OFFERING MEMORANDUM. Global Offering of up to 36,000,000 Ordinary Bearer Shares without par value of Nordex AG

Transcription

1 OFFERING MEMORANDUM Oberhausen, Germany Global Offering of up to 36,000,000 Ordinary Bearer Shares without par value of Nordex AG Nordex Aktiengesellschaft, a stock corporation organized under the laws of the Federal Republic of Germany ( Nordex AG, Nordex or the Company ), and its existing shareholders are offering an aggregate of 31,300,000 of Nordex s ordinary bearer shares without par value having a calculated nominal value (rechnerischer Nennbetrag) of E1.00 per share (the Offered Shares ) (up to 36,000,000 Offered Shares if the over-allotment option referred to below is exercised in full). The Offered Shares are being offered in a public offering in Germany, in private placements outside Germany and the United States to non-u.s. persons in reliance on Regulation S under the United States Securities Act of 1933, as amended (the Securities Act ), and in the United States in reliance on Rule 144A under the Securities Act ( Rule 144A ) to qualified institutional buyers only (as defined in such rule) (the Offering ). Prior to the Offering, there has been no public market for the Offered Shares. The Offered Shares have been admitted to the regulated market (Geregelter Markt), for trading on the Neuer Markt segment, of the Frankfurt Stock Exchange. The Offer Price is E9 per Offered Share. INVESTING IN THE OFFERED SHARES INVOLVES RISKS. SEE RISK FACTORS BEGINNING ON PAGE 18. Offer Price E9 Nordex s existing shareholders, Borsig Energy GmbH and Nordvest A/S (the Selling Shareholders ), have granted Dresdner Kleinwort Wasserstein an option, exercisable for the account of the Managers for 30 days after the commencement of trading of the Offered Shares on the Neuer Markt, to purchase up to 4,700,000 additional Offered Shares at the Offer Price, solely to cover over-allotments, if any (the Over-allotment Option ). The Offered Shares have not been and will not be registered under the Securities Act and are being offered and sold outside the United States to non-u.s. persons in reliance on Regulation S under the Securities Act ( Regulation S ) and in the United States only to qualified institutional buyers in reliance on Rule 144A. Prospective purchasers are hereby notified that the seller of the Shares may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. The Offered Shares are not transferable except in accordance with the restrictions described under Notice to Investors. The Offered Shares are offered severally by the Managers (as defined in Underwriting and Sale ) subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that the delivery of the Offered Shares will be made on or about April 4, 2001 in book-entry form through the facilities of Clearstream Banking AG. Dresdner Kleinwort Wasserstein Sole Bookrunner JOINT LEAD MANAGERS WestLB Panmure BHF-BANK Co-Managers COMMERZBANK SECURITIES The date of this Offering Memorandum is March 30, 2001 HypoVereinsbank

2 This Offering Memorandum (the Offering Memorandum ) is for use exclusively in connection with the offer and sale of the Offered Shares to investors outside the Federal Republic of Germany. In connection with the Offering, no dealer, salesman or any other person has been authorized to give any information, or to make any representation, other than those contained in this Offering Memorandum, and, if given or made, such information or representation must not be relied upon as having been authorized by Nordex or any Manager. Neither the delivery of this Offering Memorandum at any time nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of Nordex since the date hereof or that the information set forth herein is correct as of any date subsequent to the date hereof. No representation or warranty, express or implied, is made by the Managers as to the accuracy or completeness of the information contained herein. In making an investment decision, prospective investors must rely on their own examination of Nordex and the terms of the Offering, including the merits and risks involved. Any reproduction or distribution of this Offering Memorandum, in whole or in part, and any disclosure of its contents or use of any information herein for any purpose, other than considering an investment in the Offered Shares offered hereby, is prohibited. Each offeree of the Offered Shares, by accepting delivery of this Offering Memorandum, agrees to the foregoing. This Offering Memorandum does not constitute an offer to sell or a solicitation of an offer to buy, nor shall there be any sale of, any Offered Shares to any person in any circumstances or in any jurisdiction in which it is unlawful to make such an offer, solicitation or sale. For a description of certain further restrictions on the offer and sale of the Offered Shares (see The Offering General Information ). In addition, for a description of the transfer restrictions imposed, and the representations and acknowledgments that each person acquiring Shares will be deemed to make, with respect to the delivery of Offered Shares to investors in the Offering and in subsequent resales or other transfers, see Notice to Investors. Investors should be aware that they may be required to bear the financial risks of this investment for an indefinite period of time. THE OFFERED SHARES OFFERED IN THE OFFERING HAVE NOT BEEN RECOMMENDED BY OR APPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY OF OR IN THE UNITED STATES, NOR HAS ANY SUCH AUTHORITY REVIEWED OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFERING MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE UNDER THE LAWS OF THE UNITED STATES. No action has been or will be taken to permit a public offering in any jurisdiction other than Germany, where action would be required for that purpose. This Offering Memorandum may not be distributed in any jurisdiction except in accordance with the legal requirements applicable in such jurisdiction. This Offering Memorandum has not been approved as an investment advertisement pursuant to section 57 of the Financial Services Act 1986 and may not be issued or passed on in the United Kingdom except to a person who is of a kind described in Article 11(3) of the Financial Services Act (Investment Advertisements) (Exemptions) Order Notice to New Hampshire Residents Neither the fact that a registration statement or an application for a license has been filed under this chapter with the state of New Hampshire nor the fact that a security is effectively registered or a person is licensed in the state of New Hampshire constitutes a finding by the secretary of state that any document filed under RSA 421-B is true, complete and not misleading. Neither any such fact nor the fact that an exemption is available for a security or a transaction means that the secretary of state has passed in any way upon the merits or qualifications of or recommended or given approval to any person, security or transaction. It is unlawful to make, or cause to be made, to any prospective purchaser, customer or client any representation inconsistent with the provisions of this paragraph. S-2

3 Forward-looking Information This Offering Memorandum includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical facts included in this Offering Memorandum, including, without limitation, those regarding the Company s financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to the Company s products), are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company s present and future business strategies and the environment in which the Company will operate in the future. Among the important factors that could cause the Company s actual results, performance or achievements to differ materially from those in the forward-looking statements include, among others, Reorganization of the Nordex Group, Organizational Structure, Accounting, Management of Growth, Dependence on Outside Suppliers, Establishment of In-house Production of Rotor Blades and Dependence on a Key Product, in conjunction with Governmental Regulation. Additional factors that could cause actual results, performance or achievements to differ materially include, but are not limited to, those discussed under Risk Factors. These forward-looking statements speak only as of the date of this Offering Memorandum. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in the Company s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Presentation of Financial Information The Pro Forma Consolidated Financial Statements for the fiscal years ended September 30, 1998, 1999 and 2000 (the IAS Pro Forma Consolidated Financial Statements ) and the Pro Forma Consolidated Interim Financial Statements as of December 31, 2000 (the IAS Pro Forma Consolidated Interim Financial Statements ), contained in the Offering Memorandum have been prepared in accordance with the accounting principles set forth in the International Accounting Standards ( IAS ) issued by the International Accounting Standards Committee. IAS differs in certain significant respects from generally accepted accounting principles in the United States ( US GAAP ) and from the accounting principles specified by the German Commercial Code (Handelsgesetzbuch) ( HGB ). Certain differences among IAS and US GAAP and HGB are discussed herein under Summary of Certain Differences Among German (HGB), United States (US GAAP) and International (IAS) Accounting Principles. The comparative figures for the first quarter of fiscal year 1999/2000, contained in the IAS Pro Forma Consolidated Interim Financial Statements and also included in the Offering Memorandum under Financial Information, are based solely upon the Company s internal statistical records, which have been provided because the Company s information technology system was converted to SAP R3 during the first quarter of fiscal year 1999/2000. It is also possible that, for the same reason, the Company will not present complete IAS previous year comparative figures in its quarterly report for the period from January 1, 2001 to March 31, In this Offering Memoradum, references to DM or Deutsche Mark are to the legal currency of the Federal Republic of Germany; references to $ or U.S. dollar are to the legal currency of the United States; references to ESP are to pesetas, the legal currency of Spain; references to FRF are to francs, the legal currency of France; references to GRD are to drachmas, the legal currency of Greece; and references to euro, E or EUR are to the legal currency of the member states of the European Union participating in the Economic and Monetary Union. The legally fixed conversion rate of E1.00=DM was fixed on December 31, Exchange Rate Information On January 1, 1999, the euro became the common currency of the eleven member states of the European Union s Economic and Monetary Union, which includes Germany. In these countries, the S-3

4 national currency (in Germany, the Deutsche Mark) will remain legal tender until January 1, From January 1, 2002 through June 30, 2002, both the euro and the respective national currencies will be legal tender. After June 30, 2002, the euro will be the sole legal tender in these countries. From January 1, 1999, the relative value of the Deutsche Mark to the euro has been fixed at DM per euro. This rate will remain unchanged for as long as the Deutsche Mark continues to be legal tender in Germany. Thus, the developments of the euro and Deutsche Mark exchange rates will be in absolute parallel from January 1, The euro is a fully convertible currency. Except in limited embargo circumstances, there are no legal restrictions in Germany on international capital movements and foreign exchange transactions. In theory, the euro has freely floating exchange rates against currencies outside the euro zone, although central banks sometimes try to limit short-term exchange rate fluctuations by intervening in foreign exchange markets. Prices quoted for the Offered Shares on the Neuer Markt segment of the Frankfurt Stock Exchange are, and are expected to continue to be, quoted in euro. Solely for convenience purposes, the table below sets forth, for the periods and dates indicated, certain information concerning the noon buying rates in the City of New York for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York (the Noon Buying Rate ) for the euro expressed in U.S. dollars per E1.00: Noon Buying Rates for euro per U.S. dollar High Low Period Average (1) Period End (through March 30, 2001) (1) The average of the Noon Buying Rates on the last business day of each full month during the relevant period. Notice to Investors Because of the following restrictions, purchasers in the United States are advised to consult legal counsel prior to making any offer, resale, pledge or transfer of Offered Shares. Terms used in this section that are defined in Rule 144A or in Regulation S are used herein as defined therein. The Offered Shares have not been, and will not be, registered under the Securities Act or under the securities or blue sky laws of any State of the United States and may not be offered, sold or delivered, directly or indirectly, in the United States except pursuant to an effective registration statement or in accordance with an applicable exemption from the registration requirements of the Securities Act and in accordance with any applicable securities or blue sky laws of any State. Accordingly, the Offered Shares are being offered and sold (i) in the United States only to qualified institutional buyers within the meaning of Rule 144A (each, a QIB ) and (ii) outside the United States to non-u.s. persons pursuant to Regulation S. For the purposes hereof, the term United States shall have the meaning given by Regulation S. Each purchaser of Offered Shares within the United States pursuant to Rule 144A, whether in the Offering or thereafter, by accepting delivery of this Offering Memorandum, will be deemed to have represented, agreed and acknowledged that: (1) It is a QIB within the meaning of Rule 144A and is acquiring such Offered Shares for its own account or for the account of a QIB; it is aware, and each beneficial owner of such Offered Shares has been advised, that the sale of such Offered Shares to it is being made in reliance on Rule 144A, and it is aware that such Offered Shares are restricted securities under the Securities Act and may not be deposited into any unrestricted depositary facility, unless at the time of such deposit such Offered Shares are no longer restricted securities. (2) It understands that the Offered Shares have not been and will not be registered under the Securities Act and agrees that if it should sell or transfer Offered Shares it will do so only in compliance with the Securities Act and only (A)(i) pursuant to Rule 144A to an institutional investor that the seller reasonably believes is a QIB within the meaning of Rule 144A purchasing for its own account or for the S-4

5 account of a QIB, whom the seller has informed, in each case, that the resale or transfer is being made in reliance on Rule 144A; (ii) in an offshore transaction in compliance with Rule 903 or Rule 904 of Regulation S; (iii) pursuant to an exemption from the registration requirements of the Securities Act provided by Rule 144 thereunder (if available), subject, in each such case, to the receipt by Nordex of an opinion of counsel or such other evidence that it may reasonably require that such sale or transfer is in compliance with the Securities Act; or (iv) pursuant to an effective registration statement under the Securities Act and (B) in accordance with all applicable securities laws of the States of the United States. No representation can be made as to the availability of the exemption provided by Rule 144 under the Securities Act for the resale of Offered Shares. (3) If it is acquiring Offered Shares for the account of one or more QIBs, it represents that it has sole investment discretion with respect to each such account and that it has full power to make the foregoing acknowledgments, representations and agreements on behalf of each such account. (4) It acknowledges that Nordex, the Managers, the Selling Shareholders, their affiliates and others will rely upon the truth and accuracy of the foregoing acknowledgments, representations and agreements. Prospective investors are not to construe the contents of this Offering Memorandum as legal, business or tax advice. Each prospective investor should consult its own legal advisor, business advisor and tax advisor as to legal, business and tax related matters concerning the transaction. In making an investment decision, investors must rely on their own examination of Nordex and the terms of the Offering, including the merits and risks involved. The Offered Shares have not been recommended by any federal or state securities commission or other regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this document. Any representation to the contrary is a criminal offense under the laws of the United States. Investors should be aware that they may be required to bear the financial risks of this investment for an indefinite period. Until 40 days after the later of the commencement of the Offering and the last closing date of the Offering, an offer, sale or transfer of Offered Shares within the United States by any dealer (including dealers who are not participating in the Offering) may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A thereunder. Due to the restrictions on the offer and sale of securities in the United States under United States securities laws and regulations, there can be no assurance that any offer of pre-emptive rights to shareholders of Nordex to subscribe for and acquire Offered Shares will be open to U.S. holders of Offered Shares. IN CONNECTION WITH THE OFFERING, DRESDNER KLEINWORT WASSERSTEIN AND ANY OF ITS AFFILIATES, ON BEHALF OF THE MANAGERS, MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE OFFERED SHARES AT A PRICE WHICH MIGHT NOT OTHERWISE PREVAIL. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. SUCH STABILIZATION TRANSACTIONS, IF CARRIED OUT, MAY BE EFFECTED ON THE FRANKFURT STOCK EXCHANGE, THE OVER-THE-COUNTER MARKET OR OTHERWISE IN ACCORDANCE WITH GERMAN LAW AND MARKET PRACTICES, WHICH MAY DIFFER SIGNIFICANTLY FROM THE RULES AND PRACTICES GOVERNING STABILIZATION TRANSACTIONS IN OTHER COUNTRIES. Available Information If, at any time, Nordex is neither subject to Section 13 or 15(d) of the United States Securities Exchange Act of 1934, as amended (the Exchange Act ), nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder, it will furnish, upon request, to any owner of Offered Shares offered hereby, or any prospective purchaser designated by any such owner, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. Nordex will also furnish to each such owner all notices of shareholders meetings and other reports and communications that are made generally available to shareholders by Nordex. S-5

6 Service of Process and Enforcement of Judgements The Company is organized under the laws of Germany. Most of the assets of the Company are located outside the United States. In addition, all of the members of the Company s management board (Vorstand) and of the supervisory board (Aufsichtsrat) reside outside the United States and all or substantially all of their assets are located outside the United States. Investors in the Offered Shares may not be able to effect service of process in the United States upon the Company and upon the members of the Company s management board and supervisory board. As a result, it may not be possible for investors to enforce judgments of United States courts predicated upon the civil liability provisions of United States laws against the Company, the members of the Company s management board and supervisory board and their assets. The Company has been advised by its German legal counsel that there is doubt as to the enforceability in Germany of judgments of United States courts of civil liabilities predicated solely upon the laws of the United States. In addition, awards of punitive damages in actions brought in the United States or elsewhere may be unenforceable in Germany. S-6

7 Nordex AG Oberhausen, Germany Offering Memorandum March 30, 2001 for 18,000,000 bearer shares with a stated value of E1.00 per share from the capital increase against cash contributions resolved at the Company s General Shareholders Meeting on February 21, 2001 and for 13,300,000 bearer shares with a stated value of E1.00 per share to be sold by the Selling Shareholders as well as for up to 4,700,000 bearer shares with a stated value of E1.00 per share to be sold by the Selling Shareholders, if required pursuant to the Over-allotment Option granted to Dresdner Bank Aktiengesellschaft each carrying full dividend entitlement for fiscal year 2000/2001 German Securities Identification Code (WKN) ISIN DE Expected stock exchange symbol NDX and

8 Company Report in respect of 52,050,000 bearer shares with a stated value of E1.00 per share (aggregate share capital) Nos. 00,000,001 52,050,000 each carrying full dividend entitlement for fiscal year 2000/2001 i.e., from October 1, 2000 composed of 18,000,000 placed bearer shares with a stated value of E1.00 per share from the capital increase against cash contributions resolved at the Company s General Shareholders Meeting on February 21, 2001 and 13,300,000 placed bearer shares with a stated value of E1.00 per share from the holdings of Selling Shareholders German Securities Identification Code (WKN) and 20,750,000 bearer shares subject to lock-up with a stated value of E1.00 per share from the holdings of Selling Shareholders of which up to 4,700,000 bearer shares with a stated value of E1.00 per share from the holdings of Selling Shareholders have been loaned to Dresdner Bank Aktiengesellschaft in connection with an Over-allotment Option granted to Dresdner Bank Aktiengesellschaft, which will for this purpose be released under a freely tradeable securities identification code and 400,000 bearer shares with a stated value of E1.00 per share from the holdings of a Selling Shareholder made available to Dresdner Bank Aktiengesellschaft and Westdeutsche Landesbank Girozentrale as a loan in their capacity as Designated Sponsors, which will for this purpose be released under a freely tradeable securities identification code German Securities Identification Code (WKN) as well as for up 3,400,000 bearer shares with a stated value of E1.00 per share relating to subscription rights for ordinary bearer shares from the conditional capital increase resolved at the Company s General Shareholders Meeting on February 21, 2001, relating to share subscription rights of Nordex Aktiengesellschaft Oberhausen, Germany for admission to the Geregelter Markt (Regulated Market) and to trading on the Neuer Markt of the Frankfurter Wertpapierbörse (Frankfurt Stock Exchange) 2

9 Table of Contents Notice to New Hampshire Residents S-2 Forward-looking Information S-3 Presentation of Financial Information S-3 Exchange Rate Information S-3 Notice to Investors S-4 Available Information S-5 Service of Process and Enforcement of Judgements S-6 General Information Responsibility for the Contents of this Offering Memorandum/Company Report Inspection of Documents Subject of the Offering Memorandum/Company Report Summary of the Offering Memorandum Overview of the Nordex Group The Offering Selected Financial Data of the Nordex Group Earnings per Share The Offering General Information Allotment Principles, Reserved Amount Designated Sponsors Stock Exchange Listing Lock-up Agreements Stabilization Selling Shareholders Use of Proceeds German Takeover Code and Principles for the Allocation of Share Issues to Private Investors and Recognition of the Neuer Market Regulations Certification of Shares, Payment Date and Delivery Dividend Rights and Transferability of Shares Capitalization Risk Factors Risks Related to the Company Risks Inherent in the Market and Competition Legal Risks Risks in Connection with the Offering Market Environment and Regulatory Background Environmental Policy Background Regulatory Background Business Introduction and Overview The History of the Nordex Group Structure of the Nordex Group The Wind Turbine Market Competition Strategy Products and Production Services Sales and Marketing Logistics Customers and Suppliers Material Contracts Research and Development Intellectual Property Rights Management and Employees Investments

10 Insurance Policies Real Estate and Real Property Litigation Relationships with Principal Shareholders, the Babcock Borsig Group and the Pedersen Family Relationships with Babcock Borsig Group Companies Agreements with Associated Companies of the Pedersen Brothers General Information on the Company Overview Formation, Development and Reorganization of the Group Structure Additional Company-law Matters Company Name, Registered Office, Fiscal Year and Duration of the Company Objects of the Company Capital Shareholders Free Float Earnings per Share Dividends Application of Profits and Dividend Policy Notices, Paying and Depositary Agents Termination and Dissolution of the Company Formation Auditor and Auditor Auditor for the Subsidiaries Information on the Company s Subsidiaries Nordex Energy GmbH, Ostseebad Rerik Südwind Energy GmbH, Oberhausen Nordex Rotor GmbH, Rostock Nordex Automation GmbH, Oberhausen Nordex Planungs- und Vertriebsgesellschaft mbh, Bad Essen Executive Bodies of the Company, Employee and Management Share Scheme General Meetings Management Board Supervisory Board Employee and Management Share Scheme Management s Discussion and Analysis of Financial Condition and Results of Operations Historical Financial Information Overview of the Nordex Group Companies Companies Included in the Consolidation Comparison of Fiscal Years 1999/2000, 1998/1999 and 1997/ First Quarter of Fiscal Year 2000/ Taxation Taxation of Company Profits Taxation of Dividends Taxation of Capital Gains Special Rules for Credit Institutions, Financial Services Institutions and Financial Enterprises Inheritance and Gift Tax Other Taxes in Germany

11 Financial Information F-1 Combined Pro Forma Consolidated Financial Statements of Taifun AG for the twelve months ended September 30, 1998, 1999 and 2000, according to IAS F-3 Annual Financial Statements for the Abbreviated Fiscal Year from August 25 to September 30, 2000, according to HGB F-35 Pro Forma Consolidated Interim Statements of Taifun AG (now Nordex AG) as of December 31, 2000, according to IAS F-41 Annual Financial Statements of Nordex GmbH (now Nordex Energy GmbH) for the Fiscal Year ended September 30, 2000, according to HGB F-64 Recent Developments and Outlook A-1 Glossary G-1 Summary of Certain Differences Among German (HGB), United States (US GAAP) and International (IAS) Accounting Principles B-1 Fundamental Differences B-1 Goodwill B-1 Tangible Assets B-2 Reserves B-2 Pension Reserves B-3 Certain U.S. Federal Income Tax Considerations B-4 Dividends B-4 Sale or other Disposition B-5 Passive Foreign Investment Company Considerations B-6 Backup Withholding and Information Reporting B-6 Underwriting and Sale B-7 5

12 General Information Responsibility for the Contents of this Offering Memorandum/Company Report Nordex Aktiengesellschaft, Oberhausen, ( Nordex AG, Nordex or the Company or, together with its consolidated subsidiaries, the Nordex Group or the Group ) and the underwriters (the Managers ) as defined in The Offering General Information of this offering memorandum/company report (the Offering Memorandum ) assume liability for the contents of this Offering Memorandum pursuant to Section 13 of the Verkaufsprospektgesetz (German Sales Prospectus Act) and Section 77 of the Börsengesetz (German Stock Exchange Act) (each in conjunction with Sections 45 et seq. of the Börsengesetz) and represent that, to the best of their knowledge, the information contained in this Offering Memorandum is correct and that no material information has been omitted. Inspection of Documents All documents that are publicly available, referred to in this Offering Memorandum insofar as they relate to the Company as well as all future annual and interim reports are available for inspection at the Company s registered office, Centroallee 265, Oberhausen, Germany, and at the offices of Dresdner Bank Aktiengesellschaft, Jürgen-Ponto-Platz 1, Frankfurt am Main ( Dresdner Bank ), during regular business hours. Subject of the Offering Memorandum/Company Report This Offering Memorandum is issued in respect of 18,000,000 new bearer shares from the capital increase against cash contributions resolved at the Ordinary General Shareholders Meeting of the Company on February 21, 2001 (the New Shares ) and 13,300,000 bearer shares from the holdings of Borsig Energy GmbH, Oberhausen, and Nordvest A/S, Give, Denmark (the Selling Shareholders ) (see The Offering Selling Shareholders ) and up to 4,700,000 bearer shares from the holdings of the Selling Shareholders (see The Offering General Information ), which will initially be made available by way of a loan to Dresdner Bank for the purpose of allotment of a greater number of shares in the placement, if bids are submitted for more than 31,300,000 Shares (the Over-allotment Option ). All Shares carry full dividend entitlement for fiscal year 2000/2001, which commenced on October 1, This Offering Memorandum also serves as a Company Report in respect of the Company s aggregate share capital amounting to EUR 52,050,000, comprised of 52,050,000 bearer shares with a stated value of EUR 1.00 each (the Aggregate Share Capital ), each carrying full dividend entitlement for fiscal year 2000/2001 which commenced on October 1, 2000, and up to 3,400,000 bearer shares relating to subscription rights for bearer shares from the conditional capital increase resolved by the General Meeting of the Company on February 21, All of the bearer shares of the Company have a stated value of EUR 1.00 per bearer share and are hereinafter referred to as Nordex Shares. Amounts contained in this Offering Memorandum in DM, Deutsche Mark, EUR, euro or E refer to the legal currency of the Federal Republic of Germany. The legally fixed conversion rate of EUR 1 = DM was fixed on December 31,

13 Summary of the Offering Memorandum The following is a summary of certain information contained in this Offering Memorandum and should be read in conjunction with the more detailed information and the financial statements of the Company, including the notes thereto (see Financial Information ) appearing elsewhere in this Offering Memorandum. As this summary may not contain all of the key information needed by investors, the entire Offering Memorandum should be read carefully. Overview of the Nordex Group The Nordex Group, comprising six domestic German and five foreign companies, develops and produces technologically advanced wind turbines with an emphasis on high performance turbines, in particular megawatt turbines. The Company regards itself as a systems developer, focused on its key capabilities: the development and engineering of large wind turbines, the development and production of controls and electrical technology for its wind turbines and the development and manufacture of rotor blades for megawatt wind turbines. In addition, the Nordex Group has positioned itself as a provider of services such as the technical planning of wind farm systems, from the identification of suitable sites to the technical implementation of wind farms, including connection to the grid, as well as the servicing of wind turbines. In the fiscal year ended September 30, 2000, the Nordex Group had an average of 573 employees and generated sales revenues of approximately E273 million and EBIT (earnings before interest and taxes) of approximately E13.2 million based on the IAS Pro Forma Consolidated Financial Statements. Nordex s overall strategy is to increase its worldwide market share through a combination of organic and external growth and to be one of the world s top three manufacturers of wind turbines. To this end, the Nordex Group intends to build upon its technological advantage in the megawatt segment and also to further expand its international presence. Nordex s strategy also focuses on increasing profitability through the introduction of more intensively industrial manufacturing. The Offering Offered Shares: The offering (the Offering ) consists of 36,000,000 shares (the Offered Shares ): (a) 18,000,000 New Shares from the capital increase against cash contributions resolved at the Ordinary General Shareholders Meeting on February 21, 2001 which was entered in the commercial register on March 30, 2001 and (b) 13,300,000 shares from the holdings of the Selling Shareholders, as well as (c) up to 4,700,000 shares from the holdings of the Selling Shareholders as part of the Over-allotment Option granted to Dresdner Bank (the Option Shares ). Lead manager: The Offering, Offering Period, Price Range and Offer Price: Dresdner Bank, with Westdeutsche Landesbank Girozentrale as co-lead manager. The Offering consists of a public offering of the Offered Shares in the Federal Republic of Germany, an international private placement outside the Federal Republic of Germany and the United States (the United States ) to non-us persons in reliance on Regulation S of the United States Securities Act of 1933, as amended (the Securities Act ) and a private placement in reliance on Rule 144A of the Securities Act ( Rule 144A ) to institutional investors in the United States by way of a 7

14 bookbuilding process. The initial price range (the Price Range ) within which offers could be placed was E11 to E14 per Offered Share and was announced on March 19, 2001 at Dresdner Bank and published in the Frankfurter Allgemeine Zeitung on March 20, 2001 and subsequently in the Bundesanzeiger (German Federal Gazette). The Price Range was subsequently reduced to E9 to E The offer period (the Offer Period ) within which offers could be made was from March 20, 2001 to March 30, The offer price (the Offer Price ) at which all Offered Shares will be settled was fixed on March 30, 2001 and will be published in the Frankfurter Allgemeine Zeitung on April 2, 2001 and subsequently in the Bundesanzeiger. Allotment: Share capital: Over-allotment Option: Stabilization: Preferential subscription rights: The Offered Shares are expected to be allotted on or before April 2, Prior to the capital increase in connection with the Offering, the Company s share capital amounted to E34,050,000, represented by 34,050,000 bearer shares with a nominal value of E1.00 per share; following the implementation of the capital increase in connection with the Offering, the Company s share capital amounts to E52,050,000 and is represented by 52,050,000 bearer shares with a nominal value of E1.00 per share. Dresdner Bank has been granted an option to acquire up to 4,700,000 shares loaned by the Selling Shareholders to cover the Over-allotment Option in full or in part on the same terms applying to the 31,300,000 Offered Shares within 30 calendar days following the commencement of trading of the Offered Shares for trading on the Neuer Markt of the Frankfurt Stock Exchange. In connection with this Offering, Dresdner Bank, as stabilization agent, may, on behalf of the Managers and in accordance with general market practice, exercise the Over-allotment Option or perform other transactions affecting the Company s shares and/ or any derivatives relating to the shares which might stabilize the market price of the shares or any derivatives relating to the shares or maintain the price at a level that would not be possible without the implementation of such measures. Dresdner Bank will be responsible for the technical implementation of such measures; stabilization measures may not be undertaken any later than 30 days after trading has begun in the Company s shares. These measures may be discontinued at any time. Up to 2,760,000 of the Offered Shares, representing up to 8.8% of the Offered Shares, excluding the Option Shares, were reserved for preferential subscription by the shareholders of BDAG Balcke-Dürr AG in Oberhausen ( Bakcke-Dürr AG ), with the exception of Babcock Borsig Beteiligungs GmbH shareholders. Balcke-Dürr AG shareholders have the preferential right to acquire one share in Nordex AG for every two shares they hold in Balcke-Dürr AG. Preferential allocation: Up to a total of 626,000 additional shares, representing up to 2% of the Offered Shares (excluding the Option Shares), were offered to the employees of the Nordex Group, the members of the 8

15 Management Board of Nordex AG and the managing directors of Nordex AG subsidiaries and business partners by way of a preferential allotment; an offer of preferential allotment was not made to members of the Supervisory Board of the Company. Listing: Use of proceeds: There has been no public trading of shares of Nordex AG prior to the Offering. The shares of Nordex AG were admitted to the Geregelter Markt on March 30, 2001 for trading on the Neuer Markt of the Frankfurt Stock Exchange. Trading on the Neuer Markt is expected to commence under the symbol NDX on April 2, Nordex plans to use the net proceeds of the Offering for general business purposes, primarily to strengthen its position on the global market through further developments in technology and the development of new products, as well as through internal and external growth. In addition, the proceeds will be used to reduce the Group s liabilities. In particular, substantial funds from the net proceeds of the Offering will be used in the further development of the Nordex Group s technologies and invested in the development of new products. Nordex AG also intends to use a further substantial proportion of the net proceeds of the Offering to expand the Nordex Group s production capacity and to increase production of rotor blades. Of the Company s approximately E92.6 million liabilities to the Babcock Borsig Group, E75 million are intended to be repaid out of the net proceeds of the Offering. The remaining E17.6 million will not be repaid any earlier than the date six months from the first day of trading of the Offered Shares on the Neuer Markt. In the Company s opinion, repayment of these debts will not affect its planned growth for the period through fiscal year 2002/2003. Finally, Nordex intends to finance possible acquisitions from the proceeds of the Offering, provided and to the extent that individual acquisitions are not financed by granting shares to the seller. The pro rata proceeds from the Offering of the shares will be paid to the Selling Shareholders after the costs to be borne by them have been deducted. Lock-up Agreements: Nordex AG has irrevocably agreed with Deutsche Börse AG, and the Selling Shareholders of the Company have irrevocably agreed with Nordex AG that, in accordance with the relevant provisions of the German Stock Corporation Act, they will not either directly or indirectly offer any Nordex shares on or off a stock exchange, sell or market any Nordex shares nor take any other measures which have the economic effect of a sale for a period of six months commencing on the first day of trading of the Offered Shares on the Neuer Markt, expected to take place on April 2, In addition, the Company has agreed with Dresdner Bank, for an additional period of six months to neither (a) directly or indirectly issue, sell, offer, contract to sell or otherwise dispose of or make an offer relating to any shares of the Company or other securities or uncertified rights which are convertible into or 9

16 exchangeable for shares of the Company or which represent the right to receive shares of the Company, in particular (i) to utilize authorized capital or (ii) propose a capital increase to the General Shareholders Meeting, nor (b) to conclude any transactions (including derivatives transactions) that have the same economic effect as a sale of the Company s shares, without the prior written approval of Dresdner Bank, which can only be withheld for good cause. The Selling Shareholders have also agreed, for a period of 12 months commencing on the first day of trading of the Offered Shares on the Neuer Markt, to (a) neither initiate nor approve the measures named in the preceding paragraph and to (b) neither directly nor indirectly offer, sell or market the shares of the Company remaining in their possession or other securities that are convertible into or exchangeable for shares of the Company or which represent the right to receive shares of the Company (or any other transactions that have the same economic effect as a sale, including derivatives transactions), without the prior written approval of Dresdner Bank, which can only be withheld for good cause. This agreement (the Lock-up Agreement ) does not apply to (i) the Company s capitalization measures, which the Frankfurt Stock Exchange has exempted from the lock-up according to Section of the rules and regulations of the Neuer Markt or to (ii) the sale of shares of the Company by the Selling Shareholders to one or more strategic investors, insofar as the purchasers subject themselves to the lock-up for the remainder of the term of the Lock-up Agreement. Entitlement to dividends: Voting rights: Payment and delivery: Designated Sponsors for the Neuer Markt: German Securities Code Number (WKN): The Offered Shares have full dividend rights from the fiscal year 2000/2001 (i.e., as of October 1, 2000). Each Nordex share entitles the holder to one vote at the General Shareholders Meeting. The delivery of the shares, in book-entry form, against payment of the Offer Price plus the usual securities commission is expected to be made on April 4, 2001 through Clearstream Banking AG, Frankfurt am Main. Dresdner Bank and Westdeutsche Landesbank Girozentrale. The German Securities Code (WKN) for the shares admitted to immediate trading is , the interim German Securities Code (WKN) for the shares from the holdings of the Selling Shareholders that are subject to the Lock-up Agreement is The ISIN-Code is DE

17 Selected Financial Data of the Nordex Group The following overview of selected financial data of the Nordex Group should be read in conjunction with the section Management s Discussion and Analysis of Financial Condition and Results of Operations and the financial data contained in the Financial Information of this Offering Memorandum, which contain more detailed information. The selected financial data is based on the IAS Pro Forma Consolidated Financial Statements and the IAS Pro Forma Consolidated Interim Financial Statements, each of which have been prepared in accordance with International Accounting Standards ( IAS ). BDO Deutsche Warentreuhand Aktiengesellschaft audited the Company s IAS Pro Forma Consolidated Financial Statements and issued these with an audit opinion. BDO Deutsche Warentreuhand Aktiengesellschaft reviewed the IAS Pro Forma Consolidated Interim Financial Statements prepared by the Company as of December 31, Due to the migration of the Company s IT systems to SAP R3, the comparative figures as of December 31, 1999 contained in these IAS Consolidated Financial Statements are based solely on the Company s subsequent statistical records. These comparative figures were not reviewed by BDO Deutsche Warentreuhand Aktiengesellschaft. The historical results presented only provide a limited indication of the results which can be expected in the future since Nordex has only existed in its current legal form for a short time and the statements were thus prepared on the basis of assumptions (see Management s Discussion and Analysis of Financial Condition and Results of Operations Companies included in the consolidation and Risk factors Reorganization of the Nordex Group ). Income statement September 30, 1998 IAS Pro Forma Consolidated Financial Statements as of September 30, 1999 (audited) September 30, 2000 thousands of euro (E) IAS Pro Forma Consolidated Interim Financial Statements as of December 31, 2000 (unaudited, reviewed) Net sales 82, , ,670 63,004 Total operating performance 85, , ,191 69,129 Cost of materials 66, , ,777 50,766 Personnel expenses 6,000 12,751 19,206 5,695 Interest and similar expenses , Profit from ordinary operations 2,481 10,123 10,349 1,005 Balance sheet Fixed assets 4,479 12,822 21,447 41,803 Current assets 24,873 86, , ,536 Total assets 29,395 81, , ,847 Equity 7,146 12,663 16,014 37,134 Current liabilities and accruals (Maturity up to 1 year) 21,574 65, , ,422 Long-term accruals and liabilities Other financial obligations, (Maturity 1-5 years) 797 2,750 2,178 1,135 Earnings per Share The Company was founded on August 25, 2000 and was entered in the commercial register on September 19, Under the assumption that 34,050,000 bearer shares had already been issued at the beginning of the fiscal year 1997/1998, the earnings per share would have been as follows: Fiscal year 1997/ 1998 Fiscal year 1998/ 1999 Fiscal year 1999/ 2000 Net profit in E millions Number of Nordex AG s shares 34,050,000 34,050,000 34,050,000 Earnings per share in E

18 The Offering General Information The 18,000,000 New Shares from the capital increase against cash contributions resolved by the Ordinary General Shareholders Meeting on February 21, 2001, for which Selling Shareholders statutory subscription rights were excluded, and the 13,300,000 bearer shares from the holdings of Selling Shareholders, of which 10,636,305 are from the holdings of Borsig Energy GmbH and 2,663,695 are from the holdings of Nordvest A/S and to the extent that the Over-allotment Option is exercised up to 4,700,000 Option Shares (of which up to 3,758,694 are from the holdings of Borsig Energy AG and up to 1,941,306 are from the holdings of Nordvest A/S) were offered for sale without obligation by the Managers under the leadership of Dresdner Bank and Westdeutsche Landesbank Girozentrale as Joint Lead Managers and by BHF-BANK Aktiengesellschaft, COMMERZBANK Aktiengesellschaft and Bayerische Hypo-und Vereinsbank Aktiengesellschaft (the Managers ) during the Offer Period from March 20, 2001 to March 30, 2001 in the Federal Republic of Germany by way of a public offering and outside the Federal Republic of Germany and the United States by way of an international private placement in reliance on Regulation S of the Securities Act and to institutional investors (qualified institutional buyers) in the United States to non-u.s. persons by way of a private placement in reliance on Rule 144A in the context of a bookbuilding process within a Price Range of E9 to E11.50 per offered share, following a reduction of the Price Range from E11 to E14 per offered share. The Price Range was initially announced on March 19, 2001 during a press conference at Dresdner Bank and published in the Frankfurter Allgemeine Zeitung on March 20, 2001 and subsequently in the Bundesanzeiger (German Federal Gazette). The reduction of the Price Range was published on March 27, 2001 in the Frankfurter Allgemeine Zeitung and subsequently in the Bundesanzeiger. Purchase offers were accepted for whole shares only, in quantities of at least 50 shares, and could be submitted without a limit or with limits denominated in 25 cents, 50 cents, 75 cents or whole euro amounts within the applicable Price Range. Unlimited purchase offers were treated as limited purchase offers at the upper end of the Price Range. Upon submission of their purchase offers, prospective investors obligated themselves to purchase shares at a price below their price limit. The Offer Price of E9 per offered share, at which the 18,000,000 New Shares and the 13,300,000 shares from the holdings of the Selling Shareholders and if the Over-allotment Option is exercised the 4,700,000 Option Shares will be settled was determined on March 30, 2001 on the basis of purchase offers received by the end of the Offer Period. The Offer Price is expected to be published in the Frankfurter Allgemeine Zeitung on April 2, 2001 and subsequently in the Bundesanzeiger. Purchase offers were received without obligation by the Managers during normal business hours and subject to the entry into the commercial register of the capital increase against cash contributions. In particular, in the event that the number of Offered Shares is insufficient to cover all purchase orders at the Offer Price, the Managers reserve the right to reject purchase orders, in whole or in part. Investors who have submitted a bid through one of the Managers may obtain information on the number of shares allocated to them from that Manager as from April 2, Dresdner Bank has been granted an Over-allotment Option to acquire up to 4,700,000 shares loaned by the Selling Shareholders to cover the Over-allotment Option in full or in part on the same terms applying to the 31,300,000 Offered Shares within 30 calendar days following the commencement of trading of the Offered Shares on the Neuer Markt of the Frankfurt Stock Exchange. The 18,000,000 New Shares were acquired by Dresdner Bank in exchange for payment of their issue price of E1.00 per share, for the account of the Managers, with the obligation to ensure their placement at the Offer Price. The difference between the issue price and the Offer Price of the 18,000,000 New Shares less the commission and expenses of the Managers to be borne by the Company, will be paid to the Company (see Use of Proceeds ). The proceeds from the offer of the 13,300,000 shares from the holdings of Selling Shareholders and the up to 4,700,000 Option Shares made available as a loan from the holdings of the Selling Shareholders if the Over-allotment Option is exercised will be paid to the Selling 12

19 Shareholders. In each case, the costs of this offer will be deducted before the proceeds of the Offering are made available. The up to 36,000,000 Nordex shares offered for sale, and a further 400,000 shares which will be loaned to Dresdner Bank in its capacity as Designated Sponsor by a Selling Shareholder, have been assigned the German Securities Code (WKN) and ISIN DE The 16,050,000 bearer shares, which are subject to Lock-up Agreements in accordance with the Neuer Markt rules and regulations in the same way as the 400,000 shares released by their Securities Code Number for the activities of a Designated Sponsor, will be offered under German Securities Code Number The nominal value of each bearer share is E1.00. Allotment Principles, Reserved Amount No agreements relating to the allotment procedure existed between Nordex AG and Dresdner Bank at the beginning of the Offer Period, except for the preferred allotment for preferential subscription rights and preferential allotment described below. The Company and the Managers will observe the Principles for the Allocation of Share Issues to Private Investors (the Principles of Allotment ) published by Germany s Börsensachverständigenkommission (Stock Exchange Committee) at the Bundesministerium der Finanzen (German Federal Finance Ministry) on June 7, Nordex AG and the Managers expect to determine the detailed provisions of the allotment principles by April 2, 2001 and expect to publish them as required by the Principles of Allotment on April 4, Up to 2,760,000 shares were reserved for preferential subscription rights to be granted to the shareholders of Balcke-Dürr AG, with the exception of Babcock Borsig Beteiligungs GmbH shareholders, representing up to 8.8% of the Offered Shares, excluding the Over-allotment Option and if the Overallotment Option is exercised in full, 7.7% of the Offered Shares. The shareholders of Balcke-Dürr AG were offered one share in Nordex AG, under the conditions of the Offering for every two shares they hold in Balcke-Dürr AG. Details on exercising the preferential subscription rights were published by Balcke-Dürr AG on March 17, 2001 in the Frankfurter Allgemeine Zeitung and in Wertpapiermitteilungen, and on March 20, 2001, in the Bundesanzeiger and were also communicated to Balcke-Dürr AG s shareholders through their custodial banks. Up to 626,000 shares were reserved for preferential allotment to the employees of the Nordex Group, the Company s Management Board, the managing directors of Nordex AG s subsidiaries and business partners. This represents up to 2% of the Offered Shares (excluding the Over-allotment Option) and up to 1.73% of the Offered Shares if the Over-allotment Option is exercised in full. No offer of preferential allotment was made to the Company s Supervisory Board members. If the employees of the Nordex Group and the members of the Management Board of Nordex AG took advantage of the opportunity to acquire preferential allotments, they were offered a preferential allotment of Nordex shares, depending on their respective purchase offers, with a total selling price of a maximum of E10,000 per recipient. Business partners were granted the opportunity to subscribe for Nordex shares under this preferential allotment up to a selling price of E15,000 per recipient. Otherwise, the general terms of sale, including the Offer Price to be paid by all other investors, also applied to the preferential allotment. Designated Sponsors Dresdner Bank and Westdeutsche Landesbank Girozentrale have been appointed by the Company as designated sponsors (the Designated Sponsors ) for the Neuer Markt. Stock Exchange Listing Application has was for admission to the Geregelter Markt for trading on the Neuer Markt all of Nordex AG s original capital amounting to E52,050,000 and the up to 3,400,000 bearer shares with regard to option rights for bearer shares from the contingent capital increase against cash contributions resolved by the General Shareholders Meeting on February 21, The admission for trading was approved on March 30, 2001 by the Listing Committee of the Frankfurt Stock Exchange and trading on the Neuer Markt is expected to commence under the symbol NDX on April 2,

20 Of the bearer shares to be admitted for trading, 16,050,000 shares from the holdings of the Selling Shareholders with German Securities Code (WKN) and the 4,700,000 Option Shares and a further 400,000 shares which have been loaned for the Over-allotment Option and for the activities of the Designated Sponsor and released by their Securities Code are subject to a Lock-up Agreement in accordance with the Neuer Markt rules and regulations and to the Lock-up Agreement agreed between Dresdner Bank and the Selling Shareholders (see Lock-up Agreements ). The 16,050,000 shares held by the Selling Shareholders and to the extent that the Over-allotment Option is not exercised the 4,700,000 Option Shares will be listed under this Securities Code until the lock-up period expires and will not be included in the initial listing scheduled for April 2, On the day the lock-up period expires, which is expected to be October 3, 2001, these shares will be assigned the German Securities Code (WKN) and subsequently included in the listing. Lock-up Agreements Nordex AG has irrevocably agreed with Deutsche Börse AG, and the Selling Shareholders have irrevocably agreed with Nordex AG that, in accordance with the relevant provisions of the German Stock Corporation Act, they will not either directly or indirectly offer any Nordex shares on or off a stock exchange, sell or market any Nordex shares or take any other measures which have the economic effect of a sale for a period of six months commencing on the first day of trading of the Offered Shares on the Neuer Markt, expected to be April 2, In the case of an infringement of the Lock-up Agreements, the Selling Shareholders have agreed with Deutsche Börse AG to pay a contractual penalty. This penalty is calculated as the difference between the Offer Price and the proceeds of the sale or, where the proceeds of such sale do not exceed the Offer Price, the difference between the acquisition cost and the Offer Price. In accordance with Sections and (1) of the Neuer Markt rules and regulations, Deutsche Börse AG may exempt Nordex AG from the lock-up on the basis of a justified application by the Company. In addition, the Company has agreed with Dresdner Bank, in accordance with the provisions of the German Stock Corporation Act, for an additional period of six months, to neither (a) directly or indirectly issue, sell, offer, contract to sell or otherwise dispose of or make an offer relating to any shares of the Company or other securities or uncertified rights which are convertible into or exchangeable for shares of the Company or which represent the right to receive shares of the Company, in particular (i) to utilize authorized capital or (ii) propose a capital increase to the General Shareholders Meeting, nor (b) to conclude any transactions (including derivatives transactions) that have the same economic effect as a sale of shares, without the prior written approval of Dresdner Bank, which can only be withheld for good cause. This Lock-up Agreement does not apply to the Company s capitalization measures (e.g. capital increases against non-cash contributions), which the Frankfurt Stock Exchange has exempted from the lock-up pursuant to Section of the rules and regulations of the Neuer Markt, provided the purchaser of any such new shares agrees to comply with the lock-up rules for the remainder of the term of the Lock-up Agreement. The Selling Shareholders have also agreed with Dresdner Bank, for a period of 12 months, commencing on the first day of trading of the Offered Shares on the Neuer Markt, to (a) neither initiate nor approve the measures named in the preceding paragraph and not to (b) offer, sell or market the shares remaining in their possession or other securities that are convertible into or exchangeable for shares of the Company or which represent the right to receive shares of the Company without the prior written approval of Dresdner Bank, which can only be withheld for good cause; this restriction also applies to any other transactions that have the same economic effect as a sale, including derivatives transactions. This Lock-up Agreement does not apply to the Company s capitalization measures (e.g. capital increases against non-cash contributions) or the sale of Nordex shares by the Selling Shareholders to one or more strategic investors, insofar as the purchasers subject themselves to the lock-up rules for the remainder of the term of the Lock-up Agreement. The Nordex shares held by the Selling Shareholders to the extent that they are not made available to the Designated Sponsors to fulfill their duties as sponsors and are released for this by their Securities 14

21 Code will be held under a separate Securities Code (WKN ) and will not be included in the initial listing expected on April 2, Selling Shareholders can also make Nordex shares available to the Designated Sponsors as a loan at any time against remuneration, if requested by the Designated Sponsors. These shares, which will be released by their Securities Code Number in this case, may only be used by the Designated Sponsors to perform their duties and will be reassigned to the Selling Shareholders after the expiration of the securities loan. The granting of stock options in the context of the Company s employee and management equity compensation plan is not affected by the restrictions outlined above. Stabilization In conjunction with this Offering, Dresdner Bank, as the stabilization agent, may, on behalf of the Managers and in accordance with general market practice, exercise the Over-allotment Option or perform other transactions affecting the Company s shares and/or any derivatives relating to the shares which might stabilize the market price of the shares or any derivatives relating to the shares or maintain the price at a level that would not be possible without the implementation of such measures. Dresdner Bank will be responsible for the technical implementation of such measures; stabilization measures may not be undertaken any later than 30 days after trading has begun in the Company s shares. These measures may be discontinued at any time. Selling Shareholders Nordex AG is owned by Borsig Energy GmbH (80.5%) and Nordvest A/S (19.5%). Following the Offering, not including the exercise of the Over-allotment Option and the related capital increase, the interests in the share capital of Nordex AG held by Borsig Energy GmbH and Nordvest A/S will decline to approximately 32.22% and approximately 7.64%, respectively. If the Over-allotment Option is exercised in full, Borsig Energy GmbH and Nordvest A/S will hold approximately 25.00% and approximately 5.84% of the share capital of Nordex AG, respectively. Borsig Energy GmbH is a wholly-owned subsidiary of Balcke-Dürr AG, a listed company. In turn, Babcock Borsig AG, a listed company, holds an interest of approximately 67% in Balcke-Dürr AG. Use of Proceeds The proceeds from the placement of the 18,000,000 New Shares offered by the Company amount to approximately E162 million. The total costs of the Offering, including commissions paid to the Managers amounting to approximately E13.6 million, will amount to approximately E19 million, of which, approximately E9.5 million will be borne by the Company. The net proceeds of approximately E152.5 million will be used for general business purposes, primarily to strengthen Nordex s position on the global market through further developments in technology and development of new products, as well as through internal and external growth. In addition, a portion of the net proceeds will be used to reduce Group s liabilities. In particular, substantial funds from the net proceeds of the Offering will be used in the further development of the Nordex Group s technologies and invested in the development of new products. Nordex AG also intends to use a further substantial proportion of the net proceeds of the Offering to expand the Nordex Group s production capacity and to increase production of rotor blades. Of the Company s approximately E92.6 million liabilities to the Babcock Borsig Group, E75 million are intended to be repaid out of the net proceeds of the Offering. The remaining E17.6 million will not be repaid any earlier than the date six months from the first day of trading of the Offered Shares on the Neuer Markt. In the Company s opinion, the repayment of these liabilities will not affect the growth forecast for the entire forecast period of the business plan, i.e. through fiscal year 2002/2003. Finally, 15

22 Nordex intends to finance possible acquisitions from the net proceeds of the Offering, provided and to the extent that individual acquisitions are not financed by granting shares to the seller. The net proceeds from the placement of the shares belonging to the Selling Shareholders, and of the Option Shares, will accrue to the Selling Shareholders. Approximately E119.7 million, less the costs to be borne by them, will accrue to the Selling Shareholders from the sale of their 13,300,000 existing shares. If the Over-allotment Option granted to Dresdner Bank is exercised in full, the Selling Shareholders will receive, in addition, up to approximately E42.3 million from the sale of the up to 4,700,000 Option Shares made available by them. The costs of the placement of the existing shares and the Option Shares will be borne by the Selling Shareholders. German Takeover Code and Principles for the Allocation of Share Issues to Private Investors and Recognition of the Neuer Market Regulations In accordance with Neuer Markt regulations, Nordex AG has recognized the Übernahmekodex (German Takeover Code) issued by the German Stock Exchange Committee at the German Federal Finance Ministry and has agreed to observe the Principles of Allocation. In addition, the Company has agreed with Deutsche Börse AG to recognize the current version of the Neuer Markt regulations as binding. Certification of Shares, Payment Date and Delivery The shares are represented by global certificates, lodged with Clearstream Banking AG, Frankfurt am Main as the securities clearing and deposit bank. The shares will be credited to the shareholders in collective securities accounts. In accordance with the Articles of Association, shareholders are not entitled to physical shares certificates. The delivery of the shares, in book-entry form, against payment of the Offer Price plus the usual securities commission is expected to be made on April 4, 2001 through Clearstream Banking AG, Frankfurt am Main. Dividend Rights and Transferability of Shares The shares offered in this Offering Memorandum have full dividend rights from the current fiscal year 2000/2001 (i.e., as of October 1, 2000) and are freely transferable bearer shares. 16

23 Capitalization The following table presents the capitalization of the Company as of September 30, 2000 and as of December 31, 2000, in accordance with IAS. The table should be read in conjunction with the sections in this Offering Memorandum entitled Management s Discussion and Analysis of Financial Condition and Results of Operations and the HGB financial statements of Taifun AG (now Nordex AG), in respect of which an audit report was issued, the audited IAS Pro Forma Consolidated Financial Statements and the unaudited IAS Pro Forma Consolidated Interim Financial Statements, both of which have been reviewed by the auditors, included elsewhere in this document. Nordex AG HGB (audited) Nordex Energy GmbH (IAS) (unaudited) Group Pro Forma (audited) as of Sept. 30, 2000 as of Dec. 31, 2000 EUR thousand Group Pro Forma (unaudited, reviewed) As Adjusted 1 Total long-term liabilities Subscribed capital ,050 52,050 Capital reserves 0 6,047 6,047 3, ,577 Accumulated profits/losses -2 10,518 9, Equity 48 16,618 16,014 37, ,134 Total capital reserves 48 16,618 16,331 37, ,134 1 Reflects the capitalization of the Nordex Group as of December 31, 2000 as adjusted to reflect the issue of the 18 million New Shares in the Offering, as if the Offering had occured on December 31,

24 Risk Factors Prospective investors should carefully consider the specific risk factors set forth below, in addition to the other information contained in this Offering Memorandum, before making a decision to purchase Offered Shares in the Offering. Risks Related to the Company Reorganization of the Nordex Group The Nordex Group has only existed in its current legal form for a short time. After the formation of Nordex AG on August 25, 2000, several companies from the wind energy systems division of the Balcke-Dürr Group were merged into the Group with the aim of consolidating the Balcke-Dürr Group s wind energy activities under the centralized management of Nordex AG as a holding company. Accordingly, Nordex Automation GmbH s business activities that were not related to wind energy were spun-off to a Babcock Borsig Group company by way of a transfer of net assets. The Nordex Group, therefore, has no historical financial data as a consolidated group, and its IAS Pro Forma Consolidated Financial Statements are therefore only of limited value for comparisons. The new corporate structure, which was necessary in order to integrate the merged companies under the centralized management of Nordex AG, including company-wide internal and external planning, financial control and reporting systems, is still being established. As is commonly the case with young, high-growth companies, this effort will require a high level of human and financial resources. There can be no assurance that the rapid integration of these companies will succeed or will have the desired effect over the long term. If this effort were to be unsuccessful or delayed, the business, financial condition and results of operations of the Nordex Group could be materially adversely affected. Holding Structure and Profit and Loss Transfer Agreements The Nordex Group in its current corporate structure was recently formed from the merger of several of the Group s affiliates (see General Information on the Company Formation, Development and Reorganization of the Group Structure ). Nordex AG, which was formed in August 2000, currently functions solely as a holding company. The Company s assets, therefore, currently consist primarily of interests in its operating subsidiaries. As a result, Nordex AG is principally dependent on the receipt of dividends and distributions from its operating subsidiaries to cover its operating and other expenses and, if necessary, to pay dividends and distributions to its shareholders. For this reason, Nordex AG has concluded profit transfer and, in some cases, control agreements with its five directly held subsidiaries. In addition, Nordex AG has also undertaken to cover possible losses incurred by its subsidiaries, which could lead to a reduction in Nordex AG s net profits available for distribution as dividends. As a result of these arrangements, if the dividends and distributions Nordex AG receives from its subsidiaries are lower than anticipated, this could have a material adverse effect on Nordex AG s business, financial condition and results of operations. Organizational Structure, Accounting, Management of Growth Because the Nordex Group was created very recently, the management and organizational structure of the Group is still being established. The Chairman of Nordex AG s Management Board, Dr. Dietmar Kestner, the Chief Financial Officer Rudolf Schulz, and the Vice-President for Sales, Carsten Pedersen, who has been active in the wind energy sector since the mid-1980s, have only been employed by Nordex AG since the end of In addition, due to the reporting requirements necessitated by the Offering, the Company s financial and accounting systems will be subject to increased demands in the future, as the Company complies with International Accounting Standards. The Group s accounting and bookkeeping systems, its reporting systems and the cost accounting data on which these systems are based do not yet completely meet these increased demands (see Management s Discussion and Analysis of Financial Condition and Results of Operations First Quarter of Fiscal Year 2000/2001 ). Because the Nordex Group was not restructured until the end of 2000, it has so far only been able to adapt certain of its 18

25 organizational structures to meet these demands. This has resulted in a strong dependence on human and technical resources from outside the Nordex Group, in particular from Borsig Energy GmbH. In addition, problems could arise with respect to the Group s ability to recruit suitable professional staff, which could have adverse consequences for the rapid establishment of the necessary structures. The planned internal and external growth of the Nordex Group also requires the continual adaptation of its organizational structures. In order to be able to manage this planned growth, the Management Board and Supervisory Board intend to develop their human resources and technical and organizational structures, especially in terms of accounting, planning and operational and financial control systems. Moreover, the Company s risk management system for early identification of adverse developments has not yet been set up completely. The Company will be faced with considerable organizational challenges to its ability to effectively manage its current and future growth. There can be no assurance that delays in adapting and expanding existing structures, and in introducing new organizational measures or new internal systems, will not have adverse effects on the business, financial condition and results of operations of the Nordex Group. Furthermore, there can be no assurance that additional structural measures beyond those currently planned will not prove necessary, a situation that could result in an increase in the operating expenses of the Nordex Group, which in turn could have a material adverse effect on its business, financial condition and results of operations. Dependence on a Key Product The future development of the Nordex Group will depend on the acceptance of wind turbines, which are comparatively new products. Nordex AG s subsidiaries have focused on the development and manufacture of wind turbines since The future market acceptance of the Group s products is difficult to assess, particularly in the case of the newly-developed Nordex N-80, currently the world s largest production wind turbine. The N-80 was first offered for sale in Spring 2000, and, as of February 28, 2001, only four units had been completed and put into commission. In addition, the potential sales that could be generated from wind turbines produced by the Nordex Group are largely dependent on governmental support for power generation from wind energy (see Legal Risks Governmental Regulation ). There can be no assurance that the Company s efforts to market its products, which will result in it incurring considerable costs, will bring anticipated results or that the Company will reach its strategic goal of establishing this new technology as the standard for the wind energy sector. If the Company is unable to reach its goal of selling its new products in a greater scope than previously achieved, and thereby improve its market position, the Company s business, financial condition and results of operations could be materially adversely affected. Technical Risks and Technologies Utilized The operation of wind turbines is subject to technical and physical risks, especially considering that for some models, such as the Nordex N-80, there is no experiential data on long-term, full-time operation. For this reason, no definitive statements can be made about the service life of such wind turbines or their components, or about their long-term operational reliability. While the direct risk from limited operational reliability and reduced life of wind turbines is borne by the wind farm operator, disputes between wind turbine manufacturers and wind farm operators based on actual or alleged product defects are relatively common (see Legal Risks Litigation Risk ). Because the Nordex Group sources key components for the wind turbines it produces and sells from outside suppliers, without having any control over the production process, the Group is subject to the risk that components manufactured by outside suppliers could be defective. Whether or not the Nordex Group is able to assert claims against its outside suppliers resulting from such defects is not only dependent on the respective contractual agreements, but also on the creditworthiness of the relevant outside supplier. Such defects, particularly if the Nordex Group is unable to assert claims for damages against its outside suppliers, could have a long-term adverse effect on the business, financial condition and results of operations of the Company. 19

26 The repeated occurrence of technical problems could adversely affect the profitability of planned wind farms as well as Nordex AG s market position, due to the resulting deterioration of the Company s reputation. For this reason, there can be no assurance that technical and physical risks will not have an adverse effect on the business, financial condition and results of operations of the Nordex Group. Dependence on Outside Suppliers The Company has established strategic relationships with a number of suppliers in order to concentrate its efforts on its core competencies. As a result, the Nordex Group is substantially dependent on the timely deliveries of high-quality components by outside suppliers. If the Group s orders increase, deliveries by suppliers to the Nordex Group could be delayed, which would result in the Group being unable to complete the orders on time. Accordingly, the business, financial condition and results of operations of the Company could be materially adversely affected. Furthermore, the Company s ability to provide products may be adversely affected by capacity constraints and defective components from outside suppliers. The Group is generally unable to switch outside suppliers immediately, because some components are custom developed and produced by suppliers for the Group. Although the Company pursues a strategy of maintaining at least two to three outside suppliers for each component, the market is dominated by just a few suppliers, particularly for rotor blades. Only two rotor blade manufacturers currently meet the Nordex Group s delivery and quality requirements, so the Company is in the process of setting up in-house rotor blade manufacturing operations at its Nordex Rotor GmbH subsidiary. However, there is a risk that the Nordex Group may still have to depend on these few rotor blade manufacturers. A possible price increase resulting from the fact that the number of manufacturers is limited, or a shortage of the highquality rotor blades required by Nordex, could materially adversely affect the business, financial condition and results of operations of the Company. Establishment of In-House Production of Rotor Blades The Nordex Group did not begin setting up in-house production of rotor blades, through Nordex Rotor GmbH, until early 2000, and as a result, the Company has limited experience in this area. There can be no assurance that new production facilities will not continue to require substantial financial and human resources, or that producing rotor blades in-house will not cost more than purchasing such blades from outside suppliers. Greater independence from individual suppliers will temporarily impact the Company s resources. This is because, while the Company will have to maintain its in-house production of rotor blades to reduce its dependence on the few global rotor blade manufacturers, it will also especially have to develop the product expertise the Company considers necessary for megawatt rotor blades. If it were necessary for the Company to manufacture small series of rotor blades under unprofitable conditions for a longer period than anticipated, this would materially adversely affect the business, financial condition and results of operations of the Company. Move to a New Production Site Nordex Rotor GmbH aims to move its production activities to new assembly plants in Fall The Company will carefully plan this move with Nordex Rotor GmbH. However, there can be no assurance that this move will not result in production stoppages or a temporary reduction in production capacity. In addition, there can be no assurance that there will be no initial technical and/or organizational problems with the production of rotor blades at the new production facility. This could reduce production capacity, increase production costs and produce defects. Such problems could have a material adverse effect on the business, financial condition and results of operations of the Company. Risks Inherent in Future Acquisitions of Companies and Equity Interests, and their Integration into the Nordex Group The Company plans to acquire additional complementary companies or equity interests, and to grow organically, in order to strengthen its position in the German and international markets. A portion of the proceeds of the Offering is expected to be used for this purpose. Although Nordex AG will perform due diligence on potential targets with the care required by prudent business policy, acquisitions carry a significant business risk which could have material adverse effects on the business, financial 20

27 condition, results of operations and continued existence of the Company. The success of these acquisitions and participations, and the improvement of the Company s market position, depends, in part, on the integration into the Nordex Group of acquired companies. Even if the Company investigates the financial and legal risks associated with target companies to be acquired, agrees price adjustment clauses and receives adequate warranties from the sellers, there can be no assurance that future occurrences would not result in specific acquisitions or equity interests losing their value considerably or entirely. Such consequences could have material adverse effects on the business, financial condition and results of operations of the Nordex Group. Risk of Entry into New Markets In the fiscal year 1999/2000, the Nordex Group generated approximately 44% of its revenue outside Germany; the majority of this share was generated in Denmark, Egypt, the United States, China, Spain and Portugal. The limited number of wind turbine facilities available in Germany requires the Company to expand its business activities within and outside of Europe and to consider forming foreign subsidiaries and sales alliances. As the Company develops its global operations, it faces numerous challenges, including the burden and expense of complying with a wide variety of foreign laws and regulatory requirements, potentially adverse tax consequences, tariffs and other trade barriers, difficulties in staffing and managing foreign operations, cultural and language differences, fluctuations in currency exchange rates, increasingly complex legal product requirements and related liability issues. If the Company does not appropriately anticipate changes and continue to adapt its practices to meet these challenges, its growth could be impeded. If the Company s entry into new markets were delayed or even unsuccessful, this could materially adversely affect the business, financial condition and results of operations of the Company. Dependence on Senior Executives The financial success of the Nordex Group is largely attributable to the efforts of the managing directors of Nordex AG s subsidiaries and the leadership of senior executives employed by Borsig Energy GmbH. The future financial success of the Nordex Group depends on highly qualified managers continuing to work for the Nordex Group and furthering its interests in the long term. If such managers were to leave the Group, this could have a material adverse affect on the Group s business, financial condition and results of operation of the Group. Recruiting and Employees The successful attainment of the Nordex Group s corporate goals is heavily dependent on its ability to recruit, retain and train highly qualified employees, particularly in the areas of mechanical engineering, electrical engineering and rotor blade development. Extremely important for Nordex s continued success are employees who, in addition to training in the above-mentioned areas, have experience in designing and developing wind turbines. Suitable marketing and sales employees, who should generally have a technical background and knowledge of the particulars of wind turbine construction, are equally in demand. There is a risk that due to overall growth, particularly of the market for wind turbines, and the resulting demand for suitably trained professionals, retaining an insufficient number of qualified employees could become a barrier to growth for the Nordex Group and prevent it from reaching its goals. This could materially adversely affect the business, financial condition and results of operations of the Group. Research and Development The Nordex Group invests substantial resources in the development of its products. However, the Group does not undertake its own research activities. The Group is further developing the mechanical and electronic components of its wind turbines, in order to reduce the costs of producing electricity by building larger, more powerful and thus more efficient turbines (see Business Research and Development ). Specifically, the Group plans to make significant investments in the coming fiscal years in the development of a five megawatt offshore wind turbine. There can be no assurance that new products and the further development of existing wind turbines will be technically successful, will not experience delays, will not incur higher costs than originally expected, or will succeed on the market. 21

28 No assessment can be made based on the basis of current information available today as to whether the development of a five megawatt turbine will be technically successful. If this development were unsuccessful, the Company could be faced with substantial development costs with the possibility of no related future earnings to offset these costs. This would have material adverse effects on the business, financial condition and results of operations of the Nordex Group. Fluctuations in Quarterly Results In the past, the sales revenue and results from business activities of Nordex AG and its subsidiaries have significantly fluctuated each quarter. The Company believes the quarterly results of its business will continue to vary from quarter to quarter due to a number of factors, such as strong fluctuations in incoming orders or the timing of new or improved product launches. A large portion of the Nordex Group s operating expenses are fixed costs and cannot be adjusted according to short-term fluctuations in business activities. As a result, a decrease in sales revenue in a given quarter can have a negative impact on the results of the Nordex Group for that quarter. For this reason, there is a risk that the results from business activities of the Nordex Group in future quarters will fall below the analysts and investors expectations. As a result, the market price of the Offered Shares could be materially adversely affected. Tax Situation Nordex AG, which was formed on August 25, 2000, and the consolidated Nordex Group, have not been subject to any tax audits to date. However, some of its subsidiaries were subject to tax audits for the period from 1993 to These audits covered corporation, trade and value added tax as well as investment grants. The most recent tax audit was at Nordex Energy GmbH and took place in August Nordex Automation GmbH received notification of a pending audit, but no audit was performed, and the right reserved by the authorities to re-audit the company has since been rescinded. No audits have taken place at NPV Planungs- & Vertriebsgesellschaft mbh, Südwind Energy GmbH or Nordex Rotor GmbH. An income tax audit was performed at Nordex Automation GmbH for the period from December 1, 1991 to December 31, 1995, however, the audit did not result in any assessments. An income tax audit was also performed at NPV Planungs- & Vertriebsgesellschaft mbh for the period from August 1, 1997 to September 30, 1999, which resulted in a request for payment of additional tax amounting to E1,000. The Company believes that the tax returns submitted were complete and correct, and that the tax assessments/provisions for taxes reflect the actual circumstances, and therefore does not anticipate any significant changes to tax assessments already made resulting in the payment of additional tax in the event of an internal audit. However, the tax authorities have the right to request the payment of additional tax at a later date due to differing interpretations of the facts, which could have material adverse effects on the business, financial condition and results of operations of the Company. 22

29 Risks Inherent in the Market and Competition Competition and Market Acceptance The wind turbine business varies greatly depending on the region, but is highly competitive in certain markets. The key factors defining this competition are the capacity, reliability and quality of products, technological edge over the competition, price, the ability to fulfill local market requirements and the scope and quality of maintenance and training services. Some of the current or potential competitors of the Nordex Group have access to greater financial, technical, human, marketing, purchasing and other resources. These competitors could react more quickly to new or emerging technologies or to changes in customer requirements, or invest more resources in product development and sales, or deliver competitive products more rapidly or at a lower price than the Nordex Group (see Business Competition ). In addition, competitors could form alliances through equity investments or cooperation deals, thus making their offerings more attractive and intensifying the competition further. Such competition could lead to a decline in prices, reduced sales revenue and profit margins, and a decline in the Company s market share, which could have material adverse effects on the Nordex Group and its business, financial condition and results of operations. The level of demand for the Company s products continues to be dependent on among other things, the development of the market for wind turbines, the performance of services and the type of power generation used to satisfy demand for electricity. A key factor for the success of power generation from wind energy is the cost at which the electricity can be produced and the scope of financial support for this type of power generation (see Legal Risks Governmental Regulation ). There can be no assurance that such costs can be kept low, or that there will be continued financial support for this power generation. Discontinued support could have material adverse effects on the Company s business, financial condition and results of operations. Technological Change There is a trend in the Company s markets toward larger and more powerful wind turbines, increased efficiency and ease of maintenance, and the continuing technical development of wind turbines. The further development of products featuring new technologies by Nordex or its competitors could cause the Group s existing products to be regarded as outdated and unsaleable. The future success of the Nordex Group will depend on its ability to continually and quickly develop and launch new and improved products, which are also in step with technological developments and new standards, and meet the constantly increasing requirements of its customers. Due to uncertainty in assessing future technological developments, it is uncertain whether such products will be successful. A substantial delay in launching new products could significantly impact the ultimate success of a product and other related products, and also impede the further sale of predecessor products. There can be no assurance that the Nordex Group will succeed in launching timely, new products, that the new products launched will be accepted to any significant degree in their respective markets, or that such acceptance will endure. Each of these circumstances could have material adverse effects on the business, financial condition and results of operations of the Nordex Group. Internationalization and Foreign Exchange Factors The Nordex Group already generates a portion of its revenue and earnings in markets outside the European Union s Economic and Monetary Union, particularly in Denmark (approximately 39% of foreign revenue) in China (approximately 25%) and in the United States (approximately 14%). The subsidiaries active in foreign markets and the Chinese equity interest held by Nordex Energy GmbH have not yet been consolidated either because they were of minor importance or because Nordex did not exercise the level of control specified by the principle of control according to IAS 27. The Nordex Group generally minimizes risks from exchange rate fluctuations through applicable rate hedging transactions. In the past, the Company s receivables and liabilities in foreign currencies were inconsequential. Declining exchange rates for relevant foreign currencies could, however, affect the financial condition and results of operations adversely in the future, if the planned expansion of the Company s business abroad leads to a corresponding increase in receivables and liabilities denominated in foreign currencies, and if the rate hedging transactions do not completely cover the risk in question. 23

30 Legal Risks Litigation Risk Various Nordex Group companies are currently involved in a number of legal disputes, either pending or threatened, with a variety of customers or suppliers, including: Aerpac Aerodynamics-Product and Consultancy B.V.; ITA S.A., through a former subsidiary of Nordex Energy GmbH, Ekter Aioliki S.A.; Energiekontor Windkraft GmbH; BOREAS Energie GmbH; Wehrle Werk AG; and Atlas Energieanlagen GmbH and Gothaer Versicherungsbank VVAG, seeking recourse on guarantees or asserting claims for damages. The conflict with ITA S.A. was resolved in an out-of-court settlement, following which the pending lawsuits were withdrawn. (see Business Litigation ). The outcome of these disputes is unclear. No forecast can be made as to whether the threatened litigation can be settled out of court and whether damages will be incurred. The Company or the relevant Nordex Group companies could be found liable or required to pay considerable damages as a result of out-of-court negotiations in an amount exceeding provisions, or to pay substantial costs for the repair of defective wind turbines or wind turbine components. In addition, the Company may have to pay its own and the other party s legal costs. The Company s majority shareholder, Borsig Energy GmbH, has indemnified the Company from obligations to third parties arising from disputes currently known to it with respect to Aerpac Aerodynamic Products and Consultancy B.V., including the necessary costs of the retrofit program developed for this purpose up to an agreed maximum of DM 20 million (plus the costs of the retrofit program). The indemnity also covers claims asserted by the Danish buyer of Ekter Aioliki S.A., due to its dispute with ITA S.A. and the Companies contractually related to ITA S.A. respectively, and from disputes with Wehrle Werk AG, Energiekontor Windkraft GmbH, BOREAS Energie GmbH and Atlas Energieanlagen GmbH & Co. KG Windpark Neuruppin. Obligations to pay damages and repair turbines could have a material adverse effect on the Company s reputation, and therefore indirectly or directly, for example in the event that the maximum amount of the indemnity is exceeded, have an adverse effect on the business, financial condition and results of operations of the Company. No predictions can be made about the outcome of disputes in which the Nordex Group is suing third parties on warranties or asserting claims for damages (see Business Litigation ). If the Group companies claims are unsuccessful, the considerable expenses already paid for repairs to wind turbines would not be recovered. In addition, it is possible that the court costs incurred would have to be borne by Nordex Group companies. This could have material adverse effects on the business, financial condition and results of operations of the Company. Product Defect Risk, Product Liability The Nordex Group generally gives its customers warranties on its wind turbines, covering capacity range, maximum noise level and servicing of delivered wind turbines. Compliance with capacity range and noise level are demonstrated when wind turbines are delivered, and Nordex provides servicing for a period of two to five years from the time the turbine is delivered. There is a risk that the wind turbines developed, manufactured and sold by the Nordex Group could be defective. Although the wind turbines are tested comprehensively before delivery and ongoing production is subject to quality assurance measures, there can be no assurance that defects will not arise during the operation of wind turbines that would entitle the respective wind turbine operators to seek compensation based on warranties. The Nordex Group carries warranty insurance on its machines, generally for the duration of the warranty for the wind turbines delivered. The insurance policies cover claims by customers arising from warranties. If the problem is caused by a defective component from an outside supplier, Nordex can seek compensation from the relevant supplier (see Risks Related to the Company Technical Risks and Technologies Utilized ). However, if no claim can be asserted against a supplier, and the defect affects a large number of the relevant product or products from various wind turbine series, claims by customers based on warranties could have a material adverse effect on the business, financial condition and results of operations of the Nordex Group. 24

31 In addition, there is a risk that product liability claims could also be filed against the Company or one of its subsidiaries if third parties are harmed by defective products that were offered for sale by a Nordex Group company. Claims for damages against a Nordex Group company could have material adverse effects on the business, financial position and results of operations of the Company, particularly when these claims were not covered or not completely covered by the insurance policies purchased by the Company (see Business Insurance Policies ). In addition, malfunctions could damage the reputation of the products developed by the Company and therefore impair the marketability of its products. Insurability of Risks The Nordex Group holds insurance policies for the wind turbines it sells, which generally cover construction, manufacturing and assembly defects for which the relevant Nordex Group company is liable. Such insurance normally covers the first two years of operation of the wind turbines. Due to the Nordex Group s past high insurance claim record, there can be no assurance that the Nordex Group will be able to obtain similar insurance coverage in the future at the same or not significantly higher cost. Higher insurance premiums, or the inability to use insurance to cover expenses for repairing defective products, would have a material adverse effect on the business, financial condition and results of operations of Nordex AG, provided the Nordex Group is not able to pass on increased expenses to customers through higher prices for wind turbines. Governmental Regulation Depending on location, power generation from renewable energies can be more expensive than producing electricity from coal, natural gas, oil or nuclear fuel, so the suppliers and producers of electricity from renewable sources are often dependent on political support whether financial or legal (see Market Environment and Regulatory Background ). Any changes in the relevant regulatory environment could have an adverse effect on the markets served by the Nordex Group, which in turn would have a material adverse effect on the business, financial condition and results of operations of Nordex AG. In the past, the decrease or elimination of governmental grants and support in a country has had a sustained negative impact on the wind energy market share in that country. Although governmental development programs will likely be in effect until the ratio of wind energy-produced power to total power usage has reached a level consistent with political goals, no forecasts can be made about when this level will be reached in each country. If government support were terminated, this could make producing electricity from wind energy unprofitable. The opportunities for the Nordex Group to sell wind turbines would drop sharply, which in turn would have material adverse effects on the business, financial condition and results of operations of the Company. There can be no assurance that the currently regulations will not be amended, specifically with respect to minimum prices or undertakings to purchase a minimum volume of energy in accordance with the Act on Granting Priority to Renewable Energies (EEG). This could have a material adverse effect on the business, financial condition and results of operations of the Company. General Legal Environment and Suitable Sites Wind turbines emit noise, light effects (such as rotating shadows and reflected flashes of light from the rotor blades when the sun is shining), and ice throws in winter. Wind turbines also are sometimes regarded as detrimental to the beauty of the local environment, particularly by residents of neighboring residential areas. Laws and other regulatory measures govern the construction and operation of wind turbines (in terms of allowable noise levels, distance from buildings, and permissibility of construction projects in nature reserves). Due to these legal regulations, and the widely different wind conditions in various regions, only a limited number of suitable sites are available for wind turbines in Germany and a number of other countries. There can be no assurance that changes in regulations will not be made and that the number of suitable sites will not decline further. This could lead to a decline in investment 25

32 opportunities for wind turbine and wind farm operators, which could adversely affect the sale of wind turbines and the business, financial condition and results of operations of the Company. The EU directive amending the directive on the assessment of the effects of certain public and private projects on the environment (Directive 97/11/EC of March 3, 1997) will strengthen, and has intensified in those states where the directive has been converted into national law, the regulatory framework for the erection of wind farms. It requires that the member states of the European Union either introduce a case by case assessment which decides whether the assessment of the effects on the environment is necessary or, at their discretion, determine criteria or thresholds upon fulfilment of which an assessment of environmental compliance is required prior to the erection of a wind farm. On the basis of this directive the Federal Republic of Germany plans to introduce a regulation within this year which will provide for a preliminary examination prior to the erection of a wind farm with three or more wind turbines to ascertain whether this could have a negative impact on the environment. Among the criteria of this regulation, the legislator plans to distinguish between wind farms with three to five and wind farms with six or more wind turbines. If the proposed wind farm is found likely to have a material impact on the environment, an assessment of the effects on the environment will be prepared, generally taking up to several months. It cannot be excluded that the introduction of this regulation could lead to delays or even render impractical currently planned wind power projects. Infringement of Third-party Rights There is the risk that the Nordex Group could be involved in legal disputes based on alleged infringement of intellectual property rights claimed by third parties. Claims asserted by third parties and the resulting legal proceedings could, if successful, result in substantial claims for damages against the Group. Nordex does not have insurance to cover any such claims. Legal disputes with third parties concerning patents or other intellectual property rights could also result in the Nordex Group being required to limit or halt the manufacture, sale or use of products in which Nordex utilizes the infringed or allegedly infringed third-party intellectual property right. If the Nordex Group were affected by such disputes, this could have a material adverse effect on its business, financial condition and results of operations. Due to a patent application filed by a US-based competitor for variable-speed wind turbines, the Nordex Group is currently unable to sell a portion of the wind turbines it produces in the United States. However, the Company believes that the Group can still penetrate this market, because it can market and sell wind turbines in the United States that are not affected by this limitation. In addition, the Company believes that it could sell the affected turbines in the United States without infringing upon another company s patent by making certain technical adaptations to these turbines which could be possible with a reasonable amount of effort. Risks in Connection with the Offering Influence of Selling Shareholders, Sale of Shares After the capital increase and placement of the shares in the course of the Offering, Borsig Energy GmbH and Nordvest A/S will together hold up to approximately 40% of Nordex AG s share capital if the Over-allotment Option is not exercised. Borsig Energy GmbH and Nordvest A/S will, therefore, still be able to exert substantial influence on the Company. Borsig Energy GmbH and Nordvest A/S, especially operating together, are in a position, depending on the attendance at future General Shareholders Meetings of the Company, to strongly influence the outcome of decisions governed by the German Public Companies Act, independent of the votes of other shareholders. These decisions include matters such as the resolution on the utilization of net profits, the election and removal of Supervisory Board members, the appointment of an auditor, and corporate actions and changes to the Articles of Association. This could materially adversely affect the Company s business, financial condition and results of operations. Two of the six members of the Company s Supervisory Board are presently nominated by the Babcock Borsig Group and one of the six by Nordvest A/S, which is controlled by the Pedersen family. Borsig Energy GmbH and Nordvest A/S have agreed to exercise their rights in the Company s General 26

33 Shareholders Meeting of Nordex AG in such a way that the candidate nominated by Nordvest A/S is elected to the Supervisory Board (see Relationships with Principal Shareholders, the Babcock Borsig Group and the Pedersen Family ). After the expiry of the lock-up period for shareholders and the Lock-up Agreements entered into with Dresdner Bank (see The Offering Lock-up Agreements ), the Selling Shareholders will be able to sell their shares. If the Selling Shareholders divest extensively, this could lead to an increased number of Nordex shares available, which could be detrimental to the market price of the Company s shares. Valuation of the Nordex Group as part of the Planned Merger As part of the merger of Balcke-Dürr AG and Babcock Borsig AG, which was reported in the press and is scheduled for the second half of 2001, a valuation will be performed of the Balcke-Dürr Group in which the value of the interest held by Balcke-Dürr AG in Nordex AG will be determined. The Company anticipates that a preliminary valuation report for Balcke-Dürr AG will be published (expected at the beginning of April 2001), initially without the valuation of Nordex AG. In a second step, the value of Nordex AG will be included, taking into account the valuation established as part of the bookbuilding process and included in the above report. The valuation of Nordex AG in this expert opinion could differ from the Offer Price determined on the basis of pre-marketing and bookbuilding by Nordex AG in consultation with the Joint Lead Managers and the Selling Shareholders, and from the market price that develops following the listing, due, inter alia, to the differing legal premise behind the valuation required for the merger. Such discrepancies in valuations could have a material adverse effect on the future development of the market price of Nordex shares. High Volatility on the Neuer Markt, no Public Market for the Company s Shares The Company has applied for admission to trading on the Neuer Markt of the Frankfurt Stock Exchange, a market segment established on March 10, 1997, for innovative growth companies in Germany. The companies listed on the Neuer Markt typically have a comparatively high risk-reward ratio. For this reason, the share prices and trading turnover of such companies have often been subject to considerable volatility in the past, which is often either unrelated to the business success of such companies or not related to the degree implied by such fluctuations. The considerable volatility of shares on the Neuer Markt could have a material adverse effect on the Company s share price. Before the Offering, there was no public market for the Company s shares. The Offer Price will be determined by Dresdner Bank in consultation with the Company and the Selling Shareholders following completion of the bookbuilding process. There can be no assurance that the Offer Price will correspond to the price at which the Offered shares are traded subsequent to the Offering, nor that active trading in the Company s shares will develop and be sustained after the Offering. This could have a material adverse effect on the market price of the Company s shares. 27

34 Market Environment and Regulatory Background The market environment for the manufacture and sale of wind turbines is characterized by a range of environmental and regulatory factors, some of which vary greatly at a regional and national level. Factors having a significant effect upon the market environment are: the local wind conditions (wind regime), as wind turbines can only be operated economically in regions with appropriate wind conditions (see Business Technical Background ), and state subsidies provided for generating electricity from wind energy. The costs of generating electricity using wind energy can currently only compete with the costs of generating electricity from non-renewable energy sources in regions with excellent wind conditions, such as the coastal regions of Denmark and the UK. It is not possible to predict if and when the costs of generating electricity using wind energy in non-coastal regions, such as Germany, will be able to compete with the costs of generating electricity from conventional energy sources. In most regions, accordingly, electricity generation depends on state support for wind turbine operators to be able to run their farms economically. This support depends on the relevant environmental policies and on specific wind conditions in the region. Furthermore regional markets are at varying degrees of maturity although there are already a large number of wind turbines in operation in Germany, Denmark, The Netherlands and the US that have been erected over the last 10 years, the market for wind turbines in Spain, Greece, Egypt and China has grown, inter alia, in the last 2-3 years as these countries have introduced subsidies. The nominal output required by the various markets corresponds to the relevant market s degree of maturity. In Germany, for example, the greatest demand is for turbines with a high nominal output, whereas in markets where the electricity generation by way of wind turbines is still in its early stages, demand is for smaller turbines with a lower nominal output. In this regard, it should also be taken into consideration that establishing and operating high output wind turbines, such as the Nordex N-80 model, requires sophisticated infrastructure such as fully developed road connections, heavy lifting cranes, etc. (see Business Logistics ). Globally, the market for wind turbines depends on a small number of international manufacturers of wind turbines and accordingly, other local manufacturers have a large number of operators as potential customers (see Business Competition ). Environmental Policy Background The Earth does not have an unlimited supply of fossil energy sources such as oil and gas which are used currently, and generating electricity from fossil energy sources releases carbon dioxide (CO 2 ), which is thought to be responsible for the so-called greenhouse effect. In order to combat the greenhouse effect at a global level, the Kyoto Climate Summit was held in 1997 to further implement the commitments agreed upon at the Rio Earth Summit in Rio de Janeiro, Brazil. According to the minutes of the Kyoto Summit, the participating countries agreed to a long-term reduction of their CO 2 emissions. The minutes contain, inter alia, a resolution which provides that by 2010, all countries signing the minutes would reduce their CO 2 emissions by an average of 5% compared to the level of emissions for In addition, countries of the European Union entered into an agreement to reduce CO 2 emissions in As a result, the Federal Republic of Germany has to reduce its CO 2 emissions by up to 21% by In order to reach this target, the Gesetz über den Vorrang erneuerbarer Energien (The Act on Granting Priority to Renewable Energies (EEG)) came into effect in Germany on April 1, At European level, the Altener Program was implemented on February 28, 2000 (Decision No. 646/2000/EC of the European Parliament and the European Council). This long-term program introduced a comprehensive concept for the promotion of renewable energy. In contrast to fossil energy sources and nuclear energy, wind power is clean, inexhaustible and freely available. As a result, with the exception of investment costs, the costs of operating wind turbines are comparatively low. In the Company s view, wind energy thus represents a promising future market. 28

35 Nordex AG believes that generating energy using wind power will become an important alternative to generating electricity using fossil fuels. The Company attributes this to a number of factors: the fact that generating electricity using wind power will receive long-term state support because of political pressure; the fact that prices for fossil fuels will rise due to their increasing scarcity; and the fact that lower prices for wind turbines will cause the costs of generating electricity using wind power to continue to fall. In this regard, the Company believes that the performance of turbines will increase, and wind farms with as many as 20 turbines will be able to contribute significantly to electricity supply. Even today, a Nordex N-80 wind turbine in a location with excellent wind conditions (e.g. coastal regions in Denmark or the UK) can generate up to 8.5 million kwh per year, while at an equivalent location in Germany a similar turbine can generate approximately 6.5 million kwh per year. These figures correspond to the average consumption of approximately 1,600 and 1,200 households respectively, or approximately 6,500 to approximately 8,500 tonnes of CO 2 emissions if the same quantity of electricity were to be generated by burning coal. (Source: German Wind Energy Association 25 Facts) Regulatory Background Opportunities for the sale of wind turbines produced by the Nordex Group also depend to a significant extent on the relevant legal framework for erecting and operating these facilities in Germany and many other countries. For example, legal requirements may restrict the erection and operation of turbines. In Germany in particular, legal construction and noise emission requirements must be complied with, which can mean actual or legal restrictions on erecting or operating wind turbines in certain locations. On the other hand, certain legal incentives (those provided for by the EU in Germany, for example) could lead to an increased demand for wind turbines. The regulatory framework created by the EU in Germany, for instance, led to a substantial increase in the sale of new wind turbines in Regulatory Framework for Supplying Electricity into Networks and Promoting Renewable Energy Renewable energy is promoted in line with relevant national laws. Support ranges from regulations on supplying electricity to the network which prescribe fixed prices for electricity generated by renewable energy sources (e.g. Germany and Spain), tax credits (e.g. US) through to green certificate systems (e.g. Denmark). Promotion in Germany In Germany, the Act on Granting Priority to Renewable Energies (EEG) dated March 29, 2000, which superseded the Stromeinspeisungsgesetz (German Act on Supplying Electricity from Renewable Energies into the Public Grid) dated December 7, 1990 with effect from April 1, 2000, is of key importance to the construction of facilities for the generation of renewable energy. According to Section 1 of the EEG, the Act aims to protect the climate and the environment by enabling the growth of long-term energy supply and to substantially increase the contribution of electricity supply generated by renewable energy. The European Court of Justice has in a judgment of March 13, 2001, held that the German Act on Supplying Electricity from Renewable Energies into the Public Grid is not contrary to European Law. The Company therefore believes that it is not likely that the EEG, which supersedes that Act is contrary to European Law. The Act regulates the supply of and payment for electricity generated from wind energy and other sources (Section 2 of the EEG). In the case of such supply, the Act requires grid operators, i.e. electricity suppliers that operate grids for general supply, to connect plants that generate electricity from renewable energy sources to the grid. These suppliers must purchase electricity and pay the legally stipulated amount as prescribed by Sections 4 to 8 of the EEG. Section 7 of the EEG applies to electricity from wind energy. The Section prescribes a payment of DM (approximately EUR 0.09) per kwh for a period of five years from the date the plant commences operations. Once this period has expired, the payment requirement becomes subject to other regulations, but continues in effect. The minimum payment prescribed by Section 7 (1) of the EEG is reduced by 1.5% each year, starting on January 1, 2002, and applies to all plants that commence operations after such date. A specific regulation is in place for plants located at least three nautical miles from the coast and which are due to continue in operation up to and including December 31, 29

36 2006. The period of operation for these plants according to Section 7 paragraph 1 no. 1 of the EEG and Section 7 paragraph 2 no. 2 of the EEG, is nine years. According to Section 12 of the EEG, the Bundesministerium für Wirtschaft und Technologie (the Federal Ministry of Economy and Technology) is required to issue a report to the German parliament on the implementation of the Act by June 30 every second year following the implementation of the Act (initially on June 30, 2002) in conjunction with other ministries. In particular, ministries must make recommendations regarding any changes in payment methods to be taken into account from technological developments and market developments for new plants. A change in payment rates is possible by passing an amendment to the Act. The transmission of electricity generated using wind turbines is generally unproblematic for plant operators. This is because wind turbine operators are paid by grid operators for the electricity they supply in line with the EEG, and they are not involved in the resale and marketing of electricity once it has been fed into the grid. As a result, wind turbine operators do not therefore need to negotiate terms for the transmission of wind generated electricity (this has been known to result in litigation). Wind turbine operators will face this problem according to the EEG, if they decide not to supply electricity to the grid in order to supply customers directly. In such exceptional circumstances, plant operators may demand that grid operators transmit electricity in accordance with Section 6 of the Energiewirtschaftsgesetz (EnWG Energy Industry Act) and Section 19 (4) no. 4 of the Gesetz gegen Wettbewerbsbeschränkungen (GWB Act Against Restraints on Competition). Plant operators are then required to pay grid operators for electricity transmission. In the majority of cases, this method is not economically viable as electricity prices currently attainable are far below minimum compensation rates prescribed by Section 7 of the EEG. Nevertheless, if electricity generated using wind energy were to be subject to special marketing methods, for example as green electricity, in theory it could be possible for the price achieved to be higher than from the amount currently prescribed by law plus transmission fees. Promotion in other countries In other countries, in particular in Europe, legal regulations on electricity supply and the promotion of renewable energy that are comparable or similar to German regulations already exist (e.g. in Spain) or are being promulgated (e.g. in France). In some countries, generating electricity through wind energy is also being promoted by a system of green certificates, which the wind turbine operators receive and which they can sell to electricity suppliers, thereby enabling them to meet obligations to generate a portion of the electricity they sell in an environmentally acceptable manner. In Spain an act similar to the EEG exists (last amended in 1999), which requires electricity suppliers to purchase electricity and to make payments at a level set by the state. The price of supply is adjusted in line with changes in the price of electricity for end users, the price of oil, gas and interest rates. As a consequence, the act resulted in a price level of ESP per kwh in 2000, or approximately DM 0.123, and no changes are due in In France, an act on supplying electricity to the grid, comparable to the EEG in Germany, is in the process of being enacted. This act is scheduled to take effect in 2001, and prescribes a price of FRF 0.55 per kwh, or approximately DM 0.164, for supplying electricity to the grid for an initial period of five years. In the UK and Ireland, electricity generated from wind energy is promoted by a commitment by energy suppliers to purchase a certain minimum quantity of electricity from renewable energy sources. A purchasing organization representing energy suppliers organizes tenders for this purpose, which allow technically certified wind farm projects that can supply cost-effective electricity to be selected; these wind farms are awarded long-term electricity supply contracts. Because large areas of the UK and Ireland that offer excellent wind conditions are environmentally protected areas (national parks), developing wind farm projects is problematic, although a range of directives have been promulgated to regulate and promote the planning of such projects. 30

37 The US provides federal support for operating wind turbines by providing tax credits so-called Production Tax Credit. This credit amounts to approximately E0.161 per kwh generated from renewable energy. The US regime of granting tax benefits is scheduled to continue until the end of The Company expects this to be extended. At an individual state level, the US also supports the expansion of generating electricity using wind energy as part of a so-called Renewable Portfolio System (RPS), and promotes such generation by stipulating a legally fixed proportion of electricity that must be generated from renewable sources. A similar system is also implemented in Denmark and the UK, among others. In these cases Energy suppliers can elect to either generate electricity from renewable sources directly, or to fulfill this commitment by purchasing so-called green certificates from wind farm operators. These green certificates need to be freely tradable, in order to encourage a market for trading in certificates. However, establishing and maintaining such a trading system can run into problems when it comes to practical implementation. For example, Denmark has postponed introducing green certificates until January 2002, and has stipulated a fixed price of 1.3 Eurocents per kwh of electricity supply (approximately E0.013) until such time. Promotion of renewable energy in developing countries In developing countries, electricity generation from renewable energy sources is promoted in part by national development aid programs from industrial nations, which either fully or partially finance wind farm projects in developing countries or which grant interest-free or low-interest loans for specific purposes. In addition to national programs, the World Bank and international development aid institutions also fund programs. An additional method of advancing electricity generation from renewable energy in developing countries is granting state guarantees to safeguard the delivery of wind turbines. During the fiscal year 1999/2000 approximately 20% of all wind turbines sold by the Nordex Group were supplied under development aid programs. Legal Requirements for Constructing and Operating Wind Turbines The current legal framework does not permit wind turbines to be erected in all locations with sufficient wind conditions. In order to erect a wind turbine in Germany, a turbine must initially comply with construction, planning and building regulations, and must comply with the provisions of the Baugesetzbuch (BauGB Federal Building Code), the Baunutzungsverordnung (BauNVO Federal Land Utilization Ordinance) and the relevant state building regulations. In addition, the erection of a turbine must also meet the requirements imposed by the Bundesimmissionsschutzgesetz (BimSchG German Pollution Control Act) and regulations relating to the preservation of nature and the environment. Whether or not these regulations are fulfilled depends on the individual case. However, according to Section 35 paragraph 1 no. 6 of the BauGB, wind turbines are granted special privileges, which means that they comply with the law on planning building projects even if they are erected outside an area subject to construction planning law, where they would otherwise generally not be approved. Approval can, for example, be withheld because of side effects caused by wind turbines, such as increased noise levels. The maximum permissible noise levels are set out in the Technische Anleitung zum Schutz gegen Lärm (Technical Instructions on Noise Abatement). Maximum levels of permissible shadow cast by the wind turbines are also imposed. In future, an environmental audit will have to be carried out in certain circumstances, prior to the construction of wind farms (See Risk Factors Legal Risk General Legal Environment and Suitable Sites ). Specifications imposed by building law and other public law legal requirements for constructing and operating wind turbines also exist in many other European and Non-European countries. In Spain, for example, the entitlement to build wind turbines is regulated differently in different regions. In most of the Spanish federal states (autonomías) a legal framework for the construction of wind farms is now in place. Requirements imposed by pollution control legislation generally play a lesser role in the approval process, as the population density in most coastal regions is lower in comparison to Germany. Environmental studies and special permission are required for the 31

38 construction of wind turbines in remote areas (declaración de utilidad publica). During the approval process several public announcements, have to be made concerning the relevant wind project. Announcements issued by the authorities on the technical environmental impact of wind turbines are a decisive factor in whether planning permission (dictamen medioambiental) will be granted or not. 32

39 Business Introduction and Overview The Nordex Group develops and produces technologically advanced wind turbines with an emphasis on high performance turbines, in particular megawatt turbines. The Company regards itself as a systems developer, focused on its key capabilities: the development and engineering of large wind turbines, the development and production of controls and electrical technology for its wind turbines, and the development and manufacture of rotor blades for megawatt wind turbines. In addition, the Nordex Group has positioned itself as a provider of services such as the technical planning of wind farm systems, from the identification of suitable sites to the technical implementation of wind farms, including connection to the grid, as well as the servicing of wind turbines. The Nordex Group does not operate its own wind turbines, except for prototypes which it uses for its own development purposes. Nordex AG is a holding company. It directly holds 100% of the share capital of each of its five subsidiaries. It has a management role which involves it in exercising on a group-wide basis functions such as planning and strategy, the coordination of purchasing and sales, development and other central administrative functions. In recent years, the Nordex Group has focused on the development and production of key components for wind turbines (namely controls, grid connections and, more recently, rotor blades for megawatt wind turbines). The Group has also established a supply management function for some of the other components which are available on the open market, such as masts, gears, rotor blades (to the extent the Group does not produce these itself), the production of each of which is contracted to two to three leading outside suppliers, predominantly on the basis of long-term supply agreements. Although the Nordex Group has only been manufacturing rotor blades since early 2000, it has already succeeded in recruiting development personnel with a high level of technical expertise. The turnkey production of wind turbines and wind farms as well as their maintenance and servicing are carried out by Nordex Energy GmbH and Südwind Energy GmbH. Nordex and Südwind turbines are manufactured by Nordex Energy GmbH in Rostock, Germany. Nordex Rotor GmbH produces some of the rotor blades required for the wind turbines produced by the Nordex Group, particularly for the N-80 and N-62 models. Nordex Automation GmbH develops and produces electronic controls and the Nordex Control control software for the majority of the wind turbines Nordex manufactures, and also develops and produces electrical and electronic components for wind farms, including grid connections. NPV Planungs- & Vertriebsgesellschaft mbh handles the technical planning of wind farms as well as sales of the Nordex Group s wind turbines, principally in Germany, The Netherlands, Switzerland, Belgium and Austria. The Nordex Group s activities therefore cover most aspects of the wind power industry, other than wind farm operations from the development of sites for wind turbines through to the turnkey construction of wind farms. The Nordex Group s product line comprises turbines of all performance classes currently on the market, ranging from small wind turbines to the most powerful wind turbine in production in the world today, the N-80, which has a rotor diameter of 80m and a nominal output of 2.5 megawatts (see Products and Production ). Besides the Federal Republic of Germany, the Nordex Group s main established markets are Denmark, Spain and China. The Nordex Group has also been successful recently in selling its products in France, Greece, North America and in Egypt, where the Nordex Group is the dominant supplier of wind turbines in what is still a relatively small market. In the fiscal year ended September 30, 2000, the Nordex Group had an average of 523 employees and generated sales revenues of approximately E273 million and EBIT (earnings before interest and taxes) of approximately E13.2 million based on the IAS Pro Forma Consolidated Financial Statements. As of February 20, 2001 Nordex had produced 1,528 wind turbines. The total nominal output of these turbines is equivalent to approximately 1,013 megawatts. 33

40 The History of the Nordex Group The Nordex Group s wind energy business traces its roots back to Nordex A/S, which was founded in 1985 by the Pedersen brothers, one of whom, Carsten Pedersen, is currently a member of the Management Board of Nordex AG. In 1996, the Balcke-Dürr Group acquired a 51% stake in Nordex Energy GmbH, and thus entered the market for wind turbine production. The following are the significant milestones in the Company s development: 1985 Formation of Nordex A/S in Give, Denmark, by the Pedersen brothers. Construction of the first turbine with a capacity of 75 kw Launch by Nordex A/S of the N-27/250 kw, the largest production wind turbine on the world market at the time Formation of Nordex Energy GmbH under the name. Nordex Energie Anlagen GmbH as a sales company in Rinteln, Germany Establishment of production facilities in Rerik, Germany. Installation of the 100th Nordex wind turbine Construction by Nordex Energy GmbH of the N-54, world s first series production wind turbine in the megawatt that is now the market standard 157 N-54 wind turbines had been built by January 10, Acquisition by the Balcke-Dürr Group of a 51% stake in Nordex Energy GmbH Opening by Nordex of sales offices in Spain and China Construction of the first N-60 prototype, a further development of the N-54, with a capacity of 1,300 kw. Construction of the 1000th megawatt turbine. Formation of a joint venture in China. The Balcke-Dürr Group increased its stake in Nordex Energy GmbH to 75% and also acquired NPV Planungs- & Vertriebsgesellschaft mbh. Opening by Nordex of a sales office in Turkey Installation by Nordex of its 1000th wind turbine. Formation of Südwind Energy GmbH and Nordex Rotor GmbH. Establishment of the production center in Rostock, Germany. Formation of Nordex Ibérica Borsig Energy S.A Construction by Nordex of the first N-80, 2,500 kw turbine (currently the largest and most powerful series production wind turbine in the world) and the first S-70, 1,500 kw turbine. Formation of Nordex USA, Inc. and establishment of branch offices in Egypt and Greece. Restructuring of the Nordex Group by transfer of the current subsidiaries into Nordex AG (previously Taifun AG) Intended placement and listing of the Company s Shares. Structure of the Nordex Group Nordex AG, founded as Taifun AG in 2000, functions as the strategic holding company of the Nordex Group. Nordex AG manages and coordinates the business activities of its five wholly-owned subsidiaries and is responsible, in particular, for coordinating purchasing, sales and development activities on a world-wide basis, as well as for making decisions on the location of production sites. Further, Nordex AG provides the entire Nordex Group with cost-efficient services achieved through the centralization of management and coordination activities such as corporate planning, finance and foreign exchange management, tax planning, patent and industrial property right management, and investor and public relations, as well as management and personnel functions. The Nordex Group has organized its various business areas into five wholly-owned subsidiaries. It has done so in order to tailor the various components it produces on the supply-side to suit each of the 34

41 manufacturers, customers and suppliers active in the market, to enable each aspect of the business to have its own market presence and to be able to respond quickly to market developments through small manageable and flexible units. Nordex Energy GmbH, Rostock (moving to Norderstedt), which produces medium-sized predominantly stall-regulated and large predominantly pitch-regulated wind turbines (see Products and Production ) and constructs turnkey wind farms, has four subsidiaries of its own, all of which are wholly-owned except for Xi an Nordex Windturbines Co. Ltd., China in which it holds a 40% stake. Südwind Energy GmbH, Oberhausen, Germany also produces and sells wind turbines, although these are exclusively the pitch-regulated variant (see Products and Production ). The Nordex Group believes that it is advantageous for it to maintain a two-pronged market presence with its two different brands, Nordex and Südwind. Nordex Rotor GmbH in Rostock has been producing rotor blades, a key component of wind turbines, since February The production of rotor blades constitutes, together with the engineering and specification of the turbines, the principal area of technical knowhow involved in the manufacture of wind turbines. Nordex Rotor GmbH is also responsible for servicing and maintaining the rotor blades it manufactures. NPV Planung & Vertrieb GmbH in Norderstedt, Germany is responsible for planning wind farm projects and for selling Nordex and Südwind turbines in Germany, other German-speaking countries, Belgium and The Netherlands. Nordex Automation GmbH, Oberhausen, Germany develops and produces electronic controls, including software, and all electrical components up to the grid connection for wind turbines and wind farms. The reason for Nordex Automation GmbH s having a separate market presence is that the company handles orders for Nordex Group customers directly in addition to developing and producing components for the Nordex Group s own wind turbines. The following Chart shows the current structure of the Group: Nordex AG Oberhausen Nordex Energy GmbH Nordersted/Rerik Südwind Energy GmbH Oberhausen Nordex Rotor GmbH Rostock NPV Planung & Vertrieb GmbH Bad Essen/Nordersted Nordex Automation GmbH Oberhausen Nordex Ibérica Borsig Energy S.A. Barcelona, Spain Xi'an Nordex Windturbines* Corp. Ltd, Xi'an, China Nordex Hellas e.p.e Athens, Greece Nordex USA Inc. Dallas, USA Nordex Omnical Energy Services (Shanghai) Co Ltd. Shanghai, China * All companies are wholly-owned with the exception of Nordex Energy GmbH s 40% interest in Xi an Nordex Windturbines. Nordex Energy GmbH s subsidiaries, Nordex Ibérica Borsig Energy S.A., Nordex Hellas e.p.e., Nordex Ominical Energy Services (Shanghai) Co Ltd., Nordex USA Inc. and Xi an Nordex Windturbines Corp. Ltd., are not included in the consolidated financial statements of Nordex AG. 35

42 The Wind Turbine Market Supply of the global market for wind turbines is dominated by a small number of companies while demand is highly fragmented on a global, national and regional level. The wind turbine market is a growth market and has experienced rapid growth at times, particularly during the 1990s. As a result of extraordinary factors, growth in the United States and Spain, two major wind energy markets, declined in 2000 due to tax-related issues and unusually lengthy approval processes. In 2001, however, wind turbine manufacturers expect growth to recover strongly, both in terms of the number of turbines sold and in terms of revenues. Key factors driving growth in recent years were continuous improvement in the efficiency of wind turbines and a trend toward increasingly large and powerful turbines as well as a favorable climate in terms of tax legislation and environmental laws. As there is a limited number of suppliers of wind turbines, so the number of outside suppliers of complex components for wind turbines, such as rotor blades, is also limited. Consolidation has occurred in the area of outside suppliers as well, to such an extent that the entry into the market or the insolvency of a major outside supplier can have a noticeable knock-on effect on the price structure of individual manufacturers of wind turbines. The wind turbine market is closely linked with the market for electricity from renewable sources. In the past, the share of electricity used in Germany produced from renewable energy sources increased from approximately 4.6% in 1997 to approximately 6% in 1999, and amounted to approximately 5,528 million kw/h (Elektrizitätswirtschaft, 1999 (2000) vol. 24). According to a study by BTM Consult ApS 1 dated March 2000, newly installed megawatt capacity worldwide is expected to grow from 3,922 megawatts in 1999 to 9,175 megawatts in 2004, an increase of approximately 234%. This study also anticipates that increased cost-efficiency of wind turbines, taking account of environmental factors, will result in average annual growth of approximately 18.8% worldwide. According to a study by the Paris-based International Energy Agency (IEA) (World Energy Outlook 2000), global electricity consumption is expected to increase by approximately 32% in the period between 2000 and 2010 to approximately 19,989 TWh. According to the provisional figures from the study by BTM Consult ApS relating to 2000 (which has not yet been published), the production of electricity from wind power is expected to increase from a forecast level of TWh in 2000 to approximately TWh in A comparison of these two studies suggests that the proportion of electricity from wind energy will increase from approximately 0.27% in 2000 to approximately 1.96% in Market Development from 1997 to 1999 and in 2000 The aggregate megawatt capacity of wind turbines sold worldwide grew from approximately 7,636 megawatts in 1997 to 10,153 megawatts in 1998 and 13,932 megawatts in This statistic shows an acceleration in the increase in megawatt capacity sold and reflects the trend toward wind turbines with increasingly large nominal outputs. Whereas megawatt capacity sold rose by 33% from 1997 to 1998, it increased by 37% from 1998 to BTM Consult ApS describes itself as an independent consulting firm focusing on renewable energy sources and was formed in 1986 with its registered office in Denmark. The company s employees have, in some cases, up to twenty years experience in the wind energy market. Five years ago, BTM began producing an annual survey of the wind energy market. The sources of BTM s market data include relevant professional energy sector journals and estimates by consultants, top employees of wind turbine manufacturing companies and governmental institutions. The figures used in this document are based on a market study conducted by BTM in March 2000 relating to 1999 and the provisional figures provided by BTM from the market study relating to 2000, which is expected to be published at the beginning of April

43 The following table illustrates the annual worldwide development of newly installed megawatt capacity as well as the aggregate installed megawatt capacity for wind turbines in the past three years: Average growth 1997 to ) Newly installed megawatt capacity 1,566 2,597 3,922 4,500 Annual growth 21% 66% 51% 50.1% 15% Aggregate installed capacity (as at year-end) 7,636 10,153 13,932 18,432 Growth of aggregate installed megawatt capacity as compared to prior year 26% 33% 37% 27.5% 32% (Source: BTM Consult ApS March 2000) 1) Provisional figures from an as yet unpublished study by BTM Consult ApS relating to 2000 According to the provisional figures from a draft study currently being prepared by BTM Consult ApS relating to 2000, which has not yet been published (BTM Consult ApS February 2001 (draft)), a total capacity of 4,500 megawatts was newly installed worldwide in 2000, representing an increase of 15% on the previous year. The increase in 2000 was thus at a substantially lower rate than in previous years. In the opinion of BTM Consult ApS, this slowdown was due, in part, to developments in the US, where tax subsidies via Production Tax Credits expire at the end of 2001, and where there is currently uncertainty as to whether and in what manner electricity generation using wind energy will continue to be subsidized. However, the Company expects that the current tax subsidies will be extended. Elsewhere, the development of the Spanish market, where installations reached only approximately 1,100 megawatts, contributed to the predicted overall low increase for BTM Consult ApS believes that, in the US in particular, installed megawatt capacity will again increase considerably (source: BTM Consult ApS February 2001 (draft)). Of the 3,922 megawatt capacity which was newly installed worldwide in 1999 (prior year: 2,597 megawatts), 3,192 megawatts, or approximately 81% (prior year: 68%) was installed in Europe. In 1999, Germany was the leading European country with 1,568 megawatts of newly installed capacity (prior year: 793 megawatts), followed by Spain with 932 megawatts and Denmark with 325 megawatts. These countries thus accounted for approximately 88.5% of newly installed capacity in Europe in Asian countries accounted for only 115 megawatts in 1999 (approximately 2%; prior year: 147 megawatts, or approximately 5%). In 1999 in the United States, the third largest single market worldwide, new installations amounted to 477 megawatts, which was lower than the total in 1998 (577 megawatts). This 477 megawatts of new installations in the United States in 1999 represented 87% of newly installed capacity for the whole of the American continent, which totaled 548 megawatts (1998: 658 megawatts). 37

44 The following table illustrates newly installed megawatt capacity in selected countries and regions from 1997 to 1999 and in 2000: Total installed Newly installed megawatt capacity megawatt capacity to end 1999 Newly installed megawatt capacity (1) Country/Region Year Year Year Germany ,568 4,442 1,665 United States ,445 N/A Spain ,812 1,100 Denmark , India ,035 N/A UK N/A China N/A Greece N/A Portugal N/A France N/A Turkey N/A N/A Europe (total) 1,318 1,766 3,192 9,737 N/A Asia (total) ,376 N/A American continent (total) ,667 N/A (Source: BTM Consult ApS March 2000) (1) Provisional figures from an as yet unpublished study by BTM Consult ApS relating to 2000 According to the provisional figures from the as yet unpublished draft study relating to 2000 currently being prepared by BTM Consult ApS, Germany, Spain and Denmark were in 2000 once again the most important global markets, accounting for approximately 80% of total megawatt capacity installed in BTM Consult ApS forecasts that newly installed megawatt capacity in the United States in 2000 will prove to have been significantly lower than in the previous year (source: BTM Consult ApS February 2001 (draft)). Total megawatt capacity installed worldwide up to the end of 1999 was 13,932 megawatts (prior year: 10,153 megawatts), distributed across a total of 43,545 wind turbines (prior year: approximately 38,761 wind turbines) at the end of 1999, corresponding to an average capacity per wind turbine installed worldwide in 1999 of approximately 320 kw (prior year: c. 262 kw) (source: BTM Consult ApS March 2000). A comparison of total installed kilowatt capacity to total installed turbines shows on the one hand that the average capacity of wind turbines installed has increased significantly in recent years, but also that there are considerable country-specific differences with regard to the size of turbines installed. Whereas in Germany the average capacity of all wind turbines operated increased from an average of 623 kw in 1997 to 919 kw in 1999, the average capacity in Spain increased only from 422 kw in 1997 to 589 kw in 1999 (source: BTM Consult ApS March 2000). The following table illustrates the development of the average nominal output of installed wind turbines in selected countries: Development of average nominal output (per turbine) in kw Country Year Germany Sweden Denmark United States UK Spain (Source: BTM Consult ApS March 2000) 38

45 According to the provisional figures from the as yet unpublished draft study currently being prepared by BTM Consult ApS relating to 2000, this trend toward higher capacity wind turbines increased further in Based on its provisional figures for 2000, BTM Consult ApS estimates that the average turbine size in the German market was approximately 1,100 kw. The reason for the rise in average capacity is the trend toward installing increasingly powerful wind turbines. The number of megawatt turbines rose from around 128 in 1997 to over 800 in 1999 and the share of the total market for megawatt wind turbines increased from approximately 9.7% in 1997 and 16% in 1998 to approximately 26.8% in The following table illustrates the number of megawatt wind turbines which constitute the core business of the Nordex Group installed up to 1997 and in 1998 and 1999 and the megawatt capacity represented by these turbines and the share of the global market of each class: Development of the installation of megawatt turbines Year up to Number of megawatt wind turbines per year Installed megawatt capacity per year ,076 (Source: BTM Consult ApS March 2000) Of the 5,519 new wind turbines installed worldwide in 1999, 802 were megawatt wind turbines, representing a share of the wind turbine market of approximately 14.5%. In terms of installed capacity, 1,076 megawatts out of the 4,021 megawatts of newly installed capacity in 1999 represented megawatt turbines, a market share of approximately 26.8%. The following table gives an overview of new wind turbines installed worldwide in 1999 by capacity: Capacity range (in kw) No. of wind turbines Installed capacity Market share (by capacity) Avg. capacity per wind turbine Comments on market trend Small wind turbines C500 kw % 297kW declining stable/declining Medium-sized wind turbines kw 4,051 2, % 678kW slightly MW-class D1MW 802 1, % 1,342 kw increasing Total 5,519 4, % 729 kw (Source: BTM Consult ApS March 2000) Projected Market Development up to 2003 For the coming years, the BTM Consult ApS study of March 2000 expects a further increase in the worldwide installed megawatt generating capacity from wind turbines to a total of 38,300 megawatts in This would represent an increase of approximately 175% in installed megawatt capacity compared to the position at the end of In Europe this study anticipates growth of approximately 192%, from 9,737 megawatts to 28,427 megawatts during the same period. In Asia, the study anticipates an increase from 1,376 megawatts (at the end of 1999) to 3,346 megawatts (at the end of 2003), which would represent an increase of approximately 143%. According to the provisional figures taken from the as yet unpublished draft study currently being prepared for 2000, BTM Consult ApS forecasts an annual growth rate in the number of installed wind turbines of at least 15% for the years 2001 to In this forecast, BTM Consult ApS anticipates a substantial increase in installed wind turbines in the US in 2001, but stagnation of new installations in 2001 in the Danish and German markets. According to BTM Consult ApS, this stagnation should start to give way from 2002 on, due to planned offshore installations. BTM Consult ApS forecasts that growth markets, such as Turkey, France and Italy will make a tangible contribution to the total number of turbines installed in Europe from 2002 onwards. In addition, BTM Consult ApS also expects a slight increase in the number of installations in China and India. According to BTM Consult ApS s initial 39

46 forecasts, Northern Africa, primarily Egypt, Morocco and Tunisia are expected to show stable growth in the number of installations. The following table contains information taken from the BTM Consult ApS report for 2000 and illustrates the market forecast up to 2003 based for installed megawatt capacity for selected countries and regions, which are important to the Company: Country/Region Total installed MW at end of 1999 Newly installed MW in 1999 Forecast 2000 to 2003 in MW Newly installed Total MW from installed 2000 to MW at end 2003 of e 2001e 2002e 2003e Subtotal Total Germany 4,442 1,568 1,400 1,600 1,200 1,500 5,700 10,142 Spain 1, ,500 1,500 1,500 1,800 6,300 8,112 Denmark 1, ,200 2,938 UK ,012 Greece Portugal France Turkey United States 2, ,800 4,245 China ,062 India 1, ,785 Europe (total) 9,737 3,192 4,010 4,445 4,615 5,620 18,690 28,427 American continent (total) 2, ,550 5,217 Asia (total) 1, ,970 3,346 (Source: BTM Consult ApS March 2000) The Company anticipates that the cost of electricity generated from wind energy as compared with conventional energy sources will decline significantly, although the price of wind-generated electricity is strongly influenced by the location of the turbines. The Company believes that in a few years time, wind turbines in favorable coastal locations will be able to produce electricity more economically than gas-powered plants. The Company bases this belief on the continued decrease in the cost of producing power from wind energy per kwh, and on increases as in the price of fossil fuels. The Company believes that the reduction in the cost of producing power from wind energy will come from a reduction in investment costs of wind turbines per kw of installed capacity. In the period from 1991 to 2000, investment costs per kw of installed capacity declined by approximately 40% (source: BTM Consult ApS-March 2000). According to the March 2000 study by BTM Consult ApS, costs per installed kw are expected to fall by another 15%-20% in the next five years. The Company believes that the falling investment costs per installed kw are principally the result of the continually increasing kw capacity per turbine, which is increasing faster than turbine manufacturing costs. In the coming years, the Company believes that the nominal output of wind turbines will increase further. Competition The competitive position of the Nordex Group is characterized by strong market concentration of manufacturers of wind turbines. In 1999 approximately 92% of the global market for wind turbines, measured by installed capacity, was accounted for by only eight manufacturers, including the Nordex Group (source: BTM Consult ApS March 2000). Some individual regional markets such as China, Egypt or The Netherlands are dominated by just two or three suppliers. The Nordex Group s primary competitors in the wind turbine manufacturing market are the Danish producers, NEG Micon A/S, 40

47 Vestas Wind Systems A/S and Bonus Energy, the Spanish manufacturers Gamesa Eólica and Made, the German company Enercon GmbH and the US manufacturer Enron Wind Corp. (Tacke/Zond). The following diagram illustrates the market shares of the Nordex Group and its competitors based on the number of new turbines installed worldwide in 1999: Market share 1999 Made 5.6% Nordex 7.8% Other 7.7% NEG Micon 19.4% Bonus 8.6% Enron (Tacke/Zond) 9.2% Gamesa 12.6% Vestas 16.6% Enercon 12.5% (Source: BTM Consult ApS March 2000) According to the provisional results of the study by BTM Consult ApS relating to 2000, the Nordex Group increased its market share from 7.8% in 1999 to approximately 8.4% in 2000 (Source: BTM Consult ApS February 2001 (draft)). NEG Micon A/S, a listed company, was created in the mid-1990s from the merger of the Danish manufacturers Nordtank Energy Group and Micon, which had both been active in the market since the early 1980s, and the acquisition of another Danish manufacturer, Windworld. NEG Micon was the global market leader in 1999 in terms of total installed capacity (source: BTM Consult ApS March 2000). Vestas Wind Systems A/S, also a listed company, is a Danish manufacturer that has been in the wind energy business since it first developed and has wind turbines installed in countries around the world. Vestas produces the key components of its wind turbines such as rotor blades, controls and some masts (source: BTM Consult ApS March 2000). Gamesa Eólica, a joint venture between the Gamesa Group, Vestas and Sodena, was formed in the early 1990s. Gamesa is the largest wind turbine manufacturer in Spain and has been a listed company since 2000 (source: BTM Consult ApS March 2000). Enercon GmbH, which was formed in the mid-1980s, is the leading German wind turbine manufacturer in terms of installed turbines. Enercon uses a particularly high percentage of components produced inhouse in its wind turbines (source: BTM Consult ApS March 2000). Enron Wind Corp. (Tacke/Zond) is a subsidiary of the US-based Enron Group, one of the world s largest suppliers of gas technology. In the mid-1990s, Enron launched its activities in the wind energy sector with the acquisition of Zond Systems Inc., a company which had formerly focused exclusively on developing wind turbines, and Tacke GmbH, a German turbine manufacturer (source: BTM Consult ApS March 2000). Bonus Energy is a Danish manufacturer that also has decades of experience in the wind turbine market. Bonus is a pioneer in the area of active stall regulation (source: BTM Consult ApS March 2000). Made Energias Renovables is a wholly-owned subsidiary of the Spanish energy group Grupo Endesa and has a market presence in Tunisia and China as well as Spain (source: BTM Consult ApS March 2000). 41

48 The main characteristics that distinguish the Nordex Group from its competitors are the fact that it manufactures both stall-regulated and pitch-regulated (variable and constant rotational speed) wind turbines and that it can provide the entire range of services itself, from the development of key turbine components through to the manufacture of rotor blades and controllers to grid connection. Another feature which distinguishes it from its competitors is that Nordex has a policy of acquiring in the market other standardized components with relatively low margins instead of manufacturing these components more expensively in-house, (see Products and Production Production Sites and Capacity ). The following table shows a comparison of the types of wind turbine produced by the Nordex Group and its main competitors: Manufacturer Nordex Bonus Energy Enercon GmbH Enron Wind Corp. Gamesa Eólica Made NEG Micon A/S Vestas Wind Systems A/S Primary wind turbine type produced: Stall-regulated wind turbines with constant rotational speed and variable-speed pitchregulated wind turbines Stall-regulated wind turbines with constant rotational speed and with active stall regulation Variable-speed pitch-regulated wind turbines and multiple generators Variable-speed pitch-regulated wind turbines Variable-speed pitch-regulated wind turbines Stall-regulated wind turbines with constant rotational speed Stall-regulated wind turbines with constant rotational speed and pitch-regulated wind turbines Pitch-regulated wind turbines with OptiSlip (variable-speed) The total market for wind turbines increased by approximately 46% in 1999 as compared to 1997 in terms of newly installed capacity. As one of the leading companies in the megawatt, the Nordex Group was able to increase its global share of this growing market from approximately 4.3% in 1997, to approximately 5.0% in 1998, and further to approximately 7.8% in This corresponds to an average increase of approximately 28% per year (source: BTM Consult ApS March 2000). According to the provisional results of the BTM study for 2000, the Nordex Group held a market share of 8.4% in 2000 (source: BTM Consult ApS February 2001 (draft)). In terms of megawatt turbines, which in 1999 reached a 26.8% share of the total market based on newly installed capacity (prior year: 16%), the Nordex Group had a market share of 20.4% in 1999 calculated on the basis of installed capacity. Enercon also captured a market share of approximately 20.4%, while Bonus held approximately 18.7% (source: BTM Consult ApS March 2000). The following diagram illustrates the market share held by the Nordex Group and its competitors in the megawatt segment in terms of installed capacity in 1999: Market share in the megawatt in 1999 Enron (Tacke/Zond) 15.5% Other 7.3% Nordex 20.4% Vestas 17.7% (Source: BTM Consult ApS March 2000) Bonus 18.7% Enercon 20.4% 42

49 Strategy Nordex s overall strategy is to increase its worldwide market share through a combination of internal and external growth and to be one of the world s top three manufacturers of wind turbines. To this end, the Nordex Group intends to build upon its technological advantage in the megawatt segment and also to further expand its international presence. Nordex s strategy also focuses on increasing profitability through the introduction of more intensive industrial manufacturing. Measures planned for the implementation of this strategy include: Expansion of Nordex s Technological Advantage in the Megawatt-Class The Nordex Group believes that it has a technological lead in the construction of large-scale, megawatt turbines and plans to increase this lead through the introduction of new megawatt wind turbines to its product range and continued development of its existing types of wind turbines. The particular focus in this area will be on the development of a new blade technology for rotor blades with a length of more than 40m, and the construction of new wind turbines with a capacity of over 2.5 megawatts. As a further long term objective, the Company plans to develop offshore wind turbines, i.e. wind turbines that can be operated in wind farms on the open sea up to 40km from the coast. In order to serve the needs of the offshore market, which has already begun to develop with smaller turbines closer to shore, the Company plans, in the medium term, to develop an offshore version of the N-80. The Company believes that there will be market demand in the long term for larger, higher capacity turbines for operation in offshore wind farms out at sea. For this reason, the Company has entered into a joint venture with Jacobs Energie GmbH, a manufacturer of wind turbines, and pro + pro Energiesysteme GmbH & Co. KG, a development company, for the development of a 5-megawatt model with a rotor diameter of up to 120m. Plans for the development of such offshore wind turbines are currently at a very early stage, however, due to the highly exacting technical and physical requirements and the demanding conditions in which such turbines would operate. Improvement in the Cost-efficiency of Generating Power from Wind Energy The Company aims to improve substantially the cost-efficiency of power generation from wind energy by reducing significantly the cost of generating electricity per kwh from the turbines it manufactures and sells. Nordex plans to achieve this goal both by cutting manufacturing and assembly costs, and by reducing operating costs of its wind turbines and infrastructure costs. Series production of wind turbines, turbine weight reduction and the cutting of installation costs through a time-saving plugand-play assembly are primary factors in reducing manufacturing and assembly costs. In order to reduce the operating costs of its wind turbines, the Company is developing a Condition Monitoring System currently as an addition to its Nordex Control system. This system will enable operators to diagnose errors early while the turbines are in operation and is intended to help prevent breakdowns, lengthen maintenance intervals for wind turbines in operation, and thus reduce maintenance costs. The Company believes that these measures, together with the planned increase in capacity rating, will further improve the cost-effectiveness of generating power from wind energy. Consistent and Early Presence in International Growth Markets In order to increase its share of the world market, the Nordex Group plans to focus on expansion overseas while continuing to expand within Germany, and aims, therefore, to increase its presence in regional markets where it is already active and at the same time build up a presence in new regional markets. The Company considers the most interesting future markets to be: Spain in particular, due to the existing law regarding the supply of electricity into the public grid and its good wind conditions; the UK, due to especially good wind conditions and the availability of tax credits for electricity generated from renewable sources; the United States, also due to good wind conditions and tax subsidies for wind turbines; France, where a law on power from renewable energies is being drafted; and China, where the level of demand for energy is high and where the Nordex Group already has a strong presence. 43

50 The Nordex Group has already established its own sales subsidiaries or offices in Germany and Denmark, as well as nearly all of its important growth markets such as Spain, China and the United States. In order to expand its existing presence in regional markets, the Company is pursuing a multipronged strategy tailored to each market: whereas in Germany the Nordex Group is focusing on the sale of large, megawatt turbines and the completion of large scale projects, in other markets it will concentrate on the sale of mid-sized turbines (such as the N-50/N-60) and the expansion of regional sales (e.g. in Spain and France) and the establishment of its own sales structures (e.g. in the UK). In China, the Company s goal is to secure its market position by utilizing locally provided servicing and by manufacturing wind turbines through its joint venture. In addition to growing organically, the Company intends to acquire competitors or enter into strategic partnerships in order to move into new markets. Reinforcement of Servicing Activities The Company plans to increase customer loyalty in its established markets through the building up of a customer-oriented, international servicing network, thereby securing and building up a further advantage over its competitors. A key element in reinforcing the Nordex Group s servicing activities in addition to the further expansion of service centers is its own control technology, Nordex Control. This control technology monitors and controls wind turbines continuously through built-in sensors. In the future, the data will not only be reported to the Nordex Group s control center electronically, but will also be available for customers to view via a Web browser. In order to increase the quality of its services further, the Company has put in place an ongoing program to improve the level of qualification of its employees. A Servicing Academy was founded at the end of 2000 for this purpose, which is also open to employees of partner companies. Products and Production The core competency of the Nordex Group is the development and engineering of large wind turbines, the development and manufacture of control systems for wind turbines, including grid connections, and the development and manufacture of rotor blades for megawatt wind turbines. Technical Background A wind turbine comprises a mast, a nacelle, which contains the essential mechanical and electrical parts, and a rotor. However, the generation of electricity by a state-of-the-art wind turbine is a result of the specific interplay of various highly developed and synchronized components. The technical achievement in developing a wind turbine lies in harnessing the wind, the speed of which changes continually from minute to minute, and the power of which fluctuates depending on the air temperature, to generate a stable level of power whatever the wind conditions. The goal of the technical efforts and optimization, therefore, is to generate the highest constant level of power output possible from all possible wind conditions. The keys to achieving this are: the rotor blades must extract the maximum amount of energy from the wind and convert it into torque, the drive train along with the gear and the generator must efficiently convert the captured energy to electricity with as little capacity lost as possible, the power output of the wind turbine itself must be limitable to prevent damage to the turbine and adjustable to cope with the entire range of possible wind speeds, the controlling electronics of variable-speed wind turbines must control the interplay of all components and optimize the amount of energy captured from the wind, the wind turbine and its individual components must be highly robust to withstand the forces acting on it and to seek to achieve problemfree operation for as long as possible. 44

51 The following figure illustrates the key components of a wind turbine: The rotor blades The rotor blades form the motor of the wind turbine. The wind turbine uses the rotor blades to collect kinetic energy from the wind and to convert this energy into a rotation of the rotor. The area swept by the rotor blades (length of the rotor blade *p), the aerodynamic profile of the rotor blades and the rotational speed of the rotor are the key factors determining the capacity of the wind turbine. In turbines with stall-regulation, the rotor blades are fixed to the hub, whereas in turbines with pitchregulation, they are attached so that they can rotate along their longitudinal axis. Wind turbines are manufactured today almost exclusively with three rotor blades. Energy conversion via the drive train and generator The rotor blades are attached to the hub, which in turn is connected to the rotor shaft. The rotor shaft transfers the revolutions of the rotor to a gear, which itself is linked to the generator of the wind turbine by way of a coupling. The unit comprising the rotor shaft, gear and generator is termed the drive train of the wind turbine. The generator at the end of the drive train converts the revolutions of the rotor blades into electrical power. The wind turbine s gear serves to increase the rotational speed of the rotor to match the speed of the generator. Depending on the technical design, the generator can be operated either at a constant rotational speed (stall regulation) or at a variable speed. Power regulation and limitation (stall and pitch regulation) Depending on the technique employed to regulate and limit their capacity, wind turbines are generally classified as stall-regulated or pitch-regulated. Stall regulation In a wind turbine with stall regulation, power regulation is achieved by causing the air flow to stall by means of the aerodynamic profile of the blade when a certain wind speed is exceeded, preventing the wind turbine from capturing an increasing amount of energy. In order to increase the energy yield in lower power classes, it is possible to design the generator in such a way that it can operate two different nominal rotational speeds in order to generate power more efficiently at various wind speeds. Stall-regulated wind turbines are braked through the front 1.5m to 3m of the relevant rotor blade which can be rotated around its longitudinal axis. This is achieved through a hydraulic mechanism 45