Report of the Management Board on agenda item 10

Transcription

1 Report of the Management Board on agenda item 10 Report of the Management Board on agenda item 10 (issue of bonds and exclusion of subscription rights) pursuant to Section 221 (4) sentence 2, and Section 186 (4) sentence 2 German Stock Corporation Act (AktG) Under agenda item 10, the Management Board and the Supervisory Board propose to revoke the existing authorization to issue bonds, to adopt a new authorization to issue bonds and a new conditional capital, and to amend the Articles of Association accordingly. The Management Board has submitted a written report, which is published in whole in the following section, on the authorization to exclude subscription rights within the framework of the newly proposed authorization in accordance with Section 221 (4) sentence 2, and Section 186 (4) sentence 2 AktG. General remarks In continuity of the authorization adopted in 2012, amended by the Extraordinary General Meeting on January 29, 2016, and expiring on May 10, 2017, and in addition to the associated Conditional Capital 2012, the presently proposed authorization to issue convertible bonds and/or bonds with warrants, profit participation certificates and/or profit participation bonds (or combinations of any such instruments) (collectively referred to as "bonds" hereinafter) with a total nominal value of up to EUR 100,000,000 and to create the conditional capital of up to EUR 1,766,718 is intended to maintain specific opportunities for the Company to finance its activities and, with the consent of the Supervisory Board, particularly in the event of favourable capital market conditions, to allow the Management Board to take advantage of attractive financing alternatives on the equity market, depending on the respective market situation, in addition to the traditional opportunities of raising debt and equity. In particular the authorization to issue profit-dependent or profit-oriented instruments such as profit participation certificates or profit participation bonds affords the Company the option to strengthen its capital resources, thereby solidifying the 1/7

2 preconditions for future business development. The additional possibilities of granting conversion and/or option rights, establishing conversion or option obligations, and combining convertible bonds, bonds with warrants, profit-participation rights and/or profit-participation bonds extend the scope for structuring these financing instruments. Subscription rights of the shareholders If the Management Board makes use of the authorization to issue bonds with the consent of the Supervisory Board, the shareholders are in general entitled to subscription rights (Section 221 (4), Section 186 (1) AktG). To the extent that the shareholders do not have the opportunity to directly subscribe for the bonds, the Management Board may, at its option, issue bonds to a bank, or to an equivalent institution with regard to the law or the proposed resolution, or to a group or syndicate of credit institutes and/or any such undertakings, with the obligation to offer the bonds to the shareholders in accordance with their subscription rights (indirect subscription right within the meaning of Section 186 (5) AktG). However, the Management Board shall be authorized to, with the Supervisory Board s consent, exclude subscription rights under certain conditions in the interest of the Company and the shareholders. Exclusion of subscription rights for fractional amounts This primarily relates to the exclusion of subscription rights for fractional amounts. Fractional amounts may result from the respective issue volumes and the presentation of a practicable subscription ratio. The exclusion of subscription rights in respect of fractional amounts facilitates the use of the requested authorization through full amounts while maintaining a subscription ratio based on whole numbers. This simplifies the processing of shareholders' subscription rights. The exclusion therefore promotes practicability and facilitates the implementation of a bond issue. Usually, the value of fractional amounts per shareholder is low while the effort involved in issuing bonds without an exclusion of subscription rights for fractional amounts is relatively high. Against this background, the authorization to exclude shareholders' subscription rights for fractional amounts is thus appropriate and in the interest of the Company and its shareholders. 2/7

3 Exclusion of subscription rights for previously issued bonds Efficiency and flexibility considerations form the basis for the exclusion of shareholders' subscription rights for the purposes of granting the bearers of bonds with conversion or option rights or, as the case may be, obligations, the right to subscribe for new shares to the extent to which they would be entitled upon exercising their conversion or option rights or upon fulfilling their conversion or option obligations. Such bonds must include an antidilution protection device in order to facilitate their placement in the capital market, which provides that, in the case of subsequent issues, the bond holders may be granted a subscription right to new bonds equal to that of shareholders. The holders of bonds will thus be treated as if they were already shareholders. For the bonds to be protected with such an antidilution device, the shareholders rights to subscribe for such bonds must be excluded. This facilitates the placement of the bonds, and thus serves the shareholders and the Company s interests in an optimum company financing structure. In addition, the exclusion of subscription rights in favour of the holders of bonds that grant a conversion or option right or establish a conversion or option obligation, offers the advantage that, if the authorization is utilized, the conversion and/or option price does not have to be reduced in accordance with the bond conditions for the holders of existing bonds that grant a conversion or option right or establish a conversion or option obligation. This facilitates a higher cash inflow and is therefore in the interest of the Company and its shareholders. Exclusion of subscription rights if bonds are issued against non-cash contributions Furthermore, the Management Board shall be authorized to exclude shareholders subscription rights with the approval of the Supervisory Board, insofar as the bonds are issued against non-cash contribution and the value of the non-cash contribution is in reasonable proportion to the theoretical market price of the bonds as determined in accordance with generally accepted actuarial methods. This is intended to enable the Company to seize advantageous opportunities to acquire companies, parts of companies or interests therein or any other assets in national and international markets without any significant delay. This possibility to exclude subscription rights serves to boost the Company's competitiveness. Moreover, the transactions that the Company may be envisaging in this context frequently call for very high contributions, and often it is neither possible nor desirable to pay these in cash. The bonds are therefore intended to be used as a means of payment for acquisitions. However, this will only be feasible if the shareholders' subscription rights have been excluded since in most cases the aforementioned acquisition opportunities present themselves at short notice 3/7

4 only, which means they cannot be agreed to by a general meeting that would have to be convened first. Exclusion of subscription rights if bonds are issued against cash payments at market value Insofar as bonds with conversion or option rights or conversion or option obligations are to be issued, the Management Board should also be authorized, with the consent of the Supervisory Board, to exclude the shareholders' subscription rights in accordance with Section 221 (4) sentence 2 AktG and in mutatis mutandis application of Section 186 (3) sentence 4 AktG to the extent the bonds are issued against cash payments and the issue price is not significantly below the theoretical market value of the bonds with conversion or option rights or conversion or option obligations as determined according to generally accepted actuarial methods. This gives the Company the opportunity to make use of advantageous market situations quickly and on very short notice and to achieve better conditions when setting the interest rate and the issuing price for the bonds by stipulating terms that are in line with the market. If subscription rights are granted, the Company would then not be in a position to promptly respond to favourable or unfavourable market conditions due to the length of the subscription period but would be exposed to declining share prices during the subscription period, which could lead to less favourable opportunities for the Company to procure capital. It would be impossible to establish conditions in line with the market and make an easy placement of the bonds if the subscription rights were granted. It is true that Section 186 (2) sentence 2 AktG permits publication of the subscription price (and thus the terms and conditions of the bonds) by the third to the last day of the subscription period. However, in light of the frequently observed volatility in the stock markets, there still exists a market risk for several days which leads to precautionary discounts when setting the conditions of the bonds and, thus, does not permit close to market conditions. The existence of a subscription right also endangers the successful placement with third parties or involves additional expenses due to the uncertainty of whether or not the subscription right will be exercised. The pecuniary interests of the shareholders and their need for protection against the dilution of the value of their shareholdings are safeguarded by the requirement that the issue price must not be significantly lower than the theoretical market value of the bonds with conversion or option rights or conversion or option obligations as determined in accordance with generally accepted actuarial methods in mutatis 4/7

5 mutandis application of Section 186 (3) sentence 4 AktG. If the issue price is not significantly lower than the theoretical market value of the bonds with conversion or option rights or conversion or option obligations as determined in accordance with generally accepted actuarial methods, the value of the subscription right of a shareholder practically drops to zero. Therefore shareholders do not suffer any significant financial losses as a result of the exclusion of subscription rights. Furthermore, the shareholders' interests in terms of voting rights are protected against inappropriate dilution of the shares they hold insofar as the authorization to exclude subscription rights when bonds are issued against cash payments only applies to the extent that the shares that have been issued or are to be issued to service the related conversion or option rights and/or obligations do not represent a pro-rata amount of more than 10% of the Company's share capital at the time the authorization becomes effective or at the time of it being exercised. This limit must take into account the prorata amount of the capital stock that is attributable to shares issued or sold during the term of this authorization in direct, corresponding or mutatis mutandis application of Section 186 (3) sentence 4 AktG. This ensures that no bonds are issued with shareholders' subscription rights being excluded where this would result in the exclusion of the subscription right of the shareholders for new or treasury shares of the Company totalling more than 10 % of the share capital, taking into account capital increases or the placement of treasury shares in direct, corresponding or mutatis mutandis application of Section 186 (3) sentence 4 AktG. Exclusion of subscription rights for profit participation certificates or profit participation bonds without conversion or option rights or obligations Insofar as profit participation bonds or profit participation rights without option or conversion rights or obligations are issued, the Management Board shall be authorized, with the consent of the Supervisory Board, to completely exclude the subscription right of shareholders to bonds if these profit participation bonds or profit participation rights are structured like straight bonds. This is the case if they do not confer any rights of membership in the Company or rights to liquidation proceeds, if the interest paid on them is not linked to the size of the net profit for the year, the net retained earnings or the dividend, and if the interest payable and the issue price of the profit participation bonds or profit participation rights are in line with the current market conditions for similar fund-raising transactions at the time of issue. If the aforementioned requirements are met, the exclusion of subscription rights does not cause any detriments for the shareholders, since the profit participation rights or profit participation bonds, respectively, do not confer any rights of membership and do not 5/7

6 grant any entitlement to the Company's liquidation proceeds or profits. Although the payment of interest may be made dependent on the existence of a net profit, net retained earnings or a dividend, it is not permissible to stipulate that that a higher net profit, higher net retained earnings or a higher dividend will lead to the payment of a higher amount of interest. In any event, the issue of participation rights or, as the case may be, profit participation bonds, neither changes nor dilutes shareholders' voting rights or their pro-rata share in the Company and its profit. Since the terms and conditions for the issue of the profit participation rights or profit participation bonds must be in line with the prevailing market conditions, the shareholders' right to subscription does not constitute a significant economic value that would be lost due to the exclusion of subscription rights. Restriction to 20 % of the share capital The excessive dilution of the shares held by previous shareholders is also counteracted by the fact that with regard to all options to exclude shareholders' subscription rights, the amount of the share capital that is attributable to the new shares, for which the subscription right is excluded, must not exceed 20 % of the share capital both at the time the authorization enters into effect or at the time it is exercised. Servicing bonds The conversion or option rights or, as the case may be, obligations that are linked to the bonds are in principle serviced from the Conditional Capital 2016, which is to be created for this purpose. Conversion or option rights or, as the case may be, obligations from bonds that are issued against non-cash contribution cannot be serviced from the conditional capital. For this purpose, the Company would for example have to use shares held in treasury. Review of the Management Board on a case-by-case basis The Management Board will carefully consider on a case-by-case basis whether or not to make use of the authorization to issue bonds and to exclude subscription rights. These options will only be used if the Management Board is of the opinion that this is appropriate and in the well-understood interest of the Company and its shareholders. The Management Board will report to the following Annual General Meeting on any use of the authorizations granted under agenda item 10. 6/7

7 Bad Oeynhausen, September 2016 Clere Aktiengesellschaft The Management Board 7/7