F-77
21) Depreciation
     The scheduled depreciation of intangible assets, aircraft and other tangible assets is detailed in the Statement
of Fixed Assets Movements. No unscheduled depreciation was necessary.

22) Other operating expenses
Other operating expenses                                                                                                           2000             1999
                                                                                                                                     5m              5m
Transfers to special items with an equity portion..............................................................                      —              0.6
Sales commissions to agencies ...........................................................................................       1,024.5           911.5
Rents and maintenance costs...............................................................................................        275.4           260.7
Expenditure on computerised distribution systems ............................................................                     212.2           177.7
Instalment payments for aircraft acquired under financial lease .......................................                            111.8           149.4
Advertising and sales promotion costs ...............................................................................             132.7           121.0
Exchange rate losses from foreign currency translation ....................................................                       538.2           296.3
Payment system expenses (esp. for credit card commissions) ..........................................                              95.8            77.2
Audit, consulting and legal fees..........................................................................................         50.8            38.4
Other miscellaneous operating expenses ............................................................................               823.7           745.8
                                                                                                                                3,265.1         2,778.6


23) Income from subsidiaries and associated companies
Income from subsidiaries and associated companies                                                                                  2000             1999
                                                                                                                                     5m              5m
Income from profit transfer agreements with subsidiaries.................................................                          509.2           145.6
Expenses due to loss transfer agreements ..........................................................................                  —            (48.5)
Income from other equity investments ...............................................................................               41.1            41.7
of which from subsidiaries ..................................................................................................         0 *)            0 *)
                                                                                                                                  550.3           138.8

*) less than 4 0.1 million

       Income/expenses from profit/loss transfer agreements include subsidiaries’ tax contributions /tax credits.

24) Net interest
                                                                                                          of which                              of which
Net interest                                                                              2000         subsidiaries              1999        subsidiaries
                                                                                            5m                   5m               5m                 5m
Income from other investments and long-term loans                                         74.5                 59.8              55.5              39.7
Other interest and similar income ..............................                          79.9                 48.5              78.7              40.6
Interest and other similar expenses ............................                         (68.1)               (42.7)            (52.1)            (31.2)
                                                                                          86.3                 65.6             82.1               49.1




                                                                            F-78
25) Taxes
Taxes on income                                                                                                                           2000       1999
                                                                                                                                           5m          5m
Income tax........................................................................................................................       281.8      330.7
Write-back of tax provisions ...........................................................................................                  (0.3)      (1.0)
Refunds for previous years..............................................................................................                  (1.9)         0 *)
                                                                                                                                         279.6      329.7

Other taxes                                                                                                                               2000       1999
                                                                                                                                           5m          5m
Tax expenses ....................................................................................................................         22.3       23.3
Write-back of tax provisions /tax liabilities ....................................................................                        (2.1)      (0.2)
Refunds for previous years..............................................................................................                     0 *)       0 *)
                                                                                                                                          20.2       23.1
Charges to subsidiaries for tax contributions .................................................................                           (1.4)      (0.7)
                                                                                                                                          18.8       22.4
Taxes ................................................................................................................................   298.4      352.1


Income is indicated by a minus sign.

*) less than 4 0.1 million


26) Supervisory Board and Executive Board

     The members of the Supervisory Board and the Executive Board are listed on page 31. Members of
Lufthansa’s Executive Board received remuneration amounting to 4 2.3 million for 2000 and 4 0.1 million for
1999. 4 16,000 of a loan granted to one member of the Executive Board was outstanding as at the balance sheet
date. 4 2,000 was repaid in 2000; the loan carries an interest rate of 4 % and matures in 5 years. A further 4 0.7
million was granted in remuneration to members of the Supervisory Board in respect of the year 2000. These
figures include benefits from concessionary travel in line with the appropriate IATA regulations.

     Provisions for pensions for former members of the Executive Board and their surviving dependants amount
to 4 26.6 million. Current remuneration came to 4 2.3 million for 2000 and 4 3,000 for 1999.

27) Proposed appropriation of distributable earnings

     The annual result contains a proposed appropriation of the distributable earnings of 4 229 million to pay a
dividend of 4 0.60 per share.

Cologne, February 16, 2001

Deutsche Lufthansa Aktiengesellschaft


Executive Board




                                                                                    F-79
                             Supervisory Board and Executive Board

Supervisory Board                             o
                             Dr. Wolfgang R¨ ller
                             Honorary Chairman
                             of the Supervisory Board,
                             Dresdner Bank AG,
                             Honorary Chairman

Members with voting rights   Dr. Klaus G. Schlede              Andreas Heß
                             Former Deputy Chairman            Union of Public Services’ and
                             of the Executive Board                                  ¨
                                                               Transport Employees (OTV),
                             Deutsche Lufthansa AG,            employee representative
                             Chairman
                                                               Roland Issen
                             Herbert Mai                       Head of German Union of Salaried
                             Former Chairman of the            Employees (DAG),
                             Union of Public Services’ and     employee representative
                                                    ¨
                             Transport Employees (OTV),
                             employee representative,          Dr. Otto Graf Lambsdorff
                             Deputy Chairman                   Lawyer, Honorary President of
                             (until March 31, 2001)            Deutsche Schutzvereinigung
                                                                u
                                                               f¨ r Wertpapierbesitz e.V.
                             Richard Bornheimer
                             Motor mechanic,                   Franz-Eduard Macht
                             employee representative           Member of the office staff,
                             (until April 30, 2000)            employee representative

                             Dr. Rolf-E. Breuer                Ingo Marowsky
                             Chairman of the Executive Board   Flight Attendant,
                             Deutsche Bank AG                  employee representative

                             Frank Bsirske                     Franz Ludwig Neubauer
                             Chairman ver.di,                  Former Chairman of the
                             employee representative           Executive Board
                             (from April 1, 2001)              Bayerische Landesbank
                                                               Girozentrale
                             Peter Geisinger
                             Captain,                          Dr. Wolfgang Peiner
                             employee representative           Chairman of the Executive Boards
                                                               Parion OHG and
                             Holger Hagge                      Parion Finanzholding AG
                             Lathe operator,
                             employee representative                  o
                                                               Willi R¨ rig
                             (until April 25, 2001)            Member of the office staff,
                                                               employee representative
                             Ulrich Hartmann                   (from May 1, 2000)
                             Chairman of the Executive Board
                             E.ON AG




                                              F-80
Members with voting rights   Jan G. Stenberg                      Dr. Hans-Dietrich Winkhaus
(continued)                  President and Chairman of the        Member of the proprietors’
                             Executive Board SAS                  committee
                                                                  Henkel KGaA
                             Dr. Alfons Titzrath
                             Chairman of the Board                Dr. Michael Wollstadt
                             Dresdner Bank AG                     Member of the office staff,
                             (from January 3, 2001)               employee representative

                             Bernhard Walter                      Dr. Klaus Zumwinkel
                             Chairman of the Executive Board      Chairman of the Executive Board
                             Dresdner Bank AG                     Deutsche Post AG
                             (until December 31, 2000)

                             Patricia Windaus
                             Flight Attendant,
                             employee representative

Executive Board                                        ¨
                             Dipl.-Ing. Dr.-Ing. E.h. Jurgen Weber
                             Chairman of the Executive Board

                             Dr. Karl-Ludwig Kley
                             Member of the Executive Board
                             Chief Financial Officer

                             Dr. Heiko Lange
                             Member of the Executive Board
                             Chief Executive Human Resources
                             (until July 31, 2000)

                             Stefan Lauer
                             Deputy Member of the Executive Board
                             (from May 1, 2000)
                             Member of the Executive Board
                             Chief Executive Human Resources
                             (from August 1, 2000)

                             Wolfgang Mayrhuber
                             Member of the Executive Board
                             Chief Executive Passenger Business
                             (from January 1, 2001)




                                              F-81
Other mandates of the                       o
                            Dr. Wolfgang R¨ ller                      Dr. Otto Graf Lambsdorff
                            a) Heidelberger Zement AG                 a) D.A.S. Deutscher Automobil Schutz
Supervisory Board members
                               (Chairman)                                Allgemeine Rechtsschutz-Versiche-
Deutsche Lufthansa AG       b) Henkel KGaA (Proprietors’ Committee)      rungs-AG
                                                                         IVECO Magirus AG (Chairman)
                            Dr. Klaus G. Schlede                         NSM AG (Chairman)
                            a) C&N Touristic AG                          HSBC Trinkaus & Burckhardt KGaA
                               Deutsche Hyp Deutsche Hypotheken-         Victoria Lebensversicherung AG
                               bank Frankfurt-Hamburg AG                 Victoria Versicherung AG
                               Deutsche Postbank AG                   b) IVECO N.V., Amsterdam
                                                        u
                               Gerling-Konzern Globale R¨ ck-            (Board of Directors)
                               versicherungs-AG
                            b) DHL Worldwide Express B.V.,            Franz Ludwig Neubauer
                               Amsterdam (Board of Directors)         a) Deutsche Kreditbank AG
                                                                         Gabriel Sedlmayr Spaten-Franziskaner-
                            Herbert Mai                                    a
                                                                         Br¨ u KGaA
                            a) E.ON AG                                   (Deputy Chairman)
                                                                          u
                                                                         S¨ ddeutsche Bodencreditbank AG
                            Dr. Rolf-E. Breuer                           (Deputy Chairman)
                            a) Bertelsmann AG                               u
                                                                         Th¨ ga AG
                                          o
                               Deutsche B¨ rse AG (Chairman)
                                 u          u
                               M¨ nchener R¨ ckversicherungs-         Dr. Wolfgang Peiner
                               Gesellschaft AG                        a) Aachener Bausparkasse AG
                               Siemens AG                                (Chairman)
                               (Deputy Chairman)                         Bankgesellschaft Berlin AG
                               E.ON AG                                   Gothaer Credit-Versicherung-AG2)
                            b) Compagnie de Saint-Gobain S.A.            (Chairman)
                               (Board of Directors)                      Gothaer R¨ ckversicherung-AG2)
                                                                                   u
                               Landwirtschaftliche Rentenbank            (Chairman)
                               (Board of Directors)                      Roland-Rechtsschutz-Versicherungs-AG
                                                                         (Deputy Chairman)
                            Ulrich Hartmann                           b) EUREKO N.V.
                            a) Hochtief AG                               Friends Providend Life Office,
                               IKB Deutsche Industriebank AG             London (Main Board)
                               (Chairman)                                  u
                                                                         K¨ hne & Nagel International AG,
                                 u           u
                               M¨ nchener R¨ ckversicherungs-            Schindellegi/Schweiz
                               Gesellschaft AG (Chairman)                (Board of Directors)
                               E.ON Engergie AG1)
                               (Chairman)                             Jan G. Stenberg
                               RAG Aktiengesellschaft                 b) SAS Commuter Consortium, Denmark
                               (Chairman)                                (Chairman of the Board)
                               VEBA OeL AG1)                             SAS International Hotels A/S, Norway
                               (Chairman)                                (Chairman of the Board)
                            b) Henkel KGaA                               B2 Bredband AB
                               (Proprietors’ Committee)                  (Chairman of the Board)
                                                                          o
                                                                         F¨ rvaltings AB Stattum
                            Andreas Heß                                  Proceedo Commerce AB
                            a) LSG Lufthansa Service Holding AG          Orange Sverige AB
                               (Deputy Chairman)
                                 ¨   u
                               TUV S¨ ddeutschland Holding AG         Dr. Alfons Titzrath
                               (Deputy Chairman)                      a) Allianz Holding AG
                                                                         (Deputy Chairman)
                            Roland Issen                                 Celanese AG
                            a) DAWAG — Deutsche Angestellten-            Dresdner Bank AG (Chairman)
                               Wohnungsbau AG                              u          u
                                                                         M¨ nchener R¨ ckversicherungs-
                               (Chairman)                                Gesellschaft AG
                                    o
                            b) Verm¨ gensverwaltung der DAG GmbH         RWE AG
                               (Chairman)                                VAW aluminium AG




                                                F-82
Other mandates of the       Bernhard Walter                              Dr. Hans-Dietrich Winkhaus
                            a) Bilfinger + Berger Bauaktiengesellschaft   a) BMW AG
Supervisory Board members
                               DaimlerChrysler AG                                      u
                                                                            Degussa-H¨ ls AG
Deutsche Lufthansa AG          Deutsche Hyp Deutsche Hypothekenbank         Deutsche Telekom AG
(continued)                    Frankfurt-Hamburg AG3)                       (Chairman)
                               Deutsche Telekom AG                          ERGO-Versicherungen
                               Heidelberger Zemet AG                        Schwarz-Pharma AG
                               Henkel KGaA                                  (Chairman)
                               mg technologies ag                        b) Henkel KgaA
                               Staatliche Porzellan-Manufaktur              (Proprietors’ Committee)
                               Meissen GmbH
                               Thyssen Krupp AG                          Dr. Klaus Zumwinkel
                               Wintershall AG (Deputy Chairman)          a) Allianz Versicherungs-AG
                            b) KG Allgemeine Leasing GmbH & Co.             Deutsche Postbank AG4)
                               (Chairman Board of Directors)                (Chairman)
                                                                            Tchibo Holding AG
                                                                            Thyssen Krupp Materials & Services AG
                                                                         b) Danzas Holding AG4)
                                                                            (Chairman Board of Directors)
                                                                            Deutsche Post Beteiligungen GmbH4)
                                                                            (Chairman)
                                                                            DHL Worldwide Express B.V.,
                                                                            Amsterdam
                                                                            (Board of Directors)
                                                                            C.V. International Post Corp. U.A.
                                                                            (Deputy Chairman)

Mandates of the Executive                             ¨
                            Dipl.-Ing. Dr.-Ing. E.h. Jurgen Weber        Dr. Karl-Ludwig Kley
                            a) Allianz Lebensversicherungs-AG            a) C&N Touristic AG
Board members
                               C&N Touristic AG                             Delvag Luftfahrtversicherungs-AG5)
Deutsche Lufthansa AG          (Deputy Chairman)                            (Chairman)
                               KarstadtQuelle AG                            Delvag R¨ ckversicherungs-AG5)
                                                                                     u
                               LSG Lufthansa Service Holding AG5)           (Chairman)
                               (Chairman)                                   Gerling Firmen- und Privat-Service AG
                               Lufthansa Cargo AG5)                         LSG Lufthansa Service Holding AG5)
                               Lufthansa Systems GmbH5)                     Lufthansa AirPlus Servicekarten GmbH5)
                               (Chairman)                                   (Chairman)
                               Lufthansa Technik AG5)                       Lufthansa Cargo AG5)
                               (Chairman)                                   Lufthansa Systems Group GmbH5)
                            b) Loyalty Partner GmbH5)                       (Chairman)
                               (Chairman)                                   Lufthansa Technik AG5)
                               Sapient Corp.                                START Amadeus GmbH5)
                               (Board of Directors)                         (Chairman)
                                                                         b) Albatros Versicherungsdienste GmbH5)
                                                                            (Chairman)
                                                                            Air Dolomiti S.p.A. Linee Aeree Regionali
                                                                            Europee
                                                                            (Deputy Chairman Board of Directors)
                                                                            AMADEUS Global Travel Distribution S.A.,
                                                                            Madrid (Board of Directors)
                                                                            GlobeGround GmbH5)
                                                                            (Chairman)
                                                                            KG Allgemeine Leasing GmbH & Co.
                                                                            (Board of Directors)
                                                                            SkyChefs International Services, Inc.
                                                                            (Board of Directors)




                                                 F-83
Mandates of the Executive               Stefan Lauer                               Wolfgang Mayrhuber
                                        a) LSG Lufthansa Service Deutschland       a) Eurowings Luftverkehrs AG
Board members
                                            GmbH5)                                    Lufthansa CityLine GmbH5)
Deutsche Lufthansa AG                       Lufthansa Cargo AG  5)
                                                                                      (Chairman)
(continued)                                 (Chairman)                                RWE Systems AG
                                            Lufthansa Systems Group GmbH5)         b) AMECO Corp., Beijing
                                            Lufthansa Technik AG5)                    (Deputy Chairman Board of Directors)
                                        b) DHL Worldwide Expres B.V.,                 Deutsche Investitions- und
                                            Amsterdam (Board of Directors)            Entwicklungsgesellschaft mbH
                                            Lufthansa Flight Training GmbH5)          Hawker Pacific Aerospace, Los Angeles5)
                                            (Chairman)                                (Chairman Board of Directors)
                                            MVP Versuchs- und Planungsgesellschaft    Lufthansa Technik Philippines Ltd.,
                                            f¨ r Magnetbahnsysteme mbH
                                             u                                        Manila5) (Board of Directors)
                                            (Chairman)
                                                                                   Dr. Heiko Lange
                                                                                   a) Arabella Sheraton Holding AG
                                                                                      LSG Lufthansa Service Holding AG5)
                                                                                      Pensions-Sicherungs-Verein VVaG

Explanation:
a)   Membership of supervisory boards required by law
b)   Membership of comparable supervisory bodies at companies in Germany and abroad
1)   Company in which E.ON AG has a controlling interest
2)   Company in which Parion OHG and Parion Finanzholding AG have a controlling interest
3)   Company in which Dresdner Bank AG has a controlling interest
4)   Company in which Deutsche Post AG has a controlling interest
5)   Company in which Deutsche Lufthansa AG has a controlling interest




                                                             F-84
                                                 Audit opinion(1)
     We have audited the annual financial statements of Deutsche Lufthansa AG, Cologne, including the
accounting records and the management report, for the financial year which ran from January 1 to December 31,
2000. The accounting records and the compilation of the annual financial statements and the management report
in accordance with German commercial law, as well as the supplementary rules under the Company’s articles of
association, are the responsibility of the Company’s Executive Board. Our duty is to express an opinion, based on
our audit, on the annual financial statements and the management report.
     We have carried out our audit of the annual financial statements pursuant to section 317 of the German
Commercial Code and in accordance with required accounting principles as laid down by the German institute of
chartered accountants and external auditors IDW. Those principles require that we plan and carry out the audit so
as to be able to identify with reasonable assurance any inaccuracies and infringements which materially affect the
impression of the Company’s net worth, financial position and results as conveyed by the annual financial
statements, in compliance with required accounting principles, and by the management report. In planning the
audit operation due account is taken of knowledge concerning the Company’s business activity and the economic
and legal setting in which it operates and of expectations of possible errors. The effectiveness of the Company’s
accounting-related internal control system and the documentary evidence for the entries in the accounting records
and the details contained in the annual financial statements and the management report are verified in the audit
primarily by sampling. The audit includes an assessment of the accounting principles employed by the Company
and of the basic estimations made by the Executive Board as well as an evaluation of the overall presentation of
the annual financial statements and the management report. We believe that our audit provides a reasonable basis
for our audit opinion.
     Our audit gave rise to no objections.
      In our opinion, the annual financial statements present a true and fair view of the Company’s net worth,
financial position and results in compliance with required accounting principles. The management report provides
a fair understanding of the Company’s situation and accurately portrays the risks inherent in its future operations.

 u
D¨ sseldorf, April 10, 2001

PwC Deutsche Revision
Aktiengesellschaft
             u
Wirtschaftspr¨ fungsgesellschaft


Pape                                                      Dr. Husemann
             u
Wirtschaftspr¨ fer                                                     u
                                                          Wirtschaftspr¨ fer




                           a
(1) Translation of the Best¨ tigungsvermerk


                                                       F-85
[THIS PAGE INTENTIONALLY LEFT BLANK.]
[THIS PAGE INTENTIONALLY LEFT BLANK.]
                           Head Office of the Issuer
                            Von-Gablenz-Straße 2-6
                                50679 Cologne
                                   Germany

                          Auditors of the Issuer
                   PwC Deutsche Revision Aktiengesellschaft
                                    u
                       Wirtschaftspr¨ fungsgesellschaft
                            Moskauer Straße 19
                                       u
                             40227 D¨ sseldorf
                                  Germany

                    Principal Paying and Conversion Agent
                                 Citibank N.A.
                                P.O. Box 18055
                               5 Carmelite Street
                               London EC4Y 0PA

                        Paying and Conversion Agent
                                       `                 ee
           Dexia Banque Internationale a Luxembourg, soci´ t´ anonyme
                                69, route d’Esch
                              1470 – Luxembourg
                                  Luxembourg

                                Calculation Agent
                                  Citibank N.A.
                                 P.O. Box 18055
                                5 Carmelite Street
                                London EC4Y 0PA

                                 Legal Advisers

         To the Issuer                                   To the Managers
Freshfields Bruckhaus Deringer                          Shearman & Sterling
       Taunusanlage 11                                    Breite Straße 69
   60329 Frankfurt am Main                                        u
                                                         40213 D¨ sseldorf
           Germany                                           Germany

                          Luxembourg Listing Agent
                                       `                 ee
           Dexia Banque Internationale a Luxembourg, soci´ t´ anonyme
                                69, route d’Esch
                              1470 – Luxembourg
                                  Luxembourg

				
DOCUMENT INFO