Annual Report and Reference Document 2003

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Corporate Governance

Management and Control

Board of Directors, Chairmen and Chief Executive Officers

Pursuant to the Articles of Association of the Company, the Board of Directors is responsible for the affairs of the Company.

The Board of Directors consists of a maximum of eleven members appointed and removed by the shareholders’ meeting. The Board of Directors adopted rules governing its internal affairs (the “Rules”) at a Board of Directors’ meeting held on July 7, 2000. The Rules were most recently amended at a Board of Directors’ meeting held on December 5, 2003 to take into account recommendations for changes to corporate governance, as described below. The Rules specify the composition, the role and the key responsibilities of the Board of Directors, and also determine the manner of appointment and the responsibilities of the Chairmen and the Chief Executive Officers. The Rules also specify the creation of two committees (the Audit and the Remuneration and Nomination Committees) and specify their composition, role and operating rules.

The Board of Directors has also adopted specific Insider Trading Rules, which restrict its members from trading in shares in the Group in certain circumstances (for more information, please see “Part 2/3.1.3 Governing Law – Dutch Regulations”).

The parties to the Participation Agreement have agreed that the voting rights attached to the Indirect EADS Shares shall be exercised by EADS Participations B.V. to ensure that the Board of Directors of EADS comprises the Directors of EADS Participations B.V. and two additional independent Directors who are not officers, directors, employees or agents of or otherwise have no significant commercial or professional connection either with the DaimlerChrysler, SOGEPA or Lagardère groups or the French State. Pursuant to the Participation Agreement, the initial Board of Directors comprises eleven members of whom:

• four nominated by DaimlerChrysler;
• four nominated by SOGEADE;
• one nominated by SEPI;
• two independent Directors, one nominated by DaimlerChrysler and one nominated by SOGEADE.

Pursuant to the Articles of Association, each Board member of the first Board of Directors holds office for a term expiring at the annual general meeting of the Company to be held in 2005. Members of the Board of Directors will be elected at such meeting and at each fifth annual general meeting thereafter.

The general meeting of shareholders may at all times suspend or dismiss any member of the Board of Directors. There is no limitation on the number of terms that a Director may serve.

The initial Board of Directors appointed two Chairmen, one chosen from the DaimlerChrysler-nominated Directors and one chosen from the SOGEADE-nominated Directors.

The Chairmen ensure the smooth functioning of the Board of Directors in particular with respect to its relations with the Chief Executive Officers whose efforts they support with regard to top level strategic discussions with outside partners.

The Board of Directors also appointed two Chief Executive Officers to be responsible for the day-to-day management of the Company, one chosen from the DaimlerChrysler-nominated Directors and one chosen from the SOGEADE-nominated Directors.

The Company is represented by the Board of Directors or by the Chief Executive Officers acting jointly. Furthermore, the Company has granted general powers to each of the Chief Executive Officers, authorizing them to each individually represent the Company.

In the event of a deadlock between the two Chief Executive Officers, the matter shall be referred to the two Chairmen.

The Chief Executive Officers shall not enter into transactions which form part of the key responsibilities of the Board of Directors unless these transactions have been approved by the Board of Directors.

The key responsibilities of the Board of Directors include amongst others:

• approving any change in the nature and scope of the activities of the Group;
• approving the overall strategy and the strategic plan of the Group;
• approving the business plan and the yearly budget of the Group;
• setting the major performance targets of the Group;
• appointing the members of the Executive Committee (see below) and the Corporate Secretary;
• approving proposals for appointments of the chairmen of the supervisory board (or similar bodies) and the chief executive officers (or equivalent position) of important Group companies and business units;
• approving material changes to the organizational structure of the Group;
• approving major investments, projects or product decisions or divestments of the Group contemplated in the business plan with a value exceeding € 200 million;
• approving major strategic alliances and cooperations of the Group;
• approving any material decision affecting the ballistic missiles activity of the Group;
• approving matters of shareholder policy, major actions or major announcements to the capital markets;
• approving other measures and business of fundamental significance for the Group or which involve an abnormal level of risk.

The Board of Directors met eight times during 2003. The average attendance rate at such meetings was 76%. Topics discussed and operations authorized at these meetings included EADS strategy, reorganization processes (such as the continuation of the Space Division restructuring and the reorganization in the field of Defence and Security), major business issues and contracts (such as the A340 HGW authorization, the Future Strategic Tanker Aircraft (FSTA) offer, the Skynet 5/Paradigm, A400M and NH90 contracts), and the approval of operational plans, budgets, hedging and funding policy, remuneration (including a stock option plan and an employee share ownership plan) and the Group’s financial results and forecasts. The Board of Directors also dealt with topics regarding personnel and human resources, such as management qualification as well as attracting, retaining and developing high potentials in order to ensure the future quality of EADS’ management and the multi-national leadership structure. During this period, the Board of Directors was regularly informed of developments through business reports from the Chief Executive Officers, which included rolling forecasts and strategic and operational plans.

In addition, the Board of Directors held on December 5, 2003 discussed recommendations for changes to EADS’ corporate governance in the light of corporate governance best practices applicable in the jurisdictions relevant to EADS. The Board of Directors adopted the recommendations which relate to its functioning including the implementation of an evaluation process of its performance, the personal status of the Directors including their individual compensation and the Board of Directors’ remuneration policy, the role of the committees of the Board of Directors and the enhancement of shareholders’ rights, including, inter alia, the access to information by the setting-up of specific pages regarding corporate governance on the EADS website.

Following the adoption of these recommendations, the Board of Directors decided to establish internal directors guidelines (the “Directors’ Guidelines”), detailing the rights and duties of the members of the Board of Directors and the role of the committees of the Board of Directors as set out in the Rules. During 2003, the shareholders general meeting of EADS held on May 6, 2003 appointed Hans Peter Ring (Chief Financial Officer and member of the Executive Commitee) as a member of the Board of Directors to replace Axel Arendt who resigned with effect from November 1, 2002.

Philippe Camus and Rainer Hertrich were appointed Directors by the general meeting of shareholders of EADS held on May 10, 2000 and Chief Executive Officers at the Board of Directors’ meeting held the same day. Manfred Bischoff and Jean-Luc Lagardère were appointed Directors by the general meeting of shareholders of EADS held on June 19, 2000 and their appointments became effective on July 7, 2000; they were appointed Chairmen at a meeting held on July 7, 2000. As successor to Jean-Luc Lagardère, Arnaud Lagardère was appointed as one of the Chairmen of the Board of Directors and a member of the Audit and Remuneration and Nomination committees at a meeting of the Board of Directors held on March 28, 2003 to take immediate effect from the date of his appointment as Director by the general meeting of shareholders of EADS held on May 6, 2003.

Each director shall have one vote, provided that if there is a vacancy on the Board of Directors’ in respect of a DaimlerChryslernominated Director or a SOGEADE-nominated Director, the DaimlerChrysler-nominated Directors being present or represented at the meeting can jointly exercise the same number of votes that the SOGEADE-nominated Directors who are present or represented at the meeting can exercise and vice versa. All decisions of the Board of Directors require a vote in favour by at least seven Directors voting in person or by proxy. As of July 8, 2003, the SEPI-nominated director no longer has the ability to block any decisions of the Board of Directors relating to CASA Matters (as defined in “Part 2/3.3.2 Relationships with Principal Shareholders – Organization of EADS Participations B.V.”).

The quorum for the transaction of business at meetings of the Board of Directors requires the presence of at least one of the SOGEADE-nominated Directors and one of the DaimlerChrysler-nominated Directors.

In the event of a deadlock in the Board of Directors, other than a deadlock giving DaimlerChrysler the right to exercise the put option granted to it by SOGEADE (see “Part 2/3.3.2 Relationships with Principal Shareholders – Put Option “), the matter shall be referred to Arnaud Lagardère (or such person as shall be nominated by Lagardère) as representative of SOGEADE and to the Chief Executive Officer of DaimlerChrysler. In the event that the matter in question, including a deadlock giving DaimlerChrysler the right to exercise the put option (but in this case with the agreement of SOGEPA and DaimlerChrysler) is a matter within the competence of the general meeting of EADS, a resolution on the issue shall be put to the general meeting, with the voting rights of SOGEADE, DaimlerChrysler and SEPI being negated.

Pursuant to the Rules, the Board of Directors is empowered to form committees from its members. In addition to the Audit Committee and the Remuneration and Nomination Committee, the Board of Directors may form other committees to which it may transfer certain minor or ancillary decision-making functions although such assignment does not negate the joint responsibility of all Directors. The quorum for the transaction of business at any meeting of a committee shall be at least one Director appointed by SOGEADE and at least one Director appointed by DaimlerChrysler. All decisions of a committee require the simple majority of the members.

Resolutions to take note of the resignations of Mr. Jean-René Fourtou and Mr. Eckhard Cordes as members of the Board of Directors and to appoint Mr. François David (chairman and chief executive officer of COFACE since 1994) and Mr. Rüdiger Grube (member of the board of management of Daimler Chrysler AG in charge of corporate development since 2002) as their respective successors will be submitted to the shareholders’ general meeting of EADS called for May 6, 2004. Such appointments shall be effective as of the end of such shareholders’ general meeting.

The Company has not appointed observers to the Board of Directors. Pursuant to applicable Dutch law, the employees are not entitled to elect a Director. There is no minimum number of shares that must be held by a Director.

Independent Directors
The two independent directors appointed pursuant to the criteria of independence set out above are Jean-René Fourtou and Michael Rogowski.

Assessment of the Performance of the Board of Directors
At its December 5, 2003 meeting, the Board of Directors decided to carry out an annual assessment of its performance as from January 2004. A more thorough assessment of the performance of the Board of Directors will be carried out every three years, possibly using external consultants.

This year’s self-evaluation was conducted by the Chairmen of the Board of Directors, based upon responses of members of the Board of Directors to a questionnaire. The Chairmen jointly evaluated the feedback of the members of Board of Directors and led a discussion of the results at the March 5, 2004 Board of Directors meeting.

The self-evaluation of the Board of Directors and its committees comprises a general assessment of the meetings and processes of the Board of Directors, a review of the activities of the Board of Directors and its Committees in the past year. The questionnaire addressed matters such as the frequency of meetings, the content of discussions and the thoroughness of meeting preparation. The members of the Board of Directors were also asked to consider the functioning and the composition of the Board of Directors, the quality and openness of discussion, the independence of expressed opinions, the ability to build on differing positions and the Director’s access to necessary information.

The findings of the first self-assessment concluded that the overall performance of the Board of Directors is very satisfactory. Additional facilities for attendance by video-conference will further improve overall attendance.

The self-assessment confirmed that the nominees from the block shareholders held opinions and defended positions which are in all relevant questions aligned with the economic interests of individual shareholders. Given the absence of material business interests between EADS and its controlling shareholders, and the independence of the controlling shareholders from one another, the members of the Board of Directors nominated by the controlling shareholders are deemed to fairly represent the interests of all shareholders.

Furthermore, the members of the Board of Directors indicated in self-assessment that the Board of Directors’ composition with a wide range of different experiences represented in the Board of Directors and the running of meetings was conductive to the expression of autonomous and complementary views, and that they had fairly substantial discussions on the strategic and operational tasks for 2004.

Overall, the quality of the work carried out by the committees was also judged very satisfactory. With its decision at the December 5, 2003 meeting, the Board of Directors empowered the Audit Committee and the Remuneration and Nomination Committee with an increased scope of authority to align with the improved corporate governance standards in the EADS home countries.